Refinancing your mortgage will cost more thanks to a new fee from Fannie Mae and Freddie Mac


If you’re in the process of refinancing your mortgage, you may end up paying more than you expected.

Fannie Mae
FNMA,
+0.93%

and Freddie Mac
FMCC,
+0.70%

said Wednesday that they will start charging a 0.5% “adverse market fee” on all refinances, including both cash-out and non-cash-out refis. The new fee goes into effect Sept. 1.

“As a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, we are introducing a new Market Condition Credit Fee in Price,” Freddie Mac said in a notice to lenders.

Fannie Mae noted that its forecasts regarding the impact of COVID-19 could change substantially, making it difficult to predict the pandemic’s impact on the government-sponsored enterprise.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, said the two government-sponsored enterprises “requested, and were granted, permission from FHFA to place an adverse market fee on mortgage refinance acquisitions.”

Fannie and Freddie are not lenders themselves — instead, they purchase loans from lenders, package them into mortgage-backed securities and then sell those securities to investors. Fannie and Freddie also provide guarantees to investors and advance payments even when borrowers are delinquent on the loans.

Also see:Mortgage rates keep falling — so will they finally drop to 0%?

The new fee could add up to a significant sum in many cases. The median home nationwide was worth $291,300 as of the second quarter, according to the National Association of Realtors. Therefore, if you applied this fee to a mortgage on a home worth that much, assuming a 20% down payment, the fee would cost over $1,100. The Mortgage Bankers Association, a trade group that represents lenders, said the fee would amount to around $1,400 per loan on average.

It’s not the first time Fannie and Freddie have imposed a fee like this. In 2007, Fannie Mae imposed a 0.25% surcharge on all mortgages it bought from lenders in response to the burgeoning global financial crisis.


‘If you had a refi pending and didn’t lock or were just thinking about a refi and hadn’t acted yet, then the consumer pays thousands of dollars as long as this stays in effect.’


— Bob Broeksmit, president and CEO of the Mortgage Bankers Association

The new fee quickly faced criticism. A group of 20 trade organizations and public interest groups called on the FHFA to reverse the fee. The group included the American Bankers Association, the Credit Union National Association, the Mortgage Bankers Association, the National Association of Realtors, the Center for Responsible Lending and the National Fair Housing Alliance.

The group argued that the new fee conflicts with the Trump Administration’s actions urging federal agencies to support homeowners. “At a time when the Federal Reserve is purchasing $40 billion in agency mortgage-backed securities per month to help reduce the cost of buying or refinancing a home and stimulate the broader economy, this action by the GSEs raises those costs, contradicting and undermining Fed policy,” the group said in the statement.

A senior White House official told The Wall Street Journal that the Trump administration “has serious concerns with this action” and would review the fee.

Others pointed out inconsistencies in the timing and structure of the fee. NerdWallet home and mortgage expert Holden Lewis said it was “odd that they’re not charging the fee on purchase mortgages, too” if the fee was being implemented because of economic uncertainty.

“It doesn’t make sense,” Bob Broeksmit, president and CEO of the Mortgage Bankers Association, told MarketWatch. “The implementation timeline is intentionally punitive and absurd.”

As of June, it took 48 days on average to close a refinance loan, according to mortgage technology firm Ellie Mae. Therefore, lenders will have many loans already in the pipeline where borrowers have already locked in a rate and are just waiting to finalize the loan.

If lenders cannot complete those loans by Sept. 1, they will be forced to pay the fee. However, if a borrower had not yet locked in a rate with their lender, the cost of the new fee would be passed on to them in most cases. (Fannie Mae noted that whether the fee is passed on to the consumer is up to the lender.)

“If you had a refi pending and didn’t lock or were just thinking about a refi and hadn’t acted yet, then the consumer pays thousands of dollars as long as this stays in effect,” Broeksmit said.

Broeksmit also called into question the necessity of the fee. Millions of borrowers nationwide have requested forbearance on their mortgages since the pandemic began, but that number has been falling in recent weeks.

And roughly a quarter of the people who entered a forbearance agreement, which means they could skip their monthly payments, did make their July payment, Broeksmit said. Furthermore, borrowers applying for a refinance need to be current on their mortgage in the first place, making those loans arguably less risky. Many lenders have also implemented stricter requirements for borrowers to qualify for a mortgage.

