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The mortgage origination industry has long made use of an operational strategy that relies on “staffing up” during cycles of high volume and then making staff reductions, sometimes en masse, when origination volume declines. While this was once a necessary business strategy, the technology now exists to implement a much more efficient approach. In order to achieve this, lenders need to take a thoughtful approach to the implementation of technology, and the very highest decision makers need to push their orgs to adapt processes to fully realize technology’s benefits.

Some credit is due to the mortgage industry for having made real progress in a few short years with regard to making automation a priority. Structured data sources, automated underwriting tools, and task and workflow-based systems can automate and accelerate many of the functions traditionally performed by human employees. The technology to do this is possible and in many cases, has even been built – it just hasn’t been properly implemented. We have the means today to shift lenders to far more efficient staffing and personnel models. 

The problem lies in a simple insight: cost and labor doesn’t come out of the process when you automate a step, but rather when the person stops doing that step.

While we have adopted technologies and “turned them on” across the industry, so to speak, we have not re-architected our processes around them. In order to do that, I suggest 3 truths that lenders should keep in mind:

  1. There are some things that technology can simply do better than humans – that work needs to be moved to technology.
  2. There are other things that humans still need to do, but the more that companies can make those tasks “lower skill” and easier to train around, the more scalable and nimble the organization can be as the market changes.
  3. It is very easy to add steps to a process, and overwhelmingly difficult to subtract them.

Moving workloads from people to technology

As an industry, we need to start by establishing a basic acceptance that technology simply does many things better than humans can. For example, technology is more reliable at making sure a flood report is ordered as soon as a loan is moved to processing than a human with a checklist is – it’s a simple rule that fires every time. This is an easy thing to agree on when technology does things “perfectly”, but what about when the technology has an error rate? For example, does OCR have to be 99%, 99.9%, or 100% right in extracting the first name off a driver’s license before we decide we can have people stop doing it? While a simple solution might be to compare the computer’s error rate to the human’s, and switch when computers make fewer mistakes, we all know this is difficult in practice – one only needs to look at the regulatory backdrop around self-driving cars as a prime example in another industry. Regardless of whether a company is willing to take a more cutting edge approach (switching as soon as the technology is “good enough”) or would rather be a later adopter, it is critical that lenders have a strong framework and strategy around when they shift work from humans to technology.

If we assume for a moment that we are willing to move work to technology once it can do it better than humans, the next step is to survey the market and understand what “automation” capabilities exist, and to what extent they can replace the entire task a human is doing, not just a pretty demo. This requires not just a deep understanding of the technology, but also an understanding of the current human process – is the same person ordering flood reports and reviewing the results? Is that person also troubleshooting when the flood vendor is unable to return a successful result because the property address hasn’t been verified yet? For many mortgage lenders, either very robust automation capabilities are necessary to replace these large, complex tasks their operations people are really doing, or their process needs to be simplified and broken down significantly into smaller “jobs to be done” so that simpler automation solutions can take those jobs on.

Making the work people still have to do more efficient

Once we’ve looked at work that can be moved to technology, the state of the industry today suggests that there surely will still be work for people as well; how can we make that as efficient as possible? There are two vectors lenders should think about when they think about the efficiency of their people: how much “work” (measured in loans, or ideally in tasks) one person can get done in a unit of time when fully ramped, and how long it takes to ramp them.

Work per user per unit of time is measured all over our industry: how many files can an underwriter review a day? How many loans can a processor manage in their pipeline at once? When thinking about improving the efficiency of work that people are doing and that can’t be moved to technology, lenders often focus on allowing those people to focus (there are elaborate solutions, like workflow systems, and simple solutions, like not letting your loan officers instant message your underwriters). Continuously re-evaluating how your technology is serving or hindering your team’s ability to work efficiently (system latency, easy navigation) is critical.

Less obvious, though – for work that still needs to be done by people, it’s also worth asking how we can make that work more intuitive, easier to train on, and split in a way that the bulk of it can be done by lower skilled workers. Making the work “simpler” or “easier” allows for improved elasticity in the business; rather than hiring specialists, lenders can move more general workers around to cover bottlenecks in their manufacturing process, or even slide employees between origination and servicing if the jobs and systems are really made simple enough. When a mortgage business employs a strategy that decreases the need for skill, the next market boom will require that business to simply flex 10 or maybe 20 people from other areas of the business into production to assist with the sustained volume. Instead of having to hire (and later, lay off) 100 new people and train them, the business can accommodate demand without artificially bloating its workforce.

Actually changing the process with subtraction, not just addition

One of the hardest things to do in any organization is to subtract things – adding a weekly meeting is almost frictionless in most companies, but removing it requires a brave individual to speak up, and then near-total consensus from the attendees. Similarly, in loan manufacturing, lenders add steps (things to check, documents to collect or send out) often, but almost never inventory all of the work their teams are doing and figure out what doesn’t need to be done anymore.

