Mortgage rates are continuing their nosedive, and the lending industry is ‘tightening up.”

The April 2 average for a 30-year fixed-rate mortgage dropped to 3.33% and could be headed for the 3.31% all-time low set in 2012. But the real-world lending market is not as cut-and-dried as the movements of the weekly average. There are just too many counter-intuitive happenings.

Lenders nationwide are still struggling to cope with costly margin calls driven by the FED’s accelerated buying of mortgage-backed securities.

Lawrence Yun, National Association of Realtors chief economist, comment on Linkedin after the April 2 rate averages report, “The economy hit a wall. The government forced economic shutdown is leading to data moving truly off the chart – five standard deviations away from normal. The second-quarter economic data will be ugly. The stimulus package and unemployment insurance enhancements are attempting to replace lost incomes. After the all-clear declaration, there will be a strong rebound later in the year.”

Local lenders are also looking at a strong rebound when there’s an all-clear. Until then, things are definitely not business as usual.

David Hamilton, Tri-Cities Mortgage Bankers Association president

David Hamilton, president of the Tri-Cities Mortgage Bankers Association, said: “Underwriting is tightening up.” Some lenders are not locking loans until the week before closing, Hamilton said. And, some are raising the credit score benchmark while others will take 640 – but it will cost the borrower 4 points. “We’re still taking applications. But things are beginning to slow down,” he said. Jumbo loans are all but gone, he added.

Steve Reed, Benchmark Home Loan’s branch manager, said he’s seeing a “flight to quality” as lenders are going back to common sense lending. We’re not just looking to see if an applicant has a job. Is their job sustainable? Do they have reserves? It’s not just a matter of meeting the standard debt-to-income ratio – do they have anything left over?

When asked about the most prevalent type loans consumers are seeking, Reed said his firm is still seeing a lot of refinancing. That a local and national trend that began in the second quarter of last year. At the end of last year, local refinancing loan originations had increased 77% and accounted for about half of all loan originations. During the same period, purchase loan originations increased by 26%. Local purchase loan originations are now down by about half, Reed added.

Matthew Graham, writing in Mortgage News Daily this week, said, “mortgage companies are dealing with a shortage of short-term cash in many cases. This is preventing signed loans from being funded at times, and it’s greatly contributing to rates being higher than the market movement would suggest.”

Steve Reed, Benchmark Home Loans branch manager

He cited uncertainty created by the oncoming avalanche of forbearance and payment requests as a major reason for the choppy lending climate. “Until lenders and mortgage investors see a better plan in place to address all questions or until they have a better idea of how things are actually playing out, they are being “tremendously cautious.”

Reed also addressed that issue in a Facebook post.

“As the month of April starts – I encourage everyone to do your best to pay your mortgage or rent if at all possible. On a mortgage, you don’t have a late fee until the 16th, and as long as you pay by the 29thish, you won’t have 30 days late on your credit. I know people are talking about deferring mortgage payments – but they don’t go away. Only do this if there is no other option.

There is a lot in the news on “Deferrals” and “Forbearance”.. .. When you sign up for these, you only kick the can down the road, and it can make it tougher to meet your obligations in the long term!

“In the last crash, I saw a lot of people get behind because they were promised a mortgage modification – when it fell through, they did not have the five mortgage payments in the bank to stop a foreclosure. Many people lost their homes when they were still paying their credit card bills.

“Focus on your shelter – home – car and food first – this includes car insurance and even a car repair if necessary. Everyone else can get in line. I know it seems easier to skip the big payment and pay everyone else – don’t do it. Use what money you have to protect your home and your transportation so you can get back to work when this is over.

I am praying for everyone impacted physically and financially. We will find a better day together.”

Categories: REAL ESTATE