Why mortgage rates don’t move buyers

WASHINGTON – Jan. 21, 2015 – Downpayment’s and financial constraints play a big part in shaping housing demand, particularly among lower-income homebuyers, according to a study by the Federal Reserve Bank of New York.

But low mortgage rates don't influence buyers to make a move as much as mortgage qualification requirements do, the study finds.

New York Fed researchers asked homeowners how much they would be willing to pay for a home comparable to their current one, using several financing scenarios, such as different downpayment constraints, mortgage rates and non-housing wealth.

The researchers found that low downpayment requirements had a large effect on how much people were willing to pay for a home, especially among lower-income and credit-constrained borrowers. For example, renters' willingness to pay more for a home rose 40 percent when downpayment requirements were lowered from 20 percent to 5 percent, according to the study.

"This result implies that regulatory policy that targets loan-to-value mortgage qualification requirements will have the largest impacts on the most credit-constrained buyers, in particular younger renters with lower wealth," writes Robert Dietz, vice president of tax and market analysis at the National Association of Home Builders, on the trade group's blog.

Researchers also found that non-housing wealth served as a major motivator to buy. A $100,000 increase in non-housing wealth boosted a person's willingness to pay more for a home by 10 percent on average. The effect was found to be four times higher for renters.

On the flip side, homebuyers are less price-sensitive to changes in mortgage rates, according to the study. Researchers found that changing the mortgage rate by 2 percentage points would only have a 5 percent impact on housing prices in what buyers are willing to pay.

Source: "The Sensitivity of Housing Demand to Financing Conditions: Evidence From a Survey," Federal Reserve Bank of New York (November 2014) and "New Research Highlights Finance Constraints on Housing Demand," National Association of Home Builders Eye on Housing Blog (Jan. 19, 2015)

Many buyers don’t comparison shop for a mortgage

WASHINGTON, D.C. – Jan. 13, 2015 – The Consumer Financial Protection Bureau (CFPB) released a report on mortgage borrowers, and it found that almost half of consumers don't shop around for a mortgage when purchasing a home.

In tandem with the report, the CFPB released "Owning a Home," an interactive, online toolkit designed to help consumers shop for a mortgage. It says the suite of tools gives consumers the information they need to get the best deal.

"Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating," says CFPB Director Richard Cordray. "The Know Before You Owe Owning a Home toolkit makes it easy to see how shopping for a mortgage can translate into big dollars saved in the long run. We want to enable consumers to be more savvy shoppers."

Today's report is based on results from the new National Survey of Mortgage Borrowers, a voluntary survey jointly conducted by the CFPB and the Federal Housing Finance Agency (FHA). The Bureau analyzed responses from consumers who took out a mortgage to buy a home in 2013. Among the key findings: 

Almost half of consumers fail to shop prior to filling out an application for a mortgage. This means these consumers are seriously considering only a single lender or mortgage broker before choosing where to apply.

Three out of four consumers only apply with one lender or broker: While half shop around to see which lender advertises lower rates, fewer than one out of four borrowers apply to more than one as a way to compare bottom line rates and their best deal.

Most consumers get information from lenders or brokers, who have a stake in the outcome: 70 percent said they relied on their lender or mortgage broker a lot for information about mortgages.

Borrowers who prioritize the terms of the loan over the characteristics of the lender are more likely to shop around

Consumers who are confident in their knowledge about the mortgage process are more likely to shop around: 55 percent said they were very familiar with mortgage rates, while 30 percent of shoppers said they were not at all familiar. 

Hike in Interest Rates Likely by Mid-Year

Many economists believe mortgage rates will be on the move upward this year after sitting near historic lows the past few weeks. The 30-year fixed-rate mortgage rose above 4 percent for only two weeks since Oct. 16, according to Freddie Mac's weekly mortgage market report. That has helped to lower borrowing costs for home buyers — but that may soon change.

