Everyone I Know Is Trying to Refinance

There’s been a lot of talk (and worry) that the higher mortgage rates of late might derail the apparent housing market recovery.

After all, many believe the only reason things were improving was because of the ultra-low rates the Fed facilitated with the likes of QE3.

Without them, some argue, home prices would have to come back to more realistic levels. And optimism would probably also be somewhat deflated.

Unfortunately, such a scenario was not feasible, seeing that foreclosures were getting out of control, and lower prices would have meant so many more would have lost their homes, either involuntarily or by choice.

Higher Rates Are Motivational

Interestingly, I’ve seen a different reaction, albeit an early one. Many individuals I know who own homes are seeking to refinance their mortgages. Why they didn’t do it last year or even last month is beyond me, but we all know people procrastinate.

Many also grew complacent with the low rates, as it got to a point where one just assumed rates would keep on falling. I’m sure most people figured there was more downside in store, and if rates did happen to rise, they probably would do so slowly.

But now that mortgage rates have shot up in no time at all, it seems to have given many people a kick in the rear to finally go about getting that refinance, even if rates are significantly higher than they were just weeks ago.

One friend of mine seemed content locking in a rate of 4.5% on a 30-year fixed, even though he may have been able to snag a rate of around 3.75% last month.

He didn’t even seem that upset about missing the lower rates, and instead looked at the bigger picture. In the grand scheme of things, a 4.5% 30-year fixed mortgage is still a great deal.

Another pal of mine used the recent rise in rates as motivation to finally start calling around and inquiring about a refinance.

For him, there were home equity issues that made it difficult to refinance (he’s not eligible for HARP). So you can’t blame him for waiting for his home to appreciate a bit more, and alleviate some LTV concerns.

He too seemed happy enough to snag a rate at current levels. He’s even looking at a 15-year mortgage instead of his current 30-year as a way to take advantage of a lower rate and pay down his mortgage faster, without too much of a cost burden.

Possible Mortgage Rate Easing Ahead?

All said, it seems everyone is keeping things in perspective, despite the less attractive pricing of late.

And who knows, we may even see rates fall a bit over the next couple weeks, seeing that they increased so much so fast.

The market probably overreacted to the Fed news, so there’s definitely a chance things could improve in the near-term.

Additionally, the Fed owns a ton of the mortgage-backed securities out there, so they can control the price to some degree, even if everyone else wants to bail.

Whatever direction mortgage rates go in the next month or so, loan originators should stand to benefit from all the last-minute refinancers.

Banks and lenders will probably receive a flurry of refinance applications in coming weeks as more borrowers get off the fence and take advantage before it’s seemingly too late.

Unfortunately, borrowers might have to contend with sizable delays, so if you’re refinancing, get your ducks in a row to avoid any potential mishaps.

As far as home purchases go, the rate increase alone shouldn’t deter too many folks. It may disqualify some if their proposed payments rise too much, but I doubt it would completely dictate one’s decision to buy a home.

Remember, rates would have to rise to about 7% for the median priced home to fall out of reach for the average American family, so there’s still plenty of room.

Read more: Do higher mortgage rates lead to lower home prices?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

When Will the Next Housing Market Crash Take Place?

I’ve noticed a trend lately. Everyone’s a real estate expert.

It seems the most recent crisis and recovery has turned just about every single person into a guru on all things to do with home buying and selling.

I suppose part of it has to do with the fact that the massive housing bubble that formed a decade ago swept the nation and was front page news.

It also directly affected millions of Americans, many who serially refinanced their mortgages, then found themselves underwater, then eventually short sold, were foreclosed upon, or held on for the ride back up to new heights.

It’s a common conversation piece these days to talk about your local housing market.

Thanks to greater access to information, folks are scouring Redfin and Zillow and coming up with theories about what that home should sell for, or what they should have listed it for.

Neighbors are getting upset when nearby listings are not to their liking for one reason or another. What were they thinking?!

A New Housing Bubble Mentality

  • Real estate is red-hot again thanks to limited supply and intense demand
  • It can feel like an ominous sign that we’re headed down a dark road again
  • But that alone isn’t reason enough for the housing market to crash again
  • There have to be clear catalysts and financial stress for another major downturn

All of this chatter portends some kind of new bubble mentality in my mind, though it seems everyone is just basing their hypotheses on the most recent housing bust, instead of perhaps considering a longer timeline.

