Mortgage Rates

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A 10 basis point decline in mortgage rates last week wasn’t enough to spur consumer demand for mortgages, according to the latest figures from the Mortgage Bankers Association.

For the week that ended June 2, mortgage applications fell 1.4% from the prior week. That was despite mortgage rates dropping to 6.81% from 6.91% during roughly the same period.

“Mortgage rates declined last week from a recent high, but total application activity slipped for the fourth straight week,” said Joel Kan, MBA’s vice president and deputy chief economist. “Overall applications were more than 30% lower than a year ago, as borrowers continue to grapple with the higher rate environment.”

After more than a year of steady rate increases by the Federal Reserve, the FOMC is expected to pause hikes at its upcoming meeting next week. But that might depend on the upcoming inflation reading scheduled on June 13, the same day of the  meeting.

The MBA data showed that the average 30-year fixed rate for conforming loans ($726,200 or less) decreased to 6.81% last week from 6.91% the previous week. For jumbo loan balances (greater than $726,200), the rate decreased to 6.74% from 6.78% in the same period, according to the MBA.   

However, at Mortgage News Daily, rates were even higher on Wednesday morning, at 6.89%.

Last week, federal lawmakers reached a deal on the U.S. debt ceiling and avoided a default on June 1, which could have pushed rates up by several percentage points.

Refinancing applications declined 1% last week compared to the previous week and were 42% lower than the same week one year ago. However, the refinance share of mortgage activity increased to 27.3% of total applications from 26.7% the previous week. Meanwhile, the purchase index decreased by 2% from one week earlier and was 27% lower than last year’s level on an unadjusted seasonal basis. 

“Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers,” said Joel Kan.

Regarding loan types, the adjustable-rate mortgage (ARM) share of mortgage apps remained unchanged at 6.8% of total applications, the MBA data shows. 

The Federal Housing Administration loans’ share rose to 13.2% from 12.7% the week prior. The U.S. Department of Veteran Affairs loans’ share increased to 12.5% from 12.1% in the same period. And the U.S. Department of Agriculture loans’ share decreased one basis point to 0.4% of the total applications.

Source: housingwire.com

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Lately, there’s been a lot of talk about buying now and refinancing later, once mortgage rates drop.

Of course, that’s if mortgage rates do indeed fall at some point in the near-future.

There’s no guarantee they will, but if inflation does settle down, we could see a return to more reasonable interest rates before long.

And that would support the marry the house, date the rate supporters, who believe it’s better to buy now while rates are high.

After all, if rates drop again, competition to buy a home could heat up fast.

Enter the Navy Federal No-Refi Rate Drop

While there’s logic to buying now and refinancing later, it still involves a pesky mortgage refinance.

And even if rates are lower, there are downsides to refinancing. For one, it’s time-consuming and paperwork-intensive.

There are also closing costs involved, stress, and of course you need to qualify for the thing. That’s never a guarantee if your situation changes. Or if home prices fall, etc.

To alleviate some of this concern, select lenders have been offering to waive fees on subsequent refinances if you use them for a home purchase loan.

But this still requires the borrower to go through the entire home loan process a second time. Not fun.

That’s where Navy Federal Credit Union’s  “No-Refi Rate Drop” comes in. They’ve taken both the big cost and hassle out of it.

As the name implies, you can refinance your high-interest rate mortgage into a lower-rate mortgage without refinancing.

That way you can take advantage of lower mortgage rates without all the hoops and hurdles, and the closing costs.

And it seems super easy, with apparently only one document to sign.

How It Works

If you buy a home and use Navy Federal to get your mortgage, keep an eye out for lower mortgage rates.

After six consecutive monthly payments, you can take advantage of their No-Refi Rate Drop if they fall by at least 0.25% versus your existing rate.

For example, if your current interest rate is 7%, and rates fall to 6.75%, you could take advantage.

Aside from needing to make six payments, you also must be current on your loan with no more than one 30-day late payment within six months of the rate drop request.

Additionally, your loan must be a Homebuyers Choice, Military Choice, or 15- or 30-year jumbo fixed-rate loan.

Note that cash-out refinances are not eligible for the no-refi rate-drop option, nor are adjustable-rate mortgages.

Assuming you fit that criteria, and rates drops enough, all you have to do is call them to start the process. If eligible, they’ll send you a single document to sign within five business days.

Simply return that signed form and a $250 payment and your new lower rate will take effect within 30-60 days.

They say you’re guaranteed to get the mortgage rate that is offered on the day you call in, similar to a traditional mortgage rate lock.

So it doesn’t matter if rates increase while they process your application.

What’s more, you’re able to lower your rate multiple times during the loan term as long as you are eligible and pay the $250 fee each time.

Another perk is your loan term will stay the same. So if you make the request two years into a 30-year loan term, you’ll still have 28 years remaining.

It won’t increase the loan term like a standard refinance could.

Is the No-Refi Rate Drop a Good Deal?

As always with promotions like these, you have to use the company now for the promise of future, potential savings.

In other words, you won’t get to take advantage of No-Refi Rate Drop if you don’t use Navy Federal initially.

That means you need to compare loan rates and fees with Navy Federal versus other options.

