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It’s been a bumpy ride for mortgage companies lately. Some lenders have gone out of business, merged with other companies or narrowed their focus. And more changes are likely in 2023.
What does all this mean for borrowers?
Here are answers to common questions, whether you’re shopping for a mortgage or paying off a home loan.
WHAT’S BEHIND THE SHAKEOUT?
A key factor: higher mortgage rates. Demand for home loans plummeted last year as the Federal Reserve raised a key interest rate to control inflation and mortgage rates spiked in turn. The average for a 30-year fixed-rate mortgage doubled from near-historic lows in early January 2022 to almost 6.4% at year’s end, according to Freddie Mac, an enterprise created by Congress in 1970 to support the U.S. housing finance system.
Higher mortgage rates shrink buying power, so elevated rates shut out some prospective homebuyers, already squeezed by eye-popping home prices.
And for homeowners who had locked in historically low rates in prior years, the spike removed money-saving incentives to refinance their mortgages. Unless your primary aim is to cash out some home equity, it doesn’t make sense to refinance to a higher rate.
As a result, fewer people applied for mortgages. Mortgage applications to buy homes dropped almost 40% year over year in the last few months of 2022, and refinance applications were down almost 90%, according to a December Mortgage Bankers Association forecast report.
Higher rates also increased risk for banks and mortgage companies that buy mortgage loans from lenders.
WHAT IF MY LENDER GOES BUST?
Here’s what would happen:
— If the lender that issued your loan goes out of business or goes bankrupt after the mortgage has closed, you’ll be unaffected. The loan terms will stay the same. If the mortgage company that services your loan changes, you’ll be informed of where to send your monthly payments.
— If your lender runs into trouble and can’t fund the loan when you’re a week or two away from closing, the company will likely work with you to find another lender, says Mark Indelicato, a bankruptcy attorney and partner with Thompson Coburn Hahn & Hessen in New York. “What I’ve seen so far in the industry is the players work together to make sure that the borrowers themselves are not hurt,” he adds.
Some mortgage companies have filed for bankruptcy or gone out of business in the past year. First Guaranty Mortgage Corp. announced June 30 that it filed for Chapter 11 bankruptcy, for example. And some smaller lenders have simply gone out of business recently. Reali, a real estate company with an online lending arm, said in August that it was shutting down, and LenderFi said in an email in the fall that it was leaving the mortgage business.
Indelicato, whose firm is the lead counsel for unsecured creditors in the First Guaranty Mortgage Corp. case, does not expect to see a big wave of mortgage company bankruptcies. “It’s not so bad that you’re going to see the wholesale bankruptcies like you saw of mortgage originators in 2007 and 2008,” he says.
WHAT IF MY LENDER MERGES WITH ANOTHER COMPANY?
A merge will have little direct impact on you. Your loan terms will stay the same if your lender merges with or is acquired by another company.
Meanwhile, don’t be surprised to hear more about mortgage company mergers. Stratmor Group, a mortgage advisory company based in Greenwood Village, Colorado, projected in an October report that almost 50 mergers and acquisitions would be announced or closed by the end of 2022, a 50% jump from 2018, the year with the next-highest number in the past 30 years. And the consolidation trend will likely continue this year.
WHAT HAPPENS IF MY MORTGAGE SERVICER CHANGES?
You’ll be notified of where to send your mortgage payments. Your mortgage servicer is the company that processes payments and manages the loan. If the servicing rights are transferred to a different company, generally the old and new servicers should notify you, according to the Consumer Financial Protection Bureau. The notices will tell you when the old servicer will stop accepting payments, when the new servicer will start accepting payments and the new servicer’s contact information. Read the notices and send payments to the new servicer after the transfer.
WILL OTHER MORTGAGE BUSINESS CHANGES AFFECT ME?
You’ll still have options if you’re seeking a mortgage. Some lenders may change the types of loans they offer or focus on different segments of consumers. Wells Fargo, for instance, said in January that it would create a “smaller, less complex” home lending business focused on bank customers, as well as people in underserved minority communities.
The advice for shopping to get a mortgage remains the same. Look for lenders that offer the types of mortgages you’re interested in and apply with multiple lenders to compare rates and fees.
WILL MORTGAGE COMPANY LAYOFFS COMPROMISE CUSTOMER SERVICE?
Not necessarily. Layoffs generally correspond to lower loan volume; there’s less work to go around, so fewer employees are needed.
Regardless of what’s happening in the industry, customer service is a key feature to consider when shopping for lenders. Many lenders offer a streamlined online application process. But even with robust digital tools available, you should be able to reach a human to help you through the process.
Check customer service ratings online and from companies such as J.D. Power, a global data and analytics company. And when shopping for lenders, compare how quickly and helpfully they respond the first time you contact them with questions.
