Renting

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I know, I know, mortgage shopping is the worst. It’s not a fun thing to do.

It’s not like shopping for a new car or a new TV, or even a new house. But it’s a necessary evil unless you’ve got a boatload of cash.

The reason it’s not fun is because there’s lot of math, paperwork, and high-pressure salespeople involved.

Not to mention lots of mortgage lingo that will likely go over your head.

But there’s a silver lining to putting in all that time to shop; you’ll learn a lot about mortgages.

I Get It, Mortgages Aren’t Fun

Look, I’ll be the first person to tell you that mortgages are boring af. I’ve been writing about them for nearly 20 years now.

And before that, I was working on the frontlines with mortgage brokers and loan processors and underwriters.

None of it was fun, and it’s probably even less fun when you’re new to it and simply trying to get through it.

Conversely, you might have a blast shopping for a new car and doing test drives while checking out all the cool features.

The same goes for new clothes, a new TV, computer, etc. They call it retail therapy for a reason.

I’ve never heard anyone say mortgage shopping is therapeutic. In fact, it’s usually the exact opposite.

Typically, people say they’d rather go to the dentist than go through the mortgage process.

Okay, so what’s the point here? Well, as mentioned, you can learn a lot if you do shop around.

Learn About Mortgages as You Shop Your Rate

Most people don’t shop around for their home loan. They either just go with the lender their real estate recommended, or the first quote they come across.

Again, this is because mortgages are not at all fun. And not getting any funner.

Not only does this cost people (since studies prove multiple quotes leads to lower rates), it also means you won’t learn a whole lot.

Again, I understand. Most people are literally just trying to get through it so they can move into their new home. Or enjoy a new low rate on their existing mortgage in the case of a refinance.

But aside from potentially paying more, you’ll also learn less. And when you know less about something, the probability of a bad decision increases.

For example, you might pick the wrong mortgage product for your individual situation.

Or you might be told to pay discount points at closing, only to sell your home or refinance before the breakeven period.

You might even refinance even when it doesn’t make sense to do so. Or buy too much house and become house poor because the numbers were only presented to you one way.

Bringing it full circle, you might also get ripped off because you’ll be a novice and more easily taken advantage of.

If you actually make a few phone calls and speak to multiple loan officers, mortgage brokers, etc., you’ll learn more about the ins and outs of it all.

Each time you talk to someone new you’ll have a little bit more knowledge than the prior call.

And this will help you avoid the typical gotchas and perhaps allow you to come off more confident. That can lead to better mortgage rate negotiating and ultimately better odds of a lower rate.

Here Are Some Mortgage Shopping Tips to Make It Less Awful

If you’re stressed about it your credit scores, keep in mind that while mortgage inquiries can lower your credit score, it’s often not by much.

You also don’t need to let everyone run your credit. And FICO now combines multiple mortgage inquiries into one when made within a 14- to 45-day window.

Those who have heard of those annoying trigger leads can employ a strategy I laid out years ago.

Use a temporary phone number like Google Voice for free. Share that number with all the lenders, brokers, etc.

Then ditch it once you’ve found your match and carry on with your real number. Or just keep using the temporary one!

Even if you use a mortgage broker, take the time to compare mortgage brokers too. Because many of them just send all their business to one lender. So it’s not really shopping around.

In addition, they have varying compensation structures, meaning if you compare more than one you might land on the broker who earns less per loan and saves you money.

For example, one broker might earn 2% on each loan, while another is satisfied with just 1% loan origination fee in exchange for more volume. The broker earning less will likely have the lower rate and closing costs.

Lastly, if you already have average or poor credit, know that mortgage rates can vary even more, so shopping around is even more important!

Simply put, rates are priced in a tighter range for those with really high FICO scores. But even those folks should also gather more than one quote!

Read on: How to shop for a mortgage.

(photo: Alan Levine)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

While lower mortgage rates have reinvigorated hope for the stalling housing market, 2025 might not wind up much better than 2024.

Sure, lower interest rates boost affordability, but there are other components to a home purchase that remain cost-prohibitive.

Whether it’s simply an asking price that’s out of reach, or rising insurance premiums and lofty property taxes. Or other monthly bills that eat away at the housing budget.

This explains why mortgage origination forecasts for purchase lending continue to be pretty dismal.

However, the emerging trend of rising mortgage refinance volume should get stronger into 2025.

2024 Purchase Volume Has Been Revised Down

A new report from iEmergent revealed that 2024 purchase mortgage originations are projected to fall in terms of loan count when compared to 2023.

In other words, despite lower mortgage rates, the number of home purchase loans is now expected to fall below 2023 levels.

However, thanks to an increase in average loan size, the company believes purchase loan volume will still see a modest increase of 3.5% year-over-year.

