May 29th, 2020 11:24 AM by Jackie A. Graves, President
Since mortgage rates plunged as the coronavirus pandemic took hold,
lenders have been inundated with applications. Bankrate spoke with Michael
Becker, branch manager of Sierra Pacific Mortgage in White Marsh, Maryland, to
find out what the mortgage process is like, how consumers can best save money
on their monthly mortgage payment and where rates may be headed.
What kind of borrowers are getting the best
mortgage rates right now?
Becker: Borrowers with good credit scores are getting good rates. For
example, we have a special going currently that improves pricing for anyone
with a score over 700.
The lowest rates are on government loans with a 700 plus score — VA, FHA
and USDA — because of the explicit government guarantee. Borrowers on these
loans get 30-year fixed rates in the high 2 percent range (2.75-2.875 percent
Conventional loans can be in the low 3 percent range
(3-3.375 percent), if borrowers have a 740 score or higher.
Also, borrowers who qualify for Fannie Mae’s and Freddie
Mac’s low and moderate income programs — Home Ready and Home Possible — and who
have a 680 score or higher are getting great rates despite putting as little as
3 percent down.
How are you dealing with the massive increase in
Becker: The best way to deal with this is to take advantage
of technology to make the approval process faster and easier. Many loans are
now getting property inspection waivers (PIWs), so no appraisal is needed. I
try to utilize electronic verification of income and assets that are now
available with Fannie and Freddie. If I get a PIW and verify income and assets
electronically, then the only thing an underwriter needs is title work, updated
insurance and homeowners association docs, and then the loan can be cleared for
closing. We can fast-track those loans and get them underwritten in as little
as six hours. I closed four loans like this last Friday, and they all of them
were originated and locked just two weeks earlier. It took that long for the
title to come in.
Where do you see mortgage rates heading in the
foreseeable future and why?
Becker: I don’t see rates moving much in the foreseeable
future. While there has been a lot of stimulus, both fiscal and monetary, thrown
at this crisis, there is going to be some real economic damage done by the
lockdowns and shelter-in-place rules. Many businesses will be forced to close
permanently. Some won’t reopen after the lockdowns, and others may try to open
and struggle if demand does not come back.
Once this stimulus ends, that will be the true test for the
economy. Because of this, I think the Fed will do all it can to support low
rates moving forward. We are seeing a little of this now. The equity markets
have rallied a lot in the last couple months on stimulus, but the bonds haven’t
sold off, resulting in higher rates as often happens with an equity rally.
(Becker is among a panel of experts that forecasts changes
in mortgage rates each week on Bankrate in our Rate Trend Index.)
What can borrowers with low credit scores do to
increase their chances of getting a mortgage with a favorable rate?
Becker: Work on getting their credit scores higher. In many
cases, this is easier than people think. Sometimes paying down a small balance
on a credit card that has a low credit limit can do a lot to improve your
score. Many lenders are requiring at least a 640 score to do a loan. And a loan
with that score comes with a big hit to the rate or cost in points. Some
programs like government streamline refinances now require a 680 score with
many lenders, because income is not verified (but employment is).
If you can’t get your score higher, then having some
compensating factors, like low debt ratios, being with your current employer
for a long time or having additional assets or reserves can help you get
approved with a lower credit score.
What can borrowers do to close as quickly as
possible on a loan?
Becker: They can respond to their loan officer’s request for
documents as soon as possible. They can also e-sign or electronically sign
initial disclosures, as well as the closing disclosure, as soon as they receive
Most delays in closing are coming from the borrowers. If you
delay getting your loan officer the info they need to get the loan into
underwriting, or if you’re slow to e-sign docs, then there will be delays.
Also, be helpful in getting updated timely docs. We are
requiring much more timely information. Bank statements used to be allowed to
be 60 days old at closing. Now, the most recent bank statement must be dated 30
days within closing. And the verbal verification of employment that is done
right before closing can only be three days old at closing — it used to be OK
10 days out. These are my company’s overlays, and not Fannie or Freddie rules,
but a lot of lenders are doing things like this to try and make sure they are
not closing a loan that is going to go into forbearance, because of a loss of
income or lack of assets. Fannie and Freddie will buy loans entering into
forbearance, but they charge the lender 500 to 700 basis points to purchase, so
as a lender you are guaranteed to lose money on the sale of that loan.
Is there anything else borrowers should be
thinking about in the current environment?
Becker: They should be looking into how they can save money.
Rates are great and there are many who can save money, lower their payment or
shorten the term of their loan.
Also, they should make sure they are secure in their job
when they apply. It’s not a good idea to try and close a refinance right before
you are scheduled to get furloughed or laid off. I have had loans get approved
and cleared to close, only to have the verbal verification of employment show
they are no longer working. This effectively kills that refinance or purchase
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