Mortgage Applications Took A Wild Ride In March. Here’s What Is In Store For April

That old saying about New England weather—if you don’t like it, just wait ten minutes—could have also explained mortgage applications last month. Numbers were both good and bad, depending on how you look at things. 

The Good

“In February [2019] we locked $6.8 billion, $1.4 billion more than we’ve ever done in the company’s history,” said Victor Ciardelli, CEO of the digital mortgage company Guaranteed Rate. “But in the first seven business days of March we locked $5 billion.” At first glance that early March surge could be attributed to the drop in interest rates that took place earlier in the month, however the company would go on to lock over $9 billion in loans by the end of March and are still seeing strong demand into early April, which suggests the need is still there despite the U.S. starting to see the first wave of mass layoffs.

Other lenders reported similar surges. Better.com, a flat-rate, fully digital mortgage lender, saw a 200% increase in loan applications in March, with about 80% of them for refinancing. Of the remaining 20% that were for purchase applications, that was 26% higher than the number of purchase applications in February. They closed over $1 billion in loans during March, which is more than the four-year old company did total for both 2017 and 2018 combined. 

Similarly, Family First Funding saw a 177% increase in the number of closed loans during March 2020 compared to March 2019. In dollar amounts this translated to $118.6 million in closed loans this March versus just under 70 million last March. So far in April they report seeing record numbers as well, but it is too soon to release any hard numbers. 

Throughout the country the bulk of the activity was in refinance applications. Now that April is underway refinances have started to see declines from one week to the next but they are still leaps and bounds ahead of where they were last year around this time. Looking back at last week, even though they dropped 19% from the week before they were still 144% higher than the same week in 2019, according to the weekly report from the Mortgage Bankers Association. They made up 74.2% of the total number of applications. 

For purchase applications, the same report showed a 33% drop last week compared to the same week a year prior. Purchase applications are in their third week of declines after a strong two months at the beginning of the year.

The Bad

That drop in purchase loans largely took place in the jumbo loan space. The MBA also publishes a mortgage credit availability index, which last week showed a total decline of 16.1%, but if you look at the breakdown of jumbo loans versus non-jumbo the decline was 36.9% versus 2.7%, respectively. 

As lenders tighten standards, Melissa Cohn, executive vice president and head of the Private Client Group at Family First Mortgage, says, “We’ve seen a lot of our banks cut back on Loan to Value [ratio]. They’re still willing to lend, but they want higher minimum credit scores.” She cites one lender that announced they have temporarily increased their minimum credit score to 720 during the COVID-19 crisis whereas they previously would accept scores as low as 660. Cohn has many clients with jumbo loans since she has a strong presence in New York City and the Hamptons, two areas with some of the highest numbers of jumbo loans in the country. 

“The Feds footprint in terms of their [mortgage backed securities] purchases that’s still functioning relatively well given all that’s happening,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting in a follow-up phone call. “Certainly the next couple of months [will] be when we see impacts happen. Because April will be through the first full month and then it takes time for for some of these broader economic impacts to set in. We’ve seen three weeks of big job losses. It’s going to show up in how people make financial decisions over the next month or two.” 

The Future

Of the lenders I spoke with, they all mentioned pockets of market strength which have the common thread of either a niche service or product that works for a sizable enough group of people that it has kept activity coming through the pipeline.

Cohn shared: “I’m seeing more flexibility in my portfolio lenders, as opposed to [the] many more restrictions coming out of the bigger banks. We have one bank that came out about 10 days ago and they actually expanded their guidelines. They’re willing to go to higher loan to values, basic loan amounts, more cash out. That’s the sort of good news that there are banks that realize this is also an opportunity.”

Ciardelli attributes much of their March numbers to their fully digital platform which doesn’t require any face-to-face meetings during any point of the process. “We had to re-engineer the entire process. We want [clients] to use our automated tools to pull income and assets. And if they do that, it’s third party validation. And Fannie Mae looks at that and already has a trust in that third party validation. It does not need to do any additional work in order to verify that the assets are accurate or the income is accurate.” Ciardelli estimates their entire process has been shortened to as little as eight days to process loans. 

Better.com is also a fully digital platform and by not charging commission they appeal to many first-time homebuyers. According to a rep for their company, 21% of the loans they closed in March were for first-time buyers and they continue see strong interest from that segment. 

While a number of negative factors are lining up that indicate a massive crunch is looming, we’re not at a crisis point yet in the housing market. Even though things are going to tighten up yet again as more layoffs occur, there is enough time to implement all the contingency plans to prevent a complete collapse. What has saved us so far is nimble lenders that have been able to attract enough people who still have liquidity and want to take advantage of low rates and homes they don’t have to haggle over. Let’s hope they keep it going.

This post first appeared on Forbes.com. To see the original, click here.