Mortgage Rates Will Drop Further In Coming Weeks

Mortgage interest rates are falling, but they’ll drop even more in the coming weeks, giving some 18 million homeowners an opportunity to save money by refinancing.

Key interest rates dropped sharply in the early days of the pandemic, but mortgages rates did not follow in pace. The spread between 30-year fixed-rate mortgages and the yield on 10-year treasury bonds usually runs between 1.5 and 2.0 percentage points. That spread rose, though, hitting a peak of 2.71 percentage points in April. Since then, mortgage rates have come down well below three percent (as of August 6, 2020), bringing the spread down to 2.33 percentage points. That’s good news for today’s borrowers, even though the spread remains above long-term norms.

To see how much further mortgage rates will drop, we need to understand why the spread rose so high. This is the crucial question, because the 10-year treasury yield is very likely to remain low in the near future. As of this writing it is just 0.55%.

Most mortgages except jumbos are originated by a bank or mortgage company, then sold to a federal agency, usually Fannie Mae or Freddie Mac. The agency guarantees repayment of the loans and bundles them into securities sold to institutional investors. In recent years the Federal Reserve has been buying many of these mortgage-backed securities.

The huge volume of refinances—up 84% from a year ago, according to a Mortgage Bankers Association report—was a bit much for the market to digest. Investors hesitated to buy all of the supply, causing interest rates on wholesale bundles of mortgages to rise.

Compounding this was a rise in retail spreads. The local bank or mortgage company that makes the loan will resell that loan to an agency, pocketing a spread. This is just like your neighborhood grocery store buying bread wholesale and selling at retail prices to consumers. When mortgages rates dropped, millions of savvy homeowners tried to refinance—all at once. The mortgage originators had trouble scaling up. Some were hesitant to hire new employees, and even those who hired had to train the new workers during the Covid-19 pandemic.

Mortgage originators take some risk. Although they will sell the mortgages, so a default down the road isn’t a big problem, there’s always a chance that something goes wrong between making the loan and reselling it. Originators may also find that mortgage rates have changed from when they made their commitment to the borrower. And the longer the mortgage process takes, the greater the risk. With huge increases in volume, processing times were sure to lengthen. Mortgage originators pushed up their spreads both to compensate for their higher risk and because they couldn’t handle all the volume coming at them.

Spreads have fallen in recent weeks, helping homebuyers as well as refinancing homeowners. Banks and mortgage companies have succeeded in gearing up their operations for higher volumes and are now willing to accept lower profit margins to fill their pipelines. They should be able to work through the backlog of would-be customers. But remember that as they bring mortgage rates down, more people will step up to refi. Black Knight recently reported, “As of July 23, with the 30-year rate at 3.01%, there were still 15.6M refinance candidates that met broad-based underwriting criteria, which included being current on their mortgage, having a credit score of 720 or higher, and having at least 20% equity in their homes. These refinance candidates could also reduce their 30-year interest rate by at least 0.75% through a refinance, with an average savings of $289 per month and an aggregate savings of more than $4.5B per month if each of those homeowners were to refinance their mortgage.”

They had estimated 18 million refi candidates earlier when mortgage rates were lower, so potential demand is very sensitive to interest rates. That means the decline in mortgage rates will be gradual. Every little decline in mortgage rates will bring more homeowners to refinance.

How far will they drop? The spread between 30-year fixed rate mortgages and 10-year treasuries is now 2.33, and it should come down to at least 2.00. However, treasury rates are pretty low and could easily rise again by 5 or 10 hundredths of a percent. The latest mortgage rate reported by Freddie Mac as of this writing is 2.88%. That could easily drop to 2.65%. A more significant drop is possible. The spread is often as low as 1.5 percentage points, which could pull the mortgage rate down close to 2.0%.

Someone is sure to ask just exactly when to refinance, or at what rate to pull the trigger. Wait for 2.65% or hold out for 2.05? There’s no sure answer. A good strategy is to get in the ballpark, do the deal, and not regret having missed the very best possible rate.

Jumbo mortgage rates have dropped a lot in the last month, probably thanks to better economic news. Most jumbos are held by banks because they are not guaranteed by Fannie Mae or Freddie Mac. The lender worries about credit risk: will the recession prevent the borrower from being able to make payments. Conventional mortgages are risk-free so long as they conform to agency guidelines, but that’s not the case for Jumbos. Look for jumbo rates to decline gradually as the economic outlook improves.


Mortgage rates today, August 7, 2020, plus lock recommendations

Forecast plus what’s driving mortgage rates today

Average mortgage rates inched lower again yesterday. So they’re as close as it’s possible to be to the fresh all-time low set on Tuesday without actually matching it. FHA loans today start at 2.25% (3.226% APR) for a 30-year, fixed-rate mortgage.

It would be no surprise if these rates were to continue to inch up and down within a narrow range until politicians cobble together a coronavirus relief package — or until there’s some decisively good or bad news over COVID-19. But it’s just possible some other news story (China?) could gain traction and create some momentum. Stronger-than-expected job numbers this morning gave markets only a brief boost.

Conventional 30 yr Fixed3.1883.188+0.44%
Conventional 15 yr Fixed3.0633.063+0.44%
Conventional 5 yr ARM53.514Unchanged
30 year fixed FHA2.253.226Unchanged
15 year fixed FHA2.253.191Unchanged
5 year ARM FHA2.753.346Unchanged
30 year fixed VA2.252.421Unchanged
15 year fixed VA2.252.571Unchanged
5 year ARM VA2.52.433-0.13%
Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

• COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan

Market data affecting (or not) today’s mortgage rates

Are mortgage rates again aligning more closely with the markets they traditionally follow? It’s certainly an inconsistent relationship, confused by behind-the-scenes interventions by the Federal Reserve. That is currently buying mortgage bonds and so invisibly influencing rates.

