THE MORTGAGE INDUSTRY: CURRENT SCENARIO


The Mortgage Industry: Current Scenario

Global mortgage markets face new challenges in the current pandemic situation. Profitability and liquidity of mortgage lenders are deeply affected by default rates, repayment schedules, and changes in originations, as residential mortgages have more impact on their balance sheet. Mortgage lenders are gradually coming to terms with these tough times while resorting to critical and calculated actions. However, mortgage lenders must see this as an opportunity to overcome the slowdown and attain normality with rapid transformation.

The instability in incomes of the borrowers, due to salary cuts and losses incurred in the businesses of the self-employed sector, gives a hint to the fact that income stabilization and revival from the current situation shall take more time than expected and lead to more loan losses. On the other hand, the salaried home buyers are comparatively less fragile than the self-employed, other than the ones facing salary cuts or job loss in which case they might be unable to pay their debts on time.

However, financial institutions have agreed to provide some relief to the borrowers. Forbearance, deferment, loan modifications or repayment plans, and other options are made available to homeowners experiencing hardship. A borrower shall be required to produce proper evidence to qualify for availing these benefits from their bank or other financial institutions. The Department of Housing and Urban Development (HUD) has issued forbearance guidelines for lower-income borrowers, which includes the COVID-19 National Emergency Partial Claim as an option at the end of a forbearance period.

Changing scenarios in the mortgage industry post-pandemic

  1. The current U.S. mortgage delinquency rate has gone up to 7.76% in May as compared to 3.5% in January 2020 due to borrowers facing trouble paying their bills from the onset of the lockdown orders to flatten the curve of the pandemic since March. Single-family homeowners are being allowed federally-backed mortgage loans (Fannie/Freddie/FHA/VA/USDA) by the CARES Act. They can request provisional suspension of their mortgage payment for up to 180 days. They can also apply for an extension from the servicer further up to 180 days not exceeding a total period of 12 months. Some monthly mortgage payments are getting suspended due to this reason.
  2. Post pandemic situations initially led to the lowering of mortgage rates to a record low of 2.5% with an APR of 2.62% for a 15-year fixed-rate mortgage. The weekly reports indicated a downward trend, majorly due to the flooding forbearance and refinancing requests received by the lenders. However, they have not exceeded 4% in the past few weeks. With rising mortgage rates, refinance requests are witnessing a drop in numbers as compared to the first two weeks in August.
  3. There had been a marked increase in mortgage rates for the 30-year fixed-rate mortgage. The mortgage rates went higher up in the second week of August when Freddie and Fannie surged fees for lenders up to 50 basis points – a raise that amounts to $1500 for a $300,000 mortgage for refinances. This rise implied that borrowers had to pay more to refinance their mortgages. The median FICO credit score for mortgages originated in Q2 of 2020 has shot up to 784 -the highest since 1999. Hence, borrowers are facing difficulties in refinancing their mortgages which had been in a good position in these tough economic times. After the record low rates in June, the average 30-year fixed-rate mortgage had seen a slight upward trend of 3.060% with an APR of 3.340% a week ago. However, the 30-year fixed-rate mortgage is witnessing more frequent ups and downs in the last 30 days. Currently, they have gone down by 12 basis points and are now at an average of 3.02%. Weakening economy and the lowest ever treasury rates are indicative of low mortgage rates for a long time ahead.
  4. In the past three months, the mortgage industry has welcomed digital processes with open arms more than ever. This long-anticipated move is being readily accepted, given the social distancing rules and lockdown period. Digitalization not only avoids the hassles of paperwork but also leads to loans being closed more quickly than before. Since there has been a surge in the volume of refinancing applications, digitalization comes as a boon to reduce backlogs and closing time.
  5. Attending to the increased number of customer inquiries related to the moratorium, mortgage payment deferral programs, and meeting customer expectations at the same time are challenging as well. Large volumes of services call for advanced technology along with the higher capacity to serve with greater efficiency. Longer waiting times are posing the risk of losing loyal customers, whereas there is an ardent necessity to serve customers better. Providing an un-interrupted mortgage origination process via digital methods is also a new challenge being faced by the mortgage industry during COVID times.

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