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Higher interest rates are increasing pressure on homebuyers who are already facing a challenging housing market. Many would-be buyers are understandably putting purchasing plans on hold, but there are no signs mortgage rates will drop significantly in the near future, and there are some sensible steps to take if you want to become a homeowner soon.
Mortgage rates surged past 7% for the first time this year on April 18 and continued to climb last week. According to Freddie Mac’s benchmark survey, the rate on a 30-year, fixed-rate loan is averaging 7.17% — more than half a percentage point higher than at the start of the year. And the upward trend may not be over.
Len Kiefer, Freddie Mac’s deputy chief economist, says it’s hard to predict just how much higher rates could rise, given the volatility in the market. A lot depends on data regarding inflation, which is proving to be stickier than everyone hoped for, and market expectations as to when the Federal Reserve will start cutting short-term interest rates.
“Given the current [economic] trajectory we’re on, it’s looking like there’s still some upward momentum,” Kiefer says. “In the very near term, we’ll probably see these rates be at the current level or a little bit higher.”
Most early-year forecasts predicted that mortgage rates would start moving in a slow downward trend throughout the year. While those outlooks seemed to be on the money during the first two months of the year, the opposite has been true in recent months.
According to Bob Smith, head of real estate for Advisor Credit Exchange, for at least the remainder of the year, “Rates are going to be bounded in a range . . . probably in the 6%s, low 7%s.”
It’s unclear when inflation will finally be under control, meaning mortgage rates will probably remain volatile for a while before settling down.
In the long term, Kiefer and Smith see inflationary pressures easing later this year. That should help nudge mortgage rates lower — just “not as much as we had thought,” Kiefer says.
High mortgage rates are hitting buyers right in the middle of the spring buying season. According to Freddie Mac, about 36% of all home sales take place between March and June, making these months the busiest time in the housing market.
Elevated mortgage rates, combined with high home prices and a lack of enough inventory to meet buyer demand, have led to record-high monthly payments. Homeowners insurance costs are at all-time highs as well, up 20% in the past year. These factors are pushing many would-be buyers to put their plans on hold. According to a report by BMO Financial Group, 71% of would-be homebuyers are waiting for rates to drop before buying a house.
Potential home sellers are also feeling the crunch, especially those who bought when rates were much lower. The cost of obtaining a new mortgage at a higher rate is keeping owners locked into their homes.
Despite the challenges, buyers shouldn’t panic. “Rates are, for a large part, temporary. At some point, [they] will go down,” says Scott Bridges, chief CDL production officer at lender Pennymac.
Instead of worrying about things that are out of your control, it’s best to focus on the fundamentals of homebuying to see if purchasing a home right now is the right move (regardless of the rate). Here’s what you can do:
Check your credit score and try to improve it while you’re shopping for a home. Buyers with better credit generally have access to lower mortgage rates. On the other hand, taking on extra debt during this time will reduce your score as well as your debt-to-income ratio, which will cause lenders to offer a higher interest rate on a mortgage. “When rates are higher, every bit of debt counts,” says Bridges.
Higher mortgage rates could move some buyers out of the market, which means more opportunities and less competition for those who can afford to buy. Don’t be afraid to lowball a little bit. With fewer buyers, you may be able to negotiate a lower price or concessions with a motivated seller.
Ideally, you’ll find a move-in ready home that fits your budget. The reality is that homes requiring little to no work attract a lot of attention and you may find yourself in a bidding war. Don’t be afraid to look for homes that may need some TLC. The asking price is likely more negotiable, and you may find you can use the money you save to fix up the home to your taste.
Set a budget you’re comfortable with. Use a housing affordability calculator to get an estimate of how much you can pay towards a home purchase. You can also get loan estimates from several different lenders to find the best rates and loan terms. And remember, the maximum amount a lender is willing to lend isn’t necessarily what you should spend on a home. Set a lower budget if it makes better financial sense or if you want to have some wiggle room if you have to compete against other buyers.
A house is likely the most amount of money you’ll ever spend. Bridges says that homebuyers typically make mistakes when they rush the process. Take the time to inspect the property and ask to see a home appraisal. Make sure it’s the right fit for your needs at the right price for you.
“Try to do things patiently,” says Bridges. “Don’t overpay, and don’t panic.”
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Source: money.com
Ocwen Financial Corp., parent company of PHH Mortgage Corp. and Liberty Reverse Mortgage, reported an overall improvement in its business performance for the first quarter of 2024 — including better reverse mortgage performance attributed to servicing and higher gains on loans held for sale.
Under generally accepted accounting principles (GAAP), Ocwen reported GAAP net income of $30 million or diluted earnings per share of $3.74, which company CEO Glen Messina characterized as the “highest level in six quarters.” It was driven primarily by improvements in servicing and origination. In Q4 2023, the company reported a GAAP net loss of $47 million.
On a Thursday earnings call, Ocwen leadership touted the company’s reverse mortgage division maintaining a top-five position among the leading lenders in the country, as well as continued positive performance of its forward and reverse mortgage servicing operations.
“Reverse servicing increased its profitable contribution with higher gains on loans held for sale, even as volume contracted,” said Sean O’Neill, Ocwen’s chief financial officer. “Underlying the strong results is the ongoing effort on continued cost improvements, driven by technology […] and traditional process improvements across both forward and reverse servicing, as well as lower advances on our legacy book, which have decreased 14% year over year.”
The company’s origination segment also returned to profitability, O’Neill said, despite challenges presented by persistently high mortgage rates and a contraction in reverse mortgage volume.