But, if you still want to take your cue from markets, things are looking OK for mortgage rates today. Why? This morning’s employment data were better than expected and pepped up investors, — but only briefly.

The numbers

Here’s the state of play this morning at about 9:50 a.m. (ET). The data, compared with 11 a.m. yesterday, were:

  • The yield on 10-year Treasurys edged up to 0.53% from 0.51%. (Bad for mortgage rates.) More than any other market, mortgage rates normally tend to follow these particular Treasury bond yields, though less so recently
  • Major stock indexes were modestly lower. (Good for mortgage rates.) When investors are buying shares they’re often selling bonds, which pushes prices of those down and increases yields and mortgage rates. The opposite happens when indexes are lower
  • Oil prices decreased to $41.45 a barrel from $42.26 (Good for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.)
  • Gold prices fell to $2,059 from $2,071 an ounce. (Bad for mortgage rates*.) In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower.
  •  CNN Business Fear & Greed index edged lower to 71 from 73 out of a possible 100 points. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are better than higher ones

A change of a few dollars on gold prices or a matter of cents on oil ones is a fraction of 1%. So we only count meaningful differences as good or bad for mortgage rates.

Rate lock advice

My recommendation reflects the success so far of the Fed’s actions in keeping rates uberlow. I personally suggest:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • FLOAT if closing in 30 days
  • FLOAT if closing in 45 days
  • FLOAT if closing in 60 days

But it’s entirely your decision. And you might wish to lock anyway on days when rates are at or near all-time lows.

The Fed may end up pushing down rates even further over the coming weeks, though that’s far from certain. And, separately, continuing bad news about COVID-19 could have a similar effect through markets. (Read on for specialist economists’ forecasts.) But you can expect bad patches when they rise.

As importantly, the coronavirus has created massive uncertainty — and disruption that seems capable of defying in the short term all human efforts, including perhaps the Fed’s. So locking or floating is a gamble either way.

Important notes on today’s mortgage rates

Freddie Mac’s weekly rates
Don’t be surprised if Freddie’s Thursday rate reports and ours rarely coincide. To start with, the two are measuring different things: weekly and daily averages.

But also, Freddie tends to collect data on only Mondays and Tuesdays each week. And, by publication day, they’re often already out of date. So you can rely on Freddie’s accuracy over time, but not necessarily each day or week.

The rate you’ll actually get
Naturally, few buying or refinancing will actually qualify for the lowest rates you’ll see bandied around in some media and lender ads. Those are typically available only to people with stellar credit scores, big down payments and robust finances (“top-tier borrowers,” in industry jargon). And, even then, the state in which you’re buying can affect your rate.

Still, prior to locking, everyone buying or refinancing typically stands to lose when rates rise or gain when they fall.

When movements are very small, many lenders don’t bother changing their rate cards. Instead, you might find you have to pay a little more or less on closing in compensation.

The future
Overall, we still think it possible that the Federal Reserve’s going to drive rates even lower over time. And, last Wednesday, the organization confirmed that it planned to continue this policy for as long as proves necessary. At a news conference, Fed chair Jay Powell promised:

We are committed to using our full range of tools to support our economy in this challenging environment.
However, there was a lot going on here, even before the green shoots of economic recovery began to emerge. There’s even more now. And, as we’ve already seen, the Fed can only influence some of the forces that affect mortgage rates some of the time. So nothing is assured.

Read “For once, the Fed DOES affect mortgage rates. Here’s why” to explore the essential details of that organization’s current, temporary role in the mortgage market.

Higher rates to deter demand
We may soon see a repeat of a phenomenon that occurred earlier this year. That’s when lenders’ offices are so overwhelmed by demand for mortgages and refinances that they can’t cope.

In its latest figures, for week ending July 24, the Mortgage Bankers Association calculated, “The Refinance Index decreased 0.4 percent from the previous week and was 121 percent higher than the same week one year ago.” Processing more than double the applications seen in more normal times must be a huge challenge.

To try to deter some of the excess demand, lenders may artificially inflate the rates they offer. It’s the only way they can stop their people from drowning in paperwork.

And neither markets nor the Fed can influence how this part of the pricing mechanism affects mortgage rates.

What economists expect for mortgage rates

Mortgage rates forecasts for 2020

The only function of economic forecasting is to make astrology look respectable. — John Kenneth Galbraith, Harvard economist

Galbraith made a telling point about economists’ forecasts. But there’s nothing wrong with taking them into account, appropriately seasoned with a pinch of salt. After all, who else are we going to ask when making financial plans?

Fannie Mae, Freddie Mac and the MBA each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.

The numbers
And here are their latest forecasts for the average rate for a 30-year, fixed-rate mortgage during each quarter (Q1, Q2 …) in 2020. Fannie updated its forecasts on July 14 and the MBA refreshed its the following day. Freddie’s, which is now a quarterly report, was published in mid-June.

Fannie Mae3.5%3.2%3.0%3.0%
Freddie Mac3.5%3.4%3.3%3.3%

So none of the forecasters is expecting a quarterly average below the 3.0% mark this year. Of course, that doesn’t exclude daily or weekly averages below that level during any quarter. After all, quarterly averages can include some quite sharp differences between highs and lows.

