Mortgage rates fall to new record low — here’s why some loan applicants won’t be offered them


Mortgage rates have dipped to a record low for the second time in as many months amid the global coronavirus outbreak.

The 30-year fixed-rate mortgage dropped to an average of 3.23% during the week ending April 30, a decrease of 10 basis points from the previous week, Freddie Mac
FMCC,
-1.21%

reported this week. This represents the lowest level since Freddie Mac began tracking this data starting in 1971. A year ago, the 30-year fixed-rate mortgage averaged 4.14%.

Previously, the 30-year fixed-rate mortgage hit an all-time low back in early March, when it dropped to 3.29%. Before that, the lowest rates recorded were seen back in November 2012 in the wake of the recession, when the average rate for a 30-year fixed-rate home loan fell to 3.31%.

Meanwhile, the 15-year fixed-rate mortgage dropped nine basis points to an average of 2.77%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.14%, down 14 basis points from a week ago.

Read more:Only 50% of Americans believe it’s a good time to buy a home, an all-time low, Gallup poll says

Freddie Mac’s report is based on a survey of lenders, and it reflects the dollar volume of conventional loans, meaning loans eligible for purchase by Freddie Mac or Fannie Mae
FNMA,
-2.82%
.
The survey therefore does not reflect movements in rates for loans backed by other agencies, such as the Federal Housing Administration or the Department of Veterans Affairs. It also doesn’t include rates for jumbo loans.

But whether borrowers get a loan featuring a record-low rate will depend on a number of factors. “While some borrowers could be quoted rates close to the lowest they’ve ever been, others either with less-than-excellent credit scores or seeking an atypical loan type — like jumbo or FHA loans — may be offered a much-higher rate,” said Matthew Speakman, an economist with real-estate firm Zillow
ZG,
-3.20%

.

In recent weeks, some banks have begun tightening the standards prospective borrowers must meet in order to get a home loan. Mortgage companies have become stingier in terms of who they’ll lend to because of the risk posed by the current economic environment.

There’s an increased chance that a borrower could lose their job soon after getting a mortgage, which would make it much more difficult for them to make their monthly payments. Lenders are eager to avoid that at a time when some 3.5 million homeowners have already requested relief from making their monthly mortgage payments.

Also see:More than half of renters say they lost jobs due to coronavirus: ‘They could face housing situations that spiral out of control’

Nevertheless, in spite of the challenges people may face getting a low-interest rate mortgage, Americans continue to apply for new home loans in droves. “These low rates are driving higher refinance activity and have modestly helped improve purchase demand from their extremely low levels in mid-April,” said Sam Khater, Freddie Mac’s chief economist.

Last week, the volume of refinance applications was more than three times larger than it was a year ago — a reflection of the appeal of low rates, according to data from the Mortgage Bankers Association. The number of Americans applying for loans used to purchase homes, while 20% down from last year, had nonetheless improved after hitting a five-year low.

But low rates won’t be enough to change the tides in the housing market, experts said. The number of listings of homes for sale continues to decrease as home buyers and sellers across America have grown wary of making such a large transaction given the state of the economy.

“Many buyers — stuck at home and worried about their jobs — have hit the ‘pause’ button,” George Ratiu, senior economist at Realtor.com, said. “With financing less of an incentive and inventory disappearing, we will see a sharp contraction in sales over the next two months.”



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The No. 1 mistake to avoid if you’re skipping your mortgage payments


How will I pay my mortgage?

That’s the question facing millions of Americans as stay-at-home orders have caused many people to lose their jobs or income. Lawmakers have stepped in to provide homeowners with a lifeline by requiring lenders to provide forbearance — a way to defer mortgage payments — to any mortgage borrower with a federally-backed home loan.

So far, 3.5 million mortgage borrowers have requested forbearance, representing nearly 7% of all mortgages nationwide, according to the latest data released Monday by the Mortgage Bankers Association, an industry trade group. That means millions of homeowners can now skip or make reduced monthly payments on the home loan for up to one year.

“While the pace of job losses have slowed from the astronomical heights of just a few weeks ago, millions of people continue to file for unemployment,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “We expect forbearance requests will pick up again as we approach May payment due dates.”

