The drumbeat from the housing community was loud and clear in 2010: There was never a better time to buy a home.
For most of the past 12 months, home prices tumbled, mortgage rates ticked downward, and the inventory of available traditional and distressed homes was plentiful.
But would-be buyers, even if they were able to overcome job worries, found that the hurdles to obtain a loan were formidable. They remained on the sidelines, and housing analysts opined that if the broader economy improved and unemployment fell, pent-up demand would be unleashed, credit guidelines would ease and home sales would improve.
As the new year begins, that guarded optimism has turned into uncertainty, thanks to a combination of rising mortgage rates, tighter underwriting guidelines and sweeping government regulation. As a result, it's unlikely to get any easier and may, in fact, get much more difficult to buy a home in 2011.
"From a credit standpoint, I tend to think we're toward the bottom of that cycle," said Bob Walters, chief economist for Quicken Loans Inc. "The bad news is, I don't think it's going to get a lot better in 2011. You'll hear a lot more noise pressuring the industry to ease guidelines, and you'll hear from the industry that we don't want a redo of what's happened."
Looming large over the mortgage market are provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that have yet to be finalized. Among them is a requirement that mortgage lenders maintain some "skin" in the game on the mortgages they originate by holding at least 5 percent of the credit risk rather than bundling the loans and selling them off entirely.
The goal is to discourage a repeat of risky past practices, but the legislation makes an exception to the risk-retention standard for what is labeled a "qualified residential mortgage." It is the still-unspecified definition of what's become the industry's latest acronym to digest, QRM, that has lenders in an uproar.
If a very strict definition is applied by regulators, and a final rule isn't expected until the spring, it could become more difficult, and more costly, for homebuyers to secure mortgage financing.
Wells Fargo has told regulators it supports exempting mortgages with a 30 percent down payment. Community banks worry such a strict definition would curtail home mortgage lending.
"If you have to have 30 percent down, the American dream would become the American fantasy," said Nick Parisi, a senior vice president at Standard Bank and Trust Co. in Hickory Hills.
Additional regulation on mortgage bankers will mean a thinning of their ranks, weeding out the unscrupulous players. But it also will lessen consumers' ability to comparison-shop widely for the best home mortgage product.
Loan fees aren't the only item going up: So is the cost of money itself. The average rate on 30-year, fixed-rate mortgages has been below 5 percent since early May, but economists predict those days are nearing an end.