The new fee threatens to make refinancing a less lucrative proposition for homeowners who have yet to lock in the market’s rock-bottom rates. Refinance volume has been elevated in recent months because of the low mortgage rate environment. Since March, mortgage rates have dropped to record lows on eight separate occasions.

But borrowers applying now won’t be as lucky. “By this artificial increase, it requires a larger drop in rates for it to be worthwhile for borrowers to refinance,” Broeksmit said.



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Quicken Loans is going public: 5 things to know about the mortgage lender


Rocket Companies
RKT,
,
the parent company of mortgage lending giant Quicken Loans, has set the terms of its initial public offering.

The company announced Wednesday night that it plans to sell 100 million shares at $18 each — both below initial estimates. In July, the company said it planned to offer 150 million shares priced at $20 to $22 each. It plans to begin trading on the on the New York Stock Exchange under the ticker “RKT” starting Thursday.

Twenty banks are set to underwrite the IPO, led by Goldman Sachs
GS,
+1.42%

Proceeds from the IPO will be used to purchase businesses and Class D stock from Rocket Cos.’ existing holding company, Rock Holdings Inc., which is owned by the company’s founder and chairman Dan Gilbert.

Rocket’s IPO comes as the broader IPO market has kicked into high gear after a long dry spell as a result of the coronavirus pandemic. Recent offerings include Warner Music Group Corp.
WMG,
-1.07%
,
which returned to public markets in June after nine years of being private, and online insurer Lemonade
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+5.46%
,
which debuted last week.

Rocket is also going public as the mortgage industry has seen millions of homeowners request forbearance on their monthly loan payments amid record levels of unemployment.

The company’s leadership team mainly comprises executives from Quicken Loans. Jay Farner, who has served as CEO of Quicken Loans since 2017, will be the company’s CEO. Farner has been with Quicken for over two decades, and previously served as the lender’s president and chief marketing officer. Julie Booth, the company’s chief financial officer and treasurer, has been in this role at Quicken Loans since 2005.

The lender was originally founded in 1985 as Rock Financial. In 1998, Gilbert took Rock Financial public, but eight years later it was purchased by Intuit. At that time, the company’s name was switched to Quicken Loans. Then in 2002, Gilbert and other investors purchased Quicken Loans back from Intuit
INTU,
+0.10%
.

Don’t miss:The mortgage industry is facing a crisis because of the coronavirus — and borrowers could fall through the cracks

Throughout its history, Quicken has been at the forefront of the digitization of the mortgage industry. In 2016, Quicken Loans debuted the Rocket Mortgage brand with the claim that the company’s digital mortgage process could connect consumers with a mortgage in as little as eight minutes.

Rocket Mortgage has increased its market share to 9.2% in the first quarter of 2020 from 1.3% in 2009. Rocket Mortgage’s primarily digital mortgage lending process has proven popular with millennials in particular, who represent the largest generation of home buyers in the country. Among the consumers who applied for a home loan using the company’s online platform or app, 75% were first-time homeowners or millennials, the company said.

In 2018, Quicken Loans became the largest mortgage lender by volume in the U.S. by supplanting Wells Fargo
WFC,
+0.74%
,
in a demonstration of the growing dominance of non-bank lenders in the mortgage space.

Rocket Cos. also owns a range of companies across the financial services and real-estate ecosystems, include real-estate listing websites Rocket Homes, title insurance company Amrock and financial product search engine LowerMyBills.

Those other businesses could comprise a broader part of the company’s strategy moving forward. Earlier this year, the company’s CEO, Jay Farner, described to MarketWatch how Quicken Loans was aiming to develop new products and services designed to give homeowners a more comprehensive view into their assets.

“Your largest investment is your home, so why not more visibility into how that asset’s forming and more suggestions to improve that?” Farner said. “You’re going to see people bring more value to consumers that way. That’s what we’re focused on.”

According to its IPO prospectus, the company has seen its net revenue double over the past year. The company brought in nearly $1.4 billion in the first three months of 2020, as compared with $632 million during the same period last year. The company’s net income in the first quarter of 2020 was $97.7 million, after a net loss of $299 million a year ago.

