"There are not many borrowers left who have an incentive to refinance"
Mortgage loan applications tumbled by 7.1% from a week ago as mortgage rates surged for the fifth straight week.
“All mortgage rates in MBA’s survey continued to climb, with the 30-year fixed rate rising for the fifth consecutive week to its highest level since March 2020. The 30-year fixed-rate is now 77 basis points higher than it was a year ago,” said Joel Kan, associate vice president of economic and industry forecasting at MBA.
Unsurprisingly, MBA’s refinance index plummeted 13% week over week and 53% year over year. The refinance share of mortgage activity was down from 60.3% to 55.8% of total applications.
“Borrower demand for refinances subsided, with applications falling for the fourth straight week,” Kan said. “After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance. Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”
Purchase applications also dropped on a seasonally adjusted basis, down by 2% from the previous week. Unadjusted, it increased 5% week over week.
“The decline in purchase activity was led by a 5% drop in government applications, compared to a modest less than 1% decline in conventional applications,” Kan added. “The relative weakness in government purchase activity continues to contribute to higher loan sizes. The average purchase loan size was $433,500, eclipsing the previous record of $418,500 set two weeks ago.”
Does your county make the top 50 list?
New Jersey, Illinois and parts of California are among the most at-risk housing markets vulnerable to pandemic-fueled economic damage, according to a new report. Findings also detail the parts of the US less susceptible to market changes and those with the most underwater mortgages since a federal eviction moratorium was lifted.
ATTOM, self-described as curator of the nation’s premier property database, released its fourth-quarter Special Coronavirus Report spotlighting vulnerable housing markets across the US at the county level. While the aforementioned states emerged as most susceptible to economic erosion caused by the pandemic, the biggest clusters are in New York City and the Chicago area, according to the findings. Conversely, the western portion of the country – outside of California – remained far less exposed, the study found.
Mortgage Professional America reached out to ATTOM chief product officer Todd Teta for more details, asking if dynamics unique to various counties helped in exacerbating the economic threat. “Yes,” Teta responded. “We look at three key measures that could make some markets more vulnerable than others. One is whether median-priced single-family homes are affordable to someone making the average local wage, meaning major home ownership expenses don’t soak up more than 28% of an average paycheck. The others are the portion of homeowners underwater on their mortgages (owing more than the estimated value of their property) and the percentage of homeowners at some point in the foreclosure process.”
To be sure, macroeconomic forces – a weak economy or anemic job market, to name two – also contribute as mitigating factors to financial corrosion. But Teta said his research focuses quarterly on metrics enabling a snapshot of how different markets are faring.
“For this report,” he said, “we combined the three to get a general sense of which counties could be more exposed to a fall if the virus pandemic causes new damage to the economy and finally starts eating away at the long housing-market boom the country has enjoyed for the past decade.”
Given that calculus, a number of scenarios could occur: “The impact from the pandemic would include a number of possibilities,” Teta said. “The main thing would involve prices flattening out or dropping if the pandemic finally causes enough economic disruption to damage local housing markets. By extension, that could lead to more homeowners going underwater because their equity decreases, or more facing foreclosure because of pandemic-related job losses.”
Concern over the latter scenario has been heightened given the end to a federal moratorium on foreclosures that ended at the end of July, the researcher said. “If we start to see a surge of foreclosures, that could raise the supply of homes for sale, which could dampen prices,” Teta observed. “It also could result in more vacant properties subject to decay and blight and lead to a vicious cycle that harms values even more, as it did after the Great Recession a decade ago. While falling prices may lead to homes being more affordable to more people, the impact would likely be negative because it hurts household wealth – a downturn that would have multiple ripple effects across the economy.”
High home values have been a boon to established homeowners, who have been pulling out equity at record levels in securing cash for various means – for college tuition to renovations. But the same appreciation has made homeownership more elusive for first-time homebuyers facing lack of affordability. Meanwhile, those with little equity in their homes have become more vulnerable to financial hardship.