Both Fannie and the MBA were a bit more optimistic about rates in their July (monthly) forecasts. And that’s leaving Freddie’s June (quarterly) one looking stale.

What should you conclude from all this? That nobody’s sure about much but that wild optimism about the direction of mortgage rates might be misplaced.

Further ahead
The gap between forecasts is real and widens the further ahead forecasters look. So Fannie’s now expecting that rate to average 2.9% through the first half of next year and then inch down to 2.8% for the second half.

Meanwhile, Freddie’s anticipating 3.2% throughout that year. And the MBA thinks it will be back up to 3.4% for the first half of 2021 and 3.5% for the second. Indeed, the MBA reckons it will average 3.7% during 2022. You pays yer money …

Still, all these forecasts show significantly lower rates this year and next than in 2019, when that particular one averaged 3.94%, according to Freddie Mac’s archives.

And never forget that last year had the fourth-lowest mortgage rates since records began. Better yet, this year may well deliver an all-time annual low — barring shocking news. Of course, shocking news is a low bar in 2020.

Mortgages tougher to get

The mortgage market is currently very messy. And some lenders are offering appreciably lower rates than others. When you’re borrowing big sums, such differences can add up to several thousands of dollars over a few years — more on larger loans and over longer periods.

Worse, many have been putting restrictions on their loans. So you might have found it harder to find a cash-out refinance, a loan for an investment property, a jumbo loan — or any mortgage at all if your credit score is damaged.

All this makes it even more important than usual that you shop widely for your mortgage and compare quotes from multiple lenders.

Economic worries

Mortgage rates traditionally improve (move lower) the worse the economic outlook. So where the economy is now and where it might go are relevant to rate watchers.

The Fed’s thoughts
But many were sobered by the Federal Reserve’s worrying forecasts for economic growth and employment on June 10. And those concerns were reinforced on July 1 when the minutes of the last meeting of its policy committee (the Federal Open Market Committee or FOMC) were published. Those showed continuing concerns, including expectations of:

Rising business failures
Depressed consumer spending well into 2021
The real possibility of a double-dip downturn, which could undermine a recovery in employment
Last Wednesday, following its July meeting of the FOMC, the Fed stood behind its cautious forecasts. And it noted in a statement, “The path of the economy will depend significantly on the course of the virus.” And Fed chair Jay Powell reinforced that message at his follow-up news conference that day.

It’s almost as if he’s worried that too many investors aren’t taking the pandemic’s dangers and unpredictability seriously enough.

Politics a growing issue
Last Friday, a program that saw a federal unemployment benefit of $600 a week expired. And politicians are still squabbling over its replacement.

There may be sound ideological and long-term economic reasons for discontinuing the benefit. But, in the short term, that might have impacts on millions, including those who don’t directly receive it.

Most obviously, landlords may not receive their rents and have to go to the expense of evicting tenants and finding new ones, while being unable to pay their own mortgages. And lenders (those who provide credit cards, personal loans, auto loans, student loans and so on, as well as mortgages) could see defaults, repossessions and foreclosures soar across broad population groups.

As importantly, some economists warn that letting the federal benefit lapse risks hitting consumer spending, something that could quickly affect the wider economy. Monday’s Financial Times had a headline, “US economy in peril as unemployment payments expire.”

Consumers key to US economy
Think The Financial Times is exaggerating? Maybe. But the US economy relies on consumer spending for its growth.

According to the Federal Reserve Bank of St. Louis, personal consumption expenditures contributed 67.1% of total gross domestic product in the second quarter of 2020. You might think that removing the additional federal unemployment benefit is likely to hit that hard.

So, even leaving aside the human misery, political paralysis could prove costly for the economy. On Wednesday morning, investors were buoyed by speculation that a deal between the parties on Capitol Hill was getting close, according to CNBC. But that confidence proved misplaced.

Meanwhile, a small-business relief program is set to expire tomorrow.

COVID-19 still a huge threat
That pandemic is the single biggest influence on markets at the moment. And, finally, there may be a hint of good news in the figures. Since last Friday, The New York Times has been reporting that the change in the number of new infections over the previous 14 days is now negative: -16% yesterday. Of course, the actual numbers are still appalling, and 57,128 Americans were newly diagnosed yesterday. But that figure’s been consistently over 60,000 until recently.

Sadly, deaths remain at horrific levels. Yesterday the number was 1,036. And the 14-day change for deaths was +19%. We can only hope that these will soon plateau, as new infections already are. Total reported COVID-19 deaths in the US reached 160,000 for the first time in the last few hours.

But, in a White House virus briefing on July 21, President Donald Trump warned:

It will probably, unfortunately, get worse before it gets better. Something I don’t like saying about things, but that’s the way it is.

Non-pandemic news
Although COVID-19 news dominates both generally and in markets, there’s still room for other fears. And concerns over trade and foreign relations with China are currently elevated.

As The Financial Times suggested on July 24:

Tensions between the world’s two superpowers have risen to their most dangerous level in decades as the coronavirus pandemic rages through the US and Beijing cracks down on Hong Kong’s autonomy.

And that was before more recent tensions arose. Those include the president playing hardball over Tik-Tok and WeChat.

Domestic threat
Most important economic data have recently been looking good. But you need to see them in their wider context.

First, they follow disastrous lows. You expect record gains after record losses.

And, secondly, the pandemic is far from over, with some states still recording frightening numbers of new cases and deaths.

