This guide covers the volatility of mortgage rates during the Covid-19  pandemic. Mortgage Rates During The COVID-19 Pandemic is two-fold. Mortgage rates are at historic lows for prime borrowers. Prime borrowers are mortgage borrowers with at least 740 credit scores, low debt-to-income ratios, 25% down payment, and no loan-level pricing adjustments. However, any borrower with pricing adjustments will get penalized.

Loan Level Pricing Adjustments, or LLPA, are pricing hits lenders charged due to layered risk. The higher the risk, the higher the rate. LLPAs are common in the mortgage industry

However, due to the secondary mortgage bond market, LLPAs are out of sync during the coronavirus pandemic.. Investors do not have any appetite for buying higher-risk mortgage-backed securities (MBS). Any borrower with under 700 credit scores will take a huge pricing hit on mortgage rates. The following sections will cover the housing market volatility and mortgage rates during the Covid-19 pandemic.

Case Scenario on Mortgage Rates During The COVID-19 Pandemic

Let’s take a case scenario. A conventional loan borrower with a 740 credit score and 25% equity on a home purchase or refinance will get a 2.875% rate on a 30-year fixed-rate mortgage. For the same borrower, the rate will be 2.50% on a 15-year fixed-rate mortgage. However,

if the borrower has a credit score of 699, the rate on the 30-year fixed-rate mortgage would jump to 4.125% with a 1.0% discount point premium. This is due to little demand for non-prime borrowers. Many lenders like J.P. Mortgage Chase has set minimum credit score requirements on conventional loans at 700 FICO and require a 20% down payment.

Chase Mortgage has completely suspended originating and funding government loans until further notice. Most lenders have increased their minimum credit score requirements to 640 and higher. Borrowers with under 680 credit scores will most likely get higher mortgage rates and may need to pay discount points. There is little demand for government loans for borrowers with under 700 credit scores. This article will discuss Mortgage Rates During The COVID-19 Pandemic Economic Crisis.

Mortgage Rates During The COVID-19 Pandemic Versus Lender Overlays

The U.S. economy was booming before the pandemic hit. The housing market was never as strong as it was before the pandemic. The mortgage industry was stronger than ever before the pandemic. However, the economy came to a halt once COVID-19 hit the Nation. President Trump and his administration went into damage-control mode.

President Trump instructed the Fed to lower interest rates. The Central Bank lowered interest rates to zero percent. This triggered the 10-year U.S. Treasuries yield to tank under 1.0% sending mortgage rates to an all-time low. Mortgage rates did hit a historic low. However, the mortgage industry went into chaos mode and disrupted the secondary mortgage bond markets.

Investors of MBS took a step back on risky mortgages. This created a spike in mortgage rates on mortgages with high-risk borrowers. Prime borrowers with high credit scores and strong credit profiles can get the best mortgage rates. However, borrowers with under 700 credit scores got high rates and may need to pay discount points. Many lenders have discontinued originating and funding loans for borrowers under 700 credit scores. Government loans suffered due to no appetite in the secondary market.

How The $2.2 Trillion Coronavirus Stimulus Economic Package Hurt The Mortgage Markets

Included in the $2.2 Trillion Stimulus Coronavirus Economic Package was a law that gives homeowners hurt by the pandemic mortgage relief. Unemployed homeowners who cannot pay their mortgage payments can get a forbearance from their lenders for at least six months. If they need more than six months, the lender can extend the forbearance for up to one year.

Any mortgage lender of federally-backed mortgages needed to offer the forbearance program. The lender cannot report the missed payment to the credit bureaus. This forbearance relief program for homeowners triggered chaos on the secondary mortgage bond market.

Even though borrowers do not make monthly mortgage payments to mortgage servicers, the lender still needs to pay their investors. This can cripple the mortgage industry and undoubtedly create another worse mortgage meltdown than the 2008 financial crisis. Over 25% of homeowners are expected to use the federal forbearance mortgage program.

Refinancing Mortgage Rates During The COVID-19 Pandemic

Mortgage industry organizations such as the Mortgage Bankers Association have been lobbying about relief for lenders in Washington to no avail. This potential can bankrupt most lenders if the federal government expects lenders to absorb this. Mortgage rates were at historic lows during the pandemic. Many homeowners want to take advantage of refinancing their mortgages. However, now is not the right time to refinance unless you are a prime borrower with 25% equity. Dale Elenteny, a senior loan advisor  at Gustan Cho Associates, says the flowing about mortgage rates during the Covid-19 pandemic:

FHA and VA Streamline Refinances cannot be done in most cases due to extremely high rates due to the illiquid secondary mortgage bond markets. Only borrowers with 740 credit scores and 25% equity with no pricing adjustments can benefit from refinancing during the coronavirus pandemic.

Mortgage rates during the Covid-19 pandemic will stabilize as time passes. Once the U.S. economy reopens, things will get back to normal. The key question is not if the economy will recover but when. Mortgage rates are expected to remain low for weeks and months to come. FHA Streamline Refinancing and VA streamline refinancing are expected to be more popular than ever in the coming weeks and months. Stay tuned for more updates on Gustan Cho Associates in the coming days, weeks, and months. STAY TUNED!!!