You Asked, Mortgage and Housing Experts Answered
You Asked, Mortgage and Housing Experts Answered
The Mortgage market is navigating headwinds of the current economy. That is why it is important to provide actionable insights that can help lenders focus on forward amidst an uncertain and challenging market. During our May Market Pulse Webinar, attendees had the opportunity to ask questions from our experts. Below is a summary of each.
Q: Are you seeing lenders tighten up on HELOCs in terms of both, not offering them any longer as well as pulling back on the size of the credit limit?
Tom Aliff: As long as home prices remain high, and equity is available for consumers, HELOCs are a great option. While there might be some cutting back in that space, those cutbacks can be done in a very nuanced way when different elements are incorporated.
Q: Is this a good time for a first time home-buyer to buy a house? Or is it recommended to wait?
Craig Crabtree: A home-buyer should first consider how long they want to be in the home as well as affordability. However, a lot of great dynamics to owning a home exist including being a good investment over time, especially for a first time home-buyer.
Q: Are the mortgage delinquency numbers right? Take forbearance into account, and how these borrowers have a second lean that they do not have to pay on until they sell or refinance their home, and most are not fully aware of this.
Tom Aliff: Forbearance does not mean that the no payments are forgiven or erased. It means the consumer is still obligated to make those missed payments, and sometimes that occurs in the form of higher payments later on. So it does not reduce the delinquency. It will oftentimes hold the delinquency in a constant status.
Second, it depends on how the forbearance was set up, but oftentimes it is a separate reported element to us and treated very separately from the first mortgage.
Q: Tom, as the leader of the Aquifax Risk advisory team, what are some recommendations you have for our audience based on today's conversation?
Tom Aliff: First and foremost, as we know, scores are changing. There's a varying consumer profile for consumers who might be moving more towards delinquency, late payments, etc.. It is very important to understand a higher frequency of account reviews moving more towards a monthly status.
Second, we see an increased use of alternate data to evaluate someone in a more nuanced way. Does that consumer have additional payments you might not have been aware of, like telco, pay TV, utilities? That can also really help to streamline the total mortgage process.
Any insights on the share of fixed-rate vs. adjustable rate mortgages over the past year?
Joel Kan: The ARM share of applications peaked at around 12% in October 2022, coinciding with when the 30-year fixed rate more than doubled to haver 7%, but the ARM share was still not close to the peak of 35% we saw in the mid-2000s. For context, the ARM share was around 4% in January 2022 when rates were still below 4%. Mortgage rates for ARM loans didn’t increase quite as rapidly as fixed rate loans, so they were a viable option for any borrower who was still in the market. However, the share was also driven higher because demand for fixed rate loans dropped much faster, and the shift away from a refi dominated market to a purchase market also pushed the ARM share higher. Purchase borrowers typically use more ARMs than refinance borrowers. Lastly, the ARMs we’re seeing now have longer fixed periods – more than 70% of ARMs have 5, 7, or 10-year fixed periods, allowing borrowers more time to build equity and benefit from a lower rate.
With the rise in delinquency, credit utilization, continued low inventory, does this make it harder for LMI borrowers to purchase a home? Or will builders building more starter homes mitigate some of those issues?
Joel Kan: It is still a competitive market for buyers given low levels of existing inventory, but the stock of newly constructed homes for sale has been increasing and builders have been motivated to sell these units, especially if they are move-in ready. If mortgage rates move lower, that will help buyers in the market, but also free up some existing homeowners to sell, given that many homeowners have been unwilling to give up their current mortgage (rate). Additional supply from new construction will also help home price growth to ease, which will also support more purchase activity. We have also seen migration out of higher priced geographies to more affordable areas. However, as noted in the question, there are many moving pieces and this will vary greatly depending on local markets.
Last, manage consumer relationships and lean into the right ones. For example, segmentation shows which consumers have more financial durability, and then may trigger ways to adjust and adapt your strategies. If you have any additional questions, we can be reached at RiskAdvisors@Equifax.com.
For more information on the latest Equifax Consumer Credit Trends and to register for future Market Pulse events, click here. If you missed our May 2023 Market Pulse webinar you can view the slides here or watch the recording here.
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