This week’s Q&A column is sponsored and written by Brian Bonnet, Senior Loan Officer (NMLS ID# 224811) of Atlantic Coast Mortgage, LLC (NMLS ID# 643114). To learn more about current mortgage rates and the home loan process, contact Brian at 703-766-6702 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: What’s the current status of the mortgage industry?
Answer: The pandemic has had a significant impact on the residential mortgage industry. At the beginning of the public health crisis, investors in mortgage-backed securities stopped purchasing the instruments, which caused a liquidity shortage and a spike in the rates available to consumers. The Federal Reserve quickly stepped in and began purchasing Fannie Mae and Freddie Mac issuances, stabilizing the market and easing rates. Underwriting standards involving employment, income, liquid reserves and credit scores were tightened by Fannie, Freddie and jumbo loan providers. Some lenders in the jumbo space chose to stop making those types of loans until the economic impact of the pandemic was understood.
By late April 2020, conforming interest rates had dropped to the low three percentiles, and the volume of refinance applications had reached record levels. Interest rates dropped further into the two percentiles, and volume further increased. Lenders who had been able to turn purchase and refinance transactions in 30 days or less, found those processing times significantly slowed. Atlantic Coast Mortgage generally requested 30 days for purchase transactions and 55 days for refinances. Some lenders in the industry were slowed to as long as 60 days for their purchases and six months for their refinance transactions!
The record mortgage application volume continued throughout the year as rates dropped into the two percentiles, and the nation experienced a robust residential purchase market. By the late spring of 2021, the economy appeared to be stable and on the verge of beginning to expand. Interest rates moved higher, which slowed the rate of refinance applications and provided some relief to the mortgage industry, which had been operating at unprecedented levels for one full year.
This summer has seen rates for Fannie and Freddie conforming loans drop back into the upper two percentiles. Currently, the maximum conforming loan amount is $548,250 across most of the country. In the Washington metro area, the maximum conforming loan amount is $822,375. As refinance applications have moderated, turn times for some lenders have returned to 30 days or less, and some of the tighter underwriting standards imposed last year have begun to be lifted.
One aspect of residential lending that has seen multiple changes has to do with property appraisals. At the start of the pandemic, appraisal requirements in many cases were modified to allow for exterior only inspections or “drive-by” appraisals. Now, in those cases where an appraisal is required, most lenders are requiring full appraisals with interior inspections. More and more, however, property inspection waivers (PIW) are being provided in the Fannie and Freddie automatic underwriting decisions. Both agencies are building their own property valuation databases, and based on the other strengths of the proposed loans, they are often not requiring any type of appraisal or inspection of the property.
Another change the industry recently experienced has to do with the maximum percentage of non-owner occupied property loans, which may be included in Fannie and Freddie securities. The new limits have had the impact of significantly increasing the rate and point structure on those types of loans.
As the economy heats up, increasing concerns of inflation, there is the possibility, if not likelihood, that mortgage interest rates will increase. But with rates still generally in the high two percentiles, even an increase of one full point generally keeps rates at very good historic levels for the balance of the year.
If you would like more information to help plan your next move, please contact Brian Bonnet at [email protected] or call 703-766-6702.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria
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