To blame is still-high mortgage rates, which peaked about a year ago and have since fallen nearly two percentage points.

But home prices remain elevated, and when combined with a 6% mortgage rate and steep insurance premiums and rising property taxes, the math often doesn’t pencil.

Adding to affordability woes is the continued lack of existing home supply. There simply aren’t enough homes for sale, which has kept prices high in spite of reduced demand.

Refis Expected to Jump Nearly 50% from 2023 Lows

On the other side of the coin, mortgage refinances are finally showing strength thanks to that pronounced decline in mortgage rates.

They bottomed in late 2024 when the 30-year fixed hit the 8% mark, with only a handful of cash out refinances making sense for those in need of payment relief (on other debt).

But since then rate and term refinances have picked up tremendously as recent vintages of mortgages have fallen “into the money” for monthly payment savings.

As noted a week ago, rate and term refis surged 300% in August from a year earlier and the refinance share of total loan production rose to 26%, the highest figure since early 2022.

Chances are it will continue to grow into 2025 as mortgage rates are expected to ease further this year and next.

iEmergent said they “expect rates to finally start declining in the months ahead,” on top of the near-2% decline we’ve already seen.

While many have argued that the rate cuts are mostly baked into mortgage rates already, which explained mortgage rates rising after the Fed cut, there’s still a lot of economic uncertainty ahead.

The 50-basis point came as a surprise to many and another one could be on deck for November, currently holding a 60% probability per CME FedWatch.

If it turns out the Fed has gotten behind the eight ball, 10-year bond yields (which track mortgage rates) could drop more than is already penciled in.

At the same time, there’s still room for mortgage spreads to compress as the market normalizes and adjusts to the new lower rates (and higher loan volumes ahead).

2025 Refinance Volume Slated to Rise Another 38%

Looking forward to 2025, the refinance picture is expected to get even brighter, with such loans rising a further 38% (in dollar amount) from 2024.

This will likely continue to be driven by rate and term refis as interest rates continue to improve and the millions who took out loans since 2022 take advantage of cheaper rates.

But it could also come in the form of cash out refinances, which will become more attractive as well.

Even if an existing homeowner has a rate of say 4%, something in the high-5s or low 6% range could work if they need cash.

This could be a reflection of increasing debts in other departments, as pandemic-era savings run dry.

Ultimately, homeowners have barely touched their equity this housing cycle, so there’s an expectation that it’ll happen at some point, especially with home equity at record highs.

You might also see this in the form of second mortgage lending, with HELOC rates expected to fall another 2% as the prime rate is lowered by that same amount over the next 12 months.

Meanwhile, iEmergent is forecasting a paltry 6.5% increase in purchase volume in 2025, pushing overall dollar volume growth to just 13.3%

As for why purchase lending is projected to be relatively flat next year, it’s a wider economy story.

If economic growth continues to decelerate and a recession takes place, a weaker labor market with higher unemployment could dampen home buyer demand.

So even if mortgage rates decline more as a result, you’ve got fewer willing and able buyers, despite lower monthly payments.

This explains the phenomenon of how home prices and mortgage rates can fall in tandem.

They might not, but it at least debunks the idea of there being an inverse relationship between the two.

Long story short, 2025 should be better for mortgage originators thanks to refis, but don’t get your hopes up on purchase lending seeing a big jump thanks to lower rates.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

There is apparently a “home cost crisis,” and a new fintech company called Mesa is looking to solve that.

It’s no secret that home prices are through the roof, and when coupled with much higher mortgage rates and things like skyrocketing homeowners insurance, it can put homeownership out of reach.

Or at the very least, make it a struggle for the average American to keep up. To ease this burden, the company has rolled out a suite of products to make homeownership a little more affordable.

Perhaps ironically, this new company operates out of Austin, Texas, one of the hardest hit housing markets nationwide.

The popular metro has suffered from a glut of housing supply as many remote tech workers packed their bags and moved back to wherever they came from.

What Is Mesa?

Referred to as the “first homeowner membership platform,” Mesa is actually a group of offerings aimed at making homeownership cheaper and more valuable.

This means putting better mortgage deals in front of prospective home buyers and giving them rewards when they make housing-related purchases.

Their first two products are the Mesa Mortgage Marketplace and the Mesa Homeowners Card.

The marketplace appears to operate similar to the Zillow Mortgage Marketplace. Prospective home buyers and existing homeowners looking to refinance can compare lenders in one place.

And aside from maybe scoring a lower rate and/or reduced closing costs, they can earn a portion of the loan amount back in rewards points.

Those who take out a loan via the Marketplace get 1% back in the form of rewards.

For example, a $500,000 loan amount would result in 500,000 rewards points, which would be worth $5,000.

