Understanding the Impacts of Coronavirus on Mortgage Rates
Good News for Borrowers Who Are In COVID-19 Forbearance
COVID-19 Mortgage & Real Estate Update 5/13/20
The Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac borrowers in forbearance (delaying a foreclosure) can apply for refinancing and new purchase mortgages once their loans are current.
Why is this important? Well, this process waives a previous mandatory wait of 12 months, allowing for faster access to record-low rates.
According to the FHFA, borrowers are eligible to refinance or buy a new home three months after their forbearance ends if they have made three consecutive payments under their repayment plan, payment deferral option or loan modification.
"Homeowners who are in COVID-19 forbearance, but continue to make their mortgage payment, will not be penalized," said FHFA Director Mark Calabria. "Today's action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible."
Read more about forbearance changes here.
The Grand Rapids real estate market is hot this spring! COVID-19 has not had a negative impact on the market.
For starters, in-person house showings are now legal!
Mortgage rates are also very low. Yes, they should be lower if you consider historical relationships between mortgage and other interest rates, like the 10-year treasury index. Ultimately, they may go even lower.
The federal reserve has done what it needed to do behind-the-scenes to keep the mortgage markets flowing and operating by purchasing billions of mortgage-backed securities.
The number of people who have stopped making mortgage payments has impacted the mortgage market by effecting rates, costs and loan availability. Loans that are deemed risky are not being offered, so people with lower credit scores are temporarily shut out of the market.
Once the economy opens up in Michigan, I anticipate the lenders I work with to offer mortgage products to those with lower scores again; and for some loan products such as cash out refinances to become less expensive.
So, the bottom line is that real estate is going great guns, and low rate mortgages are available to those with income and good credit scores. If you are considering buying, selling, or refinancing your mortgage, please reach out to me and I’d be glad to help!
For more information or if you have any questions, contact me here.
Coronavirus Real Estate & Mortgage Update 4/24/20
Real Estate update:
Michigan's stay-at-home restrictions have been extended until May 15. So, no in person home showings are allowed before May 15.
However, a workaround is to watch a video walkthrough, and then purchase the house subject to your being able to see it at the home inspection.
You ARE legally allowed to visit the home during the home inspection, you are NOT legally allowed to view the house before you make an offer! Strange times we are living through!
Mortgage rates are low right now, but they 'should' be lower. The government shutdown the economy, and especially giving everyone the opportunity to stop making their mortgage payments for 6 months, has created turmoil in the mortgage market.
Being a mortgage lender and servicer of mortgages (servicers are where you send your payment) has become more risky. That risk is keeping mortgage rates higher than they ‘should be’ right now. Even though rates are incredibly low, they would be lower if lenders and servicers were not so concerned about people not making their payments. The good news is that you can still obtain a mortgage right now, and rates are very low. The government has taken unprecedented steps to keep the mortgage market operating and liquid, so new mortgage are available. The downside is that credit score requirements, and other lending requirements have made it more restrictive and expensive for some types of borrowers.
If you want to purchase house, or refinance your mortgage, please reach out to me and let’s chat and come up with a game plan that works for you!
Once we get back to work, and we reach our new normal, mortgage credit requirements and other rules will probably be relaxed again. Rates may even go lower than they are right now.
Feel free to contact me with any questions, or apply securely online here.
Coronavirus Mortgage Update 3/25/20
You may have heard that “the Fed lowered mortgage rates to zero”, or that “mortgage rates are at a 50-year low.”
Mortgage rates are not zero- they're actually much higher than they were 3 weeks ago. Why? What’s going on? Will mortgage rates go down again so you can refinance?
I believe that we will see historically low mortgage rates again soon. At the end of this article I will suggest a game plan for refinancing.
First, let’s talk about how mortgage rates are set, why they are so high right now, and what is likely to happen moving forward.
How Mortgage Rates Are Determined:
Mortgage rates are not determined by the Fed Funds Rate. Mortgage rates are determined by the yield on mortgage bonds and by the bank’s profit margin. Click here to view a graph that shows the disconnect between the Fed funds rate and mortgage rates.
The source of money for home mortgages originates from investors who purchase mortgage bonds. Mortgage bonds are bought and sold in the billion dollar bond market, and prices get adjusted continually based on supply and demand. As the prices of mortgage bonds change, it directly effects mortgage rates.
If many investors want to buy bonds, the price goes up and the yield goes down. The yield is the number that determines the rate you pay on a mortgage. So, the lower the yield is on mortgage bonds, the lower interest rate you get on your new mortgage.
How This Has Recently Played Out:
Recently, supply and demand for mortgage bonds have been thrown out of orbit by the bond investors’ response to the economy being shut down. Bond investors stopped buying mortgage bonds, which caused mortgage rates to skyrocket.
Mortgage rates are also effected by banks and mortgage companies adding a profit margin to the rates established in the bond market. When the banks became overwhelmed with new loan applications, they raised their profit margin in order to slow down the number of new mortgage applications. This caused mortgage rates to go up even further.
In order to ‘calm’ the mortgage bond market, the federal government stepped in and is currently buying an unprecedented $50 billion in mortgage bonds every day, and have committed to spend what it takes to keep the bond market functioning.
I believe we will see very low mortgage rates again.
In the near term, the fed will keep buying bonds, and the banks will close the huge number of refinance applications in the pipeline. No one knows the future, but I believe that mortgage rates will be very volatile for now, and then trend lower after a few weeks.
Don't Miss the Boat!
If you feel like you missed your chance to refinance when rates were lower, I trust you’ll get another chance at it. If your current rate is above 4.5%, I advise you to get the refinance process started. Don’t lock interest rate at application, and then monitor the situation as your mortgage is processed.
When the rates come down, as I think they will, you will be positioned to lock in a low rate and close on the mortgage quickly. If you wait until rates come down again before applying, you may miss the boat once again.
I have been a mortgage lender since 1992, and I have experience with all types of mortgage loans. If you are in Michigan, I can help you through every step of this process and supply the resources and expertise you need to make the most of the coming opportunity.
Feel free to contact me with any questions, or apply securely online here.