Weekly application volumes headed higher for the first time in six weeks, as interest rates flattened, according to the latest data from the Mortgage Bankers Association.
The MBA’s Market Composite Index, a measure of mortgage applications based on surveys of the trade group’s members, climbed up a seasonally adjusted 2.3% for the weekly period ending Aug. 25. Despite the uptick, volumes were still 27.3% lower than in the same survey one year ago.
“Mortgage applications for home purchases and refinances increased for the first time in five weeks but remained at low levels,” said Joel Kan, MBA’s vice president and deputy chief economist in a press release. Kan noted that interest rate movements may have prompted some borrowers to act after a muted start to August.
“Treasury yields peaked early in the week and did move lower by the end, which may have spurred some activity,” he said. Mortgage rates are influenced by Treasury yields and typically fluctuate in tandem.
After hitting its highest point since December 2000 in the previous survey, the 30-year rate for loans with conforming balances below $726,200 in most markets came in at the same average of 7.31% last week. Borrower points decreased by 5 basis points to 0.73 from 0.78 for 80% loan-to-value ratio loans.
Similarly, the average contract rate of 30-year jumbo mortgages above the conforming amount inched up by a single basis point to 7.28% from 7.27% week over week. Points declined to 0.66 from 0.84 when used for jumbo loans.
Although the current level of interest rates continues to dampen interest among homeowners, the Refinance Index saw a 2.5% increase week over week, driven by a 7.9% in the conventional market, according to Kan. But offsetting the rise was a more than 10% drop in government-backed refinance applications.
“The refinance market continues to be slow despite last week’s gain,” he said. Compared to the same seven-day period in 2022, refinances were 27.6% lower. The share of refinances relative to overall volumes also ticked up to 30.1% from 29.5% one week prior.
The seasonally adjusted Purchase Index, likewise, inched up 2%, but finished 27.2% lower from year-ago levels. Volumes increased from the previous week for both conventional and federally sponsored purchases.
A week after falling to its lowest average since early this year, purchase-application sizes also turned around to finish higher at the end of the survey period. The mean amount landed at $413,100, up 1.3% from $407,700.
Meanwhile, the combined surge of conventional loans with the drop in government activity drove the average refinance size 2.3% higher, rising to $260,400 from $254,500. The overall average across all applications last week came in at $367,200, 1.3% above the $362,600 reported in the prior survey.
The steep decline of government refinances also helped bring down the overall share of new federally guaranteed applications for the week. Federal Housing Administration-backed mortgages garnered 13.2% of activity compared to 14.3% seven days prior, but the incoming volume of applications sponsored by the Department of Veterans Affairs remained at 11.6%. The share of applications coming through the U.S. Department of Agriculture inched down to 0.4% from 0.5%.
Interest rates came in mostly flat across all categories tracked by the MBA, with the 30-year FHA-backed contract average edging up by a single basis point to 7.1% from 7.09% week over week. Points decreased to 1.09 from 1.2 for 80% LTV loans.
The 15-year contract fixed average was unchanged from seven days earlier, remaining at 6.72%, with borrower points rising 5 basis points to 1.11 from 1.06.
The 5/1 adjustable-rate mortgage, likewise, saw only a 2 basis point decrease to an average of 6.48% from 6.5% in the previous survey. Points surged to 1.2 from 1.03 for the ARM loans, which stay fixed for the first five years..
With ARM activity typically picking up when rates rise, last week’s flat movements helped lead it to a smaller share of overall application volumes. ARMs made up 7.5% of new loans, inching down from 7.6% a week earlier.
GERMANTOWN, Wis. — Competing in today’s housing market is a challenge for any prospective home buyer.
But there is help available for various population groups, such as military families.
Home loans accessible through the U.S. Department of Veterans Affairs are what helped Wayne and Angela Robbins get their dream home in Germantown. They moved in a year ago and couldn’t be happier.
What You Need To Know
One Wisconsin veteran bought a new home with a VA Home Loan.
A VA Home Loan is a mortgage that is guaranteed by the U.S. Department of Veterans Affairs at much lower interest rates. It offers more flexible credit and income requirements and less closing costs.
Realtor said using a local lender is best for veterans.
Wayne Robbins said he hopes his story of finding his dream home will help other veterans find theirs.
Wayne Robbins is an Army veteran. He spends most of his days hanging around the house. He has a passion for drawing and loves sitting on the back patio. Because he relies on a wheelchair, the family had to find a place that could accommodate that.
“It’s been a blessing,” Wayne Robbins said.