Calling your lender and requesting forbearance is just the first step in the process. “Forbearance is not forgiveness,” said Karan Kaul, a research associate at the Urban Institute, a nonprofit policy group, told MarketWatch earlier this month. “You still owe the money that you were paying, it’s just that there’s a temporary pause on making your monthly payments.”

Eventually, borrowers will need to work out a repayment plan with their lender. And borrowers need to be careful that they don’t agree to a repayment plan they cannot afford.

Fannie Mae
FNMA,
+1.76%

and Freddie Mac
FMCC,
+1.58%

put out guidelines on Monday reminding homeowners that they don’t have to make a balloon payment the end of their forbearance period.

“We want every homeowner who is struggling because of this pandemic to know they have mortgage options,” Fannie CEO Hugh Frater said in the statement Monday. “We do not require a homeowner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so.”

Freddie Mac CEO David Brickman similarly encouraged “homeowners facing hardship to work with their servicer to identify the plan that’s appropriate for their unique situation.”


‘We do not require a homeowner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so.’


— Fannie Mae CEO Hugh Frater

With a balloon payment, also known as reinstatement or a lump-sum payment, a borrower would repay the entire amount they owed from the forbearance period all at once.

“It really isn’t helping somebody if they get a four-month deferral but have to make a lump sum payment, and they’ve been out of work for four months,” said Rick Sharga, a mortgage industry veteran and founder of CJ Patrick Company, a real-estate consulting firm. “That’s just deferring failure rather than helping somebody succeed.”

As Americans have requested forbearance, some have complained that their mortgage servicer offered a balloon payment option as a repayment option. But this isn’t the only way to pay back the money you owe.


‘It really isn’t helping somebody if they get a four month deferral but have to make a lump sum payment, and they’ve been out of work for four months. That’s just deferring failure rather than helping somebody succeed.’


— Rick Sharga, a mortgage industry veteran and founder of CJ Patrick Company

Here are consumers’ repayment options after forbearance

For starters, borrowers can request a payment deferral modification. With this, the balance they did not pay during the forbearance period would be tacked onto the end of the loan. The duration of the loan would be extended — so someone who received forbearance for six-months on a 30-year mortgage would now be debt-free after 30.5 years.

Alternatively, a consumer can opt for a repayment plan where they would gradually pay off the money they owe in addition to their monthly mortgage payments. With this option, the duration of the loan would not be extended, but monthly payments would increase.

For those who are still facing financial trouble at the end of forbearance, they can reach out to their mortgage lender to request a loan modification. This would reduce the monthly payment amount for the loan.

“All those terms are negotiable,” Sharga said. “Be diligent, be steadfast and try and stand your ground.”

In most cases, the servicer will try to contact homeowners 30 days before the forbearance plan is scheduled to end to determine which repayment option works best for them at that time. Borrowers can also proactively request this information from their servicer.

Borrowers also can ask their servicer who owns their mortgage, because home loans are often sold to investors. “Knowing who the owner of the loan is will provide the borrower with information to research what options are available from that entity,” said Andrea Bopp Stark, an attorney with the National Consumer Law Center. Servicers must respond to these requests within 10 days, she said.

“If the servicer does not respond, the borrower should send another letter and seek legal assistance,” Bopp Stark said. “The servicer could be held liable for actual damages and up to $2,000 in statutory damages for a failure to respond.”



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Mortgage rates almost drop to another record low — here’s why a housing market slowdown won’t push them lower


Mortgage rates remained near another record low for the third straight week. If a new low comes, it may not be because the U.S. housing market is struggling.

The 30-year fixed-rate mortgage averaged 3.31% during the week ending April 16, representing a decline of two basis points from a week ago, Freddie Mac
FMCC,
+10.44%

reported Thursday. A year ago, the 30-year fixed-rate mortgage averaged 4.17%.

The average rate for a 30-year home loan dropped to an all-time low of 3.29% in early March as concerns regarding the coronavirus outbreak began to mount.

