What mortgage company changes mean for loans
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 nearhistoric lows in early January 2022 to almost 6.4 percent 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 eyepopping home prices.
And for homeowners who had locked in historically low rates, 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 dropped almost 40 percent year over year in the last few months of 2022, and refinance applications were down almost 90 percent, 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, said Mark Indelicato, a bankruptcy attorney and partner with Thompson Coburn Hahn & Hessen in New York. “The players work together to make sure that the borrowers themselves are not hurt,” he said.
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. Reali, a real estate company with an online lending arm, said in August that it was shutting down, and LenderFi said in the fall 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 said.
What if my lender merges with another company?
Your loan terms will stay the same if your lender merges with or is acquired by another company.
Stratmor Group, a mortgage advisory company in Greenwood Village, Colo., projected in an October report that almost 50 mergers and acquisitions would be announced or closed by the end of 2022, a 50 percent jump from 2018, the year with the nexthighest number in the past 30 years. 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.
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 is 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.
Do changes signal 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 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. In addition, most homeowners now have a lot of home equity, thanks to rising home prices.
“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 properties or refinanced when rates were low, so they have an incentive to stay put.
Given the limited supply of homes for sale, experts don’t expect average home prices to fall steeply as they did in 2008 and 2009.