Those points could then be redeemed for things like closing costs on the loan, or for travel, or even reinvested back into the home via an extra mortgage payment.

It’s important to note that Mesa is not a mortgage lender or a mortgage broker, but rather provides advertising for lenders and brokers via the marketplace and earns a fee.

The Mesa Homeowners Card

Their other main product at launch is the “Mesa Homeowners Card,” which they refer to as the first premium credit card designed specifically for homeowners.

We’ve seen other homeowner-centric credit cards in the past, but this one is apparently premium for one reason or another.

Like other cards before it, cardmembers can get rewarded when they use the card to make monthly mortgage payments.

But it goes a step further by offering bonus points on things like HOA fees, utilities, home repairs, and other home-related services like insurance.

Per TechCrunch, you’ll earn 1X when using the card to make mortgage payments, 2X on gas and groceries, and 3X in the home services category.

These points will be eligible for gift card redemptions, mortgage payment redemptions, or transfers to airline & hotel partners.

My understanding is you’ll be able to use the Mesa Homeowners Card to make your mortgage payments, despite credit card issuers commonly not allowing this.

Mesa has partnered with Visa on the deal and has a team that formerly worked at companies like American Express, Capital One, and Bilt, the latter of which wanted to reward customers for paying the mortgage with a credit card.

Bilt currently lets cardholders pay their rent and earn cash back without being subject to a transaction fee.

They had planned to do the same for mortgage payments, but it never came to fruition. Will Mesa succeed where others failed? It remains to be seen, but it has always been a challenge.

Ultimately, mortgage lenders don’t love the idea of homeowners paying the mortgage with a credit card, and for good reason.

So it’s possible Mesa will cut a check or send an ACH if you use their credit card to pay your loan servicer, to ensure payment is accepted.

The Mesa Homeowners Network

Lastly, Mesa has partnered with “brands you love” to provide exclusive discounts and offers.

This might include discounts for memberships at Costco and at other businesses that offer homeowner-centric services.

In addition, the company plans to expand their membership rewards to HELOC originations, home warranty plans, insurance, and other financial products for homeowners. And an app is coming soon as well.

The goal is to make homeownership both more affordable and rewarding by offering discounts and cash back on all related expenses.

Knowing today’s cost pressures go beyond the principal and interest on the mortgage, this could provide some relief to households who are stretched.

For me, the question mark remains whether they’ll be able to let users pay the mortgage with the credit card.

If they’re able to pull that off, it might be worthwhile. If not, you could argue that credit card points earned with other issuers could hypothetically be cashed out and applied toward the mortgage the same way.

For example, I can currently cash out by Chase Ultimate Rewards at a penny apiece and apply extra payments toward my mortgage. But I can’t use my Chase card to pay the mortgage.

So they’ll need something to truly differentiate and add value versus existing options. I’d probably consider it if they let me pay the mortgage each month.

Aside from earning 1% back each month, I’d get a grace period to float the mortgage payment before the payment was due.

The product is currently waitlisted and you can sign up via their website if interested.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Want to lower your mortgage rate without a traditional refinance? Look into a “mortgage rate modification,” which does just that.

Instead of having to contact lenders, fill out applications, and provide stacks of paperwork, you might be able to get payment relief by simply signing a modification agreement.

Aside from it being easier than a refinance, it could cut the processing time down from a month plus to just a week or so.

That means if you start the process early in the month, your very next mortgage payment could be lower.

While that all sounds great, there are some limitations you should be aware of, and like a refinance, fees are typically charged as well.

How a Mortgage Rate Modification Works

As the name suggests, a mortgage rate modification allows you to lower the interest rate on your existing home loan without going through the formal refinance process.

Instead, you are simply asked to fill out a modification agreement with your current loan information, including mortgage rate and loan product, along with desired loan program and current interest rate.

For example, if you currently hold a 30-year fixed-rate mortgage set at 7%, you’d enter that into the form and then select the type of loan you’d like going forward.

This could be another 30-year fixed, or perhaps a 15-year fixed or even an adjustable-rate mortgage if permitted.

Or it’s possible you hold an ARM loan and want to move into a fixed-rate product at the same time, removing future rate adjustment risk and snagging a lower rate in one move.

Typically, the lending institution would use the current advertised mortgage rate as the new interest loan on the loan.

So if credit union X is offering a rate of 5.875% on their rate sheet that day, you could obtain a rate more than a full percentage point lower using our example from above.

The loan would then be re-amortized using the new mortgage rate and remaining loan term to determine monthly payments.

While that would result in some nice monthly savings, and reduce your total interest expense, there is typically a fee.

How Much Does a Mortgage Rate Modification Cost?

As noted, this type of transaction isn’t free of charge. You will need to pay a fee, just as you would for a refinance.

