The Department of Housing and Urban Development announced an upcoming sale of vacant loans secured by home equity conversion mortgages.
HVLS 2024-2 will be up for bid on May 7 and comprises approximately 1,265 notes with loan balances of close to $346 million. The sale consists of due and payable residential loans secured by first-lien HECMs, where borrowers and non-borrowing spouses are now deceased, the announcement from HUD’s office of asset sales said.
Nonprofits, government agencies and for-profit businesses, are all eligible to bid in the sale. HUD will also consider offers from joint ventures and other partnerships between various enterprises.
HUD vacant loan sales, which were first introduced in 2016, emerged as a means to help increase supply through the disposition of assets. As much as 50% of an offering is sometimes prioritized for nonprofit and government organizations in hopes of providing housing, including homeownership opportunities for residents making under 120% of area median income. Unlike prior HVLS auctions, no mention was made of designated allotment for specific buyer segments in the latest announcement.
Through the first half of 2023, nonprofits have purchased 28% of all HVLS loans for sale since the program’s launch, HUD said in a report late last year. Settled loan count totaled 10,280.
An approximate 52% share of loans sold through HVLS come from 10 states. Florida headed the list with 13%, with Texas in second place at 7%. California, Illinois and New York all followed at 5% each.
The latest sale comes as home affordability and inventory issues rise in the public consciousness, after President Biden made the country’s housing situation a key talking point in his recent State of the Union address. The creation of more units has been a focus in the Biden Administration’s housing action plan, first announced a year ago. At the end of 2020, Freddie Mac estimated the U.S. was short 3.8 million units to adequately meet demand.
HECMs, a Federal Housing Administration-backed product offered to homeowners 62 or older, allows older borrowers to tap into home equity as they age, and are assigned to HUD from prior servicers when balances reach 98% of maximum claim amounts. Rather than foreclose on homes when borrowers are deceased, the agency puts loans up for sale to avoid disposition costs and help the housing industry generate supply.
Finance of America currently comes in as the country’ top HECM originator with almost one-third of overall volume, according to data from Reverse Market Insight. Mutual of Omaha Mortgage comes in second with about 22% of originations.
Now that we are right in the middle of the spring buying season, my inventory model is simple: with higher mortgage rates, just like last year, we should be able to grow weekly active inventory between 11,000 – 17,000 on some weeks. Unfortunately, I batted a whopping zero last year since inventory growth never hit that level for even one week — even when mortgage rates hit 8%. This model was based on rates over 7.25%, which is my peak rate forecast.
Weekly inventory change (March 22-29): Inventory rose from 512,759 to 517,355
The same week last year (March 23-30): Inventory fell from 413,883 to 410,734
The all-time inventory bottom was in 2022 at 240,194
The inventory peak for 2023 was 569,898
For some context, active listings for this week in 2015 were 1,012,704
New listings data
While I am thrilled that new listings data is growing year over year, something I have been anticipating for some time, the growth in 2024 has been disappointing because I had expected a bit more by now. This was my big talking point on CNBC earlier in the year. Still, new listing data is a positive story. Here are the number of new listings for last week over the last several years:
2024: 59,854
2023: 48,442
2022: 56,258
For context, new listings data at this time in 2010 ran at 326,266.
Price-cut percentage
Every year, one-third of all homes take a price cut before selling — this is regular housing activity and this data line is very seasonal. The price-cut percentage can grow when mortgage rates increase and demand gets hit.
As inventory and demand grow year over year, the price-cut percentage data increases year over year. So, we will keep tracking this data line to see how high it goes this year. We keep it simple: higher inventory softness in demand means price growth is weakening. As we can see below, the year-over-year data is showing a higher percentage of price cuts.
2024: 31.9%
2023: 30.5%
2022: 17.2%
10-year yield and mortgage rates
For those of you who have followed me for the last 12 months, you know how important the 4.34% level on the 10-year yield is for my economic work and therefore for the mortgage rate discussion. A break above this level would send mortgage rates toward 7.5%-8%. So far, so good here.
We had the PCE inflation report come out Friday and because some people were expecting a hotter number than estimates, it was perceived to be bullish for rate cuts. However, the markets were closed Friday, so we have to wait and see how trading goes on Monday. The 10-year yield channel is between 4.25%-3.80%, which looks correct as long as the economic data stays firm and jobless claims don’t break higher. This means mortgage rates will likely remain in the upper range of my 2024 forecast of 6.75%-7.25%.
