After 12 Months of Historic Lows
Mortgage interest rates have continued to rise since my last update. Many of you who are watching the ten-year treasury bond yield already know that the party is over. After 12 months of being at or near historic lows, the party had to end eventually. This move higher in mortgage rates, roughly .5% – .75% from the bottom last touched at the end of January 2021, may increase further as we head into May and June of 2021. The rising inflation data, confirmed by the Federal Reserve at their recent March 2021 meeting, is pointing to inflation heading over 2% and as high as 2.5% in the coming months. Whenever inflation goes above the Fed’s 2% target, mortgage interest rates will rise.
There is a potential for rates to come back down again in the Fall of 2021, after the negative inflation numbers from 2020 during the height of the pandemic fall off the rolling 12-month average, and inflation readings go back below the 2% target.
Buyers Face Low Inventory
This rise in rates is slowing down mortgage refinances and is also putting pressure on potential home buyers to get into a home now, before rates increase further. Unfortunately, a severe lack of inventory nationwide, especially in California, is not helping buyers as they scramble to capture the low rate environment.
Listings in the Bay Area, where I am located, are getting upwards of 30 offers and going for several hundreds of thousands of dollars above list price. Every offer written is expected to have no loan and no appraisal contingency, which is stressful for buyers. (Please refer to my February mortgage update where I explained loan contingencies in detail.)
FHFA Rule Limits Second Home & Rental Loans
Another factor causing mortgage rates to rise is a recent rule change from the Federal Housing Finance Agency, FHFA (the entity that governs Fannie Mae and Freddie Mac) which limits the amount of second-home and rental property loans sold to those two investors. The FHFA has limited the percentage of loans sold to them in those categories to 7% of each lenders’ overall portfolio. Currently, that percentage is around 9%.
This new rule change will go into effect starting in April 2021 and lenders have already imposed varying rate increases to limit the amount of second home and rental property loans written. Each lender is imposing their own rate adjustments and these are not uniform. The worst ones I have seen show a 1% increase in rates for loans in these categories!
Jumbo Loan Opportunities
Jumbo Lending, i.e. loan amounts greater than those that conform to Fannie Mae/Freddie Mac loan limits, is coming back to market at an increased pace as we move towards Covid-19 herd immunity.
I even have a Jumbo lender who can write loans for up to 89.99% Loan-to-Value, LTV, with no Private Mortgage Insurance (PMI) and offering this product for a cash-out refinance up to 89.99% LTV!
That means a borrower can take cash out of the equity in their home on their primary residence, a single-unit residential property, with only 10.01% equity in the home!
We have not had products like this since before the Great Recession, specifically since before 8/2/2007.
C2 Financial Advantage
One of the advantages of working through an agent like myself, who is aligned with the largest mortgage broker in the country, C2 Financial Corp, is that I have access to almost every lender who is lending through the broker channel.
Currently C2 is approved with over 100 lenders.
This means I can shop aggressively for rates and loan products. I have access to products that the institutional banks do not offer, and that other smaller mortgage lenders/brokers can’t provide.
C2 pools over 1000 agents under their umbrella, which means we deliver loans in volume to the lenders we work with. This allows us to have preferential rates and service levels.
I personally have 26 years of experience in the industry, so my relationships with many of the prime lenders we work with goes back 15+ years.
As I am the #6 producer at C2 for 2020, out of 1000+ agents, these lenders know me well and greatly value their relationships with me, which allows me to get things done more efficiently — as well as negotiate special rates — for my clients.
Based on these relationships, and my extensive industry experience, I have the confidence to advise my buyers to write offers with no loan and no appraisal contingencies while guaranteeing purchase loan closings in 15-21 days.
An offer that bold can make all the difference for getting into contract to purchase a home in the currently highly-impacted market.
Let me know how I can help you make your next purchase or refinance.
As always, your mortgage guy,
Viral (Vic) Joshi
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