Angela Robbins said she loves to entertain and have people over to their new house.
The couple said their realtor, Theresa Dixon with Wisconsin Real Estate Group, was instrumental in helping them navigate the process.
“It was taking so long to try to get what we need, and what we qualify for that would be beneficial for Wayne and myself,” Angela Robbins said.
A VA Home Loan is a mortgage that is guaranteed by the U.S. Department of Veterans Affairs at much lower interest rates. It offers more flexible credit and income requirements and less closing costs. In most cases, a VA Home Loan doesn’t require a down payment or private mortgage insurance.
“I think it’s really important for veterans to have realtors working for them that know how to write these offers, know how to advocate for them, and know the ins and outs of how to show value within a VA loan,” Dixon said.
After meeting Wayne and Angela Robbins, Dixon said she wants to help more military families navigate the home-buying process.
“Everything about this particular process and this particular condo, it was just frosting on the cake of a wonderful journey of looking for the right place,” Dixon said.
Wayne Robbins said getting help from the VA to buy a house has been a blessing.
“It showed me that they cared for me as a veteran,” he said. “It means a lot when people show that they’re thankful for service members.”
Wayne Robbins said he hopes his story of finding his dream home will help other veterans find theirs.
For more information on VA Home Loans, visit the U.S. Department of Veterans Affairs website.
Home loan applications slowed for a fifth straight week, with interest rates and a sluggish housing market pushing purchase activity to its lowest mark since the mid-1990s, the Mortgage Bankers Association said.
The MBA’s Market Composite Index, a measure of weekly application activity based on surveys of the trade group’s members, continued its recent downward descent, falling another 4.2% for the period ending Aug. 18. The two previous weekly surveys reported more muted drops of 0.8% and 3.1%. Compared to the same week in 2022, volumes were 31.6% lower.
Surging interest rates, again, provided consumers with limited buying opportunities and a lack of incentive to sell or refinance, with the 30-year fixed average also landing at a decades-long high among MBA lenders, according to Joel Kan, vice president and deputy chief economist of the organization. “Treasury yields continued to spike last week as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high. This spike pushed mortgage rates higher last week,” Kan said in a press release.
The contract average for the 30-year conforming fixed-rate mortgage with balances below $726,200 in most areas leaped another 15 basis points week-over-week to finish at 7.31% — the highest since late 2000. A week earlier, the average sat at 7.16%. Borrowers also used 0.78 points on average, up from 0.68 seven days earlier, for 80% loan-to-value ratio loans.
The contract 30-year fixed rate for jumbo mortgages with balances above conforming amounts also accelerated to an average of 7.27% compared to 7.11% in the prior survey. Meanwhile, points increased to 0.84 from 0.55.
The spike in rates drove home-purchase application numbers to their lowest point since April 1995, “as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power,” Kan said. The seasonally adjusted Purchase Index fell 5% from seven days earlier. Activity came in 30% below levels from a year ago.
“Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing,” Kan added.
Recent research from Zillow found rates would need to drop to 5% before many current homeowners would be willing to put their homes up for sale. While the homebuilding industry is seeing some benefits from fewer sales of existing homes, the rate of building is not creating enough supply quickly enough to substantially lower prices.
The MBA’s Refinance Index also dropped 2.8% from the prior week, with activity coming in 34.9% lower from the same week of 2022. But refinances took a 29.5% share relative to the total number, up from 28.6% seven days earlier due to the larger fall in purchases.
The slowdown in purchase mortgages also hit government-sponsored loan volumes after a recent uptick in some applications guaranteed by federal agencies. But although the seasonally adjusted Government Index slipped downward last week, the share of federally guaranteed mortgage applications picked up.
Loans backed by the Federal Housing Administration garnered a 14.3% share compared to 13.8% in the prior survey. Department of Veterans Affairs-sponsored applications accounted for 11.6%, edging down from 11.8% a week earlier. Mortgage applications coming through the U.S. Department of Agriculture took a 0.5% share, up from 0.4%.
With recent interest rate movements taking a larger bite out of what home buyers might be able to afford in August, purchase loan sizes fell last week. The average purchase-application amount saw a 2.2% drop to $407,700, its lowest mark since early January. One week earlier, the mean size came in at $417,200.
Average refinance amounts grew, though, by 1% to $254,500 from $251,900. The overall average for all applications stood at $362,600, 2% lower from $369,600 seven days earlier.
Consumer interest in adjustable-rate mortgages grew last week, though. “Some homebuyers are looking to lower their monthly payments by accepting some interest-rate risk after the initial fixed period,” Kan said.