There was not too much action in mortgage rates last week, but with jobs week coming up, we could see some movement. As you can see below, the 10-year yield has made a massive move from 2022 and has stayed above 4%, even with the progress we have made with inflation. Always remember, when it comes to discussions about rates and the Fed pivoting, it’s always labor over inflation data.
Purchase application data
Purchase application data didn’t move much last week. It was flat on a week-to-week basis and down 15% year over year.
Since November 2023, after making holiday adjustments, we have had 10 positive and six negative purchase application prints and one flat print. Year to date, we have had four positive prints versus six negative prints and one flat print.
What have 2022, 2023, and 2024 shown us? Purchase apps made a solid positive run up until mortgage rates started to get back over 7%. This was similar to 2023 data, when purchase apps had 12 weeks of a positive run-up until rates moved toward 7% and then 8%.
Week ahead: We’ll see trading off the inflation report and it’s jobs week
First, the trading on Monday will be exciting because of the PCE inflation report; some argue it was hot and some say it wasn’t. The market decides this, and bond trading will judge it on Monday morning.
Also, Federal Reserve Chairman Powell talked on Friday. I believe Powell’s crucial comment was that the Fed won’t overreact to significant disinflation or heated inflation reports. I think some people missed this. If you want to understand why the markets still have three rate cuts priced in, it’s this mindset.
Then it’s jobs week, with four labor reports, and, of course, for me, it’s labor over inflation data, so buckle up!
Want more context? On the PowerHouse podcast with HousingWire CEO Clayton Collins, I discussed why the data lines we look at in the Housing Market Tracker are so critical for those in the housing industry.
The U.S. Department of Housing and Urban Development (HUD) on Monday announced that it would be bringing its Innovative Housing Showcase back to the National Mall in Washington, D.C., this June. The event is designed to highlights housing solutions and “advancements in housing design, technology and sustainability.”
Taking place on June 7-9, the event is open to the public and will offer an opportunity “to raise awareness of innovative and affordable housing designs and technologies that have the potential to increase housing supply, lower the cost of construction, increase energy efficiency and resilience, and reduce housing expenses for owners and renters,” HUD explained in a news release.
Coming on the heels of a new commitment to housing solutions as outlined by President Joe Biden during his State of the Union address earlier this month, the event is designed to highlight a wider effort by housing professionals and stakeholders to impact housing access, availability and sustainability. The event will also feature interactive exhibits, including full-sized prototype homes and other technology demonstrations.
HUD expects as many as 4,000 people, “including policymakers, housing industry representatives, media, and the public,” to attend the event across all three days.
“The Innovative Housing Showcase is a testament to our nation’s unwavering commitment to moving the housing sector forward,” HUD Secretary Marcia Fudge said in a statement. “The future of housing is innovative. The Showcase provides a unique opportunity to explore technologies that can make housing more affordable and more resilient, while bringing industry leaders and the public together on creative solutions to the challenges facing our communities.”
Technological advancement is key to improving housing across the country, which is why it’s important to highlight advancements in a public setting, according to Solomon Greene, principal deputy assistant secretary for policy development and research (PD&R) at HUD.
“HUD and its Office of [PD&R] have supported innovation in housing and building technologies since the beginning, and these investments have contributed to changes in building codes, improvements in industry practice, and most importantly, lower housing costs for American families,” Greene said. “The Showcase continues that tradition, featuring the latest technologies and designs that can help meet the nation’s growing housing affordability and climate resilience needs.”
HUD recently posted a notice in the Federal Register to solicit exhibitors for the event, with final applications due March 29. Exhibitors and other programming details are expected in May.
In the current mortgage landscape, ensuring the highest standards of loan quality is paramount not only during the origination process but also over the life of the loan. As the mortgage industry grapples with a changing market and regulatory complexities, we sat down with Amanda Phillips, Executive Vice President of Compliance at ACES Quality Management, to discuss how lenders can foster long-term success through a robust servicing QC process.
HousingWire:What were some of the challenges faced by lenders in 2023, and what is the outlook for 2024?
Amanda Phillips: 2023 was a year of trials and tribulations for financial institutions. Mortgage applications hit their lowest level since 1996, and lenders were faced with the compounding challenges of dwindling origination volume, soaring home prices, rising interest rates and inadequate housing inventory.
