Higher mortgage rates did not scare away potential homeowners last week. Borrower demand for home loans increased across the board, despite rates being at their highest level in over a month.
“There are still so many borrowers looking to purchase a home. Plenty of buyers, but not enough homes for sale,” California-based mortgage loan officer Dan Stone, who works with hundreds of mortgage lenders, told HousingWire.
“Prices are still expensive, forcing buyers to look at less expensive homes or areas not as preferred. Many potential homebuyers are actively looking online, waiting for the right home and price,” Stone added.
The latest Mortgage Bankers Association (MBA) report confirms Stone’s perceptions.
The Market Composite Index, a measure of application volume, increased 3.7% for the week ending April 21 compared to one week earlier on a seasonally adjusted basis. The survey, conducted since 1990, covers over 75% of all U.S. retail residential mortgage applications.
Borrowers’ demand increased for conventional and government loans, up 4.50% and 1.20% from one week earlier, respectively. Mortgage apps also rose 4.7% for home purchases and 1.7% for refinancing.
“Both conventional and government home purchase applications increased last week. However, activity was still nearly 28% below last year’s pace, as high mortgage rates and low supply have slowed the market this year, even as home-price growth has decelerated in many markets across the country,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.
“Refinance applications also increased last week but remained at half of last year’s levels,” Kan added. Refinancing comprised 26.8% of the total applications last week compared to 27.6% the previous week, according to the MBA data.
Rates trending upward
Mortgage rates have increased ahead of the Federal Reserve’s meeting, which is scheduled for May 2-3. In its last meeting in March, the Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points, climbing from 4.75% to 5%, its ninth consecutive rate hike.
The MBA data shows the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) at 6.55% last week, compared to 6.43% the previous week. Rates for jumbo loans (greater than $726,200) rose to 6.40% from 6.28%.
“Although incoming data points to a slowdown in the U.S. economy, markets continue to expect that the Fed will raise short-term rates at its next meeting, which have pushed Treasury yields somewhat higher,” Kan said. “As a result of the higher yields, mortgage rates increased for the second straight week to their highest level in over a month.”
Experts do see some signs of improvement in housing supply, but it’s still too early to celebrate.
Altos Research data shows that inventory rose from 405,468 to 414,010 from April 14 to 21. The bottom for 2022 was 240,194. Meanwhile, the peak for 2023 so far is 472,680.
According to Logan Mohtashami, lead analyst at HousingWire, active and new listings fell two weeks ago based on Altos Research data. The Easter holiday may have had an impact, he said.
“If that is the case, then this week’s gain in active inventory and new listings needs to be taken with a grain of salt until we get next week’s data,” Mohtashami wrote.
The Mortgage Bankers Association (MBA) expects home purchase lending to hit $1.1 trillion next year, per their latest economic forecast released this week.
That would mark an 11% increase from this year’s estimate and be the highest total since before the housing market took a turn for the worse nearly a decade ago.
While things have largely turned around since then, inventory constraints continue to hamper home sales.
Many first-time buyers are locked out of the market thanks to rising home prices and move-up buyers can’t move up because they lack the necessary equity and/or can’t find another home due to those inventory issues. That means fewer entry-level homes and essentially a logjam.
Meanwhile, home builders have yet to fill the void left by fewer distressed sales such as short sales and foreclosures that dominated the housing market in recent years.
Still, the MBA expects 2017 to be a banner year thanks to strong household formation, job growth, higher wages, and ongoing home price appreciation.
Perhaps next year will the year of “not wanting to miss out,” coupled with the fear of not getting a rock bottom mortgage rate before they finally rise. We shall see.
Purchase origination volume is expected to hit $990 billion this year, up from $903 billion in 2015.
It is expected to rise to $1.18 trillion in 2018 and $1.25 trillion in 2019.
Total Mortgage Volume Will Actually Fall
Unfortunately, the uptick in purchase activity will be more than offset by an intense drop in refinance activity over the next several years.
Total mortgage volume is actually forecast to peak this year at $1.89 trillion before falling to $1.63 trillion in 2017 and $1.59 trillion in 2018. It is slated to rise a bit in 2019, but remain below current levels.
You can thank flagging refinance volume for that, which is on pace for $901 billion this year but just $529 billion next year. That’s a 40% drop!
Seems extreme, but the refinance pool is getting smaller and smaller because most folks already have a super low rate.
That figure is only predicted to go lower in coming years, with $410 billion the expectation in 2018 and $395 billion a year later.