The banks aren’t doing it out of the kindness of their hearts. So expect either a flat fee, such as $999, or a percentage fee based on the loan amount.

For example, you might be charged anywhere from 0.5% to 1% of the outstanding loan balance in exchange for the modification.

Doing the math, a $500,000 modification could cost anywhere from $2,500 to $5,000 to process.

That’s not a small number for many households and could in fact be cost-prohibitive, especially if you’re seeking payment relief.

However, there are sometimes caps on the fee that can be charged, so even if they charge a percentage, it might top out at say $2,000.

Conversely, there could have a minimum fee as well, so even if you have a small loan amount, you might be charged the minimum dollar amount.

Another consideration is closing costs typically can’t be rolled into the loan amount. So you’ll need to come up with the funds out-of-pocket to get the deal done.

Which Lenders Allow Mortgage Rate Modifications?

From what I’ve seen, mortgage rate modifications are most commonly offered by local credit unions and sometimes larger depository banks.

Both of these types of lending institutions hold mortgages in their own portfolios (as opposed to selling them off), which gives them more control over the process.

As such, these types of offers are less common with direct-to-consumer mortgage lenders and nonbank lenders, which often sell the loans they originate shortly after closing.

In other words, you might have better luck getting approved for this type of thing with a credit union or bank. But it doesn’t hurt to ask regardless.

Try reaching out to the loan servicer if the mortgage was sold, as the originator likely won’t be able to extend an offer.

Chances are they’ll try to guide you toward a mortgage refinance if they can’t or don’t offer a mortgage rate modification.

Mortgage Rate Modification vs. Mortgage Refinance

While both a rate modification and a mortgage refinance, namely a rate and term refinance, result in a lower interest rate, there are key differences.

Perhaps the biggest is that a traditional refinance tends to take a lot longer and is much more involved.

It includes a full-on loan application, verification of income, assets, and employment, a credit pull, and possibly a home appraisal as well.

Conversely, a rate modification might be as easy as filling out a form while skipping the document collection and appraisal.

In addition, you won’t have to worry about all the closing costs associated with a refinance, including title and escrow fees, lender fees (other than the modification fee), and so on.

However, a rate modification isn’t available on all types of loans, and may be limited to owner-occupied homes only.

There’s also a good chance you’ll only be able to qualify for one rate modification per year, and you might need to make a minimum number of payments before you’re eligible.

You’ll also need money to complete the modification, whereas it’s possible to apply for a no cost refinance where no money is required out-of-pocket.

Another limitation with rate modifications is you can’t pay discount points to get an even lower rate.

So you’ll just be able to get the market rate and nothing better, assuming you wanted to buy down your rate.

And lastly, a traditional refinance may allow you to skip a payment (or two), which can be beneficial to those who need some major payment relief.

Mortgage Rate Modification Pros and Cons

The Pros

  • You can lower your rate without refinancing
  • Obtain a cheaper monthly payment with the same loan term
  • Doesn’t reset the clock so you’ll stay on track paying down the loan
  • May be able to switch loan programs (ARM to fixed-rate loan)
  • Doesn’t require an appraisal or formal loan application
  • Process is typically very fast and relatively easy (2 weeks or less)
  • No closing costs other than the modification fee (which varies by bank/lender)

The Cons

  • You must pay a fee for the modification (either flat fee or % fee)
  • Can’t roll the fee into the loan amount (must pay out-of-pocket)
  • Rate improvement limited to market rate at time of application
  • May be limited to owner-occupied properties only
  • Might be limited to one modification annually
  • May require a minimum number of monthly payments before you’re eligible
  • No cash out allowed

Keep reading: How to lower your mortgage rate without refinancing.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Anyone who works in the industry probably saw this coming. But those who don’t might be left scratching their head.

Yesterday, the Fed finally pivoted and cut its own fed funds rate, yet mortgage rates went up. Why does this always seem to happen?

Shouldn’t good news on the interest rate front push rates lower across the board? Seems perfectly logical until you dig into the details.

There are two main reasons why mortgage rates often defy the Fed’s own move.

One is that the Fed’s policy is often fairly telegraphed and not a surprise, and the other is that the data is typically baked in already.

The Fed Simply Follows the Economic Data

First things first, the Federal Reserve is simply making monetary policy decisions (hike, cut, nothing) based on the economic data in front of them.

So their FOMC statement and accompanying interest rate decision generally don’t come as much of a surprise.

Yesterday, there was a little more uncertainty than normal, with both a 25-basis point and 50-basis point cut a possibility.

The Fed opted to go with a 50-bps cut, which had been the favorite with a ~60%+ likelihood per CME FedWatch.

In other words, the Fed did what the market expected, as they often do. The reason the Fed does what the market expects is because they base their decisions on publicly available data.