Here are five things to know about Rocket ahead of its IPO:

The company’s profits depend largely on the direction of interest rates

Most of Rocket’s mortgage originations are refinances. Of the $39 billion in total originations in 2019, only 27% was for consumers buying a home. Consequently, refinancing represents a bigger part of Rocket’s business than the broader mortgage industry.

The drop in interest rates to historic lows in recent months has helped boost the company’s profits this year, as Rocket processed record numbers of loans. “If interest rates rise and the market shifts to purchase originations, our market share could be adversely affected if we are unable to increase our share of purchase originations,” the company said in the prospectus. A sustained low-rate environment could also prompt a decline in refinancing demand.

Shifting toward purchase loans isn’t foolproof either. As Rocket warns, higher interest rates make buying a home more expensive, which could also cause a drop in demand for those loans.

Fluctuations in rates also have an impact on the company’s servicing business and the value of its mortgage servicing rights. “Historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates,” the company said. “As a result, decreases in interest rates could have a detrimental effect on our business.”

Read more:Mortgage rates keep falling to record lows — so is now a good time to refinance?

People who purchase shares in the public offering won’t have much say in the company

Rocket’s current parent, Rock Holdings Inc., and its owner Gilbert, will retain aggregate voting power equal to 79% in the public company thanks to its ownership of Class D shares, which are afforded 10 votes per share.

“Accordingly, RHI will control our business policies and affairs and can control any action requiring the general approval of our stockholders,” the company said. That includes the election of board members, the adoption of bylaws and the approval of any merger or sale of substantially all of our assets. Rock Holdings will maintain this control as long as it owns at least 10% of Rocket’s issued and outstanding common stock.

The “Quicken Loans” name has a complicated backstory

In recent years, the company has embraced the “Rocket Mortgage” brand in favor of Quicken Loans. As the company’s filing with the Securities and Exchange Commission notes, it does not own the rights to the Quicken Loans trademark. It licenses the name and trademark from Intuit.

Intuit owned a separate entity, called QuickenMortgage, when it purchased Rock Financial in 1999, which it combined with Rock Financial’s mortgage business to form Quicken Loans. Even after Gilbert repurchased the company, Intuit remained the owner of the brand.

Rocket has entered into an agreement to assume full ownership of the brand in 2022 “in exchange for certain agreements.” Until that deal closes, Intuit reserves the right to terminate the licensing agreement if Quicken Loans breaches its obligations or if there are “certain instances where wrongdoing or alleged wrongdoing by Quicken Loans or any controlling person could have a material adverse effect on Intuit,” the company said.

Also see: Black homeownership has declined since 2012 — here’s where Black households are most likely to be homeowners

Investors shouldn’t expect to receive a dividend

Rocket currently plans to retain all future earnings and doesn’t anticipate paying cash dividends “for the foreseeable future” following the IPO. That means shareholders will have to rely on stock gains for returns.

Any future plans to offer a dividend could be further complicated by the company’s structure. “As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their respective jurisdictions of organization,” the company noted.

The company’s fortunes could be hampered by the privatization of Fannie Mae and Freddie Mac

The vast majority of the mortgages Rocket originates are sold into the secondary market, and its loans are securitized by Fannie Mae
FNMA,
+4.87%
,
Freddie Mac
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+5.15%

and Ginnie Mae.

The Trump administration has prioritized the reform and recapitalization of Fannie Mae and Freddie Mac, which have remained in conservatorship since the 2008 financial crisis. Lawmakers in Congress have also advanced their own proposals regarding Fannie and Freddie’s future.

Whatever happens with Fannie and Freddie could affect Rocket’s business. It could lead to higher fees charged by Fannie and Freddie or lower prices for the sale of the company’s loans, according to the regulatory filing.

The Renaissance IPO ETF
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+0.73%

has gained 37% in the year-to-date, while the S&P
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+0.64%

only risen 0.3%.

This story was updated on July 28, 2020.



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Mortgage rates hit another all-time low as home buyers rush to secure cheap financing


Mortgage rates have gotten even more affordable — a boon to the many Americans once again considering buying a home as coronavirus-related stay-at-home orders are lifted across the country.

The 30-year fixed-rate mortgage dropped to an average of 3.15% during the week ending May 28, a decrease of nine basis points from the previous week, Freddie Mac
US:FMCC
reported Thursday. 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 3.99%.