Maybe cash-out refinancing can change things if borrowers begin tapping their equity…
Perhaps this explains the timely launch of Motto Mortgage, which aims to pair mortgage brokers with real estate agents nationwide.
It’s a smart play to get their hands on all that anticipated purchase business instead of focusing on declining refinance volume.
In case you were wondering, the MBA expects 30-year fixed mortgage rates to rise from 3.6% this year to 4.2% next year.
A year later, the 30-year might be pricing closer to 4.6%, before jumping to 5.4% in 2019. Ouch!
Of course, the forecasts for rising interest rates have been wrong year after year lately, so it’s not a foregone conclusion. At the same time, they’ve got to increase eventually, right?
If you’re concerned that might drive home prices lower, it’s not necessarily true. There’s no clear correlation between interest rates and home prices.
The economy is what matters, and if all is good there, real estate should fare well too, even if rates are a lot higher.
DAYTON, Ohio, April 25, 2023 (Newswire.com)
– CMG Home Loans, the retail division of the well-capitalized privately held mortgage banking firm, CMG Financial, announced today the hire of Central Divisional Manager, Michael Harrison. Harrison, a skilled Retail Sales Executive, has formidably grown purchase share and admirably developed best-in-class teams in all of his prior roles at Wells Fargo, loanDepot, and Ruoff Mortgage. His ability to strategically strengthen teams and notably bolster production will prove useful for CMG’s Central Division and clients across the Midwest. In addition to leading CMG’s Central Division, Harrison will be joining CMG’s executive leadership team.
Harrison has been a standout force at all of his previous endeavors. At Wells Fargo, he helped his team become a top 3 lender in the Northeast Division for growth in headcount and purchase volume. In his first 12 months at loanDepot, he moved $300 million in new production and opened a total of nine new branch locations across Ohio and West Virginia. His most recent role was at Ruoff Mortgage as SVP, Retail Sales Manager. Over the course of three years there, Harrison helped bring on 285 new loan officers and in 2022 alone, his team helped produce $2.7 billion in loan volume. His noteworthy success landed him as a #1 retail purchase lender in the Midwest from 2020 to 2022.
“I am excited to join the CMG leadership team and humbled to lead the Central Division,” said Harrison. “CMG is well-positioned for growth in the Midwest as one of the largest IMBs in the nation and a top 10 retail lender. With CMG’s diversified revenue channels including $100 billion in servicing, we are able to invest in our growth with talent acquisition and retail expansion.”
“We’re excited to add Michael to CMG’s senior leadership team,” adds Tony Giglio, Senior Vice President, Retail. “Michael brings years of experience and success in growth and managing top talent, and under his leadership, we’re excited to spread the CMG brand throughout the middle of the country.”
About CMG
CMG Mortgage, Inc. (NMLS #1820) is a well-capitalized mortgage bank founded in 1993. Founder and CEO, Christopher M. George, was Chairman of the Mortgage Bankers Association in 2019. CMG makes its products and services available to the market through three distinct origination channels including retail lending, wholesale lending, and correspondent lending. CMG currently operates in all states, including District of Columbia, and holds approvals with FNMA, FHLMC, and GNMA. CMG is widely known through the mortgage banking and housing markets for responsible lending practices, industry and consumer advocacy, product innovation, and operational efficiency.
Homebuyers with good credit scores will soon be facing higher mortgage fees as the Biden administration seeks to close the racial homeownership gap and get more first-time and low-income buyers through the door.
A new federal rule could raise the monthly mortgage payments of buyers with good credit scores by over $60 a month, while riskier borrowers will get more favorable terms because their fees will be reduced.
Starting in May, the current structure of the Loan-Level Price Adjustment (LLPA) matrix will be upended by the Federal Housing Finance Agency (FHFA) in the hope of addressing housing affordability challenges in the U.S.
But there have been complaints that the rule change is unfair and potentially ineffective.
“In the short term, this may increase homeownership among the targeted group, but I’m afraid it could decrease homeownership among the middle class,” Jerry Howard, CEO of the National Association of Home Builders, told Newsweek. “I’m not sure that we’re not robbing Peter to pay Paul here.”
Only about 25 percent of homebuyers with Federal Housing Administration loans are people of color, according to the White House. Black and Hispanic people, on average, have fewer savings to use as a down payment on a home and tend to have lower credit scores, according to David Stevens, former CEO of the Mortgage Bankers Association (MBA) and a former FHA commissioner during the Obama administration. The current policy is being rolled out by the FHFA.