Compounding this, “redundant work” is actually commonly employed as a strategy in mortgage origination to ensure that files are high quality – if 2 people each have 10% error rates on missing a document in the file, for example, making sure that one checks it, and then the other checks the first person’s work, will allow for a 1% error rate. This simple fact often leads to checkers checking checkers.

This means that people in the mortgage origination process often do work on a file, expecting that work to have been done already anyways, and therefore that automating that work upfront doesn’t fundamentally change their behavior. In order to see the full benefits of any kind of work shift to automation and technology, the entire team downstream of that work needs to be retrained no longer to check that step. So how can this be done?

First and foremost, executive buy-in is critical to see any reduction of steps; very rarely do individual contributors feel empowered to remove steps from the process. Tobi Lutke, CEO at Shopify, has a famous quote that “The best thing founders can do is subtraction. It’s much much easier to add things than it is to remove.” Only executives and leaders have the social capital necessary to actually get people to stop doing stuff.

Once an executive has decided to cut a bunch of steps from the process, and ideally continue to revisit and cut steps as a continuous, living process, there are two ways to actually implement this. One is to have an extremely strong operations group that continuously trains and retrains; measuring the effectiveness of the team and ensuring an extremely high degree of compliance with written and documented standard operating procedures. 

The second option to implement effective change-management on your automation journey is to encode the standard operating procedure inside of the system being used to originate the loans so that the software manages the process. When that happens, change management becomes something akin to a software update (with which people will comply because they are only doing the work the software directs them to do) instead of a complex and cumbersome re-training. The change management is, essentially, “baked into” the infrastructure itself.

Regardless of whether an operational or technical solution to this problem is employed, all of the automation in the industry won’t save money if each lender doesn’t individually develop a strategy to achieve the all-important goal of subtraction.

Tying these things together

We’ve long known that the mortgage industry struggles with a lack of elasticity and scalability. The market conditions and unique events of the past four or five years have starkly highlighted that problem. As our market has lurched from boom to bust in response to pandemic and high interest rates, we’ve seen an almost continuous parade of hiring and reductions-in-force. That, in turn, has had a broad impact on work culture across the industry, including a reduced level of loyalty industry-wide and a volatility that makes it nearly impossible to plan much further than the next peak or trough in the market cycle. 

To actually get to a world where scaling production up and down doesn’t require swings in headcount, the marginal cost of labor inside each loan needs to be as low as possible, and then any need to “staff up” or “staff down” needs to be low training enough to allow the repurposing of existing staff instead of hiring and firing of staff outside the company. Getting to this world requires a careful re-litigation of existing processes, with executive buy-in, to subtract unnecessary steps and simplify the process, and this is an exercise that must be done continuously by lenders. This is not simple – there is no silver bullet solution – and it is hard work, but it is one of the greatest problems mortgage originators face today, and well worth the work.

As CEO at Vesta, Mike leads sales, product development, and implementations as the team redefines origination platforms for modern lenders. Previously, Mike spent 4 years on the early product team at Blend, where he launched key components of the flagship mortgage platform, and later started and ran new business lines such as Blend Insurance. Mike graduated from Stanford University with an MS in Computer Science/AI and a BA in Economics.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected]

Source: housingwire.com

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Ginnie Mae has released a term sheet for its revised Home Equity Conversion Mortgage securitization program, starting a comment period that ends on July 31.

With the update, termed HMBS 2.0, Ginnie Mae wants to enhance liquidity for issuers by allowing the re-pooling of active and non-active buyouts into new custom, single-issuer pools.

HECMs are reverse mortgages insured by the Federal Housing Administration. Unlike Fannie Mae or Freddie Mac, which purchase and securitize mortgages, Ginnie Mae is merely a secondary market guarantor for government agency products.

Ginnie Mae first put out a guide for HECM mortgage-backed securities issuances in July 2007, with the initial deal coming out in November of that year.

Under current HMBS rules, when a reverse mortgage reaches 98% of the FHA maximum claim amount, the issuer must purchase it out of the pool. At that time, it can be assigned to FHA, which takes over servicing the loan and disburses funds to the lender.

But issuer liquidity during the process can be a problem, a Ginnie Mae blog post said, adding “one of the largest HECM issuers became insolvent in early 2022 when interest rates spiked and liquidity dried up.” While it didn’t specify the lender and the dates don’t quite add up, Reverse Mortgage Funding filed for bankruptcy in November of that year because of liquidity issues.

Furthermore, as interest rates increased last year, HECM originations slowed. At the same time existing loans reached that 98% limit.

“This confluence of factors creates significant liquidity needs for the industry,” the blog said. “Unless addressed proactively, this can lead to future disruption in the HECM market.”