That reality also figures into the mix in predicting the potential for financial corrosive effects stemming from the pandemic, Teta noted. “It’s rooted in multiple forces, including prices that are getting too expensive in some areas for average workers to afford, homeowners who have very little equity because they started off with low down payments and foreclosure levels that already are relatively high,” he said. “When combined, those things can put any given housing markets in greater danger of a fall if the pandemic causes enough damage to the broader economy. It clearly hasn’t happened yet, and might not. But weak price affordability, relatively low homeowner equity and higher foreclosure rates suggest weaker foundations under markets from one place to another.”
In light of such forces, the three aforementioned states – New Jersey, Illinois and California – had 31 of the 50 counties most vulnerable to potential economic impact of the pandemic, according to ATTOM’s findings. “The 50 most at-risk included eight counties in the Chicago metropolitan area, an equal number near New York City, and seven sprinkled throughout northern, central and southern California, the report showed.
Elsewhere, the rest of the top 50 counties were scattered mainly along the East Coast, including two of Delaware’s three counties and another three in the Philadelphia metropolitan area, the data showed. Outside of California, no other western counties made the top 50 list during the fourth quarter of 2021, according to the findings. Quite the contrary: the West region again had the highest concentration of markets considered least vulnerable to pandemic-related damage, the findings indicate.
The study revealed that disparities in pandemic-related risks to housing markets across the country remained in place during the fourth quarter of last year, even as a decade-long boom in the broader US market continued. Figures show that prices climbed more than 10 % in most of the nation last year – because of, and in spite of, the ongoing pandemic that slowed or idled major economic sectors in 2020.
“Throughout the past year, a surge of buyers has flooded the housing market amid a combination of historically low home-mortgage rates and a desire by many to trade congested virus-prone areas for the perceived safety and larger space offered by a house or condominium,” the report reads. “As they have chased a tight supply of homes choked further by the pandemic, prices have soared.”
Yet signs of a possible market slowdown have emerged in the form of declining home affordability, slumping investor profits and rising inflation, the report found. The specter of the pandemic also remains a threat as a third wave of infections surges across the country given the Omicron variant of the virus.
“With that danger still looming, the risk of a downturn remained higher in the fourth quarter of 2021 in counties with some combination of three warning signs: Housing that is unaffordable for average workers, higher levels of foreclosures and larger portions of homeowners who are underwater on their mortgages,” the report reads.
Teta expounded on the continuing threat of the virus: “The US housing market keeps powering on despite of the coronavirus pandemic that’s still raging across the country,” he said. “Indeed, home prices keep rising in part because of the crisis. Nevertheless, the virus remains a potent threat to the broader economy and the housing market, with some of the same counties we’ve seen in the past continuing to look vulnerable to potential downturns. No immediate warning signs hang over any one part of the country, but pockets are more vulnerable to the market taking a turn for the worse.”
The most vulnerable counties named
Common threads: Unaffordable housing, underwater mortgages, foreclosures
Counties most at risk were found to have higher levels of unaffordable housing, underwater mortgages, and foreclosures, according to the ATTOM report. In those areas, major home ownership costs (mortgage payments, property taxes and insurance) on median-priced single-family homes consumed more than 30% of average local wages in 32 of the 50 counties that were most vulnerable to market problems connected to the virus pandemic in the fourth quarter of 2021. The highest percentages in those markets were in Rockland County, New York (outside New York City, 57.9% of average local wages needed for major ownership costs); El Dorado County, California, east of Sacramento, (with 52.5%); Riverside County, California, east of Los Angeles (52%); Bergen County, New Jersey, (47.6%) and Passaic County, New Jersey, (44.7%). Nationwide, the data showed major expenses on typical homes sold in the fourth quarter required 25.2% of average wages.
The report also showed that at least 10% of residential mortgages were underwater in the third quarter of 2021 (the latest data available on owners owing more than their properties are worth) in 18 of the 50 most at-risk counties. Nationwide, 7.1% of mortgages fell into that category, the findings showed. Those with the highest underwater rates among the 50 most at-risk counties were: Kennebec County in Augusta, Maine, with 29.6% of mortgages underwater; Webb County in Laredo, Texas with 23.3%; Kankakee County, Illinois outside Chicago, with 19%; Saint Clair County, Illinois, outside St. Louis, Missouri with 18.3%; and Cumberland County in Fayetteville, North Carolina with 8.1% of mortgages underwater.
