Like just about everything in the world right now, the mortgage market has gone a bit crazy. It’s hard to predict anything from one day to the next. And, like most economic markets amidst the coronavirus (COVID-19) pandemic, the mortgage industry is dealing with a multitude of challenges.
2008 vs. 2020
Anyone who directly compares this market to what happened in 2008 is off-base other than comparing one major economic crisis to the other. This time, the mortgage industry certainly isn’t to blame. COVID-19 is closing businesses for the foreseeable future and many people are finding themselves with reduced pay or being laid off during this slow period. It seems as if there have been virus scares just about every year of the 2000s, but never has one essentially shut down the world in an attempt to slow its spread.
From a mortgage perspective, there are unusual things happening in our market:
- FHA/VA rates aren’t good
- Certain loans are hard to get right now (cash-out, Jumbo, Non-Owner Occupied, etc.)
- Lenders changing rates significantly from day to day
- Non-QM lenders raising rates
- Lenders not accepting new loan applications
- Wild variances in what one lender quotes compared to another lender
We’re really looking at two significant factors that are turning the mortgage market on its head after a long period of low rates and high demand for new home loans and refis:
1. Coronavirus Market Disruptions
February and March saw massive stock losses, but major gains in the bond market. This usually means lower mortgage rates, which is exactly what happened. Mortgage rates dropped to all-time lows, but it was the beginning of a snowball effect. We saw the largest-ever jump in refinance demand as homeowners wanted to take advantage of the lower rates and perhaps put themselves in a better position financially amidst the uncertain economic conditions.
Unfortunately, a spike in refi requests is not good for mortgage valuations, which is in turn not very good for rates. The financial market was scrambling to sell everything in order to raise cash and mortgage investors pulled back because of the refi demand. When mortgage investors are selling, rates are rising. The bond market’s ability to provide credit was threatened and here we are with a wildly volatile mortgage market!
2. Fallout from the Disaster Relief Bill
The Coronavirus Aid, Relief and Economic Security Act (aka The CARES Act) passed by the Senate is providing disaster relief for workers losing jobs or wages because of the coronavirus business shutdowns. It is also meant to stimulate the economy by supporting businesses affected by COVID-19.
However, a lot of aspects in the bill are disastrous for the mortgage industry. Homeowners are being advised to seek a forbearance on their mortgages if they’re suffering coronavirus-related income disruptions. This could mean pausing payments for 6 months or more. Most mortgage loans are insured, but there seems to be some gray areas in the CARES Act. Other homeowners will seek to refinance and restructure their loans, and we’ve already seen how that demand has an adverse effect on mortgage rates.
It all adds up to investors being much less interested in buying mortgage debt. Rates may continue to go up or fluctuate unpredictably while specialty home loans (FHA/VA loans, non-standard income documentation, low credit scores, etc.) may be much harder to secure when they are needed most.
I don’t want to paint a picture of doom and gloom like almost all news lately, but the mortgage market is definitely feeling the impact of coronavirus. Most conventional loans are easier to navigate and the issues above will have less impact. Any loan that is non-conventional will bring more complications until this all blows over. Some aspects of the mortgage market will fall back into place easily as we eventually return to normal while others may take longer to self-correct.
Do you have mortgage questions? Transparent Mortgage is here to give you the answers you need in an uncertain time. Call us today at (619) 701-3906 or email me personally at email@example.com