⏱ THE MORTGAGE MINUTE

Presented by

We’re deep in the throes of the dog days of summer, and we can’t help but wonder if some of that heat has come from the vibes of the industry heating up! We’ll do our best to help you stay cool, while you watch your competitors sweat. 

Market Sentiment & Economic Calendar

Last week’s rate drops were wild, and felt like the pivot we’ve all been waiting for! 

In case you missed it, we picked up 130 BPS from Tuesday to Friday! Papa J. Powell finally said he’s ready to cut rates! Buckle up, your pipeline is about to get flooded! 

Yesterday (Monday, August 5th), the ISM numbers indicated that the economy is still growing, which led to a pullback on last week’s bond rally. There aren't any major economic releases until the end of this week. The next significant reports will be the Producer Price Index (PPI) on Tuesday, August 13th, and the Consumer Price Index (CPI) on Wednesday, August 14th.

The rate market will likely stay calm for now. We're expecting PPI and CPI to meet or fall below expectations, potentially leading to more rate drops next week. It might be wise to wait until Wednesday, August 14th, to lock in your refinance pipeline. For any tight purchase files, consider locking in on green days ahead of Tuesday morning, August 13th.

This Week’s Survey

Pipeline Save of the Week

Navigating the Student Loan Maze

Ah, college. A time to expand your horizons, meet new people, go to a raging kegger or two, and… obtain massive amounts of student debt. 

Fortunately, for the past several years many borrowers have been able to defer their student loans. But with policies constantly changing and often different rules from state to state, it can be a bit overwhelming to keep up.

In our latest Pipeline Save, the LO had an FHA loan application with a reported $0.00 payment of their borrower’s student loans. The deal was already teetering on the border of going over 55% debt-to-income (DTI), but still in the realm of approval. That is, until our friend the underwriter got their mortgage-murdering hands on it. 

Ok, fine. Fine! Maybe the LO missed the part where guidelines require a 0.5% calculation of the balance per FHA. Maybe it wasn’t entirely underwriting’s fault. This time.

Once underwriting recalculated the new figures, the deal rolled above 55% DTI. The deal was on it’s way to an untimely death.

But all was not lost, because the loan officer had a final trick up their sleeve. A back-up low cost insurance broker was able to provide a bare bones insurance policy, allowing the total DTI to lower back below the threshold. All was right in the world and the villagers rejoiced.

The lesson here? Understanding the nuances of student loan calculations for different loan types can be the difference between closing a deal and losing one. Whether you’re working with FHA, Fannie Mae, or Freddie Mac, knowing these guidelines and how to apply them can help you expertly navigate challenging situations.

Reminder to send in your pipeline saves of the week to be featured in future newsletters.

Loophole Spotlight

Deferred Student Loans and DTI

Here’s a quick guide on how deferred student loans impact DTI calculations across different loan types:

• FHA Loans: You can exclude deferred student loans from DTI if they're deferred for at least 12 months beyond closing. Otherwise, use the actual payment or 0.5% of the loan balance.

• Fannie Mae: Always include the actual payment in DTI. If not reported, use 1% of the loan balance. No exclusions, even if deferred.

• Freddie Mac: Similar to Fannie Mae. Use the actual payment or 0.5% of the loan balance if no payment is reported. No exclusions for deferred loans.

Key Tip: For FHA, the 12-month deferment exclusion can significantly help reduce DTI and improve borrower eligibility. Always check the specific guidelines for each loan type to optimize outcomes!

Better Rates, Better Deals, Papa Powell

As mentioned earlier, mortgage rates have seen a rapid decline over the past several days, and Papa Powell said the time is fast approaching for rate cuts. This is going to bode well for your pipeline leading into the fall, and many LOs and brokers are already taking advantage.

Now is the time to take a look at those borderline deals that you just couldn’t make happen and see if these new rates put you in the green-light category. 

Even if they're not there yet, that’s even more reason to call! 

The competition isn’t calling back “almost, but still dead” clients. But with a large consensus that rates will continue to fall, that quick phone call to let your client know you’re looking out for them, and that they’re not there yet (but will be soon!) could make all the difference.

Big Equity Energy

With rapidly rising home prices, it’s been tough out there for new homebuyers.

But for those in homes, it’s been quite the equity boon. 

So big, in fact, that in the second quarter it was reported that 49.2% of mortgaged homes were “equity-rich,” meaning their loan balance was less than half of their home’s estimated value.

With a continued constrained inventory of homes on the market and the typical increase in summertime demand, we should continue to see prices rise for the time being, meaning your refinance pipeline leads will have even more options in the near future. 

States with the highest shares of equity-rich mortgages were Vermont, Maine, New Hampshire, Montana, and Rhode Island, so if you lend in these states it might be a nice time for some cash-out refinance advertising!

The time is ripe for pipeline growth. Can you feel it? We sure can.

Stay Connected

See! We told you! Five minutes or less!

Crazy how much we packed in there, right?

Thank you for being a part of The Mortgage Minute community. Stay tuned for next week’s insights and tips!