The Federal Reserve is expected to boost its short-term interest rate target around the middle of the year if economic growth continues to move at a solid pace.

"Bond yields and mortgage rates will begin moving higher as the timetable for Fed interest rate hikes comes into focus, with rates on credit cards, auto loans, and home equity lines of credit responding after the fact," says Greg McBride, Bankrate.com's chief financial analyst. "The bulk of next year's increases will come in the back half of the year."

McBride is forecasting the 30-year fixed-rate mortgage to remain below 5 percent this year, but he says it could see lots of volatility.

"We'll see rates near 4 percent on the low side if there's an economic stumble or geopolitical crisis, and rates as high as 4.8 percent or 4.9 percent if the Fed missteps or misspeaks," McBride says.

Lawrence Yun, chief economist for the National Association of REALTORS®, expects the Fed to act sooner with its uptick in rates due to inflationary pressures of rising wages and rents. Jonathan Smoke, chief economist at realtor.com®, is forecasting mortgage rates to reach 5 percent in 2015.

Source: “Bankrate.com: Expect Fed to Move on Interest Rates by Mid-Year,” HousingWire (Jan. 5, 2015)

3% down mortgages roll out at breakneck speed

WASHINGTON – Jan. 5, 2015 – Lenders' quick adoption of a recently announced decision to allow 3 percent downpayment mortgages created a nice holiday gift for the mortgage industry and homebuyers.

Lenders say they've sped up the normally cumbersome process because some things have changed. For one thing, they're able to get the new product out faster because many lenders now sell their loans directly to Fannie Mae and Freddie Mac instead of aggregators or wholesale lenders that have historically attached extra lending guidelines – called overlays – to the loan requirements.

Also, the qualified mortgage rule (QM), while stricter, has made it easier for lenders to assess quality control, underwriting and risk decisions because there are now fewer gray areas that require study.

Still, most consumers don't yet know that a 3 percent downpayment mortgage product exists – yet. The mortgage industry must now start to make consumers aware that the low downpayment loan products are available.

"If you want to push it, market it and get it out there, I think you should absolutely be able to increase your business if you market it to your clients and real estate agents and everybody else," says Michael Deery, president of San Diego-based mortgage brokerage Citywide Financial.

Source: American Banker (12/26/14) Finkelstein, Brad

Average 30-year loan rate falls to 3.89%

WASHINGTON (AP) – Dec. 5, 2014 – Average U.S. long-term mortgage rates fell for the fourth straight week, a continuing boon for potential homebuyers.

Mortgage company Freddie Mac said Thursday the nationwide average for a 30-year mortgage declined to 3.89 percent this week from 3.97 percent last week. It is now at its lowest level since May 2013.

Rates are about a half-point lower than at the beginning of the year, when the benchmark 30-year rate stood at 4.53 percent. Rates have fallen in recent weeks amid economic slowdowns in Europe and China, and the start of a recession in Japan.

The average for a 15-year mortgage, a popular choice for people who are refinancing, declined to 3.10 percent from 3.17 percent last week.

Mortgage rates have been falling despite the recent end of the Federal Reserve's monthly bond purchases, which were intended to keep long-term interest rates low. An improving economy led the Fed in October to end the program that it launched during the 2008 financial crisis. Fed officials also have indicated that they will continue to hold shorter-term rates at near-zero levels until signs emerge of rising inflation.

The Fed's latest survey of business conditions around the U.S., released Wednesday, showed that the economy kept expanding in October and November, helped by solid gains in consumer spending, manufacturing and overall employment. The survey found many areas of strength and, for the first time this year, the report didn't see a need to qualify its summary of growth by using words like "modest" and "moderate."

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year mortgage also remained at 0.5 point.

The average rate on a five-year adjustable-rate mortgage fell to 2.94 percent from 3.01 percent. The fee was steady at 0.5 point.

For a one-year ARM, the average rate declined to 2.41 percent from 2.44 percent. The fee held at 0.4 point.

