Forbearance

Apache is functioning normally

With the July 4th weekend nearly upon us, it’s time to reflect on all that we have been through in the past year and how, as a country, we have overcome so many daunting obstacles, including what we have been through in the housing market.

The first thing that pops into my shriveled brain is how the housing market looked in February of 2020. Data from that month showed that housing was breaking out — but because we received this data in March of 2020, we were all too busy trying to survive to take notice.

Once the fear of the virus calmed down, we began a truly remarkable economic comeback, perhaps the fastest economic comeback from a significant economic downturn in the history of the U.S., with the housing market leading the way. 

But for every silver lining there is a cloud.

The solid demographics for home purchasing and historically low mortgage rates — which have been in a downtrend for four decades — have created a housing market where prices are rising too fast. Even though we have good demographics for housing, we are not seeing a growth in sales that would account for the rate of growth in prices.

Before COVID-19 was even a whisper in our minds, I thought that in the years 2022 and 2023, price pressures for housing could be the big story. But I expected that higher mortgage rates of over 4% would keep prices from escalating out of control.

Instead, demand picked up early and because of the effects of COVID-19 on the world economies, mortgage rates are down to all-time lows. Rates haven’t even gotten to 3.5% recently — forget getting above 4%. These low mortgage rates are being sustained in a climate of some of the best economic growth in the 21st century and hotter-than-normal inflation data.

In this first year of economic expansion, we continue to have a good savings rate and healthy household formation demographics.

I anticipate that by September 2022, we will have all the jobs back that were lost due to COVID-19. When one considers that we currently have the most job openings ever recorded in U.S. history, (9.3 million) this date does not seem to be a stretch. Note, too, that all this good economic mojo is going on before we have even started fiscal spending on infrastructure.

With this recipe of excellent national economics, good demographics for housing, an improving employment picture and low mortgage rates, it makes sense that home prices would be hotter than normal. But as I have said before, the high rates of growth in home prices have been more a function of low housing inventory than extreme credit growth in demand. 

But all is not hopeless: There are several reasons why housing inventory should pick up in the next several months and going into 2022.

First, the higher prices we are seeing in the current market are making it difficult for some buyers to compete. Clearly not all buyers, but enough to keep the extreme low housing inventory levels hard to maintain. This is a key point, but because we got to all-time lows in housing inventory, a move higher from these extreme low levels isn’t saying too much.

From the NAR:

Second, forbearance programs and the eviction moratorium will be ending soon. Because loan holders started their forbearance programs at different times they will exit the programs at different times, too, so don’t expect a flood of housing inventory to appear at once. Forbearance programs have gone from near 5 million loans to a tad over 2 million. A lot of primary-residence households on forbearance programs have already exited the program and housing inventory remains chronically low.

Nevertheless we can expect some of these homes to come on to the market. These homes might be mom and pop landlords who were unable to collect rent during COVID-19 and want out of the rental game or some investors looking to cash in on high home prices. In any case, to think that we would have zero housing inventory created from this crisis is highly unlikely. 

Third, while demand is solid in 2021, and we should have slightly more total home sales than we had in 2020, we are not seeing growth in credit (number of mortgages taken out). To think that we would have double-digit price growth with essentially slight home sales growth is the essence of bad inflation. As you can see below, what we experienced from 2018 to 2021 looks nothing like the credit growth we saw from 2002-2005.

We got to all-time lows in housing inventory recently so any increase is going to be a high percentage increase and that is going to fool some folks that the housing inventory picture has changed dramatically. The actual number of homes making up that increase is not going to be much, however, so don’t look at it like that. Instead look to see if total housing inventory gets back to the levels we saw in early 2020.

Getting back to 2020 levels with days on market going past the teens is the No. 1 priority for the housing market. We need more than the typical rise due to seasonality that happens every spring. We want total inventory levels to go above 1,520,000 at minimum.

In 2018-2019, total housing inventory was in the range between 1,520,000 – 1,920,000 and that level of inventory helped to drive real home-price growth in 2019 into negative territory briefly. Existing home sales during those years stayed in the monthly sale range of 4,980,000 to 5,610,000 homes. More importantly, the days on market were higher than what we see today — and as such we had fewer bidding wars and less price growth.

The effect of higher mortgage rates, which in late 2018 got to 5%, also contributed to more stability in housing prices. 2018 and 2019 were more balanced markets, so in my view it was a healthier housing market compared to what we have today. 

Once the 10-year yield gets above 1.94%, which should bring mortgage rates above 3.75%, then things should cool down enough to stabilize the unhealthy price gains we are currently experiencing. The 10-year at 1.94% is not a very high bar, but even so, that is higher than what I have forecasted for 2021. 

If housing demand is better than I thought going into the demographic sweet spot years of 2022 and 2023, then housing inventory may not improve much. I still believe in my replacement buyer premise rather than a credit boom housing market. However, if I am wrong, then we will see it for sure in years 2022 and 2023. The price gains in 2020 and 2021 have already met the target that I anticipated to be cumulative for the five-year period of 2020 to 2024. This pathway explains my concern over what has happened recently.

During the years 2020 to 2024, I anticipated total sales (new and existing homes combined) to stay at 6.2 million or higher. The only way I saw this not happening was if home prices got out of hand early on, and guess what, that has happened. While we won’t break lower than 6.2 million in 2021, I am mindful of these recent price gains in both exiting and the new home sales market. Demand for existing homes will come from first-time homebuyers, cash buyers, investors, move-up and move-down buyers. The bump in demographics in the years 2020-2024 has already showed itself to be a powerful economic force for the United States of America.

All these buyer types will create steady replacement demand for the existing home market. The new home sales market, on the other hand, is driven by wealthier older buyers with mortgages. For this reason, new home sales are more dependent on mortgage rates. I recently expressed some concern in this market here.

More than anything, I am hoping that what happened in 2013-2014 and 2018-2019 happens again.  During those periods, interest rates went up, which increased housing inventory and days on the market. The additional supply cooled the rate of growth of home prices and stopped the bidding wars. Unless we get an increase in housing inventory from softening demand or end-of-forbearance selling, only an interest rate increase will get us above 1,520,000 total housing inventory and out of the low housing inventory/high price quagmire we have been in since the summer of 2020, which has been most unhealthy housing market post-2008. Still, these are first world problems. I mean, come on, it’s not like we are having a bubble crash like some bros wanted to see.

Source: housingwire.com

Apache is functioning normally

Search Engine; Co-Issue, TPO, LO Survey, Credit, HELOC Servicing Products; Be Wary of Interest Rate Predictions

<meta name="smartbanner:author" content="We now have a native iPhone
and Android app.
Download the NEW APP”>


This website requires Javascrip to run properly.

Search Engine; Co-Issue, TPO, LO Survey, Credit, HELOC Servicing Products; Be Wary of Interest Rate Predictions

By:
Rob Chrisman

Thu, Jul 13 2023, 10:38 AM

As rumors continue to swirl regarding the purchase of a well-known Southeastern Texas mortgage bank, lenders are watching the current drop in rates. It is generally believed that a slowing economy, aka a recession, leads to lower rates. Some have been predicting a recession for a few years, and it becomes a little tiresome, especially with the Fed continuing to focus on inflation. At some point, there will be agreement that things have slowed (like small business optimism is now) and they’ll be right. Meanwhile, it is hard to have a recession when the labor market, housing prices in much of the nation, consumer spending, and credit availability, remain as strong as they are. At this point rates probably won’t drop much in the near future, and vendors and lenders can’t sit there, wringing their hands, waiting for things to get better on their own. Are lenders suddenly going to make huge margins on lots of volume in the second half? Are LOs who were doing 2-3 loans a month in the first half suddenly going to do 4-6? Are vendor reps suddenly going to double their clients? Are rates going to plummet? Is the number of houses for sale going to skyrocket? (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, the homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence.)

