Mortgage Rates, Forbearance, and Refinancing in Seattle – May 2020
Should you refinance or enter forbearance on your mortgage due to the coronavirus pandemic?
Joe Patterson, Real Estate Broker at Realogics Sotheby's International Realty chats with Carese Busby, Mortgage Loan Consultant from Caliber Home Loans to find out practical tips for homeowners who are unsure of how to proceed during the COVID-19 era, or homebuyers who want to know what mortgage rates are in the Seattle area.
In this video, you’ll learn:
How current mortgage rates look compared to recent trends, and how that impacts buying and selling decisions.
The current trends in the mortgage industry that are impacted by the global COVID-19 pandemic.
Carese explains forbearance and the considerations every homeowner should evaluate if they are considering forbearance.
Meet Joe Patterson, Real Estate Broker from Realogics Sotheby's International Realty
Meet Carese Busby, Mortgage Loan Consultant (NMLS ID: 619429) from Caliber Home Loans at www.caresebusby.com
In a matter of months, COVID-19 has reshaped the housing market, entangling homeowners and potential buyers in a snare of uncertainty. The help clarify the current situation, I met with Carese Busby to discuss the current landscape of mortgage and realty and explore the available options for those unsure how to proceed.
Joe Patterson: I'm Joe Patterson, real estate broker at Realogics Sotheby's International Realty, and I am lucky enough to sit down with Carese Busby, a mortgage lender with Caliber. Considering all that’s going on with COVID-19, Carese and I wanted to review what's going on in both the real estate and mortgage world. So Carese, do you mind starting us off by sharing a little bit about your background?
Carese Busby: I’m Carese Busby and I'm a second-generation mortgage lender. I grew up in this business; my father was my mentor and, as a kid, I used to come to his office and listen to him counsel his clients. Seeing him work was the catalyst to my career.
Finance is challenging for a lot of people, so I really enjoy helping others understand these complicated concepts and achieve their dream of home ownership. I feel very fortunate that I've been able to make a living in a profession that positively affects so many people. I’m also very lucky to work with amazing borrowers and team up with incredible business partners, like yourself.
Joe: Thank you, Carese! I think people really appreciate having a lender that's willing to sit down, explain the process, define expectations, and be a trusted advocate. So, I'm curious: I’ve heard that mortgage rates have gone down. What's happening with rates?
Carese: Right now, mortgage rates are at historical lows. We've never seen rates at the level they’re at right now. Freddie Mac recently benchmarked the 30-year conventional loan at 3.28%, on average, and the 15-year at 2.72%. That’s great news as it boosts a person’s buying power; when the borrowing rate is low, buyers can afford more. This also helps current homeowners looking to refinance.
Joe: Are you seeing an increase in new mortgage applications or are you just seeing an increase in refinancing? How does that look right now, especially in the Seattle area?
Carese: Last week, mortgage applications for purchases were up 11%, which is great news. We've always believed that real estate is the backbone of the U.S economy. It drives so many things: I’ve heard there's approximately 275 different people that end up involved in any given a real estate transaction. So, when someone buys a house, that affects an incredible amount of jobs and makes a significant impact on the economy.
In contrast are refinance applications. The mortgage industry historically does about three trillion a year in volume; the mortgage industry hit three trillion in volume in the first quarter of 2020. So, not only do we have a global pandemic where companies have had to transition to remote work, but we also have a lot of companies that are at capacity. The great news is that we've all adapted and people are getting really low rates. They're still buying homes. If you’re a buyer, there are great opportunities available with mortgage rates being as low as they are.
Joe: What about forbearance? How is that applicable to the industry right now, and is there anything we should be watching out for?
Carese: Forbearance is a very, very important topic and my industry colleagues and I are very concerned that everyone might not know the truth about the process and its consequences. Forbearance is not forgiveness. It should be your absolute last resort. If you're in a position where you're having to decide between groceries and paying your mortgage, then go ahead and do the forbearance. Don't do a forbearance just because you want more money in your bank account.
What forbearance is is just a deferral of a monthly payment to a later time. The challenge with it right now is that Fannie Mae and Freddie Mac have come out with guidance that will allow the deferred amount "to be put on the back end of the mortgage." However—here is where clients need to be very careful—those seeking forbearance need to check with their servicer directly on how this will be handled, because every servicer gets to choose how they handle forbearance. If you do elect to do the forbearance, it will show as a forbearance on your credit report. What we do not know is how that will affect your ability to refinance or purchase down the road. We don't yet have the guidance from Fannie Mae and Freddie Mac to determine whether that is going to cause a waiting period. Back in the 2008 financial crash, they set a two-year waiting period—and, in some cases, a four-year waiting period—before you could buy a refinance again.
If you opt for the forbearance, there are a few specific questions you absolutely must ask your servicer: if I elect to do this forbearance, how are you going to report it to my credit? What will happen at the end of the forbearance if I'm unable to make the lump sum payment? Let's say, for example, your monthly mortgage payment is $3,000, and you decide to defer that payment for three months. Now you owe back payments of $9,000. So, at the end of that three months, you're going get a statement for $9,000.
But, let's say you can't pay that, so you have to ask your servicer, "What are my options?" And the servicer says, "We are giving you the opportunity to go ahead and tack that on to the end of your mortgage." Great, that will be considered a loan modification. You cannot change the terms of a mortgage contract without modifying it legally. That legal modification typically appears on your credit report, but, based on everything I've heard so far, that doesn't mean something won’t change in the future because these guidelines currently coming out are fluid.
As it is right now, forbearance is going to be reported on your credit report as a loan modification. And—going back to what I mentioned about the 2008 financial crash—there were waiting periods then, and those waiting periods may be reinstated again. Right now, we just don't know how that's going to play out.
Joe: I think that's really great information to have because there are so many things that are moving at lightspeed right now. We have no historical precedent and I think, just like you said, making sure people are up to date on everything is really important. They need to know, especially if it’s between putting food on the table or paying their mortgage.
Carese: The one caveat I would add is that there is an ongoing conversation about whether or not the COVID-19 pandemic will be considered a natural disaster. Clearly, it’s not something people brought upon themselves; this has happened to them and they're now in a bad position through no fault of their own. There is talk on the government level that if the pandemic is tagged a natural disaster and is coded as such on people's credit reports, perhaps there will be some leeway and guidelines drafted that will ensure this doesn’t affect their credit. We just don't know yet, it's really fluid. That's why my advice is to take the forbearance if you really need to, but, if you can keep making your payments, make your payments. You’ll be better for it in the end.