The market appears to have picked up as of late, with 2,460 FHA reverse mortgage endorsements in May, according to Reverse Market Insight. That was up nearly 17% from April’s 2,150 and 20% compared with May 2023, when 2,051 HECMs were endorsed.

Meanwhile, homeowners 62 and older saw their housing wealth increase to $13.19 billion during the first quarter, up by $328.5 billion, the National Reverse Mortgage Lenders Association said.

Senior home values increased to an all-time high of $15.5 trillion during the period but that was offset by an increase in debt from $10.2 billion to $2.35 trillion, the NRMLA/RiskSpan Reverse Mortgage Market Index reported.

Under Ginnie’s proposal, the weighted average principal balance in an HMBS 2.0 will be limited to 95%. That buffer is needed to provide an economic incentive to protect Ginnie Mae, and ultimately taxpayers, against a decline in home values.

Multiple valuation methods will be permitted. These include automated valuation models and broker price opinions. However, a 10% haircut will be applied in order to protect Ginnie Mae from home-price declines.

Under the proposal, the repurchase rule will kick in at 150% of MCA, or when the mortgage is assigned to the Department of Housing of Urban Development or the note is terminated, whichever comes first.

“Soliciting public comment on the structure of the HMBS 2.0 program is critical to developing a program that supports Issuer liquidity while protecting taxpayers,” said Ginnie Mae Acting President Sam Valverde, in a press release. “Ginnie Mae remains committed to supporting the government reverse mortgage market and we will work swiftly to address input received as we work to implement the program.”

Source: nationalmortgagenews.com

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You want to learn how to be frugal but not cheap… then, you are in the right place.

Simply put… frugal living is saving money at it finest.

To be honest, though, learning how to be frugal can come with spending more money than you planned in the name of frugality. The truth can hurt. But, in order to be frugal, you must save what you would normally spend.

That means you are economical with money.

The list of 175+ frugal living tips seems like a great place to start when you are learning how to be frugal, right?

Wrong!

You need to focus on a few basic habits first. Set yourself up for success. And then, slowly incorporate more frugal ways to save money.

In this post, that is exactly what you will learn.

The frugal habits you need to be successful along with the best frugal life hacks to guarantee success.

Let’s dig in…

Can being Frugal make you Rich?

Absolutely yes!

The key is to save money from your frugal hacks.

Remember the age-old saying, “A penny saved is a penny earned.”

Every penny will slowly add up to the next money milestone.

If you don’t believe me, then check out this millionaire’s story of being frugal.

How Being Frugal can Cost You?

It can IF you are not careful.

Being frugal is about saving money. However, it is possible to spend more money in the name of frugality.

The first example would be being more than you need just because it is a good sale, deal, or clearance price that you don’t want to miss out on.

Next, in your search to find the cheapest option, you actually spend more over time replacing it because the quality isn’t quite the same.

There is a fine line between frugality, being cheap, and simply overspending on deals.

Just be weary of overspending money in the hunt of saving money.

How to be Frugal with Money

These are the habits you want to embrace to become a frugal person.

Personally, I like to think being frugal is being picky with my money.

I loathe my investment accounts going down, so why would I want to buy things that we don’t need or don’t matter in the long wrong. That is why I choose to be frugal with money.

Specifically, I choose to be economical with how we spend money.

Now, let’s dig in to understand how to be frugal with money.

1. Know Your Goals

First, you must know your goals. If you don’t have a goal, then you aren’t going to make any progress. Period.

In today’s society, it is SO easy to spend money without even realizing it. That is the point of business – they are out to market for your money (and they are good at it, too).

You must prioritize you first.

This is something we hear over and over. Prioritize your self-care before taking care of others. The same holds true for your money.

Action Step #1 – Sit down and write out your financial goals.

If this is something you haven’t done before, then check out our helpful guide to rocking your financial goals.

2. Understand your Spending Habits & Triggers

This one is HUGE!!

If you don’t know how and where you spend money without thinking, then you will never be able to stop the spending. You can’t slow the bleed.

First of all, I will admit that uncovering your spending habits is hard. It is introspective. It can be painful. Maybe even demoralizing.

But, until you let go of your previous financial failures, you won’t be able to move on.

This is an important step to make serious progress in your life. You may be amazed how this seemingly simple things will hold you back.

Action Step #2 – Review bank statements or credit card transactions. Look for things you bought without planning for them.

This will highlight your spending habits.

As for your triggers, watch your emotions and think what you automatically do when you are happy, sad, mad, and celebrating.

3. Save First

Oh my, pay yourself first.

This is something I focus on a lot at Money Bliss and for good reason. Saving money is the backbone to financial success.

If you don’t save money, then you are left scrambling when you need cash or stuck going into debt. This is a vicious hamster wheel that debt will overtake you.