Lender and Broker Software, Services, and Products

The MBA defends mortgage servicers…. In response to audit reports recently published by the HUD OIG, Bob Broeksmit, MBA president and CEO, spoke out in defense of mortgage servicers. As the HUD OIG looks at areas of “failure” that occurred in handling loss mitigation and COVID-19 forbearance, Broeksmit points out this is due to “never-before-seen volume”. It is possible to rise above the problems of the past, scale effectively, and overcome industry obstacles. CLARIFIRE®’s “Conquering Record-Breaking Change” blog lists the points of failure identified by the HUD OIG and the solutions you need to prepare for the future. It’s time to act on how you use the experiences of the past to ensure readiness by implementing proven modern, intelligent, seamless process automation software. CLARIFIRE® is Truly BRIGHTER AUTOMATION®.

“I am looking to sell my Vendor Surf search engine platform! After more than 5-years of an immensely gratifying journey, Vendor Surf is being retired. Having just successfully navigated a major cancer battle, life’s priorities have never been clearer. Sadly, my seemingly undying passion for the vendor marketplace has met its match. Life awaits! I offer my sincere thanks and gratitude to our superb client base, as well as those that listened to our story and read our content over the years. Ours is a special industry. Scott Roller (FYI, we have enlisted a liaison to market the search engine platform for purchase, transferrable to any global industry. It can be re-skinned and launched as fast as you can define your search filters. Email me.)”

Rising interest rates and inflation causing a dip in originations? Maximize your portfolio reach with HELOC options designed to help your customers tap into their home value to remodel kitchens, fund education, and more. LoanCare has a comprehensive understanding of the special nuances involved in servicing HELOCs such as knowing what’s required to appear on monthly statements, ensuring that interest calculations are accurate, and setting up the HELOCs correctly when the loans are on-boarded. We can accommodate segmented, fully amortized, and interest only HELOCs. Contact LoanCare today!

The digital online retail revolution has taught us that speeding up processes and increasing visibility can bring tremendous benefits. That’s exactly why Equifax is delivering Telco, Pay TV and Utilities insights alongside our traditional mortgage credit report. With a better view of 191 million potential homebuyers, you can help lenders automate and streamline their underwriting process, save costs, and build a better consumer experience. And just as importantly, grow your business. Ready to make inefficient mortgage lending a thing of the past? Learn more about the solutions and latest news from Equifax Mortgage and Housing.

“Hey there lenders, how important are surveys in your mortgage origination process? Maybe you use them to collect needed info from borrowers? Or to get client feedback and reviews once the loan is closed? Have you ever wanted to send surveys straight from your LOS? Velma wants to know and is conducting a quick 3-minute survey to find out how mortgage pros, just like you, are using surveys in their day-to-day operations. (Plus, if you’re interested, we’ll share the results with you…) Take the Velma Connector Survey on Surveys Today!”

TPO Channels for Lenders and Brokers

AmeriHome Correspondent, backed by the strength and stability of Western Alliance Bank, continues to grow market share in the correspondent space. When you combine AmeriHome’s industry leading loan purchase platform with Western Alliance Bank’s warehouse lending and treasury management services, this is one “must-have” relationship for mortgage bankers of all shapes and sizes. IMBs and financial institutions alike benefit from AmeriHome’s Delegated and Non-Delegated options, full suite of conventional and government products, and Bulk, Bulk/AOT and Best-Efforts delivery options. They are currently running a pricing special for Purchase loan amounts of $200,000 or less and offer a stable of temporary rate buy-down options. Catch them in August at the Colorado MLA Annual and the Western Secondary Conference or check out their Upcoming Events page for details on where they’ll be this summer! Find your local sales rep here or send them an email to learn more about the advantages of partnering with AmeriHome.

“The 3rd quarter of 2023 is already upon us, and Newrez Wholesale is excited to reveal our 2nd Quarter RezClub qualifiers next month. One of the many reasons for being a RezClub member is our non-solicitation protection of your business through RezConnect. Get in RezClub and get protected! To learn more, click here or call your AE for details. Here are just a few reasons why you should send Newrez-serviced borrowers back to us: A 1/8th price improvement, the ability to net escrows, saving your borrower cash out of pocket at closing (on same property refinances), priority service and faster turn times, and ease of transaction: We already know your borrower. These benefits apply to any new loan transaction in good standing, whether that’s a purchase of a new home or a refinance of another property. We want to be your partner of choice for new and repeat business, and we’re serious about retaining your borrowers.”

Interest Rate Predictions: Keep Them in Perspective

I am asked all the time, “Hey Rob, where do you think rates will be in six months?” My answer, after I say that I can’t even predict where I’m going to have lunch tomorrow, is always the same, “Higher, or lower, or possibly the same.” Or sure, one can have a prediction until a ship becomes stuck in the Suez Canal, or a pandemic occurs. STRATMOR’s current blog is titled, “Interest Rates are Like the Weather? Or Like Signs of the Zodiac?”

For some outside input I asked James Hedvall, grizzled capital markets veteran. He replied, “The interest rate markets have a way of humbling almost all the ‘experts’ and the very first thing you learn in Secondary Marketing is that you shouldn’t take a view on where rates are headed because half the time, you’re wrong anyway. In Q4 last year the arm-chair prognosticators were predicting that we’d see rates come down by the end of 2023, however, that simply does not appear to be the case as many LOs are originating in the 7% range currently.

“The Federal Reserve, in its attempts to control inflation and cool a very strong economy, have raised Fed Funds three times just in 2023 alone, with another 25-bps increase predicted for July’s meeting, and a window left open for another increase before the end of the year. I continue to read, however, inside the world of mortgage banking, opinions expressed that rates will not only come down, but when to expect this to happen. Based upon what data, I ask? Are their views speculative, biased, or just hopeful?

“I would challenge these prognosticators as to ‘why’ mortgage rates are positioned to fall. What leads them to predict that? I’m sure some opinions are based on fundamentals: Fed raises rates to control inflation, money is taken out of the economy, the economy cools, Fed cuts rates, and mortgages come down to some predicted level. A lot of the predictions I see are not rooted in actuality, but rather rooted in exuberance for mortgage banking.

“Here’s some additional perspective. None of the macro data even hints at a reduction of short-term interest rates. Current inflation is a tad north of 4% with the Federal Reserve’s target set at 2% Economists have modeled that unemployment would need to reach as high as 7% in order for inflation to come down to 2%; however, June’s unemployment report had very little change from May’s with the current rate at 3.6% Remember, when an economy ‘slows’ jobs are not created, historically they’re lost.

“Everything points to the Fed being hawkish in its monetary policy for the remainder of the year. Anyone predicting where interest rates will be in the future would need to start by predicting where the Federal Funds rate NEEDS to be in order to see inflation that’s appealing to the Fed, and then ultimately, HOW LONG rates needs to remain there; when is it warranted to reduce borrowing rates under recessionary fears? These are two almost impossible questions to answer since the number of variables that you need to get right, coupled with unpredictable world events, play such a strong role in forecasting interest rates.”