So, while good news is more than welcome, it can mask the devastation wreaked on the economy by COVID-19.

Some concerns that remain valid include:

  1. We’re currently officially in recession
  2. Unemployment is expected to remain elevated for the foreseeable future — Yesterday’s new claims for unemployment insurance came in at 1.19 million, appreciably better than the previous week’s 1.43 million. But it was the 20th consecutive week during which new claims have topped the million mark. And all these would have been unthinkably high numbers at the start of the year
  3. The first official estimate of gross domestic product during the second quarter showed an annualized contraction of 32.9%. When you look at the second quarter in isolation (not annualized), the fall in economic output was about 9.5% in those three months
  4. On June 1, the Congressional Budget Office reduced its expectations of US growth over the period between 2020 and 2030. Compared with its forecast in January, the CBO now expects America to miss out on $7.9 trillion in growth over that decade
  5. As International Monetary Fund (IMF) Chief Economist Gita Gopinath put it a while ago: “We are definitely not out of the woods. This is a crisis like no other and will have a recovery like no other.”

Third quarter GDP
Need cheering up after all that? The Federal Reserve Bank of Atlanta‘s GDPnow reading suggests we might see growth in the third quarter of 20.3%, according to an Aug. 5 update.

But, again, that’s an annualized rate. So it has to be compared with the 32.9% lost in the second quarter. And there’s still time for the economy to fall back if more lockdowns are needed or federal benefits remain withdrawn.

Still, we might be looking at a light at the end of this pitch-dark tunnel.

Markets seem untethered from reality

And yet, in spite of all the above, on June 30, US stock markets celebrated the end of their best quarter for more than a decade — by some measures since 1987. Various record highs have been reached since.

Many economists are warning that stock markets may be underestimating both the long-term economic impact of the pandemic and its unpredictability. And some fear that we’re currently in a bubble that can only bring more pain when it bursts. ING Chief International Economist James Knightley was quoted by CNN Business over the weekend thus:

With virus fears on the rise, jobs being lost and incomes squeezed, we feel the recovery could be much bumpier than markets seemingly do, and think we are in for some data disappointment over the next couple of months.

Economic reports this week

There are a few important economic reports this week. Today brings by far the most significant: the official, monthly, employment situation report.

But there are a couple of others that sometimes catch investors’ eyes. Those come from the Institute for Supply Management (ISM) and measure the mood of professionals in that specialism. That provides a usually reliable indication of the economic direction of the manufacturing (Monday) and services (Wednesday) sectors. The neutral point for these is 50%. The higher above that, the better.

This week’s other reports rarely move either markets or mortgage rates far.

Forecasts matter

More normally, any economic report can move markets, as long as it contains news that’s shockingly good or devastatingly bad — providing that news is unexpected.

That’s because markets tend to price in analysts’ consensus forecasts (below, we use those reported by MarketWatch) in advance of the publication of reports. So it’s usually the difference between the actual reported numbers and the forecast that has the greatest effect.

And that means even an extreme difference between actuals for the previous reporting period and this one can have little immediate impact, providing that difference is expected and has been factored in ahead.

This week’s calendar

This week’s calendar of important, domestic economic reports comprises:

  • Monday: July ISM manufacturing index (actual 54.2%; forecast 53.6%) and June construction spending (actual -0.7%; forecast +0.5%)
  • Tuesday: Nothing
  • Wednesday: July ISM nonmanufacturing (services) index (actual 58.1%; forecast 55.0%). Plus ADP employment report (actual 167,000 new private-sector jobs; no forecast)
  • Thursday: Weekly new jobless claims to August 1 (actual 1.19 million new claims for unemployment insurance; forecast 1.40 million)
  • Friday: July employment situation report, comprising nonfarm payrolls (actual 1.76 million jobs added; forecast 1.68 million), unemployment rate (actual 10.2%; forecast 10.6%) and average hourly earnings (actual +0.2%; forecast -0.5%)

It’s been all about employment this week.

Rate lock recommendation

The basis for my suggestion
Other than on exceptionally good days, I suggest that you lock if you’re less than 15 days from closing. But we’re looking at a personal judgment on a risk assessment here: Do the dangers outweigh the possible rewards?

At the moment, the Fed mostly seems on top of things (though rises since its interventions began have highlighted the limits of its power). And I think it likely it will remain so, at least over the medium term.

But that doesn’t mean there won’t be upsets along the way. It’s perfectly possible that we’ll see periods of rises in mortgage rates, not all of which will be manageable by the Fed.

That’s why I’m suggesting a 15-day cutoff. In my view, that optimizes your chances of riding any rises while taking advantage of falls. But it really is just a personal view.

Only you can decide
And, of course, financially conservative borrowers might want to lock immediately, almost regardless of when they’re due to close. After all, current mortgage rates are at or near record lows and a great deal is assured.

On the other hand, risk-takers might prefer to bide their time and take a chance on future falls. But only you can decide on the level of risk with which you’re personally comfortable.

If you are still floating, do remain vigilant right up until you lock. Make sure your lender is ready to act as soon as you push the button. And continue to watch mortgage rates closely.

When to lock anyway
You may wish to lock your loan anyway if you are buying a home and have a higher debt-to-income ratio than most. Indeed, you should be more inclined to lock because any rises in rates could kill your mortgage approval. If you’re refinancing, that’s less critical and you may be able to gamble and float.

If your closing is weeks or months away, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer your lock, the higher your upfront costs. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.

