Tightening mortgage market threatens economic recovery

Refinancing rate remains low despite record-low interest rates

National /
May.May 26, 2020 10:45 AM
Despite record-low interest rates, tightened mortgage lending standards which may hamper the economic recovery. (iStock)

Despite record-low interest rates, tightened mortgage lending standards which may hamper the economic recovery. (iStock)

The Federal Reserve’s move to cut interest rates to near zero in mid-March was expected to give the housing market a much-needed boost. But things may not work that way.

The $2 trillion CARES Act, which allowed homeowners with loans backed by government agencies to request forbearance for up to a year, has had unintended consequences for the mortgage industry’s complex ecosystem, the Wall Street Journal reported. That may hamper the post-coronavirus economic recovery.

Major banks have moved to tighten standards on home loans, and the market for unconventional home loans has largely dried up. Although low interest rates had earlier led to expectations of a surge in mortgage lending, the volume of mortgage refinancings has not risen significantly — although loan applications for new home purchases have continued to rise.

Furthermore, mortgage rates are about one percentage point higher than expected given current Treasury-bond yields, another reflection of tightening in the mortgage market.

“It was a quick reaction to try to help people, but there are some serious negative effects that weren’t contemplated until just now,” Ian McDonald, a Fairway branch manager in Minnesota, told the Journal regarding the Cares Act.

McDonald is working with a client who’s homebuying plans were disrupted after he agreed to seek forbearance but backed out before missing any payments, leaving a negative mark on his credit report. Homebuyers with credit scores above 800 have also run into unprecedented hurdles due to tightened lender standards.

The Federal Housing Finance Agency has defended its policy moves. “Lenders’ lines of credit would have tightened and borrowers’ ability to get mortgages would have suffered” if it hadn’t acted, agency spokesman Raphael Williams told the Journal. [WSJ] — Kevin Sun


Related Articles

arrow_forward_ios
Lower demand for refinancings has caused purchase loans to take a larger share of the market. (iStock)
Mortgage demand plummets to lowest level in a year
Mortgage demand plummets to lowest level in a year
Cape Cod and the Jersey Shore suffered among the sharpest inventory declines. (iStock)
Here’s where homes virtually sold out in the pandemic
Here’s where homes virtually sold out in the pandemic
Borrowers can now get a 30-year fixed-rate jumbo mortgage for $2 million at 2.65%. (iStock)
Jumbo mortgage lenders invade Fannie and Freddie’s turf
Jumbo mortgage lenders invade Fannie and Freddie’s turf
Exhausting other options, buyers flock to fixer-uppers
Exhausting other options, buyers flock to fixer-uppers
Exhausting other options, buyers flock to fixer-uppers
Better.com CEO Vishal Garg (Better.com, iStock)
Mortgage lender Better to go public via SPAC merger
Mortgage lender Better to go public via SPAC merger
(iStock)
Drop in home refinancing crimps mortgage firms’ profits
Drop in home refinancing crimps mortgage firms’ profits
From left: 909 Third Avenue, 79 Fifth Avenue, 240 West 37th Street and 27 East 62nd Street (VNO, Cercone Exterior Restoration, Google Maps)
These were the largest Manhattan real estate loans in April
These were the largest Manhattan real estate loans in April
Lenders are being stingy about granting home equity lines of credit. (iStock)
Home values are up, but just try getting a line of credit
Home values are up, but just try getting a line of credit
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...