“The ARM share of applications increased to 7.6%, the highest level in five months, and the number of ARM applications picked up by 4% last week,” he said.
With rates today more than twice as high compared to the mortgage boom of two years ago, ARM activity has grabbed a noticeably larger share of application volume over the past 24 months. In late August 2021, ARMs accounted for just 3.1% of all applications, with the percentage doubling by the same point in 2022 and remaining above 6% for most of the ensuing year.
The hefty increases in mortgage rates among MBA lenders were not limited to the conforming and jumbo markets either. Two weeks after hitting a high last seen in 2002, the average contract rate of the 30-year FHA-backed mortgage accelerated to 7.09%, passing that peak after it had retreated to 6.93% in the last survey. Points also increased to 1.2 from 1.17.
The fixed contract average for the 15-year mortgage surged 15 basis points to 6.72% from 6.57% a week earlier. As they did for all other fixed loans, points increased, rising to 1.06 from 0.94 for 80% LTV loans.
The 5/1 adjustable-rate mortgage also saw its average increase by 30 basis points to finish at 6.5%, compared to 6.2% seven days prior. Rates on these loans stay fixed for a half decade before adjusting to market levels. In contrast to fixed-rate mortgages, though, borrower points on the 5/1 ARM dropped to 1.03 from 1.45.
President Donald Trump’s administration has proposed the privatization of mortgage financing giants Fannie Mae and Freddie Mac as part of sweeping chances to the way the government is organized, it was reported last week.
The proposal, which can be read here, still requires the approval of Congress, would see Fannie and Freddie transformed into private entities, HousingWire reported.
Fannie and Freddie have been managed under U.S. conservatorship since 2008, but Trump’s administration believes there’s good reason for a change in the status quo.
“Although the federal role in the housing market has helped to facilitate the availability of the 30-year fixed-rate mortgage, the current system has structural flaws that have also created distortions in home pricing that may actually hinder the goal of homeownership,” the proposal states.
The idea is that the fully privatized mortgage finances would be able to focus more on “qualified borrowers”, with the Department of Housing and Urban Development taking over responsibility of those programs that exist to help low and moderate-income buyers. Fannie and Freddie don’t issue mortgages themselves, but they back them by lenders and bundle them into securities which are guaranteed to investors.
Trump’s administration says the GSEs currently play an “outsized role” in the mortgage system and that it impedes competition in the market. It argues that privatization would increase competition and lead to lower housing prices.
Not everyone agrees however, with some expert saying that privatization of the GSEs could instead lead to higher mortgage rates as it would reduce the number of programs available to low income borrowers. At present, the government’s proposal is too vague to know for sure exactly what kind of impact it would actually have on the market.
“It is critical to America’s housing industry and a priority of NAR that affordable mortgage capital always remains available for creditworthy Americans, particularly during economic downturns—a vital role that a fully private entity could not fill,” Elizabeth Mendenhall, president of the National Association of Realtors, said in a statement. “This makes efforts to reform the secondary mortgage market all the more necessary. NAR will continue to advocate that Congress enact comprehensive housing finance reforms as quickly as possible.”
The proposal “would transform the way the federal government delivers support for the U.S. housing finance system to ensure more transparency and accountability to taxpayers, and to minimize the risk of taxpayer-funded bailouts, while maintaining responsible and sustainable support for homeowners,” it reads.
Any changes are likely to be a long time coming however, as they would require broader policy and legislative reform beyond just restructuring federal agencies and programs. The proposal would also necessitate Fannie and Freddie’s reduced role in the housing market, and the provision of an explicit and limited federal backstop that’s on budget and separate from federal support for low and moderate-income buyers.
Currently, around 70 percent of U.S. mortgages are backed by Fannie, Freddie or Ginnie Mae, which covers loans guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
U.S. mortgage rates fell yet again this week. Data from Freddie Mac on May 4 showed that 30-year, fixed-rate mortgage rates dipped to 6.39%. And according to Bankrate data, which looked at overnight averages of advertisers on its site, 30-year fixed-rate loans are now hovering around 6.85% after sliding 7 percentage points to 6.93% last week, according to Bankrate data. (See the best mortgage rates you can get now here.) One mortgage expert says much of the reason for the consecutive declines has to do with the latest benchmark rate hike from the Federal Reserve and the overall outlook for the year ahead.