The previous record low was set at the end of April, when the average rate on a 30-year home loan dropped to 3.23%. This is now the third time in 2020 when the mortgage market has recorded a new historical low for interest rates.

The 15-year fixed-rate mortgage dropped eight basis points to an average of 2.62%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.13%, down four basis points from a week ago.

Rates have remained low by historical standards for many weeks now — and that’s a sign that the relationship between mortgage rates and bond yields has improved. Historically, mortgage rates have roughly tracked the direction of the 10-year Treasury yield
BX:TMUBMUSD10Y
. But that relationship was disrupted thanks to volatility in the mortgage market due to the wave of forbearance requests prompted by the coronavirus-fueled economic downturn.

Volatility in financial markets also made bond yields something of a moving target for mortgage firms, which made it more difficult for them to peg where rates should be.

“Financial volatility has notably decreased in recent weeks, resulting in steady improvements in the stock market, and more predictable — albeit modest — movements in bond markets,” Zillow
US:ZG
economist Matthew Speakman said. “The eased strains in financial markets have also resulted in mortgage rates remaining fairly flat in the last couple of weeks and are generally calmer following the turmoil experienced in the early days of the coronavirus outbreak.”

The strong performance of the stock market, as evidenced by recent gains in the Dow Jones Industrial Average
US:DJIA
and the S&P 500
US:SPX
, could mean that low rates are here to stay for the foreseeable future.

That’s music to the ears of many Americans looking to purchase a home in the coming months. The number of mortgage applications for loans used to buy a home has risen for six straight weeks, according to the Mortgage Bankers Association. The volume of purchase loans is now up 54% from early April, when loan application volume dropped in the face of the coronavirus pandemic.

Refinance volume has tapered off on a weekly basis, but remains 176% above levels seen a year ago, the mortgage industry trade group noted.

As buyers line up financing, home sales should see a rebound from the declines seen in March and April, making for a delayed spring home-buying season.

Not all buyers though will get the chance to lock in a rock-bottom rate, though. The Freddie Mac survey tracks conventional loans — meaning those that can be purchased by Freddie Mac and Fannie Mae
US:FNMA.
When it comes to other types of loans, including FHA and jumbo mortgages, rates tend to be much higher.

A LendingTree
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study found that average offers for mortgage applicants with credit scores between 640 and 679 ranged from 3.87% to 4.79%.



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Redfin CEO: Vacation real-estate markets are ‘toast’ because of the pandemic as Airbnb owners rush to offload their homes


The Seattle-based brokerage said Thursday that its RedfinNow segment, which provides instant offers to home sellers to purchase their properties, would resume home-buying activities. In doing so, Redfin joins fellow iBuyers Opendoor and Offerpad in re-entering the housing market. Zillow
ZG,
+3.56%

also said Thursday that it would slowly relaunch its iBuying arm, Zillow Offers, in the coming weeks.

So-called iBuyers represent a small but growing share of the overall real-estate market. Nearly 7% of homes sold in Raleigh in the third quarter of 2019 were bought by iBuyers, according to a December report from Redfin, more than any other market nationwide.

Despite the coronavirus outbreak causing a downturn in home sales and listing activity through March and April, Redfin managed to beat expectations with its first quarter earnings as the company posted a net loss of $60 million. A year ago, Redfin had reported a larger net loss of $67 million, for comparison.

Read more: Mortgage rates rise from record lows — and signs are emerging that Americans are preparing to re-enter the home-buying market

The company’s CEO, Glenn Kelman, has said that the company’s tech offerings — including virtual home tours and open houses — will help it weather the pandemic. But while signs are starting to emerge that Americans may begin to re-enter the housing market, the speed of the recovery is far from certain. Fannie Mae
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+1.50%

reported that consumer confidence in housing had fallen to the lowest level since November 2011.

MarketWatch spoke with Kelman ahead of Redfin’s earnings release to discuss how the pandemic has affected the U.S. housing market and what will change about iBuying in the wake of COVID-19.

MarketWatch: Redfin has announced that the company’s iBuying division, RedfinNow, will resume operations following the coronavirus-related pause. What drove that decision?

Glenn Kelman: The reason we’re reopening it is because we think it’s a reasonably good time to own a house. Inventory is down 25% year-over-year, and home-buying demand is almost back to pre-pandemic levels. So we’re willing to take a risk again. I think we’ll lower the amount we’re willing to pay for a house, just to give ourselves more margin for error.

