Why national mortgage rate averages can be confusing

By Sabrina Karl

Mortgage rate shoppers contemplating when to apply for a new or refinanced loan, or when to lock their rate, often look to the national averages to see where rates are moving. Though there is never a crystal ball on where rates will head in the future, you can see where they’ve moved in the past day or week.

These averages are often quoted in the news media — such as “Mortgage rates drop to all-time low”, as we’ve seen more than once in the past several months. But it’s also possible to see news coverage saying mortgage rates rose this week while another average indicates they’ve dropped. So what gives?

The answer is that there are multiple organizations and methodologies tracking mortgage rates. The most commonly cited is Freddie Mac’s weekly average. Having tracked mortgage rates since 1971, Freddie Mac is approaching a milestone of having 50 years’ worth of mortgage rate data.

Watching Freddie Mac’s weekly average provides a good finger on the pulse of rate movement. But its methodology isn’t perfect. Namely, it surveys lenders at the start of the week, with all of them submitting rates no later than Tuesday. The average is then calculated Wednesday and released Thursday morning. So Freddie Mac’s average is essentially from the first two days of that week.

Another popularly quoted average is calculated by the Mortgage Bankers Association. Here again, the data is reported weekly, on Wednesdays. But instead of averaging two days worth of rates, it uses a full week’s worth. However, the average reported Wednesday is from the previous week ending Friday.

For those who want to watch rates at a more granular level, Mortgage News Daily’s survey employs yet another methodology, this one producing a daily afternoon average that shows the market’s micro movements.

Should you cosign a mortgage for your child?

By Sabrina Karl

If you have an adult child ready to buy a home but unable to qualify for a mortgage due to their lack of credit history or burden of student loans, it can be tempting to lend a financial hand by cosigning a mortgage for them. This may be especially appealing if your son or daughter currently lives with you.

But it’s important to consider the risks. Cosigning puts you on the mortgage as an additional party responsible for repayment, but without any legal ownership rights to the property. In short, you are simply lending your financial credentials to boost your child’s mortgage qualification. 

For that reason, cosigning only makes sense if you have very good credit, a sufficiently low debt-to-income ratio, and a reliable income. And it’s absolutely critical that you carefully consider how you’d handle any potential pitfalls.

Most importantly, if your child cannot keep up with the payments, you are on the hook to do so. So you should only cosign if your personal finances can easily absorb your child’s mortgage payment on top of your regular monthly obligations.

Also, if your child is ever late with payments, that negative mark will appear on both of your credit reports. For this reason, the responsibility and dependability of your child is an important consideration. 

Lastly, cosigning can affect your credit. If your child pays the mortgage faithfully, that can actually increase your credit score. But no matter the payment behavior, the mortgage will impact your debt-to-income ratio as long as you’re a cosigner. So if you apply for any loan in the future, qualification could be more difficult for you.

In the right circumstance, cosigning a mortgage may provide an invaluable hand up for your child. But given the serious risks, it’s a decision to very carefully weigh.

Home buying sentiment starts summer with big gains

By Sabrina Karl

The number of Americans who think it’s a good time to buy or sell a home has climbed substantially since setting near-record lows set in the spring, according to Fannie Mae.

The June survey results signal that after home buying and selling activity were dramatically suppressed by the coronavirus pandemic, the summer home buying season is now kicking off with big strides.

Fannie Mae’s Home Purchase Sentiment Index measures homeowners’ and renters’ responses to whether they think it’s a good time to buy or sell a home, their expectations on home prices and mortgage rates, and their feelings about job security and household income.

After dropping a dramatic 29.5 points in March and April, the HPSI clawed back 4.5 points in May and now another 9 points in June. The index is now at 76.5 versus April’s near-record low of 63. Still, the new reading is 15 points below last year’s June index.

Respondents saying it’s a good time to buy rose from 52% in May to 61% in June, and the share indicating they think timing is bad dropped from 39% to 27%. The resulting net positive change in sentiment is 21 percentage points.

The feeling that it’s a good time to sell also increased. With those saying sales timing is good increasing from 32% to 41%, and those saying it’s a bad time decreasing from 62% to 48%, the net impact is a positive gain in selling sentiment of 23 percentage points.

Expectations that home prices will rise were also up (a net increase of 18 points), as was household income (a net 10% say their income is better now than a year ago). However, June feelings of job security were down slightly (net 3%) and the expectation of lower mortgage rates was down a net 10%.

Both Fannie and Freddie forecasting low mortgage rates to stick around

By Sabrina Karl

The past week has seen new mortgage forecasts released by mortgage giants Fannie Mae and Freddie Mac. And while one is a little more optimistic than the other about how low rates may go from here, they agree that rates are likely to stay in a band of historic lows all of this year and likely next.

Freddie Mac’s widely cited national mortgage rate survey is published every Thursday. Last week, the 30-year fixed-rate average dropped once again to a new low in its 50-year history. Dipping to 3.13%, it’s the fourth time the weekly Freddie Mac average has set a new record since early March.

Meanwhile, Mortgage News Daily publishes averages of its own mortgage lender survey every weekday, and on June 11, the MND average for 30-year mortgages fell below 3% for the first time ever. Dropping to 2.94% that day, it also sat below 3% for three additional days since.

Of course, the question on everyone’s mind who is considering a refinance or trying to decide timing for a new loan is whether rates have hit their bottom or will go lower still. While interest rates are notoriously impossible to predict, both Freddie Mac and Fannie Mae are forecasting they will stay low through the end of 2020, and possibly dip even lower in 2021.

Freddie Mac’s estimates are the more conservative of the two, predicting that 30-year rates will average 3.4% this year and 3.2% in 2021. The lowest previous annual averages were 3.66% in 2016 and 3.65% in 2012. In comparison, last year’s average was 4.25%.

For its part, Fannie Mae is predicting an even lower annual average rate, of 3.2% for 30-year fixed-rate mortgages, down from 2019’s 3.9%. And at this time Fannie Mae is forecasting a drop to 2.9% in 2021.

Mortgages in forbearance decline for first time since pandemic began

By Sabrina Karl

For the first time since the COVID-19 pandemic began, the number of U.S. mortgage holders in forbearance has declined.

According to Black Knight’s weekly report released Friday, 8.9% of U.S. mortgages were in forbearance as of June 4. That’s down from the pandemic high of 9.0% seen in the previous two weeks.

“After rising sharply in April and then leveling off toward the end of May, the number of American homeowners in forbearance plans has now decreased for the first time since the crisis began,” said Black Knight CEO Anthony Jabbour.

Last week’s reading represents 4.73 million homeowners currently in forbearance out of approximately 53 million mortgages held nationwide.

Forbearance is an agreement between a homeowner facing financial hardship and their mortgage lender allowing monthly payments to be reduced or paused for some agreed upon period. A plan for later repayment is established, and the lender cannot foreclose during forbearance.

Although forbearance is not a new practice, more Americans were granted eligibility to request it when the CARES Act passed in late March mandated that those with government-backed loans who were economically impacted by COVID-19 be provided with the option to suspend mortgage payments for up to 12 months.

Requests quickly skyrocketed, with the share of U.S. mortgages in forbearance climbing quickly and steadily from 5.5% on April 17 to 8.8% on May 15. Only recently has it flattened out with two 9.0% readings in late May before finally dipping last week.

The share of mortgages in forbearance varies considerably among mortgage types, with 7.1% of Fannie Mae and Freddie Mac in forbearance compared to 12% of home loans backed by the Federal Housing Administration and the Veterans Administration.

Private-market mortgages, which are not government-backed, round out the industry, with 9.6% of those mortgages currently in forbearance.