Like I said before, a year from now, rates will either be higher, lower or the same. So let’s discuss your products and services!

Capital Markets

As the market moves through different cycles, lenders are continuously evaluating whether to retain or release mortgage servicing rights (MSR) as part of their overall strategy. MCT & Mr. Cooper released a whitepaper, Getting Started with Co-Issue Transactions, that reviews the basics of co-issue transactions, helps dispel common MSR myths, and explains how to incorporate various strategies to achieve your business objectives. If you’re interested in co-issue executions, MCT’s BAMCO offers expanded execution options for sellers while providing new client acquisition options for buyers, creating a more convenient way to conduct co-issue transactions. BAMCO provides sellers with the ability to incorporate co-issue pricing from MSR buyers on the platform into the best execution analysis, regardless of approval status. Learn more about how MCT’s Marketplace is maximizing liquidity, eliminating barriers, and optimizing execution.

For those hoping for lower rates, yesterday’s report on the Consumer Price Index for June brought good news. Headline consumer price inflation cooled versus May, increasing just 0.2 percent over the month and 3.0 percent over the past year, the slowest rate in more than two years. Excluding food and energy prices, the core CPI increased 0.2 percent over the month, the smallest monthly increase in core inflation since February 2021. Consumer-price inflation is now just one-third of the level it reached a year ago, good news for consumers, the markets, and the Fed. The report likely isn’t enough to stop the Fed from going ahead with its well-signaled interest rate hike this month (92 percent probability) after the June jobs report showed wage increases still running hot, but it raises doubts about whether more hikes will be forthcoming. The implied likelihood of another increase in November fell to 26.8 percent from 42.4 percent on Tuesday.

Inflation has been moderating on the heels of severe tightening by the Fed, but core-inflation printed at 4.8 percent in June, still a far cry from the Fed’s 2 percent target. Speaking of the Fed, yesterday it released its Beige Book for June describing overall economic activity as having increased slightly since the May report. Five Fed Districts saw slight or modest growth while five saw no change and two reported slight declines. Consumer spending was mixed with some pressure on discretionary spending. Tourism was robust and demand for hospitality services is expected to remain strong during the summer. Auto sales were little changed while manufacturing improved in six Districts and weakened in the other six. Lending softened but demand for residential real estate remained solid. Employment increased modestly while growth in prices was also described as modest. Related to inflation, the report said, “price expectations were generally stable or lower over the next several months,” and “some Districts noted reluctance to raise prices because consumers had grown more sensitive to prices.”

Today’s economic calendar kicked off with two key economic releases: jobless claims (237k, lower than expected) and wholesale inflation for June (+.1 percent versus expectations of +0.2 percent month-over-month and 0.4 percent year-over-year). The other primary event for the market is the final leg of the mini-Refunding consisting of an auction of $18 billion reopened 30-year bonds, though markets will also receive remarks from San Francisco President Daly and Board Governor Waller. We begin the day with Agency MBS prices better by .125, the 10-year yielding 3.83 after closing yesterday at 3.86 percent, and the 2-year, which a week ago was north of 5.10, is at 4.66 after the producer price numbers.

Employment

Evergreen Home Loans™ is committed to its GROWTH conviction. One way is by positioning loan officers for success, beginning with its VIP onboarding experience. “Our onboarding team is amazing,” said Loan Officer and Branch Manager Amber Page. “They walk right beside you to make sure you are all plugged in with the right passwords and system setups. Makes you feel like you have a friend right from the start at the company.” Evergreen also invests heavily in digital mortgage technologies, offers product training and business coaching opportunities, and develops innovative programs to answer current and future market challenges, among other things. And not only do these advantages support loan officer growth, but they also help win business for agent partners. Loan officers looking to experience feeling supported in professional growth can explore current opportunities on the Evergreen careers page.

“Planet Home Lending is defying the odds and achieving remarkable retail growth. Halfway through one of the industry’s toughest years, we’ve welcomed more than 100 MLOs. Our response to the challenges of shrinking volume, constrained margins, and market unpredictability was to build a foundation for growth. You can expect financial stability, operational sophistication, approachable leadership, and unwavering multichannel support, along with competitive pricing to help you reach more borrowers and close more loans. To thrive in an ever-evolving market, reach out today for a confidential discussion with Brian Miller, Planet’s SVP Talent Acquisition, at 214-223-9986, or Peter Briggs, VP Talent Acquisition, at 949-202-8213.”

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

Loan modifications at Fannie Mae and Freddie Mac were up 57 percent in the first quarter compared to the fourth quarter, and more than double the numbers seen a year ago, according to the FHFA.

During the first quarter of 2009, nearly 37,000 loans were modified, results which reflect the Streamlined Modification Program, but not the Home Affordable Modification program that was still being developed in March.

“The use of serious loan modifications by Fannie Mae and Freddie Mac has risen dramatically,” said FHFA Director James Lockhart, in a release. “As a result, more homeowners are seeing payments significantly reduced and fewer people will lose their homes.”

Loan modifications accounted for 43 percent of all completed foreclosure prevention actions during the quarter, up 33 percent from the linked quarter.

More than half reduced monthly mortgage payments by greater than 20 percent, up from the mere two percent that did so a year ago.

Total foreclosure prevention actions, including forbearance, repayments plans, and other measures, increased 20 percent from the fourth quarter and more than doubled numbers from a year earlier.

Home retention actions, where the borrower actually remains in the home, accounted for 90 percent of all these actions completed during the first quarter; the remaining 10 percent were things like short sales and deeds in lieu of foreclosure.

Unfortunately, loan delinquencies continue to rise at the government-sponsored entities, with 3.6 percent of borrowers 60 days or more behind on their mortgages; that meant another 173,700 loans became 60 days or more behind during the quarter.

One in 10 nonprime loans was 60 days + behind, while just three in 100 prime loans held that distinction.

Fannie Mae and Freddie Mac own or guarantee 56 percent of all mortgages, but only account for 22 percent of those delinquent.

Private label mortgages continue to be the root of the problem, but still aren’t the focus of foreclosure prevention plans currently in action.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Here’s some timely mortgage Q&A: “Do mortgage modifications work?”

Since the mortgage mess got in full swing, mortgage lenders and loan servicers have been increasingly offering mortgage modifications to stave off foreclosure, but the results haven’t been too hot.

This begs the question as to whether these loss mitigation tools actually work, especially if the homeowners are so underwater that it will take them literally decades to get back above water.

Consider the Re-Default Rate

  • While it’s still early days
  • The re-default rate on loan modifications
  • Which is when a delinquent borrower is late on their loan mod
  • Has been quite high, putting into the question the success of these offerings

What we know so far is that the re-default rate on loan modifications has been so high that many question if they even work, and if they’re worth all the legwork/trouble, not to mention the money involved.

Back in May, Fitch Ratings warned that 3 out of 4 mortgage modifications may re-default after just 12 months, a staggeringly high failure rate for what were regarded as potentially home-saving loss mitigation tools.

Of course, there may be a reason all these loan modifications are turning out nasty numbers; they don’t actually lower monthly mortgage payments.

Are These Really Loan Modifications? Or Just Repayment Plans?

  • While it’s easy to claim they don’t work
  • You have to look at what’s really being offered here
  • If the borrower is set up to fail
  • They’ll probably fail

That’s right, many of these loan modifications actually result in payments that are unchanged or higher than they were before, thanks to past due amounts being piled on top of the existing balance.

These types of loan modifications, if you can even call them that, are really just simple repayment plans that get borrowers current but fail to address affordability concerns.

