ARMs Rise in Popularity as Rates Increase

More borrowers are turning to shorter-term adjustable-rate mortgages as interest rates rise, but that may be a riskier move than your clients realize. While these mortgages offer lower interest rates, the rates reset after a certain preset time. Still, a five-year hybrid adjustable-rate mortgage averaged a 3.28 percent rate last week compared to 4.30 for the 30-year fixed-rate mortgage, according to Freddie Mac’s weekly mortgage market survey.

The share of ARMs in total mortgage application volume has doubled to 9 percent since November 2016. The highest level of ARM applications since October 2014. “Home buyers in a strong housing market are looking for ways to extend their purchasing power, and ARMs are one way to do that,” says Mike Fratantoni, chief economist for the Mortgage Bankers Association. “While the ARM share got as high as 35 percent pre-crisis, it is really unlikely it will get nearly as high now, given [new] regulations, which effectively prohibit many types of ARMs that were prevalent then.”

Source: “Mortgage Applications Fall 2.7%, as Borrowers Turn to Riskier Loans,” CNBC (March 22, 2017)

Student Debt Holds Buyers Back, But Doesn’t Need To

Rising student loan debt continues to take blame for curtailing the number of young Americans from home ownership, but lenders and real estate professionals say it doesn’t have to necessarily be a deal killer in qualifying for a mortgage.

Home ownership is possible for buyers saddled with student loan debt, says John Wheaton, Redfin Open Book lender. “Many young people with student loans delay buying a home because they don’t think they can’t qualify for a mortgage,” Wheaton says. “Yet, many of them actually can. Underwriters generally treat student debt in a more positive light than credit card or auto loan debt.”

For example, Wheaton says that a person with $45,000 in student loans and a FICO score of 741 with an income of about $75,000 per year would likely qualify for a property starting at around $375,000 with a 5 percent down payment.

The National Association of REALTORS® recently reported that the share of existing home purchases by first-time home buyers has fallen to 26 percent of sales. Last year, the percentage stood at 30 percent.

Source: “Higher Education or a House: Can Young Americans Have Both?” Redfin Research Center (Feb. 24, 2014)

Refinancing Demand “Slips to 2-Year Low”

Mortgage rates are on the rise, prompting fewer home owners to refinance their mortgages, but the increase doesn’t appear to deter home buyers yet.

The lower refinance demand caused overall mortgage applications to drop 2.6 percent last week, the Mortgage Bankers Association reported Wednesday. The MBA’s survey covers about 75 percent of the residential mortgage market.

Meanwhile, loan applications for home purchases — viewed as an indicator of future home sales — inched up slightly by 0.5 percent for the week ending July 12.

Mortgage rates were at a two-year high last week, with the 30-year fixed-rate’s averaging 4.68 percent — the highest level since July 2011, the MBA reports.

Source: “Higher mortgage rates push refinancing applications to 2-year low,” Reuters (July 17, 2013)

Mortgage Applications Fall as Rates Surge!

Mortgage applications for home purchases and refinancing continued to fall, dropping 11.5 percent last week, amid rising mortgage rates. Interest rates rose above 4 percent for the first time in a year, according to the Mortgage Bankers Association.

Applications for refinancings saw the largest declines, with applications falling 15 percent last week, the MBA reports. Meanwhile, applications for home purchases, an indicator for future home sales, fell 1.6 percent last week.

Many analysts blame the decreasing applications on rising mortgage rates. The fixed 30-year mortgage rate averaged 4.07 percent for the week ending May 31, its highest level since April 2012, the MBA reports. Fed chairman Ben Bernanke recently indicated that the Fed may soon scale back its bond purchase program, which has helped to keep mortgage rates near all-time record lows.

Source: “Mortgage applications drop as rates surge: MBA,” Reuters (June 5, 2013)

As Interest Rates Rise, Mortgage Applications Drop!

Loan demand dropped last week as interest rates rose for the fourth straight week, the Mortgage Bankers Association reports. 

The index measuring mortgage application activity, which includes applications for refinancing and home purchases, fell 6.4 percent for the week ending Feb. 8.

Separated out, refinancing applications during the week dropped 5.5 percent while applications for home purchases, viewed as a leading indicator of home sales, fell 9.5 percent. 

The 30-year fixed-rate mortgage averaged 3.75 percent last week, up from 3.73 percent the previous week. The 30-year rate is at its highest level since September 2012, according to the MBA. 

Source: “U.S. Mortgage Applications Slumped Last Week as Rates Rose,” Reuters (2/13/13)