Mortgage Lenders Scrambling to Adjust to Rising Interest Rates

The rapid rise in interest rates since Election Day is taking a toll on the mortgage market, and lenders are scrambling to adjust.

Since Donald Trump’s surprise victory, average rates for a 30-year, fixed-rate mortgage have leapt by more than half a point, to 4.18% on Wednesday. Rates still remain low by historical standards, but are now at their highest level since June 2015, according to MortgageNewsDaily.com.

The fast rise in rates has spurred homeowners to pull back from refinancing their mortgages. Applications dropped 3% in the week ended Nov. 18 from the prior one, the seventh consecutive weekly decline, and the second since Election Day, according to data released Wednesday by the Mortgage Bankers Association.

The MBA estimates refinances will fall 46% next year, to $484 billion, which will hurt Americans’ ability to free up cash by reducing the cost of their monthly mortgages. The fall in refinances also will hit an important area of consumer-loan growth for banks. To slow the possible damage, banks already are pitching riskier loans that come with adjustable interest rates or allow borrowers to pull more equity out of their homes.

“The increase in rate has shocked consumers…I didn’t expect it either,” said Dave Norris, chief revenue officer at LoanDepot, the 10th largest mortgage lender in the U.S. by loan volume.

The jump in interest rates since the Nov. 8 presidential election is taking a toll on the mortgage market, spurring homeowners to pull back from refinancing their home loans. ENLARGE

The jump in interest rates since the Nov. 8 presidential election is taking a toll on the mortgage market, spurring homeowners to pull back from refinancing their home loans.

The impact on home buying may be less clear-cut, but some buyers have rushed to lock in terms before rates rise further. In the week ended Nov. 18, applications for mortgages to purchase homes jumped 13% from a week earlier and were up 11% from a year ago, the MBA data showed.

Eventually, though, rising rates make houses less affordable, and that could lead to slowing sales, price growth and mortgage activity. Some analysts are now projecting home values will decline by the end of next year in many U.S. housing markets.

The MBA lowered its projections for next year’s new mortgage loans by 3% last week, to $1.58 trillion. That would represent a 16% drop from the nearly $1.9 trillion in mortgages that lenders are on pace to originate this year, with refinancing accounting for all of the drop.

There is little reason to hope “the refi market will be large next year,” said Greg Gwizdz, national sales manager for Wells Fargo Home Mortgage, a unit of Wells Fargo & Co., the nation’s largest mortgage lender by loan volume.

This month’s rate increase has eliminated a large share of borrowers for whom refinancing would make financial sense. Before the election, 70% of all borrowers with a 30-year fixed-rate conforming mortgage stood to incur at least a half a percentage point in savings by refinancing. Now only 35% of borrowers are eligible for such savings, said Walter Schmidt, who tracks mortgage-backed securities at FTN Financial.

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