If you plan to use them regardless, it’s an added perk that may or may not come to fruition.

If you’re deciding between them and other lenders, you need to consider if this potential benefit tips in their favor.

Of course, mortgage rates may not fall in the future, there’s no guarantee that they will.

But if they do, the mere $250 fee to lower your rate 0.25% or more sounds like a pretty good value.

Not just from a monetary standpoint, but the time savings as well.

Read more: Can you lower your mortgage rate without refinancing?

Source: thetruthaboutmortgage.com

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Loyalty? Not in the mortgage business. That is, if you actually want to save money on your home loan.

A few years back, an HSBC survey revealed that 52% of U.S. homeowners “switched providers” (sorry, they’re British) when obtaining subsequent mortgages.

This was mainly driven (53%) by the desire to get a better deal, aka a lower mortgage rate with fewer closing costs.

That survey also found that 46% of consumers investigated a mortgage switcheroo, again either to save money or to lock in a new low rate due to rising interest rates.

Other reasons homeowners decided to go with another mortgage company were because they moved and purchased a new property.

Or due to their current mortgage deal was expiring. I think they mean an adjustable-rate mortgage resetting.

Is It Bad to Switch Mortgage Lenders?

mortgage retention

A new report from Black Knight claims that loan servicers retained just 18% of the estimated 2.8 million homeowners who refinanced a mortgage in the fourth quarter of 2020, the lowest share on record.

Interestingly, those who refinanced to improve their rate and/or term were retained at a higher rate (23%) versus those pulling cash out as part of the transaction (11%).

This could be due to cash out refinances being harder to come by lately, and thus offered by fewer lenders. Or it just feeling more complex to the homeowner.

But here’s the biggie – among higher-credit quality rate and term refinances, borrowers who switched mortgage lenders received more than an eighth of a percent lower rate than those who refinanced and remained with their current lender/servicer.

In other words, you might get a lower mortgage rate if you switch mortgage lenders, instead of remaining loyal.

So is it bad to switch mortgage lenders? Not if you want to save money! Of course, your old lender might not feel the same way.

Mortgages Are Mostly a Commodity

  • Home loans aren’t all that different from one another
  • This is why lenders are increasingly coming up with unique ways to sell you one
  • The vast majority are 30-year fixed products whose only difference might be the interest rate or fees involved
  • And the majority just follow the underwriting guidelines of Fannie Mae, Freddie Mac, or HUD

It’s really no surprise that a lot of consumers don’t stay with their original mortgage lenders and/or loan servicers.

Aside from some existing lenders sometimes talking borrowers out of a refinance, the product is mostly the same no matter where you get it.

That makes customer retention difficult, especially when other lenders are aggressively marketing to homeowners.

These days, the majority of home loans are backed by the agency guidelines of Fannie Mae, Freddie Mac, or the government via FHA loans and VA loans. I think it’s something like 90% of mortgages.

This means mortgage loans are pretty homogeneous, despite what channel they’re originated in, or which institution provides the financing.

You could get the same exact home loan from a local credit union, a big bank, an online mortgage banker, or a mortgage broker.

And who really cares where you get your mortgage as long as the company is competent enough to close the thing, and honest in terms of rate and fees?

It’s not like you’re going to walk around and brag about your cool mortgage from X bank after the fact. It’s certainly not a status symbol, or a conspicuous transaction.

I’m pretty sure I’ve never had a conversation about someone’s branded mortgage before.

And I doubt an “influencer” is going to post about theirs on Instagram. Well, I take that back, they might…because someone paid them.

Mortgage Advertising Is Following the Insurance Model

  • Like mortgages, most forms of insurance are similarly boring and unoriginal
  • But that doesn’t stop mega insurers like Geico from advertising to you 24/7
  • Other insurers create catchy new names for run-of-the-mill coverage that isn’t really unique
  • Mortgage lenders are beginning to do that too in a bid to separate themselves from the crowd

This is exactly why insurance companies use celebrity endorsements and smart marketing gimmicks to get you to switch, or conversely, to stick around.

Car insurance isn’t cool or exciting and never will be, nor are mortgages, as much as I want them to be.

Ultimately, we’re all being sold the same thing, it’s just that some companies try to differentiate themselves by slapping clever names onto their products.

For example, Quicken Loan’s Rocket Mortgage is about reinventing the mortgage process, not the mortgage itself.

You’re still probably going to get a 30-year fixed home loan or some other ordinary mortgage that you would get anywhere else.

It’s just the way you get it that might change. Instead of meeting face-to-face with a banker, you might upload documents on your smartphone and authorize the release of documents electronically.

This could make the experience a lot easier and more pleasant, but it doesn’t mean you’re necessarily getting anything different.

Because everyone is basically offering their customers same thing, it comes down to price, customer service, and now perhaps clever marketing.

The one exception is portfolio home loan programs, which are actually unique to the mortgage lender providing them. These are loans kept on the originating bank’s books that contain distinct underwriting guidelines.

We’re starting to see more of them, though most lenders remain fairly cautious with the mortgage crisis still a not-too-distant memory, despite taking place a decade ago.

For example, a lot of the zero down mortgages you see are unique to the companies offering them, the latest one I came across from Ideal Credit Union.