And the data is somewhat old by the time the Fed makes its announcement. That removes much of the element of surprise.

However, what can move the bond market after the FOMC interest rate decision is the press conference with the Federal Reserve chairman Jerome Powell.

He explained that they took the step of making a 50-bps cut because they had patiently waited for inflation to come down, and were now comfortable to make a “strong move.”

The bigger cut allows them to (hopefully) avoid a big increase in unemployment while also preventing a return to high inflation.

But he added that there shouldn’t be an expectation that 50-bps cuts are the new normal. The decisions will still be made meeting-by-meeting.

So no real surprises here and not enough new information for mortgage rates to continue falling.

Mortgage Lenders Have Already Dropped Rates a Ton Leading Up to the Fed Rate Decision

The other relevant piece here is that mortgage lenders were already aggressively lowering mortgage rates heading into the Fed meeting.

If you look at the 30-year fixed, it had already fallen nearly 150 basis points (1.50%) since the end of April.

In other words, bonds and mortgage-backed securities (MBS) were making big moves based on the data and the expected Fed pivot for months now.

A lot of the price improvement, if not nearly all, was priced in before Fed day. It’s kind of a “sell the news” situation.

You know something is coming so you buy bonds or MBS and once the news actually hits, it could be time to sell off a bit.

In this case, it’s just an expected bounce in the opposite direction as everyone digests the widely-anticipated Fed decision.

To put it another way, mortgage lenders tend to price their rates defensively ahead of an FOMC interest rate decision, so often times there’s a bit of a relief rally after a hike.

Just keep in mind this is but one day, and mortgage rates may develop a longer-term trajectory based on what’s going on with the Fed and underlying economic data.

But the best way to track mortgage rates is by watching the 10-year bond yield and/or MBS prices.

Since yesterday, the 10-year yield has already ticked up about 10 basis points and MBS prices have fallen a bit.

No major movement, but perhaps a disappointment for those who thought mortgage rates would fall further after the Fed cut rates.

Mortgage Rates Tend to Defy the Fed

September 18th, 2024: Rate cut, mortgage rates up
July 26th, 2023: Rate hike, mortgage rates down
May 3rd, 2023: Rate hike, mortgage rates down
March 22nd, 2023: Rate hike, mortgage rates down
February 1st, 2023: Rate hike, mortgage rates down
December 14th, 2022: Rate hike, mortgage rates down
November 2nd, 2022: Rate hike, mortgage rates UP
September 21st, 2022: Rate hike, mortgage rates down
July 27th, 2022: Rate hike, mortgage rates down
June 15th, 2022: Rate hike, mortgage rates down
May 4th, 2022: Rate hike, mortgage rates down
March 16th, 2022: Rate hike, mortgage rates UP

I was curious what tends to happen with mortgage rates on Fed decision day so I looked at the past 12 decisions and used MND data for mortgage rate movement on the days in question.

I included the 11 rate hikes since March 2022 and the pivot to a cut yesterday. Unsurprisingly, as far as I’m concerned, mortgage rates tend to defy the Fed more often than not.

In other words, when the Fed raises rates, mortgage rates often fall. And when the Fed cuts, mortgage rates tend go up.

I’ll need more data on the latter piece as they continue to make expected cuts. But it wouldn’t surprise me to see this trend continue.

Just note that the mortgage rate movement post-Fed rate decision often isn’t significant. And over time, things can change a lot more.

For example, even though lenders often cut rates on Fed hike day, the longer-term direction of mortgage rates was decidedly higher.

Now we might see the opposite. As the Fed is expected to make additional cuts, lenders may gradually lower rates over time.

But again, it’s not because of the Fed! It’s the underlying data and direction of the economy.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

If you’ve got a home equity line of credit (HELOC), payment relief may finally be here.

The Fed is expected to “pivot” today, meaning they’ll shift from a tightening monetary policy to a loosening policy.

In other words, they’re going to start cutting rates instead of raising them!

While this won’t have a direct impact on long-term mortgage rates, it directly affects loans tied to the prime rate, including HELOCs.

This means your HELOC rate will go down by whatever the Fed cuts. So if they cut 25 basis points today, your HELOC rate will be adjusted down 0.25%.

Though one cut isn’t likely to provide major relief, there are expectations that this is the first cut of many, with possibly 200+ bps of cuts penciled in over the next 12 months.

So if you’ve been given the option to “lock your HELOC rate,” it’s probably best to give it a hard pass.

How HELOC Rates Are Determined

As a quick refresher, HELOCs are variable-rate loans, meaning they can adjust each month based on the prime rate.

To come with your HELOC rate, you combine the HELOC’s margin, which is fixed, and the prevailing prime rate, which moves in lockstep with the fed funds rate.

