Low Mortgage Rates – Both Good and Bad for Lenders

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With mortgage rates remaining at historic lows, lenders have continued to reap the benefits of an extended refinance period. But, do these low rates also pose a serious long range problem for lenders and the housing market?

Factors, like low rates, that on the surface appear to be of a benefit to the consumer, may also be cause for concern. The low rates have provided many homeowners with the opportunity to reduce their monthly mortgage payment with others taking some of their equity to pay down debt or cover other obligations.

These refi’s result in fewer homes on the market for sale, and fewer potential move-up buyers. That is not necessarily good news for those looking to purchase their first home.

The net effect is that those who own a home now have the option to either refi or sell, while those who do not see home values increasing beyond the level they can afford. That is not good for them, for lenders or for the housing market.

So, as the Fed is again considering, it may be time to raise rates. This could slow down the refi process and regulate home value increases to a more manageable level.

If the economy continues to improve (as they say it is), and if wages and employment start to get better (a big if), we may get a stable housing market with affordable homes for first and second time home buyers.

A rate hike may have the effect to better balance housing supply and demand but it could mean more trouble for lenders. Loans now in the pipeline may see their rates increase if not locked. This may cause problems in qualifications, or in the benefits to the consumer of the refi.

Those with their rate locked will push lenders to close on time to avoid paying a higher rate. If Lenders do not close on time they may be forced to extend the lower rates at a loss.

Refinances have been great for lenders for a long time. But they can’t last forever. We need a healthy dose of purchase business to keep the housing market and economy flowing.

This is saying nothing about what these low rates have done to the purchased servicing values and the run off being experienced by servicers. That’s a whole other story.

What will the Fed do? Do you think they’ll hold, or fold and raise the rates? I just hope whatever they do, it’s what right for the long haul.

Maybe, it’s time for a slight hike.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.