And some of the so-called fintech disruptors like SoFi Mortgage are actually providing unique offerings like a 5/1 ARM with an interest-only option and jumbo loans as high as $3 million with just 10% down.

Be Careful Not to Pay More for the Same Exact Mortgage

  • While it’s important to use a mortgage lender you can trust
  • Such as one that can actually close your home loan competently without major delays
  • It doesn’t really matter what “brand” the mortgage it is after it funds
  • And there’s a good chance it’ll be resold to a different company shortly after closing anyway

Those exceptions aside, many of us have very similar mortgages that are only unique in terms of where they originated from.

As noted, most of today’s mortgages are conforming loans, meaning they meet the guidelines of Fannie and Freddie. Or they’re simply backed by the government via the FHA, VA, or USDA.

And just about all of them are 30-year fixed-rate loans that function exactly the same.

That’s why you have to ask yourself – if the company isn’t offering anything different, why pay more?

Might as well bargain shop and find the best mortgage rate with the lowest closing costs, instead of simply going with a household name because of a funny commercial.

At the end of the day, as long as they get you to the finish line, you’ll probably never think about your mortgage company again. Just make sure they’re reputable first…

Chances are your mortgage will be sold off in a matter of months anyway, so the company you get it from likely won’t even service it.

In fact, your final correspondence might be a notice of your home loan changing hands…

(photo: lamdogjunkie)

Source: thetruthaboutmortgage.com

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Boston fintech firm Knox Financial plans to expand its lending business and loan products with $50 million in funding it received from a real estate advisory firm. 

New York-headquartered Saluda Grade provided the funding in forward flow capital which Knox will use to expand its lending business into Georgia, Knox representatives said Wednesday. The fintech also will offer additional loan products, including home equity lines of credit (HELOCs), new purchase loans and cash-out refinancings. 

“A homeowner’s best investment is the home they live in — far better than the returns we’ve seen from the stock market in 2022, and a great hedge against record-high inflation,” said David Friedman, co-founder and CEO of Knox Financial. 

Established in 2018, Knox aims to help manage residential rentals with its algorithm-based platform. Its rental pricing and projection model also calculates the rate of return an investment property is expected to produce over time. When a property is enrolled in the platform, Knox automates and oversees the property’s finances and taxes, insurance, leasing, banking and bill pay, according to the company’s website. 

The funding comes shortly after Knox launched its first mortgage product, dubbed the Knox equity access program (KEAP), in April. KEAP loans give homeowners access to capital, based on the equity in the home, to turn it into an investment property with Knox. Homeowners can then use their KEAP loan to fund a downpayment on their next home and to pay for repairs on their investment property.

In return, Knox charges an origination fee and third-party costs to the borrower. Knox also keeps 10% of the rental income generated from properties listed on its platform. 

Prioritizing home equity solutions in a rising rate environment

The 2022 housing market has been underscored by interest rate spikes and refi decline and lenders are working hard to adjust to new borrower trends. HousingWire recently spoke with Barry Coffin, managing director of home equity title/close at ServiceLink, about the ways lenders can capitalize on these trends by revving up their home equity solutions.

Presented by: ServiceLink

Knox’s expansion comes amid a shrinking mortgage origination market. As mortgage rates began increasing this year, lenders, mortgage tech firms and real estate brokerages started laying off employees, often citing rapidly declining market conditions. 

With rising mortgage rates, company representatives said Knox has seen growing interest in second lien products such as home equity loans or HELOCs from borrowers who have tappable equity but don’t want to refinance. 

“As mortgage rates have risen, more inventory will become available at more competitive pricing,” said Matt Marra, chief growth officer at Knox.

Knox Financial raised $10 million in Series A funding in April 2021, led by G20 Ventures, following a $3 million seed round in January 2020. The largest markets for Knox are metropolitan areas of Boston, Atlanta, Houston, Dallas and Austin, Texas. According to Marra, Knox oversees a portfolio of $150 million in combined value.

Source: housingwire.com

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California-based Pennymac launched a product that can freeze mortgage rates as many as 90 days, in a bid to attract more borrowers to the market amid volatile rates.

Dubbed “Lock & Shop,” the product, rolled out in mid-June, has three terms, all of which include a shopping period, plus a built-in, 30-day period in which to close on the contract. The terms vary based on how much time a borrower anticipates needing to find their dream home: The 60-day lock gives borrowers 30 days to find their new home; the 75-day lock gives borrowers 45 days to shop; and the 90-day lock gives customers 60 days to select a home. 

The product also allows a one-time “float down,” should rates decline. It’s available for all loan types, except for jumbo. 

“As we know, the Federal Reserve has indicated they’re going to continue to raise rates, so we can lock in the loan with today’s rate for up to 90 days,” said Scott Bridges, senior managing director of direct consumer lending. “That might prevent you from either not buying the house you wanted or having to buy a lower-priced house because your payment would be higher with a higher rate.”

Pennymac’s product allows borrowers to extend their lock-in period at an updated rate if they do not find a house during the term length selected. Bridges said there’s no upfront fee, but the lender requires pre-approval to ensure borrowers qualify for a mortgage loan – in this case, the lender gives 50 basis points on the closing costs.