If you’re still floating, stay in close contact with your lender.

Closing help

At one time, we were been providing information in this daily article about the extra help borrowers can get during the pandemic as they head toward closing.

You can still access all that information and more in a new, stand-alone article:

What causes rates to rise and fall?

In normal times (so not now), mortgage interest rates depend a great deal on the expectations of investors. Good economic news tends to be bad for interest rates because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.

For example, suppose that two years ago, you bought a $1,000 bond paying 5% interest ($50) each year. (This is called its “coupon rate” or “par rate” because you paid $1,000 for a $1,000 bond, and because its interest rate equals the rate stated on the bond — in this case, 5%).

  • Your interest rate: $50 annual interest / $1,000 = 5.0%

When rates rise

However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.

Imagine that you have your $1,000 bond, but you can’t sell it for $1,000 because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:

  • $50 annual interest / $700 = 7.1%

The buyer’s interest rate is now slightly more than 7%. Interest rates and yields are not mysterious. You calculate them with simple math.


SAVE NOW: Options for rent, mortgage payment struggles due to COVID-19

If you’re having trouble making your rent or mortgage payment due to the economic upheaval caused by the COVID-19 pandemic, you’re not alone. Millions of Americans have lost their jobs, been furloughed, had their hours reduced or have had to take time off work due to illness or to care for a family member — with or without pay.

The good news? There’s help for both renters and homeowners. Unfortunately, many don’t know about the assistance available to them.

“As we confront these unsettling times, it is important to help keep people in their homes,” said Malloy Evans, Senior Vice President at Fannie Mae, the government sponsored enterprise that finances about one in every four homes in the U.S. “It is important to provide homeowners and renters with the information they need to take advantage of the housing payment relief options that are available.”

To raise awareness of housing assistance options, Fannie Mae created “Here to Help,” an online portal offering resources and tools with clear information on what people should do if they are worried about paying their mortgage or rent during this challenging time.

For homeowners

If you’re having trouble making your mortgage payments due to COVID-19, and if your mortgage is backed by a government sponsored enterprise, such as Fannie Mae, you are entitled to a temporary postponement of your mortgage payments, called “forbearance.” Forbearance does not erase the amount you owe, but it allows for reduction or suspension of your mortgage payments for up to 12 months. You will not be charged late fees during forbearance as long as you stick to the plan’s agreed terms.

To request forbearance or other mortgage assistance, contact your mortgage servicer — the company that manages your monthly mortgage payments.

While you will eventually have to make up the payments you missed during your forbearance plan, you are never required to pay it back all at once unless you are able to do so. Other options include a repayment plan, which allows you to gradually catch up on the missed amount over a period of time, or payment deferral, which keeps your monthly payments the same by moving the missed amount to the end of the loan term with no additional interest. If you have experienced a permanent impact to your ability to make your current mortgage payment, you may qualify for a loan modification, which could reduce your monthly payment by extending your loan over a longer period of time.

For renters

If you currently rent and need help managing your payments, your first step should be talking to your landlord or property manager about available options. Be sure to keep all mail, e-mail or text correspondence with your landlord and make detailed, dated notes of any conversations you have in person or over the phone. Ask about payment arrangements, such as a temporary rent reduction. Remember these may be stressful financial times for your landlord, too. Try to communicate the facts about your situation clearly and calmly.

The owners of multifamily rental properties financed by Fannie Mae or other government-backed financing can seek forbearance and extended repayment plans to help deal with COVID-19 impacts. For renters in those properties, there are a number of additional protections: You cannot be served with an eviction notice solely for nonpayment of rent and you cannot be charged late fees or penalties. You will still need to pay the rent that is owed, but your landlord must give you flexibility to repay over time.

Navigating broader financial challenges

Importantly, homeowners with a Fannie Mae-financed mortgage and renters in a Fannie Mae-financed multifamily property (5+ units) qualify for free access to housing counseling approved by the U.S. Department of Housing and Urban Development (HUD). The counselors provide free personalized assistance to help you navigate broader financial challenges you may be facing so you can return to normal faster.


How to decide whether you should buy a home in cash or take out a mortgage

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

  • Buying a home in cash can be a great step toward financial freedom, but it isn’t automatically a better choice than taking out a mortgage.
  • Paying in cash can save you thousands on interest, closing costs, and monthly payments, but you could earn more in the long run if you invested some of that money in the stock market instead.
  • Paying in all cash could be risky if you don’t have much left in savings after buying the home.
  • Buying in cash can make your offer more competitive and may land you a discount, while a mortgage could come with tax benefits and the ability to improve your credit score over time.
  • Policygenius can help you compare homeowner’s insurance policies to find the right coverage for you, at the right price »

If you have the money to buy your dream home, then you might assume paying in cash is the way to go. This could be true, but the choice between paying in cash and getting a mortgage isn’t black and white.

The answer to the “cash versus mortgage” debate depends on your circumstances. There are several factors to consider, including how much you’d have left in savings, how you’d spend the extra money if you took out a mortgage, and what your priorities are.

Should you buy a home in cash or get a mortgage?