Start by saving $10 a day. Many times you can find that money by uncovering your spending habits.

From there, look at increasing your saving percentage each month.

Action Step #3 – Figure out how much you save each week, each month, and your saving percentage. Brainstorm ways to increase how much you save.

To help our readers, you will find many spreadsheets and printables to help you figure out how much you save and track your savings progress. Once signed up on our email list, you will receive the password.

4. Spend Less Than You Make

Your expenses must be lower than your income. Period.

If you are currently spending more than you make, then you must look at ways to drastically cut expenses. Stop hoping that your situation will change and actually do something about it.

This seems like a very easy math concept. Yet, most people struggle with basic money management.

If you don’t believe that saving an extra $5 day, then think about having $1825 in your pocket.

Now, let’s flip it the other way, if you are overspending by $75 a week, then by the end of the year, you are in the hole $3900 plus interest if you took out debt.

Action Step #4 – Figure out your bare bones budget. Then, decide what fun spending items to keep to make sure you spend less than you make.

Here is a guide to help you figure out your bare bones budget. Also, you will find bare bones budget printable in our free library area.

5. Patience

Lastly, you must have patience.

Changing your money management won’t happen overnight. While you can have quick wins and successes, this is the race won by the turtle.

Patience comes with planning and that is one thrifty habit you should pick up.

When you become frugal with money, you plan how you spend your money and save your money. Many times, that means waiting for a sale to buy an item you need or accumulating money for another date.

Action Step #5 – Show self-restraint and try a no spend week or month.

By holding a no spend challenge, it will help you reshape your finances as well as help you prioritize what is important. As a reader, you have access to our no spend printables, too!

Frugal Life Hacks

These are the specific frugal hacks to save money.

These are the key areas you need to focus your energy on. Over time, they will become habits.

1. Pay Yourself First

Yep, this one again.

If you are frugal, then you pay yourself first.

You are focused on two things – how to save more money and how to make more money.

This pay yourself first concept will have you winning at money management – guaranteed!

2. Budget

A frugal person always has a plan on how they plan to spend their hard-earned money.

This makes sure that spending is always below income.

While many people hate the term “budget,” it doesn’t have to be constricting. We like to call it a “Cents Plan.” You make a plan for your money.

Just like you make a plan for your time on the weekend. Same concept.

The more you save now, the greater freedom you will have later.

3. Cook Meals at Home

Cooking food at home costs at least 25% of eating out. While the convenience of eating out is nice, it comes at a monetary and wellness cost.

You can make healthy meals under $10 for six servings. And not be a slave in the kitchen.

Shop the outer area of the grocery store. The expensive stuff is in the middle.

Hint: Try to incorporate a meatless meal 1-2 times per week. Plant based meals are cheaper to make.

4. Shop Less Often

This goes for general shopping, buying groceries, and adding items to your Amazon cart. The more often you go, the more likely you are to spend more money.

Decide ahead of time when you plan to shop (remember that patience concept from earlier).

For example, to get groceries for our house. I plan two pickups per month at the local grocery store and then have organic produce delivered on odd weeks with Misfits Market. Then, Costco run every month to 6 weeks. (Mind you… I have two children that are hitting the pre-teen phase.)

For me, I have shaved 30% off my grocery budget by implementing the strategy to shop less often.

5. Use Cash for Key Categories

If you are tempted to spend more than you should in certain areas, then you need to look at using cash.

When cash has been spent, you must wait until you full up that envelope again.

This helps so much with overspending.

You can do this with the cashless envelope system as well.

6. Own Less Stuff

The more items you have, the more it cost to buy and maintain.

So, by owning less stuff, you are accomplishing one of the most frugal life hacks to save money.

You don’t even need to become a minimalist. You just need to own what you need and that is it.

If you don’t believe me, look around and pack up anything you haven’t touched in the past 30 days.

7. Don’t Buy New

Buying new can be expensive. The best example of buying new is cars, trucks, and SUVs. The price instantly goes down the second you leave the dealership.

If at all possible, always look for used items that you can get at a discount or even for free.

With online forums and groups, it is much easier to find used items.

Of course, there is a caveat to this life hack; there are some things that are worth the investment and should be bought new. Just watch for sales or discounts.

8. Check your Receipts

It absolutely amazes me how many times I can be charged inccorectly. You would think with technology that this wouldn’t happen, but it does.

It takes a quick thirty seconds to scan your receipts and check for errors.

Sometimes, it may be the warranty you declined or double charged for apples. Other times, the sales price not have been rung up correctly.

Don’t hesitate to ask for the correct price!

9. Review Insurance and Ongoing Subscriptions

This may seem like a mundane task to do, but you could save yourself money.

This past summer, our homeowner’s and auto insurance went up again. We shopped around and ended up saving $1800. The same is true for cell phone and cable service.