One could look at the recent run-up in home prices as yet another bubble, less than a decade since home prices bottomed around 2012.

After all, many housing markets have now surged well beyond their previous lofty levels seen about 15 years ago when home prices peaked.

For example, Denver area home prices are about 86% higher than they were in 2006. And back then, everyone felt home prices were completely out of control.

In other words, home prices were haywire, and are now nearly double that.

Meanwhile, the typical U.S. home is currently valued around $273,000, per Zillow, which is about 27% higher than the peak of $215,000 seen in early 2007.

It’s also nearly 70% higher than the typical home price of $162,000 back in early 2012, when home prices more or less bottomed.

So if want to look at home prices alone, you could start to worry (though you also have to factor in inflation which will naturally raise prices over time).

But they say bubbles are financially driven, and we’ve yet to see a return to shoddy underwriting.

I will say that there’s been a recent return of near-zero down financing, with many lenders taking Fannie and Freddie’s 97% LTV program a step further by throwing a grant on top of it.

This means borrowers can buy homes today with just 1% down payment, and even that tiny contribution can be gifted from someone else.

So things might be getting a little murky, especially if you consider the increase in prices over the past four or five years.

One could also argue that affordability is being supported by artificially low mortgage rates, which history tells us won’t be around forever.

There’s also a general sense of greed in the air, along with a feeling amongst homeowners that they’re getting richer and richer by the day.

That type of attitude sometimes breeds complacency and unnecessary risk-taking.

But When Will Home Prices Crash Again?!

real estate cycle

  • If you believe in cycles, which seem to be pretty evident in real estate and elsewhere
  • We will see another housing crash at some point relatively soon
  • There appears to be an 18-year cycle that has been observed for the past 200 years
  • This means the next home price peak (and then bust) might begin in 2024

All of those recent home price gains might make one wonder when the next housing market crash will take place.

After all, home prices can only go up for so long before they drop again, right?

Well, the answer to that age-old question might not be as elusive as you think.

The real estate market apparently moves in cycles that some economists think can be predicted to a relatively high degree.

While not a perfect science, there seems to be “a steady 18-year rhythm” that has been observed since around the year 1800.

Yes, for over 200 years we’ve seen the real estate market follow a familiar boom and bust path, and there’s really no reason to think that will stop now.

It puts the next home price peak around the year 2024, followed by perhaps a recession in 2026 and a march down from there.

How much home prices will fall is an entirely different question, but given how much they’ve risen (and can rise still), it could be a long, long way down.

And we might not have super low mortgage rates at our disposal to save us this time, which is a scary thought.

You’ll Never Get Back Into the Housing Market…

  • There are four main phases in a real estate cycle
  • A recovery period and an expansion period
  • Followed by hypersupply and an eventual downturn
  • Don’t believe the hype that if you don’t buy today, you’ll never get the chance!

Another housing bust in inevitable, despite folks telling us we’ll never get back in again if we sell our home today, or don’t buy one tomorrow.

There are four phases to this predictable cycle, including a recovery phase, which we’ve clearly experienced, followed by an expansion phase, where new inventory is created to satisfy demand. This is happening now.

At the moment, home builders are ratcheting up supply to meet the intense demand in the market, with some 45 million expected to hit the average first-time home buyer age this decade.

The problem is like anything else in life, when demand is hot, producers have a tendency to overdo it, creating more supply than is necessary.

That brings us to the next phase, a hypersupply period where builders overshoot the mark and wind up with too much new construction, at which point prices plummet and a recession sets in.

The good news (for existing homeowners) is that according to this theory, we won’t see another home price peak until around 2024.

That means another three years of appreciation, give or take, or at least no major losses for the real estate market as a whole.

So even if you purchased a home recently and spent more than you would have liked, it could very well look cheap relative to prices a few years down the line.

The bad news is that the real estate market is destined to stall again in just three short years, meaning the upside is going to diminish quite a bit over the next few years.