Although the Fed raised rates for the 10th consecutive time this week, Jeff Ostrowski, senior mortgage reporter at Bankrate, says signs are largely pointing to a changing tide when it comes to the housing market. “The consensus is that the Federal Reserve is done raising interest rates, and that mortgage rates will drift lower from here,” Ostrowski suggests, adding however that “just when you think you know where rates are going, the market gets a surprise, such as Friday’s strong jobs report.”
Nevertheless, Ostrowski says most experts predict mortgage rates will indeed fall when the economy slows down. And although there were many predictions last year that we would surely hit a recession in 2023, “as the Fed’s tightening finally has its effect, mortgage rates are likely to fall below 6% by the end of the year,” he predicts.
See the best mortgage rates you can get now here.
For house hunters worried about high rates, Ostrowski says mortgage rates should not dictate your decision to buy a home or not. “Rates are unlikely to return to the record-low levels seen during the depths of the pandemic,” he says, adding that while “mortgage rates are incredibly difficult to predict,” you can still provide some “protection against increases by locking in a rate. And if rates fall before you close, you still can take advantage of a better deal.”
Here’s what rates have done in the week ending on May 5, 2023, according to overnight average data from Bankrate:
30-year fixed-rate loans
The average daily rate for 30-year, fixed-rate mortgages was 6.85%, down 12 basis points from last week (each 1% of a mortgage rate is made up of 100 basis points). The refinance rate for 30-year, fixed-rate loans was 7.02%, declining 15 basis points from the previous week.
15-year fixed-rate loans
Mortgages with a 15-year fixed rate averaged 6.18%, a decline of 9 basis points from the prior week.
Jumbo mortgages
For jumbo loans, which cover properties that are more expensive than those under a conventional conforming loan — about $647,000 in most areas — the rate was 6.94%, a decrease of 14 basis points from the same day last week.
See the best mortgage rates you can get now here.
ARMs
As for 5/1 adjustable-rate mortgages, which carry a fixed rate for five years that can then rise or fall each year after, the average was 5.75%, unchanged from last week.
FHA and VA loans
The average rate for 30-year Federal Housing Administration-insured mortgages was 6.06%, down 25 basis points from a week ago. Mortgages backed by the Department of Veterans Affairs, meanwhile, reached a rate of 6.02%, a decrease of 22 basis points from the previous week.
Editor’s Note: Parts of this story were auto-generated by Automated Insights, an automation technology provider, using data from Bankrate. See our market data terms of use.
Mortgage rates in this article reflect Bankrate’s average rates. A previous version simply referred to them as average rates.
The U.S. Department of Housing and Urban Development (HUD) this week announced a package of regulatory and administrative waivers that will allow the use of HUD funding to assist with the recovery of Maui after the island endured a series of devastating wildfires. The waivers come as thousands of government-backed mortgages on the island have been impacted by the disaster, according to data released by the office of Hawaii Gov. Josh Green (D).
Based on the data, 5,200 mortgages serviced by Freddie Mac,9,800 mortgages serviced by Fannie Mae and 2,400 mortgages serviced by Ginnie Mae on Maui have all been impacted by the fires. Additionally, 1,300 Federal Housing Administration (FHA) mortgages including two public housing and two senior living buildings have been impacted, as well as 927 U.S. Department of Veterans Affairs (VA) mortgages.
However, this data only provides a partial picture. The governor’s office said that the Lāhainā and Kula areas are “still being assessed.” Lāhainā, a popular tourist destination on the island, was the town most affected by the spread of the wildfires. Most of the structures in the town were destroyed.
HUD’s waiver package aims to accomplish five key goals in assistance for Maui, including suspending the community development block grant (CDBG) public services cap to provide additional support services related to the effects of the disaster on individuals and families, which will allow for HUD funds to pay for food, water and “other emergency needs,” HUD said.
The funds will also allow for new housing construction with CDBG funding in declared-disaster areas, and provide flexibility in HOME tenant-based rental assistance requirements “to reduce burden for those seeking assistance.” The HOME local matching contribution requirements will also be waived in an effort to provide “greater flexibility in the entities that can expeditiously provide housing to displaced persons and repair properties damaged by the disaster.”
Finally, the waivers will allow for an extension of time so that “individuals can receive temporary assistance, including CDBG emergency grant payments and ESG rental assistance.”
The Consumer Financial Protection Bureau (CFPB) has also been active in the conversation since Americans will typically aim to find ways to donate money, clothing or other materials to the disaster area in the immediate aftermath and beyond. CFPB warns that some bad actors typically aim to take advantage of these inclinations.
“It’s natural to want to lend a hand to others who have been affected by an emergency,” CFPB said in an announcement distributed on Friday. “You can share our tips for sending financial support to others, including fast facts about mobile apps. And, refer to our tips for avoiding scams and fraud that can entrap people trying to help.”
