10/28/2023
Is it time to talk about the negative effects of the switch from the LIBOR (London Inter Bank Offered Rate) vs. The SOFR (Secured Overnight Financing Rate)? While the LIBOR played a somewhat negative role in the housing crash of 2007-08, can we say the SOFR was the right index to replace the LIBOR?
As we all know, the impact of the inflation fighting fed has resulted in rising rates.... with the LIBOR no longer being the index of choice... this has resulted in some unintended consequences with a seriously negative impact on the housing market. If the LIBOR was currently the index of choice for the secondary market Adjustable Rate Mortgages would not be caught in the current inverted yield curve would make me inquire why not legislate a better short term solution?
Traditionally, 10/1, 7/1, and 5/1mortgage ARM rates are significantly lower than 30 year fixed rates. With investors looking for long term security, it's time that Fannie and Freddie innovate! And congress quickly legislates reforms associated with Dodd Frank. We need practical short term solutions for borrowers looking to purchase in a higher interest rate environment. I would think that 10/1, 7/1 and 5/1 arms would better serve first time homebuyers if those rates were lower than the current 30 year rates without having to buy out those rates.
First, serious consideration should be given to a 6 month prepayment penalty. Second serious consideration should be given to changing the qualifying rate from 7 years to five years. Lastly a 5/1 arm with a 15 year Ballon qualifying as a qualified mortgage would go a long way in helping to bring much needed loan options. Lastly there should be a cap on LLPA adjustments for borrowers with a credit score below 620 OR allow for much higher rates to reduce the impact of an inverted yield curve.
Lastly, points and fees tolerances should be re-examined. A higher tolerance for smaller loan amounts should be implemented. With inflation driving lending costs up and up, it's extremely difficult for lower loan amounts to pass Higher Price Mortgage Loan (HPML) tolerances. This only discourages lenders from making loans to lower income borrowers. Given the choice, i think a borrower would prefer to pay a higher rate and buy a home vs not being able to qualify at all due to Dodd Frank restrictions.
I has a borrower pay $725.00 for an appraisal last week. No special trip fee or rush fee. Granted it was a manufactured loan but still.... that's a lot for a $235,000 purchase!
I just don't have a lot of faith that HUD, it's leadership, our government truly understand the importance of affordable housing. Although the change to allow ADU income was a positive step by HUD, congress needs be more creative in reforms that favor mortgage affordability.
Let's hope we can avoid a full blown recession and get lowerrates soon!
