Mortgage Rates Should Be How Low???

Mortgage Rates Should Be How Low???

Broker | Owner | Mortgage Consultant
Josh Lewis
Published on April 22, 2020
BuyWise Mortgage Josh Lewis Coronavirus update - mortgage rates update

Mortgage Rates Should Be How Low???

In today’s update, we’re going to cover:

  • Mortgage Interest Rates
  • The indicator that shows rates should be much LOWER…
  • When (or IF) we should expect rates to move lower….
  • Forbearance FAQ

For up to date news and analysis of forbearance options, check out

The purpose of the updates is to get you the information you need to navigate the current mortgage environment.  If you prefer to read, here’s the transcript:

Welcome back it’s Josh Lewis with BuyWise Mortgage here again with the Coronavirus Mortgage Market Update.

Really just a mortgage market update but we started doing this here in the virus at some point we’re gonna drop that off of there hopefully soon market gets back to normal, life gets back to normal, and we can just do these as a standard market update.

But let’s make me a little bit smaller and make our information here a little bit bigger and jump right into it. We’ve been talking a lot just about interest rates and how they’re moving around which hasn’t moved a lot the last few weeks and we’re gonna get into that.

And I wanna talk about, almost everyone I talk to even if it’s just a casual acquaintance, hey things are crazy things are just nuts in the mortgage industry, what’s going on? What changes have we seen, what’s different than six weeks ago?

The biggest one that we had which is largely not a problem anymore is turn times. Lenders had brought in so much refinance business in February and then had to deal with sending employees to work from home then we had some lenders that worked 20 and 30 days in underwriting and telling you that hey there’s no way you’re going to be able to close a loan in less than 60 days.

Well we’re at 45 days or so and we haven’t had that problem with any of our lenders. Most of them are backed to anywhere from two to five days in underwriting. You can easily close a loan in 45 days if your loan officer and broker knows what they’re doing.

But it’s definitely longer you know January, February, early part of February we were closing almost everything on the refinance side in 21 days, easily purchases in 30 days.

I’d say 30 to 45 as long as you’re dealing with someone that knows what they’re doing and is on the ball those are super reasonable turn times and you shouldn’t have to wait too long at any point in the process.

The big one that’s gonna be with us for a while is overlays. What is an overlay? So the agencies Fannie Mae, Freddie Mac, FHA, VA, USDA. They issue their guidelines and they say if you underwrite to these guidelines and stay in this inside of this box we will ensure those loans and you can put them into our mortgage pools.

Well, lenders in times of distress go hey that’s great that you guys are okay with that we’re gonna be a little bit more conservative. And with everything that’s been going on, every lender on the planet has put overlays in place. I can’t think of one that doesn’t have any overlays.

So what we’re seeing a lot, FHA doesn’t have or will allow a FICO score down to 500. Most of them are 640 to 660. A couple are still hanging in there and still doing no credit score requirement or all the way down to 500. I don’t know that I’d want to test it and try it in this market.

We’re seeing reserve requirements. Meaning that a loan that doesn’t normally have to have funds in reserve, lenders are saying well I don’t want to make a loan to someone when so many borrowers are requesting forbearance that doesn’t have a little bit of reserve set aside.

So some programs are seeing three, six, 12 months of reserves required. And the 12 months, don’t panic. Those are mainly for investment properties you’ve probably seen in the news that a lot of renters are having a hard time paying their rents. So it’s great that you collected $40,000 of rent last year on your rental property.

Lenders wanna know that we’re collecting it today and probably that we have a nice chunk of reserves in case your renters are having problems. So those are the kind of overlays we’re seeing.

The last thing we’re seeing is just flat out elimination of programs. Now I shouldn’t say elimination of programs it’s more likely suspensions of programs.

Anything that does not fit in that federally backed box, again FHA, VA, USDA, Fannie May, and Freddie Mac, there’s not much of a market for right now. So with those programs suspended everything is going into the programs that we do have.

