The national home market is not as strong as it might seem and the mortgage industry should brace for a difficult 2014 amid rising interest rates and tight federal lending standards, according to the chief of U.S. Bank's mortgage business.

With rates rising, 4.7% for a 30-year mortgage compared with 3.3% in May, the refinance market is tapering. Add that to stricter lending standards and many potential borrowers with low or moderate incomes are going to be shut out of the market. According to projections from the Mortgage Bankers Association, it could mean loan originations will be cut nearly in half between 2012 and 2014.

Layoffs in the mortgage industry already have been taking place, including at Wells Fargo, the nation’s largest mortgage servicer.  

Rick Aneshansel, president of U.S. Bank Home Mortgage, expects to see fewer processor, underwriters and mortgage companies in general, according to comments made in the Minneapolis Star-Tribune. He cautions that a seemingly robust home-buying market is deceiving because 30% of U.S. home sales involve the purchase of homes by investors. Goldman Sachs analysts estimate that more than half of home purchases in 2012 and 2013 were made with cash, "driven by the significant role that investors are playing."

The housing market will look different once hedge funds find something else to do with their money.
But there is some good news about the warnings. Applications for mortgages on home purchases and existing home sales both are rising. Aneshansel cited a report from the Joint Center for Housing Studies at Harvard University that projects a “multi-decade-long housing building boom” driven by surging demand from Latino and other minority households.

The Joint Center projects that the number of minority households will grow by 8.7 million over the next 10 years, accounting for 70% of new households. But until lending standards ease, a big portion of these new potential home buyers will be excluded from the market because they tend to be first-time buyers that don't have a required 20% or 30% down payment.

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