This year was an eventful one, to say the least. The coronavirus pandemic touched just about every aspect of life in 2020 -- from the economy and housing market down to the Postal Service and overall demand for toilet paper. It also had quite the effect on real estate financing.
The first, most obvious impact was on mortgage rates, which -- on the backs of a fed rate cut and massive purchases of mortgage-backed securities -- dipped to all-time lows nearly a dozen times this year. The lowest point on record is now 2.80% on a 30-year fixed-rate mortgage, reached just a few weeks ago, according to Freddie Mac (OTCMKTS: FMCC).
Rates down, demand (and risk) up
The rate drop sent mortgage demand surging, both on the refinancing and purchasing end. At one point in May, applications to refinance a loan were up a whopping 176%, according to the Mortgage Bankers Association (MBA).
Lenders scrambled in response. Many were backlogged, with closing times stretching to 50 or more days in some months, according to Ellie Mae's September 2020 Origination Insight Report. Others went on hiring sprees to keep up with demand.
The Federal Housing Finance Agency (FHFA) even announced a new Adverse Market Refinance Fee to cover projected pandemic-related losses (i.e., future foreclosures). The fee, set to go into effect in December, will cost lenders 0.5% of all refinance loans over $125,000 and will ultimately be passed onto the borrower -- to the tune of about $1,400 per customer, according to MBA predictions.
Individual lenders took steps to lower their risk during the pandemic, too. Some of these lenders raised their credit scores (JPMorgan Chase (NYSE: JPM) required at least a 700 at one point), while others increased down payment minimums. And some added additional employment verifications and even stopped offering riskier FHA loans altogether, like Better.com.
Forbearances, QM changes, and a banner year
Meanwhile, forbearance requests boomed. In the early days of the pandemic, close to 9% of all mortgage loans were in forbearance. The share has since dropped to about 6%, or around 3 million homeowners, according to MBA numbers.
There were changes to lending regulations, too. In June, the Consumer Financial Protection Bureau proposed dropping the debt-to-income (DTI) ratio requirement from the Qualified Mortgage rule. Though there's no set date for when the change may happen, the move would replace the current 43% DTI requirement with a price-based analysis of a borrower's ability to repay instead.
Finally, conservatorship of the GSEs once again came into view. In February, FHFA Director Mark Calabria said he expects Fannie Mae (OTCMKTS: FNMA) and Freddie Mac to go private sometime in 2021. The agency sought commentary on a new regulatory capital framework for the GSEs in May, and in June, both Fannie and Freddie announced they had brought in financial advisors to help them transition out of conservatorship.
The Millionacres bottom line
TLDR: It was a big and banner year for the industry. Rates bottomed out, borrower interest surged, and despite economic uncertainty throughout the country, lenders notched some serious business.
Will the boom continue into 2021? Experts largely expect it to -- at least to some extent. MBA predicts rates will remain in the low 3% range, while originations will clock in around $2.4 trillion, down from this year's staggering numbers (but up from 2019). Fannie Mae is even more optimistic, predicting a 2.8% rate across the year and more than $2.6 trillion in single-family loan volume.