Average 30-year loan rate up to 4.02%

WASHINGTON (AP) – Nov. 7, 2014 – Average U.S. long-term mortgage rates rose this week, with the benchmark 30-year loan crawling back over 4 percent. It was the second straight week of increases in rates after they had fallen for five weeks amid concern over global economic weakness.

Mortgage company Freddie Mac said Thursday the nationwide average for a 30-year mortgage increased to 4.02 percent from 3.98 percent last week. Still, at 4.02 percent the rate remains at its lowest level since June 2013. The 30-year rate stood at 4.53 percent back in January.

The average for a 15-year mortgage, a popular choice for people who are refinancing, jumped to 3.21 percent from 3.13 percent.

The five-week decline in long-term rates sparked a wave of homeowners looking to refinance mortgages at a bargain rate.

U.S. government figures released last week showed that the U.S. economy powered its way to a solid annual growth rate of 3.5 percent from July through September, outpacing most of the developed world and appearing on track to extend its momentum through this year and beyond.

An improving economy led the Federal Reserve last week to end a bond buying program that it launched during the 2008 financial crisis. The monthly bond purchases were intended to keep long-term interest rates low. Fed officials also have indicated that they will continue to hold shorter-term rates at near-zero levels until signs emerge of rising inflation.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year mortgage also remained at 0.5 point.

The average rate on a five-year adjustable-rate mortgage rose to 2.97 percent from 2.94 percent. The fee was steady at 0.5 point.

For a one-year ARM, the average rate rose to 2.45 percent from 2.43 percent. The fee held at 0.4 point.

Is refinancing a mortgage worth it?

NEW YORK – Nov. 3, 2014 – The interest rate pendulum has swung in favor of homeowners again.

A steady decline in recent weeks brought down the average rate for a 30-year fixed home loan below 4 percent to 3.92 percent this week, the lowest level in more than a year. As recently as January, the average was 4.53 percent, according to mortgage giant Freddie Mac.

That's good news for homeowners who are locked in at a higher interest rate and weren't able to refinance before rates began ticking up last year. The decline in mortgage rates has spurred a surge in mortgage refinancing. Applications reached their highest level since November 2013 last week, according to the Mortgage Bankers Association.

A reduction in your mortgage interest rate can translate into significant savings. The key is ensuring they aren't outweighed by the charges and fees involved.

"You want to be careful to do the math and be sure you're coming out ahead," said Gary Kalman, executive vice president at the Center for Responsible Lending.

Here are some tips to help you determine whether refinancing your mortgage will pay off:

1. Understand the fees

Lenders typically charge fees for the mortgage broker's services, credit reports, a home appraisal and title insurance, among other costs.

To get a sense of the total costs, start with the "good faith estimate." It's a form that lenders are required to provide that details the projected costs associated with the loan.

Although certain costs of the loan can't change, including the origination or broker's fee, costs such as title fees may change until the loan is locked, meaning the interest rate is set, notes Kurtis Baker, a wealth management advisor at Certified Wealth Management & Investment LLC in Princeton, New Jersey.

The loan officer should also be able to help determine what your total monthly payment would be after the refinancing.

2. Get a low-enough rate

The general rule of thumb is that borrowers need to shave at least 1.5 to 2 percentage points from their rate in order for the refinancing costs to be worthwhile.

To qualify for the best rate on a mortgage refinancing, borrowers must have proof of income and have equity in their home. About 20 percent equity is ideal, though some lenders will require as much as 30 percent for jumbo loans, said Greg McBride, chief financial analyst at Bankrate.com.

3. Do the math

Don't be fooled into thinking that you're getting a better deal when it's simply a new loan with a longer term, warns Timothy Watters, a certified financial planner at Watters Financial Services in Paramus, New Jersey.

To avoid this, tally up how much you're paying now in principal and interest and multiply it by the number of months left on your loan. Then do the same calculation using the figures under the new loan.