Clearly that’s no way to help a struggling homeowner get back on track, unless by chance they had a brief loss of income that has since been restored.

So what’s the answer?  How do we make more mortgage modifications work?

If It Doesn’t Lower the Payment…

  • An unchanged or higher mortgage payment
  • Probably won’t change the borrower’s situation for the better
  • It’s pretty obvious that they need a lower monthly payment
  • In order to get back on track, so start with that!

Well, it’s not as hard as it may seem; apparently a combination of lower monthly payments, along with principal forbearance or forgiveness will get the ball rolling and make for more sustainable payments moving forward.

After all, if a homeowner can’t make their $2,000 a month housing payment, why should we expect them to make a $2,500 payment? That makes absolutely zero sense.

Taking the time to determine what borrowers can actually afford via proper income documentation and other sound underwriting measures will likely lead to a better loan modification success rate.

If banks and loan servicers don’t actually assess the situation properly, it’s a big waste of time and money, and just delays the inevitable.

Unfortunately, more stringent underwriting tied to loan mods may also reveal that foreclosure is simply the only answer for many, especially those who are in no shape to make reduced payments on a severely underwater home.

But we should still explore what works because there are probably millions across the nation who could benefit here, and that will help the real estate market as a whole.

Source: thetruthaboutmortgage.com

Apache is functioning normally

average two-year fixed mortgage rates have just hit a 15-year high of 6.66%.

UK two-year fixed mortgage rates hit highest level since 2008Read more

Here’s what to expect, from the committee:

The cross-party Committee of MPs will examine the current state of the mortgage market, including levels of mortgage stress, arrears and forbearance, and the outlook for the market in light of higher interest rates.

The Committee will question mortgage providers on consumer behaviour following recent rate rises, the impact on house prices and the wider housing market, and mortgage affordability and availability.

Government support schemes and the recently agreed ‘mortgage charter’ are also likely to be discussed, as are buy-to-let mortgages and the rental market, and the take-up of long-term fixed rate deals.

Here’s the panel:

  • Andrew Asaam, Homes Director, Lloyds Banking Group

  • Bradley Fordham, Mortgage Director, Santander UK

  • Charlotte Harrison, Interim CEO (Home Financing), Skipton Building Society

  • Henry Jordan, Home Commercial Director, Nationwide

  • Nigel Terrington, Chief Executive, Paragon Banking Group

Time for a recap.

UK borrowers continue to be hit by rising interest rates as the fight against inflation continues, and there may be more pain ahead.

Average two-year mortgage rate have risen over their peak last autumn, averaging 6.66% today for the first time in 15 years.

UK two-year fixed mortgage rates hit highest level since 2008Read more

MPs have heard that rising mortgage rates are causing financial stress to customers, and that the situation will worsen. However, lenders also reported that they have not seen a significant pick-up in arrears yet.

Bradley Fordham, mortgage director at Santander UK, told the Treasury Committee the bank had seen a “small tick up in arrears, still 20% below pre-pandemic, 70% below 2009 post-financial crisis, so relatively low levels”.

He said mortgage customers coming off deals and going onto new ones were seeing payment increases of “over £200 per month”.

But, the UK could be approaching a ‘tipping point’ where mortgage rates rise to levels where borrowers cannot fully protect themselves by extending the terms of their loans or moving to interest-only deals.

The International Monetary Fund warned that UK interest rates may need to keep rates higher for longer, to fight inflation.

The financial markets are anticipating that UK interest rates will hit 6% by November, up from 5% at present.

The latest labour market report has shown that UK wages increased at a faster rate than expected in May.

Earnings growth hit 7.3% in the three months to May compared with a year earlier, driven by the strongest rise in private sector pay growth outside the pandemic period of 7.7%, the Office for National Statistics said. It was the joint highest since modern records began in 2001.

Record UK pay growth adds to pressure for interest rate riseRead more

And with unemployment rising, number of job vacancies down, jobs growth slowing and more people looking for work, there are signs that the UK labour market is starting to slow.

UK interest rates likely to rise again despite slowing labour marketRead more

And in other news…

Britain’s debt-laden “zombie” companies are expected to be wiped out by the surge in interest rates, an insolvency specialist has predicted.

UK’s ‘zombie’ firms will be wiped out by interest rates, says insolvency specialistRead more

Britain’s retailers recorded a sharp rise in spending in June as hot weather prompted consumers to buy summer clothing and outdoor goods, despite growing pressure on budgets from the cost of living crisis.

UK retailers report sizzling sales in hot June weatherRead more

Morrissey has written to Jet2holidays urging the tour operator to drop its association with marine parks that continue to use captive orcas and dolphins for entertainment.

Morrissey: Jet2holidays must cut ties to marine parks over orcas and dolphinsRead more

https://t.co/FFaoEzL7Ky pic.twitter.com/EsaH4hzcWk

— TRADING ECONOMICS (@tEconomics) July 11, 2023

On a monthly basis, prices fell – by 0.08% – the first deflation registered since September of last year.

This may encourage Brazil’s central bank to consider cutting interest rates from their current six-year high of 13.75%….

<gu-island name="TweetBlockComponent" deferuntil="visible" props="{"element":{"_type":"model.dotcomrendering.pageElements.TweetBlockElement","html":"

Rate cut expectations are gaining momentum as Brazil's annual inflation reaches its lowest point in almost three years.

&mdash; Roensch Capital News (@RoenschNews) July 11, 2023

Britain’s debt-laden “zombie” companies are expected to be wiped out by the surge in interest rates, an insolvency specialist has predicted.

Begbies Traynor, a business recovery and financial consultancy, has said all of the nation’s zombies – companies struggling to service debts that have avoided bankruptcy through cheap borrowing costs – will have failed by the end of next year.

“Over the next 18 months, we’ll see virtually all of them finally come to an end,” Ric Traynor, the executive chairman of the company, which is seen as a bellwether for the health of UK businesses, told Bloomberg.

UK’s ‘zombie’ firms will be wiped out by interest rates, says insolvency specialistRead more

mortgage costs hitting their highest level in 15 years with an average rate of 6.66% will worry people further, at a time when “mortgage pressures on ordinary households are huge”, says Douglas Chapman, SNP MP for Dunfermline and West Fife.

Following today’s Treasury Committee hearing on the mortgage market, Chapman says:

Research this month from Citizens Advice Scotland reveals that around 11% of people always run out of money before payday, with a further 14% saying that this happens to them “most of the time”.

This percentage will surely rise given today’s Committee panellists’ discussing averages of £235 increases on monthly mortgage repayments due to large interest rises and deals coming to an end, which on top of a crippling cost of living crisis, consistently high energy prices and rampant inflation explains why many people feel their financial resilience is being pushed to the limit.”

“In addition, there was little encouragement for first time buyers today, who it appears need to spend longer amassing a larger deposit or tap into the Bank of Mum and Dad (which isn’t an option for everyone), and then also choose from a narrower portfolio of smaller properties in order to meet monthly mortgage payments and pass banks affordability stress tests.”

the increase in fixed-rate mortgage costs today is a sign of “Tory economic failure”

“Too often, families who are saving for their first home but getting no closer to buying it feel like they’re doing something wrong.

“But the fact of the matter is that the Tories have inflicted households with a mortgage bombshell, let renters down and failed to build the homes we need.

“Millions are feeling the pain from this Tory economic failure.

