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March 14, 2016 Q&A

Home buyers not influenced by rate uncertainty

Q&A talks about the mortgage-lending landscape with Simon Tahan, senior vice president, director of mortgage lending at Webster Bank.

Q: Mortgage loan rates have been falling recently, despite the Fed's decision to increase U.S. interest rates at the end of last year. Why is that happening? Do you expect mortgage rates to continue to decline in 2016?

A: Volatility in international financial markets has led to a “flight to quality” in U.S. Treasury securities, pushing yields on the benchmark 10-year Treasury note to their lowest levels since the first quarter 2015. Normally as the 10-year rate goes, so goes the 30-year mortgage rate, as has happened in recent weeks. The expectation is that as international markets stabilize, including commodity prices, we should see a return to a rising-rate environment on government-issued debt and hence mortgage rates.

Q: Has the Fed's decision to increase interest rates slowed or hastened home-buying decisions? Will more home buyers who have been on the fence about a deal decide to make a purchase now, fearing the Fed will continue to boost interest rates in the years ahead?

A: The general public is not influenced by the moves of the Federal Reserve, but rather by economic realities on the ground: wages, ability to save, affordability, cost benefit of renting vs. owning and life stage of the borrower, as well as overall confidence for the future.

Q: Where do you see the most demand coming from for mortgage loans? Who's the typical borrower these days?

A: Repeat buyers who have been able to recoup their lost equity from the economic downturn are now ready to move up or downsize. The first-time buyer has yet to return completely to the market. Millennials are burdened with student loan debt and have a set of values in which homeownership is less important than with previous cohorts; underemployment and wage stagnation remain an issue for millions of Americans.

Q: How does a lender like Webster gear-up for home-buying season? Do you unveil special promotions or new products to garner increased interest among borrowers? What avenues are most effective in garnering leads?

A: Webster does significant outreach during the peak home-buying season including our spring Realtor calling campaign, homebuyer open houses in our banking centers, and home-buyer seminars in partnership with our banking centers as well as community organizations.

Q: What is the competitive landscape in Connecticut in terms of mortgage lending? Are there fewer or more lenders in this space today compared to five years ago?

A: The overall number of participants has declined since the economic downturn due to consolidation and a reduction in the number of mortgage brokers. However, new participants continue to emerge as nonbank lenders continue to view the affluent Connecticut market as fertile ground.

Q: There are some who say commercial banks' aversion to risky borrowers means nonbank lenders will be the future of mortgage lending? Do you agree with that statement? Why or why not?

A: The ability to manage risk is inherent in all prudent lending. The regulations on ability to repay and qualified mortgages, for the most part, leveled the playing field from a basic risk-management perspective — as long as there can be clarity from our regulators regarding enforcement, as well as clarity around risk of repurchase from the agencies. It is fair to say that while we have turned a corner, the regulatory environment continues to remain dynamic, evolving, and has yet to reach a state where there is a high level of predictability.

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