Covid-19 and Rates
Disclaimer
First thing is first - we are not mortgage pros. We have Sheri Arnold and the world wide web to thank for anything we even remotely understand about rates, lending, bonds, The Fed and all that jazz. We do, however, get asked a lot about all of the above and we wanted to share what we can.
Lending in a Time of COVID-19
If you have been watching or listening to ANY news source, you know that the economy is on a bit of a rollercoaster, one that has gone down significantly but that we can pretty much assure will go back up its steep incline eventually.
The Federal Reserve lowered its rates to zero and everyone went wild. This didn't mean that mortgage rates would be zero, but it did mean they would be affected.
What ARE Rates Doing?
Well, they are fluctuating. Rates for conforming loans are lower (right now) while rates for non-conforming and jumbo loans are up (for now).
Just to give you an idea, in the last few weeks the rate on a 30-year fixed (conforming) has gone above 4%, sank down to 3.25% and then jumped back up again... and then again. In a non-crisis laden economy, homie don't play like that.
That "F" word
Forbearance seems like a gift in these tough times for some, but for others in a panic, it's just a delayed payment that's very needed in the system right now.
Bottom line, if you CAN pay and want the economy to get healthier quicker, go ahead and pay that lovely bill. All it will lead to is higher rates down the line if there's not enough money circulating to make a demand for investors.
Read more about that HERE.
Have a Heart
You think a 0% rate is confusing YOU? Think of the lenders out there! They can't predict how many loan applications will actually make it to closing which is how some other items down the line are informed. Without some type of predictability, they are left guessing.
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Lenders have no way of knowing how many of their loan applications will make it to closing because the whole process has been upended by social distancing. While some states allow virtual closings, others, like Massachusetts, do not. Consumers are also more skittish about letting appraisers in their homes.
Lenders are getting around this, getting some appraisals waived in some cases, and even doing final closing documents in driveways on the hoods of separate cars. But it’s not easy, especially if a borrower is getting a more pricey jumbo loan or doing a cash-out refinance.
And as rates vary so widely day to day and lender to lender, consumers are caught trying to play a game that has never been played before.
“I have basically said there is no way that anyone can give you accurate guidance right now,” said Brent Borcherding, a broker and co-owner of Associated Mortgage in Portland, Oregon. As an example, he ran a basic scenario of a 30-year fixed mortgage with a 20% down payment.
“I’m looking at one lender with no points at 3.25%, but the middle of the pack is closing in on 3.625% and 3.75%. That’s a massive difference in my world,” he said.
Borcherding attributes that to various factors: Lenders’ costs to hedge their loans against rate changes, as well as volume issues. Some lenders are just near capacity, so they’re not really driven to lower rates. Some lenders may not have staff willing to work full time because they’re at home taking care of children.
For consumers looking to buy a home or, more likely, to refinance, he recommends stepping out of their comfort zones. A lot of borrowers tend to refinance with their local bank, where they have other accounts, or with the same lender several times because they know them. This may not be the time for that.
“As a true mortgage broker, we are generally a price leader. There have been times over the last few months that hasn’t been the case,” he said. “I think everyone should be wise to search around.”
Borcherding is not a fan of searching online. He recommends consumers talk to friends who have had good experiences recently with certain lenders, and gotten more favorable rates, even if it’s a pain.
“For most everybody, all they have is time on their hands now,” he said. “It doesn’t really matter how quickly it goes or it doesn’t go.”