You have to call and ask for discounts.

More often than not, these companies want you to continue as a customer and will lower your rate.

Insurance Options:

Automated Options to Save Money:

10. Switch to Reusable Products

When you throw something out, you have to buy new again.

This can fall into many categories. However, here are the main things you can reuse and ditch the waste.

This is what you want to look for:

11. Drink Water

Nothing is more frugal than drinking water.

The costs of various drinks can be a drain to any budget.

If you don’t like your tap water, then you can invest in a cheap filtration pitcher or even an under-mount filtration system. This is the one we installed and have been very happy with!

12. Watch Out for Fees

There are so many little pesky fees that can add up. Some examples include shipping, account maintenance, service fees, banking fees, etc.

While $2-8 may not seem like much, they will balloon over time. Look for promo codes or alternative ways to skip the fees.

13. Cut Cable or Unused Subscriptions

If you don’t use, then don’t spend money on it.

You can’t save money if you spend on things that don’t matter to you.

This is hard for many of us to do because we like conveniences and we don’t want to be seen as different.

Ways to Cut Cable:

The key when cutting cable is not to replace it with more subscriptions that end up costing more.

14. Collect Your Pennies

A true life hack to get you ahead financially is to know your money.

You know where you money goes. You know when you spend it. When you save it.

Also, you will never leave money on the table. If you see a penny, you pick it up and save spare change. If you lose a dollar, you want to get it back.

This means you are actively looking for ways to make more money. You want more pennies to collect that will add to your net worth over time.

15. Free Things to Do

The last frugal life hack is to always look for free things to do.

Here is a little secret… having fun doesn’t need to cost money!! We have been trained that having fun costs money. But, it is so not true!

Some of the best things in life are free.

For all of you, here is a guide of over 101 things to do without money.

Which Frugal Life Hack Will Save Money for You?

Being frugal is a lifelong habit. Yes, there are quick wins you can have here and there. But, in the long run, these frugal life hacks will have the biggest bank for your time.

Learning how to live frugally and be happy is about understanding your priorities and how you want to spend your money.

If you are serious about learning how to be frugal with money, then plan a time to examine your finances. In less than 30 minutes, you will uncover things to change the trajectory of your spending and saving habits.

Just remember… pennies do add up. So, watch your pennies and watch your net worth grow.

Know someone else that needs this, too? Then, please share!!

Did the post resonate with you?

More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!

Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.

Source: moneybliss.org

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They say to never say never. But why?

Because if you say it, whatever you said would never happen typically happens. Go figure.

Well, speaking of, Fannie Mae chief economist Doug Duncan recently said barring a “catastrophic economic event,” not to expect mortgage rates to return to 3% in our lifetimes.

I wrote about it on Twitter and it garnered a big reaction, with most saying he’s right. And others asking how old he was…

My take was that when I hear things like “not in our lifetime,” I naturally expect them to occur sooner rather than later.

How Did We Get 3% Mortgage Rates to Begin With?

Before we talk about the possibility of mortgage rates being 3% again, let’s discuss how they got there in the first place.

After the early 2000s mortgage crisis led to the Great Recession between 2007 and 2009, the Fed took action to lower its own lending rate (the federal funds rate) to nearly zero.

This was done to increase economic output by encouraging banks to lend money and for consumers and businesses to take out loans.

Despite the Fed’s best efforts, the economy continued to contract, leading to the advent of an unconventional monetary policy called Quantitative Easing, or QE.

Without getting too wordy here, the Fed began buying long-dated treasuries and mortgage-backed securities (MBS) to stimulate lending and turn the economy around.

Thanks to a very large, new buyer in the market, bond prices went up and their yields (aka interest rates) plummeted, as did consumer mortgage rates.

By the end of 2011, the 30-year fixed fell just below 4%, per Freddie Mac, as seen in the FRED chart above. And in 2012, it was in the low-3% range.

The Fed’s QE program was launched in 2008 and ran all the way until 2020, thanks to COVID-19 requiring an additional round.

Effectively, it was the perfect storm of a zero-interest rate policy (ZIRP) coupled with enormous buying of agency mortgage-backed securities. They currently hold over $2.5 trillion in MBS!

This led to the lowest priced 30-year fixed mortgage on record, and many lucky American homeowners got their hands on one.

Could the Same Thing Happen Again?

Anything is possible, which is why I say never say never. But as Duncan noted, it might take a bit of a catastrophe. Or possibly a major geopolitical event. Or both.

Some wrongly claimed we needed a pandemic to see 3% mortgage rates, but if you study the mortgage rate timeline, that’s simply not true.

As noted, the 30-year fixed was sub-4% all the way back in 2011, nearly a decade before COVID-19 reared its ugly head.

Yes, the pandemic led to even lower mortgage rates, with the 30-year fixed falling to a record low 2.65% during the week ending January 7th, 2021, per Freddie Mac.