Home buyers were more active in purchasing newly constructed properties in July, rebounding from the month prior, with Federal Housing Administration and Veterans Affairs loan applications driving the increase, according to the Mortgage Bankers Association.
Loan volume for this segment jumped by 0.2% from June and was up 35.5% compared to the year prior, the trade group’s Builder Application Survey found. This is despite a volatile mortgage market where the conforming 30-year fixed rate mortgage has hovered at or above 7%.
The overall number of new single-family home sales was at a seasonally adjusted annual rate of 677,000 units in July 2023, a 1.5% decrease from the month prior. Unadjusted new home sales reached 56,000 in July, a 6.7% decrease from 60,000 new home sales in June.
“Applications for purchase loans on newly constructed homes remained strong in July, up 36% annually, as new homes continued to account for a growing share of homes available for sale,” said Joel Kan, deputy chief economist at the MBA in a written statement Tuesday.
Conventional mortgages continued to dominate the share of applications, making up 65.3% of all loans, slightly down from 65.5% the month prior. The percentage of U.S. Department of Agriculture loans remained unchanged at 0.3%.
However, the two categories which saw growth were the share of VA and FHA applications, which increased to 10.2% and 24.2%, respectively. The FHA share in July represented its highest since May 2020, noted Kan.
“FHA purchase loans are a popular option for many first-time homebuyers and this increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option, given the lack of for-sale inventory among existing homes and challenging affordability conditions,” he said.
Meanwhile, the average loan size for new homes decreased from $400,281 in June to $397,148 in July, the survey said. In May, the average loan size was $403,581.
Many components of the capital rules that federal regulators proposed last month last month have elicited questions and concerns from in and around the banking sector, but none more than the treatment of single-family mortgages.
Trade groups representing banks and various parts of the mortgage industry have come out against the rules, as have housing affordability advocates. These groups say the impact of the proposed rule changes would be felt by the housing sector more so than the banks themselves.
“In the housing sector, which has just been in a sort of boxing ring getting punched, one after another, and getting exhausted from all that’s coming at them, this one is pretty incredible,” said David Stevens, a long-time mortgage executive who now heads Mountain Lake Consulting in Virginia. “We thought the current Basel rule made sense, but this one’s going to have downstream effects that are going to be very broad in the housing system.”
The change is expected to have at least a moderate impact on banks’ willingness to originate. While banks have been steadily ceding market share to independent mortgage banks and other nonbank lenders since the subprime mortgage crisis, they still play a key role in the so-called jumbo mortgage market, which consists of loans too large to be securitized and sold to the government sponsored enterprises Fannie Mae and Freddie Mac.
“The big, traditional mortgage lending banks have largely exited the field and that’s been going on for some time. This is the next nail in the coffin,” said Edward Pinto, director of the AEI Housing Center at the American Enterprise Institute. “This nail will make it harder for banks to compete with Fannie and Freddie, generally, and then take the one market they’ve had left to themselves, the jumbo market, and make it harder to originate because of the capital requirements.”
Some policy experts say the bigger impacts could come from the second-order effects of the regulation. In particular, they point to the treatment of mortgage servicing assets — the salable right to collect fees for providing day-to-day services to mortgages — as a change that could crimp the flow of credit throughout the housing finance sector and lead to higher costs being passed along to individual households.
“With potential borrowers already facing record high interest rates, steep home prices, and supply-chain issues, increased fees and scarcity of bank lenders could be another brick in the wall stopping Americans from obtaining meaningful homeownership and wealth creation,” said Andy Duane, a lawyer with mortgage-focused law firm Polunsky Beitel Green.
The proposal, put forth by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller on the Currency, notes that the rule change could result in second-order effects on other banks, but it largely focuses on benefits that large banks could enjoy relative to smaller banks as a result of the new rules. It notes that such risks are offset by a requirement that banks adhere to both the new framework and the existing one, to ensure they do not see their regulatory capital levels dip below that of the standardized approach.
Still, the regulators are aware that the change could have unintended consequences on the mortgage industry and housing attainability. Because of this, their proposal includes several questions about the subject.
“We want to ensure that the proposal does not unduly affect mortgage lending, including mortgages to underserved borrowers,” Fed Vice Chair for Supervision Michael Barr said while introducing the proposal in an open meeting last month. He added that housing affordability was one of “several areas that I will pay close attention to and encourage thoughtful comments.”
