What to do when rates aren’t falling like they should?

What to do when rates aren’t falling like they should?

It’s an uncertain time. 

We are facing unprecedented global change, and with the 10 year treasury note at 0.028%, I received more calls this week to open refinancing than in the last several months combined. We want to be doing, and in a period where everything seems out of our control, taking advantage of expected historical-low mortgage rates, seemed like a no-brainer. 

But the rates didn’t go down…

Quite the opposite in fact.

I know it seems confusing, so let me break it down here.

Workforce Constrictions:

Many lenders have already laid off staff and what staff remains are working remotely. Many traditional lenders did not have systems in place to handle sudden shifts in technology (and keeping your info private) so they have either ceased new pricing altogether OR they have a pretty significant backlog.

Tidal Wave of Inquiries:

Refinance requests jumped 479% in the last month. Lenders very simply have significant demand & limited supply. 

So… no reason to lower their prices. And because lenders are in the business of making money, rates are now higher in most cases now than they were 6 months ago. 

Think about it like a gas station… 

I explained it to a client this morning like this: If the price of oil drops, a gas station owner may drop the price per gallon. But if both he and his competition across the street have a line 7 miles long, neither are going to drop anything until that line starts to thin.

But before you add high refi rates to your list of things to get bummed about:

Sec. Mnuchin announced a $500b treasury buying program designed to provide some downward pressure on rates, and if I am reading the situation right - which I am - We will likely start to see rates fall in two - three weeks.

I’m pretty confident government programs are going to see the quickest drops. And I wouldn't be surprised if we see a re-authorization the 2010 TARP (Troubled Asset Relief Program) that expired in 2019, re-starting the DUrefi+ program.

These programs are essentially streamlined refi options with limited documentation. In a time with rapid changes, that’s excellent news for a lot of folks… 

My recommendation:

Move forward, and hold tight.

We are going to continue to move forward. 

My strategy is to get everything ready, loaded, and complete. Then, the minute rates drop, we can disclose, lock, submit, and underwrite almost simultaneously.

We know enough about where specific puzzle pieces fit, what needs to be verified, what additional documentation would be needed, and what questions are likely to pop up; before the file even hit an underwriter’s desk.

Stay safe, stay inside, stay squeaky clean.

Waiting For the Next Recession to Buy is Dumb.

It’s unclear when the next recession will come. But a recent report argues that when it does the U.S. housing market is unlikely to adversely affected in any major way.

Researchers at First American Financial Services FAF+1.83% a title insurance company, examined how the country’s housing market has fared historically during recessionary periods. Based on what’s happened in past recessions, the report argues that the next recession is unlikely to prompt a major downturn in housing.

“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”

Using its own data along with information from Freddie Mac FMCC-0.13%  and the National Association of Realtors, the report maps out how the housing market has traditionally fared in economic downturns. In most other cases, home price appreciation continued at an even pace, and existing-home sales growth only edged downward slightly, Kushi wrote.

On average, U.S. house prices fell approximately 33% during the Great Recession.

So what made the Great Recession different? The housing boom that preceded the last recession was largely driven by an explosion in both home-building activity and mortgage credit. Home buyers were able to get mortgages with no documentation of their income and no down payment, and many loans had introductory 0% interest periods that made them cheap to start but more expensive as time wore on.

These homeowners were over-leveraged. “The housing crisis in the Great Recession was fueled heavily by the fact that job loss was paired with a significant share of homeowners who didn’t have much equity in their homes,” Kushi wrote.  And because developers constructed so many homes, their home values quickly sank when the bubble burst, exacerbating the situation further.

The growth in home prices seen during the current economic expansion has not been fueled by increased access to mortgage credit. Rather, it’s a simple reflection of supply and demand: Many Americans want to become homeowners, but the supply of homes available for sale is very low, pushing prices upward.

While this has made the prospect of buying a home unaffordable for millions of Americans, it has also meant that those who are homeowners have seen their home equity grow substantially in recent years. That decreases the likelihood that they would be underwater on their loan if home prices were to dip in a recession.

“Were we to have a recession, I’d argue housing would provide a cushion because the shortage of supply at the entry-level suggests builders could actually continue to build,” Doug Duncan, Fannie Mae’s chief economist FNMA+0.29% told MarketWatch in December.

There still are red flags that homeowners should be on the lookout for when it comes to how a potential recession might affect the housing market. For starters, many Americans have taken out cash-out refinance mortgages on their homes as their home values have grown. That’s whittled away the equity these people have in their property, leaving them more vulnerable to owing more than their home was worth in the potential event the home prices drop.

Another issue: Many Americans who fell behind on loan payments and modified their mortgages in the wake of the recession to avoid foreclosure have since redefaulted. Were these people to lose their jobs in a recession, they could easily fall into foreclosure. Research has shown that foreclosures exacerbate economic downturns — and they can have a ripple effect through a local market, causing other homes to drop in value.

And at the local level, certain local housing markets could prove more resilient in the event of recession, depending on the strength of the local economy relative to what’s going on at a national level.

See original version of this story

https://www.marketwatch.com/amp/story/guid/B6393A34-4935-11EA-8EAD-08678493A360?fbclid=IwAR1eNoyKAV-4MM8WTXOZsbJC_uWlvrfCqJWHdglP9_W5nRVncRRx38ldBYs

The Top Mortgage Myths (and this is important, trust me).

Top Mortgage Myths:

“…but I need 20% for a down-payment”.  

Well… that makes it easier, but not really.  There are options for a little as 3.5% down, but please remember there is always a catch.  They’re not that bad, but you need to know bout them.  

“I have to get a lot of paperwork together too, right”?

There is a lot of documentation required now.  There is just no getting around that.  But it really isn’t that bad, and if you know how to use a technology like online banking you can pull almost everything together quickly.  

“It will take a lot of time”.  

Not really.  There is time involved yes; but most of that is people working behind the scenes on your behalf.  And a good mortgage broker should be able to at least sketch out a pathway and identify potential pitfalls within a few minutes of getting honest answers to honest questions.  

“Sounds great, but I’ll just go to my bank”.  

You could do that.  But banks really don’t have many options regarding what they can offer, and they can’t offer anything different that a mortgage company anyway.  Plus, they don’t have the ability to maneuver when needed if there is a hiccup, and there is always a hiccup.

“I’ll rent for a while, I don’t really want to pay a mortgage payment”.  

Here’s the thing… you are already paying a mortgage payment.  Just not yours.  And somebody else is getting the write-offs and gaining equity and you’re paying for it.  

…So do you think it might be worth a conversation?

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