But all it took was a Global Financial Crisis (GFC) to get us to 3% mortgage rates. Easy-peasy (kidding).

This isn’t to say it’s right around the corner, but it’s clearly possible. Of course, these might be generational events.

So lifetime might be the wrong word choice here, but generation could be right. As in, not in this generation. But perhaps the next one.

If a generation is around ~30 years, this means many people could see this same thing play out again, though maybe not very soon.

However, things tend to move a lot quicker these days and some argue that we live in a low interest rate world now where a return to double-digit interest rates is unimaginable.

And even long-term average rates could be unthinkable to some given how high home prices are these days.

If you consider the average 30-year fixed mortgage rate over the past 50 years, it’s around current levels of just over 7%.

If we throw out the extreme 1980s mortgage rates, the long-run average is closer to 5.5%. But that includes the crazy low-rate years over the past decade…

How About 4% Mortgage Rates?

While I do agree with Duncan’s general sentiment that a return to a 3% 30-year fixed is unlikely, at least anytime soon, we could get somewhat close.

It wouldn’t shock me to see a 30-year fixed start with a ‘4.’ As in 4.99%, or something to that effect.

Heck, the home builders are still offering special mortgage rate buydowns that low at this very moment.

And if you’re willing to pay discount points at closing, if/when rates moderate as inflation falls, a 4.99% rate could be within reach.

Even without points, rates could get close to those levels if the economy cools rapidly and the Fed begins cutting its own rate again.

Remember, bad economic news is a friend to mortgage rates, so if unemployment spikes, and production/spending declines, rates could come down pretty quick.

At this juncture, many expect the Fed to begin cutting rates as their inflation fight wanes, which if the 10-year bond yield cooperates, could lead to a 30-year fixed closer to 6% by 2025.

And maybe even lower if mortgage rate spreads normalize. This alone could get some borrowers back into the high-5% range without paying a ton at closing.

Of course, that’s all speculation and nobody really knows for certain which way mortgage rates might go.

What Are Your Options If 3% Mortgage Rates Don’t Return?

Even if the 3% mortgage doesn’t return, there are various options to lessen your mortgage interest expense.

For one, there’s always buying down your rate, which involves paying discount points upfront for a lower rate the entire loan term.

This is a form of prepaid interest where you pay more today, but potentially save a lot more over the loan term. You just have to keep the loan long enough for it to make sense.

There’s also paying extra on your mortgage, which depending on how much more you pay each month, could lower your effective mortgage rate to something closer to 4-5%, or even 3%.

The more you pay toward principal, the less interest you pay, which makes your mortgage operate more like a low-rate home loan.

We’ve also seen a resurgence in assumable mortgages, which allow a home buyer to take on the seller’s loan as well.

Many millions of existing homeowners have mortgage rates in the 2-3% range, so it might be possible to buy their house AND snag their low-rate mortgage.

One new service trying to make this process easier is called Roam. And there are others like it out there too.

Finally, if you’re buying a new home, look out for special rate buydowns from the home builder’s lender that offer a below-market rate.

Or if you’re buying a used home, ask for seller concessions, which can be used to buy down the interest rate.

And remember, you’re not necessarily stuck with your rate forever. If rates go down, look into a rate and term refinance to take advantage.

Source: thetruthaboutmortgage.com

Apache is functioning normally

They say to never say never. But why?

Because if you say it, whatever you said would never happen typically happens. Go figure.

Well, speaking of, Fannie Mae chief economist Doug Duncan recently said barring a “catastrophic economic event,” not to expect mortgage rates to return to 3% in our lifetimes.

I wrote about it on Twitter and it garnered a big reaction, with most saying he’s right. And others asking how old he was…

My take was that when I hear things like “not in our lifetime,” I naturally expect them to occur sooner rather than later.

How Did We Get 3% Mortgage Rates to Begin With?

Before we talk about the possibility of mortgage rates being 3% again, let’s discuss how they got there in the first place.

After the early 2000s mortgage crisis led to the Great Recession between 2007 and 2009, the Fed took action to lower its own lending rate (the federal funds rate) to nearly zero.

This was done to increase economic output by encouraging banks to lend money and for consumers and businesses to take out loans.

Despite the Fed’s best efforts, the economy continued to contract, leading to the advent of an unconventional monetary policy called Quantitative Easing, or QE.

Without getting too wordy here, the Fed began buying long-dated treasuries and mortgage-backed securities (MBS) to stimulate lending and turn the economy around.

Thanks to a very large, new buyer in the market, bond prices went up and their yields (aka interest rates) plummeted, as did consumer mortgage rates.

By the end of 2011, the 30-year fixed fell just below 4%, per Freddie Mac, as seen in the FRED chart above. And in 2012, it was in the low-3% range.