Thankfully, the tune of the housing industry has changed over the last few weeks. Analysts predict 2024 will bring a rise in mortgage origination volume and, potentially, several cuts to interest rate. While the challenge of low housing inventory persists across the country, I have a feeling loan officers will be busier. While the industry basks in the much-needed optimism for 2024, one thing is for certain, quality control (QC) and compliance are still important and worthy of lenders’ attention. An uptick in origination volume tends to bring an uptick in QC defects.
HW:Why is quality control (QC) crucial for lenders in the mortgage industry, and how can lenders maintain QC effectively?
AP: QC is crucial for lenders to ensure loan quality and mitigate risk. A well-rounded QC program can catch loan defects before regulators arrive for exam or investors send loans back for re-purchase. Operational capacity and the staggering cost to originate are challenges lenders will continue to face, leading many lenders to offset this hurdle by maintaining mortgage servicing rights (MSR). To maintain profitability through MSR, lenders also needa robust servicing QC program.
Maintaining QC begins with regularly assessing the integrity of both servicing portfolios and staff to ensure they adhere to all relevant servicing rules, guidelines and regulations. Fortunately, QC is a crucial area where lenders can see immediate returns from easy-to-implement audit and compliance technology. Lenders are advised to regularly review and update operational/compliance procedures and quality control frameworks, conduct self-assessments to test those updates, and, of course, remediate findings.
To mitigate and manage inherent servicing risks, your risk management team must identify your institution’s specific risk areas. From there, your internal audit team should ensure the proper processes and procedures are in place to address those risks. Subsequently, the QC team is responsible for verifying, from a transactional perspective, that your organization aligns its actions with its declarations and takes necessary measures regarding associated risks. Traditional methods, such as manual tracking and spreadsheets, make this process all the more prone to mistakes. This is why utilizing audit technology is so powerful; mistakes are significantly reduced, and efficiencies gained through less manual entry needed from the QC team.
The CFPB’s priorities signal the importance of self-assessment and remediation. Dot your I’s and cross your T’s with a paper trail. Lenders should review their in-house practices to ensure they meet the standard and compare with the recommendations from regulators.
HW:What role does the Consumer Financial Protection Bureau (CFPB) play in the mortgage servicing landscape, especially concerning compliance with the CARES Act and servicing regulations?
AP: The CFPB continues to emphasize compliance with the CARES Act and other servicing regulations, particularly in areas like fair lending, fair servicing, and forbearance. Over the last several years, they have clearly stated the priorities of fair lending and achieving equitable and fair housing programs. The CFPB has actively stated that strictly relying on artificial intelligence (AI) and automated complex credit models will not be tolerated. If a borrower was denied, the lender needs to be able to accurately speak to and explain why and how the decision was made.
This is just another area of how implementing a robust QC process can help lenders avoid these regulatory pitfalls. With audit technology, lenders will have this process documented and ready to pull up in the event of a regulatory audit or discrepancy.
HW:What steps should servicers take to identify and manage inherent servicing risks?
AP: Servicers should identify specific risk areas, establish proper processes, and conduct audits against policies and procedures. An example of a process improvement could be a Call Monitoring program. Consumer telephone interactions are an essential aspect of servicing that is easy to overlook from a quality perspective. No matter how many controls are in place, the need for human interaction, especially as it relates to collections and loss mitigation efforts, can result in an increased risk of non-compliance. Lenders can leverage a robust Call Monitoring program to identify where improvements are needed to protect the organization from regulatory and reputational risk. ACES Quality Management has a pre-built, configurable Call Monitoring audit pack that enables servicers to establish an additional layer of protection quickly and seamlessly within your QC program.
As financial institutions navigate the intricate web of compliance requirements and market fluctuations, ACES not only enables adherence to regulatory standards but it elevates the entire loan quality paradigm. By fostering a culture of continuous improvement while equipping professionals with powerful data-driven insights, ACES becomes an invaluable ally in mitigating risks and enhancing operational efficiency.
The significance of robust quality control and management in the mortgage sector cannot be overstated. In an environment where precision and compliance are non-negotiable, ACES stands as a testament to innovation and adaptability. For more tactical ways to improve QC, download ACES’ free playbook: Three Lines of Defense for Maintaining Servicing Loan Quality.
United Bank will consolidate its mortgage subsidiaries into one unified mortgage business amid the housing industry struggles with elevated interest rates.
United Bank has been delivering mortgage services through three channels, including two mortgage subsidiaries — Crescent Mortgage Co. and George Mason Mortgage — and an in-bank channel.