And before anyone pops up, or writes in, or asks and says anything about well hey I was able to get a jumbo loan or hey I was able to get HELOC or a non QM loan.

They absolutely do exist. So the big banks have been a little bit more conservative in terms of dialing back the loan to value that they’re willing to go to.

So with that it’s been interesting to see but we’ll have most of those programs back once a secondary market comes back available for them hopefully in the later part of they year.

So the biggest thing I tell people the change for me on a daily basis of what we’re doing is normally I take in all your information, we put it into our system, we push a button, and it goes over to a program that looks at 150 different lenders and it tells us who has the best terms on any given day. And that used to be the end of the job.

We’d say okay these five are all really close right at the top and of those five this lender’s the best and easiest to work with let’s send the loan over there. Well now that’s really just the beginning of our job, because that program that compares rates and terms on different programs is not really good at capturing those overlays.

So that’s the biggest part to the job is just making sure that we find you the best terms and then once we find the best terms that you qualify under those terms. Now with that let’s look at where we’re at in the market.

We see a little bit of a red candle today it was worse at the worst part of the day it kind of recovered but for the most part we’re still right here in this narrow range here from top to bottom at 104.656 down to about 104. So about a 50 basis point range here which is about an eighth of a percent in interest rate on a rate sheet.

So now we’re going on three weeks within about an eighth of a percent. If we were in normal times because what you’ll see here on the next slide might as well just jump into it where are mortgage rates that we’re seeing priced everything out today. Conventional loans despite the fact that we have that red candle, still a 3.375 for your best-qualified borrowers.

FHA at 2.875 again about the same as Thursday and Friday. VA 2.875 as well. Now the high balance stuff is we’ve gone through this in earlier videos there’s just some weird stuff going on there in terms of lenders having way too much high balance loan more than the agencies are comfortable with so there all pricing it differently to basically deter people from applying on those programs.

So conventional, we still get a great rate at 3.625 but you’re looking at paying almost a percent to get that. On the FHA you’re about 3.5% and on VA 3.75 with .75 of a percent. So those are way out of wack from standard we would normally look at about an eighth to a quarter of percent higher on high balance versus standard balance but that’s what we are seeing right there.

Now what I wanted to go through is just a quick one. This is the rate spread of the 10-year treasury to the 30 year fixed mortgage. So it’s a good measure because most people don’t have access to pricing on 30 year fixed mortgages or national averages on a daily basis but they do have access to the 10-year treasury.

And what we compare is these don’t move in lockstep you can’t look at the 10-year treasury and say it was down today so mortgage rates are gonna be down but what we’d like to say is it’s like a dog on a leash they don’t always move together but they’re never gonna get too far away.

So what we see here is over the last 10 years that spread got as high as 2.2% and as low as 1.2%. But on average we can take the 10-year treasury add 1.71% to it and it tells us what the 30 year fixed mortgage is going to be for the best qualified borrowers. 10 year closed at 0.62 today.

If we take 0.62 added to the 1.71 we’re at about 2.35% on a 30 year fixed. We’re a full percent higher than that. So we have room to improve if the situation in the economy stays to the point where the 10 year treasury stays this low, we have an opportunity to see rates move much lower.

Now if we get out of our homes get out of quarantine get some type of opening of businesses and restaurants and things start to recover, we could see the 10 year pop up before we see this margin get down. So you can see we’re currently at 2.62% even if we got to the high end of the average at 2.2 with a 0.62 10 year treasury we’d be in the high twos on a 30 year fixed mortgage and the low twos on a 15 with zero points.

So it’s something that we wanna look at. Whenever I show this chart I always wanna tell everyone if the numbers make sense, if a refinance makes sense today, let’s not hold out for the greatest pricing that we would ever see in the mortgage industry. There are reasons why we’re not seeing this pricing today.

Largely the problems in servicing which we’re gonna hit on here in a second, lenders with having to deal with the forbearance required under the CARES Act are not collecting payments and that’s giving them issues so one’s paying up for servicing. And then we also just have capacity issues and then conservative pricing in the mortgage industry cause no one knows exactly what’s coming next.