You may want to buy in cash if you:

  • Will still have significant savings after buying the home
  • Want to close on a home quickly
  • Wouldn’t put the extra cash into other investments

You may want to take out a mortgage if you:

  • Would put extra money you would have used to buy the house into the stock market
  • Would be in a tight financial situation after buying a home in all cash
  • Want to gradually improve your credit score, and don’t already make other payments that boost your score

Benefits of buying a home in cash

  • You won’t pay interest. Paying interest on a mortgage can cost you tens of thousands of dollars over a 15-year, 20-year, or 30-year term. Paying cash to avoid interest is a potentially great way to save money in the long run.
  • You won’t pay closing costs. Taking out a mortgage comes with a lot of fees, commonly referred to as closing costs. You could pay an appraisal fee or private mortgage insurance premiums. Lenders also have the right to charge “junk fees,” which could show up on an itemized list of fees as origination or processing fees. In total, closing costs typically set you back thousands.
  • You’ll have lower monthly payments. You’ll probably still have to make monthly payments on things like property taxes, homeowners insurance, and maybe homeowner’s association fees. But you’ll free up hundreds or thousands of dollars per month on mortgage payments, so you can spend that money in other ways.
  • It could make your offer more competitive. A seller may prefer to sell to someone who is paying in cash, because the closing process usually goes more quickly, and there’s less risk that something will go wrong with your financing.
  • You might pay less for the home. Because receiving a cash offer is more attractive, the seller may agree to give you a discount to close the deal.

Benefits of taking out a mortgage

  • You aren’t tying up a lot of money in one investment. If mortgage interest rates are low right now, then you could stand to make more by investing some of the money in the stock market than by avoiding interest payments. But if you’re pretty conservative with your investments or know you wouldn’t put that money toward the stock market, then paying in cash could still be more lucrative.
  • You aren’t spending a lot of cash at once. Yes, buying in cash can potentially save you a significant amount of money in the long run. But if you spend the bulk of your liquid cash on the home, then you could face trouble if there’s an emergency or if you need to make home repairs after moving in. It can be a good idea to make sure you still have money set aside for an emergency after buying a home.
  • Improve your credit score. Making mortgage payments on time every month for years should gradually boost your credit score. This tactic can be especially useful if you aren’t already improving your credit score by making payments on a car loan, student loan, or credit card.
  • Receive tax benefits. Mortgage interest payments are tax deductible. The deductions aren’t quite as substantial since the 2017 Tax Cuts and Jobs Act limited how much you can write off, but it’s still worth considering. In 2020, you may be able to write off up to $750,000.


BBB Tips: Do your homework before applying for a reverse mortgage

Reverse mortgages are widely advertised to seniors as a popular way to access the equity of their home, which may be attractive to consumers seeking a quick source for cash during the COVID-19 pandemic and resulting economic slump. Homeowners should fully understand all the costs, terms and conditions before applying for a reverse mortgage.

A reverse mortgage allows homeowners to convert part of the equity in a home to cash without having to sell the property. The cash may be paid to you in installments or a lump sum, so typically you don’t need to pay anything back if you live in your house.

Due to the attractiveness of these loans, senior citizens should be on guard against being charged excessive upfront fees for services that are generally available free of charge or at a very low cost through the Department of Housing and Urban Development.

Reverse mortgages also may come with some significant strings. Consumers should understand that because they’re deferring repayment of the reverse mortgage until they move out of their home or die, the amount they owe will grow substantially over time. Interest charges are added to the loan each day it’s held, so it’s possible the reverse mortgage may grow to equal the value of the home. People who take out reverse mortgages also are still responsible for property taxes, insurance and maintenance costs.

Some ads say heirs can inherit the home, but remember, to keep it, they must pay off the reverse mortgage loan along with possible fees and charges that can add up.

Those who need cash might consider getting a less costly home equity line of credit and check into programs that help defer or lower taxes and utility bills.

Tips to consider before applying for a reverse mortgage:

• Know the basic requirements. To apply for a reverse mortgage, a senior must be 62 years or older and have equity in the home. The home must be the primary residence and remain in good condition. A Home Equity Conversion Mortgage (HECM) is the only federal government-insured reverse mortgage, and the loan process can’t be initiated until the senior receives counseling from an HECM counselor. Factors such as your age, the type of product, the value of your house and how much you owe on your house all contribute to the amount you may borrow.

• Consult an HECM counselor. An HECM counselor will help answer questions regarding eligibility, financial implications and other alternatives. The Fair Housing Association (FHA) does not recommend using any service charging a fee for referring a borrower to an FHA lender, as FHA provides all the information free of charge, and HECM housing counselors are available free or at a low cost. For a list of approved counseling agencies, click here or call 800-569-4287.

• Involve heirs in the decision. Since a reverse mortgage affects the assets of the borrower in case of death, involving heirs will avoid future misunderstandings.

• Make sure a reverse mortgage suits your needs. Determine whether it is practical to keep the home long enough to make the reverse mortgage economical. Consider future health care needs as well as safety and ease of use of the home.

• Consider all the costs associated with obtaining a reverse mortgage. Be prepared to pay for some of the fees involved in the processing of a reverse mortgage loan, which can include an origination fee, closing costs, a mortgage insurance premium, a servicing fee, and the interest rate.

• Understand the repayment terms. A reverse mortgage loan must be repaid in full when the owner dies or sells the home. Other conditions that affect loan repayment include failure to pay property taxes or hazard insurance, allowing the property to deteriorate, and if the borrower permanently moves, has a new primary residence, or fails to live in the home for 12 consecutive months.

For a full list of reverse mortgage requirements, contact the U.S. Department of Housing and Urban Development.

