Fannie, Freddie give green light for remote appraisals

Home inspections won’t be needed for home-purchase loans.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | October 24, 2021

Big changes are coming for housing in 2022.

First, forget real estate agents setting up meet, greet and appraise meetings. Forget drive by appraisals. Forget appraisers price gauging homebuyers — especially in rural regions.

Remote appraising is all the rage.

Starting early next year, Fannie Mae and Freddie Mac will accept desktop appraisals for home purchases. Sandra Thompson, acting director of the Federal Housing Finance Agency made the momentous announcement this week at the annual Mortgage Bankers Convention.

Thompson did what needed to be done in the near-term as America’s appraiser shortage has become a national crisis for home purchase lenders and the housing industry.

Ten-day purchase transaction closings could become the norm as home purchase stakeholders adapt to remote appraising.

Will desktop appraising eventually spread to F & F refinances? And FHA and VA mortgage transactions? We’ll see.

Solving one problem potentially creates another. Desktops could backfire as fraudsters scheme to defraud mortgage lenders. Since physical inspections will no longer be required, will the FHFA come up with a set of best practices to prevent pump and dump property financing?

A great refinance collapse and massive mortgage industry layoffs also could be in store for 2022 as mortgage interest rates rise.

Freddie Mac’s 30-year average fixed rate currently stands at 3.09%, up from a third-quarter average of 2.87%. Even with these still historically low mortgage rates, refinances are falling faster than a lead balloon. Fannie and Freddie refinance acquisitions fell 27.4% from the second to the third quarter, according to Inside Mortgage Finance.

The Mortgage Bankers Association forecasts refinance mortgages to plummet 62% in 2022.

Multiple mortgage industry executives have told me layoffs are coming soon.

“Large lenders have to be very disciplined about head count,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance. “Jobs get cut when volume falls. Jobs are added as soon as volume increases.”

Purchase transactions may be all the rage or perhaps the only rage for 2022. MBA forecasts a very optimistic increase of $1.73 trillion, or 9%, in purchase mortgage origination increase — which would be a record.

Yet, Lawrence Yun, chief economist of the National Association of Realtors, forecasts U.S. home sales will decline by 1% next year.

“In the spring of 2021, we had a high of 2.5 months’ supply of homes for sale. In the spring of 2022, I see a high of 3.5 months’ supply,” said Yun. “Higher mortgage rates are going to squeeze buyers next year.”

Yun sees the 30-year fixed ending 2022 at a rate of 3.7%.

Yun still expects median home price gains of 3-4% in 2022, which is considerably less than the 14% national price gains of 2021.

A symbiotic opportunity for homebuyers, real estate professionals and mortgage lenders next year will be exotic mortgages or so-called non-QM or non-qualified mortgages. These are outside-the-box home loans that don’t conform to Fannie, Freddie, FHA or VA standards. Interest rates are higher than F & F rates.

A disheartening number of perfectly qualified borrowers have been turned down by Fannie and Freddie as pandemic-driven rules raised the standards to a level of paranoia when it comes to self-employed borrowers.

The FHFA has not allowed Fannie and Freddie to let up on squeezing self-employed borrowers since the pandemic hit us — even though the U.S. economy is much improved since the dawning of COVID-19.

Perhaps worse than a cavity search is the F & F requirement that lenders must be sure self-employed borrowers’ income has not fallen from the previous year. Never mind that before the pandemic year-to-date profit and loss statements, three months of recent business bank statements and proof of recent business activity were not required.

Exotic mortgages have a place for W-2 wage earners, but this type of financial instruments is particularly helpful for self-employed and commissioned earners. Think bank statement deposits as an alternative to tax return income. Or just fog a mirror if you have good credit and a healthy down payment. Even cruddy credit borrowers may find a home loan in the non-QM world.

Currently, non-QM mortgages make up less than 1% of mortgage originations, according to Cecala.

Freddie Mac rate news: The 30-year fixed rate averaged 3.09%, 4 basis points higher than last week. The 15-year fixed rate averaged 2.33%, 3 basis points higher than last week.

The Mortgage Bankers Association reported a 6.3% decrease mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $625,000 loan, last year’s payment was $97 less than this week’s payment of $2,665.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 2.495%, a 15-year conventional at 2.375%, a 30-year conventional at 2.99%, a 15-year conventional high-balance ($625,000 to $822,375 from most lenders) at 2.875%, a 30-year conventional high-balance at 3.19% and a 30-year fixed jumbo at 3.75%.

Eye catcher loan of the week: A 15-year fixed rate at 2.75% without cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.