Mortgage applications continue to fall, inventory remains low

Mortgage applications continue to fall, inventory remains low
Mortgage applications declined for the week ending April 9, according to the latest report from the Mortgage Bankers Association. It’s the sixth consecutive week of falling mortgage applications.

Applications were down 3.7% from the week ending April 2, with rising mortgage rates and low inventory contributing to the slowdown and leading to a decline in purchase mortgage activity, said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“The third straight week of declining purchase activity is a sign that rising home prices and tight supply is constraining home sales – especially in the lower price tiers,” Kan said. “Purchase applications were still above last year’s pandemic-impacted low point, but fell behind the level of activity seen the same week in 2019.”

Refinance activity decreased, as well. It’s the ninth decrease in the past 10 weeks, Kan said, to 59.2% of total mortgage applications from 60.3% from the previous week.

“Rates have gone from 2.92% to 3.27% over the same period,” he said. “Last week’s index level was the lowest in over a year, as mortgage rates continue to trend higher. Many borrowers have either already refinanced at lower rates or are unwilling – or unable – to refinance at current rates.”

The seasonally adjusted purchase index and the unadjusted purchase index both decreased 1% from one week earlier, but the unadjusted purchase index was still 51% higher than the same week one year ago.

The FHA share of total mortgage applications increased to 10.8% from 10.2% from the week prior. However, the VA share of total mortgage applications decreased to 12.1% from 13.38% the week prior.

Here is a more detailed breakdown of this week’s mortgage application data:

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.27% from 3.36%The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.35% from 3.41%The average contract interest rate for 30-year fixed-rate mortgages decreased to 3.24% from 3.36%The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.67% from 2.74%The average contract interest rate for 5/1 ARMs increased to 2.6% from 2.92%
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The purchase mortgage market is back on top

The purchase mortgage market is back on top
The share of refinances in mortgage origination volume dipped below 50% for the first time in 15 months in March, according to Black Knight‘s new monthly data report, the Originations Market Monitor. With interest rates continuing to tick up, the purchase mortgage market is where most lenders will focus operations over the next year.

Since December 2019, millions of homeowners have been able to save hundreds of dollars a month in mortgage payments by refinancing to record-low mortgage rates, often in the 2% range. Thanks to the Fed’s intervention to lower the cost of borrowing, many homeowners shaved 125 basis points or more on their mortgages over the past year. That was a boon for mortgage lenders, the vast majority of which rode the refi wave to historic origination volume and record profits in 2020.

But the strengthening U.S. economy and acceleration of COVID-19 vaccines has pushed interest rates back up dramatically over the last quarter. By mid-January, mortgage rates began to rebound from historic lows, and by the end of March, Black Knight estimated the average 30-year mortgage rate sat near 3.34%. That was up 60 basis points from February, though still down 20 basis points from the same time last year.

In March, the share of refinancings fell to 48%, forcing many lenders to quickly pivot away from refis and toward the purchase market.

“Recent – and sharp – upward movements in interest rates have shifted the mortgage originations landscape very quickly,” said Scott Happ, Black Knight’s president of secondary marketing technologies. “The wave of refinance activity of the last year and some months has suddenly given way to a purchase-heavy mix. The implications of this shift touch nearly every area of mortgage lending, which in turn has implications for the wider economy.”

Despite refi activity in freefall, overall rate lock volume was up 2.5% in March, with purchase locks jumping 32% from February. Cash-out refinance locks also rose 4% month-over-month.

The three metropolitan areas with the greatest percentage of lock volume was the Los Angeles-Long Beach-Anaheim metro, New York-Newark-New Jersey metro and the Washington-Arlington-Alexandria metro. In the NY-NJ-PA metro in particular, rate lock data was up 11.7% month-over-month, and refis still took more than half of the origination volume.

But the top 20 metros were neck-and-neck for whether purchases or refis made up more of the lending pie.

“This marks the first time – but almost certainly not the last – that purchase loans have made up a majority share of monthly mortgage lending since December 2019,” said Happ. “We also saw credit scores pull back, a trend that’s likely to continue among refis as high-credit borrowers, who have been largely driving record volumes, exit the market.”

If these homeowners do slowly exit the market, credit availability will continue to open up for borrowers with lower credit scores and options for higher LTV products. Zillow‘s senior economist Jeff Tucker estimates this next wave of buyers will be millennials.

“More affordable, medium-sized metro areas across the Sun Belt saw significantly more people coming than going – especially from more expensive, larger cities farther north and on the coasts,” said Tucker. “The pandemic has catalyzed purchases by millennial first-time buyers, many of whom can now work from anywhere.” 

