Freddie Mac, the federally chartered mortgage investor, aggregates rates from 125 lenders across the country to come up with national average mortgage rates. It uses rates for borrowers with flawless credit scores. These rates are not available to every borrower.
The 15-year fixed-rate average rose to 2.86 percent with an average 0.7 point. It was 2.8 percent a week ago and 3.64 percent a year ago. The five-year adjustable rate average slipped to 3.28 percent with an average 0.3 point. It was 3.34 percent a week ago and 3.77 percent a year ago.
“While investors kept bond rates at historic levels under 1 percent, mortgage rates did not follow on a downward arc due to the fact that banks and lenders are pricing loans for the higher risk they are assuming by raising [credit] scores and down-payment requirements,” said George Ratiu, senior economist at Realtor.com. “The Federal Housing Finance Agency — Freddie Mac and Fannie Mae’s regulator — recognized the liquidity risk and moved this week to allow the enterprises to purchase mortgages which recently entered forbearance. This will provide a short-term backstop for some lenders, as it shifts the default risk to the government and should encourage banks to continue meeting buyer demand.”
The Mortgage Bankers Association said this week that the number of mortgages in forbearance jumped to 6 percent. By comparison, less than 1 percent of loans were in forbearance in early March. When a loan goes into forbearance, payments are reduced or postponed but interest continues to accrue.
“Mortgage servicers continue to receive a very high level of forbearance requests, but volumes were down somewhat compared to the prior week,” Mike Fratantoni, Mortgage Bankers Association chief economist, said in a statement. “Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates.”
The Federal Housing Finance Agency announced this week that it will allow Fannie Mae and Freddie Mac to buy mortgages that go into forbearance. However, there are restrictions on which loans they will buy. They will only buy loans that go into forbearance after closing but before they are sold. The loans also can’t be more than one-month delinquent. FHFA said this solution allows lenders to sell loans and preserve liquidity.
“Fannie Mae and Freddie Mac have now said they will purchase loans in forbearance, and that lender servicers will only have to cover the first four months of forbearance,” said Michael Becker, branch manager at Sierra Pacific Mortgage in Lutherville, Md. “While more should be done by the FHFA, who has oversight for Fannie and Freddie, this move should help keep lending flowing and will likely help rates improve.”
Mortgage servicers are obliged to send monthly principal and interest payments to mortgage-backed security investors even when the borrower doesn’t make a payment on his loan. Most servicers hold money in reserve in case some borrowers miss payments. But when many borrowers miss payments, those reserves can be tapped out. This is a particular problem for non-bank lenders and small mortgage companies, which tend not to have large reserve funds.
With all the uncertainty surrounding mortgages, where rates are headed is a challenge to predict. Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed about evenly split on where rates are headed in the coming week. Half of them said rates would go down; the other half said they would remain about the same.
“Mortgage rates are still higher than the prices of mortgage-backed securities and Treasury yields would otherwise indicate,” said Becker, who expects rates to fall. “The cost to lenders and servicers for offering forbearance and the value of their mortgage servicing rights is the main reason for the large spread between mortgage rates and mortgage-backed securities.”
Dick Lepre, senior loan adviser at RPM Mortgage in Alamo, Calif., predicts rates will hold steady.
“Despite the going-nowhere general trend, we will continue to see moves each day making it mandatory for borrowers and loan officers to be paying constant attention to rate and prices,” he said.
Meanwhile, mortgage applications were flat last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 0.3 percent from a week earlier. The refinance index slipped 1 percent but was 225 percent higher than it was the same time last year. The refinance share of mortgage activity accounted for 75.4 percent of applications.
The purchase index rose 2 percent but was 31 percent lower than it was a year ago.
“With rates hovering at an all-time low in MBA’s survey, refinancing on a year-over-year basis continues to be robust,” said Bob Broeksmit, MBA president and CEO. “The rise in purchase applications was the first in five weeks, but the economic fallout from covid-19 is leading to a considerable decline in activity compared to early 2020 and a year ago.”
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