This might be especially true in some markets that are already priced a little bit ahead of themselves, which may be running out of room to go much higher.

But perhaps more important is the fact that home prices tend to move higher and higher over time, even if they do experience temporary booms and busts.

So if you don’t attempt to time the market you can profit handsomely over the long term, assuming you can afford the underlying mortgage.

And remember, there’s more to homeownership than just the investment.

Source: thetruthaboutmortgage.com

Mortgage Jobs on the Line as Rates Rise

There’s been plenty of debate lately about the potential consequences of rising mortgage rates, with an outright housing recovery derailment topping the list of concerns.

However, most economists have been quick to downplay the risks of rising rates, which have shot up from near-record lows to two-year highs in a matter of months.

In fact, many of these pundits simply expect refinance activity to slow, while the housing market recovery continues on its merry way, in spite of decreased affordability.

Of course, the experts have made some concessions along the way; most recently, Fannie Mae’s Vice President of Applied Economic and Housing Research argued that higher mortgage rates should slow purchase volume and result in a larger adjustable-rate mortgage (ARM) share.

At the same time, Fannie’s researcher didn’t think higher interest rates would lower home prices, but rather only slow the speed of appreciation, which has been on a tear lately.

Then there’s Ara Hovnanian of K. Hovnanian Homes, who argues that higher mortgage rates will just lead to smaller home purchases, and at worst, the purchase of a townhouse if affordability takes a serious dive. Don’t worry, he’s got a smaller home design in the pipeline…

Here Come the Layoffs

All that debate aside, one thing is for certain. There will be fewer mortgage jobs going forward. I anticipated this in my 10 predictions for mortgage and housing in 2013.

It wasn’t hard – I knew mortgage origination forecasts were being slashed going into the year, with refinance volume expected to fall from $1.2 trillion last year to $785 billion in 2013, per the MBA.

Meanwhile, purchase-money mortgage volume was only slated to rise from $503 billion to $585 billion, probably not enough to add many new positions, or offset the fallout in the refinance department.

With volume predicted to be well off recent levels, it didn’t take a genius.

And seeing that rates have increased a lot more than projected, those numbers may turn out to be even worse. For the record, I was wrong about mortgage rates. I expected sideways movement for much of the year. I concede.

Anyway, the mortgage layoffs have already begun, with Wells Fargo announcing late last week that it was cutting 350 employees nationwide as a result of higher home loan rates.

Wells Fargo spokesperson Angie Kaipust said increased demand during the low interest rate environment enjoyed over the past few years meant it could “staff up,” but now that rates are a bit more realistic, headcount must align.

The San Francisco-based bank plans to cut jobs in a number of cities, including Des Moines and Minneapolis.

Then there’s Citi, which reportedly opened a sales facility in Danville, Illinois after demand for mortgage refinances surged. Sadly, the unit is being shuttered, and roughly 120 employees will be laid off.

These are but two examples. Many smaller shops are probably slashing their workforces as well, though such news won’t make the headlines.

2014 Mortgage Origination Forecasts Point to Even Fewer Jobs

The outlook isn’t exactly bright for 2014 either, according to the latest housing forecast from Fannie Mae, so expect more heads to roll as volume continues to dwindle.

Yesterday, the GSE noted that residential lenders are expected to originate just $1.07 trillion in loan volume in 2014, down from $1.65 trillion this year, and about half the $2.03 trillion seen in 2012.

The refinance share, which was 73% in 2012, is expected to fall to 62% this year, and to just 31% in 2014. Only the advent of HARP 3 could make a meaningful impact at this point, and it doesn’t seem likely now.

Fannie expects purchase activity to rise from $619 billion this year to $741 billion in 2014, while refinance activity is forecast to plummet from just over $1 trillion to $331 billion.

Clearly few loan officers will be needed to handle that sharp drop in demand.

Update: It’s starting to feel like 2007 all over again – I’m receiving tips again about branch closures and layoffs. The latest being, “Residential Finance of Columbus Ohio hacked 19 branches yesterday and a regional manager.”

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Don’t Choose a Mortgage Lender for Their Sales Gimmick

Last updated on January 9th, 2018

As competition heats up, banks and lenders will likely ramp up efforts to get their hands on your mortgage, using all types of pitches and gimmicks to separate themselves from the crowd.