“Labour has a plan to start fixing this crisis. We would stop households missing out on the mortgage support they need by making measures mandatory, we will give greater rights and protections to renters, and we will take the tough choices to get Britain building.”

A chart showing Nationwide house prices

Andrew Asaam from Lloyds Banking Group told MPs house price falls could leave some mortgage holders in negative equity (owing more than their property is worth).

But MP also heard there is less risk than in previous financial crisis, as loan-to-value rates are relatively low.

Asaam told the Treasury committee this morning

“The place that this probably bites most is for first-time buyers, who will be typically at higher LTVs (loan to value rates).

“It’s a completely individual situation, but we still think owning a home for most people is better than renting.

“And therefore we want to keep products available at higher LTVs for first-time buyers.

“But we need to make sure that those first-time buyers are resilient, ie they can afford to stay in their homes through a two-year period where house prices might be falling, for example, and they are aware that they could end up in negative equity.”

Source: theguardian.com

Apache is functioning normally

Explainer

What steps could government take to help mortgage borrowers?

As interest rates rise, cash-strapped households need speedy solutions to meet monthly payments

As rising interest rates put a squeeze on millions of mortgage borrowers there have been calls for the government to intervene. But what could it do to help cash-strapped households?

Improve help with monthly payments

There is government help for those who are really struggling, called support for mortgage interest (SMI). This is available to people who are getting one of a list of other benefits including universal credit and income support. It is not available as soon as you go on benefits and is not a payout but a loan – when you eventually sell your house you will have to repay it. You might also need to repay it if you go bankrupt or enter an insolvency plan. The government could change the terms of this help – it could be available more quickly, or to a wider group of people. Nevertheless, it will probably remain targeted at only the very worst off.

Reintroduce tax relief on mortgage payments

More than 25,000 people have signed a petition calling on the government to let people make mortgage repayments from their salary before it is taxed – a move that could reduce some of the pain by reducing wages taxes. This would not be unprecedented – throughout the 80s and 90s borrowers could claim mortgage interest relief at source (Miras), which gave them tax relief on their interest payments. But the government has already ruled out its reintroduction, saying it does not believe it to be the most effective way to target support to those who need it most. “The tax relief would be of greater benefit to those paying higher rates of tax with the most expensive properties and would only benefit those in employment,” it says.

graphic

Ease rules on interest-only mortgages

Borrowers could cut their monthly costs by switching from a repayment mortgage, which includes paying off the some of the original loan each month, to an interest-only loan. The government and regulators could make this an easy option by scrapping rules which mean that borrowers have to show how they will repay the mortgage at the end of the term. They are unlikely to do this across the board: the rules were brought in after the financial crash to stop people taking on mortgages they could not afford to repay and are considered to have prevented reckless lending. However, regulators have been allowing some borrowers to switch to interest-only without a repayment plan and this is likely to continue to be a strategy (see below).

Continue insisting lenders help borrowers

In December the government told lenders they must do everything they can to support borrowers, including letting them move to interest-only payments temporarily if necessary or switch to a new rate without an affordability check as long as they are up-to-date on repayments. After the 2008 banking crash and during the Covid crisis, lenders exercised this kind of forbearance and repossession rates were kept down as a result. “It is likely the government and regulators will continue with having underlying forbearance measures and encouraging lenders to take an individual approach to borrowers,” says David Hollingworth of brokers L&C Mortgages.

skip past newsletter promotion

Average mortgage rate for two-year fixed deal edges closer to 6% Read more

Target certain groups

The government could target the borrowers most at risk of falling into arrears, says Neal Hudson, a housing market analyst at consultancy BuiltPlace. He suggests these might include those in shared ownership properties who have rising rents to pay alongside their mortgage, those with Help to Buy equity loans who face interest payments on that debt alongside their home loan (currently set at 1.75% in the fifth year and rising each year), and those caught up in the cladding scandal and facing high service charges. In these cases it might not be the mortgage payments that are reduced but the other costs on top could be capped. Many housing associations have agreed to cap shared ownership rent rises at 7%, but the government could choose to make this compulsory and even lower it.

Introduce a mortgage protection fund

Sir Ed Davey, leader of the Liberal Democrats, has revived his call for a £3bn emergency mortgage protection fund, which he first called for in the aftermath of Liz Truss’s disastrous mini-budget. The fund would allow homeowners whose mortgage payments have risen by more than 10% of their income to apply for a £300-a-month grant. “If we don’t give that sort of help to those people, you’d see a spiral down and it will hit the whole economy,” Davey said on Friday. Opponents argue that such a scheme would unfairly help wealthier people who can afford to own a home, to the detriment of tax paying renters.

Order the Bank of England to hold rates

For more than two decades the Bank has been independent of the government – one of Gordon Brown’s first acts as chancellor was to set it free, and since then it has been responsible for setting interest rates. To step in and force its hand would be a big intervention, and is probably the least likely action the government will take at this point.

Topics

  • Mortgages
  • Mortgage rates
  • Mortgage lending figures
  • Bank of England
  • Housing market
  • Property
  • Real estate
  • explainers
Reuse this content

Source: theguardian.com

Apache is functioning normally

On March 29, the Federal Housing Finance Agency (FHFA) announced Fannie Mae and  Freddie Mac would enhance their COVID-19 pandemic-era deferral policies which allowed homeowners experiencing hardship to defer up to six months of mortgage payments to be settled at the end of the loan. Since the pandemic began, the FHFA has enabled lenders to complete more than 1 million payment deferrals, with roughly one-third of all homeowners exiting forbearance via payment deferrals since 2020. 

Smart pandemic policies like this stabilized the housing market and, by extension, the  economy when it was most needed, and today’s challenging market has emphasized  the need for further policy reform as servicers expand their loss mitigation toolkits to  keep homeowners in their homes. 

Here’s how servicers can maintain real-time compliance to keep up with real-time policymaking, all while keeping homeowners where they belong — in their homes — and executing at scale with no mistakes in our highly regulated ecosystem. 

Why further loss mitigation reform and expansion is still needed 

COVID-19 pandemic hardships required quick-turn regulatory shifts which ultimately provided  hardship relief to approximately 7.8 million homeowners with COVID-19 pandemic forbearance programs since March 2020. Government insurers and guarantors adapted to offer new options to borrowers like forbearance, partial claim/payment deferrals and extended-term modifications. 

As the Mortgage Bankers Association (MBA) noted in its recent white paper, the current high-interest-rate environment poses additional challenges that require further policy reform and expansion so servicers have simple, sustainable and standardized loss mitigation options. 

The traditional options for providing payment relief for homeowners — loan modifications that either extend the loan’s maturity date or reduce their interest rate to the market rate — are not as effective in the higher-interest-rate environment and do not provide the relief many homeowners need to maintain homeownership. 

Further policies should focus on reducing administrative complexity and make scalability attainable so servicers can quickly provide relief to homeowners with consistent, accessible hardship relief regardless of hardship reason or who insures or guarantees the loan. 

The CARES Act and other COVID-19 pandemic-era policy developments kept servicers engaged and informed, demanding quick adjustments to accommodate homeowners experiencing financial hardship, and recent market challenges have required similarly swift adoption from servicers. So, how can servicers stay ahead of the curve?

Real-time solutions for real-time policy changes 

Sagent solves these problems with cloud core, agile infrastructure. So, what are the benefits of  “cloud native” or “cloud-based” platforms? Put simply: speed, security, a better experience for homeowners and servicers, real-time processing and compliance across all activities — all at scale and always aligned with real-time regulatory changes. 