Report any scams to Better Business Bureau Scam Tracker, and find trustworthy reverse mortgage lenders at


Humboldt County DHHS: Rental, mortgage relief available to qualifying individuals

HUMBOLDT COUNTY, Calif. — Money to pay for missed rent or mortgage payments is available to qualifying county residents who have fallen behind because of COVID-19 pandemic-related income loss, according to the Humboldt County Department of Health and Human Services (DHHS).

The Humboldt County Eviction Prevention Program is available to income-qualifying households that have prior rent or mortgage owed since March, on a first-come, first-served basis, officials said.

Administered by the DHHS, each qualifying household can receive up to $5,000 which will be paid directly to the landlord or lender, according to officials. The DHHS said the program is being funded through the federal Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, which is providing funding to state, local, and tribal governments to help ease the financial effects of the pandemic on local jurisdictions, businesses, and individuals.

“This pandemic has been difficult for everyone and facing eviction because you have experienced a loss or reduction in employment can have devastating effects. We’re pleased to be able to offer this program to help individuals and families stay in their homes as we all navigate these uncharted waters,” DHHS Director Connie Beck said.

Households within Eureka city limits that meet income requirements for the city’s COVID-19 Assistance Fund will be referred to the city to apply for assistance, officials said.

The program will run through Dec. 30, or until all funding has been distributed, according to the DHHS. Applications will be accepted starting Monday, Aug. 10.


Trouble Ahead for Sellers in Private Mortgage Transactions

Investors in private mortgages are licking their chops over what some see as a pending tidal wave of note sales in the coming months.

They believe many sellers will be forced to finance their own sales – or, in the parlance of the trade, “hold the paper” – because their buyers won’t be able to qualify for a mortgage from traditional lenders.

“More than half of the loans made in 2019 would not meet today’s criteria,” said Sarah Strochak, a research analyst in the Urban Institute’s Housing Finance Policy Center.

Some sellers will be content to collect their money bit-by-bit over the months, as though they were landlords. But note-buyers think those who want their proceeds sooner, and in one lump sum, will want to sell their paper, even if it means putting less cash in their pockets.

“A seller-held tsunami is on the horizon,” said William Mencarow, publisher of The Paper Source newsletter.

Scott Arpan of Advanced Seller Data Services, a supplier of leads for seller “carry-back” notes, believes a slew of paper will hit the market in the coming months.

“History shows we will see a flood of new notes,” Arpan said. “Unless the economy can quickly return to full employment, many [homebuyers] will suffer damaged credit even when they are responsible borrowers.”

What Investors Want

The question for home sellers, then, is how to create a financing vehicle that investors will want to take over if and when the time comes to sell it.

For starters, spend the money to have a local real estate attorney create the necessary, state-specific documents. Absent that, find a paralegal to handle the task, or search the legal websites. Your house is too valuable to rely on standard forms sold at office supply stores.

Realize, too, that you’ll have to sell at a discount, otherwise there’s no reason for an investor to take the mortgage off your hands. And the price they pay depends on any number of variables. The closer the paper is to bank quality, though, the smaller the discount.

Said Mencarow, most legit note-buyers are looking for seasoned notes – those that are at least six months old, and that have been paid on time. Even more important, however, is what you collect each month. The monthly payment is “the single most powerful financial aspect determining the value of a note,” according to Mencarow.

An amortized note is more valuable than one with a balloon payment at the end of the loan’s term, he adds. In other words, all else being equal, a 10-year note with a large monthly payment and no balloon is worth more than a 10-year note with a smaller monthly and a balloon payment at the end.

According to Mencarow, a single-family house in a stable neighborhood and occupied by a borrower with an excellent credit record and an unblemished payment record is “the best collateral possible.”

Some note-buyers might use a different hierarchy. Either way, you’ll want your mortgage to be in the first lien position, because if you have to foreclose on your borrower, you’ll want to be the first creditor to be paid from the proceeds of the property’s sale. That’s why a first lien is more valuable than a second – and a second, though not as valuable, is more so than a third.

How to Finance a Sale

In taking back paper, the seller becomes the lender. Consequently, you should check out your buyer in the same way a conventional lender would. That means asking for a full-blown credit report, which the buyer pays for.

Also check his or her employment history, looking for at least two years at the same company (or at least in the same field). Ask for their tax returns, a list of all assets and debts, rental history and perhaps even a criminal background check.

Why go to all this trouble? For one thing, you will be protecting yourself from dealing with someone who doesn’t pay as promised. But for another, someone who buys your note will want to know the same.

Mark Donoghue of the Americus Financial Group said he pays “careful attention to our due diligence and underwriting.” Nathan Turner, also known as “the Canadian Note Guy,” said his pencil “is a little sharper” these days. And Kevin Clancy of the American Funding Group requires a borrower interview before closing the deal.

“We’re very concerned about a borrower’s ability to pay,” Clancy told The Paper Source recently.

You should always seek as large a down payment as you can obtain. Just like a conventional lender, you’ll want your borrower to have as much skin in the game as possible. After all, the more money your buyer has in the deal, the more difficult it will be for him or her to walk away.

“Equity, equity, equity,” said Donoghue. “This remains our No. 1 risk characteristic.”

Your location also may determine your ability to sell your loan to an investor, at least for a better price. For example, Donoghue is not buying in California, New York, Connecticut and a few other states. And Gene Powers of Nationwide Secured Capital is shying away from places related to large airline and tourism employment.

Paige Panzarell, aka “the Cashflow Chick,” said she has always been careful about buying paper in states where it is difficult or takes too long to foreclose. And she may even eliminate even more states over the coming months.


