Update on Interest Rates & The Mortgage Industry
Interest rates have come back down but they are still about 1/4% to 3/8% higher than where they were when they bottomed out on March 9th.
This is because the mortgage industry is still trying to fend off excess volume brought on by low rates and a surge of refis.
And – it is also because of the extra risk associated with every mortgage now, relating to the COVID-19 crisis and the forbearance potential.
If a recently funded loan goes into forbearance, the lender that funded the loan can easily face losses in the tens or even hundreds of thousands of dollars for that one loan.
Once again, mortgage banks only make money when they sell recently funded loans at a profit.
A loan in forbearance, however, can only be sold at a significant loss.
Fannie Mae recently announced guidelines to buy recently funded loans even if they are in forbearance, but the fees are substantial and they will not buy certain types of loans at all, such as cash-out refinances, some investment property loans or any and all jumbo loans.
So, the mortgage industry is surviving and still funding loans but many mortgage banks remain very cautious, precarious and backed up.
Vanilla loans remain the order of the day and everyone should expect continued delays because of volume and COVID-19 related issues.
When Buyers Should Not File Taxes
We like to remind borrowers who are currently making offers or who have just made an offer to NOT file their tax returns.
Borrowers should file taxes by all means, but we recommend filing an extension now (if making offers) and then filing taxes when the next deadline hits.
Filing taxes shortly before a transaction is slated to close can either delay a transaction and/or kill it altogether.
For self-employed borrowers, if the income is lower in the most recent tax year, their ability to qualify can be threatened.
This just happened in fact – a self-employed borrower of ours just filed taxes with substantially lower 2019 income and it pushed him out of qualifying range.
If he had filed an extension instead, he would be fine because lenders are happy to accept previous years’ tax returns when extensions are filed (in most cases).
The other risk from filing taxes is a delayed closing date.
This is because lenders often require proof from the IRS that the taxes in the file match the tax returns that were filed with the IRS (to prevent fraud), but it can take as long as six to eight weeks to get that proof if taxes were recently filed (because it can take that long for the IRS to process the returns).
I blogged about this last year too – 3 Tax Tips for Homeowners
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