Among the many industries that the coronavirus pandemic has affected: the mortgage market. Rates on home loans have dipped to near-record lows, but a flood of applications and virus-related challenges have created new considerations for consumers who are thinking about refinancing a loan or obtaining a new one.
We spoke with Craig Strent, the CEO and cofounder of Apex Home Loans in Rockville, who explained what’s going on in the mortgage market and offered advice.
What is the mortgage-rate environment like these days?
It depends on the type of mortgage you’re looking for. If you’re looking to get a loan of below $510,400—a so-called conforming loan—rates are at historical lows. They’re in the low 3-percent range for 30-year fixed-rate mortgages, and 15-year fixed-rate mortgages have been in the high 2-percent range. When you get above that $510,400 figure and into the so-called jumbo-loan market, there are still good opportunities. Just not as good historically as you can get for loans below the $510,400 number.
Why have rates gotten so low?
Support from the Fed has pushed rates down. The Fed purchased a large number of mortgage-backed securities and Treasuries, and the net effect was to drive yields lower. And yields equals rates, in layman’s terms. I think rates are going to stay stable, and they’ll bounce around these low ranges for quite some time.
Early in the pandemic, there was a lot of volatility in the mortgage-rate market, and when mortgage rates dipped to near-historic lows, the subsequent flood of refinancing applications overwhelmed many lenders, creating what’s known as a capacity problem. Is that still the case?
In terms of capacity issues, it varies by lender. Home purchases are coming back now that things are stabilized and people are feeling a little safer going out. But refinance volume remains very heavy.
When there was so much instability in the market, some lenders pulled out and didn’t offer refinances anymore. So an important question that people should be asking their lender—in addition to what is the rate and what are the costs associated with the mortgage—is what is the process and what is your timeline for closing. Unfortunately, I think some lenders might not give you the factual timeline for how long their closing will take. So it would be a good idea to read the online reviews of a lender to see what customers have said about their experience, because that would be very telling.
What should consumers who might want to refinance be doing today?
Consumers right now should be working with the loan originators who do their current mortgage to get an understanding of what rate they need to make a refinance make sense. Then they should be putting themselves in a position to sort of preauthorize their loan officers so that if [a certain] rate hits, they’re ready. It’s like saying, “If Apple [stock] goes to this number, I want to buy.”
Generally speaking, people sometimes have unreasonable expectations. So if rates get to 3.5, they want 3.25. Rates get to 3.25, they want 3. Rates get to 3, “Oh, maybe I can get something in the 2s?” So it is critical that you establish a specific target that’s going to justify the cost of refinancing, and then you have someone track that for you. Because, especially if it’s an aggressive target, if rates do hit the number you’re looking for, they probably won’t stay there very long. And if you’re not ready, and you’re a layman, by the time you hear about it, it’s too late.
Has the economic crisis made it more difficult for people in hard-hit sectors to obtain mortgages?
Certainly, yes. For folks who have been furloughed, they really can’t get a mortgage right now. Lenders have to verify that they’re back at work and receiving their pay. For self-employed individuals, it’s challenging. Fannie Mae and Freddie Mac have put out guidance that requires lenders to verify the continuity of income—ensuring it’s likely to continue—and that the income has not been adversely affected by Covid-19 to the extent that the customer can no longer qualify for the mortgage.
The other piece that’s critical is forbearance. A lot of homeowners have applied for forbearance; they have raised their hand and said, “I want to skip a [mortgage] payment or two.” While the borrower is in forbearance, they are not going to get a new mortgage. They are going to have to come out of the forbearance and meet some other requirements before they can qualify.
What is the home-loan industry doing now to limit borrowers’ exposure to Covid-19?
Well, that’s really interesting. The mortgage industry is the kind of business that lends itself—no pun intended—to working remotely without that much of a problem. In terms of working on mortgages—processing, originating, underwriting, and approving loans—all of that stuff can be done remotely. However, there are two pain points.
One is appraisals. Fannie Mae and Freddie Mac have changed guidance, so in the large majority of refinance transactions, home inspectors are not required to enter the home. It’s only on what you would call a cash-out refinance that you would sometimes need an in-person home inspection.
The second issue has to do with the mortgage closing process. Even for more advanced companies that have e-sign technology, there are still a couple of documents that have to be physically signed. So you can’t do it fully online. Settlement companies have gotten very creative during Covid-19. I’ve seen people who close on their mortgage in their car while the settlement officer stands outside and watches them sign. Other times, the settlement officer will drop off a medically sealed packet of documents at the front door and then stand at the window and look at them sign so they can notarize the document. People are closing in their garage on a socially distant basis. People closing in parks. All kinds of really creative ways. But it’s still happening.
From a consumer’s perspective, what’s the best news in all of this?
People took hits to their investments and to their retirement accounts in their portfolio, and that’s still down. But the silver lining has been that interest rates have been low. Low rates have meant relief for a lot of homeowners. There’s been an opportunity for people to refinance their debt and save money. And saving money in this environment, particularly if you’ve had any kind of income adjustment, has been a positive. For people who have been willing to look at homes and buy in this environment, while there has been significantly less inventory until the last couple of weeks, some people have been able to get some good deals.