Foreclosures abound after moratorium is lifted
The report found that more than one in 1,500 residential properties faced a foreclosure action in the fourth quarter of 2021 in 36 of the 50 most at-risk counties. Nationwide, one in 2,446 homes were in that position, the data showed. Foreclosure actions have risen over the past few months since the July 31 end of a federal moratorium on lenders taking back properties from homeowners who fell behind on their mortgages during the virus pandemic. The highest rates of post-moratorium foreclosures in the top 50 counties were in Saint Clair County, Illinois outside St. Louis, Missouri, where one in 121 residential properties faced possible foreclosure; Camden County, New Jersey, (one in 606); Sussex County, New Jersey, (one in 709); Cumberland County, New Jersey, (one in 743) and Cook County in Chicago (one in 757).
Least at-risk counties also part of the study mix
The ATTOM research also showcased counties least vulnerable to pandemic-fueled economic erosion, each area spread throughout the South, Midwest and West. Forty-two (42) of the 50 counties least vulnerable to pandemic-related problems from among the 575 included in the fourth-quarter report were in the South, Midwest and West. Just eight were in the Northeast.
Black mortgage applicants are being turned down at a much higher rate than their White counterparts.
If homeownership is the epitome of having achieved the American Dream, for Black mortgage applicants the goal continues to be a dream deferred, according to a newly released study. According to research from Zillow drawn from federal Home Disclosure Act data, the disparity between Black and White mortgage applicants – a historical fissure – has widened even more amid the COVID-19 pandemic at an alarming rate. From 2019 to 2020, the mortgage denial for Black applicants compared to their White counterparts grew from 74% to 84%.
While discrepancies between White and Black applicants are historic, the recent rise even took the economist in charge of the study by surprise.
“We’ve done this research in the past,” Zillow economist Nicole Bachaud said in a telephone interview with Mortgage Professional America. “There is a significantly higher rate of denials for Black applicants every year in this data. What we saw between 2019 and 2020 was that the gap between denial rates for Black and White applicants grew in the last year.”
The gap was more conspicuous amid record-setting times for home refinancing, as those owning houses were able to dip into their properties’ equities for quick cash given skyrocketing home values. “A lot of that has to do with the fact that there were more refinance applications in 2020, which typically have lower denial rates because they’re coming from existing homeowners and also they’re much more likely to come from White applicants because White applicants are more likely to be homeowners already,” Bachaud said of the widening gulf with Black applicants. “So that kind of lowers the White denial rate whereas Black home purchase denials grew larger so the gap is getting bigger.”
Even before launching into the next study illustrating gaps between the two population segments, Bachaud anticipates an ever-widening gap in the future. “There were millions more refinancing apps in 2020 than any year in the past. And I’m sure when we see 2021 data it’s going to be even millions more than that.”
One saving grace: The widening gap isn’t attributable to lender bias, but the methods of assessing creditworthiness, the economist noted.
“What we’re seeing in this data is not necessarily explicit bias from the lenders themselves,” Bachaud said. “The number one reason for Black mortgage denials are based on credit – either lack of credit history, bad credit scores, some sort of derogatory mark on a credit report.” To be sure, the issue is not new but rooted in past nefarious practices designed to deny Black applicants homeownership. Still, the gap continues to widen despite modernity, Bachaud suggested. And some elements preying on minority borrowers continue to exist in many communities.
“The discrepancies in creditworthiness between Black and White Americans stems back to redlining before the Fair Housing Act came into place,” she said. “A lot of those effects are still largely at play in a lot of communities. There are far fewer banks and far more predatory lending institutions in Black and Brown communities across the country. Income discrepancies still exist.”
In conducting her research, Bachaud discerned how smaller lending institutions are less likely to deny Black mortgage applications – a reality buttressed by a separate Zillow study examining various banks’ practices conducted last spring.
“This data set is looking at all depository and lending institutions,” she said. “Smaller banks were much less likely to deny applicants regardless of a lot of these factors. That does tell us that these smaller banks, typically community banks that are more invested in the places they’re located, are more likely to value the relational aspect and less likely to deny.”