Whenever the Fed decides to raise or lower its own fed funds rate (FFF), the prime rate will also go up or down by the same amount.

Since early 2022, the Fed has raised the FFF 11 times, from near-zero to a range of 5.25% to 5.50%.

Today, they are expected to lower the FFF either 25 or 50 bps. This means banks will lower the prime rate by the same amount shortly after.

Quick note: The Fed does not control long-term mortgage rates, so their action today won’t directly impact the 30-year fixed. If they cut the 30-year fixed could actually rise today!

Anyway, let’s assume you have a margin of 2% and prime is currently 8.50%. That’s a 10.50% HELOC rate. Ouch!

But if the Fed cuts 25 bps or 50 bps today, that rate will fall to 10.25% or 10%. Okay, we’re getting somewhere.

Still not a low rate, though it’s finally not going up and in fact is coming down.

Now factor in another 200 bps of cuts and the rate is down to 8%. Sweet, that could actually result in some decent interest savings and a lower monthly payment!

What Is Locking Your HELOC Anyway?

That brings us to “locking your HELOC.” As noted, HELOCs are variable-rate loans.

But the banks will sometimes give you the opportunity to lock the interest rate in for the remainder of the loan term. This happened to my friend, who asked today if he should lock in his rate.

This only happens once you’ve had the HELOC open for a period of time and made draws on it. Not upfront, otherwise that’d simply be a fixed-rate home equity loan.

So Bank X might say hey, we know rates have been rising and there’s a lot of uncertainty out there.

If you don’t want to deal with any further adjustments, you can lock in the rate you currently have.

For those not paying attention to the Fed, this might sound like a decent idea. After all, many homeowners are risk-averse, which is why they also don’t tend to go with adjustable-rate mortgages.

And many borrowers may not have actually known that their HELOC was variable to begin with.

They could jump at the offer to lock in the rate and stop worrying. But this could actually be a terrible time to do that.

You watched helplessly as your HELOC went up and up over the past couple years. And now you’re going to lock it in, when rates are finally slated to fall?

Probably not a good idea. This would just benefit the bank, who will make a lot less if you simply do nothing and let the rate fall as prime drifts lower and lower over the next 12 months.

If you’re curious where the prime rate is expected to go, keep an eye on the fed funds rate predictions. A good place to do that is the CME website.

They’re currently predicting a prime rate that is 2.25% lower by September 17th, 2025, as seen in the table above.

In other words, if you have a HELOC set at 10% today, it might be 7.75% in 12 months. Don’t lock in the 10% rate and miss out on those savings!

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

What a difference a year makes.

While the mortgage industry has been purchase loan-heavy for several years now, it could finally be starting to shift.

A new report from Optimal Blue revealed that rate and term refinance volume increased nearly 110% in August from a month earlier, and 310% from the year before.

Driving the emerging trend is cheaper mortgage rates, which have finally begun to accelerate lower in recent months.

Assuming they continue on their newfound trajectory, there’s a good chance refis will be back en vogue in 2025 and beyond.

Mortgage Refinance Share Highest Since Spring 2022

It has been a rough few years for loan officers and mortgage brokers, but it’s possible the worst is over.

As mortgage rates nearly tripled from sub-3% levels in early 2022 to over 8% last year, originators came up with the saying, “Survive ‘til 25.”

The idea was that if you could hang on and ride out the storm (of low lending volume) in 2024, you’d be rewarded in 2025.

And while that sometimes felt far-fetched, it looks like it could actually come to fruition, and perhaps even ahead of schedule.

The latest Market Advantage report from Optimal Blue found that mortgage refinances accounted for 26% of total home loan production, the highest share since March 2022.

At that time, you could still get a 30-year fixed in the 3% range. But rates ascended rapidly from there, basically wiping out all refinance activity in a matter of months.

So it’s pretty telling that refinance market share is now back to those levels and likely rising in coming months and years.

The 30-year fixed has fallen fairly dramatically after peaking at around 7.25% this May. It now stands at around 6% and looks poised to hit the 5s sooner rather than later.

Rates have a pretty strong tailwind right now with weakening economic data, higher unemployment, and a bunch of Fed rate cuts in the pipeline.

That could unleash millions of additional refinance candidates, including many of four million who took out a 6.5%+ rate mortgage since 2022.

The Only Way Is Up

While this is great news for the mortgage industry, and for recent home buyers, loan volume is still small potatoes relative to recent years.

If you look at the chart above, you’ll see the context of that 109% monthly increase and 310% annual surge.

The dark blue vertical line (rate and term refinance share) has gotten a lot wider, but is still just a tiny sliver of overall mortgage market volume.

But when you compare it to levels seen in 2021 and early 2022, it doesn’t take much to register big percentage gains.