However, the proposal dismissed the idea that the new risk weights on residential mortgages would have a material impact on bank lending in that space. Citing various policy papers, academic studies and regulatory reports, the agencies assert that the risk-weight changes would lead banks adjusting their portfolios “only by a few percentage points.”
Stevens — who served as an assistant secretary in the Department of Housing and Urban Development in the Obama administration, a commissioner for the Federal Housing Administration and president of the Mortgage Bankers Association — said he is not convinced regulators have done sufficient analysis to rule out the type of sweeping, negative implications that he and others fear. He noted that the 1,087-page proposal includes fewer than 20 pages of economic analysis.
“I just don’t think they’ve thought through the downstream effects and the lack of analysis, in terms of actual financial estimates of the implications, is really concerning,” He said. “This will be a really big change, and that’s why you see everybody up in arms and the trade groups aligned against this proposal.”
Like other components of the bank regulators’ Basel III endgame proposal, the components related to mortgages would create standardized capital rules for large banks and do away with the ability for large institutions to use internal models. It also extends these requirements to all banks with more than $100 billion of assets, rather than only the largest, global systemically important banks.
The key provision in the package of proposed rules is the use of loan-to-value, or LTV, ratios to determine risk-weights for residential mortgage exposure.
The change could allow banks to hold less capital against lower LTV mortgages, though there is some skepticism about much of a reduction in capital that change will ultimately entail, especially for GSIBs that previously relied on internal models, said Pete Mills, senior vice president of residential policy for the Mortgage Bankers Association.
“Those risk weights aren’t published, so we don’t know what they are, but they are probably lower than 50% for low-LTV products,” Mills said.
The Basel Committee’s latest regulatory accord, which was finalized in December 2017, envisions LTV ratios as a means of assigning risk weights. But Mills said many in the mortgage banking space were caught off guard by how much further U.S. regulators went beyond their global counterparts. The joint proposal from the Fed, FDIC and OCC calls for a 20 percentage point increase across all LTV bands, meaning while mortgages with LTVs below 50% are assigned a 20% risk-weight under the Basel rule, the U.S. proposal calls for a 40% risk-weight. Similarly, where the Basel framework maxes out at a 70% risk-weight for mortgages with LTVs of 100% or more, the U.S. version has a top weight of 90%.
Under the current rules, most mortgages in the U.S. are assigned a 50% risk weight, so loans with LTVs between 61% and 80% would see their capital treatment stay the same, and any mortgages with LTVs of 60% or lower would see a lower capital requirement. Loans with an LTV of 80% or higher, meanwhile, would likely see a higher capital requirement.
“For GSIBs, that’s probably an increase in capital throughout the LTV rank,” Mills said. “For the rest, it’s a higher risk weight for higher-LTV mortgages and maybe slightly lower in other bands, but, in aggregate, that’s not good for the mortgage market. It’s a higher risk weighting for most mortgages.”
Approximately 25% of first-lien mortgages held by large banks began with an LTV of 80% or higher, according to data compiled by the Federal Reserve Bank of Philadelphia. Roughly 10% have an LTV of 90% or higher, while half were 70% or lower.
Mark Calabria, former head of the Federal Housing Finance Agency, said he is not surprised by the proposed treatment of mortgages, calling it a “natural evolution” of where regulators have been moving. He added that some elements of the proposal resemble changes he oversaw at Fannie Mae and Freddie Mac in 2020.
Calabria said mortgage risk is an issue in the financial system in need of regulatory reform, but he questions the methods being considered by bank regulators.
“I worry that they’re making the problem in the system worse by driving this risk off the balance sheets of depositories, which is probably actually where it should be in the first place,” he said. “I’m not opposed to them tinkering in this space they just need to be more holistic about it.”
The proposal also notes that the new treatment of residential mortgages is aimed at preventing large banks from having an unfair advantage over smaller competitors.
“Without the adjustment relative to Basel III risk weights in this proposal, marginal funding costs on residential real estate and retail credit exposures for many large banking organizations could have been substantially lower than for smaller organizations not subject to the proposal,” the document notes. “Though the larger organizations would have still been subject to higher overall capital requirements, the lower marginal funding costs could have created a competitive disadvantage for smaller firms.”
Yet, while regulators say the proposed rules promote a level playing field, some see it giving an unfair advantage to government-backed lenders.
Pinto sees the proposal as a continuation of a decades-long trend of federal regulators putting private lenders at a disadvantage to the governmental and quasi-governmental entities. He noted that if securities from Fannie and Freddie and loans backed by the FHA and Department of Veterans Affairs, which tend to have very high LTVs, are not given the same capital treatment as private-label mortgages, the net result will be the government playing an even larger role in the mortgage market that it already plays.