The Fed’s QE program was launched in 2008 and ran all the way until 2020, thanks to COVID-19 requiring an additional round.

Effectively, it was the perfect storm of a zero-interest rate policy (ZIRP) coupled with enormous buying of agency mortgage-backed securities. They currently hold over $2.5 trillion in MBS!

This led to the lowest priced 30-year fixed mortgage on record, and many lucky American homeowners got their hands on one.

Could the Same Thing Happen Again?

Anything is possible, which is why I say never say never. But as Duncan noted, it might take a bit of a catastrophe. Or possibly a major geopolitical event. Or both.

Some wrongly claimed we needed a pandemic to see 3% mortgage rates, but if you study the mortgage rate timeline, that’s simply not true.

As noted, the 30-year fixed was sub-4% all the way back in 2011, nearly a decade before COVID-19 reared its ugly head.

Yes, the pandemic led to even lower mortgage rates, with the 30-year fixed falling to a record low 2.65% during the week ending January 7th, 2021, per Freddie Mac.

But all it took was a Global Financial Crisis (GFC) to get us to 3% mortgage rates. Easy-peasy (kidding).

This isn’t to say it’s right around the corner, but it’s clearly possible. Of course, these might be generational events.

So lifetime might be the wrong word choice here, but generation could be right. As in, not in this generation. But perhaps the next one.

If a generation is around ~30 years, this means many people could see this same thing play out again, though maybe not very soon.

However, things tend to move a lot quicker these days and some argue that we live in a low interest rate world now where a return to double-digit interest rates is unimaginable.

And even long-term average rates could be unthinkable to some given how high home prices are these days.

If you consider the average 30-year fixed mortgage rate over the past 50 years, it’s around current levels of just over 7%.

If we throw out the extreme 1980s mortgage rates, the long-run average is closer to 5.5%. But that includes the crazy low-rate years over the past decade…

How About 4% Mortgage Rates?

While I do agree with Duncan’s general sentiment that a return to a 3% 30-year fixed is unlikely, at least anytime soon, we could get somewhat close.

It wouldn’t shock me to see a 30-year fixed start with a ‘4.’ As in 4.99%, or something to that effect.

Heck, the home builders are still offering special mortgage rate buydowns that low at this very moment.

And if you’re willing to pay discount points at closing, if/when rates moderate as inflation falls, a 4.99% rate could be within reach.

Even without points, rates could get close to those levels if the economy cools rapidly and the Fed begins cutting its own rate again.

Remember, bad economic news is a friend to mortgage rates, so if unemployment spikes, and production/spending declines, rates could come down pretty quick.

At this juncture, many expect the Fed to begin cutting rates as their inflation fight wanes, which if the 10-year bond yield cooperates, could lead to a 30-year fixed closer to 6% by 2025.

And maybe even lower if mortgage rate spreads normalize. This alone could get some borrowers back into the high-5% range without paying a ton at closing.

Of course, that’s all speculation and nobody really knows for certain which way mortgage rates might go.

What Are Your Options If 3% Mortgage Rates Don’t Return?

Even if the 3% mortgage doesn’t return, there are various options to lessen your mortgage interest expense.

For one, there’s always buying down your rate, which involves paying discount points upfront for a lower rate the entire loan term.

This is a form of prepaid interest where you pay more today, but potentially save a lot more over the loan term. You just have to keep the loan long enough for it to make sense.

There’s also paying extra on your mortgage, which depending on how much more you pay each month, could lower your effective mortgage rate to something closer to 4-5%, or even 3%.

The more you pay toward principal, the less interest you pay, which makes your mortgage operate more like a low-rate home loan.

We’ve also seen a resurgence in assumable mortgages, which allow a home buyer to take on the seller’s loan as well.

Many millions of existing homeowners have mortgage rates in the 2-3% range, so it might be possible to buy their house AND snag their low-rate mortgage.

One new service trying to make this process easier is called Roam. And there are others like it out there too.

Finally, if you’re buying a new home, look out for special rate buydowns from the home builder’s lender that offer a below-market rate.

Or if you’re buying a used home, ask for seller concessions, which can be used to buy down the interest rate.

And remember, you’re not necessarily stuck with your rate forever. If rates go down, look into a rate and term refinance to take advantage.

Source: thetruthaboutmortgage.com

Apache is functioning normally

If you rent a house when you would rather own, pin some of the blame on corporate landlords.

The 10 biggest institutional investors owned more than 430,000 single-family rental homes at the end of 2023, and they continue to acquire houses to rent out to middle-class families. Corporate landlords seek to dominate the neighborhoods they target, simultaneously reducing the inventory of houses to buy while expanding the stock of houses to rent.

Members of Congress have introduced bills to force the largest institutional investors to dramatically cut their holdings.