"If there's a substantial difference, it may be worthwhile to refinance," said Watters. "If there's not, it may not at all be worth refinancing."

Online calculators can help you estimate whether the savings in a refinancing add up in your favor. Try this one from Bankrate.

4. Determine when you will break even

Even if refinancing will lower your monthly payment, it will take time to recoup your expenses. So think about how long you plan to stay in your home.

For example, refinancing from a 5.5 percent interest rate to 4 percent would save $180 a month on a $200,000 mortgage. But the fees — averaging around $2,500 — mean it would take about 14 months to break even.

To estimate how long it will take for your savings to offset the refinancing costs, divide the estimated costs by the projected annual interest savings.

Remember to factor in loan points, which borrowers can buy to lower their interest rate further. One point equals 1 percent of the loan amount.

As long as that is comfortably shorter than the time you plan to stay in the home, refinancing could be a good choice, Baker said.

The Federal Reserve has a more detailed calculator for determining the break-even point on a mortgage refinancing.

5. Shop around

Get quotes from several banks and ask that they put their offers in writing, including an estimate for the closing cost and any extras, like loan points.

Some lenders will allow you to roll the refinancing fees into your loan, sparing you upfront costs. However, this will increase how much you owe – and pay interest on – for the life of your loan.

Ask that the lender provide you with a comparison of the loan costs paid upfront and rolled into the loan.

Average 30-year loan rate up, but still under 4%

WASHINGTON (AP) – Oct. 31, 2014 – Average U.S. long-term mortgage rates arrested their five-week decline this week, but the benchmark 30-year loan remained below 4 percent.

Mortgage company Freddie Mac said Thursday the nationwide average for a 30-year mortgage rose to 3.98 percent from 3.92 percent last week. It remained at its lowest level since June 2013. The rate stood at 4.53 percent back in January.

The average for a 15-year mortgage, a popular choice for people who are refinancing, increased to 3.13 percent from 3.08 percent.

The sustained decline in long-term rates sparked a boomlet of homeowners looking to refinance mortgages. Homeowners eager for a bargain rate fired off inquiries to lenders. Applications for "re-fi's" jumped 23 percent in the week ended Oct. 17 – reaching their highest level since November 2013, according to the Mortgage Bankers Association.

But refinance applications fell 7 percent in the latest week, ended Oct. 24.

In recent weeks concern over global economic weaknesses brought market turmoil and sent investors seeking safety by pouring money into U.S. Treasurys. Higher demand drives up prices for those government bonds and causes their yields to drop. The yield on the 10-year Treasury note touched new lows. Mortgage rates often follow the yield in the 10-year note.

This week, the 10-year note rose to 2.32 percent Wednesday from 2.22 percent the previous week. The note traded at 2.29 percent Thursday morning.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year mortgage also remained at 0.5 point.

The average rate on a five-year adjustable-rate mortgage rose to 2.94 percent from 2.91 percent. The fee was steady at 0.5 point.

For a one-year ARM, the average rate edged up to 2.43 percent from 2.41 percent. The fee held at 0.4 point.

Small lenders bend more for risky borrowers

NEW YORK – Oct. 16, 2014 – Borrowers with minor imperfections on their credit applications – like a brief loss of employment or a temporary dip in their credit score – are starting to have better luck snagging a loan with smaller lenders, Bloomberg reports.

At least 15 smaller firms this year are offering slightly riskier mortgages, which in some cases come with higher interest rates, larger downpayment requirements and aren't backed by the government.

"Some lenders became afraid of their own shadows," RPM Mortgage Inc. Chief Executive Officer Rob Hirt told Bloomberg. The bank started a program this summer for borrowers who have higher debt burdens or who had sold a home for less than the outstanding mortgage. "The market is beginning to realize that if you make smart and sound loans to people who don't fit in the narrow box, it doesn't make them a worse risk."