It was a harrowing couple of months. We had to ensure that the homes we had bought before the pandemic could still be sold once the pandemic had started, and you just can’t forget that easily. So instead, you just lower your offers a little bit, and that gives you some leeway.

MW: Is RedfinNow introducing any new procedures because of the coronavirus pandemic?

Kelman: I feel like what’s changed about our approach in iBuying specifically is just more about margin. You always knew that you had to have a margin for error — that there was a possibility of a downturn and that every offer you made had to account for that. But it’s another thing to actually go through that. So I think there will be more margin for error, but also less tolerance for a real project. If it’s a piece of work and it’s going to take six months to get it back on the market, you just can’t wait that long to figure out if you offered the right price to the homeowner. The market could change.

If you took a basketball shot, and six months later somebody told you whether it went into the hoop, you’d never get to be a better basketball player, right? So I think we’re just being more disciplined about the kinds of homes we buy. If you make a mistake on five houses, you should not buy 5,000.

MW: Do you think that the pandemic could make iBuying more popular, since it eliminates a lot of the in-person interactions the home-buying process typically requires?

Kelman: That wouldn’t be my guess. The homeowner who might be more anxious to sell their home, we’re going to find out whether more of them take offers in the next few weeks. But the other part you have to consider is the money man. The people who are providing capital for iBuyers may have a different appetite for risk on the other side of this. If iBuyers all come into the market at the exact same margin they were at two or three months ago, I think our acceptance rates are going to be really high.

But my guess is that they’re going to price the risk into their offers. And I don’t know how consumers are going to react. When we make offers, if we give ourselves just a little more room for all the risks that we’re taking, will people still accept it?


‘It used to be that working class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege.’


— Glenn Kelman, CEO of Redfin

MW: You mentioned earlier that there’s been a resurgence in home-buying demand — what is driving that?

Kelman: Probably the bifurcation of the American dream. It used to be that working-class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege, and the privileged class is doing better in this pandemic than the people who work in restaurants and perform other in-person services. So unemployment is going to be bad for one part of America; for another part, it isn’t as bad. And so that’s the part that’s buying a house.

And maybe the other dimension of this is just that there’s been an affordability crisis for so long. There’s structural reasons that there aren’t enough homes for enough homes in America. There is just a large number of people who have been trying to buy a house for two, three, four years, especially in really expensive markets. And if this pandemic is an opportunity to do that, with less competition, you’re going to take it.

Also see: Home prices could fall by as much as 4% because of the coronavirus pandemic, Zillow says

MW: What’s your take on the state of secondary markets and vacation markets right now?

Kelman: Toast. Those are going to be in tough shape. There’s a whole economy that was built around the liquidity there that Airbnb provided. You could get pretty deep into debt and still have somebody pay your mortgage every month because Airbnb and other travel websites were so good at finding someone to rent it out. And I don’t think many of those folks have the reserves that Marriott
MAR,
+16.31%

or that Hilton
HLT,
+8.71%

does.

Investors who own Airbnb properties are looking for immediate liquidity. At some level it’s Redfin, Zillow
Z,
+3.52%

and Opendoor picking up where Airbnb left off. If they can’t get cash flow through one website, they’ve got to sell it through the other.


‘There’s a whole economy that was built around the liquidity there that Airbnb provided.’


— Glenn Kelman

MW: Some have suggested that the coronavirus pandemic could lead to a migration out of major cities, especially ones like New York that were hit hard by the outbreak. What’s your take on this?

Kelman: It’s on like Donkey Kong. There’s going to be a major move. That was already underway just because of the affordability crisis. People are leaving New York for Philadelphia and are leaving San Francisco for Sacramento and even Phoenix. Seattle was starting to lose people to Tacoma, which is just down the street.

I think some of it is about consumer wariness where we’re living in close quarters with other people. But most of it’s about employer flexibility. Employers that were really stuck on whether to let people work from home have gotten completely unstuck. And if you can work for Goldman Sachs
GS,
+4.38%

, but not in New York, if you can work for Amazon
AMZN,
+0.63%

, but not in Seattle, well, why would you pay the premium?

(This interview was edited for style and space.)



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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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