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Problem for Housing Recovery is Regulation, Not Rates: Whalen

Daily Ticker

The streak continues.

Another piece of positive housing data is out: pending home sales in May rose to the highest level in more than six years.

Contracts to purchase previously owned homes in the U.S. rose 6.7 percent, handily beating analyst estimates for a one percent gain.

This comes as home prices posted their largest monthly gains, according to Case-Shiller data. The index showed April home prices rising 2.5 percent over March and 12 percent over last year.

Related: Housing Recovery is "Precarious," Says Economist Gary Shilling

It’s a housing market that Chris Whalen describes as having “stabilized.” Whalen is executive vice president and managing director at Carrington Investment Services – which offers distressed mortgage investment products.

"We still have onerous consumer protection laws that stretch out the foreclosure process to years [in judicial states of the Northeast]," Whalen tells The Daily Ticker. "The good news is prices have come up enough that you're starting to see more supply." (That's because the math is starting to work out for people to sell their existing homes, which perhaps before the recent rise were underwater, or homeowners didn't have enough equity for it to make sense to sell.)

But will the recent rise in mortgage rates eat into the housing recovery? The average 30-year fixed rate mortgage averaged 4.46 percent for the week ended Thursday, up from 3.93 percent the previous week, according to Freddie Mac.

Click here to check the mortgage rates in your area.

"Rates are still very low historically, so the move we've seen isn't really going to put a crimp in affordability," Whalen says. "The problem," he argues, "is all the regulation we've put in place makes it very hard to get a mortgage. So you have probably half of potential homeowners out there who would like to get credit who just can't qualify." According to Whalen, one example would be regulations dictating the maximum price of a loan.

One sector of homebuyers that is managing to get credit again is the subprime borrower. Yes, they’re back. Some lenders are again offering subprime loans – otherwise known as dynamite in the 2008 housing crisis implosion – according to the LA Times. But this time, the standards are said to be more stringent, requiring down payments of 25 to 40 percent and minimum interest rates of 7.95 percent. Collateral, income, and ability to pay matter, too.

Related: Four Responsible Ways to Reduce Mortgage Costs

Carrington Mortgage Holdings is one lender the LA Times says is getting into this business. Whalen classifies it as non-agency lending as opposed to subprime, meaning loans that don't have a government guarantee, so there is a default risk to investors. Check out the video to see Whalen’s explanation.

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