“In an effort to better serve our communities and provide a best-in-class mortgage business, we are consolidating our mortgage subsidiaries into one unified mortgage business. This consolidation will allow us to continue to take care of our customers and promote homeownership throughout our footprint,” a United Bank spokesperson said in an e-mailed response.
As part of the consolidation, Georgia-based Crescent Mortgage will be closing its location and ceasing operations in Atlanta on March 29. The decision was confirmed by Ami Shaver, executive vice president and of head of human resources atUnited Bank, in a letter sent to Georgia’s Office of Workforce Deployment on Jan. 29.
A total of 65 employees will be laid off in March as a result of the Crescent Mortgage closing, according to the letter.
The layoffs at Crescent affected leadership positions, including a chief information officer, chief operations officer, 13 mortgage originators (MLOs), two underwriters and two processors.
Other positions affected by the layoffs were servicing auditors, closing disclosure specialists, auditors and appraisal coordinators.
The National Multistate Licensing System (NMLS)showed that Crescent Mortgage had 29 registered MLOs as of Feb. 1.
Founded in 1993, Crescent Mortgage saw its production drop continuously over the years after peaking at $186.2 million in origination volume across 695 units in 2021, per data from mortgage recruiting platform Modex. Crescent originated $155.7 million across 414 units in 2022 and that volume dropped to $98.3 million across 263 units last year.
United Bank’s spokesperson didn’t confirm whether its other mortgage subsidiary, George Mason Mortgage, will close its operations. George Mason didn’t respond to requests for comment.
Established in 1839, United Bank has close to 250 locations across eight states and Washington, D.C., with total assets of some $30 billion, according to its website.
Income from mortgage banking activities through United Bankshares, the parent company of United Bank, came in at $7.6 million in third-quarter 2023, up from $6.4 million in the previous quarter, according to its 10-Q filing with the Securities and Exchange Commission.
In the first nine months of 2023, United’s income from mortgage banking activity declined to $21.8 million, down from $38.1 million during the same period in 2022.
The U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG) on Tuesday released its priority open recommendations report, submitted to HUD Secretary Marcia Fudge designed to highlight as-yet unaddressed risks in the management of the department.
“The report highlights for HUD leadership 35 open recommendations from OIG reports that, if implemented, will help HUD address its most serious management challenges and enhance critical aspects of its operations,” the OIG said in an announcement.
Some of the issues outlined in the report include those related to the promotion of health and safety in HUD-assisted housing, the management of fraud risk, improving the technology posture of the department and addressing cybersecurity shortcomings, protecting whistleblowers and reducing counterparty risk.
“Of the 35 priority open recommendations, 24 recommendations were identified in FY 2023, and 11 new recommendations were added for FY2024,” the announcement said. “Each priority open recommendation is an opportunity for HUD to take specific action to increase the integrity of its operations and programs.”
Last year’s report saw HUD take substantive action to address seven outstanding issues, the OIG said.
“For example, HUD improved its oversight of public housing authority compliance with the Lead Safe Housing Rule by clarifying what is required when a public housing authority determines target housing is exempt from the rule,” the announcement explained. “In addition, HUD improved its management over the flood insurance program by developing a reporting control to detect HUD-insured loans that do not maintain required flood insurance.”
The report is designed to make recommendations that may appear incremental, but are designed to create a discernible impact if they are implemented according to HUD OIG Rae Oliver Davis.
“By focusing its efforts on these recommendations, HUD will be better positioned to protect whistleblowers, improve how Ginnie Mae handles troubled mortgage-backed security issuers, address systemic challenges with improper payments, and address recommendations that would put billions of taxpayer dollars to better use,” Davis said in a statement.
As of Jan. 2024, there are more than 800 open recommendations the HUD OIG has made to the department to improve its standing. The 35 chosen to appear in this report are organized based on those identified to be top management challenges this year.
Six recommendations fall under the top-line priority of promoting health and safety standards in HUD-assisted housing, and include resolving complaints promptly; ensuring compliance with the lead safe housing rule; and improving oversight of lead-based paint hazard remediation.
Mitigating counterparty risks is the next largest priority, encompassing recommendations including asking Ginnie Mae to improve its guidance for “troubled” mortgage-backed securities (MBS) issuers.
IT modernization is next on the list, perhaps taking on a higher level of importance due to recent cybersecurity incidents involving major private-sector players in the housing industry including loanDepot, Fidelity and Mr. Cooper.
