DS News

67 » VISIT US ONLINE @ DSNEWS.COM active under the new regime. From the perspective of the American consumer, nothing happens at that point. It's business as usual from one day to the next. So very little should happen in terms of the funding and financial markets. Where potential issues arise and where we might argue that there would be fundamental differences is when a new administration comes in and they change policy. e first thing they have to do is get a cabinet put together. e cabinet starts thinking about what rules they want to write and they start promulgating rules. We're a year into a presidential administration before any of those changes take place. It's easier when the same party stays in place. When you have a change in party, a lot of house cleaning happens, because members of the previous party don't want to work for the new party. e orderly transformation of power means that the FHA rules will stay the same, the Fannie Mae and Freddie Mac rules will stay the same, the Wall Street Rules will stay the same up until the time that the new administration, whoever that might be, comes in and starts to make their mark on policy. But that is a year or two in. Outside of that, the only response you're going to see is whether the market is happy with the choice or unhappy with the choice, in which case you might get some volatility in the registry. What is the significance for the industry of the increase of first mortgages that Equifax reported, which were 10.3 percent and 1.86 million for the first quarter this year? We haven't seen the full benefits yet of the Brexit crash on interest rates. at'll really hit just at the end of second quarter. e Brexit vote happened, then the markets crashed and then interest rates went down, and mortgage rates came within 10 basis points of their all-time low. at effect of that will really hit in the third quarter. at said, the interest rate environment has defied economists' expectations for a very long time. is is great for consumers that economists are wrong, because the trend in interest rates has been to stay very low for a very long time. Ask any economist walking down the street, "What are interest rates going to do?" ey're going to say, "ey're going to go up." Why are they going to go up? Because their models say they're going to go up. Why does their model say it's going to go up? Well, because the path of interest rates for the last 65 years was basically to rise for 30 years and to fall for 35 years. Your forecast, and where we are today, is below that starting point. Your model is going to say, "Well, I have to forecast the average so rates should go up because you're well below average." It doesn't matter what historical time period you take, that's what your model's going to tell you. e path of interest rates looks like Mt. Kilimanjaro—this vast peak rising above a plain. It's very difficult to forecast what comes next when for 30 years it rises and for 35 years it falls. I can tell you all the reasons it's supposed to rise--we've got a great economy, or not so great depending on who you talk to, but the point is steady economic growth and steady employment growth. At some point you would say inflation's supposed to rise, so interest rates should rise to take advantage of that. e paradigm's policy change though is rather significant. Is that Basel III capital rules, for banks and financial institutions that are adopted globally and then with some extra bells and whistles put in place by our prudential regulators, so it'd be the Fed, the OCC and similar, require banks to hold much more capital today than prior to the financial crisis. e quality of the capital assets has also gotten better. In the past you could hold certain other instruments. Your choice set is pretty limited. All of that basically says interest rates are being kept low because banks need to hold these treasuries on the balance sheet for capital purposes. en you add to that things like Brexit that cause the markets to panic. You get flight to quality and you get these lovely volatility gyrations going on in the marketplace. When we look finally at what does that mean for the mortgage market, it means that people like me who are not yet in the money have hopes of being in the money for a refinance. People looking to buy a house, who maybe we're not happy when rates went out to 4 percent are really happy because rates are back down actually all the way to 3.4 percent, 0r 3.5 percent perhaps. e point is, if you want to buy house, you haven't missed the boat yet. ere's still plenty of time to buy a house at very low interest rates. e mortgage originations have gone up, and part of the reason they've gone up is because it's seasonal. Home buying happens in the second quarter. e second part of that, though, is that refinance activity, despite what I tell my senior leadership every quarter, is not dead yet. We have the steadiness of refinance activity with a push of home purchase activity driving up mortgage originations at a pretty nice pace. Last year they went up 66 percent, but that had to do with refinancing. We got a little refinance boom earlier in the year. en it died out at the latter half of the year and now it seems to be reborn again. We'll see how that takes off. "The point is, if you want to buy house, you haven't missed the boat yet. There's still plenty of time to buy a house at very low interest rates. The mortgage originations have gone up, and part of the reason they've gone up is because it's seasonal. Home buying happens in the second quarter."

• Cover