George Souto State of Mortgages in 2023
As we start the new year, it would be appropriate to get a 'State of the Industry' Zoom call from a qualified Loan Officer. That was the theme of the first call of the year.
George Souto is a loan originator for Allied Mortgage, working out of Middletown CT.
As a well-respected, senior officer with many 18 years of experience, he offers the state of the industry and his insights as to what we may expect with mortgages in 2023.
Our business of real estate is aligned with the lending industry with exception of cash purchases, and even some of those are dependent on previous sales, which may have had an appraisal for the mortgage they carry.
George did point out as he started his presentation, that while the lending industry is supposed to be uniform across the country, our Connecticut economy has a history of lagging the rest of the country. We are typically last to go into an economic downturn and also last to come out of that downturn.
The common reality of markets across the country is a sharp drop-off in number of loan applications, which in turn has created staff reductions and will eventually mean longer waits for loan approvals.
In a tight competitive market with some properties this may put some buyers at a disadvantage as sellers seek to close quickly on their homes.
With the rise in interest rates, refinancing is also down, as most homeowners needing some extra liquidity took advantage of the lower rates to refinance their home loans or took out lines of credit on their homes.
The drop in applications is also due to the lessening of inventory. Buyers are still out there seeking their dream homes, but the market will continue to be to their disadvantage for a while longer.
The lower volume is also impacting buyers due to affordability. With higher interest rates monthly payments on loans have increased also, and not necessarily in proportion to wages.
Higher cost of living due to the inflation we are experiencing also reduces the amount of available income for purchasing a home. Higher debt on credit cards impacts debt to loan ratios.
Buyers are starting to take a look at Adjustable-Rate Mortgages trying to find a mortgage that may have a better value for them in the short term and hoping that before the values get too high, they may be able to convert to a more stable loan product.
George offered an example of a neighbor that knew his job would have him moving within a 3-5 year period. For that person, an ARM made good sense as it started with a lower rate than prevailing and before the higher rates could take effect, he would be most likely be selling his house.
There are starting to be a return to some loan products that were common in the early 2005-2006 years. These were the Bank statement loans, No income loans and the Fix and Flip loans. all of these are sub-prime loans but have some stricter guidelines than in the past.
Assumable Mortgages: With the rise in rates, some people are taking advantage of assuming the outstanding loan on the home. The only way this can be done, is to have sufficient cash to cover the cost of the differential between purchase price and cash to satisfy the sellers and credit to satisfy the lender.
In the current state, lenders are seeing a difference in how loans are being structured. Some people are electing to do a buydown of the rates to get a lower monthly rate. They are doing this in order to be able to afford the mortgage. Unfortunately, by the end of the buydown term, the monthly payments may still be unaffordable to the buyer, and they will start to get into trouble.
Over the short term, the amount paid for the buydown could be very close to the amount the buydown premium cost originally.
Buying Points to lower the monthly payments can be helpful and would be across the lifetime of the loan. It doesn't matter whether it is buyer or seller paid.
PMI/MI By making a single payment upfront the mortgage Insurance rates can be reduced. However, as the PMI rates are so low, it makes more sense to make the monthly payment as an alternative to taking a much larger sum of money to pay down the rate and have those funds readily available to the buyer in their bank accounts.
Smaller down payments on the purchases can help the buyers in the long term by keeping more money in their hands to allow for repairs.
For the state of the economy across the country and more specifically in our local market, he does not see as large shift in mortgages due to the reality of interest rates and also the rate of inflation.
This may not have an immediate impact for buyers as inventories are still low. and the rate of inflation will not change greatly for a while longer.
In the upcoming months, there will be some new products especially for first time home buyers; lower down payments on loans with no PMI and possibly changes in loan products allowing for higher debt-to-income ratios.
Loans will take longer to close, and this will impact rate locks.
In his opinion, there may not be a significant change in inflation until the 2024 elections come around.
George Souto State of Mortgages in 2023
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