But mortgages aren’t cool or exciting, so any funky stuff they come up with to sell you a mortgage is probably just a load of baloney.

For example, you might be offered reduced closing costs, a relationship discount, or a stuffed animal. Okay, that last one may only be a half-truth if you bring your kid with you to sign the paperwork.

You may also be told that certain fees will be waived, or that they’ll lock your mortgage for free. Sadly, most of these “fees” don’t tend to exist in the real world, so you have to question whether you’re actually getting anything at all.

All the major players do it, including Wells Fargo, Capital One, Chase, Citi, Discover, Costco, etc.

The smaller guys probably don’t offer special discounts or fancy marketing, though that doesn’t mean they won’t throw some nonsense your way in a different form.

Look at the Big Picture

When shopping for a mortgage, it’s important to look at the interest rate and the fees you must pay to acquire that rate.

If you’re focused on $500 off closing costs, as opposed to your mortgage APR, you’re missing the point.

The same goes for a relationship discount. If you already do business with the bank that is offering to close your mortgage, and they agree to shave .125% (an eighth) off your mortgage rate, make sure it’s lower than competitors’ straight up rates.

Perhaps a good analogy to put this in perspective is the insurance industry, which is notorious for offering discounts for all types of silly stuff.

These days, the discounts are endless, and the marketing brains seem to be working around the clock to come up with more inane discounts to peddle to consumers.

But even if you receive 100 discounts, if your overall premium is still higher than what some no frills insurer is offering, the discounts mean squat.

It’s the same deal for mortgages – if some lender offers me a relationship discount, $1000 off my closing costs, or a stuffed pony for my niece, it won’t mean a thing if another lender is offering me a lower rate with fewer fees.

Get a Discount If We Screw Up

Perhaps the worst of the “discounts” are the ones that are only applied if the lender screws something up. Seriously?

Do you really want to go with a lender who will offer you money if they can’t get the job done on time?

That sounds like little consolation and a whole lot of stress, not to mention the fact that you’ll probably need to argue with them to get your credit.

So let’s get this straight – they fail to close your loan on time, and then offer you a credit, which will undoubtedly require you to send in even more paperwork and plead your case.

Good luck explaining that it was indeed the lender who was at fault, and not you or a third-party.

At the end of the day, you should do your best to avoid being sucked in by these marketing gimmicks, as enticing as they may sound.

Chances are the discounts are “priced in” somewhere else, whether it’s via a higher mortgage rate or added junk fees.

This is not to say that you should avoid the big banks in favor of a mom and pop broker shop, but you should take a hard look at a variety of offers to cut through the fluff.

Read more: Watch out for the adjustable-rate mortgage pitch.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

125% Second Mortgages Are Back Again…

It feels like we’re getting dangerously close to repeating history in the worst way possible.

High-risk loan programs that seemed extinct were perhaps only endangered, as evidenced by a new product launch over at CashCall, an Orange County based company that offers both personal and mortgage loans.

Yep, they’re offering 125% second mortgages, and no, I’m not talking about HARP loans for those underwater on their mortgages.

This is a bona fide “no equity home loan,” a mortgage instrument popular during the housing boom that quickly disappeared once values began to take a dive.

How the 125% Second Mortgage Program Works

Essentially, those who wish to borrow more than their home is worth can apply for one of these loans if they meet certain conditions.

For example, if your home is only worth $200,000, but you want to borrow $250,000, this loan will allow just that.

This differs from a traditional cash-out refinance, which typically requires a homeowner to have some equity buffer, such as 20% or more.

These types of loans worked back in the day on the expectation that home prices would continue to rise over time, and eventually the homeowner wouldn’t be “underwater” any longer.

They failed because (as we all know) home prices eventually stopped going up, and homeowners with giant mortgage balances had already spent the cash elsewhere, and had no intention of paying it back once their property values were cut in half.

This particular 125% second mortgage is a 15-year fixed loan, and only requires a minimum FICO score of 660, which is pretty below average for this level of risk. It must also be an owner-occupied property.