On the other hand, larger banks, like Bank of America and JPMorgan Chase & Co., have generally tightened their credit standards over the last few years. The average score on mortgages that government-controlled Fannie Mae and Freddie Mac bought now stands at about 740 – well above the 660 level considered subprime.

Some big banks are reluctant to ease credit standards, concerned that Fannie, Freddie and the FHA will force them to buy back bad loans with underwriting errors – and the banks don't want to take on risk for loans that government programs won't insure. The lending giants from 2006 through 2012 faced more than $200 billion in losses from home loans, according to Moody's Analytics data.

But where big banks are stepping back, small banks are stepping in.

For example, Shellpoint Partners LLC's New Penn unit began offering mortgages this summer for homebuyers with debt-to-income ratios up to 55 percent, and interest-only loans when borrowers have "high disposable income" or "high income potential due to their line of work."

Lone Star Funds' Caliber Home Loans Inc. also debuted new programs that offer flexibility for foreign nationals and on condo purchases of without approval for government programs.

TD Bank's Right Step program allows borrowers to put 3 percent down and not pay mortgage insurance if they have credit scores of 660 or above.

Banc of California is providing loans to borrowers who have a foreclosure or late payments on their records, as long as they can make a downpayment of at least 20 percent and show other strong assets in their finances.

"To us, it's common sense," says Jeff Seabold, chief lending officer at Banc of California. "There's quite a few people who are boxed out that shouldn't be."

Source: "You Don't Need to Be Perfect to Get a U.S. Loan Anymore," Bloomberg Businessweek (Oct. 13, 2014)

Could 15-year mortgage product change lending?

NEW YORK – Oct. 13, 2014 – Two mortgage executives hope to overhaul the 15-year mortgage, and make it more available to low and moderate-income people. They say it helps borrowers build equity at a much faster pace compared to a standard loan.

Edward Pinto, a resident fellow at the American Enterprise Institute, and Bruce Marks, who heads the Neighborhood Assistance Corp. of America (NACA), have created a new product called the Wealth Building Home Loan, which has generated buzz since its September introduction at a mortgage conference in North Carolina.

The loan will initially be available through NACA's 37 offices, with plans to pilot it at other institutions in the coming months. NACA acts as mortgage originator for Bank of America.

The Wealth Building Home Loan is a 15-year mortgage with a fixed interest rate that requires little or no downpayment and no additional fees. In originating the loans, underwriters pay more attention to a borrower's income than credit score. They ensure that borrowers have enough money left over after the mortgage payment to cover other monthly expenses, reducing the risk of foreclosure in case of financial setbacks.

Typically, the monthly payment on a 15-year loan is higher than a 30-year loan, since the loan amortizes faster. In order to make the monthly payments more affordable, however, the Wealth Building Home Loan offers a rate about three-quarters of a percentage point below the 30-year FHA rate.

Borrowers can bring the rate down even further by increasing the downpayment. For example, for every 1 percent of the loan amount the borrower has as a downpayment, the interest rate will be lowered by half a percentage point, with the possibility of bringing it to zero.

The Los Angeles Times cites an example: A $6,000 downpayment on a $100,000 mortgage at 3 percent would bring the rate to zero. That means all of the borrower's monthly payment would go toward the principal – not interest.

Pinto and Marks say the goal was to create a product that would allow low and moderate-income borrowers to build wealth, and get them away from high-risk loans.

"This is an opportunity to spend a little more each month but build wealth much more rapidly," Pinto says. "But even better, there is only a small probability of going into foreclosure. If house prices should go down, you're covered because you have some equity to fall back on."

Source: "Loan Gives Low-Income Borrowers a Chance to Build Equity Fast," The Los Angeles Times (Oct. 5, 2014)

Mortgage rates will rise – but when?

WASHINGTON – Oct. 13, 2014 – Mortgage rates have hovered around yearly lows for weeks. But with rate-hike forecasts looming, can buyers count on borrowing costs to stay low?

