As mortgage rates near 6.6%, originators race to close deals

"While it's too early to see the immediate fallout from Friday's rate jump as borrowers tend to react to more sustained moves, lenders are bracing for a crucial testing period. In this particular case, the next two weeks look a little bit rough, because we also have a holiday coming; usually we'll monitor foot traffic on open houses on the holiday weekend, and that'll give us a really good indicator of what's happening, said Gino Fronti, executive vice president and West division president at Lower. So far, the pipeline is holding, but it requires active management."

"Over the last couple of weeks, we've seen no deals fall apart, but people in escrow go to the seller and request a 2-1 buydown. That's the strategy that we've been using to keep the deals together, Fronti said. Sellers whose properties have been sitting on the market for weeks are increasingly willing to offer credits rather than risk having to relist. In the Los Angeles area, Fronti said these credits typically range from $10,000 to $20,000. That would be equivalent to the next price reduction they would have to do to find a new buyer anyway, he added."

"Lenders are also making efforts to save the deal, with Fronti noting that companies are running a little bit thinner (in margins), maybe waiving a processing fee or something minimal. How borrowers are reacting to the higher-rate environment also depends heavily on their tax bracket. Adam Neft, a Columbus, Ohio-based LO at Ultimate Mortgage Brokers, said that for borrowers with higher socioeconomic status, such as those earning $400,000 a year, a rate increase is often more of an annoyance than a real pain point."

Recent rate increases have not caused widespread deal losses, though some deals may be affected when borrowers locked with retail lenders. Immediate fallout is expected to be clearer after sustained rate moves, with lenders watching open-house foot traffic over a holiday weekend as an indicator. Pipelines are holding so far, but active management is required as buyers in escrow increasingly request 2-1 buydowns. Sellers with longer market times are more willing to offer credits to avoid relisting, with Los Angeles credits commonly ranging from $10,000 to $20,000. Lenders are also reducing friction by waiving small processing fees as margins tighten. Borrower reactions vary by income and tax bracket, with higher earners experiencing less impact than the broader market.

Read at www.housingwire.com