New home loan closing rules may be delaying paperwork and stunting loan demand, in spite of sustained low mortgage rates. The Mortgage Bankers Association reports a deep drop in loan applications just as Freddie Mac’s weekly survey of lenders finds rates slightly higher for the most popular loan terms:
- 30-year fixed-rate mortgages rose to 3.82% with an average 0.6 point for the week ending Oct. 15, 2015. A year ago, the rate averaged 3.97%.
- 15-year fixed rates averaged 3.03% with an average 0.6 point. The same term priced at 3.18% a year ago.
- 5-year adjustable-rate mortgages priced at 2.88% with an average 0.4 point. Last year at this time, the same ARM averaged 2.92%.
“As the shock of the weak September employment report wore off, Treasury rates drifted higher. In response, the 30-year mortgage rate climbed 6 basis points to 3.82%, marking 12 consecutive weeks below 4%,” Sean Becketti, chief economist for Freddie Mac, said in a release. “Late-breaking news suggests mortgage rates may remain in this territory a while longer.”
New rules may be stalling mortgage demand
The new “Know Before You Owe” disclosure rules may be impacting loan demand, at least in the short term. The Mortgage Bankers Association reports home loan applications fell 27.6% from the previous week. The TILA-RESPA Integrated Disclosure regulations requiring simplified paperwork may be one reason why.
“Application volume plummeted last week in the wake of the implementation of the new TILA-RESPA integrated disclosures, which caused lenders to significantly revamp their business processes, and as a result dramatically slowed the pace of activity,” Mike Fratantoni, MBA’s chief economist, said in a release.
The new regulations are an effort to simplify and clarify the disclosure documents presented to consumers during the home loan process. However, lenders needed to rework their loan paperwork procedures in order to comply. Fully one-third of companies surveyed by the MBA just days before the new rule’s implementation admitted they “have had insufficient time to test and integrate systems and train their employees.” As a result, the MBA warned of loan processing delays, including “missed closings, blown rate locks, and other potential costs.”
The sagging demand is a stark reversal to home loan activity the week before the new rules went into effect, when applications soared more than 25%.
“The prior week’s results evidently pulled forward much of the volume that would have more naturally taken place into this week,” Fratantoni said. “Purchase volume for the week was below last year’s pace, the first year-over-year decrease since February 2015, while refinance volume dropped sharply even with little change in mortgage rates.”
Refinance applications also plunged 23% for the week ending Oct. 9, 2015, according to the MBA weekly survey. The Consumer Financial Protection Bureau launched the new disclosure initiative on Oct. 3.
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