Mortgage Industry – update – (5/3/2020)

Interest rate-lock rules have changed, industry-wide

On March 15th, as part of an economic stimulus plan, the Federal Reserve dropped interest rates to ¼%. Mortgage rates began dropping as a result and the volume of refinances became overwhelming. At capacity, some lenders stopped originating new loans. Some actually raised rates to discourage new applications. The remaining lenders, nearing capacity, have increased requirements needed to lock an interest rate.

What you need to lock a rate today – before COVID-19 and the overwhelming influx of loan requests, a complete application and a credit report were all that was needed to lock an interest rate. Today, the best loan programs require Full Documentation before locking a rate. To be prepared to lock when rates are lowest, a completed application, credit report and full documentation are required.

Why are lenders so demanding now? – Interest rates have been dropping steadily. Even though the Federal Reserve dropped to ¼%, they needed funds to lend to the mortgage industry. Now that the $2T stimulus package has been released, more money is available for residential mortgages and the experts anticipate rates dropping even further. No lender was prepared for the increased demand, mainly due to staff limitations. So mortgage companies now require a complete application and full documentation before locking. This assures they are utilizing their resources working with clientele dedicated to working with them.

Why not wait until rates are lowest and then apply? – You can quickly complete an application and order credit. However, you may not have all the documents needed to submit your loan, ready to send, preferably digitally, to your lender. If you have a lender’s “basic document list” ready, that is helpful. In many cases though, depending on personal circumstances, additional documents or letters of explanation are needed, which can’t be anticipated. Once all basic and additional documents are submitted, a Processor declares them complete, and the borrower is authorized to lock a rate. If it takes several days to send a complete file, ready to submit, you could miss an opportunity to lock an exceptional rate when it becomes available.

What if I want to shop my loan? – When mortgages weren’t in such high demand, it made perfect sense to run your scenario by several lenders to see who would give you the best rate. Today, getting a rate quote is fairly meaningless. Rates are fluctuating, daily and even throughout the day. Rates are subject to huge swings based on unstable market conditions. Shop a rate? Yes, but choose a lender to do it with. You will receive the biggest savings in this market by being prepared to act on it. Choose a lender, apply and get them the documents they require, then follow interest rates closely with your Loan Officer. If you choose I Love My Lender, once you have submission approval, your Loan Officer will send you market rate updates daily, until you choose to lock in your rate.

No Cost Loans – Yes, we offer them, but once you understand how they work, you may choose to have fees shown in the transaction. In any real estate loan, certain costs exist; the escrow company charges a fee, there is a cost for title insurance, wire transfers and other fees associated with a loan, many of which can either be shown, or can be hidden by increasing the loan’s interest rate. When purchasing a home, embedding the costs into the interest rate can save you from having to invest extra cash into the transaction, raising the interest rate slightly. This can be advantageous when just providing the down payment is a challenge. However, when refinancing, normally closing costs can be taken out of the equity of the property so you don’t have to pay for them out of pocket. With ILML you have a choice; show the costs in the loan, in which case you can generally write those costs off your taxes (check with your accountant to confirm this), or embed the costs into the interest rate, raising it slightly. Embedding the costs in the rate doesn’t increase your loan balance but it does increase your monthly payment and you will not be able to write those costs off your taxes. We set up loans for our clients both ways. You can make the choice at any time prior to final loan documents being drawn. Understanding and having choices are one of ILMLs differences.

Be Accessible – In this unpredictable environment, as rates may change throughout the day, the biggest rate drop might occur at some point during the day and only be available for a short time. We strongly suggest you provide your representative with a reliable way to contact you so you don’t miss an opportunity. Share a number that receives texts, phone number or email that will likely connect with you. It will ONLY be used to inform when it’s time to lock. And of course, you may choose to lock at any time once we are ready to submit.

Our goal, considering how COVID-19 has affected the mortgage industry, is to have a complete file on each of our clients, ready to submit, so when rates hit a new low point we can immediately lock your rate and close quickly. We appreciate your understanding and, together, we will be prepared to capture an exceptional interest rate, the moment it is available.