Pinto said despite these government programs targeting improved affordability, their provision of easy credit only drives up the cost of housing even further. He added that he hopes regulators reverse course on their treatment of mortgages in their final rule.
“They should just back off on this entirely. It’s inappropriate,” Pinto said. “They need to look at the overall impact they’re having on the mortgage market, and the housing and the finance market, and the role of the federal government, and the fact that the federal government is getting larger and larger in its role, which is inappropriate.”
The other concern is a lower cap on mortgage servicing assets that can be reflected in a bank’s regulatory capital. The proposal would see the cap changed from 25% of Common Equity Tier 1 capital to 10%.
Mills said the capital charge for mortgage servicing rights is already “punitive” at a risk weight of 250%. By lowering the cap, he said, banks will be forced to hold an additional dollar of capital for every dollar of exposure beyond that cap. He noted that regulators had raised the cap to 25% five years ago for banks with between $100 billion and $250 billion of assets to provide some relief to large regional banks interested in that market.
If the cap is lowered, Mills said banks will be inclined to shed assets and shy away from mortgage servicing assets. Such moves would force pricing on servicing rights broadly, a trend that would ultimately lead to higher costs for borrowers.
“MSRs are going to be sold into a less liquid, less deep market, and there are consumer impacts here because MSR premiums are embedded in every mortgage note interest rate,” Mills said. “If MSR values are impacted by this significantly, that rolls downhill through the system. An opportunistic buyer might be able to buy rights at a depressed value, but that depressed value flows through to the consumer in the form of a higher interest rate.”
The proposal will be open to public comment through the end of November, after which regulators will review the input and incorporate elements of it into a final rule. Between the questions raised in the proposal, the acknowledgement by Fed and FDIC officials that the changes could hurt housing affordability, and the strong negative response to the proposal, there is optimism that the ultimate treatment of residential mortgages will be less impactful.
“Nobody seems to be pushing for this, and nobody other than the Fed seems to like it,” Calabria said. “If I was a betting man, it’s hard for me to believe that this is finalized the way it is now in terms of mortgages.”
The nationwide delinquency ratedecreased for the second consecutive quarter, dropping to a decades-long low, the Mortgage Bankers Association said.
The share of outstanding mortgages for one-to-four unit properties with a missed payment stood at a seasonally adjusted 3.37% at the end of June, according to the MBA. The percentage reflected a 19 basis-point drop from 3.56% at first-quarter’s end, the second lowest delinquency rate at the time since at least 1979, when the MBA first began reporting the data. At the end of second quarter 2022, the national delinquency rate was 3.64%.
rawGenerally favorable economic data, including wage growth and historically low unemployment figures, are helping to keep borrowers from distress, according to Marina Walsh, MBA vice president of industry analysis.
“Buoyed by a resilient job market, homeowners are continuing to make their mortgage payments,” she said in a press release.
Second-quarter numbers fell across all primary mortgage types: conventional loans and government products guaranteed by the Federal Housing Administration and the Department of Veterans Affairs. The delinquency rate for conventional mortgages declined 15 basis points quarter-to-quarter to 2.29%, its lowest since 2004. For VA-backed loans, the share of delinquent mortgages relative to overall volume was 3.7%. The FHA rate came in at 8.95%, reflecting a 32 basis point reduction.
On an annual basis, both conventional and VA delinquency rates also dropped by 35 and 52 basis points, respectively. But the share of FHA-guaranteed loans in arrears grew by 10 basis points, a possible sign of economic and credit stress hitting some segments of consumers, Walsh said.
‘Delinquencies are rising for other forms of credit such as credit cards and car loans,” she said. “As the economy slows and labor market cools, homeowners with FHA loans are likely to feel the distress first.”
The MBA’s report comes after Federal Reserve economists revealed this week credit card balances surpassed $1 trillion for the first time ever. Late payments on credit cards also rose compared to a year ago but showed more recent signs of moderation.
MBA calculates delinquencies based on the volume of loans at least one payment past due but does not include mortgages in the foreclosure process. In its research, MBA asks servicers to report loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage.
By stage, the rate of mortgages with payments 30 days past due came in at 1.75%, while the 60-day delinquency share stood at 0.55%. Loans delinquent by 90 days or more equaled 1.07%.