Servicers and their fintech partners need to be innovating incrementally by bringing real-time solutions to real-time policymaking. For example, when the CARES Act went into effect to provide mortgage payment relief as the COVID-19 cases spiked in 2020, servicers powered by Sagent were ready with push-button forbearances on day one of the CARES relief effective date. 

Sagent’s default platform provides full lifecycle functionality, enabling homeowners and servicers to work together to create sustainable options for homeowners when they’re facing financial hardship. A key component of this service is the servicer’s ability to establish the workflow that fits their processes.  

The benefits of this innovative programming are broad reaching in addressing all aspects of loan servicing. Homeowners, first and foremost, are provided relief and resolution. Servicers achieve improved efficiency and greater effectiveness in  managing compliance throughout the process. Sagent ensures delivery ahead of the curve, with no waiting and no elevated risk surrounding the next set of changes and challenges coming our way in the servicing industry.  

Real-time data standards for compliance and customer retention 

Our industry has improved materially since the experiences of the Great Recession, and  we’ll continue to see servicers and regulators set a new bar for compliance. The focus on helping homeowners understand their options and make an informed  choice remains.  

Servicers must also focus on cost, customer retention and compliance. A strong, servicing fintech partner provides critical support in successful delivery of each of these areas.  

Sagent is the industry’s only mortgage servicing platform with truly real-time data. Real-time data means systems can respond to real-time policymaking without ever missing consumer and investor requirements or any compliance details. 

The new standard for excellence is being established, and Sagent is leading the way. Please reach out and let us know your thoughts on these predictions or your tech stack strategy.

Perry Hilzendeger is an executive vice president of servicing for Sagent.

Source: housingwire.com

Apache is functioning normally

Consumers struggling to pay college bills could face more financial difficulties with legal challenges impeding attempts at student debt cancellation and forbearance for federal loans of this type ending, but some things will minimize mortgage impacts.

When interest-free federal student-loan forbearance ends later this year, borrowers will have a 12-month reprieve between Oct. 1 and Sept. 30 of next year from late fees, adverse credit reporting or referrals to debt collection agencies. Some loans may have more payment flexibility.

“Borrowers are going to have a little bit of time to pull things together and get back into positive habits for repayment without their credit being impacted,” said Sara Parrish, president of CampusDoor, an Incenter company that provides white-labeled private student-loan services.

“It may just kick that can down the road just a little bit but I do feel that given that amount of time to get used to it again, as long as that’s implemented in a way that does encourage people to get back into the swing of repayment, that’s going to lessen the blow,” she added.

Given these measures and the fact the overall economy remains strong, some think the resumption of student loan payments won’t probably do much more than lift consumer-debt delinquency rates among more credit-sensitive borrowers half a percentage point at most. 

“I’m sure there will be 50 articles written [saying that] we’re falling off a cliff and we’re going into recession. In reality, it’ll be a lot to do about nothing,” said Vadim Verkhoglayad, vice president and head of research at dv01, a data management, reporting and analytics platform for lending markets.

Mortgage performance in particular may be insulated because, with rare exceptions, borrowers generally prioritize loans they pay to keep a roof over their heads before other obligations.

The other question for mortgage companies has to do with the impact on lending prospects given that the Biden administration had hoped to offer up to $20,000 in student debt cancellation for more than 40 million borrowers earning less than $125,000 per year.

All along, many home lending professionals have been cautious about counting on that broader forgiveness as a source of potential mortgage leads, focusing instead on more limited student loan relief that actually has materialized to some degree in the past year or so.

While some of the relief like interest-free forbearance has been temporary, mortgage companies may not see a big change in who qualifies for mortgages when it ends in the fall because even borrowers with payment suspensions were assessed as if their full debt obligation was in force.

“We’ve never stopped counting as a monthly payment for a student loan, even though it was in forbearance,” said Melissa Cohn, regional vice president at William Raveis Mortgage.

However, there are some questions about how the resumption of interest and payments will affect overall debt-to-income ratios that can be a determining factor in whether a consumer can qualify for a mortgage. More than $1.7 trillion in U.S. student debt is outstanding.

While putting student loan payments in interest-free forbearance theoretically could have allowed borrowers involved to potentially direct the suspended payments into paydowns of other types of debt, find likely did or could.

“In many cases, it was not spent to bring down the outstanding debt that they have,” Parrish said.

There could also be complications for mortgage companies considering that student loan servicers have been through consolidation. Some borrowers might have trouble identifying which one is currently handling their loan.

“It is a very good chance that you’re not making your payment to the same servicer that you were making your payment to when these student loans went into forbearance,” said Parrish, whose company provides student loan services to nonbank and depository mortgage lenders.

Mortgage companies as well as borrowers might want to be careful about communications involving student loan servicers for that reason, particularly given that misinformation that leads to an undisclosed debt in home loan underwriting could result in repurchase risk.

While all these student loan developments can challenge mortgage companies, legal barriers to widespread forgiveness for education debt and end of forbearance also have an upside in reducing payment disincentives on the part of some people not afforded relief.

Cohn said limiting debt cancellation to groups like public servants with good loan-performance track-records reduces resentment among those left out of relief, who have raised questions like, “Why should our taxpayer dollars support others and why can’t I get forgiven?”

Source: nationalmortgagenews.com

Apache is functioning normally

At this point, most homeowners have probably heard of the CARES Act and its massive 12-month forbearance option for those with federally-backed mortgages.

It sounds pretty sweet – you can request six mortgage-free months, followed by an additional six months if you need it, with little paperwork or evidence of hardship from COVID-19.

Apparently, all you need is a mortgage forbearance letter and you should be good to go, assuming loan servicers don’t revolt and balk at the sheer number of requests that flood through the door.

Does Mortgage Forbearance Need to Be Repaid?

  • Yes, homeowners are expected to repay the missed mortgage payments
  • Loan servicers are NOT waiving payments, they are offering to delay them
  • The big question is how and when are homeowners supposed to catch up
  • Especially if the homeowner loses their job permanently or severely depletes their assets along the way

The million-dollar question is how will the skipped mortgage payments be paid back.

Remember, these aren’t waived mortgage payments, they are delayed mortgage payments.

You are getting a brief moratorium on payments while furloughed or out of work, after which time you must make good on those missed payments, assuming you do get back to work.

Everything is working on the assumption that this is a temporary situation, unlike the mortgage crisis a decade ago that was driven by fundamental issues, like sketchy mortgage financing and overpriced homes.

Most homeowners could afford to make their mortgage payments in the normal, pre-COVID-19 world, so once this is all over, they should go back to making their payments per usual.

There are a few issues with that theory. For one, we might not go “back to normal” right away or ever.

While the smart people in the room have a plan, or are at least working on one, to get us back on track as a society, much of what I’ve heard so far speaks of a gradual return.

For some industries, like big events, concerts, restaurants, bars, and anything that involves large crowds, it might be a much longer road back.

How does a homeowner who missed six to 12 mortgage payments simply return to making their payments if they don’t have a job, or even if they’ve lost tons of income and therefore depleted their assets along the way?

Surely you can’t expect these individuals to pay a lump sum right after the forbearance ends to make up for the shortfall. That would be ridiculous.

I would venture to say that most Americans don’t have the ability to make multiple mortgage payments at once, even during good times. So asking them to pay several during dire times seems absurd.