The 5-year Treasury-indexed hybrid adjustable rate mortgage fell six basis points over this last week, averaging 3.34%. The 15-year fixed rate mortgage, meanwhile, increased three basis points to an average of 2.8%.

Read more:Are you a homeowner seeking forbearance on your mortgage? Watch out for these red flags

Theoretically, mortgage rates could be even lower if these were normal circumstances, said Danielle Hale, chief economist for Realtor.com. “Under normal circumstances, the high volume of money currently parked in the bond market would have likely led to a drop in interest rates to at least 2%, Hale said. “But instead, rates remained roughly consistent this week.”

(Realtor.com is operated by News Corp
NWSA,
-5.54%

subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a News Corp division.)

Historically, mortgage rates have roughly tracked the direction of the yield on the 10-year Treasury note
TMUBMUSD10Y,
0.662%

, which dipped below 0.7% in recent days. But investors and lenders have grown concerned about borrowers’ ability to repay loans.

That has limited interest in mortgage-backed securities, which in turn has limited lenders’ ability to lower rates much further than they already have. And with a growing number of Americans losing their jobs or being furloughed as a result of the coronavirus pandemic, lenders are growing stingier in terms of who they will give a mortgage to.

Also see:These U.S. housing markets are most vulnerable to a coronavirus downturn

As a result, lenders may increase loan pricing in some cases to account for the added risk they’re facing right now. Some banks have also imposed more stringent underwriting standards for new home loans, including higher credit scores and down payment requirements.

And borrowers who are looking for loans beyond those that qualify for government backing, such as jumbo mortgages, may face greater difficulty in getting them.

“Limits to forbearance offerings, not to mention high degrees of uncertainty around the credit worthiness of some borrowers, continue to restrict market activity for non-agency and unconventional loans,” said Matthew Speakman, an economist with Zillow
ZG,
-7.66%
.
“The outlook for the coming months remains very uncertain, so the appearance of a calmer market of late could be a mirage as the likelihood of a sharp move in financial markets is still quite high.”

But if mortgage rates do move in the weeks and months ahead, it won’t necessarily be because the housing market is struggling. Recent data has suggested that the housing sector has begun to bear the brunt of the coronavirus pandemic’s impact. Economists have forecast a major decline in home sales, and new-home construction has slowed considerably as a result of stay-at-home orders.

“While new monthly economic data are driving markets lower this week, they are a lagging indicator and should be priced in already,” said Sam Khater, Freddie Mac’s chief economist, in Thursday’s report. “Real time daily economic activity metrics suggest that the economy will likely not decline much further. Going forward, the key question is no longer the depth of the economic contraction, but the duration.”



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Mortgage rates fall to all-time low amid coronavirus concerns — here’s why you should think twice about waiting to refinance


Mortgage rates in the United States have fallen to the lowest level ever on the heels of concerns stemming from the coronavirus outbreak.

The 30-year fixed-rate mortgage dropped to 3.29% during the week ending March 5, a major decrease of 16 basis points from the previous week, Freddie Mac
US:FMCC
reported Thursday.

Previously, the 30-year fixed-rate mortgage hit an all-time low back in November 2012 in the wake of the recession, when the average rate fell to 3.31%.

The 15-year fixed-rate mortgage also fell 16 basis points to 2.79%, according to Freddie Mac. The 5/1 adjustable-rate mortgage dropped only two basis points to an average of 3.18%.

The decline in rates presents a major windfall for millions of homeowners across the country, who stand to save thousands of dollars in interest by refinancing. Furthermore, an estimated 44.7 million homeowners have $6.2 trillion in home equity that they could access through a cash-out refinance, according to real-estate data firm Black Knight, and now they have the chance to access that cash at a lower interest rate.


The 30-year fixed-rate mortgage dropped to an all-time low of 3.29% during the week ending March 5.

Mortgage rates have fallen throughout 2020 thus far, mainly in response to concerns related to the economic impact of the COVID-19 outbreak that began in China and has spread around the world. “Much remains unknown with this virus and its potential impact on human life and economic activity,” said Zillow
US:ZG
economist Matthew Speakman. “COVID-19 is here, and it will continue to be the main driver of mortgage rate movements in the coming weeks.”