ARE THESE CHANGES A SIGN OF A HOUSING CRASH OR MORTGAGE CRISIS?
No.
“Consumers should not be concerned about a potential crash as the one we saw during the Great Recession for a number of reasons,” Selma Hepp, chief economist at property analytics company CoreLogic, said by email in reference to the 2007-09 financial crisis.
Lending standards have been strict in recent years, and a lot of buyers made sizable down payments, Hepp noted. In addition, most homeowners now have a lot of home equity, thanks to rising home prices.
“That means that even if they lose a job, they are not forced into a foreclosure but can instead sell their home at a profit,” she said.
Hepp doesn’t expect a huge wave of homes coming on the market. Many people bought their properties or refinanced when rates were low, so they have an incentive to stay put.
Given the limited supply of homes for sale, experts generally don’t expect average home prices to fall steeply as they did in 2008 and 2009.
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This article was provided to The Associated Press by the personal finance website NerdWallet. Barbara Marquand is a writer at NerdWallet. Email: [email protected]. Twitter: @barbaramarquand.
RELATED LINK:
NerdWallet: How to get a mortgage https://bit.ly/nerdwallet-how-to-get-a-mortgage
WASHINGTON (AP) — Senior Democrats, dismayed by a steady stream of startling disclosures, expressed criticism Sunday of how President Joe Biden handled classified material after leaving office as vice president and disappointment that the White House has not been more forthcoming with the public.
Lawmakers who might have anticipated questions focusing on the debt limit or Ukraine aid when they were booked last week for the Sunday news shows found themselves quizzed about the latest development over the weekend in the document drama that has put Biden’s presidency on the defensive: During a search Friday of Biden’s home in Wilmington, Delaware, the FBI found additional documents with classified markings and took possession of some of his handwritten notes, the president’s lawyer said Saturday.
Biden should be “embarrassed by the situation,” said Illinois Sen. Dick Durbin, the second-ranking Democrat in the Senate, adding that the president had ceded the moral high ground on an issue that has already entangled former President Donald Trump. Special counsels appointed by Attorney General Merrick Garland are investigating both cases.
“Well, of course. Let’s be honest about it. When that information is found, it diminishes the stature of any person who is in possession of it because it’s not supposed to happen. … The elected official bears ultimate responsibility,” Durbin said.
Sen. Joe Manchin, D-W.Va., said Biden “should have a lot of regrets. … You just might as well say, ‘Listen, it’s irresponsible.’” The president told reporters on Thursday that he had “no regrets” over how and when the public learned about the documents and that there was “no there there.”
Despite their criticism, Biden’s fellow Democrats defended what they said was his cooperation with the Justice Department as the search for additional classified material unfolds. They contrasted it with Trump’s resistance to efforts to recover hundreds of documents after he left office.
“It is outrageous that either occurred,” Durbin said. “But the reaction by the former president and the current president could not be in sharper contrast.”
Biden voluntarily allowed the FBI into his home on Friday, but the lack of a warrant did not dim the extraordinary nature of the search. It compounded the embarrassment to Biden that started in earlier in January with the disclosure that the president’s lawyers had found a “small number” of classified records at a former office at the Penn Biden Center in Washington shortly before the Nov. 8 elections.
The White House has disclosed that Biden’s team found classified documents and official records on three other occasions in recent months — in follow-up searches on Dec. 20 in the garage of his Wilmington home, and on Jan. 11 and 12 in his home library.
The discoveries have become a political liability as Biden prepares to kick off his 2024 reelection bid, and they undercut his efforts to portray an image of propriety to the American public after the tumultuous presidency of his predecessor, Trump.
Manchin excoriated both men for their handling of sensitive security documents. “It’s just hard to believe that in the United States of America, we have a former president and a current president that are basically in the same situation,” he said. “How does this happen?”
At the same time, Democrats worried that Biden’s travails have created an opening for newly empowered House Republicans.
“We have to worry, since this new group that has taken over control of the House of Representatives has promised us endless investigations, confrontations, impeachments and chaos, what is going to happen,” Durbin said.
The new chairman of the House Oversight and Accountability Committee, Rep. James Comer, R-Ky., said he took Biden “at his word when the first set of documents were found. … But now this is gone from just simply being irresponsible to downright scary.”
The Justice Department says Trump took hundreds of records marked classified with him upon leaving the White House in early 2021 and resisted months of requests to return them to the government. Biden has willingly turned over the documents once found. But the issue is wearing on Biden and his aides, who have said they acted quickly and appropriately when the documents were discovered, and are working to be as transparent as possible.
Durbin appeared on CNN’s “State of the Union,” Manchin was on CNN and NBC’s “Meet the Press” and Comer was interviewed on Fox News Channel’s “Sunday Morning Futures.”
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Seung Min Kim reported from Rehoboth, Delaware.