“There’s no point doing a Lock & Shop if your purchase is going to be fairly imminent, but we are seeing it to be a very popular product for our borrowers,” Bridges said. Pennymac has locked more than 100 applications with the product since mid-June. 

Creating a path to success in today’s purchase market

Meeting the needs of a new generation of homebuyers while managing the ebbs and flows of a volatile housing market is a major endeavor for any mortgage lender. So, what should lenders be doing to thrive in the face of a post-pandemic housing market rife with new hurdles?

Presented by: Calyx

Pennymac is the latest mortgage lender to freeze rates for borrowers. In late June, fintech startup Tomo also announced a “Lock & Shop” product, allowing borrowers to lock in a mortgage rate for as many as 120 days, about twice as long as most lenders.

The product does not require a property address to guarantee a mortgage rate. Founded in 2020 by former Zillow executives Greg Schwartz and Carey Armstrong, the fintech startup focuses on the $1.6 trillion purchase mortgage sector.

“Consumers had seen so much news coverage on a threatened recession, inflation and interest rate increases that they got stuck,” Tomo’s co-founder and CEO Greg Schwartz said. “They are saying: ‘I’m afraid that if I start shopping now, by the time I find a place — because there’s still limited inventory, I still have to make multiple offers — and, by the time I find a home, I may have much less buying power.’”

Since January, mortgage rates have risen quickly due to high inflation and the Federal Reserve’s plan to tighten monetary policy. And that has put pressure on mortgage lenders with extended lock-in periods. 

When rates are surging, lenders’ capital markets teams have trouble selling loans locked at a lower rate because investors demand higher returns. That often forces lenders to sell at par or take a loss.

But Pennymac and Tomo said they can offer extended lock-in periods because their capital markets teams are hedging the transactions (so they can avoid losses when selling loans at the current mortgage rate in the secondary market in the future) and the companies have strong balance sheets.

Last summer, Tomo launched its platform after raising $70 million in seed capital and achieving “unicorn” status. In 2022, Tomo said it raised another $40 million in a Series A round led by SVB Capital, which more than doubled the company’s valuation to $640 million.

Tomo, however, is not immune to the volatility in the markets. The digital mortgage lender laid off nearly one-third of its workforce in late May. The company does not disclose its origination volume. 

Pennymac reported $490 million in cash as of March 31, according to Securities and Exchange Commission (SEC) filings.  

The company delivered a pretax net income of $234.5 million in the first quarter, essentially unchanged from the prior quarter. Pennymac expects to  lay off 207 employees in June and July following a workforce reduction filing of more than 230 employees in March.

Editor’s Note: This article was updated July 14 to indicate Pennymac offers three term options for its “Lock & Shop” product. After publication, a spokeswoman provided additional information about a 60-day lock term, which had not been initially disclosed.

Source: housingwire.com

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With rates around 6.9% and home prices still near record highs, homebuyers are demanding that their loan officers provide options to lower monthly mortgage payments as much as possible.

Michael J. Barnes, a branch manager at Mann Mortgage, recently had a client who planned to live in a new home for five years before selling it. The client requested a cost analysis to compare monthly payments on a mortgage at 7.5% versus a 6.5% mortgage rate with a permanent rate buydown.

His client would pay $4,000 to buy down the rate by one full percentage point (100 bps) and save $7,880 over the five-year period he planned to keep the home. 

“In that client’s case, it made sense to pay to do a permanent buy down,” Barnes said. “There were too many things going against the client to do a temporary buydown, knowing that he’s going to keep it for a maximum of five years.”

To get the best product for the borrower, Barnes, like many LOs these days, has had to run different scenarios based on the client’s preferences, including the mortgage term, down payment and whether the purchase would be a primary residence versus investment, as that would affect the pricing of LLPA fees. 

LOs across America are challenging clients to think about their financial situation several years down the line, asking about plans for kids, how much is being saved in IRAs/401Ks, and more. These days, there’s much more to the job than, “Here’s much you qualify for,” LOs said.

“What I’ve seen is that the really good mortgage advisors today are taking time to understand each borrower’s circumstance, short term goals, long term goals and put together a plan with them of how long are they going to be in the house, how much do we need to put down on that house, and understand not every loan is created equal for every person, depending on what their goals are,” said Brian Covey, executive vice president of Revolution Mortgage. 

Understanding the borrower

Randy Kaufman, a senior loan originator at Notre Dame Federal Credit Union, offered his client the option to float his rate for a transaction that is set to close at the end of June. 

When Kaufman’s client’s offer was accepted at the end of May, the client anticipated that the debt ceiling legislation would pass and that the Federal Reserve would pause hiking rates in the upcoming June FOMC meeting, which in turn would bring mortgage rates down. 

“They didn’t want to lock it yet, they wanted to let it flow. So they’re saving themselves some money by letting it flow,” Kaufman said.

Being conservative never hurts and being strategic about the market is important, Jared Sawyer, a sales manager at loanDepot, said.

loanDepot offers borrowers the option to float rates but Sawyer sees the majority of his clients want predictability when it comes to rates – opting to go with a permanent rate buydown.