Generally, mortgage rates track the yield on the 10-year Treasury
BX:TMUBMUSD10Y
, which dropped below 1% for the first time ever this week after the Federal Reserve announced it was cutting its benchmark interest rate in reaction to the potential economic impact the illness outbreak will have.

Read more:As mortgage rates remain near three-year lows, here are 5 questions to ask yourself before you refinance your mortgage

While interest rates on home loans had followed Treasurys downward in recent weeks, the spread between the two had widened to an extent. Lenders have been hesitant to trim rates at such a fast clip for many reasons, economists said. For starters, they need to maintain their margins and don’t want to cut into their profits too much by reducing rates.


‘They don’t know how persistent these rates will be.’


— Tendayi Kapfidze, chief economist at LendingTree, on why lenders have held off from cutting interest rates more

The decline in rates has stoked another refinancing boom, said Sam Khater, chief economist at Freddie Mac. “Mortgage applications increased 10% last week from one year ago and show no signs of slowing down,” Khater said in the report.

Those who are considering refinancing shouldn’t wait on the sidelines, since it’s not guaranteed mortgage rates will drop much further than where they are now. Many lenders have hit their capacity in terms of how many loans they can process. While lenders have boosted hiring in response to this increased demand, they are worried about being caught flat-footed with excess staff when rates eventually move back up. “They don’t know how persistent these rates will be,” said Tendayi Kapfidze, chief economist at LendingTree
US:TREE
.

An emerging risk that those looking to refinance may want to consider is the possibility of government orders to shelter in place amid the coronavirus outbreak. “Are they actually going to be able to get people to their loan processing centers?” Kapfidze said. “Some of the work can be done remotely. But that might actually create friction in the system.”

Home buyers may be hard pressed to take advantage of low rates

As low rates have been a boon to those looking to refinance, it has also greased the wheels for would-be home buyers. Mortgage application data has shown that a growing number of Americans have been applying for loans to finance the purchase of a new home, a positive sign for the spring home-buying season.

Read more:Moroccan tiles or subway tiles? These keywords can help boost the sale price of your home by 10%

There’s one problem though, according to economists. “In order to take advantage of low mortgage rates, buyers will need homes to buy,” said Danielle Hale, chief economist at Realtor.com.

(Realtor.com is operated by News Corp
US:NWSA
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a a subsidiary of News Corp.)

In recent months, the inventory of homes for sale has an hit all-time low amid the high demand from buyers. The low inventory is largely the result of depressed home construction activity in the wake of the recession, which did not keep pace with household formation across the country. Many single-family homes were also purchased by investors during the bust years and converted into rentals, further constricting supply.

While home-building activity has ramped up since last summer, it is not occurring as such a pace that it could meet the demand in the market.

Also see:What the Fed’s surprise interest rate cut means for mortgage rates

On the margins, the drop in rates could help push some people to sell their homes. Researchers have debated whether or not many Americans were “rate-locked,” meaning that the interest rate on their home loan was so low that it proved a deterrent from selling their home and buying a new one.


‘If we see significant weakening in the broader economy, including weakening of the job market, it is hard to envision a scenario where the housing market can remain above that fray.’


— Mark Hamrick, senior economic analyst at Bankrate

“These sorts of decisions tend to be shaped by factors more reflective of major events in individuals’ lives such as decisions to retire, have children, down-size, etc.,” said Mark Hamrick, senior economic analyst at Bankrate. “It is a lot different than opting to pick up a pack of chewing gum at the last minute at the checkout counter of the grocery store.”

Another factor that could prevent Americans from taking advantage of low rates is the overall health of the economy. If that takes a dive because of the coronavirus outbreak, then many buyers might get cold feet despite the potential savings they would be leaving on the table, Hamrick said.

“There’s no avoiding the fact that a home purchase is the most significant purchase individuals will make in their lifetimes,” he said. “That process can be fraught with nervousness under the best of times. If we see significant weakening in the broader economy, including weakening of the job market, it is hard to envision a scenario where the housing market can remain above that fray.”



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