TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1463706
22 | M R EP O RT FEATURE T he moment housing economists have foretold is finally upon us: the end of the refi boom. For the past two years, mortgage rates have remained at historic lows, creating a frenzy of homeowners rushing to refi- nance. But in the first few months of 2022, mortgage rates have risen sharply in anticipation of the Federal Reserve's strategy to stabilize inflation. On March 16, 2022, the Federal Reserve announced its first rate increase of 25 basis points. In that same week, the Mortgage Bankers Association (MBA) reported the 30-year fixed rate rose to 4.5%—more than a full percent- age point increase in comparison to one year ago. As a result, we are seeing a significant drop-off in refinance activity. As of March 18, 2022, the MBA Refinance Index dropped nearly 55% compared to a year ago. As the mortgage landscape transitions to a purchase market, lenders need to be prepared to change their approach to fit their borrowers' needs. Today's pur- chase borrowers are faced with a series of challenges navigating one of the most difficult hous- ing markets in recent memory. Consider a current homebuyer's experience: home prices are at the highest levels ever recorded, there is limited inventory to choose from, and competition often leads to bidding wars and price escala- tions. With home prices continu- ing to climb higher and mortgage rates increasing, the dream of homeownership is being pushed further away for many buyers. According to the Radian Home Price Index, provided by Radian subsidiary Red Bell Real Estate, LLC, home price appreciation set a new record in 2021, rising 14.2% year over year. And in the last quarter of 2021, it rose 17%. Affordability has become a major obstacle for many home- buyers but especially for first-time homebuyers who haven't been able to benefit from home price appreciation. Coming up with a substantial downpayment is out of reach for many. With the median price of a home in the United States now above $300,000, that means first-time homebuyers need to have more than $60,000 cash in their pock- ets to make a 20% downpayment. Homebuyers are stressed— exhausted by the process and strained financially by the increas- ing costs. While lenders may be powerless to solve the housing shortage issue, they do have a tool at their disposal that may make all the difference for borrowers. Thank goodness for mortgage insurance (MI), which can be the key to helping more buyers afford a home in this environment. Thinking of mortgage insurance as an advantage requires a shift in perspective for many lenders and borrowers who are used to viewing mortgage insurance as a "necessary evil." Many see it simply as an additional cost to the borrower. However, MI calls for a fresher look, as it has a range of benefits for borrowers that lenders should consider carefully, espe- cially in this rapidly appreciating real estate market. 1. Allow the Borrower to Buy Sooner W aiting to save a 20% down- payment can be a huge barrier for many first-time home- buyers. And, as home prices con- tinue to rise, the savings needed also increase. With private MI, a borrower may be able to purchase a home with as little as 3% down. Rather than needing $60,000, as with the previous example, they may be able to purchase a home with a downpayment as low as $9,000. Buying a home earlier means that the homeowner can begin to build equity and long- term wealth rather than waiting to enter the market. 2. Cover an Appraisal Gap I n today's highly competitive market, many potential buyers are offering well above the asking price and waiving traditional contingencies such as appraisal. While these strategies can help a buyer secure their dream Thank Goodness for Mortgage Insurance With affordability and inventory challenges rampant, mortgage insurance can be the key to helping more buyers afford a home. By Marshall Gayden