Renting costs less than buying

The United States suffers from a housing shortage of between 1.5 million and 5.5 million units, depending on whom you ask. Institutional investors benefit from the shortage because it pushes prices higher, making homeownership unaffordable for many. The median home resale price rose to a record $419,300 in May, according to the National Association of Realtors. Mortgage rates have remained above 6.5% since May 2023.

Consequently, it costs more to buy a starter home than to rent in the 50 largest metro areas, according to a Realtor.com report in March. According to Zillow, the median rent for a three-bedroom house was $2,200 in June. That’s $32 less than the principal-and-interest payment on a median-price house at the average mortgage rate in May — after making a 20% down payment. But who has $83,860 for a 20% down payment on a $419,300 house? The combination of high prices and interest rates forces many would-be homeowners to rent.

‘Significant market power’

Renters occupy about 15.9 million single-family homes, according to the Census Bureau. Corporate landlords own about 3% of them. That doesn’t seem like much, but corporate-owned rental houses are concentrated in a few metro areas, mostly in Florida, Georgia, the Carolinas, Texas, Arizona and California. In metro Atlanta, just three companies owned 19,000 houses at the beginning of 2022, for an 11% market share, according to research by Georgia State University geographer Taylor Shelton.

“These companies own tens of thousands of properties in a relatively select set of neighborhoods, which allows them to exercise really significant market power over tenants and renters because they have such a large concentration of holdings in those neighborhoods,” Shelton said in a news release.

Shelton says the corporate landlords’ market share has increased since then. “The reality is that the corporate stranglehold on the single family rental market in places like Atlanta has only gotten worse,” he said in an email.

Raising rents, charging fees

Invitation Homes owned 12,726 rental houses in metro Atlanta at the end of 2023. The company exercised its market power by raising the average rent there 7.1% last year, according to the company’s annual reports, while the area’s median home price went up 1.3%, according to the National Association of Realtors. Invitation also stacks up to $145 in mandatory monthly fees on top of rent: up to $40 for smart home technology, $9.95 for quarterly air filter delivery, $9.95 to manage utility billing and up to $85 for internet.

Corporate landlords raise rent and charge ancillary fees because they can. “These institutions have outsized power in our housing market, and that influence is growing,” said U.S. Sen. Jeff Merkley, D-Oregon, in an email. “By 2030, Wall Street could control 40 percent of U.S. single-family rental homes.”

How corporate landlords get so many houses

Big corporations have two main methods of accumulating rental houses: buying homes when the owners list them for sale and build-to-rent. In recent years, build-to-rent has dominated.

In the build-to-rent model, a company constructs houses that are intended for the rental market from the time the company buys the land. According to an Urban Institute analysis, construction was started on 120,000 build-to-rent houses in 2022 — 12% of all single-family starts.

The other way these companies collect houses is by buying them on the resale market. When they do, corporations have the resources to outcompete folks who browse for houses online.

Progress Residential is the largest corporate landlord, with 85,000 houses. It bought most of them on the resale market, competing with ordinary people. But Progress has an edge over people, a company executive explained in a 2021 episode of the Leading Voice in Real Estate podcast.

“We have an incredibly effective system for acquiring homes one at a time,” Progress’s then-CEO, Chaz Mueller, said. Every 15 minutes, the company got an update of newly listed homes in its markets. When an algorithm identified a house that met its criteria, the company’s acquisition team made an offer “within a couple of hours of the home going on the market. So we’re able to analyze it very quickly, make an offer. Our offers are all cash, very flexible closing, basically whenever the seller wants to move out,” Mueller said.

A bill to make them sell

Merkley, the Oregon senator, has introduced a bill that would force corporate landlords to sell their houses. The End Hedge Fund Control of American Homes Act “is intended to give all families a fair chance to buy a decent home in a decent community at a price they can afford, because houses should be homes for families, not a profit center for Wall Street,” Merkley said in an email.

His bill would make corporate landlords sell at least 10% of their inventories of single-family rental homes every year for 10 years or face steep tax penalties. A similar bill was introduced into the House, sponsored by U.S. Rep. Adam Smith, D-Washington.

Are corporate landlords giving people what they want?

Corporate landlords point out that they build houses in a country that needs millions more dwellings. “We continue to do our part in solving the housing shortage by providing new premium housing options in desirable family-friendly locations across the country,” said David Singelyn, CEO of AMH, the third-largest corporate landlord with about 60,000 houses, in a recent earnings call.

Sean Dobson, CEO of The Amherst Group (fourth-biggest, 50,000 houses), made a similar point when he was interviewed for Barry Ritholtz’s Masters in Business podcast in March. He described a family that outgrows an apartment, but can’t afford to buy a house. Then the family rents from Amherst: “These are homes that [the] resident would have a very difficult time getting into without us,” he said.

Source: nerdwallet.com