The minimum loan amount is $25,000 and the max is $150,000. For attached condos, they actually limit the CLTV to 100%, seeing that condos are generally deemed higher risk.

Oh, and the max DTI ratio is 50%, though pricing is more favorable for those who keep it at or below 43%.

Speaking of pricing, rates range from as low as 7.49% to as high as 14.99%, depending upon the CLTV.

Here’s the rundown based on what I saw advertised today:

0-80% CLTV: 7.49%
80.01-90% CLTV: 9.49%
90.01-100% CLTV: 11.99%
100.01-125% CLTV: 14.99%

For the record, these mortgage rates are good for those with FICO scores of 700 and higher. I don’t want to know how high the rates are for those with lower scores.

There are also fees of 3% of the loan amount for DTI ratios at or below 43%, and fees of 5% for DTIs between 43.01% and 50%.

What the Heck Is CashCall Thinking?

One last thing I should mention is that this program is only available in California.

The Golden State has been looking good lately in terms of home price appreciation, and it will probably continue to enjoy higher prices as the recovery goes on.

Perhaps this is why CashCall is happy enough to offer extra-high CLTV loans in the state. After all, homes that sold for $500,000 two or three months ago might sell for $600,000 today. It’s out of control.

Additionally, I’m assuming the company relies mainly on refinance business, and because of the recent rise in rates, it lost a lot of business, just like any other shop relying on refinances to bring in the bacon.

So this appears to be a more aggressive move to offer something the competition doesn’t have, which could lead to an uptick in business to make up for that decline in refinancing apps.

Still, it reminds me of why the mortgage boom went bust, and it’s pretty scary that these types of products have returned just a couple years since the market bottomed.

Let’s hope home prices continue to rise…

(photo: Marcin Wichary)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Purchase Applications Grab Majority Share of Mortgage Market in July as Refinances Fade Away

Posted on August 22nd, 2013

There’s been a lot of fuss about the refinance market drying up lately, and we now know it’s not just noise.

Last month, purchase-money mortgages gobbled up the majority share of the overall mortgage market, according to the latest Origination Insight Report from Ellie Mae.

The company noted that purchases accounted for 53% of applications in July, up from 49% in June and 42% a year earlier.

During 2012, the purchase share averaged a paltry 38% as refinances took center stage, helped on by ridiculously low mortgage rates and the expansion of the successful HARP initiative.

The worst month for purchases in recent history occurred during January of this year, when they accounted for just 27% of the mortgage market.

Since then, they’ve steadily climbed higher into the traditional home buying season, while refinances have retreated amid higher rates.

Refinances Peaked in January with 73% Share

purchase share

What a difference half a year makes. Refinances snagged an astonishing 73% of the mortgage market in January, but since then have seen sequential declines just about every month.

The only bright spot for refis was HARP-related, with high loan-to-value loans (95%+) rising three percent from a month earlier.

However, market watchers expect the overall numbers to move in much the same direction for a while, with refinances eventually slipping to a sub-40% share in 2014.

Unfortunately, most homeowners have already taken advantage of the low rates, with only 55% of existing mortgages currently at above-market rates (not all stand to benefit from a refinance).

[When should you refinance a mortgage?]

Then there’s those who procrastinated and missed the boat, with many presumably considering adjustable-rate mortgages as an alternative.

That’s not just speculation – the ARM-share increased to 5.2% of closed loans in July, up from 4% in June and 2.1% back in January.

Meanwhile, the somewhat en vogue 15-year fixed is beginning to lose its luster, with only 15.5% of borrowers opting for a short-term fixed loan, down from 16.5% a month earlier and 16.9% at the start of the year.

This market shift is also obliterating the mortgage industry, with layoffs beginning to make the headlines seemingly every day.

The latest causalities come from top mortgage lender Wells Fargo, which announced another 2,323 job cuts nationwide, including 365 in Birmingham, 330 in offices around Orange County, CA, and another 292 in Phoenix.

These layoffs are on top of additional job cuts announced last month.

Many other banks have been slashing mortgage workforces as well, which is no surprise given the sharp drop-off in origination volume.

It’s so bad that it almost feels like 2007 all over again, with the bad news forcing me to work on my list of layoffs and closures much more these days.