Fannie Mae and Freddie Mac’s Post-Forbearance Approach

  • Option #1: Reinstatement (pay in full at end of forbearance period)
  • Option #2: Repayment Plan (pay back within 12 months of end of forbearance)
  • Option #3: COVID-19 Payment Deferral (pay back eventually when you refi, sell, or pay off entire mortgage)
  • Option #4: Loan Modification (for those who can’t even afford to resume regular monthly payments)

Fortunately, Fannie Mae got to work and rolled out post-forbearance guidelines to put its loan servicers and homeowners at ease.

FYI, these mostly mirror the post-forbearance guidelines of Freddie Mac.

There is basically a waterfall approach where servicers will reach out to borrowers 30 days before their forbearance plan is scheduled to end.

At that time, they’ll work to determine which available assistance program will be best for them at that time depending on hardship status.

The preferred solution starts with reinstatement, where the borrower simply pays the full forbearance amount when the forbearance period ends.

While obviously an ideal end to forbearance, it’s highly unlikely many homeowners will be able to muster this.

That brings us to option two, which is a repayment plan where a portion of the forbearance amount is paid each month (for up to 12 months) along with the homeowner’s regular mortgage payment.

Again, this may fall short seeing that it requires a higher total monthly payment and it only lasts for a year.

Given the fact that homeowners may have missed six to 12 payments, it seems like a big ask to make up all those payments in the same amount of time.

That takes up to option three, COVID-19 Payment Deferral, which will likely be the most common outcome.

It allows borrowers who are unable to reinstate or afford a repayment plan to simply add the forbearance amount to the end of the loan.

And that amount won’t be due until the final mortgage payment is made, or earlier if the property is sold or the mortgage is refinanced.

In other words, homeowners get to kick the can down the road and worry about it later, which is a great deal.

Lastly, there is option four, the loan modification, which as the name implies, is pretty self-explanatory.

In the event the borrower can’t even afford to resume regular monthly mortgage payments (forget about the missed ones), they’ll need their home loan modified to make it affordable.

This may involve an interest rate reduction and/or a loan term extension, but probably not a principal reduction.

Additionally, Fannie Mae released guidance on mortgage forbearance waiting periods for those wondering when they get another home loan.

A Post-Forbearance Solution That Makes Sense for FHA Loans

  • Fannie Mae and Freddie Mac originally offered vague solutions involving loan modifications before rolling out the comprehensive guidelines above
  • This upset homeowners who thought they’d have to pay it all back in one lump sum things while their credit score took a hit
  • HUD has always had a good solution in its COVID-19 National Emergency Partial Claim
  • Missed payments would be set aside as an interest-free second mortgage that doesn’t need to be repaid until sale/refinance

The Department of Housing and Urban Development (HUD), which oversees the FHA loan program, put together a good Q&A regarding mortgage forbearance.

One question explicitly asks: Will the monthly mortgage payments that are reduced or suspended under a COVID-19 Forbearance need to be repaid?

They don’t mince words; “Yes. A homeowner with an FHA-insured mortgage who receives a COVID-19 National Emergency Forbearance is responsible for repaying the suspended mortgage payments or the balance of reduced mortgage payments.”

With regard to how, they say your loan servicer can help determine “options for eventually repaying any suspended mortgage payments or the balance due as a result of reduced mortgage payments.”

They note that you won’t be charged late fees and penalties while on a “COVID-19 National Emergency Forbearance plan.”

But what about after? Again, a great unknown.

However, HUD does have what appears to be a good solution to deal with the missed mortgage payments.

COVID-19 National Emergency Partial Claim

They have implemented the “COVID-19 National Emergency Partial Claim,” which can be put to work once the COVID-19 forbearance period ends.

In short, it reinstates borrowers’ home loans by authorizing loan servicers to advance funds on behalf of homeowners.

Those advances are placed in an interest-free subordinate (second) mortgage that the borrower doesn’t have to pay down until their first mortgage is paid off, either via home sale or mortgage refinance.

For me, this makes prefect sense assuming loan servicers are able to set aside all those missed payments for an unknown length of time.

It would actually allow homeowners who get back to work to return to making regular monthly mortgage payments, as opposed to making six or 12 of them at once, along with the next one due.

Nobody is going to make seven or 13 mortgage payments all at once, or anything close to that. Asking someone to make two at once is a longshot.

Meanwhile, Freddie Mac has said that it could offer “loan modification options to provide mortgage payment relief or keep those payments the same after the forbearance period.”

And Fannie Mae said, “a servicer must work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.”

For the record, Fannie Mae’s Flex Modification adds past due amounts to the unpaid loan balance, then recalculates your monthly payments over the new, potentially revised loan term.

So that could work if monthly payments were only incrementally higher as as a result.

Fannie Mae and Freddie Mac also have a new payment deferral option that works similar to the partial claim solution that will be rolled out soon, but it only allows for 1-2 missed payments, not 6-12.

The VA has instructed loan servicers not to require a lump sum payment upon exiting forbearance.

Rather, they ask that they consider other options such as a repayment plan, where installments are made over time, or a loan modification, where a new payment schedule is established that includes the delinquent amount.

If the loan servicer wants to go the lump sum route, they ask that it be paid back at the end of the loan.

They have since added that borrowers may defer any missed payments, effectively making them due at the end of the loan term along with the final payment.

If that’s the case, the VA requires that amount to be non-interest bearing, which is great news for the homeowner.

You can pay toward that deferred amount over the life of the loan via a repayment plan or request a loan modification if you won’t be able to resume regular payments.

Ultimately, don’t homeowners need assurances regarding what happens after, before agreeing to mortgage forbearance?

And what about credit scores post-forbearance? Will loan servicers begin calling these homeowners delinquent at some point?

The forbearance isn’t supposed to count against them, but will the loan modification?

Will they have trouble refinancing post-forbearance, or difficulty financing a subsequent home purchase if they took part in the mortgage forbearance relief?

FYI, the last day to apply for mortgage forbearance is also a moving target.

There are too many unknowns right now, which makes it difficult for a homeowner to determine if taking the forbearance option is a good idea.

That being said, I don’t think it will stop millions of homeowners from taking part.

Read more: Number of Mortgages in Forbearance Jumps Nearly 1000%

Source: thetruthaboutmortgage.com

Apache is functioning normally

For many people, that monthly mortgage payment can be their biggest recurring bill. It may be the main expense that guides the development and management of their monthly budget, because that is an important bill to pay on time.

Prevailing wisdom says that your mortgage payment shouldn’t be more than 28% of your gross (pre-tax) monthly pay. But whatever that sum actually is, you may be wondering how to shave down the amount. Think about it: A lower mortgage payment could reduce your financial stress. And it can also open up room in your budget to allocate more money towards shrinking other debt, pumping up your emergency fund, and saving for retirement or other goals.

Here, you’ll learn more about your mortgage payment and possible ways to lower it.

What Is a Mortgage Payment?

A mortgage payment is a sum you typically pay every month, but it’s more than just a bill. It reflects an agreement between you and your lender that you have borrowed money to buy or refinance a home, and in exchange, you’ve agreed to pay back the sum with interest over time. If you fail to keep up with your payments, the lender may have the right to take your property.

There are typically four parts of your monthly payment: the loan principal, the loan interest (which is how the lender makes money), taxes, and insurance fees.

A mortgage payment may be a fixed rate, meaning your payment stays the same, month after month, year after year. Or it might be an adjustable rate, meaning the interest and therefore the payment can change at regular intervals.

Pros and Cons of Lowering Your Mortgage Payments

There are upsides and downsides to lowering your mortgage payments.