“I would say about 95% of first-time homebuyers want to know what their payment is going to be out of the gate. They don’t have to worry about that changing on them,” Sawyer said.

Especially when the seller is willing to give concessions, the buyer is able to get a credit for closing and contribute to buying down points. 

Seller concessions are abundant in some of the markets that have cooled – including Oregon and Arizona – and his clients are able to take advantage of that, Sawyer noted. 

“I let them know their options. These are the options you can do and here are the pros and cons of this (…) About 90% of the conversation we’re having, [I’m hearing] we don’t want to look at something temporary. We want to make sure we know what our payments are going to be,” Sawyer said.

Every scenario is different and he finds some of his experienced buyers – those who bought their first homes already are open to the option of a temporary buydown, according to Sawyer, 

Temporary buydowns often make more sense for buyers planning to live in the home long term as they are more likely to have a refi opportunity during that time period, Barnes noted. Also, seller-funded temporary buydowns may not be available depending on how hot market conditions are.

A game of conversion for loan officers

“The knowledge of what the market is doing and knowing why it is happening is critical right now more than ever,” Jose Valenzuela, a loan officer at Motto Mortgage, said. “If you can paint a picture for the borrowers explaining potential scenarios both good and bad, it’s also critical.”

Valenzuela has been able to create a high pull-through closing after retaining pre-approved clients thanks in part due to weekly check-ins with his clients. Being a “trusted advisor” is important in an environment where buyers are trying to find their homes. It’s important to focus on what the buyer might be looking for, Valenzuela said.

For instance, having a nice yard for a borrower’s son could mean they can pass on to their child like their parents did for them, he noted. Some borrowers are focused on legacy to leave for their child’s future.

“Have a meaningful conversation about ways to focus on legacy like a living trust, a financial planner (…) This will keep you in the driver’s seat against almost any other loan officer,” he said. 

Many loan officers are hoping for the market to turn, which in turn would bring back some refi business among homebuyers who locked in rates at close to 7% levels at the latter half of 2022. 

“I would not hold my breath on that I would plan on this environment being consistent. You have to work three times as hard to make the same paycheck you did last year in this environment,” Sawyer said. 

Ultimately, it’s a game of conversion. Loan officers need to take more time with borrowers and ask better questions to secure loans, Covey said. 

“Even if you’re talking to fewer people, if you can convert at a higher percentage, you’re still getting the volume and velocity of applications and closings that you desire.” 

Source: housingwire.com

Apache is functioning normally

Typically, you pay a premium if you select a 30-year fixed mortgage versus an adjustable-rate mortgage.

The reason is simple – the interest rate is locked in and will not change during the entire loan term, which is a full 30 years, or 360 months.

Conversely, if you choose to go with an adjustable-rate mortgage, such as a 5/1 ARM or a 7/1 ARM, you only receive the benefit of a fixed rate for the first five or seven years, respectively.

It is then subject to change annually during the remaining 23 or 25 years of the loan term.

As such, you should be entitled to a discount on your mortgage rate during that initial fixed period to make up for the risk of the interest rate resetting higher once the fixed period ends.

This spread can change over time depending on what’s going on in the economy and secondary market, along with lender/investor appetite for certain products.

Today’s Menu: 30-Year Fixed or Bust

  • Mortgage rates are usually highest on the 30-year fixed
  • Because borrowers receive a fixed interest rate for a full three decades
  • Discounts are typically given on riskier products like ARMs or shorter-term loans like the 15-year fixed
  • But right now lenders aren’t passing along the usual discounts

At the moment, anything that isn’t a 30-year fixed mortgage is basically out of favor.

This is probably even more true with nonbank lenders and those who sell off their mortgages, as opposed to keeping them in their own bank portfolio.

This explains why you’re no longer seeing the usual discounts offered for loan products like ARMs, and in some cases, even shorter-term fixed-rate mortgages, including the 15-year fixed.

Once again, I traveled across the internet to see what mortgage lenders were advertising for their popular loan programs, and this trend is pretty clear.

Lender ARM or 15-Year Fixed Rate 30-Year Fixed Rate
Bank of America 3.375% (10/1 ARM) 3.375%
BB&T 3.375% (15-year fixed) 3.375%
Chase 3.49% (7/1 ARM) 3.125%
Citi 4.75% (7/1 ARM) 3.875%
Citizens Bank 3.375% (7/1 ARM) 3.375%
Navy Federal 2.375% (5/5 ARM) 2.875%
Quicken Loans 3.125% (10/1 ARM) 3.375%
USAA *3.50% (VA 5/1 ARM) 3.50%
Wells Fargo 3.625% (5/1 ARM) 3.375%

Bank of America is advertising a 30-year fixed for 3.375% with 0.786% discount points, and a 10/1 ARM for the same rate with 0.971% discount points. In this example, it’s actually more expensive to take the riskier loan product.

BB&T is charging the same 3.375% for a 30-year or 15-year fixed refinance rate, yet the APR is slightly higher on the 15-year.

Chase will give you a 30-year fixed for 3.125%, or a 5/1 ARM for the same price. If you want a 7/1 ARM, the rate jumps up to 3.49%. More risk for more money…that’s a sign of a messed-up mortgage market.