So for that reason and for the fact that we could see some short term distress in home prices if you ask me two years from now home prices are going to be higher than they are today but six months from now it wouldn’t be uncommon especially anecdotally in certain areas to see appraised values go down just because if there’s a distressed sale or someone has to sell right now there aren’t as many buyers out there to take it up. So long way of saying burden the hand is better than a hopeful one in the bush further down the line.

So if a refinance makes sense today pull the trigger keep your costs to a minimum in case you have the opportunity to do another low cost refinance in the future. But if the 10 year stays low we should have an opportunity to see that moderate and see rates go even lower. So when we talked about forbearance is causing big headaches for mortgage servicers.

Black Knight Data put this out on the 16th so we’re on the 20th so it looks like last Thursday. It says 2.9 million homeowners are currently in a Coronavirus related forbearance agreement. So forbearance is an agreement where you show a lender that you have a hardship and they agree to take a reduced or no payment for a period of time before you bring that loan current.

So 2.9 million homeowners that amount to 5.5% of all mortgages that are not paying right now they’re in a forbearance agreement. Now just with that number if we didn’t have anyone else go into forbearance servicers will be bound to advance $2.3 billion of principal in interest payments per month to holders of government-backed mortgage-backed securities.

So what happens, again if you enter into a forbearance agreement the lender says I get it you’re having a hardship you lost your income you can’t make your payment this month. You don’t make your payment but the servicer the person you normally make your payment to is bound to make the principle in the interest payment and later on you’re taxes and insurance as well to the holder of the mortgage.

So right now we have $2.3 billion a month that’s potentially gonna be uncollected that has to be forwarded to investors that hold the mortgages. Talked to a VP at one of our big lenders and he ran through the numbers. He said the servicing industry as a whole had $8 billion worth of profit last year. So in just under four months all of their profit for all of last year would be gone.

So again what I like to tell people is not just cause we’re being nice to servicers but because it’s probably the safe and prudent thing to do for you if you’ve lost income you cannot make your payment by all means pursue forbearance.

But if you have some reserves if you had a reduction in income and you can make your payment you wanna skip almost any other payment before you step into that forbearance agreement.

Just because what I’m seeing from these videos from some videos I’m doing with my realtor partners I’m getting inquiry’s everyday of people saying hey this is what my servicers telling me what do you think?

And largely there’s no answer to those questions there not getting definite answers from their servicers not because the servicers don’t wanna tell them or they don’t wanna tell them the truth or they don’t know. Actually they do, they don’t know. What happened is a month ago we had less than 1% of the loans in America in default.

All of these lost mitigation departments had very little staffing and almost overnight that just shot through the roof and they were forced to work from home. So we have people that are not highly trained working from home operating under the pressure of the CARES Act being forcing forbearance on them and putting these policies into place on the fly.

So for you, if you kind of want forbearance but you don’t absolutely positively need it you want to hold off you know as long as you can and pursue other options just because there’s so much uncertainty of how you’re gonna have to repay how it’s gonna show up on credit reports.

I know the CARES Act says it can’t impact you negatively on your credit. We’re already seeing people with negative reports on their credit. And I’m sure they will get them fixed in the long run but it’s not a panacea it’s not a cure-all it’s sort of the last resort.

So by all means if you need it take advantage of it. If you don’t hold off as long as you can and pursue other options. So think that’s all I have tonight. If you have any questions, anything you want us to cover we’ll be back here Thursday night. So by all means reach out hit me up online.

We got comments over here, got my friend Brian Stark haven’t seen in a few years checking in. But anything if you have questions on forbearance, you have questions on refinancing, buying a home, selling a home. If we can’t get you the answers you need we have the connections to do it. So hope this was helpful.

Broker | Owner | Mortgage Consultant
Josh Lewis Broker | Owner | Mortgage Consultant
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