Refinancing Up, Purchasing Down as COVID-19 Splits Mortgage Market
The novel coronavirus (COVID-19) is wreaking havoc with a global way of life like no other pandemic in recent history, and it’s no different in the mortgage market as it has practically split the market in half.
While interest rates are in a constant state of flux because of the crumbling economy in the midst of this crisis, they remain low enough that more borrowers are looking to refinance their mortgages by striking while the iron is hot to reduce their monthly payments. And at the same time, potential homebuyers are deciding to sit out the pandemic by not looking for a new home to quarantine themselves inside.
In the final week of March, the total mortgage application volume increased by 15.3 percent compared to the third week of the month, according to the Mortgage Bankers’ Association’s (MBA) seasonally adjusted index and the total volume was 67 percent higher than the final week of March 2019.
However, this was driven entirely by application to refinance mortgages as opposed to folks applying for new ones.
That’s because after rising for two weeks, mortgage rates dropped to the lowest level ever recorded on the MBA survey.
The average rate on a 30-year fixed-rate mortgage with conforming loan balances tumbled from 3.82 percent to 3.47 percent for loans with a 20 percent down payment.
(These rates are changing by the day, sometimes significantly. For the most up-to-date rates for a home in your area please check here.)
With the rates dropping like that at the end of March, refinance applications spiked 26 percent from the previous week and were a whopping 168 percent higher than at the end of March 2019.
These low rates didn’t help homebuyers though, as applications to purchase a home fell 11 percent from a week earlier and were down 24 percent from a year prior.
When April 1 passed, so did the day most people make their monthly mortgage payments. And, with millions of Americans having taken salary cuts or having lost their jobs outright as a result of the pandemic, mortgage servicers are being deluged with calls for help.
Congress has passed three relief packages to respond to COVID-19. Bank regulators have also adopted many new policies in light of needs resulting from the COVID-19 crisis. Here are those provisions and actions that are designed to address homebuying, homeowner/landlord, and personal finance issues.
All federally backed loans (Fannie Mae, Freddie Mac, FHA, VA) are granting loan forbearance under the economic recovery plan. Borrowers with these loans can miss payments for up to six months. Those payments will be tacked on to the end of the loan period, which is a small relief for about 62 percent of the market.
CNBC spoke recently with Sanjiv Das, CEO of Caliber Home Loans, an independent lender that services approximately 750,000 of those mortgages nationwide, and Das said that the amount of phone calls that have been coming in are overwhelming.
Das said his company instituted an integrated voice response (IVR) system to allow for customers to self-service as a response to the crush of phone calls.
“On Sunday, [March 29] we had about 8,000 IVR requests where customers were able to get their own forbearance online,” Das told CNBC.
According to CNBC, Das was head of Citi Bank mortgage during the subprime crisis and he said that while the mortgage market today is much healthier than it was from 2007-2010, the impact of the coronavirus could be even worse.
Jobless claims soared past 10 million since the COVID-19 outbreak, according to the Department of Labor, and the Fed projects that the unemployment rate will reach 32 percent before all is said and done, which would be worse than during the Great Depression.
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