Citi is showing super wild mortgage rates, with the 30-year fixed 3.875% with 0.125% points, and the 7/1 ARM pricing at 4.75% with a full point charged. You’d be crazy to go with the ARM.

Over at Citizens Bank, they’re advertising a 30-year fixed for 3.375% with .50% discount points. Meanwhile, their 7/1 ARM features the same exact rate with .125% discount points.

So slightly cheaper in terms of closing costs, but the same exact rate. It wouldn’t make much sense for most folks to go with the ARM unless they absolutely knew they’d be selling before those seven years were up.

And right now, there’s not a whole lot of certainty in terms of what’s next for anyone.

Some mortgage lenders aren’t advertising or possibly even offering ARMs at the moment, including Better Mortgage and Guaranteed Rate.

Navy Federal seems relatively normal, with their 30-year fixed 2.875% with 1.25 points, and their 5/5 ARM pricing at 2.375% with 0.25% points.

That’s a discount of a half a percent, which is more of what you’d expect to see based on the risk profiles of both loan programs. This might be because they keep the loans they originate.

At Quicken Loans, you can get a slight discount on a 10-year ARM vs. a 30-year fixed, 3.125% instead of 3.375%.

Then there’s USAA, which is advertising a 30-year fixed VA loan for 3.50% with negative mortgage points of 0.375%, and a 5/1 ARM with “APR typically around 3.500%.” You have to call to get the scoop, but it doesn’t sound much cheaper.

Lastly, Wells Fargo is offering a 5/1 ARM for 3.625%, and a 30-year fixed for a cheaper 3.375%.

So again, you’d be better off taking the 30-year fixed, not only because the interest rate is lower, but it’s also fixed for the full mortgage term.

It’s All About the Plain Vanilla Home Loan Right Now

  • Mortgage lenders are very skittish at the moment like all other businesses
  • As such they’re sticking to their safest products like the 30-year fixed while also tightening underwriting standards
  • This is partially because it’s easier to sell these types of loans on the secondary market to investors
  • Expect it to be more difficult to find a home loan with exotic features for the foreseeable future

In summary, mortgage lenders are grappling with a lot of uncertainty, just like everyone else thanks to the coronavirus (COVID-19).

And when that happens, they flock to the safety and security of the 30-year fixed, similar to how investors flee the stock market and head toward government bonds, which are guaranteed to be paid back.

Speaking of being paid back, the Fed’s QE4 program targets agency mortgage-backed securities, such as those backed by Fannie Mae and Freddie Mac.

At the moment, banks and lenders are eschewing anything that isn’t super vanilla, aka basic and low-risk.

Those who are offering ARMs, jumbo loans and other traditionally riskier products are charging a premium in many cases since they don’t have the benefit of the Fed as a buyer.

Others are just removing them from their product menu, perhaps until the dust settles.

It’s reminiscent of the mortgage crisis that took place in the early 2000s, when lenders only originated boring old fixed-rate mortgages and ditched all the aggressive option ARMs, interest-only loans, and so on.

To make matters worse for some borrowers, they’re also upping minimum credit score requirements and getting tougher with their underwriting, whether it’s a lower max DTI ratio or a lower max loan-to-value ratio (LTV).

The name of the game is less risk, so if you’ve got a questionable loan scenario, it might be difficult to get funding right now.

Hopefully this is a short-term phenomenon, but no one knows for sure how long it will last.

Read more: What mortgage has the best interest rate?

Source: thetruthaboutmortgage.com

Apache is functioning normally

Home price growth slowed in May, showing signs of a cooling housing market. But housing is the least affordable it has been since the mid-1980s as mortgage rates rise and home values soar, driven by low housing inventory, a new Black Knight report suggests.

The annual home price growth index, measured by Black Knight, grew 19.3% in May from a revised 20.4% in April marking the largest single-month deceleration since 2006. Prices, however, are still up 1.5% month over month, which is nearly twice the historical average for May, according to Black Knight’s monthly mortgage monitor report.

“While any talk of home values and 2006 might set off alarm bells for some, the truth is that price gains would need to see deceleration at this rate for more than 12 months just to get us back to a ‘normal’ 3-5% annual growth rate,” said Ben Graboske, data and analytics president at Black Knight. “That said, the pace of deceleration could very well increase in the coming months, as we’ve already begun to see in select markets such as Austin, Boise and Phoenix.”

The strongest deceleration was in Austin, Texas where home price growth rate dropped 12.2 percentage points followed by Boise, Idaho (-12.1 percentage points) and Spokane, Washington (-7.1 percentage points), all of which saw significant home price growth in recent years, according to Black Knight.

While 97 of the nation’s 100 largest markets saw home price growth slowing, affordability is at its worst point since the mid-1980s, when sharp hikes by the Federal Reserve led to double-digit mortgage rates, which often resulted in greater than 50% payment-to-income ratio.

Back then, affordability pressures were almost entirely rate-driven and incomes largely kept up with home price growth, the report said. Today’s falling affordability is due to rising rates and soaring home values largely driven by low inventory levels.