Credit Is Easing in Mortgage Land

credit quality

Despite that, credit conditions seem to be easing for home loans. Last month, the average FICO score for a closed loan was 737, down from 742 a month earlier and 749 in January. The average FICO score for all of 2012 was a very high 748.

Additionally, only 75% of closed loans in July had FICO scores of 700 or higher, compared to 83% a year ago.

In other words, credit standards seem to be falling as mortgage lenders grapple with lower production numbers, whether that’s correlated or not.

For denied applications, the average FICO score was 702 last month, which probably wasn’t the sole reason the loan was declined.

Lastly, both LTVs and DTI ratios increased in July, signaling credit easing and/or a lower quality borrower. But it certainly helps now that both mortgage rates and home prices are much higher than they once were.

Of course, this shift also kind of reminds me of the previous crisis, though nowhere near that same level…yet.

Read more: A Lack of Qualified Buyers Could Hit the Real Estate Market

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

The LendingTree Mortgage Negotiator Makes Home Loan Shopping Anonymous

Last updated on January 13th, 2020

Everyone’s heard of the Priceline Negotiator, but what about LendingTree Mortgage Negotiator?

I hadn’t heard about it until last week, when a commercial popped up on my television pitching the new system. I love scrutinizing mortgage companies and their products because they’re often full of hot air.

When it comes down to it, mortgages just aren’t that exciting, and there aren’t many ways to differentiate them, other than via clever marketing tactics.

Still, it sounded interesting, so I decided to take a closer look. From what I remember, LendingTree basically asked for a borrower’s vital information, and then sent it off to a handful of lenders who proceeded to bombard the customer.

The idea was that they would fight for your business, though my guess is consumers didn’t want four banks calling them, let alone one. This was the classic model. Perhaps it’s still in use today, I’m not sure.

Anyway, this is probably why Zillow created its Mortgage Marketplace, which relies on borrower anonymity first and foremost.

How the LendingTree Mortgage Negotiator Works

current offer
  • First you enter in basic home loan details
  • Including loan amount, loan type, interest rate
  • And what the origination charges are
  • The form tells you where to look on your GFE to ensure you enter accurate information

It looks like LendingTree may have learned something from Zillow’s successful pricing model, seeing that their new tool allows borrowers to shop anonymously while using a Good Faith Estimate for accuracy.

To start, you indicate whether the transaction is a purchase or a refinance, and enter in your property and loan information. Pretty standard stuff for a mortgage lead…

However, what makes the form a little bit more robust is that it asks for your origination charges, and even tells you where to find them using your GFE.

In other words, you should have shopped elsewhere before using the Mortgage Negotiator, seeing that you’ll be using the tool to see how your offer(s) stacks up against LendingTree’s mortgage partners.

Once you fill in the loan type, loan amount, interest rate, and origination charges, your data will be analyzed and you’ll be presented with the “best offers” from the company’s lenders.

You’ll also be shown how your offer compares to the one associated with your GFE, with the interest rate, origination charges, and monthly payment all shown on a sliding scale.

As you can see from the screenshots below, when I entered a rate of 4.75% for a 30-year fixed and origination charges of $3,000, I was told both were higher than average, compared to what their lenders were offering.

Find Out If Your Mortgage Offer Is Good, Bad, or Ugly

how it compares

See how your interest rate compares to lenders in their network.

higher than average

Quickly determine if your origination charges and monthly payment are too high or just right.

To the right of these comparison boxes, I was shown a list of lenders with corresponding rates and fees.

Of course, these were listed as the “best offers,” and who knows if you actually qualify for the best offer. If your credit score isn’t top notch and your LTV is higher than 80%, the best offers may not be applicable.

So you’ll still have to negotiate with their lenders, assuming you bother contacting them after seeing their rates and fees.

Still, it might be a big improvement from the old system, which probably resulted in a lot of less-than-happy consumers.

I like this trend toward transparency and homeowner education. It’s nice to see companies explain to customers how to read their disclosures so they can accurately compare offers among different lenders.

By the way, their research indicates that only 51% of consumers comparison shop for mortgages, which appears to be up from 40% back in 2010.

