Link Between COVID-19 & Mortgage Loans
As the COVID-19 shelter-in-place directive is impacting all areas in our society and the global society at large, the effects are being felt in the mortgage markets as well. Mortgage interest rates that fell to the 50-year low in the last week of February and the first week in March, have since increased and then started falling again in the last week (ending April 10th).
Reductions in Conforming Loans
This more recent rate reduction applies to conforming loan products only.
Conforming mortgage loans are those that meet the loan limits and underwriting guidelines for mortgages being sold to Fannie Mae and Freddie Mac.
The standard conforming loan limits nationwide now are:
- single unit residential properties (Single Family Detached Residences, Condominiums, and Townhouses) – $510,400
- two-unit properties – $653,550
- three-unit properties – $789,950
- four-unit properties – $981,700.
Mortgage loans that fall within the standard conforming loan limits and guidelines are thus seeing fixed interest rates head back towards the 50-year low levels again, as we gain some distance from the massive market volatility of six weeks ago.
Increases in High Balance Conforming Loans
In 2008, the markets were reeling from what became known as the beginning of the Great Recession. At that time, Congress authorized a temporary increase of the conforming loan limits — part of the 2008 economic stimulus package. This “Temporary High Balance Conforming” category still exists today.
The high balance conforming loan limits currently are:
- single-unit residence – $765,600
- duplex – $980,325
- triplex – $1,184,925
- fourplex – $1,472,550.
Mortgage interest rates for the high balance category are usually within .125% to .250% higher than for mortgages that fall under the standard conforming loan limits.
Over the last two weeks, we have seen rates in this high balance category run an increase of between 1% and 2% higher than the standard conforming interest rates. For some high balance mortgages that fall into higher-risk categories, not only have the rates increased but the origination fees have also increased; in some cases high enough to indicate that lenders are trying to push borrowers away from this loan category.
The higher risk loan types include refinances where the borrower is taking additional cash out of their equity (cash-out refinance), purchases and refinances of investment properties, and lower money-down payment purchases. Lower credit scores are also having a very negative impact on interest rates for mortgages in the high balance category.
Nonconforming Jumbo Loans
Because of COVID-19 and mortgage loans repercussions, the industry has taken a pause overall right now and is not offering many loan products for mortgage loans that do not conform to Fannie Mae/Freddie Mac loan limits and guidelines, a.k.a. non-conforming or “Jumbo” mortgages.
Jumbo lending started disappearing the last week in March/first week in April. By April 10th, there were virtually no lenders offering Jumbo mortgages. Those that are still offering Jumbo mortgages are charging rates 2% to 3% over the rates previously offered five weeks ago.
This action by the market is not unprecedented. T