The most sweeping economic events of the year — the coronavirus pandemic and its effect on the financial markets — are making themselves felt in the home mortgage industry.
Interest rates on mortgages have dropped, and many customers are grabbing at the opportunity to refinance at what they see as better terms.
Volume is up for the entire industry, said David Battany, executive vice president of capital markets with Guild Mortgage in Kearny Mesa, noting it is up for his independent mortgage lender. Most lenders are operating at capacity to underwrite and close loans, he said, adding that Guild’s biggest day came toward the end of March.
Some lenders are seeing such high demand that they have temporarily stopped refinancing their loans.
A Change in Emphasis
In normal times, two-thirds of Guild’s business is in new home purchases (including those for first-time buyers) and one-third of the business is refinance, Battany said.
Now the trend has reversed itself: two-thirds of the business is refinance and one-third is new purchases.
The Washington, D.C.-based Mortgage Bankers Association reported that as of April 10, mortgage applications increased 7.3% from one week earlier. The association’s refinance index increased 10% from the previous week and 192% from the same week one year ago.
“The 30-year fixed mortgage rate decreased last week to the lowest level in MBA’s survey at 3.45%,” said Joel Kan, the association’s associate vice president of economic and industry forecasting.
A Stabilizing Market
“The decline in rates — despite Treasury yields rising — is a sign that the mortgage-backed securities (MBS) market is stabilizing and lenders are successfully working through their lending pipelines,” he said.
Guild’s Battany said that one of the most significant events of March was the Federal Reserve’s decision on buying mortgage-backed securities.
The Fed is a very active buyer for mortgage-backed securities. Roughly one month ago, as the Fed started buying, and the market became volatile.
The Fed is a very active buyer of mortgage-backed securities. Roughly one month ago, as the Fed started buying, the market became volatile as it was unsure of the Fed’s future plans.
About a week later, the Fed announced it would buy whatever quantity of mortgage-backed securities was needed, as long as needed, and that created confidence in the market, Battany said.
As of mid-April, Battany said, a buyer of a mortgage-backed security would get a product yielding in the mid-2% range. The buyer would typically pay 105 cents on the dollar and receive monthly payments of principal plus 2½% or 3%. A buyer could expect to hold the 30-year security for eight years or less.
Mortgage lenders are also hearing from borrowers asking for some sort of relief from payments. The Mortgage Bankers Association reported that the number of loans in forbearance increased from 2.73% to 3.74% during the week of March 30 to April 5.
This might come from workers in the entertainment, travel or food industries who find themselves furloughed, Battany said.
A spokesman for J.P. Morgan Chase & Co. said bank customers who are struggling financially because of COVID-19 are able to request 90-day payment forbearance, with no related late fees and no negative impact on their credit reports as a result of deferring payment.
Chase announced March 25 that it paused new foreclosure activities for the next 60 days.
Such relief is generally temporary. Lenders will require borrowers to make up payments they missed, Battany said.
The federal CARES Act (Coronavirus Aid, Relief and Economic Security Act) requires federally backed mortgages to offer their borrowers forbearance.
The act also calls for student loan forbearance.