He told Newsweek that this can be attributed to factors like distrust in the banking system or being a first-generation American. He added that low credit scores can be a significant barrier to homeownership.
But in order for the FHFA to close the gap by bringing down LLPAs for those borrowers, the agency will compensate for the reduction in borrowing fees by raising the LLPAs of borrowers with higher credit scores, who tend to be white.
The average credit score in white communities was 727 in 2021, compared with 667 in Hispanic communities and 627 in Black communities, according to data analyzed by FinMasters, a personal finance blog.
A home for sale awaits prospective buyers on October 27, 2022, in Hollywood, Florida. Starting in May, homebuyers with a good credit score could see their monthly mortgage payment rise while riskier borrowers will get more favorable mortgage terms because their fees were reduced, under a new federal rule. Joe Raedle/Getty Images
The effort to get more low-income Americans and Americans of color into homeownership is essentially being subsidized by borrowers who have better credit scores and can contribute more to their down payment, Michael Borodinsky, a vice president at Caliber Home Loans, told Newsweek.
Borodinsky said while the plan was designed to help people who have historically faced obstacles to homeownership, it comes at the cost of negatively affecting buyers who worked hard to save enough money for a larger down payment and maintain a strong credit rating, especially since those buyers can “be of all demographics.”
“This new rule unfairly penalizes Americans for having good credit and rewards those who accrue debt and don’t pay their bills with cheaper loans,” GOP Representative Michael Lawler of New York told Newsweek. “The way to expand access to housing isn’t to reward bad credit—it’s to bring down inflation, reduce property taxes, cut energy costs and invest in critical infrastructure.”
Although the new rule, which takes effect May 1, is designed to assist low-income and minority borrowers by encouraging homeownership, industry experts have expressed concern that the plan fails to meet that goal.
Stevens said that while the generational limitations on homeownership among racial groups in the U.S. need to be addressed, FHFA director Sandra Thompson’s actions weren’t enough to lower borrowing costs to the point it will “make a difference.”
“We just went through to this completely convoluted discipline around risk-based pricing in the hopes of accomplishing something that isn’t going to be accomplished,” he said.
However, in a statement shared with Newsweek, the FHFA defended the changes. It called the recalibration of its pricing framework “minimal” and stressed that the agency’s goal of making sure that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac “fulfill their role in any market condition.”
But former National Economic Council director Larry Kudlow said those GSEs have never “penalized” people who don’t need government programs to help them own homes, calling the Biden administration’s new rule a “middle-class tax hike.”
“We learned the hard way [in 2008] that if you can’t afford a home, just getting a subsidy one time to get a mortgage, you won’t be able to carry it,” Kudlow told Fox News on Thursday.
A spokesperson for the National Association of Realtors (NAR) told Newsweek that a GSE could still incentivize homeowners without punishing others and stressed that such a move is “especially needed” at a time when there is limited affordable housing “in all areas of the market.”
“NAR urges the FHFA to eliminate the fee increase on strong credit borrowers,” the spokesperson said.
Newsweek reached out to the White House for comment via email.
The timing of the upcoming LLPA changes is also “not ideal,” given the spring buying season and low inventory, an MBA spokesperson told Newsweek. But the MBA is more concerned about another mortgage change: the addition of an LLPA for loans with a debt-to-income (DTI) ratio greater than 40 percent, which Borodinsky stressed is often a “moving target.”
The DTI is calculated by taking a person’s monthly debts, including minimum payments on credit cards and loans, and dividing it by that individual’s income. The result is used to assess a person’s ability to make the necessary monthly payments on a loan.
In a March 15 statement, MBA president and CEO Bob Broeksmit warned that because the DTI often fluctuates throughout the mortgage application and underwriting process, the new fees will further vary those estimates, thus “increas[ing] compliance costs and confus[ing] borrowers.”
“[It] makes for a ‘no win situation,'” Borodinsky said. “Especially because the borrower will feel that they were taken advantage of by the lender due to these changed circumstances.”
After the MBA asked the FHFA to remove the DTI adjustment, the agency delayed the DTI ratio-based fee to August 1. But the MBA expressed disappointment that the FHFA is not considering alternatives to the new fees, which “simply are not workable for lenders and borrowers alike.”
Stevens agrees and said: “This would just make things really difficult for the lending community and for potential homebuyers.” He added that he’s “hopeful” Thompson will gut the adjustment before it goes into effect during the summer.
Update, 04/24/2023, 5:10 p.m. ET: This story was updated to clarify which federal agency is behind the mortgage fee policy change.
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