On average, Black Knight estimated a typical credit score for a conforming loan was around 751 in March, six points lower than a year ago. On the other hand, credit scores averaged close to 666 for FHA loans, around four points higher year-over-year. According to the report, Black Knight said it’s seen year-to-date increases in the share of FHA and non-conforming originations, while conforming volumes – though still representing the lion’s share of March lending – are down.
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Working with buyers in the nation’s hottest housing market

Working with buyers in the nation’s hottest housing market
Austin, Texas might be the hottest housing market in the country. The Lone Star State’s friendly tax policies combined with the city’s huge tech scene and its cool factor have made it a destination for Silicon Valley types for several years.

In addition to the same demographic factors driving growth elsewhere — all those millennials buying homes — the number of companies relocating there is a huge draw. Austin has ranked as the No. 1 city in population growth for the last eight years and it was the hottest job market in 2019 and 2020, according to the Wall Street Journal.

And all of those prospective homeowners flocking to the city are fighting for the same small pool of houses. In fact, Austin has just about 1.2 months of supply, and has seen a 19.7% year-over-year increase in home values.

Rapidly accelerating home prices come with a variety of challenges for lenders and real estate agents, including one of the biggest pain points right now — the appraisal gap.

Jay Garrett, a loan officer at Supreme Lending’s McClellan Branch in Austin, said he is seeing 10 to 40 offers on houses no matter where they are in Austin, and cash offers are winning the day because sellers don’t want to have to worry about the house appraising too low for someone who needs financing.

“If a seller has those multiple offers, they are looking first at cash offers and may even consider a lower cash offer because they don’t have to worry about the property appraising for that price,” Garrett said. “If they get a higher offer that has financing, then when appraisal comes back, the buyer is going to renegotiate the sales price to be closer to appraised value.”

Garrett said aside from cash buyers, he also has clients who have money to offset any appraisal gap. These buyers are often from out of state, Garrett said, and when they compare what they are getting for the money in Texas compared to what that buys them in California, New York or the Chicago area, they are willing to make up the difference.

Some comps are finally catching up to sales prices, but rising house prices continue to push the goalpost, making it a challenge for appraisers to value properties in the area, according to Garrett.  

Joel Richardson, a PrimeLending branch manager in Austin, said the entire area around Austin is seeing huge demand.

“Just take a compass, put the point anywhere in Austin and draw a 50-mile circle. From Fredericksburg to Boerne to north of San Antonio…you name it. It is just a super tight housing market. I haven’t seen anything like this here, and I’ve been doing this since 2000,” Richardson said.

That demand has stretched appraisers, Richardson said. The usual 10-day turn time for an appraisal is now often three to four weeks, and appraisers can charge a premium.  

“There is so much demand they can call their own shots or cherry pick,” Richardson said. “If you ask for a rush job, they say they can’t do rushes right now because they have so much in the pipeline.”

Richardson also noted that there have been fewer property inspection waivers issued by Fannie Mae in the last several months, keeping appraisers, inspectors and others in valuation very busy. That could be because of the winter storm that hit Texas around Valentine’s Day, causing significant damage across the state, or just a reaction to the appreciating market. Either way, it puts the squeeze on property valuation.

Real estate agents and lenders are working together to try to get buyers into houses. Making the winning offer means being prepared for that appraisal gap, among other things, which requires lenders to be more agile too. Richardson regularly runs calculations to figure out how to maximize liquidity, knowing they are going to need all the cash they can get.

Compass agent Barbara Van Dyke, who worked in luxury real estate in Hawaii before moving to Austin, noted that with prices rising so fast, she’s checking what’s gone under contract in the last week and how many hours or days those properties were on the housing market in order to advise clients on what they should offer. Even clients with homes priced over $1 million have seen up to five offers this year, she said.

“Prices have increased 30% since the first of the year, and they are changing daily. At this point, looking at what closed in January feels like ancient times compared to just earlier this month. I’m looking at the last couple weeks trying to gauge what is the percentage properties are selling over ask,” Van Dyke said.

To be competitive, she might advise prospective homebuyers to offer to pay what are normally seller’s fees, like title fees and the cost of the survey. She might also recommend increasing their earnest money to 2% or more, offer a very large option fee for a very short amount of time and even waive buyer’s approval. One thing she does not recommend — unless the buyer is a builder or other very experienced player — is waiving the option period.

All of these tactics are new to those in the Austin area Van Dyke said, but wouldn’t be surprising to those used to competitive housing markets elsewhere.

“I think what’s going on is a shock to people in the Austin market,” Van Dyke said. “But in other competitive markets this is what it takes to buy a house. I had a client last night, when I explained what we needed to do, she said ‘Don’t worry, i understand — we need to New York it,’ which means to buy the property you have to go way over asking and make up the cash difference.”