When we include cash out refinances (orange line), which increased 8% on a monthly basis and over 20% annually, you get a respectable refinance share again.

And chances are this will only go up as more mortgages fall into the money for a refinance.

Lately, it’s mostly been VA loans that have benefited from a refinance because mortgage rates on such loans are the lowest.

But if rates continue on their merry may lower, you’ll start seeing more conforming loans benefit, which make up the lion’s share of the market.

It has been harder to make the math pencil on loans backed by Fannie Mae and Freddie Mac because of LLPAs (pricing adjustments). That could soon change.

Home Purchase Lending Has Fallen Flat Thus Far

While refis are finally having a moment, the same can’t be said of home purchase lending (light blue vertical line above).

Sure, it still holds a majority share of the mortgage market and likely will next year too, but it’s beginning to cede some of it back to refis.

And that’s troubling given the big drop in mortgage rates, which was supposed to get home buyers off the fence.

So far, the effect of lower mortgage rates has been muted, with purchase locks actually down 16% year-over-year and a staggering 45% since August 2019.

Optimal Blue blamed it on “continued affordability and inventory challenges,” with home prices out of reach for many despite the improvement.

Many expected home prices to surge when rates fell, but I’ve been arguing for a while that there’s no inverse relationship.

And in fact, home prices and mortgage rates can fall together if economic conditions warrant it.

Remember, there’s a reason the Fed is looking to cut its own fed funds rate more than 200 basis points (bps) over the next 12 months.

A slowing economy might be good news for mortgage rates, but not necessarily the housing market.

With home prices still at all-time highs nationally and affordability near all-time lows, it’s just not a great time to buy for many folks.

Sprinkle in uncertainty regarding the economy, the election, and even how they’ll pay real estate agent commission and it’s not so rosy anymore.

In other words, significantly lower mortgage rates might not amount to higher home prices, or a greater number of home sales just yet.

But given the timing of these lower rates (post peak home buying season), we won’t really know for sure until next spring.

That’s where the rubber meets the road.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

It’s been a pretty good year so far for mortgage rates, which topped out at around 8% last year.

The 30-year fixed is now priced about one full percentage point below its year ago levels, per Freddie Mac.

And when you consider the high of 7.79% seen in October 2023, is now over 150 basis points lower.

But the recent mortgage rate rally may still have some gas in the tank, especially with how disjointed the mortgage market got in recent years.

Simply getting spreads back to normal could result in another 50 basis points (.50%) or more of relief for mortgage rates going forward.

Forget the Fed, Focus on Spreads

There are a couple of reasons mortgage rates have improved over the past 11 months or so.

For one, 10-year treasury yields have drifted lower thanks to a cooler economy, which is a boost for bonds.

When demand for bonds increases, their price goes up and their yield (interest rate) goes down.

Long-term mortgage rates follow the direction of the 10-year yield because they have similar maturities (mortgages are often prepaid in a decade).

So if you want to track mortgage rates, the 10-year yield is a good place to start.

Anyway, inflation has cooled significantly in recent months thanks to monetary tightening from the Fed.

They raised rates 11 times since early 2022, which seemed to finally do the trick.

This pushed the 10-year yield down from nearly 5% in late October to about 3.65% today. That alone could explain a good chunk of the mortgage rate improvement seen since then.

But there has also been some narrowing of the “spread,” which is the premium MBS investors demand for the risk associated with a home loan vs. a government bond.

Remember, mortgages can fall into default or be prepaid at any time, whereas government bonds are a sure thing.

So consumers pay a premium for a mortgage relative to what that bond might be trading at. Typically, this spread is around 170 basis points above the 10-year yield.

In other words, if the 10-year is 4%, a 30-year fixed might be offered at around 5.75%. Lately, mortgage rate spreads have widened due to increased volatility and uncertainty.

In fact, the spread between the 10-year and 30-year fixed nearly doubled from its longer-term norm, meaning homeowners were stuck with a rate 3%+ higher.

For example, when the 10-year was around 5%, a 30-year fixed was priced around 8%.

Normalizing Spreads Could Drop Rates Another 60 Basis Points

New commentary from J.P. Morgan Economic Research argues that “primary mortgage rates could fall by as much as 60 bps over the next year” thanks to spread normalization alone.

And even more than that if the market prices in more Fed rate cuts.

They note that the primary/secondary spread — what a homeowner pays vs. the secondary mortgage rate (what mortgage-backed securities trade for on the secondary market) remains wide.

Head of Agency MBS Research at J.P. Morgan Nick Maciunas said if the yield curve re-steepens and volatility falls, mortgage rates could ease another 20 bps (0.20%).

In addition, if prepayment risk and duration adjustment fall back in line with their norms, spreads could compress another 20 to 30 bps.

