Residential mortgage executives discuss challenges, current market conditions

After last year’s turmoil, much has been written about what 2023 holds for the mortgage market. As the calendar flips to Q2, it’s worth reflecting on the critical lessons learned and how mortgage executives apply them.

AMC Mortgage in Tulsa, Okla., has a Northwest Arkansas branch in Rogers managed by Katelyn Huddleston. She noted that part of the client experience now is providing knowledge and information about the interest rate environment like never before.

“As rates have trended upwards, fear and uncertainty creep in and make people uneasy,” she said. “Uneasy people are scared to make big financial decisions. The way to combat that uneasiness is with knowledge.”

Drew Stoner agreed and said borrowers are more knowledgeable about economic changes than ever.

“Our job is to educate and advise borrowers of different loan options while helping them achieve their overall financial goals,” said Stoner, vice president and Northwest Arkansas mortgage manager for Searcy-based First Security Bank. “Over the past 12 months, we have seen increased interest in extended rate lock options, interest rate buydowns [both temporary and permanent], and products with an interest rate float-down option.

“If a borrower is at the upper end of the allowable debt-to-income ratio [a determining factor of loan approval], we must inform them of market shifts that could impact their ability to buy a home.”

Sherry Sherrell is the Northwest Arkansas branch manager for New American Funding, one of the nation’s largest privately owned direct mortgage lenders. She said that despite the rising interest rates, buying a home in Northwest Arkansas is still a sound decision.

“The amount of appreciation taking place in our market is unlike most of the country,” she said.

EYE ON INTEREST
“What are the interest rates, and what will my monthly payment be?” Stoner said that’s the question he discusses with borrowers most frequently.

“Mortgage originators have always been advisers to their customers, but it has never been more important than right now,” he said.

Freddie Mac started keeping records of mortgage rates in the U.S. in 1971. According to the agency’s data, mortgage rates reached a historical high of 18.63% in October 1981. In January 2021, on the other hand, the average mortgage rate hit a historical low at just 2.65%. Mortgage rates jumped to 7% in 2022. They’d settled between 6.5% and 7% as of late March.

Arvest Bank of Fayetteville, one of the state’s top mortgage originators, has seen a significant slowdown in volume as rates have risen. The bank originated record mortgage volume for three years running in 2019 ($2.8 billion), 2020 ($4.68 billion) and 2021 ($4.77 billion).

The bank’s total mortgage loan volume in 2022 was down 42.5% to $2.74 billion.

“We saw the fastest and one of the largest increases in long-term rates over the last 12 to 18 months that caused the markets to stall completely,” said Matt Kendall, the bank’s top mortgage official. “Nationally, mortgage lending transactions have seen declines of up to 50% over that period.”

He attributed much of the slowdown to customers no longer refinancing existing mortgage loans due to higher rates.

“We have seen rates recede recently that should help drive more purchase activity, but I expect the refinance activity will remain stubbornly low in 2023,” he said. “We have also seen a shift from the secondary market, fixed-rate loans to in-house, adjustable-rate mortgages.”

According to Attom Data Solutions, a California company that tracks national housing and foreclosure data, lenders originated 3,450 mortgages secured by residential properties in the Northwest Arkansas metropolitan statistical area (MSA) during the last three months of 2022.

The fourth-quarter total is down 24.9% from July to September, with a 50.1% decline from the fourth quarter of 2021. It’s the region’s ninth consecutive quarterly drop since the third quarter of 2020 (7,537).

Refinance loans in Northwest Arkansas (1,110) were down 68% from the fourth quarter of 2021.

Sherrell said that while rates are still volatile, consumers should make sure the lender they use offers the float-down option. That allows borrowers to take advantage of lower interest rates if they’ve already locked their mortgage rate.

“We’ve had to offer different loan programs [and] provide other shorter-term reductions such as a 2-1 buydown to help ease into the payment,” she said. “That means you will start 2% lower the first year than the fixed interest rate you locked. The second year, your payment will be 1% lower.”

Huddleston said that when she talks to borrowers who think higher rates are a sign of turmoil, she shows them a historical graph of rates and explains that the increase is an effort “to get us to a place of balance where inflation is under control and rates aren’t too high.”

“I think Generation Xers are having flashbacks to the ‘Great Recession’ and think inflation is a sign of impending mortgage doom,” she said. “When I’m talking to someone fearful of over-inflated home values or prices, I make sure they understand the mortgage guidelines and appraisal requirements put in place as a result of the crisis in 2008. Supply and demand impacted home values, and the rising interest rates are helping combat demand. There are guardrails now to ensure borrowers qualify for the homes they purchase, and there are requirements to ensure that appraisal reports are accurate.

“I think Generation Zers are used to hearing mortgage rates quoted in the threes and don’t realize that, historically, a 6% to 7% rate is much more normal.”

2023 FORECAST
Stoner has worked in the mortgage business in Missouri and Arkansas for 15 years, so he’s experienced enough to avoid the prediction business regarding where interest rates will go in the short, medium and long term.

“I will say that while inflation is not the only determining factor of interest rates, it is currently the most important,” he said. “If reports indicate that inflation has leveled off or come down, we could see mortgage rates fall. If reports indicate inflation is persistent or increasing, rates could remain elevated for longer than initially thought.”

Kendall has 30 years of experience and hopes consumers have seen the high point in the rate environment.

“I see rates continue to recede and stabilize and hopefully get our long-term rates back in the 5% to 6% range for the foreseeable future,” he said. “We have come from artificially low and record long-term rates over the past decade to where we are now with a higher rate, but a 6% fixed rate is not bad compared to rates over the past 30 years.”

Huddleston became an Arvest Bank mortgage lender in 2011 in Tulsa, Okla., and relocated to Northwest Arkansas in 2016. In 2019, she led the company in mortgage volume for the four-state region. She started the AMC Mortgage branch in Rogers in July 2021.

Huddleston said she follows forecasts from a resource called MBS Highway, a mortgage industry news and analytics provider, and the Washington, D.C.-based trade group Mortgage Bankers Association (MBA).

“The MBA recently said that long-term rates have already peaked, and they expect 30-year mortgage rates will end 2023 at 5.2%,” she said. “I’m going with that.”