Van Dyke said she is seeing other scenarios familiar to those in the Bay Area that used to be foreign in the Austin housing market, like camping out for days to snag the remaining lots builders are offering. Van Dyke is regularly checking with builders for several clients – most are sold out of lots until 2022. One new community that is going online in June may have to assign lots by lottery due to demand.

For native Austinites looking to buy, especially first-time homebuyers, the changes may necessitate moving farther out.

“Those young first-time buyers, who don’t have a high credit score or lots of cash, they need to understand that they’re probably not buying in Austin,” said Van Dyke. “They may have to look on the fringes of the city, or in counties far to the east of Austin. They can’t buy in Austin because there is nothing for them to buy.”
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Why millions of prospective borrowers are stuck in ‘no man’s land’

Why millions of prospective borrowers are stuck in ‘no man’s land’
The White House’s March jobs report showed encouraging job growth one year after the first pandemic-related unemployment claims. Still, the Biden administration says the economy remains down nearly 8.5 million jobs year over year. It’s expected to take at least through the end of 2021 — and maybe a lot longer — to get back to pre-pandemic levels.

That means there are still millions of unemployed Americans, and when employment is uncertain, so is income. Uncertain borrower income spells risk for lenders and investors, who tend to respond by tightening their underwriting guidelines. This seems sensible — but it also has unintended consequences.

The credit box has tightened to the point where the average FICO score for all loan types is north of 750, according to ICE Mortgage Technology, and we know of several lenders whose credit overlays require applicants to have closer to a 780. Meanwhile, the average U.S. FICO score is about 711. The discrepancy between these figures tells us that average prospective borrowers — including the majority of Black and Hispanic households — are being squeezed out of the credit box and missing out on the lowest mortgage interest rates in history.

That’s a disconcerting notion for anyone who’s serious about paying more than lip service to the mission of helping Americans achieve the dream of homeownership. Moreover, it’s bad business; when lenders curate their pipelines to the point that they’re only writing loans for “the best borrowers,” they can expect to see razor-thin profit margins and high borrower turnover. After all, someone with a credit score of 780 can get a loan anywhere, anytime — which is exactly what they’re apt to do every time rates move a quarter of a percent.

The mortgage executives I’ve been speaking with are asking themselves, “what am I going to do later this year and in 2022 when rates tick up and cookie cutter refis are no longer falling from trees?” Those who don’t want to spend $1,500 a lead to fill the gap with extra purchase loans are going to have to open their credit boxes back up. Certainly, one path for doing so is to enter the non-QM lending space, but the tradeoff is that non-QM loans are more expensive to originate and difficult to sell. The path of less resistance is to peel back credit overlays in order to underwrite more Qualified Mortgages for delivery to the GSEs. The question, then, becomes how to do this without introducing greater risk.

One category of risk lenders need to avoid is good, old-fashioned fraud, and let’s be frank: bad actors come out of the woodwork in times of economic stress. There was a fascinating story that made headlines in FormFree’s own backyard last month when 11 metro Atlanta residents were charged in a mortgage scheme that defrauded several marquee mortgage lenders as well as home-building giant D.R. Horton. I can think of no more perfect story to illustrate the criticality of lenders replacing paper-based documentation of assets, income, unemployment with the kind of direct-source data FormFree pioneered more than a decade ago.

More generally, though, what lenders need is a better way of assessing a borrower’s ability and willingness to repay a loan. A FICO score viewed in isolation, especially in times of socioeconomic instability, is imprecise; not all borrowers with a credit score of 700+ will behave well, and by the same token not all 600s are risky. 

By supplementing traditional FICO scores with additional consumer financial data such as assets, income, employment and liens and judgments data, lenders can identify understated or overstated FICOs and gain a more holistic, data-driven assessment of each borrower’s willingness to pay. Armed with this information, lenders can improve both volume and margin by originating not just more loans, but more profitable loans. 

Safely extending credit to borrowers within this segment doesn’t just create revenue opportunities for lenders; it also promotes greater financial inclusivity. According to the Urban Institute, “Black households have the lowest median FICO score among all racial and ethnic groups and the greatest share of households with no credit score at all.” Hispanic households fare only a little better.

We have the tools to serve an entire segment of prospective borrowers — including, disproportionately, people of color — who are “stuck in the middle” between the agencies’ minimum FICO requirements and the “FICO gates” imposed by lenders’ credit overlays. We just have to use them.
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Redfin: Selling your home? List it midweek

Redfin: Selling your home? List it midweek
A new report from Redfin shows that homes listed midweek sell for an average of $1,700 more than homes listed on the weekend, based on homes sold above their list price from July 2020 through February 2021. And they sell faster, too.