Taken together, Maciunas says mortgage rates could improve another 60 basis points (0.60%).

If we consider the 30-year fixed was hovering around 6.35% when that research was released, the 30-year might fall to 5.75%.

But wait, there’s more. Aside from the mortgage market simply rebalancing itself, additional Fed rate cuts (due to a continued economic slowdown) could push rates even lower.

How Much Will the Fed Actually Cut Over the Next Year?

Remember, the Fed doesn’t set mortgage rates, but it does take cues from economic data.

At last glance, the CME FedWatch tool has the fed funds rate hitting a range of 2.75% to 3.00% by September 2025.

That’s 250 bps below current levels, of which some is “priced in” and some is not. There’s still a chance the Fed doesn’t cut that much.

However, if it becomes more apparent that rates are in fact too high and going to drop to those levels, the 10-year yield should continue to fall.

When we combine a lower 10-year yield with tighter spreads, we could see a 30-year fixed in the low 5s or even high 4s next year.

After all, if the 10-year yield slips to around 3% and the spreads return closer to their norm, if even a bit higher, you start to see a 30-year fixed dip below 5%.

Those who pay discount points at those levels might have the chance to go even lower, perhaps mid-to-low 4s and maybe, just maybe, something in the high 3s depending on loan scenario.

Just note this is all hypothetical and subject to change at any given time. Similar to the ride up for mortgage rates, there will be hiccups and unexpected twists and turns along the way.

And remember that lower mortgage rates don’t necessarily imply another housing boom, assuming higher unemployment offsets purchasing power and/or increases supply.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

I’ve said for a while that the mortgage recapture game was going to ramp up and get more aggressive.

Customer retention has always been a big thing in every industry, but thanks to new technology and “AI” companies are getting better at it.

Many of the largest mortgage companies have also been growing their mortgage servicing portfolios for this very reason.

Instead of handing off their borrowers to third-party companies, they’re retaining servicing rights so they can mine their database of homeowners for future offers.

And with mortgage rates finally showing some real promise, there could be a lot of opportunity going forward.

The Refi Boom Is, Apparently, Here

UWM just proclaimed that “the refi boom is officially here,” and wants to make sure its mortgage broker partners are “ready for it.”

To help give them a boost, they have launched a new initiative called KEEP, which leverages artificial intelligence (AI) to help brokers stay in front of their old clients.

The way it works is fairly simple. It continuously scans the data from UWM’s portfolio and identifies borrowers “who will benefit from a mortgage refinance.”

Once a match is found, it automatically sends an email to the customer with a pre-validated offer, including the contact information of the originating broker.

Borrowers will see their current monthly payment, estimated new payment, and estimated monthly savings.

It will also include disclosures such as the loan type, loan-to-value ratio (LTV), amount of discount points required, and APR.

It’s unclear what the threshold is for an offer to be generated, but UWM says these offers will be sent to borrowers “as soon as a borrower is able to obtain meaningful savings on their monthly payment.”

From there, all a borrower has to do is review and submit a pre-populated loan application, which then winds up in the broker’s pipeline.

It appears to be the next iteration of what may have been the old process, a manual outreach campaign once brokers found possible refinance candidates.

Now they might not have to do a thing other than log on to the UWM dashboard and check to see if any new loans dropped into their pipeline. Talk about a nice surprise!

Good News for Brokers, But Borrowers Should Still Shop Around

While this new initiative will likely be great for both UWM, the nation’s #1 mortgage lender, and its broker partners, borrowers still need to be diligent.

Sure, it’s convenient and easy to get emailed a mortgage refinance offer and simply respond and submit the pre-populated application.

But it’s not always about easy, especially if we’re talking about saving money. Sure, you can hear the broker out and discuss the offer.

At the same time, you might want to speak with other banks, brokers, retail lenders, credit unions, etc. to see what they can offer. Maybe they can beat the rate/fees.

As I’ve mentioned time and time again, you need to compare mortgage brokers too, as their pricing and service can vary widely as well.

Many of them work with different wholesale lenders and have distinct compensation structures. That can affect mortgage rate pricing a lot.

Now there’s nothing wrong with loyalty, especially if you enjoyed the prior experience with your broker, but you also have to ensure they still offer competitive pricing.

One month lender X offers the lowest mortgage rates, and the next month lender Y is the price leader.

So as I’ve said before, when a lender reaches out, reach out to other lenders.

This is especially true when we’re talking about a rate and term refinance, which actually needs to save you money to be worthwhile.

A week ago, UWM also launched Refi75, a 75-basis point pricing incentive for conventional, FHA and USDA rate and term refinances, as well as for FHA Streamlines and VA IRRRLs.

Be sure to look at the big picture, including the final interest rate and all closing costs, to effectively compare offers.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com