Regulatory Changes, Home Equity Create Mortgage Lending Opportunities During Current Rate Environment
Written By: Joel Palmer, Op-Ed Writer
The mortgage boom of the last few years, fueled largely by historically low interest rates, ended earlier this year.
The sub 3-percent loan has been replaced with a 7-percent, 30-year fixed. Refinance activity has dried up as a result. The combination of high home values and higher mortgage rates has kept more potential buyers out of the market.
That doesn’t mean there’s no business to be had for mortgage processors and underwriters. Yes, there is less business and a number of competitors trying to obtain it. On the other hand, there are people who are still in the market for a mortgage.
Previously reported regulatory changes may open up opportunities in the mortgage market:
Freddie Mac recently announced updates to its HFA Advantage mortgage. This includes adding manufactured homes and two- to four-unit properties to the list of acceptable properties for HFA Advantage.
The Federal Housing Administration (FHA) recently released a proposed rule to increase and index the loan limits for its Title I Manufactured Home Loan Program. This program insures loans used to finance manufactured homes titles as personal property.
The Federal Housing Finance Agency (FHFA) has proposed amending its Enterprise Duty to Serve Underserved Markets regulation to add a definition of “colonia census tract,” which would serve as a census tract-based proxy for a “colonia,” and to amend the definition of “high-needs rural region” in the regulation by substituting “colonia census tract” for “colonia.”
Earlier this year, FHA directed mortgage underwriters to be more flexible with borrowers who have been negatively affected by COVID-19, instructing lenders how to calculate effective income for qualified borrowers who were affected by gaps in employment.
These changes are not a direct response to higher mortgage rates, but are instead part of an overall initiative to increasing lending opportunities to low-income and moderate-income homebuyers. Even so, these changes are coming at a good time for lenders looking for additional tools to match certain borrowers with a mortgage.
Although refinance business has dried up, homeowners are sitting on a large amount of equity that can be tapped via home equity loans and lines of credit. CoreLogic recently reported that the total average equity per borrower has reached almost $300,000, the highest since it starting keeping track.
Lenders in certain affordable housing markets could see an influx of new buyers who are moving to escape higher-priced areas. Redfin recently reported that nearly one-quarter (24.2%) of homebuyers nationwide looked to move to a different metro area in the third quarter, a record high. Remote work has made it easier for potential buyers to consider a move to save money.
Redfin also warned that this trend may not last much longer, as a softening economy and labor market will push people to stay put.
Until demand picks back up, lenders are taking the usual measures to survive the drought. Selling the mortgage servicing rights from the large volume of originations of the last few years has become a major income booster for lenders.
With fewer potential borrowers, mortgage professionals have had to endure staffing cuts. Some lenders are getting out of the mortgage business altogether.
Black Knight wrote that while conditions seem dire, there will still be buyers and sellers to keep business going.
“Sales dipping by 15 percent to 25 percent would be more in line with historical reactions to a period of significantly higher mortgage rates,” the mortgage technology company noted in a recent blog.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