Foreclosure numbers, while not included in the MBA’s delinquency data, appeared to be on a similar downward track. The total share of mortgages going through some stage of the foreclosure process was 0.53% as of June 30, down by 4 and 6 basis points quarterly and annually. New foreclosure starts in the second quarter inched down to a rate of 0.13%, 3 basis points lower from where they sat at the end of March.
The MBA’s findings corresponded somewhat to similar trends reported by real estate business intelligence provider Attom, who this week said both starts and foreclosure inventory were decreasing this summer. But Attom found the total number of properties with a foreclosure notice against them higher on a year-over-year basis.
There’s always been a house-sized gap separating homeowners from homebuyers. But as home prices and mortgage rates continue creeping higher, they’re increasingly living in different worlds.
While homebuyers grapple with affordability problems, existing owners are enjoying near record-low monthly payments and increasing equity levels, an analysis by Black Knight says.
Home price increases are driving each, and their growth rate keeps accelerating: the Black Knight home price index went up by 0.8% in June, a record high.
“We’ve been noting for some months that the recent rate of home price gains would have a lagging, but significant, impact on the annual rate of appreciation,” Black Knight’s vice president of enterprise research, Andy Walden, said in a press release. “Well, June marked that inflection point.”
After slowing for 14 months, Walden said, the pace of increases jumped up in June “amid widespread growth that saw annual rates of appreciation inflect and begin to trend higher in more than 80% of markets.”
In almost every city measured by Black Knight, home values rose month-to-month. Hartford, Connecticut; Seattle; and San Jose, California led the pack, with a rise of 1.2% in each. Only two Texas cities, Austin and San Antonio, saw price drops versus May, but they were still modest, at 0.3% and 0.2% respectively.
Year-over-year, prices grew in 60% of U.S. markets. But patterns vary by region — values rose the most in the Midwest and Northeast, while in some western cities prices still remained lower than last year’s, the report says.
More than anything else, prices are ballooning because of a housing stock shortage. Average inventory levels are still 51% lower than they were before the pandemic, and the gap has grown in over 90% of U.S. markets over the past year, Black Knight says.
The city with the highest monthly and yearly price gains, Hartford, is also the one with the biggest loss in housing stock since 2019. Since the pandemic, its deficit grew by 81%. Most other cities are struggling with the same issue: only Austin, Texas and Las Vegas’ housing inventories are larger than they were pre-pandemic.
But the report notes that since the pandemic, inventories have often peaked late in the year, so homebuyers could get some good news this winter.
Right now, though, stunted supply is forcing prices higher, and debt-to-income ratios are rising with them — for Federal Housing Administration loans, the average DTI was 45% in July.
Down payments are on the rise, too. Black Knight said July’s average down payment for primary residences reached $90,200, another high. All loan types showed similar patterns. For conforming mortgages, the average down payment was over $110,000, for FHA, it was $21,000 and for Veterans Affairs loans, it was $29,400.
These prices, coupled with mortgage rates hovering near 7%, means homes are less affordable than ever. It now requires 12.6 percentage points more of buyers’ income to afford the average priced home compared to that of the last 25 years. Homes are less affordable now than the average in all 100 markets studied by Black Knight.
An average priced home purchased in July would cost $2,308 a month in mortgage payments, Black Knight estimated. That makes up 36.4% of the median household income, which is “close to the worst it’s been in 37 years,” the report says.
Current homeowners’ payments are much lower. On average, they pay $1,355 a month, which only makes up 21% of the median household income, lower than it’s been since 2001.
The average interest rate of these homeowners is 3.94%. Many refinanced their mortgages during 2020 and 2021, when interest rates hung around 2.7%. Black Knight says refinancing saved homeowners a cumulative $42 billion over the past three years.
Existing homeowners also benefit from rising prices because they inflate home equity. Total mortgage equity in the U.S. reached $16 trillion in June and tappable equity reached $10.5 trillion, close to an all time high set last summer. On average, mortgage holders have $199,000 available in equity, Black Knight said.
Outstanding mortgage debt, on the other hand, reached $13 trillion for the first time ever. Underwater borrowers, who owe more than they own, also increased dramatically year-over-year, but Walden doesn’t think the uptick is cause for alarm.
“Yes, it’s true that is a 70% jump from this time last year – which may sound ominous – but everything is relative,” he said. “There are less than half as many underwater homeowners than there were in 2019 before the onset of the pandemic.”
Black Knight also saw a small bump in the national delinquency rate, along with small increases in borrowers who missed one and two payments. But serious delinquencies fell to their lowest point since 2006, which the analysis attributed to “the strong credit quality of today’s mortgage holders and an acute focus on loss mitigation by the industry at large.”