“Despite rising rates, further depressing seasonally low origination volume, we are pleased to say all of our channels returned to profitability in the quarter,” he said. “Higher margins on lower volumes drove the profitability, with reverse origination seeing the largest improvement. Lower profits and correspondence were offset by gains in reverse and bringing consumer direct back to break-even.”
Company leaders also said they will prioritize capitalizing on asset management opportunities to further grow the servicing portfolio, including for reverse mortgages.
“We also continue to dynamically manage our owned MSR portfolio to capitalize on differing views of market values amongst top market participants. As always, we remain flexible and committed to considering all options in this dynamic market to maximize value for shareholders,” Ocwen CEO Glen Messina said.
Initially announced in early April, Messina made reference to the company’s rebranding initiative, which will touch on all of its subsidiaries. The company will be known as Onity Group Inc., and the change will roll out to the PHH and Liberty divisions later in the year.
“Concurrent with our name change, we will begin trading on the New York Stock Exchange (NYSE) under the new symbol ONIT,” Messina said. “Our primary operating brands, PHH Mortgage and Liberty Reverse Mortgage, will retain their names at this time. We expect to rebrand PHH and Liberty to Onity Mortgage later this year. We’re excited about this new chapter for the company and we look forward to operating under the Onity brand.”
A company spokesperson previously told RMD that the rebrand is subject to shareholder approval. Once it is secured, the new NYSE symbol will begin to be used. Shareholders will have the chance to vote on the initiative at their annual meeting on May 28
A timeline for the name change’s application to Liberty and PHH was not specified outside of “later” in 2024.
According to Home Equity Conversion Mortgage (HECM) endorsement data compiled by Reverse Market Insight (RMI), Liberty was the fourth-largest reverse mortgage lender in the country with 1,363 endorsements during the 12-month period ending in April 2024.
Source: housingwire.com
Rates have been in retreat as bond market investors who fund most mortgage loans react to the latest economic news and scaleback in tightening by Fed policymakers.
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Mortgage rates retreated for the third day in a row Friday as the latest numbers from the Labor Department showed employers added fewer jobs than expected in April, pushing unemployment closer to 4 percent, a level not seen in more than two years.
The U.S. economy added 175,000 jobs in April, down from 315,000 in March and the most anemic growth since October 2023. Economists had expected April employment growth of 240,000 jobs.
The report came on the heels of Wednesday’s announcement by Federal Reserve policymakers that they intend to slow the pace of “quantitative tightening” — an unwinding of the central bank’s $7 trillion balance sheet — to $40 billion a month, less than half the pace envisioned two years ago.
Change in employment, by month. Red bars are the latest forecast, including revisions to previous estimates for February and March. Source: U.S. Bureau of Labor Statistics.
“This report is nothing like bad enough to trigger a wholesale rethink at the Fed, but things will be different if the July numbers are weaker still, as we expect,” economists at Pantheon Macroeconomics said in a note to clients. “The downshift in payroll growth has come exactly when the [National Federation of Independent Business] suggested it would, and the signal for the future is unambiguous.”
Futures markets tracked by the CME FedWatch Tool last week predicted that the odds were against the Fed making more than one 25-basis point rate cut this year. On Friday, investors had repositioned their bets in line with expectations that there’s a 61 percent chance of two or more Fed rate cuts by the end of the year, with the first move now expected in September rather than December.
Pantheon economists are sticking to their forecast that the central bank will bring the federal funds rate down by a full percentage point, starting in September.
“Businesses — especially small firms — are responding to the lagged effect of the huge increase in interest rates and the tightening in lending standards, which have made working capital much more expensive and harder to obtain,” Pantheon economists said. “At the margin, this is depressing hiring and lowering the bar to layoffs.”
Unemployment, which dipped below 4 percent in February 2022, is once again flirting with that level, hitting 3.9 percent in April, up half a percentage point from a year ago.
The Fed doesn’t have direct control over long-term rates, but bond market investors who fund most mortgage loans are reacting to this week’s news.
Yields on 10-year Treasurys, which often predict trends in mortgage rates, fell 7 basis points Friday to 4.50 percent, a 25-basis point drop from the 2024 high of 4.75 percent registered on April 25.
Surveys of lenders by Mortgage News Daily showed rates for 30-year fixed-rate loans dropping for a third day in a row Friday, to 7.28 percent, down 24 basis points from a 2024 high of 7.52 percent, also registered on April 25.
Data tracked by Optimal Blue, which lags by one day, showed borrowers were locking in rates on 30-year fixed-rate mortgages Thursday at an average rate of 7.21 percent, down 6 basis points from the 2024 high of 7.27 percent recorded on April 25.
Borrowers taking out jumbo loans have seen spreads over conventional mortgages widen as higher interest rates and defaults on commercial loans weigh on regional banks that are often the source of those loans.
The rates published by Mortgage News Daily (MND) are higher than those reported by Optimal Blue because MND’s rate index is adjusted to account for points that borrowers often pay to get a lower rate. Optimal Blue uses actual rates provided to borrowers for rate locks, whether they paid points or not.
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Source: inman.com
A bill that will permanently allow for remote reverse mortgage counseling via telephone or video conferencing services in the state of Massachusetts has been signed into law by Gov. Maura Healey (D), doing away with a strict face-to-face requirement that has stretched the state’s counseling resources and, at times, halted reverse mortgage business within the state.
The face-to-face requirement had been active within Massachusetts since 2010, but recent challenges — most especially those posed by the COVID-19 pandemic — exposed how a restriction initially meant to protect seniors actually created serious challenges for them. This is due to only a handful of U.S. Department of Housing and Urban Development (HUD)-approved reverse mortgage counselors being active in the state, among other issues.
RMD sat down with two of the key reverse mortgage industry figures that have worked for years to get to this point — George Downey and Brett Kirkpatrick of The Federal Savings Bank in Braintree, Mass. — to get a better understanding of what led to this moment.
Downey explained the dynamics of the situation, saying that while the original law creating the face-to-face requirement was well intentioned, it exacerbated the challenges of not just conducting business but meeting the needs of seniors seeking a reverse mortgage.
“Stepping back and looking at it from a distance, I think this is a good example of how perception and misinformation collide, especially in creating legislation,” he said. “It’s difficult to right the ship; changing legislation is a very difficult thing to do, as we’ve found out. This is particularly true with reverse mortgages and the reputational issues that have dogged the program for so long.”
While the challenges proved difficult to manage, particularly when the pandemic collided with the face-to-face requirement that effectively halted business in the state, lobbying of legislators to provide education and clarity on the issues helped to push this new law to become reality.
“I think as the public has become more broadly aware of [the challenges] … people are more aware of what they’re all about, so they are more inclined to [understand them],” Downey said.
Downey and Kirkpatrick served for years as the “front-line soldiers” on the ground as the state attempted to get to this point. But Downey is quick to point out the assistance gained from both the Massachusetts Mortgage Bankers Association (MMBA) as well as the National Reverse Mortgage Lenders Association (NRMLA) in getting the final bill over the finish line.
“They led the charge on this and brought a lot of credibility to the argument,” Downey said. “Brett and I have been involved from the beginning. We were the foot soldiers on this whole thing, but thank goodness, we finally have it resolved. And this is a permanent solution, at least until the next time something happens.”
Waivers and exceptions to the in-person counseling rule have generally persisted since the onset of the pandemic, but proposed permanent solutions since that point had always fallen short and the state Legislature instead opted for temporary reauthorizations of the exceptions.
At the beginning of April 2024, however, the final extension waiving the in-person counseling rule expired. It remained to be seen whether or not a permanent solution would proceed or if another temporary extension would be granted.
Rep. Kate Lipper-Garabedian (D) led the charge in the Massachusetts House of Representatives, assuming the baton on the issue from her predecessor, Paul Brodeur, a former state representative and current mayor of Melrose, Massachusetts. Ultimately, language from a version of the bill Lipper-Garabedian introduced was attached to a wider supplemental budget bill, which went on to pass both chambers of the state Legislature before being signed into law by Healey.
When reached by RMD, Rep. Lipper-Garabedian said she was happy that issues specific to seniors were being addressed by the bill’s passage.
“I am thrilled that a policy I have championed since taking office is now the law in Massachusetts,” Rep. Lipper-Garabedian told RMD in an email. “As House Vice Chair of Elder Affairs, I am particularly mindful of the importance of enabling older adults to navigate their lives safely and with agency. With passage of this legislation, Massachusetts joins the other 49 states in empowering older adults to participate in reverse mortgage counseling virtually and by phone, in addition to the in-person option.”
The effective date of the new law is also retroactive to March 31, 2024, meaning that it technically took effect the day before the final waiver’s expiration, despite only passing this week.
When asked what he primarily takes away from the ordeal, Kirkpatrick says it’s about collaboration and a series of best practices.
“I think the lesson is that legislative change and legislative work are very much a ground game and an inside game, and we had some great mentors that helped us get in front of the right people,” he said. “They get bombarded with emails and [many correspondences], but you really have to get to the right person at the right time and just make a very simple case.”
In an email update to its membership, NRMLA President Steve Irwin credited the work of Downey and Kirkpatrick for the ultimate outcome, calling this instance an example of the way association members can impact local reverse mortgage policy.
Source: housingwire.com
Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.
Buying a home doesn’t necessarily require a large down payment. The conventional wisdom is that you need 20 percent down, but in reality, you don’t have to save that much. In fact, there are no-down payment mortgage options. Here’s what you need to know about these types of loans.
A no-down payment mortgage is a home loan that allows you to finance 100 percent of the home’s purchase price without having to put any money down at closing. Zero-down mortgages can be particularly beneficial for those buying a home for the first time or with limited savings.
The easiest way to avoid a down payment is to qualify for one of the two no-down payment mortgage programs backed by the government: a USDA or a VA loan.
The U.S. Department of Agriculture (USDA) backs USDA home loans, a mortgage guarantee program for those buying a home in designated rural areas. There are many areas you might not consider “rural” that do qualify under USDA guidelines, so be sure to check your eligibility on the USDA website. USDA loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify.
Although there’s no down payment with a USDA loan, there is an upfront guarantee fee of 1 percent of the principal loan amount, as well as an annual fee of 0.35 percent, which borrowers can roll into the cost of the mortgage. While you won’t pay any money initially if you choose to roll these fees into the loan, keep in mind that it adds to the total balance and will accrue interest over the loan term, which means you’ll pay more overall.
If you’re a military service member, veteran or surviving spouse, you could be eligible for a VA loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no money down. There is no mortgage insurance requirement with this loan. However, like a USDA loan, you do have to pay an upfront funding fee, which can be rolled into the mortgage. The funding fee ranges from 1.25 percent to 3.3 percent of the loan amount. You can reduce the funding fee by making a down payment.
Another perk: VA loan lenders often offer more competitive rates for these products, which helps you save money over the life of the loan.
Compare: Current VA loan rates
In addition to government-backed loans, you might be able to explore:
If you don’t qualify for one of the no-money-down home loan options, you might still be able to buy a home with the next best thing: a low-down payment mortgage.
Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.) It’s a popular option for homebuyers with less-than-perfect credit and not a lot of savings. Like other government-insured programs, FHA loans are offered by private mortgage lenders, so you might also have to meet a lender’s criteria to qualify. Additionally, you’ll have to pay for FHA mortgage insurance, which adds to your monthly payment and the cost of the loan. You’ll pay these premiums for as long as you have the mortgage, in most cases.
Compare: Current FHA loan rates
Available through many mortgage lenders, the HomeReady program is a conventional loan backed by Fannie Mae. The down payment requirement on a HomeReady loan is just 3 percent. While you’ll have to pay mortgage insurance to compensate for the low down payment, it’s often at a lower price tag compared to other conventional loans.
Backed by Freddie Mac, Home Possible is a similar mortgage program to HomeReady, with a 3 percent down payment and mortgage insurance requirements.
Freddie Mac also offers a 3 percent down mortgage option for first-time homebuyers who qualify through its HomeOne program. The main difference between this loan program and Freddie’s Home Possible mortgage is that a HomeOne mortgage does not impose income limits.
Some lenders are now offering mortgage programs for borrowers who qualify that only require a 1 percent down payment. Some examples include Rocket Mortgage’s ONE+ program and United Wholesale Mortgage’s Conventional 1% Down program. For these programs, the lender pays 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan — or up to a maximum contribution that varies by lender and loan size — and you only need to provide the remaining 1 percent.
A Conventional 97 mortgage is another Fannie and Freddie program that only requires a 3 percent down payment. You might pay more for private mortgage insurance (PMI) with this type of loan, but your payment depends on your financial profile. You can also request to cancel PMI when you reach 20 percent equity in your home.
The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and are planning to buy a home in a qualifying area.
The program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides a discount of up to 50 percent on a home with a down payment of just $100. The borrower must qualify for a first mortgage, and the discounted portion of the home comes in the form of another loan. If the borrower continues to meet program requirements, the second mortgage won’t have to be repaid.
The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.
Deciding whether to go for a no-down payment mortgage depends largely on your financial circumstances and goals. Here are a couple of scenarios when a zero-down mortgage might be a good idea:
The Department of Veteran Affairs and the U.S. Department of Agriculture DA don’t set a minimum credit score requirement for, respectively, their no-money-down VA and USDA loans. However, most lenders offering these loans do, and they’d want them to be at least in the “fair” range: 620 for VA loans, 640 for USDA loans. Because you’re not bringing any cash to the table, and financing virtually all of your mortgage, the lender has to be extra-reassured that you pay your debts fully and on time.
Source: bankrate.com
While mortgage rates remain higher than they were during the housing market’s booming pandemic years, Moody’s Ratings has predicted them to finally start declining over the next few years in a new report.
Exactly a week ago, the Federal Home Loan Mortgage Corporation, better known as Freddie Mac, reported that the average rate for a 30-year-fixed mortgage—the most popular among U.S. borrowers—had reached 7.1 percent, a record high for this year so far.
Read more: How to Find the Right Mortgage for You
Moody’s Ratings’ experts believe mortgage rates will come down—just not as quickly as homebuyers might wish for. The financial research company is currently estimating that mortgage rates will remain higher “than the extremely low levels during the decade of aggressive central bank stimulus that preceded the past two years” in the coming months, but will likely reach around 6 percent or somewhat less by the end of 2025.
This is good news for aspiring homebuyers who have been squeezed out of the market by skyrocketing home prices and high mortgage rates, which climbed as a direct consequence of the Federal Reserve’s aggressive rate-hiking campaign to combat the rise of inflation last year.
While most analysts expect the central bank to lower interest rates this year, the Federal Reserve has so far failed to do so, as the latest data on the cost of living show that inflation remains higher than expected at 3.48 percent in March. The Federal Reserve does not directly set mortgage rates, but any rise in interest rates impacts new mortgage lending.
Read more: Compare Low Rates With the Best Mortgage Lenders
Higher mortgage rates led to a drop in demand in late summer 2022 due to the unaffordability of buying a home for many Americans; but the price correction that followed this slide in demand was rather modest. In spring 2023, prices started climbing back up across the country, as the supply of homes remained low.
While the historic shortage of homes in the U.S. can primarily be traced back to the fact that the country has under-built following the bursting of the housing bubble and the financial crisis of 2007-2008, high mortgage rates have also caused many homeowners to hold on to their homes instead of putting them on the market.
“Many U.S. homeowners have low fixed-rate mortgages that they are reticent to give up, which is constraining existing property listings and sales,” Moody’s wrote in the report.
Faced with a growing demand for new constructions and mortgage interest rate buydowns, the company’s experts expect home prices to avoid significant decline in the coming months, sliding by a moderate 5 percent this year after falling 6.6 percent in 2023.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
The Federal Housing Administration (FHA) on Friday published Mortgagee Letter 2024-08, which extends a foreclosure moratorium on the Hawaiian island of Maui through Aug. 4, 2024, for FHA-insured forward mortgages and Home Equity Conversion Mortgages (HECMs).
The moratorium, initially scheduled to expire on May 6 after a previous extension, has been pushed out 90 days in recognition of the continued recovery efforts taking place after wildfires on the island in the summer of 2023.
Those fires devastated the town of Lahaina, destroying much of it and killing a confirmed 101 people as of February 2024, a figure revised slightly downward since the days following the fires. Two people remain listed as missing, and two-thirds of the victims were at or over the age of 60, according to reporting by The Associated Press.
“This extension recognizes the unprecedented disaster in Maui resulting from the August 2023 wildfires,” FHA said in an announcement of the extension. “Therefore, FHA has extended its moratorium to give borrowers with FHA-insured mortgages on properties located in Maui County more time to access federal, state, and/or local housing resources, and to consult with HUD-certified housing counselors, without the added burden of potential foreclosure actions.”
The new Mortgagee Letter also “extends the deadlines for first legal action and reasonable diligence time frames to 90 days from the new August 4, 2024, moratorium date for foreclosures initiated on FHA-insured single family forward mortgages on properties in Maui County,” FHA explained.
As was previously the case, the relief applies to both single-family forward mortgage borrowers as well as reverse borrowers through the HECM program under specific criteria.
“[M]ortgagees must extend the moratorium on foreclosures of FHA-insured [HECMs] secured by properties located in Maui County,” the guidance states. “The foreclosure moratorium is applicable only if the HECM is due and payable for reasons other than the death of the last remaining borrower and is not subject to a deferral period; and to the initiation of foreclosures, and foreclosures already in process.”
In the immediate aftermath of the fires, FHA reminded lenders and servicers of both forward and reverse mortgages that relief options are available for borrowers impacted by recent natural disasters.
At that time, FHA also reminded lenders that they should contact borrowers impacted by these disasters as soon as possible while encouraging them to use “any permissible means” to contact borrowers and provide forbearance relief.
Source: housingwire.com
Mortgage rates will probably remain above 7% in May as inflation resists the Federal Reserve’s efforts to bring it under control. It left rates unchanged at the conclusion of its April 30-May 1 meeting, and seemed as frustrated by inflation and high interest rates as home buyers are.
The Fed is trying to wrestle the inflation rate down to 2%. The central bank made progress toward that goal in the last half of 2023, and investors rang in the new year with hopes of a Fed rate cut by spring. But the inflation rate sprang a surprise: It hardly budged in the first three months of the year. Investors have convinced themselves that inflation will stick around for a while. Mortgage rates have moved higher as a consequence.
The 30-year mortgage leapt more than a quarter of a percentage point in April. Mortgage rates are unlikely to fall significantly until inflation wanes and the Fed signals that it’s getting ready to announce a rate cut. It’s unlikely that we’ll see such a turnaround by Memorial Day.
The outlook was sunnier just a few months ago. As 2023 turned to 2024, it looked as if inflation was waning in earnest. The core consumer price index had fallen every month since March. From that month to December, core CPI fell from 5.6% to 3.9%. Investors took it as a sign that inflation was headed toward the Fed’s 2% goal, and that the central bank would cut the short-term federal funds rate in the first half of 2024.
But progress on prices slowed dramatically in 2024’s first quarter, as if the inflation rate had deployed a parachute. In March, core CPI was 3.8%, or just 0.1 percentage point lower than in December. At that rate of decline, it would take more than four years for the inflation rate to drift down to 2%.
“In recent months, there has been a lack of further progress toward the committee’s 2% inflation objective,” the Fed’s rate-setting committee announced at the conclusion of the April 30-May 1 meeting.
The statement added that the Fed won’t cut rates until the committee “has gained greater confidence that inflation is moving sustainably toward 2%.” That seemed to push a rate reduction months into the future.
Financial markets now expect the Fed to wait until September or November before reducing the federal funds rate. The dashed hopes for a springtime reduction led lenders to raise mortgage rates in April.
The average rate on the 30-year fixed rate mortgage moved upward week after week throughout April. In Freddie Mac’s weekly rate survey, it averaged 6.79% in the last week of March, then marched upward to 7.17% in the week ending April 25.
Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors all predict that mortgage rates will fall over the next 12 months. Their forecasts have the 30-year fixed-rate mortgage dropping to below 6.5% in the first quarter of 2025, compared with an average of 6.75% in the first quarter of this year.
Home prices are rising along with mortgage rates. The combination of higher prices and mortgage rates is making it harder to afford a home. According to the Mortgage Bankers Association, the typical mortgage payment was $2,021 for home buyers who applied for mortgages in March. That was $108 more from 12 months earlier. This means that the median mortgage payment went up 5.2%. At the same time, the median income went up 3.5%, according to the MBA. House payments are rising faster than incomes.
Homebuilders have been offering relief in the form of temporary rate buydowns. With a rate buydown, the builder reduces the buyer’s house payments for the first one to three years. They do it by subsidizing the buyer’s interest rate.
Here’s an example of how a one-year buydown might work: The buyer gets a mortgage with a 7.25% interest rate, but the first 12 payments are based on a 6.25% interest rate. That gives the buyer a discount on the monthly payments for that year.
Builders do this in recognition of the effect of rising rates and prices. “To address affordability for home buyers, we are still using incentives such as mortgage rate buydowns and we have reduced the prices and sizes of our homes where necessary,” said Bill Wheat, the chief financial officer of D.R. Horton, a prominent homebuilder, in an earnings call April 18.
The takeaway is that some homebuilders are cutting rates, even if the Fed isn’t.
Source: nerdwallet.com
The bottom line is the housing market remains in flux and is once again adjusting to the likelihood of interest rates remaining higher for longer after being teased by the potential of a falling rate environment.
This flux has created far more volatility in the housing market, particularly in recent weeks, with the MOVE Index — a measure of rate volatility in the U.S. Treasury market — jumping to as high as 121 in mid-April after ending March near 85.
Ben Hunsaker, a Beach Point Capital Management portfolio manager who is focused on securitized credit, said that during the past year, nonqualified mortgage (non-QM) AAA bond spreads have actually contracted from 155 to 135, while agency mortgage-backed securities (MBS) spreads have widened from about 118 to 134 over the same period.
“With agency spreads moving out 10 to 15 basis points, you would expect that non-QM spreads also have to widen eventually, otherwise the market’s a little bit out of sync,” Hunsaker said. “On a forward-looking basis, you would expect you don’t have the same tailwinds as you did before.”
Volatility in the Treasury market, which trades at a shifting spread below that of mortgage rates, also translates into uncertainty among housing market investors. Market observers say this normally leads to investor hesitancy and a tendency to keep more money parked on the sidelines.
“When interest rate volatility goes up, you generally have lower fund flows, which you’ve seen over the last few weeks,” Hunsaker said.
On top of that, mortgage origination volumes are projected to be flat this year in the agency (Fannie Mae, Freddie Mac and Ginnie Mae) sector, and only slightly better on the non-agency (non-QM) side compared to 2023, according to market experts.
Non-QM mortgages include loans that cannot be purchased by Fannie Mae or Freddie Mac. The pool of non-QM borrowers includes real estate investors, fix-and-flippers, foreign nationals, business owners, gig economy workers and the self-employed.
What does this market uncertainty — marked by low origination volumes and a move toward higher rates for longer — mean for the secondary mortgage market, which creates liquidity for the primary mortgage market via securitization and has a heavy finger on the scale in determining interest rates for homebuyers?
If bond yields rise in the secondary market due to a supply-demand imbalance or because of increased perceived risk, then that also tends to put upward pressure on mortgage rates in the primary market.
HousingWire interviewed a range of experts across the secondary market to get a pulse on the dynamics at play at the end of April across the following sectors: whole loan trading, agency and non-agency MBS, and mortgage servicing rights (MSRs).
Following are excerpts from their responses that reflect on the good, the bad and the ugly of the current market.
“When we came into the year, we thought we were in for as many as five or six rate cuts. That was a problem for sellers of loans. For mortgages, specifically 30-year fixed rate, it was hard to find a buyer willing to make a strong premium payment [on a whole loan purchase] when you think you are going to get four or five or six rate cuts, because that meant rates were going to fall and [mortgage] prepayments [due to refinancing] were going to increase.
“However, what we’re discovering is that those folks that had the courage to put that trade on back in the third and fourth quarter of last year are in the first quarter of this year being rewarded. Because if we are now looking at only one rate cut [in 2024], maybe even one hike — although I think that’s still a pretty low probability — but let’s just say we’re flat — then prepayment speeds should remain low.
“Higher-coupon loans now may [offer] a higher rate of return for longer than someone might have anticipated in a rate assessment that was at the beginning of 2024. … So, basically, if I’m trading [as a seller] a 7% loan right now, I may get a premium — like a solid 102 [over par] or whatever.
“The buyer is going to be happy because the prepayment speeds are likely to remain low given the current Fed stance [of higher for longer], and you can amortize that premium over a longer period of time to get a better yield. So, both seller and buyer are happier with the newer loan.“
— John Toohig, head of whole loan trading at Raymond James and president of Raymond James Mortgage Co.
“There’s a lot of cash on the sidelines. There’s a lot of money out there. This translates into whole loans too.
“In RPL and NPL, which are reperforming loans and nonperforming loans, there’s a ton of demand. We just put a bid out recently and … had over 30 bids. That tells you that folks are trying to grab those loans, either for the real estate — if it’s a nonperforming loan … such as for rentals, accumulating assets for their portfolio — or if it’s reperforming, to get cash flows at a discount.
“Those loans [RPL and NPL] are really rich on the demand side, but the only sellers are those who are forced to sell because it’s at a discount, with the stuff we’ve seen trading in the 80s [below par].
— JB Long, president of Incenter Capital Advisors
“Rate volatility has persisted in the market. It’s essentially like playing a game of Keno [with bets being placed on] what number when, and that money can be lost doing so is not surprising. From my perspective, transaction volume and mortgage origination volume has been on its back — and stayed on its back — for the last year and a half.
“ … There is a book called “Who Moved My Cheese.” And it is a very simple book that highlights a very important premise. A mouse goes looking around, looking around, looking around, and spends all its time looking for cheese. Then [after it finds the cheese], it just keeps going back to the same place, but the cheese is gone.
“The mouse forgot the whole reason he ever found the cheese in the first place, and that’s because the mouse remained nimble and adaptive, as opposed to just hitting the same button as many times as he possibly could. The point is we have to continue to evolve with an evolving market.
“ … [For example], one of the big changes in the [agency] CRT [credit risk transfer] market has been a decision by the GSEs to not issue the most subordinate [securities] tranches. They are the riskiest tranches … and they’re the ones that offer the highest return. The supply of that profile has diminished considerably because they’re not issuing it anymore.
“… So, what happens is those investors go to non-QM subs. … There’s a lot of demand for that sub now [securities backed by non-QM mortgages, particularly those linked to home equity loan products].“
— Peter Van Gelderen, specialist portfolio manager in the fixed-income group and co-head of Global Securitized at TCW
“Inflation is running hotter than expected, but I wouldn’t say it’s out of control. We’ve just been kind of consistently in a range that’s higher than what the Fed would like. .. Rates do feel rich. They do feel high, but I think the market has adjusted pretty well to where the rates are and certainly it’s within the range of expectations.
“The credit spreads [for non-agency MBS] have come in throughout the year, and so the [non-agency] securitization market is open, and it’s functioning from the originator through the aggregator to the end buyer. Everyone can still make it work.
“It’s by no means the best market anyone’s ever seen, but [non-agency mortgage] originations are growing. … It’s a market that’s diverse in product types and participants.“
— Dane Smith, senior managing director and president of Verus Mortgage Capital
[Editor’s Note: Kroll Bond Rating Agency (KBRA) expects 2024 issuance for non-agency MBS to be approximately $67 billion, up 22% year over year. Home equity lines of credit (HELOCs) and closed-end second (CES) originations are expected to account for $11 billion of the increase. KBRA’s measure of non-agency loans encompasses the prime jumbo, nonprime/non-QM, and home equity lending spaces, as well as credit-risk transfer deals.]
“The lock-in effect [of homeowners staying in place due to low mortgage rates] has taken so many homes off the market that you’re seeing reduced sales volume, which creates fewer issuances of mortgages so that the market doesn’t have to metabolize that many loans.
“… But you still have this issue that the Fed displaced real money investors [in the agency MBS acquisition market] for a whole business cycle, a decade, [before pulling back from the market starting in 2022] and that market just doesn’t reappear overnight.
“… We’ve never had this many people that have a loan that’s so far below prevailing rates. So, we’re in a part of the cycle that people can’t look to a model and say, ’This is what’s going to happen,’ because we’ve never been here before.
“… Lower interest rates will create more [agency MBS] issuance, but more issuance creates a wider basis [spread from Treasurys] because there’s now a lack of investor demand versus the added MBS supply, and this creates higher primary mortgage rates to account for the lower investor bids for the excess MBS supply.
“… It’s a structural issue that I would love to see more focus on … because if you don’t have a couple of trillion dollars of excess balance sheet out there somewhere that’s priced appropriately, then the homeowner is going to end up paying more for their mortgage than they otherwise would.“
— Sean Dobson, chairman and CEO of real estate investment firm Amherst
“I think agency spreads have a pretty high correlation to interest rate volatility, so when you go from relatively low interest rate volatility, like where we came into April, to where we are today, it’s a pretty big shock to the agency mortgage market.
“And accordingly, you’ve seen agency spreads widen pretty materially. [April has] been a really bad month for agency mortgage-backed securities. … The supply-demand for agency MBS is probably in balance, however, and it’s in balance because there’s very light creation of new agency MBS [about $232 billion of agency MBS issuance in Q1 2024, compared with $223 billion in Q1 2023, according to the Securities Industry and Financial Markets Association (SIFMA)].
“… The money managers who really drove spreads tightening [in the agency market] from middle of last year to the end of last year, they’ve become pretty overweight in agency MBS. … But there’s still a lot of annuity money being deployed from annuity sales, and so that should be a continued tailwind [for the overall secondary mortgage market].
“Insurance is really the 900-pound gorilla in the room driving the bus, so they matter a lot, and there’s not a lot of credit creation that can satiate their needs.“
— Ben Hunsaker, portfolio manager focused on securitized credit for Beach Point Capital Management
“You were able to get [MSR] trades off [much of] last year with interest rates somewhat certain. But then when the uncertainty hit [late in the year, with rates declining] that slowed the fourth-quarter [deal volume], and that’s what was reflected [in the number of deals closing] when we came into this first quarter.
“Then all this data starts coming out and it became obvious that [rate cuts were] not going to happen, and that gave a lot more confidence to the buy side. [MSRs tend to price better in a high or rising rate environment because prepayment speeds are reduced. They tend to lose value in a falling rate environment as mortgage prepayments increase, reducing the payout of MSRs.]
“So, look, pricing began to pick up [as it became clear rate cuts were not likely in the near term], but we also saw an interesting phenomenon. And that is the capital that was tied to highly efficient, highly capable [refinance- and home equity loan-focused] recapture platforms decided it was not as concerned about interest rates [going] either way.
“If rates do not move, [they are] comfortable with the pricing that they’re paying today based on just the steady prepayment speeds and the cash flows, and they’re clipping coupons each month based off of those payments coming in. However, when rates do move, they are going to be in position to recapture [those customers via refinancing].
“… So, we now have a strong appetite for the MSR asset, whether it’s out of the money — which to us is below prevailing market rates — or at the money, and we also have a strong demand for both conventional as well as government [MSR assets].
“I will paraphrase a seasoned veteran in the industry that I was talking to recently, who said candidly, ’I have never seen the market like it is today — how extremely active and busy it is.’
“I’m not calling a peak yet. There’s a lot of interest from some pretty significant [investor] sources, who have a lot of capital [and] who are still looking to buy … And it’s driven again by [a desire to] put units on their platform, maintaining efficiencies, while also then having the ability to recapture when — and who knows when — that market opportunity presents itself.“
— Tom Piercy, chief growth officer at Incenter Capital Advisors
[Editor’s Note: Year to date, Incenter has announced auctions for some $15 billion in new bulk MSR deals, which does not include privately negotiated deals.]
“I don’t know if this is the peak or if … rates are going to continue to go up from here, and MSR values are going follow suit or not. But I think people are of the mindset that it’s now higher for longer [on rates].