Top-15 U.S. mortgage lender loanDepotconfirmed Monday morning that it is the industry’s latest cyberattack victim. The incident has brought loanDepot’s systems down.
The California-based lender, which originated roughly $17 billion in mortgage loans from January to September 2023, said it has launched an investigation with the support of cybersecurity experts. It has also begun notifying regulators after it identified an incident that has affected company systems and the encryption of data.
“The company shut down certain systems and continues to implement measures to secure its business operations, bring systems back online and respond to the incident,” loanDepot said in an 8k filing with the Securities and Exchange Commission (SEC).
The document mentions the date of earliest event reported as Jan. 4, 2023. The company added that it will continue to assess the impact of the incident.
Customers faced difficulties accessing systems during the weekend, according to social media posts. loanDepot’s servicing portfolio reached about $144 billion as of Sept. 30, 2023.
On its servicing website, the company notes to customers that “recurring automatic payments are processing as expected.” Still, there may be a temporary delay in viewing the posted payment in customers’ payment history. It directs customers to make payments by phone or mail.
A spokesperson for loanDepot directed HousingWire to the SEC filing and a company statement on an incident report website it recently created.
“We have taken certain systems offline and are working diligently to restore normal business operations as quickly as possible. We are working quickly to understand the extent of the incident and taking steps to minimize its impact.”
Several big companies in the mortgage space have become targets of cyberattacks in recent months.
In October, Mr.Cooper exposed data of nearly 15 million current and former clients in an incident, which resulted in at least four class action suits.
In late November, Fidelity National Financial suffered a ransomware attack that took its systems offline for a few days, claimed by the gang AlphV/BlackCat. Teneika Tillis filed a class action lawsuit against Fidelity and its subservicer Loancare, alleging they were negligent with customer data.
In December, Fidelity National Financial (FNF) faced a cyberattack that affected its services, including title insurance, escrow, mortgage transactions and technology for the real estate and mortgage industries.
LoanDepot has also been the victim of a prior cybersecurity attack. In April 2023, loanDepot told the New Hampshire Attorney General’s Office that it had sustained a phishing attack in early August 2022.
Joseph Grassi, loanDepot’s chief risk officer, told New Hampshire authorities that attackers were able to gain access the email accounts of four employees. The company said the incident was resolved within three hours and a subsequent forensic investigation concluded that “the threat actors did not access any additional parts of the network, or any data outside of the four email accounts. The investigation did not identify any evidence that the threat actors created mailbox rules, sent personal information from the affected accounts, or moved or deleted data. The investigation indicated, however, that some personal information could have been accessed or acquired by the threat actors during the incident.”
Grassi told state officials that loanDepot manually reviewed 42,440 documents from the exposed email accounts for the presence of personal information, which indicated 1,364 impacted individuals nationwide (including one in New Hampshire).
“The process of identifying the potentially affected individuals took time to complete due to material personnel changes at loanDepot during the breach response, and because of the volume and nature of data (including images and handwritten documents) that had to be manually reviewed, formatted, and cataloged,” Grassi wrote.
Grassi told New Hampshire authorities that loanDepot had not observed any evidence that “the data has been made public or has been otherwise misused.”
Countrywide announced today that its foreclosure prevention efforts increased markedly over the last six months of the year, helping more than 80,000 borrowers stay in their homes.
“Countrywide is proud of the progress made toward helping our customers sustain homeownership,” said Steve Bailey, senior managing director, Loan Administration at Countrywide, in a statement
“Home retention efforts in the second half of the year increased 148 percent compared to the first six months, and we anticipate helping even a greater number of borrowers in 2008.”
The recently taken-over mortgage lender said loan modifications and other workouts accounted for 69 percent of its home retention efforts in 2007.
One such modification method is to refinance qualified subprime borrowers into prime loans. Hmm…
The Calabasas, CA-based company said it modified home loans for 55,801 borrowers last year, set-up long term repayment plans for 12,110, and put in place other workout efforts for 6,862 homeowners.
According to the company’s data released today, it also executed 7,880 short sales, 1,217 deeds-in-lieu of foreclosure, and 4,621 special forbearance plans.
Since the program was launched in late October, Countrywide has applied home retention solutions to 16,676 mortgages, greater than 20 percent of its total loan modification goal.
