Higher Rates, Cool Spring Market - Lending Update March 1, 2023

Recent reports suggest that homebuyers are having second thoughts about purchasing homes as higher mortgage rates have zapped mortgage demand. The Mortgage Bankers Association’s seasonally adjusted index shows that mortgage applications for home purchases have declined 6% for the week ending February 24 from the previous week, and mortgage demand is 44% lower than the same week a year ago, currently sitting at a 28-year low.

MBA’s Vice President and Deputy Chief Economist, Joel Kan, stated that data on inflation, employment, and economic activity showed that inflation may not be cooling as quickly as anticipated, leading to upward pressure on rates. Furthermore, there have been three straight weeks of declines in applications as mortgage rates have surged 50 basis points over the past month, after a brief revival in application activity in January when mortgage rates dropped down to 6.2%.

Dan Monson, branch manager at Sente Mortgage, says that mortgage loan originators had hoped for a heated spring housing market as rates declined in January, but hopes are now dimming. Monson says, “Maybe a month ago, somebody turned on the spigot. All of a sudden, there were leads, referrals, and action. But recently, somebody turned it back off. I don’t know that there’s a rush coming.”

Logan Mohtashami explained in a recent column that some buyers who recently applied for a mortgage may hold off on purchasing until rates cool off again. Mohtashami calls this “rate lock risk” where some buyers don’t qualify or don’t want to continue the purchase until rates fall again. “Rates spiking almost 1% in mere weeks is damaging because it can take some previous buyers out of play,” he says.

Refinance demand also declined for the week, dropping 6% week over week, and refi demand was 74% lower compared to the same week last year. As a majority of homeowners are already locked into lower rates, refinance applications accounted for less than a third of all applications and remained more than 70% behind last year’s pace. The refinance share of mortgage activity decreased to 31.8% of total applications from 32.5% in the previous week. The USDA share of total volume also declined to 0.5% from 0.6% during the same period.

The adjustable-rate mortgage (ARM) share of activity rose to 8.1% of the total volume, while the FHA share of total applications remained unchanged at 12.1%.

However, it’s not all bad news. According to the MBA, there are hopes for more activity toward the latter half of the year. The 30-year fixed-rate mortgage is expected to drop to 6.1% in the second quarter, 5.7% in the third quarter, and 5.3% in the fourth quarter. Monson says, “The year is starting off slowly, but I think we’re going to finish in a pre-pandemic number. Last year [production] was front-end loaded [and] this year is going to be back-end loaded.”

While the current mortgage rate environment may appear daunting, there are still opportunities for loan officers to help their clients. Here are some strategies for loan officers to navigate the current mortgage rate environment:

1. Discuss the long-term benefits of homeownership with clients Loan officers can discuss the long-term benefits of homeownership with clients, despite current market conditions. By focusing on the financial benefits of owning a home, such as building equity and taking advantage of tax deductions, loan officers can encourage clients to think beyond current rates.
2. Consider alternative lending options Loan officers can offer alternative lending options to clients who may not qualify for traditional mortgages. For example, AHL Funding Non QM Loan Programs.

AHL Funding Non-QM Programs

At AHL Funding, we understand the challenges that come with navigating the current mortgage rate environment. That’s why we’ve created programs to help loan officers better serve their clients.

One of our programs is our Bank Statement program, which allows borrowers to qualify for a loan using both business and personal bank statements. This program offers up to 90% LTV and an expense ratio as low as 20%. This means borrowers can use 80% of their deposits for income purposes. Additionally, we utilize a variable expense ratio, so borrowers in different industries can receive customized underwriting.

Another program we offer is our Full Documentation program, which allows borrowers to get loans done that may have been ineligible with regular agency outlets due to high loan amounts or debt-to-income ratios. This program offers full-doc loans up to 90% LTV with no MI, and allows up to 55% DTI. We also offer Interest Only Programs and Loan Amounts up to $3 Million Dollars.

For clients who are close on DTI but just can’t get there with bank statements, we offer our Bank Statements + Asset Assist program. This program allows borrowers to use a 2-month asset statement to help qualify for a loan. They can use money in the bank, stocks, bonds, 401k, and more to help boost their financial profile.

Lastly, our Asset Only program allows borrowers to use only their assets to qualify, with no other proof of income needed. We use 6 months of assets for income, including cash in the bank (100%), stocks, bonds, or mutual funds (80%), and IRA, 401k, or retirement accounts (80%).

While the current mortgage rate environment presents challenges for loan officers and their clients, AHL Funding is committed to providing programs that can help borrowers qualify for the loans they need. By offering flexible options that cater to a wide range of financial situations, we can help loan officers better serve their clients and ensure that everyone is able to access the financing they need to achieve their homeownership goals. If you’re a loan officer looking for new opportunities, we invite you to consider joining our team at AHL Funding.