There may be hope on the horizon, though. Bachaud noted new efforts by such institutions as Fannie Mae and Freddie Mac to include rent histories as part of the reckoning in approving mortgage applications.
But for now, vestiges of the past continue to exist in denying Black mortgage applicants disproportionately, she added. “There are a lot of systemic issues that have never been fixed that are still leading to a lot of these underlying reasons why Black mortgage applicants are more likely to be denied.”
Feds have their eyes on increase.
Mortgage rates climbed for the fourth consecutive week, reaching the highest level since the start of the pandemic.
The average for a 30-year loan was 3.56%, up from 3.45% last week and the highest since mid-March 2020, Freddie Mac said in a statement Thursday.
Rates followed a recent jump in yields for 10-year Treasuries. Borrowing costs may continue to increase as the Federal Reserve eyes a rate hike to dampen surging inflation.
That could put the American dream of owning a home further out of reach for those already struggling to find affordable options. Rates plummeted to a record low roughly a year ago, and cheap borrowing costs have helped fuel a red-hot housing market that’s pumped up real estate prices.
“As a result of higher mortgage rates, purchase demand has modestly waned in advance of the spring home buying season,” Sam Khater, Freddie Mac chief economist, said in a statement. “However, supply remains near historically tight levels and home prices remain high.”
Still, borrowing costs may level off in the coming weeks, according to Keith Gumbinger, vice president at mortgage-information company HSH.com.
“We’re starting to see signs that we might be topping out on rates,” Gumbinger said in an interview. “The Federal Reserve has made a bit of a shift, but it’s not clear if the shift has completed yet.”
A new report reveals the three states with the highest concentration of markets at risk.
New Jersey, Illinois, and parts of California had the highest concentrations of housing markets at risk from the economic impact of the COVID-19 pandemic in the fourth quarter of 2021, according to a new report from real estate analytics firm ATTOM.
ATTOM’s 2021 special coronavirus report revealed that New Jersey, Illinois, and California had 31 of the 50 counties most vulnerable to the potential economic impact of the pandemic. The 50 most at-risk included eight counties in the Chicago metropolitan area, eight near New York City, and seven sprinkled through northern, central, and southern California.
Elsewhere, the rest of the top 50 counties were scattered mainly along the East Coast, including two of Delaware’s three counties, and three counties in the Philadelphia, Pa. metropolitan area.
ATTOM’s report ranked counties based on the percentage of residential properties with a foreclosure filing during the fourth quarter of 2021, the percentage of average local wages needed to afford the major expenses of owning a median-priced home in the fourth quarter of 2021, and the percentage of properties with outstanding mortgage balances that exceeded their estimated market values in the third quarter of 2021.
“The US housing market keeps powering on despite of the coronavirus pandemic that’s still raging across the country,” said Todd Teta, chief product officer at ATTOM. “Indeed, home prices keep rising in part because of the crisis. Nevertheless, the virus remains a potent threat to the broader economy and the housing market, with some of the same counties we’ve seen in the past continuing to look vulnerable to potential downturns. No immediate warning signs hang over any one part of the country, but pockets are more vulnerable to the market taking a turn for the worse.”
It is a four-count indictment.
A federal grand jury indicted Baltimore’s top prosecutor Thursday on charges of perjury and making false mortgage applications in the purchase of two Florida vacation homes, the Office of the US Attorney for the District of Maryland said.
The four-count indictment alleges that Baltimore State’s Attorney Marilyn Mosby lied about meeting qualifications for coronavirus-related distributions from a city retirement plan in 2020. Federal prosecutors also allege that Mosby lied on 2020 application forms for mortgages to purchase a home in Kissimmee, Florida, and a condominium in Long Boat Key, Florida.
Mosby, 41, is a high-profile prosecutor who has aligned herself with criminal-justice reformers. She rose to national prominence in 2015 when she pursued criminal charges against six police officers in the death of Freddie Gray, a Black man whose death in police custody triggered riots and protests. None of the officers were convicted.
