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Executives at two big players in the mortgage industry are optimistic that rates will come back down but advised real estate agents at Inman Connect New York on Tuesday to get familiar with affordability tools, such as interest-rate buydowns that can be offered as seller concessions.
The 2-1 buydown, which reduces the interest rate by 2 percentage points in the first year and 1 percentage point in the second year, has proven popular with both homebuyers and real estate agents, said Desmond Smith, chief growth officer at United Wholesale Mortgage.
Desmond P. Smith, United Wholesale Mortgage
“A lot of real estate agents are loving the 2-1 buydown — because rather than having to reduce the price of the house dramatically, they can do the buydown and they’re still able to get a nice sale,” Smith said. “A lot of us in the mortgage business believe that rates will drop within the next 12, 18, 24 months. So before the mortgage would ever get back to say 6 percent, if it starts at 4, maybe by the time they’re at 5, they’re refinancing.”
Libby Cooper, Zillow
Libby Cooper, vice president of mortgage at Zillow Home Loans, shares Smith’s view (and that of many economists) that mortgage rates have peaked.
“I think we’ve seen a shift in the market this year. The thing that I don’t think has changed is there are a lot of people who still want to buy homes,” Cooper said. “The good news is we may have seen interest rates hit their peak and we may see more moderate rates this year, which I think will help with affordability.”
Cooper, who’s been in the consumer direct mortgage lending space for two decades, agreed with Smith that many homebuyers are focused on what their monthly payment will be.
“There’s a lot of complexity in the market and customers don’t always know what they can afford,” Cooper said. Smith “hit the nail on the head with payment, which is it’s really important for them to know what the monthly obligation is — not just the loan amount or the purchase price.”
Interest rate buydowns are just one tool that an experienced loan officer can help homebuyers discover, she said.
“Having a loan officer really help navigate (the homebuyer’s monthly payment) and understand the right program, I think is super important because a two-to-one buy down might sound interesting, but there may be different programs for the customer that actually meet their needs a little bit better,” Cooper said.
Cooper noted that mortgage giants Fannie Mae and Freddie Mac are giving first-time homebuyers with higher-loan-to-value ratios and lower incomes and credit scores a break on fees, even as federal regulators direct them to increase fees paid by homebuyers who are more well-off or who are purchasing second homes and investment properties.
Smith, like UWM CEO Mat Ishbia, put in a plug for the mortgage brokers that originate the loans UWM funds, claiming the average borrower can save $9,400 over the life of their loan compared to mortgages originated by retail lenders.
He said UWM is looking at offering a 40-year mortgage, which would lower homebuyers’ monthly payments.
“I think the challenge of the 40-year mortgage for most people is — is that the right thing to do for someone, right? Should someone have 40 years of debt tied to them? It makes it more affordable, but is it the right thing to do? I don’t think that’s our place to say.”
Lenders and proptech companies have trialed other creative alternatives like rent-to-own and lease buybacks. This week, New American Funding announced it’s referring homeowners who are interested in converting their home equity to cash to EasyKnock to explore a sale-leaseback.
“I mean, it gets adventurous when times get like this,” Smith said. “So I definitely think there’s more to come.”
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