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What We’re Watching: Your Monthly Mortgage Industry Update – Summer '23 Edition

August 10, 2023  //  BY Brian Haber

It’s our Summer Edition. Take a few moments poolside to learn about the latest updates on Fed rate hikes, gain insights into the continued housing shortage means for our industry, discover what policies the GSEs are updating, and more!

FED Resumes Rate Hikes: Key Interest Rate Hits 22-Year High

As expected, the Federal Reserve raised the Fed Funds rate at its July meeting by 25 basis points, putting the benchmark rate in the 5.25 to 5.5% range – its highest level in 22 years. This was the 11th hike since March 2022 when the rate was near zero. The Fed has three more meetings this year, and the question remains: will it continue tightening or ease off? 

In June, the Fed paused its anti-inflation rate hikes, perhaps in response to perceived instability of the banking sector following the failure of three mid-tier banks. It resumed tightening in mid-summer after the consumer price index increased by 3% in June. While inflation continues to remain above the Fed’s target rate of 2%, there were positive signs that price increases, which jumped by 9% in June 2022, were slowing. For example, the Core Consumer Price Index, which measures the average change over time in prices paid by consumers for goods and services, only increased 0.2% in June. 

In a post-meeting press conference, the Wall Street Journal reported that Fed Chairman Powell wouldn’t commit to whether there would be other rate raises ahead. “We think we’re going to hold policy at restrictive levels for some time and we’d be prepared to raise further if we think that’s appropriate,” Powell said.

The Fed’s next meeting is September.

Meanwhile, mortgage rates, which briefly topped 7% in early July, eased back down slightly toward month’s end. Freddie Mac’s Primary Market Forecast put the average 30-year fixed rate at 6.9% as of August 3.

Mortgage applications decreased 3% for the week ending July 28 compared to the week prior, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. 

Consumer confidence in July rose to a two-year high according to the Conference Board’s latest report, and this may counter some of the impact of higher interest rates. Freddie Mac Chief Economist Sam Khater said in a press release: "Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market.” 

 

Fannie Still Expects a Recession…Just Not So Soon and Not So Severe for Housing 

While a growing number of observers are feeling more optimistic that the Federal Reserve can engineer a “soft-landing” that will reduce inflation without triggering a recession, Fannie Mae’s Chief Economist isn’t one of them. Last month, Doug Duncan reiterated his position that a modest recession is coming, though maybe not until the end of this year or the beginning of next. 

Duncan is more optimistic about the impact of a recession on housing, however: “As we noted in our April 2022 forecast, whether there is a mild recession (our base case) or a soft landing, the supply issues in housing will provide a downside cushion for economic activity," he said. "That is playing out quite close to forecast on existing homes, but new construction has been even more supportive than we expected."

Duncan expects at least one more Fed rate hike this year and doesn’t expect mortgage interest rates to go below 6% until Q2 2024. In July, he did raise his 2023 forecast for mortgage origination slightly to $1.61 trillion in July up from June’s $1.58 trillion.  

On another positive note, a new report from Morningstar expects mortgage rates to ultimately settle back down to pre-pandemic lows and housing market affordability will be restored by 2025. “The low-interest-rate regime will resume once the dust settles from the pandemic economic volatility,” the report said. 

 

GSEs Update Their Condo/Coop Policies

In July, Fannie Mae and Freddie Mac updated their policies about the eligibility of cooperative and condominium units in buildings with significant maintenance or repair issues.

The GSEs also directed lenders to use their respective technology platforms – Condo Project Manager (Fannie Mae) and Condo Project Advisor (Freddie Mac)—for data on buildings that are off limits for financing and for more details on the new criteria.

The new project review requirements take effect Sept. 18 and will replace the interim measures that came into being following the Surfside Florida condo collapse in 2021 that killed 98 people. Under the new policies, the GSEs will not buy loans in buildings under evacuation orders or for any unit in need of critical repairs or repairs costing more than $10,000. They will also require a review of structural and mechanical inspections and on special assessments.

 

New MBA Report Drills Down on Home Equity Originations

Home equity products have been enjoying a renaissance over the last few years since record-low first mortgage rates created golden handcuffs for millions of homeowners. Earlier this year, Transunion estimated that overall home equity origination would grow 25% year over year in 2023. Now the Mortgage Bankers Association (MBA) has just released a Home Equity Lending Study, its first since 2020, that provides additional insight into recent vintages of home equity production from 2020 through year-end 2023.

The survey covered 20 banks, community banks and credit unions that were MBA members and that had participated in earlier home equity surveys. In 2022, the survey group originated $37 billion in HELOCs and HELs. The average commitment volume of repeat respondents was $2.4 billion in 2022 up from $1.7 billion in 2020.

Some of the findings include:

  • Overall home equity volume increased 50% over two years.
  • The average HELOC balance at the beginning of 2022 was $108,321 and rose to $122,113 by year end. For HELs, it was $52,653 and rose to $61,114 by year end.
  • Average credit scores for HELOCs declined from 780 in 2020 to 769 in 2022.
  • Average HELOC utilization at origination was 30% in 2022, up from 29% in 2020.

Lenders looking to streamline home equity originations might want to check out our home equity version of our FraudGuard® solution. FraudGuard® Home Equity is a single-source, comprehensive solution for home equity risk management that covers 100% of U.S. properties and has more than 32 risk alerts, including data on ownership, identity, flood and FEMA disasters, property valuation, market conditions and HOA associations. 

 

About This Blog:

What We’re Watching is a monthly blog of industry news curated by Brian Haber, who monitors the mortgage market for First American Data & Analytics.

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