The indictment of Mosby, who is married to Baltimore City Council President Nick Mosby, comes months after news outlets reported that federal officials subpoenaed the Maryland State Board of Elections seeking business and campaign finance records related to the couple dating back to 2014. An attorney representing the couple alleged misconduct by federal prosecutors in a letter to the US Justice Department’s Office of Professional Responsibility and sought a suspension of the criminal investigation into the couple. Nick Mosby has not been charged with any crimes.
“We will fight these charges vigorously, and I remain confident that once all the evidence is presented, that she will prevail against these bogus charges - charges that are rooted in personal, political and racial animus five months from her election,” said A. Scott Bolden, Mosby’s attorney, in a statement Thursday night.
In 2020, Mosby submitted requests for one-time withdrawals of $40,000 and $50,000, respectively, from Baltimore’s deferred compensation plans, according to the indictment. It alleges that Mosby falsely certified that she experienced adverse financial hardships because of the coronavirus, but actually received her nearly $250,000 salary in 2020. The indictment also alleges that in 2020 and 2021, Mosby made false statements in applications for a $490,500 mortgage to purchase a home in Kissimmee, Florida, and for a $428,400 mortgage to purchase a condominium in Long Boat Key, Florida.
Mosby was required to disclose liabilities, but didn’t disclose that she had unpaid federal taxes from a number of previous years and that in March 2020, the Internal Revenue Service placed a lien against all property and rights to property belonging to the Mosbys in the amount of $45,022, the amount of unpaid taxes Mosby and her husband owed the IRS as that time.
About a week before she closed on the Kissimmee home, Mosby executed an agreement with a vacation home management company giving the company control over the rental of the property, according to the indictment. She later signed a “second home rider” which provided that the borrower occupy and use the property as their second home and maintain exclusive control over the ownership of the property, the indictment said, alleging that by falsely executing the rider, Mosby could get a lower interest rate.
Mosby’s initial appearance hasn’t been scheduled yet, according to a news release from the US Attorney’s Office.
The two perjury counts each carry a maximum sentence of five years in prison and the two mortgage-related counts each carry a maximum of 30 years in prison.
Lingering supply issues and increasing demand seen as reasons for the increase.
The median US home sale price surged to an all-time high last week, according to new data from Redfin.
The firm revealed that the median home sale price increased by 16% year-over-year to $365,000 during the week ending January 09.
Redfin pointed to lingering supply issues and increasing demand as reasons for the surge in prices.
“Prices keep climbing because the supply drought keeps deepening while demand increases,” the firm said in a statement. “The number of homes for sale fell to a new low as listings hit the market at a slower rate than they did early last year. Yet homebuyer activity—as measured by the Redfin Homebuyer Demand Index—jumped 9%. Mortgage rates rose to 3.45% during the seven days ending January 13, making home buying more expensive as overall inflation hit a 40-year high.”
“Homebuyers are touring nearly every home that comes on the market, waiving every contingency, offering $100,000 over asking price, and still losing out to 9+ other offers,” said Jennifer Ciacci, a Redfin real estate agent in Portland, Ore. “As competitive as the market is right now, I advise buyers not to write an offer on a home they don’t really like. The home needs to work for what they want and need, and if it checks off those boxes, that’s when you go all-in and take your best shot. But protect your heart; this isn’t an easy market."
“The stage is now set for the most competitive January housing market in recorded history,” said Daryl Fairweather, chief economist at Redfin. “Buyers are pouring into the market to claim a home before mortgage rates rise further as new listings slow to a trickle. The conditions are becoming increasingly challenging for first-time homebuyers, who will have to compete against more experienced buyers who are willing to do whatever it takes to win. But I expect that by the time mortgage rates increase to 3.6%, competition will settle down quickly to levels similar to late-2018.”
A recent look at HMDA data reveals disparity has grown to an alarming degree.
The mortgage approval gap between Black and White applicants has widened to an alarming degree, according to a new report from Zillow.
Zillow analyzed data from the Home Mortgage Disclosure Act (HMDA) and found that Black applicants are denied a mortgage at a rate 84% higher than White applicants – a significant increase from 2019, when it was 74%.
The report also revealed that 19.8% of Black applicants are denied a mortgage, the highest among all races, and much higher than the 10.7% of white applicants who are denied. And broken down by location, Black applicants have the highest denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%), and South Carolina (25.8%).
“More than 6% of Black applicants are denied based on credit history, accounting for over one-third (37%) of all Black borrower denials,” Zillow said in its report. “Limited traditional financial services in Black and other communities of color is a significant factor in credit history. Black communities have a higher number of non-traditional services, such as payday lenders, which contributes to poor credit health.”
“Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and White homeownership rates and home values paints the picture of who those winners actually are,” said Nicole Bechaud, economist at Zillow. “While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity.”
"A majority of consumers clearly have reservations about purchasing a home at current prices"
Consumer home purchase sentiment weakened in December due to ongoing affordability challenges keeping potential buyers out of the market.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) dropped 0.5 points to a reading of 74.2 last month – a sign that the housing market may start to soften in the coming year, according to Fannie Mae chief economist Doug Duncan.
“The HPSI’s underlying components changed dramatically in the last 12 months – particularly the two related to homebuying and home-selling sentiment – and we have seen the index drift slightly downward since March 2021,” Duncan said. “Over the past year, low mortgage rates plus government stimulus programs helped increase mortgage demand, but the bidding-up of homes increased prices to record levels, making affordability a greater constraint for both first-time and move-up homebuyers.”
Consumers’ views of homebuying fell five percentage points month over month to a record low of 26%, while home-selling expectations rose six percentage points to 76%. Duncan noted that the “good time to buy” sentiment among homeowners declined 30% over the past year to its current level of 30%, while renters’ homebuying outlook was down from 37% to 21%.
“Even though demand remains strong, a majority of consumers clearly have reservations about purchasing a home at current prices,” Duncan said.
The net share of Americans who think prices will go up in the next 12 months increased 1% month over month to 44% in December. As for mortgage rates, 56% of respondents anticipate rising rates.
Fannie Mae expects mortgage rates to continue to rise modestly through year-end, despite inflation concerns, which will likely exacerbate the affordability issues expressed by respondents in the HPSI.
“Recent MBS issuance data indicating a rise in average debt-to-income levels also backstops that concern, suggesting additional affordability constraints,” Duncan said. “Combined with our survey results showing rising expectations for higher rent prices among consumers, we believe some would-be renters may look to accelerate their home purchase timeline, helping to drive continued strong (though decelerating) home price growth.
“We do expect an increase in new homes to come to market later in 2022, which should provide some supply relief; however, it may not be enough to meaningfully affect home prices. As such, affordability is likely to be a growing challenge over the coming year.”
Single-family landlords step up their moves
Single-family landlords eager to profit from soaring rents in the US have stepped up their purchases of houses.
Deals by investors -- including a smaller portion of flippers -- helped push up prices more than 20% on average, squeezing out normal buyers, according to an analysis by Mark Zandi, chief economist for Moody’s Analytics. Investors accounted for 26% of single-family purchases in the third quarter, up from 15% a year earlier, the study shows.
The cities with the biggest surges in investor buying -- Atlanta; Jacksonville, Florida; Phoenix; Charlotte, North Carolina; and Las Vegas -- have also had some of the biggest price gains, said Zandi, whose analysis included data from CoreLogic.
Investors from mom-and-pop landlords to Wall Street firms are rushing to buy houses that can command premium rents. They’re chasing the same affordable properties that first-time buyers dependent on mortgages are also competing for. And in a market starved of inventory, cash wins.
“Purchases by typical buyers have not risen appreciably,” Zandi said. “But it has risen a lot for investors. The biggest increase is for large investors.”
Deals by institutional investors tripled from a year earlier to 97,684 in the third quarter, according to Zandi. Traditional buyer purchases fell slightly to 1.14 million. A third of the investor purchases involved flippers, down from a half a year earlier.
If investors lose interest, the housing market in areas where they were most active would be vulnerable to price declines, Zandi said. Already, mortgage rates are beginning to rise, making homes more unaffordable for typical buyers.
“This is not a healthy market,” he said. “It feels like it is getting very stretched. Investors will buy until it no longer pencils out. Then what happens with prices?”