Putting a home on the market on a Friday or Saturday is risky, since potential buyers may have already filled their weekend with other home tours, said Redfin Chief Economist Daryl Fairweather. That’s especially important during the pandemic, when it’s more likely that buyers and their agents are required to book individual appointments to tour homes, she said.

“And listing on a Sunday or Monday means buyers may lose interest before the following weekend,” Fairweather said. “Because the market is so competitive right now, most homes will receive plenty of attention regardless of when they’re listed, but sellers can still maximize their potential profit simply by listing in the middle of the week – which gives potential buyers a few days to see the home, talk to their agent and set up a showing for Saturday or Sunday.” 

Homes that hit the market midweek in Boston sell for an average of $7,100 more than homes listed on the weekend, easily the biggest premium of the 25 metro areas included in Redfin’s analysis. Boston was followed by Newark ($4,500 more), Seattle ($4,400), Oakland ($3,500) and Denver ($3,200). 

Data gathered from Redfin showed that listings of homes for sale get 64% more views the day they first hit the market than the day after a price drop. Meaning, if a home listed for sale gets 100 views its first day on the market, it would get 61 views the day after a price drop. Additionally, homes listed for sale midweek sell for an average of 1.6 days faster than homes listed on the weekend.

Real estate agents and LOs: the great collaboration

Technology has given consumers the power of choice and expedited the entire real estate purchasing process. Successful agents, brokerages and loan officers of the future are going to rely significantly on technology to find, nurture and engage with buyers and home sellers while also playing an expanding role as personal advisors.

Presented by: Propertybase

Even with the market as hot as it is – some homes across the country are getting 20 to 40 offers within 12 to 24 hours of being listed – Fairweather said sellers should be modest with their listing prices in order to maximize the amount of eyes put on the home.

“Sellers shouldn’t overprice their homes, even if most homes in their area are selling for higher than their asking price,” she said. “If the home doesn’t go under contract within a reasonable time and the seller has to drop the price, fewer potential buyers who are searching within the home’s new price range will see it.” 

Redfin also looked at specific markets when studying midweek sales. In terms of sale speed, the advantage of listing midweek is biggest in St. Louis, where the typical home listed midweek sells 3.5 days faster than one listed on the weekend. It’s followed by Newark, New Jersey (2.9 days), Grand Rapids, Michigan (2.9), Frederick, Maryland (2.8,) and Boston (2.8).

Speaking of Boston, homes that hit the market in the city midweek sell for an average of $7,100 more than homes listed on the weekend – the biggest premium of the 25 metro areas included in Redfin’s analysis.

The advantage is smallest in Sacramento, California (0.7 days), Chicago (0.8), Phoenix (0.8), Dallas (0.9) and Portland, Oregon (1).  

Mortgage Bankers Association Chief Economist Mike Fratantoni told HousingWire in March the demand for homes will continue to be bolstered by an improving job market, favorable demographic trends, and mortgage rates that are still low from a historical perspective. The unemployment rate, which was at 6.2% in February, is expected to drop to 4.7% by the end of the year, with hiring accelerated by a surge of consumer spending as pandemic restrictions are lifted.
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SafeWire launches wire fraud tracker as education tool

SafeWire launches wire fraud tracker as education tool
SafeWire co-founder and CEO Chris Sauerzopf said SafeWire’s new Real Estate Wire Fraud Tracker can help title agents educate others in the industry about the importance of securing online transactions. Read on for more from Sauerzopf about the wire fraud prevention tool.

National Integrity Title unveils AI virtual assistant

National Integrity Title unveils AI virtual assistant
National Integrity Title Agency (NITA) launched Robin, a fully integrated virtual assistant that can track the progression of the title insurance process. Read on for more about the virtual assistant.

Spruce introduces automated underwriting model

Spruce introduces automated underwriting model
Spruce’s new automated underwriting model is being launched in conjunction with Spruce’s partnership with American Digital Title Insurance Co., which is owned by Digital Partners, a Munich Re company. Read on for more about the new underwriting tool.

FNF hires national agency education trainer

FNF hires national agency education trainer
Fidelity National Financial (FNF) has hired a national agency vice president for education and training to coordinate FNF’s education strategy and provide learning opportunities. Read on for more about the new hire.

Report: Single-family home property taxes up year-over-year

Report: Single-family home property taxes up year-over-year
ATTOM Data Solutions’ 2020 property tax analysis showed that $323 billion in property taxes were levied on single-family homes in 2020, up 5.4 percent from 2019. It was the largest tax hike in four years. Read on to learn which states had the highest and lowest effective property tax rates last year.