“We are eager to continue to work with housing industry professionals, nonprofit organizations and government agencies to communicate to homeowners across the nation that we often can prevent foreclosures, if we are given the opportunity to work with them,” added Bailey.
Recently, Countrywide ironed out deals to work with consumer advocacy groups ACORN and NACA in an effort to help more homeowners avoid foreclosure.
These groups had previously held a number of protests claiming the lender wasn’t doing enough to help stem the problem.
In related news, presidential hopeful Hillary Clinton slammed Countrywide CEO Angelo Mozilo’s proposed pay package ($36.4 million), calling it “outrageous” during an interview with CNBC-TV.
“Executives of a lot of these companies that participated in creating this very difficult set of problems we’re trying to work our way out of should not be rewarded … as they walk away,” Clinton said.
Perhaps some of that money could go towards the home retention efforts…
An arbitrator conclusion issued last week caps a four-year legal battle over allegations of trade secret theft involving two of the biggest companies in the housing industry, Black Knight Servicing Technologies and PennyMac Financial Services.
In a 2019 lawsuit, Black Knight accused Pennymac of copying its mortgage servicing platform, MSP, to create its Servicing Systems Environment (SSE) platform.
On Nov. 28, an arbitrator awarded Black Knight $155.2 million in damages related to a breach of contract claim (plus interest and attorney’s fees), representing six years of avoided license fees.
Meanwhile, according to the arbitrator’s conclusion, Pennymac will keep all its intellectual property and software, including SSE, “free and clear of any restrictions on use.” Pennymac said SSE has allowed it to reduce its servicing costs per loan by over 30% since its implementation.
The arbitrator issued an interim award, which means the companies can still move to correct, modify or vacate it before a state court confirms it.
Black Knight filed a complaint against PennyMac in November 2019 for breaching contracts and misappropriating trade secrets. According to the plaintiff, Pennymac stole its mortgage-processing system and created one of its own.
The lawsuit, filed in the Fourth Judicial Circuit Court in and for Duval County, Florida, sought $340 million in damages and injunctive relief under the Florida Uniform Trade Secrets Act and declaratory judgment of ownership of all intellectual property and software developed by or on behalf of Pennymac.
In March 2020, the companies entered arbitration.
More than three years later, the arbitrator awarded, in part, Black Knight‘s breach of contract claim and denied the claims of trade secrets misappropriation and injunctive and declaratory relief.
“The arbitrator concluded (wrongfully in our view) that Pennymac’s access to MSP allowed it to increase the speed of developing SSE and awarded Black Knight lost profits in the form of licensing fees it would have otherwise received from Pennymac over a longer development period,” Pennymac said in an 8-K filing with the Securities and Exchange Commission (SEC).
ICE, the new owner of Black Knight, said in a statement that it “will continue to seek the robust protections afforded to trade secrets and confidential information under federal and state law, including in products developed using its confidential information.”
According to Pennymac, the accrual related to the interim award will be recorded in the fourth-quarter earnings, with an impact of $2.85 per share. The company states it had $1.2 billion cash on its balance sheet as of Sept. 30 to fulfill the interim payment.
Analysts who cover Pennymac at Jefferies wrote in a report that they “would expect a modestly negative reaction to the charge, which equates to roughly 4% of book value.”
Mortgage rates declined significantly over the past week, marking the eighth straight week of falling interest rates.
The 30-year fixed mortgage rate is 6.61% for the week ending December 28, 2023, according to data from Freddie Mac. This represents a decrease of -0.06% from a week ago.
The 15-year fixed rate mortgage stands at 5.93%. That’s 0.02% lower than a week prior. At that rate, you’ll pay $840 per month in principal and interest for every $100,000 you borrow.
The rate you’ll actually receive will vary based on the price of the home you’re buying, your credit history, and the size of the down payment you’re making. You can compare the offers below to find your best rate.
High interest rates are sticking around as central banks around the world, including the Fed, battle stubbornly high inflation with a series of aggressive interest rate hikes. These efforts to rein in prices have also slowed global economic growth and fueled recession fears.
Geopolitical tensions stemming from the ongoing war in Ukraine and conflict in the Middle East have further clouded the economic outlook.
As the Fed asserts that more rate hikes are likely needed to tame inflation, analysts expect mortgage rates will continue trending upward in the near term. This could place even more affordability pressure on the housing market, especially impacting first-time homebuyers.
Why shop around for mortgage rates?
