US mortgage lenders faced a challenging year in 2022 as interest rates increased, and the economic downturn put buyers off. Many companies were forced to lay off staff as they fought to remain in business. Lenders are keen to get back in the game and are trying out new promotions to attract homebuyers. But, as some experts warn, it’s unclear whether these tactics will be enough to boost business in the current economic climate.
According to Greg McBride, Chief Financial Analyst at Bankrate,
“If the economic background is not favourable, we will see lower mortgage rates, but it may not be enough to drive lending activity.”
“It’s not just a result of interest rate fluctuations; if the economy is weak, many potential buyers would be less motivated.”
According to the most recent Fannie Mae study, consumer confidence in the housing market is still low, with only 17% of respondents in January thinking it’s an excellent time to buy a home, down from 52% in January 2021. Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, stated,
“We expect house sales to continue subdued in the coming months until we see improvements in affordability via lower home prices and mortgage rates.”
Despite the challenges, lenders seek new ways to attract buyers. The following three new promos have come up in the recent weeks:
Buy now, but refinance later
Homebuyers who take out a loan with Seattle-based Flyhomes’ mortgage division are eligible for a “Buy Now Refinance Later” deal, allowing them to refinance for free if rates decline. According to Freddie Mac, this promotion is designed to help buyers avoid refinancing fees, which can cost around $5,000. Flyhomes’ advertising reminds buyers that they can refinance their loan in the future, even if they have a 30-year fixed loan.
Dan Richards, executive vice president of Flyhomes Mortgage, said,
“We want to remind these purchasers that they can truly refi a mortgage loan in the future – a 30-year fixed loan doesn’t really mean 30 years,”
The corporation acknowledges that it would lose money on the refinancing. