At the beginning of 2020, no one expected the United States would be in the position it is in today, including me. With social distancing the new normal, many people are still hoping to buy a home; now they’re stuck wondering if they should purchase a home right now or wait out the pandemic.
As with most financial questions, the answer depends on many factors. You have control over some of these things. Other aspects are out of your hands. People that consciously examine their current position and the risks can make a somewhat educated decision.
My wife and I started the process of buying our current home and selling our old home in December 2019 before the pandemic was on anyone’s radar. By the time we ended up closing on both homes at the end of February 2020, COVID-19 had just started spooking the United States markets.
I’ve included our experiences and personal thoughts to help you get a feel for what real buyers and sellers are going through.
What’s Ahead:
What are the pros of buying a home during the pandemic?
There is lower competition for homes due to fewer people actively shopping and buying homes right now.
Mortgage interest rates may be near all-time lows resulting in lower monthly mortgage payments.
You have the potential to get a better deal on a home’s price than a few months ago if a seller needs to sell or wants to put a house behind them.
What are the cons of buying a home during the pandemic?
You risk contracting COVID-19 every time you leave your current home.
Housing inventory may be lower as some sellers wait until this passes to list their homes or they don’t want people coming through their house.
You may not be able to move through the home buying and mortgage process smoothly.
Housing prices may decrease in the near future.
Mortgage lenders may have stricter lending guidelines that disqualify you when you may have qualified for a mortgage prior to the pandemic.
You may have a harder time finding top-notch home inspectors, appraisers, and other professionals during the pandemic.
Moving may be more difficult as friends and family probably won’t volunteer to help due to social distancing guidelines.
Mortgage lenders to consider if you do decide to buy a home during the COVID-19 pandemic
For well-prepared individuals with a strong financial position, now may be the perfect time to buy the home of your dreams. You’ll have to hope the right home comes on the market and you can get a good deal on it. If everything comes together, it is still possible to buy a home during the pandemic in most cases.
When you’re ready to start mortgage shopping, make sure you check out Credible to help figure out if you’re getting a good deal.
Credible helps you shop multiple mortgage rates at once. It only takes three minutes to enter some basic information and get pre-approved for a loan. You’ll then see personalized rate quotes from a variety of lenders.
Credible doesn’t do a hard pull of your credit score to qualify you. That means you won’t have to worry about your score dropping while you’re preparing to buy a house. Credible also doesn’t provide your information to lenders, so the pre-qualification process is between you and Credible.
Credible Operations, Inc. NMLS# 1681276, “Credible.” Not available in all states. www.nmlsconsumeraccess.org.”
Credible Credit Disclosure – Requesting prequalified rates on Credible is free and doesn’t affect your credit score. However, applying for or closing a loan will involve a hard credit pull that impacts your credit score and closing a loan will result in costs to you.
Why some people are concerned about buying a home during the pandemic
People have good reason to be concerned about buying a home during the COVID-19 pandemic. This disease has drastically changed how the United States works.
The buying process increases the risk of COVID-19 transmission
If you fear for your health, buying a home may not be a good idea right now. The process of buying a home typically involves many in-person interactions.
While you may be able to mitigate some of these interactions with social distancing, being careful, and washing your hands, it may not be enough. The more you leave your home and interact with others, the higher your chance of catching the virus is.
In particular, you usually meet with a real estate agent in person. You tour many homes you’re interested in, most of which have people that live in them.
You may want to attend any home or pest inspections in person to understand exactly what you’re buying and to see any potential problems firsthand. Once everything with the sale is wrapped up and ready to sign, you have to go to a closing and sign paperwork with a closing agent.
There are other steps in between that could also expose you to the virus, but these are the most essential. You could take virtual home tours and some states may allow for virtual closings. Even so, very few people would buy a home without setting foot in it first. I don’t blame them.
The mortgage lending process is facing challenging times
Getting a mortgage is usually a predictable process. You apply for a mortgage and give the lender the requested paperwork. This paperwork helps the lender feel confident you can afford the mortgage. Things aren’t as simple today as they once were, though.
Mortgage rates are all over the place
Lenders tend to offer fairly competitive rates in a stable environment. Some lenders may offer better rates than others, but the difference between lenders is normally relatively small.
Our original mortgage process was straightforward without any problems. After we closed on our home, mortgage rates dropped fast. We decided to refinance our mortgage right after closing on our home.
For the refinance, finding a lender with a great rate was a bit harder than we thought it would be. We had to do a lot of shopping around to find the best rates as some lenders had rates that were much higher than others were offering.
Rate quotes were as much as 2% different between lenders over the course of a couple of weeks. This is insane in a stable mortgage market.
Some mortgage processes have become more strict
Underwriters review the information you’ve submitted to see if you qualify for the loan. They look to see if they need any additional information and eventually approve your loan for closing. Usually, this is straightforward and borrowers know what to expect. Today, requirements may be changing.
Mortgage companies have started altering their requirements to take out a mortgage. Chase stated back in April that buyers of certain home loan programs will have to have a credit score of 700 and a 20% down payment to get certain types of mortgages. And many lenders have followed their lead.
We could tell the process was getting stricter when we refinanced in March, as well. To our surprise, one lender would have required us to sign an affidavit saying we hadn’t lost our jobs and our income situation hadn’t changed at closing.
I didn’t have to sign this paperwork when we originally closed on our purchase loan. Lenders seemed like they were taking a more in-depth look at the mortgages they had in process, and this was in mid-March. As this crisis continues to drag on, lenders may get even more stringent.
Slower processes could challenge your closing timeline
Unfortunately, coronavirus has made the mortgage process more difficult. Due to the virus, interest rates on mortgages have generally dropped. This is great news for your monthly payment, but it also means mortgage lenders are much busier than usual processing refinance requests.
This can slow down the mortgage approval process because lenders don’t necessarily have enough staff to handle the higher refinance demand. To make matters worse, COVID-19 has forced many employees to work from home. At home, the employees may be less efficient and not have the tools they need to complete their jobs as quickly.
The lender usually orders an appraisal to make sure the home isn’t worth less than you’re paying for it, too. This requires an appraiser to visit the home and complete an appraisal report. The virus has posed challenges for these appraisers.
Many home sellers may not want to let a stranger enter their home to assess its value. There is no telling if the appraiser has the virus or not. Even if you can get an appraiser, they may have to take extra precautions which could slow down the process.
If a mortgage lender can’t complete the entire mortgage process in time, it could delay your closing on your home. This could result in penalties or your contract falling through altogether.
So, should you buy a home during the pandemic?
Buying a home during the pandemic could work out in your favor. If you have your finances in great shape, you could take advantage of the down market during these tough times.
Get a good deal on houses that must sell
Some people absolutely must sell their homes right now. They may have already bought another home elsewhere and can’t afford to make two mortgage payments for long. Others may have had to relocate for work and don’t want to wait to see if COVID-19 drags their old house’s value down.
In these cases, you can test the willingness of the sellers to wait out the COVID-19 pandemic. Some sellers may not be willing to budge on price. Other sellers may drastically reduce their selling price to sell and avoid future uncertainty. If you’re not picky about getting a particular house, you could get a great deal.
If our prior house didn’t sell before the pandemic took hold, this very well could have been our family. It could have resulted in us getting a much lower price than we ended up selling our home for, or us holding on to our home for a much longer period to get the price we wanted. Either way, it would have cost us money.
Avoid homes you won’t own for long
Be careful about what type of home you buy during the pandemic. Now is not the time for most people to buy starter homes that they plan to move out of in a few quick years. If housing prices drop, you may be stuck in the home.
Buying long-term or forever homes may work out fine
Buyers purchasing a home they plan to spend a significant amount of time in, such as a decade or more, should hopefully be able to weather any negative short term impacts the housing market faces. Nothing is guaranteed, though.
Why shouldn’t you buy a home during the pandemic?
Buying a home during the pandemic isn’t a good move for everyone. In fact, you may be better off waiting to buy.
Limited housing supply
As a home seller, we’re delighted we sold when we did. If we still had our home on the market after the COVID-19 pandemic took hold and we still lived there, we would not have been comfortable with others coming through our home to view it.
If we hadn’t put our house on the market already, chances are we would have waited until after the pandemic was over to list our home. It would have put our mind at ease that we wouldn’t have to find another place to live while the world is in lockdown should we be lucky enough to sell.
Other potential sellers are facing similar dilemmas. This could result in fewer houses being put on the market, resulting in a tighter home supply during a typically busy spring market.
Housing prices could decline
No one knows how the housing market will end up on the other side of this pandemic. It could result in lower housing prices in the future. This result could be temporary or it could last for years.
Even if you think you’re getting a deal today, prices may decrease even more before the pandemic is over. Without a sizable down payment and equity in your home, you may end up underwater and be unable to sell it or move.
As a home buyer, we’re happy with our purchase. Even so, part of me wonders if we’ve now bought at a peak in prices. We are very aware we might see housing prices decrease in the future.
This doesn’t worry us as much as it may bother others. We plan to live in this house for at least 10 years. It has plenty of space and is in a great neighborhood with good schools. If this was a starter home, we would be very concerned about our ability to resell it for a profit in a few years.
You could lose the income you use to pay your mortgage
Another reason to avoid buying a home right now is uncertainty about your job. Those that need a paycheck every two weeks to make their mortgage payment could end up getting foreclosed on if they get furloughed or laid off.
Unless you have substantial financial reserves that could help make mortgage payments until you find a new job, buying a home right now probably isn’t a good idea. Instead, you may be better off focusing on building reserves.
Buying a home would exhaust your cash reserves
Most people save for years to be able to afford a down payment for a home. When they close on their home, some people use almost all of their available cash to do so. This leaves them with no emergency fund to speak of.
If this is you, don’t buy a home right now. If anything bad happens after you purchase your home, it could put you in financial ruin. Losing a job could result in foreclosure. A large home maintenance item that suddenly needs to be taken care of, such as a damaged sewer line, could put you into debt.
Instead, wait until you have enough money for a down payment while still keeping a cash reserve after you close on your home. Something unexpected always pops up.
When we bought our first home, we quickly found out our air conditioner needed to be replaced. That was an unexpected $3,000 expense on a $79,000 home, but it could have been much more if we needed a new roof.
You may not be able to sell your current home
If you would have to sell your current home to afford your next home, now isn’t a great time to buy. Whether you want to move to a different area or move up to a nicer home, there is no guarantee your current home will sell in time.
If it doesn’t sell and your contract to buy falls apart, you may lose your earnest money and any other fees you paid throughout the process. The other potential issue could be selling your home for much less than you’d otherwise get if you weren’t crunched for time. Either way, you could lose out substantially if things don’t work out as anticipated.
Summary
Buying a home could be a good move for you if your finances are in order, you’re buying a home for the long haul and the right house comes along.
However, those with an uncertain future or just enough funds to barely make a down payment on a house would likely be better off waiting until there is more certainty before buying. You may not get as good of a deal, though.
After a slight increase in late February, mortgage applications dipped 1.3% in the week ending March 5, according to the latest report from the Mortgage Bankers Association. But experts aren’t concerned.
With spring approaching – signaling the start of a busy buying season – the purchase market sported its strongest showing in four weeks, with gains in both conventional and government applications, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.
“Loan sizes moderated for the second straight week, which is potentially a sign that more first-time buyers are entering the market,” Kan said. “Signs of faster economic growth, an improving job market and increased vaccine distribution are pushing rates higher. The 30-year fixed mortgage rate climbed to 3.26% last week, which is the highest since last July and up 40 basis points since the start of 2021.”
Rates have been trending upward for more than a month now, jumping above 3% this month for the first time since the summer, when sub-3% rates were the norm. Climbing rates are combining with low inventory and high home prices to keep mortgage applications low, Kan said.
The refinance index decreased 5% from the previous week and was 43% lower than the same week one year ago. The seasonally adjusted purchase index increased 7% from the previous week, as did the unadjusted purchase index, which increased 9%.
The FHA share of total mortgage applications decreased to 11.6% from 12.1% the week prior. The VA share of total mortgage applications decreased to 11.1% from 12.3% the week prior.
Here is a more detailed breakdown of this week’s mortgage application data:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.26% from 3.23%
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.34% from 3.33% – a second straight week of increases
The average contract interest rate for 30-year fixed-rate mortgages increased to 3.20% from 3.19%
The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.63% from 2.64%
The average contract interest rate for 5/1 ARMs decreased to 2.69% from 2.84%
Return on equity (ROE) and return on investment (ROI) are two important financial metrics that are used to measure the profitability of a rental property, a business, or another type of investment. Both metrics are expressed as a percentage, and they both measure the amount of profit that is generated from a given amount of investment. However, there are some key differences between ROE and ROI. I think most investors think of ROI when determining how good their investment is, but ROE can give indications of how good the investment is based not just on the initial investment but the current equity. Some properties may have a great ROI but a poor ROE. These numbers can help you decide if it is an investment worth keeping or selling.
What is Return on Equity?
ROE measures how effectively equity is being used to generate profits. Equity is the property’s value minus any liens or debts against the property. For example, if a property is worth $500,000 and has a $200,000 mortgage against it, there is $300,000 in equity. This figure may not be the figure you want to use to base keep or sell decisions on since there are selling costs as well. It may cost you $50,000 to sell the property after commissions, closing costs, and repairs to make the property marketable. If you sell the property you may have to pay taxes on the profit as well. If you are making $100,000 in profit on the sale, you might have to pay $15,000 or $20,000 in capital gain taxes unless you use a 1031 exchange.
The return on equity is calculated by dividing the profits the property makes by the equity. If the property makes $10,000 a year, then the ROE would be 5 percent if there is $200,000 in equity.
10,000/200,000 = .05
However, as I said earlier you may want to use a different number based on the money you would get out of the sale. If you are only getting $125,000 after all the costs you would have to pay you would be making 8 percent:
10,000/125,000 = .08
What is Return on Investment
ROI measures the profitability of an investment property based on the profit generated and the initial investment into the property.
For example, if a property has a net profit of $10,000 per year and there was an initial investment of $100,000, then its ROI would be 10%. The ROI analyzes the property based on how much money was used to buy, rehab, and rent the property, not by how much money is tied up in it now. ROI is useful in seeing how a property might perform, but I would argue it is not as important when figuring out whether to keep or sell an asset.
How to know when to sell rental properties?
Differences Between ROE and ROI
The main difference between ROE and ROI is that ROE measures profitability in relation to equity or the money you could get if you sold the property, while ROI measures profitability in relation to your initial investment. ROE is a better judge of how well a property is performing today.
Once you have invested a certain amount of money into a property, you can’t undo that investment. The money is spent and keeping a property because it has a high ROI or you dumped a bunch of money into it, might not be the best financial decision. You could have a very high ROI but a very low ROE because the property has increased in value.
A real-life example of ROI vs ROE
I bought a property in 2010 for $97k that I sold in 2019 for $275k. I spent about $27,000 buying that property and in 2018 it was making about $9,000 a year. That is a 33 percent ROI just based on the rent coming in! The tricky thing with real estate is that the property was also appreciating in value, had tax advantages and the loan was being paid down. The ROI was much higher than 33 percent, probably close to 100 percent.
This seemed like an amazing investment so why did I sell it? My ROE was much lower because I had $220,000 in equity in the property. I could use a 1031 exchange to sell the property and pay about $15,000 in selling costs ( I am an agent so I save money there). I could take about $200,000 out of the property which means my ROE was only 4.5 percent based on rent alone. If I factored in taxes and appreciation, that ROE might increase to 10 to 15 percent.
The question I had to ask myself was not if that was a good ROI, but if that was a good use of the money I had tied up in the property, or ROE.
I decided to sell because I could take that money and get a better ROE on a new property that had a better rent-to-value ratio. I could also get a great deal when buying which also increases my returns. Instead of making $20,000 to $30,000 a year from rent, appreciation, loan pay down, and tax advantages. A bigger property with better numbers could make me $50,000 to $70,000 a year with that same amount of money. I could build more equity as well because I am getting a good deal on the new property.
Other options to optimize ROE
If you have low ROE, you don’t always need to sell. You may be able to refinance the property and take some of that equity out to use in other deals. It is harder to refinance with higher rates but this made a lot of sense when rates were lower. When you refinance you are replacing the old loan with a new loan and when you use a cash-out refinance you are replacing the old loan with a larger loan and getting cash back in the process. One of the advantages of a refinance is that the cashback is tax-free since it is not income.
Conclusion
ROE and ROI are both important financial metrics that can be used to measure the profitability of a company or project. However, they measure different things, so it is important to use the right metric for the situation.
I hope this article was helpful. Please let me know if you have any other questions.
The share of refinances in mortgage origination volume dipped below 50% for the first time in 15 months in March, according to Black Knight‘s new monthly data report, the Originations Market Monitor. With interest rates continuing to tick up, the purchase mortgage market is where most lenders will focus operations over the next year.
Since December 2019, millions of homeowners have been able to save hundreds of dollars a month in mortgage payments by refinancing to record-low mortgage rates, often in the 2% range. Thanks to the Fed’s intervention to lower the cost of borrowing, many homeowners shaved 125 basis points or more on their mortgages over the past year. That was a boon for mortgage lenders, the vast majority of which rode the refi wave to historic origination volume and record profits in 2020.
But the strengthening U.S. economy and acceleration of COVID-19 vaccines has pushed interest rates back up dramatically over the last quarter. By mid-January, mortgage rates began to rebound from historic lows, and by the end of March, Black Knight estimated the average 30-year mortgage rate sat near 3.34%. That was up 60 basis points from February, though still down 20 basis points from the same time last year.
In March, the share of refinancings fell to 48%, forcing many lenders to quickly pivot away from refis and toward the purchase market.
“Recent – and sharp – upward movements in interest rates have shifted the mortgage originations landscape very quickly,” said Scott Happ, Black Knight’s president of secondary marketing technologies. “The wave of refinance activity of the last year and some months has suddenly given way to a purchase-heavy mix. The implications of this shift touch nearly every area of mortgage lending, which in turn has implications for the wider economy.”
How outsourcing gives lenders an advantage in 2021’s purchase market
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Despite refi activity in freefall, overall rate lock volume was up 2.5% in March, with purchase locks jumping 32% from February. Cash-out refinance locks also rose 4% month-over-month.
The three metropolitan areas with the greatest percentage of lock volume was the Los Angeles-Long Beach-Anaheim metro, New York-Newark-New Jersey metro and the Washington-Arlington-Alexandria metro. In the NY-NJ-PA metro in particular, rate lock data was up 11.7% month-over-month, and refis still took more than half of the origination volume.
But the top 20 metros were neck-and-neck for whether purchases or refis made up more of the lending pie.
“This marks the first time – but almost certainly not the last – that purchase loans have made up a majority share of monthly mortgage lending since December 2019,” said Happ. “We also saw credit scores pull back, a trend that’s likely to continue among refis as high-credit borrowers, who have been largely driving record volumes, exit the market.”
If these homeowners do slowly exit the market, credit availability will continue to open up for borrowers with lower credit scores and options for higher LTV products. Zillow‘s senior economist Jeff Tucker estimates this next wave of buyers will be millennials.
“More affordable, medium-sized metro areas across the Sun Belt saw significantly more people coming than going – especially from more expensive, larger cities farther north and on the coasts,” said Tucker. “The pandemic has catalyzed purchases by millennial first-time buyers, many of whom can now work from anywhere.”
On average, Black Knight estimated a typical credit score for a conforming loan was around 751 in March, six points lower than a year ago. On the other hand, credit scores averaged close to 666 for FHA loans, around four points higher year-over-year. According to the report, Black Knight said it’s seen year-to-date increases in the share of FHA and non-conforming originations, while conforming volumes – though still representing the lion’s share of March lending – are down.
The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,'” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?'” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,'” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
The weekly applications report from the Mortgage Bankers Association (MBA) wasn’t positive, but it was certainly consistent. MBA said its Market Composite Index, a measure of mortgage loan application volume, was down by 3.0 percent across the board during the week ended July 28. The composite index decreased 3.0 percent on both a seasonally adjusted and unadjusted basis. The same percentage decline held for the Refinance Index and both the adjusted and unadjusted Purchase Indices.
Applications for refinancing were 32 percent lower than the same week in 2022 and the Purchase Index was down 26 percent year-over-year.
“Mortgage rates edged higher last week, with the 30-year fixed mortgage rate [increasing] to 6.93 percent and leading to another decline in overall applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The purchase index decreased for the third straight week to its lowest level since the beginning of June and remains 26 percent behind last year’s levels. The decline in purchase activity was driven mainly by weaker conventional purchase application volume, as limited housing inventory and rates still close to 7 percent are crimping affordability for many potential homebuyers. The refinance market continues to feel the impact of these higher rates, and applications trailed last year’s pace by over 30 percent with many homeowners not looking for refinance opportunities.”
Highlights from MBA’s Weekly Mortgage Applications Survey
Loan sizes yo-yoed again, dropping from last week’s spike of $383,100 to $375,100. Purchase loan sizes, which averaged $432,700 the prior week, retreated to $423,400.
The FHA share of applications increased to 13.3 percent from 12.7 percent and the VA share decreased to 11.6 percent from 12.1 percent. The USDA share of total applications increased to 0.7 percent from 0.5 percent the prior week.
The refinance share of mortgage activity increased to 28.9 percent from 28.7 percent week-over-week.
The 6.93 percent average interest rate for conforming 30-year fixed-rate mortgages (FRM) was a 6-basis point increase from the prior week. Points grew to 0.68 from 0.65.
The rate for jumbo 30-year FRM dipped to 6.89 percent from 6.90 percent,with points decreasing to 0.58 from 0.64.
Thirty-year FRM with FHA guarantees had an average rate of 6.85 percent, up from 6.80 percent the prior week. Points ticked up 2 basis points to 1.05.
The rate for 15-year FRM rose to 6.39 percent from 6.37 percent, with points increasing to 0.78 from 0.75.
The average contract interest rate for 5/1 adjustable-rate mortgages (ARMs) averaged 6.18 percent, a 17 basis point surge, while points dropped to 1.16 from 1.25.
The adjustable-rate mortgage (ARM) share of applications jumped from 5.9 percent to 6.5 percent.
Fannie Mae netted $5 billion in profits in the second quarter, up $1.22 billion from the first three months of the year.
Executives attributed the swollen profits to the continued strength of home prices, which have risen 5% in the first six months of the year.
In fact, Fannie Mae is no longer predicting a decline in home prices in 2023. The government sponsored enterprise‘s forecast now calls for a 3.9% home-price increase this year, though a recession is still in the cards.
“The economy has remained more resilient than we expected earlier in the year, but we believe it is still on a decelerating path and additional drags are likely forthcoming,” Chryssa Halley, Fannie’s chief financial officer, said on the second-quarter earnings call on Tuesday. “While noting the probability of a soft landing may have increased of late, our economic and strategic research group expects the economy will enter a modest recession in the fourth quarter of this year or the first quarter of next year.”
Here are some highlights from Fannie Mae’s second quarter:
Single-family conventional acquisition volume was $89.2 billion in Q2 2023, up 32% over the first quarter’s $67.5 billion.
Purchase acquisition volume, 45% of which was for first-time homebuyers, increased to $76.4 billion from $56.5 billion in the first quarter. Refinance acquisition volume was $12.8 billion in the second quarter of 2023, up from $11 billion in the first quarter of 2023.
Fannie Mae provided $104 billion in liquidity to the mortgage market in the second quarter of 2023.
Average single-family conventional guaranty book of business in Q2 2023 declined by $1.4 billion from the first quarter of 2023, driven by acquisition volumes being lower than loan paydowns during the quarter. Credit characteristics for single-family conventional remained strong, with a weighted-average mark-to-market loan-to-value ratio of 51% and a weighted-average FICO credit score at origination of 752 as of June 30, 2023.
Single-family serious delinquency rate decreased to 0.55% as of June 30, 2023 from 0.59% as of March 31, 2023.
Average charged guaranty fee, net of TCCA fees, on single-family conventional remained relatively flat at 46.8 basis points as of June 30, 2023, compared with 46.6 basis points as of March 31, 2023.
Fannie’s net worth increased to $69 billion, up from $64 billion a quarter ago.
Fellow GSE Freddie Mac will disclose its second quarter earnings on Wednesday.
As the Federal Open Markets Committee raised interest rates by 25 basis points last Thursday, mortgage rates ticked up and mortgage applications fell. For the week that ended July 28, mortgage applications fell 3% from the prior week, according to data from the Mortgage Bankers Association.
“Mortgage rates edged higher last week, with the 30-year fixed mortgage rate’s increase to 6.93% and leading to another decline in overall applications,” said Joel Kan, MBA’s vice president and deputy chief economist.
The purchase index kept decreasing for the third straight week, hitting its lowest level since the beginning of June. Meanwhile, it remains 26% behind last year’s levels. The decline in purchase activity was driven mainly by weaker conventional purchase application volume, said Kan.
He added : “The limited housing inventory and rates still close to 7% are crimping affordability for many potential homebuyers.”
On the other hand, the refinance market continues to suffer from these higher rates with many homeowners not looking for refinance opportunities. The refinance index decreased 3% since last week and is 32% lower than it was the same week a year ago.
At Mortgage News Daily, 30-year fixed-rate mortgage rates were at 7.10% on Tuesday. At HousingWire’s Mortgage Rates Center, Optimal Blue had rates at 6.88% on Monday.
The Federal Housing Administration loans’ share increased to 13.3% from 12.7% the week prior. The U.S. Department of Veteran Affairs loans’ share dropped to 11.6% from 12.1%. And the U.S. Department of Agriculture loans’ share ticked up to 0.7% from 0.5%.
Adjustable-rate mortgages increased to 6.5% of total loan applications last week, the MBA said. The average contract interest rate for 5/1 ARMs climbed to 6.18% from 6.01% a week prior.
June 21 (Reuters) – Commonwealth Bank of Australia (CBA.AX) on Wednesday cut its buffer rate for some borrowers refinancing their existing home loan to 1% from the industry standard of 3%, providing relief to many clients who would otherwise fail to qualify due to high interest rates.
The country’s prudential regulator advises lenders to refinance home loans only if they believe the customer could repay at 3% higher than current market rates.
While CBA’s alternate buffer is not in line with the regulator’s recommendation, it does not break the serviceability buffer, the regulator said, as it allows exceptions to the policy but warns against high volumes.
CBA has a quarter of the Australian mortgage market, where thousands of borrowers are expected to end their fixed rate loans this year, forcing them to shop around for new loans at current rates.
The Australian Prudential Regulation Authority (APRA) in a letter earlier this month said banks could face heightened supervisory attention if they report large volumes of policy exceptions which could pose risks to the banks’ loan books.
Starting Friday, CBA will allow select customers who meet some “strict eligibility criteria” to refinance their loans if they are capable of repaying at 1% above current market rates, the bank said, adding that a track record of no missed payments for at least a year was among several criteria for customers to be considered eligible.
“We know that due to the current interest rate environment some home owners are facing challenges refinancing their home loans so we are introducing an alternate interest rate serviceability buffer,” CBA’s Michael Baumann, executive general manager home buying said.
Westpac Banking Corp (WBC.AX), the country’s second-biggest mortgage provider, also offers modified serviceability assessment rate to customers unable to meet the industry standard.
The Reserve Bank of Australia has raised interest rates by 400 basis points to an 11-year high of 4.1% since May last year.
Reporting by Sameer Manekar in Bengaluru and Byron Kaye in Sydney ; Editing by Nivedita Bhattacharjee
Our Standards: The Thomson Reuters Trust Principles.
The 21 top recipients of TARP funds saw minimal increases in overall lending in February compared to a month earlier, according to data released today by the Treasury Department.
The median growth in total lending was actually negative two percent in February, with nine banks posting increases and 12 experiencing declines.
“Against a difficult economic backdrop, banks extended approximately the same level of loan originations in February as in January,” the Treasury said in a release.
“The relatively steady overall lending levels observed in February likely would have been lower absent the capital provided by Treasury through the CPP, an indication of the critical role this program has played in stabilizing markets and restoring the flow of credit to consumers and business.”
However, residential mortgage originations across the 21 banks increased by a median 35 percent, thanks to a flurry of refinance activity.
The median change in mortgage refinancing during the month was an increase of 42 percent from January, thanks in part to record low rates; home equity loan originations saw a median increase of 18 percent.
Wells Fargo was the top mortgage lender for the second month running with $34.8 billion in monthly loan originations, trailed by Bank of America with $28.6 billion and Chase with $13 billion, all substantial increases from January.
Meanwhile, loan originations for consumer loans, such as auto, student, and personal loans, decreased a median 47 percent, partially attributable to poor demand in these industries.
New credit card originations also slowed by a median three percent, while the average loan balance of credit accounts fell by a median one percent.
It appears as if the banks that received billions in TARP funds are only willing to originate low-risk, government-backed mortgages (FHA loans, VA loans), while cutting back on all other types of credit.