Mortgage credit crunch isn't keeping buyers away, this is

The high interest rate environment and recent bank failures had many predicting a credit crunch, but a recent report said this hasn't been the case.

Instead, the credit tightening in the wake of those bank failures has been modest and nowhere near the levels seen at the start of the COVID-19 pandemic, according to a recent First American report. Lenders typically tighten criteria to get in front of a higher probability of forbearance and delinquency.

The mortgage credit tightening in the wake of the bank failures hasn't been as severe because banks typically don't hold these loans on their balance sheets, First American Chief Economist Mark Fleming said. Lenders aren't on the hook to fund typical mortgage loans from their deposits or manage the credit risks. 

However, mortgages on banks' balance sheets, including non-conforming and jumbo loans, have seen stricter lending standards.

"Lenders may tighten lending requirements for these balance-sheet products," Fleming said in a statement. "In fact, in a recent report, the Mortgage Bankers Association (MBA) indicated that mortgage rates for jumbo loans increased, while rates for conforming loans declined.

"The divergence in rates suggests that banks may be tightening credit in response to banking uncertainty for those products," Fleming continued. "By tightening credit and limiting the number of jumbo loans they originate, banks can reduce their exposure to credit risk and conserve their cash if needed."

If you want to take advantage of interest rates before they potentially go up, you could consider shopping for the right mortgage. Visit Credible to speak with a mortgage expert and get your questions answered.

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Affordability, lack of inventory still the biggest challenges for many

The biggest hurdles to housing now are high mortgage rates and limited housing supply. A limited housing supply could challenge buyers looking for a bargain this spring buying season, according to a Realtor.com report. 

Homes newly listed for sale in March decreased by 20.1% compared to the same time last year and new listings remained 29.7% below pre-pandemic 2017 to 2019 levels, the report said.

Part of the challenge comes from sellers, locked into rates below 5%, who have shown some hesitancy to list homes at the risk of losing those low rates, according to a Realtor.com survey.   

"The recent reports that highlight the decrease in existing home sales and tightening of mortgage credit underpins the necessity of providing homeowners much-needed assistance when buying their first home," Tai Christensen, Chief Diversity Officer at ArriveHome, a down payment assistance provider, said. "Continued levels of low inventory, high-interest rates and recent bank failures are making the market very challenging for first-time homebuyers. 

"All of this is leading to some tightening of mortgage credit, but nowhere near the levels of the last housing crisis, which was directly tied to bank performance," Christensen continued. "This is a very different mortgage market than the one we saw during the credit crisis."

If you are looking to take advantage of lower mortgage rates by refinancing your mortgage loan, or are ready to shop for the best rate on a loan, consider visiting an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.

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Homebuyers could save money by shopping for better rates

Mortgage rates have declined for the last five weeks but remain well above last year when the average was 5%. However, economists said buyers may accept this range as the new normal. 

When mortgage rates are high, borrowers can save more by shopping around. In fact, buyers could save as much as $1,200 a year in today's high mortgage rate environment, according to Freddie Mac research. 

Mortgage rate variability more than doubled in 2022 when rates exceeded 7%. Borrowers who shopped for five different rate quotes could have saved more than $6,000 over the life of the loan, assuming the loan remains active for at least five years, Freddie Mac said.

"The increase in rate dispersion means that consumers with similar borrower profiles are being offered a wide range of mortgage rates," Genaro Villa, a macro and housing economics professional for Freddie Mac, said in the research brief. "In the context of today's rate environment, although mortgage rates are averaging around 6%, many consumers that fit the same borrower profile could have received a better deal on one day and locked in a 5.5% rate, and on another day locked in a rate closer to 6.5%."

If you are ready to shop for a mortgage loan or are looking to refinance an existing one, you can use the Credible marketplace to compare rates and lenders and get a mortgage preapproval letter in minutes.

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