Update: LendingTree reached out to me and resolved my credit score concern – borrowers with GFEs most likely had their credit pulled elsewhere, so information is probably entered accurately. The same goes for the LTV ratio being inputted correctly.  And the results that appear are in “real time.”

Read more: How many mortgage quotes should you get?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Homeowners with Year-Old Mortgages Are Refinancing Like Crazy

Posted on July 2nd, 2019

A new report from Black Knight revealed that prepayment activity (early payoff of a mortgage) has been surging thanks to the precipitous drop in mortgage rates.

It has more than doubled in just the past four months alone, and is now at its highest level since late 2016.

The biggest driver has been homeowners with very young mortgages, those from the 2018 vintage.

This cohort has seen a more than 300% increase over the past four months, which is no surprise given the current mortgage rate environment.

Mortgage Rates Are Down More Than 1% From November

prepay vintage

Per Freddie Mac, the popular 30-year fixed averaged 3.73% last week, down from a much higher 4.94% in November of last year.

For perspective, it averaged 4.55% during the week ended June 28th, 2018, so today’s borrowers are getting anywhere from a .75% to 1%+ rate discount depending on when they took out their mortgage.

Some consider a refinance beneficial with just a .25% improvement in rate, while others might be more conservative and say .50% or better is necessary.

Whatever your refinance rule of thumb, it’s clear plenty of recent homeowners can save a lot of money, especially since they’ve barely dented their outstanding loan balances.

With no fear of resetting the mortgage clock and starting all over, it’s no surprise these borrowers are refinancing in droves.

The 2018 group has been so busy refinancing that their vintage is roughly 50% higher than the next closest vintage, the 2014 group.

Back then, the 30-year fixed hovered between 4% and about 4.5%. So again, a .25% to .75% rate discount for those borrowers based on today’s lower interest rates.

Refinance Candidates Surge Past 8 Million

refi candidates

The drop in rates has also boosted the refinanceable population to 8.2 million homeowners, defined as those who would benefit and qualify for a mortgage refinance.

That’s 6.3 million more than were eligible in November 2018, including more than 35% of all borrowers who took out a home loan last year.

The 2018 vintage consists of roughly the same number of potential refinance candidates as the 2013-2017 vintages combined, which illustrates the importance of timing.

As noted in my recent post about refinance waiting periods, you don’t have to wait long to turn in your old loan for a new one.

And it’s clear these folks are not, with early estimates suggesting a 30% increase in refis from April to May, and May’s volume expected to be about three times greater than the 10-year low seen in November.

That doesn’t factor in the even lower rates since May, and with home sales also expected to rise, prepayments will likely climb higher in the coming months.

Prepayments by Loan Type

prepay loan type

Now let’s take a closer look at the type of loan being refinanced today.

Overall, the first lien single month mortality (SMM), a measure of prepayment speeds, was 1.23% in May, up 24% from a month earlier.

It’s also up 109% from four months earlier, and now sits well above its five-year average of 1.04%.

Home loans are prepaid for a number of reasons, either to improve the rate and/or term via a rate and term refinance, or to tap equity via a cash out refinance.

It’s also possible to sell a home and pay off the mortgage, to partially pay it back ahead of schedule via curtailment, or to land in default.

Most of the recent refinances were likely rate and term refis as the incentive today is to lower your monthly payment and save on interest.

This is further evidenced by the abundance of tappable equity, with homeowners currently sitting on some $6 trillion of it.

Anyway, the biggest increase in prepayment speeds was seen on government home loans, including FHA loans and VA loans.

Prepays on such loans were up about 2.5X (145%) from four months ago, while prepays on Fannie Mae and Freddie Mac loans were up just less than double (98%).

Meanwhile, portfolio loan prepays were up 131% from four months ago and legacy private label securities were up just 31%.

Unsurprisingly, prepays of adjustable-rate mortgages have also surged to their highest level since 2007 given the super low levels of 30-year fixed mortgage rates, and the weak fixed-to-ARM spread.

Regardless of what type of home loan you have, or when you took it out, now might be a great time to dust off your loan documents to see what your mortgage rate is relative to today’s heavily discounted rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com