Getting the lowest mortgage rate possible can save you tens of thousands of dollars over the lifetime of your home loan. With rates on the rise in 2023, it’s more important than ever to understand the factors impacting mortgage rates, strategically shop for the best deal, and meet lenders’ requirements to qualify for the lowest rate.
This guide will cover everything you need to know about today’s mortgage rates, from how they’re determined to where experts expect them to go in the months ahead.
What impacts mortgage rates
Mortgage rates tend to follow the direction of long-term government bond yields, especially the yield on 10-year Treasury notes. Here are some of the key factors that can influence fluctuations in these yields and mortgage rates:
Federal Reserve policy: When the Fed raises its benchmark federal funds rate, it often leads to higher borrowing costs across the economy, including mortgage rates. The Fed began aggressively hiking rates in 2022 to combat high inflation, causing mortgage rates to soar. Further Fed rate hikes are expected through 2023.
Economic growth and inflation: Strong economic growth and rising inflation generally lead to higher mortgage rates, while slower growth and disinflation place downward pressure on rates.
Geopolitical events: Global conflict or political turmoil often spur investors to move money into safe haven assets like Treasury bonds, lowering yields and mortgage rates.
Investor demand: Strong demand for mortgage-backed securities from investors leads to lower mortgage rates. When demand falls, rates tend to rise.
Employment trends: A strong job market can fuel economic growth and push rates higher. Conversely, weak hiring data or increased unemployment tend to cause lower yields and rates.
Housing market trends: When housing demand is high, rates tend to rise as lenders face increased demand for mortgages. But lower demand for homes often correlates with declining mortgage rates.
Tips for finding the lowest mortgage rate
When shopping for a home loan, following these tips can help ensure you lock in the lowest possible mortgage rate:
Check rates from multiple lenders: Rates vary by lender, so comparing quotes from several lenders ensures you don’t overpay. Online rate comparison sites can give you a quick overview of prevailing rates.
Improve your credit score: Work on raising your credit score to at least 740, which will qualify you for the best mortgage terms. Pay down debts, correct any errors on your credit reports, and avoid taking on new debt before applying for a mortgage.
Lower your debt-to-income ratio: Lenders look closely at your existing debts in relation to your income. Paying down credit cards and other debts before applying for a mortgage can help lower your DTI and qualify for better rates.
Make a sizable down payment: Down payments of 20% or more of the home’s purchase price result in the best mortgage rates and eliminate the need to pay private mortgage insurance.
Compare quotes for 15-year and 30-year terms: In general, 15-year mortgage rates are lower than those on 30-year mortgages. But the higher monthly payment on a 15-year loan may not fit your budget.
Lock in your rate: Rates fluctuate daily. Once you find the rate you want, lock it in by completing most of the mortgage application paperwork. This protects you if rates rise further before closing.
Minimum requirements for common mortgage types
Mortgage lenders weigh many factors when reviewing applications, but most have basic requirements borrowers must meet to qualify for certain loans. Here are typical minimum standards for popular mortgage types.
Mortgage rates over the past three years
Mortgage rates have seen significant fluctuations over the past few years:
2020: Historic lows due to the COVID-19 pandemic. The average 30-year fixed rate mortgage fell below 3% by the end of 2020.
2021: Rates remained very low early in 2021, then began to rise in the spring. By December 2021, rates returned to pre-pandemic levels around 3.5%.
2022: The Fed’s rate hikes and inflation drove mortgage rates dramatically higher throughout 2022. Rates soared above 7% in late 2022 from around 3% at the beginning of the year.
2023: Rates are projected to remain elevated in 2023 compared to the past decade. Further Fed rate hikes could push averages above 8%.
The chart below shows average rates for the 30-year and 15-year fixed rate mortgages over the past three years.
The takeaway is that mortgage rates shift constantly in response to economic or political factors. Staying informed and timing your purchase to lock in a lower rate can make a huge difference in how much home you can afford. Casting a wide net when shopping for lenders pretty much guarantees you’ll secure the most competitive rate on your loan.
Methodology
Mortgage rate data comes from Freddie Mac, a government-sponsored leader in the housing industry that tracks average mortgage rates. We considered average rates for both the 30-year fixed rate mortgage and 15-year fixed rate mortgage. Freddie Mac rates exclude additional fees and points.
Average rates are reported weekly on Thursdays and updated accordingly.
This article is not intended to be financial advice. Before making significant financial decisions, you can review your options with a financial advisor or credit counselor.