The average home price is now more than six times the median household income. As of mid-June, it takes about 36% of the median household income to make the mortgage payment on average-priced home purchase, which is well above the 34% post-1980s peak in July 2006. That payment is higher than $2,100 for the first time on record, up nearly $750 so far this year and almost double the $1,089 required at the beginning of the pandemic.

However, the largest jump in housing inventory in the past five years also was in May, as pending listings began to normalize and existing listings sat longer on the market. Despite more than 107,000 homes listed for sale in May, inventory remains at a 60% deficit. That equates to about 770,000 fewer properties on the market than there would typically be at this time of the year, according to Black Knight.

“All major markets are still facing inventory deficits, but some have seen their shortages shrink much faster than others,” Graboske said.

Among them are some of the hottest housing markets, including San Francisco and San Jose, California, and Seattle, Graboske added. “Unsurprisingly, these are also among the markets seeing the strongest levels of cooling so far this year, with annual home price growth rates in each down more than three percentage points in recent months.”

Regarding mortgage rates, rising 30-year rates have now “all but eliminated traditional rate-term refinance incentives in the market,” Black Knight’s report said.

In an 18-month span from late 2020 to the present, the market saw the population of high-quality refi candidates soar to an all-time high, near 20 million, and plunge to the lowest level since the beginning of the century.

In early 2022, some 11 million refinance candidates remained but that population fell by 95% year to date with less than 500,000 remaining as of June. According to Black Knight, most of the remaining candidates held their mortgages since 2003 or prior, suggesting a reluctance to either refinance or restart a 30-year commitment.

Rate/term locks are down 90% from the same time last year and accounted for less than 5% of rate locks on the Optimal Blue platform in May. Cash-out locks were down 42% year over year and data through mid-June suggests they’re now down even more, to 50% from the same time last year.

Source: housingwire.com

Apache is functioning normally

Roughly eight in 10 consumers participating in a recent survey are frustrated with the housing market, inflation and the increasingly worsening economy — reflecting record-setting dissatisfaction from respondents of Fannie Mae‘s Home Purchase Sentiment Index (HPSI).

The index, which tracks consumer confidence in the housing market, fell 3.4 points from May to June, dropping to 64.8 — its second-lowest reading in a decade. Compared with the same period last year, the index is down 14.9 points.

“In June, a survey-record 81% of consumers reported that the economy is on the wrong track, suggesting to us, and corroborated by other recently released consumer confidence measures, that people appear to be growing increasingly frustrated with inflation and the slowing economy,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. 

Additionally, four of the index’s six components, those asking consumers whether it’s a good time to buy, sell and in what direction they expect mortgage rates will move, decreased from May to June.

About 21% of survey respondents also expressed job stability concerns, the highest percentage in 18 months. And approximately half of all surveyed said it would be “difficult” to get a mortgage, the greatest number since 2014. 

“This month’s HPSI reading reflects these macroeconomic and personal financial concerns, with housing sentiment additionally diminished by the recent rapid increases in mortgage rates,” Duncan said. 

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Mortgage rates, following the Federal Reserve‘s inflation-fighting monetary policy, averaged 5.30% this week, according to the latest Freddie Mac PMMS index. Rates have been trending downward in recent weeks, but it’s still well over the 2.90% 30-year fixed-rate purchase rates the same period a year ago. 

The HPSI results for June are consistent with the Fannie Mae Economic and Strategic Research Group’s forecast of a slowing housing market through the rest of 2022 and 2023, Duncan added.  

Citing higher mortgage rates as the housing market’s “primary constraint,” the ESR Group projected total home sales to fall 13.5% to 5.96 million units in 2022. About 5.29 million homes are expected to sell in 2023. 

The GSE also lowered its projections of mortgage originations to $2.6 trillion in 2022 and $2.2 trillion in 2023. Regarding the overall economy, Fannie Mae raised the second quarter GDP to 2.5% for 2022 but said it will be offset by a slower growth forecast in the latter half of the year as inflation continues to eat into real incomes.

Source: housingwire.com

Apache is functioning normally

Well, just like that it’s December again, which means it’s time for the 2022 mortgage rate predictions.

This past year was filled with ups and downs (literally) when it came to mortgage rates, with plenty of surprises and unexpected turns along the way.

I expect 2022 to be no different, seeing that COVID is still very much an unresolved issue.

At the same time, the Fed has pumped the brakes on its purchases of mortgage-backed securities, while also signaling an end to its easy money, low rate days.

So perhaps 2022 will be an ongoing tug-o-war between the Fed and COVID when it comes to the direction of rates. This could mean periods of low rates and not-as-low rates.

MBA 2022 Mortgage Rate Predictions

First quarter 2022: 3.3%
Second quarter 2022: 3.5%
Third quarter 2022: 3.7%
Fourth quarter 2022: 4.0%

First up is the Mortgage Bankers Association (MBA) and their monthly Mortgage Finance Forecast from late November.

They predict a 30-year fixed mortgage at 3.3% in the first quarter of 2022, which isn’t far off from today’s levels, depending on the mortgage lender in question.

It then rises 20 basis points to 3.5% in the second quarter of 2022, and another 20 bps to 3.7% in the third quarter.

The shocker is their call for a 4% 30-year fixed mortgage rate by the fourth quarter of 2022. That’s bold, though not out of the realm of possibilities.