Many economists now predict that the average 30-year fixed-rate mortgage will reach 5 percent by the middle of the next year, according to a New York Times report. On Friday, Freddie Mac reported the 30-year fixed-rate mortgage averaged 4.12 percent.

A hike in rates will come, in part, from the Federal Reserve's plan to stop buying mortgage-backed securities.

Economists note that a 5 percent mortgage rate is low by historical standards, but that type of increase will still reduce buying power in a home purchase. For example: A 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. However, the increase would likely be much more modest in other, less expensive markets.

But even in the case of rate hikes up to 7 percent, the analysis found that homes still remain affordable overall. From 1985 to 2000, homeowners' housing costs – including the principal and interest on a median-priced home – accounted for 22 percent of a homeowners' median household income. However, today's households spend about 15 percent of their median income on a median-priced home.

Source: "When Mortgage Rates Rise," The New York Times (Sept. 25, 2014)

Jumbo mortgages are cheaper, easier to get

NEW YORK – Sept. 23, 2014 – Wealthy homebuyers now pay lower average rates on high-dollar loans (known as jumbo mortgages) and, in some cases, they don't have to worry about a large downpayment or mortgage insurance, CNNMoney reports.

For the last several months, interest rates on jumbo loans – mortgages that are $417,000 or more (or $625,000 or more in high-priced markets – have been lower than what average borrowers pay. For example, the average rate on jumbo loans last week was 4.24 percent compared to 4.36 percent for a 30-year, fixed-rate conventional mortgage, according to the Mortgage Bankers Association.

In some cases, lenders have also reduced their downpayment requirements as well, requiring as little as 10 percent – about half the normal rate. Some lenders are waiving the private mortgage insurance requirement, too.

Many banks have lowered their credit standards for jumbo loan originations. For example, many jumbo borrowers used to need at least a 700 credit score to qualify, but now most lenders consider applicants with credit scores of 650, says John Walsh, owner of lender Total Mortgage Services.

In addition to mortgages, banks are on the hunt for jumbo customers in order to win them over as clients for other banking services too, such as retirement planning, says Malcolm Hollensteiner, head of retail lending for TD Bank. Jumbo borrowers tend to have better track records in repaying their loans and have lower default rates, so more banks are willing to take a gamble on them.

Source: "For Rich People, Mortgages Are Getting Cheaper and Easier," CNNMoney (Sept. 21, 2014)

Average 30-year mortgage rate this week: 4.12%

WASHINGTON (AP) – Aug. 15, 2014 – Average long-term U.S. mortgage rates declined this week, approaching their lows for the year.

Mortgage company Freddie Mac said Thursday the nationwide average for a 30-year loan slipped to 4.12 percent from 4.14 percent last week. The average for a 15-year mortgage, a popular choice for people who are refinancing, fell to 3.24 percent from 3.27 percent last week.

Mortgage rates are below the levels of a year ago. They have fallen in recent weeks after climbing last summer when the Federal Reserve began talking about reducing the monthly bond purchases it was making to keep long-term borrowing rates low.

Mortgage rates often follow the yield on the 10-year Treasury note. The 10-year note traded at 2.42 percent Wednesday, brushing its low for the year of 2.41 percent and down from 2.47 percent a week earlier. It fell to 2.38 percent in trading Thursday morning.

At 4.12 percent, the rate on a 30-year mortgage is down from 4.53 percent at the start of the year. Rates have fallen even though the Fed has been trimming its monthly bond purchases, which are intended to keep long-term borrowing rates low. The purchases are set to end in October.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was 0.6 point, down from 0.7 point last week. The fee for a 15-year mortgage was unchanged at 0.6 point.

The average rate on a five-year adjustable-rate mortgage edged down to 2.97 percent from 2.98 percent. The fee remained at 0.5 point.

For a one-year ARM, the average rate rose to 2.36 percent from 2.35 percent. The fee was stable at 0.5 point.