“It’s hard because of low [housing] inventory levels and higher interest rates to bring in new originations, but that’s the reason why so many of these servicers keep going back to the same well, with a focus on offering cash-out refinance [or closed-end second liens, or home equity lines of credit] to existing customers, given that can be a source of some volume.
“It’s been a strong [MSR] market [so far this year], with some really attractive execution levels that are, dare I say, being influenced by one’s ability to recapture these borrowers. … It’s hard to convince a borrower with a 3% note rate to cash-out refinance into a 7% note rate, but they can still tap their equity by taking out a HELOC or closed-end second without impacting the rate on their first lien.
“I’ve got probably three or four deals I’m currently working on, so [MSR] volume and pricing are strong. We’ve seen some high-5 multiple trades [historically a great deal in this measure of pricing on MSR pools].
“I think [MSR trading volume] this year is going to be on par, if not slightly better, than last year [which would mark the fourth year in a row that the MSR market has recorded trading volume near the $1 trillion level].“
— Mike Carnes, managing director of MSR valuations at Mortgage Industry Advisory Corp. (MIAC)
[Editor’s Note: Year to date, MIAC has announced auctions for some $6.4 billion in new bulk MSR deals, which does not include privately negotiated deals.)
Source: housingwire.com
Mortgage rates rose for the fifth consecutive week, but so far it has had limited influence on this year’s spring home purchase season, Freddie Mac commented.
The 30-year fixed rate mortgage increased by 5 basis points this week to 7.22%, tying a level last seen at the end of November, the Freddie Mac Primary Mortgage Market Survey found.
For April 25, the 30-year FRM was at 7.17%, while for the same week in 2023, it averaged 6.39%.
For the 15-year FRM, the average rose three basis points, to 6.47%, from 6.44% and a year ago at this time, the 15-year it averaged 5.76%.
“With two months left of this historically busy period, potential homebuyers will likely not see relief from rising rates anytime soon,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “However, many seem to have acclimated to these higher rates, as demonstrated by the recently released pending home sales data coming in at the highest level in a year.”
According to LenderPrice data posted late morning on Thursday on the National Mortgage News website, the 30-year FRM was at 7.36%, nearly 10 basis points lower than it was at the same time last week, 7.457%.
One of the elements in pricing mortgages, the 10-year Treasury yield, has remained elevated, even though it was down from one week ago, when on April 25, it peaked at 4.74%. By April 29, it closed at 4.61%.
This reflects market conditions following the Federal Open Market Committee’s decision at its April/May meeting not to change short-term rates. Investors, who once thought a June cut was likely, have backed off that position.
Rates are likely to remain in the 7% range in the future, said Richard Martin, director, real estate lending solutions for analytics firm Curinos, which also tracks mortgage rate data. He added that while he expects rates to fall a bit by the end of the year, he is a little more bearish than Fannie Mae’s latest outlook.
In terms of the impact on mortgage rates, the Fed’s decision was anticipated and already priced in.
“I like to characterize it as no one predicted the level and pace of increases no one’s going to predict the level and paces of decreases,” Martin said. If the FOMC was to cut rates, it would likely be closer to the end of the year.
On April 30, the first day of the FOMC meeting, the yield moved higher again, by a little over 7 basis points to just shy of 4.68%. However, the next day, it went down to 4.60%.
As of mid-morning on Thursday, the 10-year yield was almost 4 basis points higher.
Where mortgage rates currently are makes the environment tough for mortgage originators and title underwriters, but is good for companies that are “servicing-heavy,” said Bose George in a commentary issued after the FOMC meeting.
“Despite the headwinds around mortgage volumes, stable home price appreciation should remain a positive for mortgage credit,” George said.
Martin expects rates to hold in the current range, as does Redfin’s economic research lead Chen Zhao.
“The Fed meeting is unlikely to push mortgage rates down — but the good news is that it won’t push them up, either, which could have happened if the Fed took 2024 rate cuts off the table,” Zhao said in a press release. “Even though housing costs shouldn’t climb much more, they will remain elevated for the foreseeable future, which could push more buyers away.”
Martin is leaning towards a mild recession occurring in the future, noting the U.S. economy is not yet out of the woods.
The 10-year Treasury is just one influence on mortgage pricing; the other is the primary-secondary market spreads related to securitization activity.
Federal Reserve Chairman Jerome Powell noted that the Fed will reinvest any proceeds from mortgage-backed securities run-off over $35 billion into Treasuries. That translates into lower purchase activity
“While this is in line with market expectations, we think this will continue to be negative technical for agency MBS,” George said.
It is not just those spreads that could influence pricing, Martin said, noting the record per-loan production losses originators suffered last year.
Homebuyers are still suffering from interest rate shock, said Jeremy Sicklick, CEO of real estate firm HouseCanary. “With mortgage rates creeping over 7%, many buyers and sellers alike seem to be holding out for rate cuts in the months ahead before jumping into the housing market,” Sicklick said in a press release.
HouseCanary data found the median price of all single-family listings rose 3.2% over a year ago, while closed listings rose 8%.
“With high mortgage rates and surging home prices tamping down market activity, we expect to see a subdued spring buying season continue throughout May, despite inventory increases,” Sicklick declared.
But besides higher rates, the problems around inventory and affordability remain.
“I think we’ve got to solve for those in concert,” Martin said. “Lower rates will help but I don’t think it’s enough to really materially move that needle.”
Source: nationalmortgagenews.com