They see rates going even higher from there in 2023, but perhaps plateauing a bit close to 4% for much of the year.

Fannie Mae 2022 Mortgage Rate Forecast

First quarter 2022: 3.2%
Second quarter 2022: 3.3%
Third quarter 2022: 3.3%
Fourth quarter 2022: 3.4%

Next up is Fannie Mae, which releases a monthly Housing Forecast that contains mortgage rate predictions through 2023.

They are playing things a lot safer than the MBA and simply going with a 30-year fixed that barely budges throughout the next 12 months.

We’re talking 3.2% to start off 2022, 3.3% for the second and third quarter, and just 3.4% at the end of the year.

And they don’t expect rates to go much higher in 2023 either, currently forecasting a rate of just 3.5% at that time.

Fannie Mae also polls consumers on their mortgage rate expectations over the next 12 months, and let’s just say they aren’t very optimistic.

In its latest release, (December 7th, 2021), just five percent of respondents said they believe mortgage rates will go down, while 58% think mortgage rates will go up.

Meanwhile, 32% expect mortgage rates to stay the same over this time period. So you’re in the minority if you see rates moving lower in 2022.

Freddie Mac 2022 Mortgage Rate Predictions

First quarter 2022: 3.4%
Second quarter 2022: 3.5%
Third quarter 2022: 3.6%
Fourth quarter 2022: 3.7%

Meanwhile, Freddie Mac isn’t too hopeful themselves when it comes to the direction of rates.

They expect the 30-year fixed to rise to 3.4% in the first quarter of 2022, before inching up 10 basis points each quarter to end the year around 3.7%.

While still quite low historically, it won’t be welcome news to prospective home buyers grappling with affordability issues, or existing owners looking to tap home equity.

The caveat is their forecast was last updated at the end of September, so until I get their next release, this is all we have to go on.

There’s a chance they may rein it in a bit and shift their estimates down, though I doubt they’d move more than say 10 basis points lower for each quarter. But we’ll see.

NAR 2022 Mortgage Rate Outlook

First quarter 2022: 3.3%
Second quarter 2022: 3.5%
Third quarter 2022: 3.6%
Fourth quarter 2022: 3.7%

Next up we’ve got our friends at the National Association of Realtors (NAR), which provide estimates in their monthly U.S. Economic Outlook.

The numbers above are from their November 2021 edition, and aren’t much different than what Freddie Mac is predicting.

In fact, other than the first quarter being a slightly lower 3.3%, their estimates are exactly the same.

They appear to be playing things more safely than in the past when they’d often call the end on the low mortgage rates.

I’m surprised they didn’t take the opportunity to call a year-end 4% 30-year fixed…

CoreLogic Mortgage Rate Forecast

While CoreLogic doesn’t break rates down by quarter, they do expect “mortgage rates to average about one-half of a percentage point higher in 2022 than they were in 2021, or about 3.4%.”

This is pretty close to the estimates from Fannie Mae, and the result of the Federal Reserve’s tapering to support its monetary policy.

Despite these expected higher interest rates, they believe home sales will rise to their highest levels since 2006, around the time the housing market began to top.

Ominous sign or not, it means mortgage lenders should stay relatively busy with home purchase loans, even if mortgage refinancing slows a lot.

The Truth’s 2022 Mortgage Rate Predictions

First quarter 2022: 3.0%
Second quarter 2022: 3.25%
Third quarter 2022: 3.375%
Fourth quarter 2022: 3.5%

Lastly, I’ll throw my hat in the ring and provide my predictions for the upcoming new year.

As I always say, there will be opportunities throughout the year – that’s just the nature of mortgage rates. They ebb and flow, rise and fall, just like anything else.

Of course, timing them is just as hard as everything else too.

Depending on the time of year (when are mortgage rates lowest), the environment could be favorable or not that desirable.

Still, I don’t see a ton of upside risk to rates given we’re still dealing with the COVID-19 pandemic.

A lot of unknowns remain, especially navigating this winter, which is always a trickier time of the year when it comes to any illnesses.

Once we get to 2022, it’ll hopefully be a bit clearer. But I expect new variants to surface in 2022, which could make it difficult for the Fed to move their own borrowing rates significantly higher.

At the same time, I don’t necessarily see mortgage rates falling much or hitting new all-time lows in 2022. It’s certainly possible though and I won’t rule it out.

But if I had to pick a direction, I’d say up, though only slightly. So if we start the year at 3%, only 3.5% by the end of the year, which isn’t bad at all.

A lot of homeowners already have super low 30-year fixed mortgage rates that they probably won’t mess with.

The only exception is those who wish to tap their equity via a cash out refinance. So rates will mostly only matter to new home buyers and these folks.

But if they stay low enough (or dare I say go even lower), plenty of existing homeowners with low-rate mortgages may rush to cash out some of that precious home equity.

This could save the mortgage industry, which is expected to see quite a bit of slowing in 2022 after some really big years.

Be sure to check all my 2022 real estate predictions for more on the housing market, rates, and trends.

The 2023 mortgage rate predictions are now out as well!

(photo: Marco Verch, CC 2.0)

Source: thetruthaboutmortgage.com