On the plus side, lowering your mortgage means you likely have more money to apply elsewhere. You might apply the freed-up funds to:

•   Pay down other debt

•   Build up your emergency fund

•   Put more money towards retirement savings

•   Use the cash for discretionary spending.

On the other hand, there are downsides to consider too:

•   You might wind up paying a lower amount over a longer period of time, meaning your debt lasts longer

•   You could pay more in interest over the life of the loan

•   If a lower monthly payment means you are not paying your full share of interest due, you could wind up in a negative amortization situation, in which the amount you owe is going up instead of down.

6 Ways to Lower Your Mortgage Payments

Now that you know a bit about how mortgage payments work and the pros and cons of lowering your mortgage payments, consider these ways you could minimize your monthly amount due.

Recommended: How to Pay Off a 30-Year Mortgage in 15 Years

1. Give Your Mortgage a Bonus

If you get a bonus or a windfall, consider throwing some of that money at your mortgage. If you are in a position to make a major lump-sum payment on your home loan, you may benefit from mortgage recasting.

With recasting, your lender will re-amortize the mortgage but retain the interest rate and term. The new, smaller balance equates to lower monthly payments. Worth noting: Many lenders charge a servicing fee and have equity requirements to recast a mortgage.

Other similar options:

•   Make a lump-sum payment toward the mortgage principal (say, if you inherit some money or get a large bonus at work)

•   Make extra payments on a schedule or whenever you can.

It’s a good idea to tell your lender that you want to put the extra money toward the principal and not the interest. Paying extra toward the principal provides two benefits: It will slowly reduce your monthly payment, and it will pare the total interest paid over the life of the loan.

Refinance your mortgage and save–
without the hassle.

2. Reap Rental Income at Home

You could lower how much you pay out-of-pocket for your mortgage by bringing in rental income and putting it towards that monthly bill. You’re not lowering how much you owe, but you are using your home to bring in another income stream.

There are two common methods: “house hacking” (generating income from your property) and adding an accessory dwelling unit (ADU).

•   House hacking can mean buying a two- to four-unit multifamily building for little money down and living in one of the units. Multi-family homes with up to four units are considered residential when it comes to financing. Owner-occupants may qualify for and opt for Federal Housing Administration (FHA) loans, Veterans Affairs (VA) loans, or conventional financing.

Some people house-hack a single-family home, which just translates to having housemates or short-term rental guests.

•   An ADU is another option for bringing in rental money to use towards your mortgage. This secondary dwelling unit on the same lot as a primary single-family home could be a detached cottage, a garage or basement conversion (that is, an in-law apartment or similar), or an attached unit.

With any planned addition or renovation to create an ADU, you might want to estimate return on investment — how much you’d charge and how long it would take to recoup the cash you put in before turning a profit.

3. Extend the Term of Your Mortgage

If your goal is to reduce your monthly payment — though not necessarily the overall cost of your mortgage — you may consider extending your mortgage term. For example, if you refinanced a 15-year mortgage into a 30-year mortgage, you would amortize your payments over a longer term, thereby reducing your monthly payment.

This technique could lower your monthly payment but will likely cost you more in interest in the long run.

(That said, just because you have a new 30-year mortgage doesn’t mean you have to take 30 years to pay it off. You’re often allowed to pay off your mortgage early without a prepayment penalty by paying more toward the principal.)

4. Get Rid of Mortgage Insurance

Mortgage insurance, which is needed for some loans, can add a significant amount to your monthly payments. Luckily, there are ways to eliminate these payments, depending on which type of mortgage loan you have.

•   Getting rid of the FHA mortgage insurance premium (MIP). Consider your loan origination date that impacts when you can get rid of the extra expense of mortgage insurance:

•   July 1991 to December 2000: If your loan originated between these dates, you can’t cancel your MIP.

•   January 2001 to June 3, 2013: Your MIP can be canceled once you have 22% equity in your home.

•   June 3, 2013, and later: If you made a down payment of at least 10% percent, MIP will be canceled after 11 years. Otherwise, MIP will last for the life of the loan.

Another way to shed MIP is to refinance to a conventional loan with a private lender. Many FHA homeowners may have enough equity to refinance.

•   Getting rid of private mortgage insurance (PMI) If you took out a conventional mortgage with less than 20% down, you’re likely paying PMI. Ditching your PMI is an excellent way to reduce your monthly bill.

To request that your PMI be eliminated, you’ll want to have 20% equity in your home, whether through your own payments or through home appreciation.

Thinking about starting a new home renovation project? Use this Home Improvement Cost Calculator to get an idea of what your project will cost.

Your lender must automatically terminate PMI on the date when your principal balance reaches 78% of the original value of your home. Check with your lender or loan program to see when and if you can get rid of your PMI.

5. Appeal Your Property Taxes

Here’s another way to lower your mortgage payments: Take a closer look at your property taxes. Your property taxes are based on an assessment of your house and land conducted by your county’s tax assessor. The higher they value your property, the more taxes you’ll pay.

If you think you’re paying too much in taxes, you can appeal the assessment. If you do, be prepared with examples of comparable properties in your area valued at less than your home. Or you may also show a professional appraisal.

To challenge an assessment, you can call your local tax assessor and ask about the appeals process.

6. Refinance Your Mortgage

One of the best ways to reduce monthly mortgage payments is to refinance your mortgage. Refinancing (not to be confused with a reverse mortgage) means replacing your current mortgage with a new one, with terms that better suit your current needs.

There are a number of signs that a mortgage refinance makes sense, such as lower interest rates being offered or the desire to secure a fixed rate when you have an adjustable rate mortgage.

Refinancing can result in a more favorable interest rate, a change in loan length, a reduced monthly payment, and a substantial reduction in the amount you owe over the life of your mortgage. Do note, however, that there are often fees for refinancing your mortgage.

Tips on Lowering Your Mortgage Payment

If you’re serious about lowering your mortgage payments, consider these methods:

•   Refinance to get a lower rate or other changes in your mortgage’s terms

•   Apply a windfall (a tax refund, say, or a bonus) to your mortgage’s principal

•   Reach enough equity in your home to drop mortgage insurance

•   Make extra mortgage payments or higher mortgage payments (this can build equity or pay off the loan sooner, saving you interest)

•   Ask about loan modification or forbearance programs if you are struggling to make payments.

Recommended: First-time Homebuyer Programs

The Takeaway

How to lower your mortgage payment? There are several possible ways. And who wouldn’t love to shrink their house payment? You might look at strategies to build equity and ditch mortgage insurance, extend the terms of your loan, or refinance to reduce your monthly payment.

If refinancing could help, see what SoFi offers. Both refinancing and cash-out refinancing are possible. And SoFi also offers a range of flexible home mortgage loans with competitive rates to help you make homeownership that much more affordable. Plus, our online process is fast and simple.

Ready to see how much simpler a SoFi Home Mortgage Loan can be?

FAQ

How can I make my mortgage payment go down?

There are several ways to lower your monthly mortgage payment. A few options: You could refinance at a lower rate or longer term, or you could build enough equity to forgo mortgage insurance.

How can I lower my house payment without refinancing?

To lower your house payment without refinancing, you could appeal to lower your property taxes; you might apply a windfall to lower your principal; or you could rent out part of your property to bring in more income.

What is the average mortgage payment?

According to the C2ER’s 2022 Annual Cost of Living index, the average monthly mortgage payment in the U.S. is $1,768.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOHL0423019

Source: sofi.com