Extension of the mortgage deferral program must be considered

Back in May, when COVID-19 was tightening its grip on the throats of the Canadian economy and housing markets, Evan Siddall, CEO of the Canada Mortgage and Housing Corporation (CMHC), spoke to the federal Standing Committee on Finance on actions the corporation had taken to alleviate financial stress on Canadian homeowners, including the mortgage deferral program.

“We acted quickly to help Canadians who are having difficulty paying their mortgages or rent due to income loss because of COVID-19,” said Siddall. “In co-ordination with private mortgage insurers, we are offering temporary deferral of mortgage payments for up to six months.”

Siddall estimated nearly 20 percent of mortgage holders will have elected to defer payments by September, calling it a potential deferral cliff.

Initial reaction to Siddall’s projection of 20 percent were scoffed at by economists, but according to alternative lender Equitable Group Inc., loan balances on COVID-19-related payment-deferral plans peaked at 20 percent at the end of May, but have declined significantly since then, to six percent as of July 17.

“Our general feeling is that many of our customers called looking for a deferral just out of an abundance of caution in an uncertain economic scenario,” said Equitable president and CEO Andrew Moor during a conference call for analysts and investors.

The Canadian Bankers Association says since the rollout of the COVID-related mortgage deferral program, approximately 760,000 Canadians opted to defer or skip mortgage payments, representing about 16 percent of the total number of mortgages in bank portfolios.

The bulk of those deferrals happened during the early days of the COVID threat, says Justin Thouin, co-founder and CEO of

“We’re hearing from our bank and broker partners that there has been a steep drop in mortgage deferrals since banks and lenders originally began announcing such programs in March during the start of the pandemic,” says Thouin. “However, there is still a large number of Canadians who are requesting deferrals.”

Last week, CMHC announced it was investigating ‘new tools’ to prevent the deferral cliff.

“As the end of the initial six-month deferral period from the beginning of the pandemic approaches, we recognize the need to continue to monitor this diligently and potentially develop new tools with our partners to help Canadians during this unprecedented pandemic,” CMHC said in a statement to The Financial Post. “This work is ongoing and we will provide Canadians with updates as they become available.”

In an email, a CMHC spokesperson said it was premature for the agency to discuss specific outcomes of their ongoing conversations with lenders and other mortgage insurers.

“As we continue to approach the end of the initial six-month window for deferrals, there is a lot of uncertainty about what will happen to those who cannot make their mortgage payments,” says Thouin. “Speaking to brokers and bank partners, we know that the home is often one of the last assets that Canadians will stop making payments on. They’ll default on credit card payments, car loans and personal loans first.”

In June, the Canadian Credit Union Association (CCUA) consulted with CMHC “regarding next steps and policy recommendations to assist homeowners facing hardships due to COVID-19,” said CCUA on its website. “To inform our discussion, we surveyed credit unions to understand their views on existing CMHC default management tools, and their recommendations to improve and expand them.”

The survey found some CCUA members think the six-month deferral repayment period is too short and would like to see it extended, because they view COVID-related challenges as being long term.

Concerns were also expressed about those on deferral who have lost their jobs and will still struggle to make mortgage payments when the repayment period ends. Added to that was the concern of whether mortgage holders will be in a position of making higher payments, as deferred payments are tacked onto their monthly bills.


Cavaliers’ Dan Gilbert now second-richest owner in sports after Rocket Mortgage IPO

Shares for Rocket Mortgage, the company co-founded by Cleveland Cavaliers owner Dan Gilbert back in 1985, increased by 19% on Thursday, the first day of trading in New York.

This represents the first time we have been able to fully understand the net worth of Mr. Gilbert. It’s long been anticipated that Gilbert had a net worth in the tens of billions, making him one of the richest owners in professional sports.

That’s now official. Thursday’ IPO led to a valuation of Rocket at $40 billion. Per Bloomberg, that’s higher than Ford Motor Co. Gilbert is said to own 73% of the company.

Bloomberg’s index also puts Gilbert’s net worth at a resounding $34 billion, second to only Los Angeles Clippers owner and former Microsoft CEO Steve Ballmer ($72.6 billion).

It’s an absolutely astonishing figure in that this makes Gilbert the 28th-richest man in the world, ahead of the likes of casino big wig Sheldon Adelson, who has been attempting to get into the sports world. His relationship with the NFL’s Las Vegas Raiders hit a snag immediately ahead of them relocating from Oakland.

From a pure sports perspective, this news is unlikely to endear Gilbert to an increasingly skeptical Cavaliers fan base following the departure of LeBron James ahead of the 2018-19 season.

Cleveland is said to have the sixth highest-payroll in the NBA right now. Though, the team is looking to sell off veteran assets such as All-Star big man Kevin Love. With his net worth, there’s no reason to believe that Gilbert can’t continually go over the luxury tax in order to help create a perennial contender in Cleveland.


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Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications


In this paper, we use two comprehensive micro data sets to study how the distribution of mortgage debt evolved during the 2000s housing boom. We show that the allocation of mortgage debt across the income distribution remained stable, as did the allocation of real estate assets. Any theory of the boom must replicate these facts, and a general equilibrium model shows that doing so requires two elements: (1) an exogenous shock that increases expected house price growth or, alternatively, reduces interest rates and (2) financial markets that endogenously relax borrowing constraints in response to the shock. Empirically, the endogenous relaxation of constraints was largely accomplished with subprime lending, which allowed the mortgage debt of low-income households to increase at the same rate as that of high-income households.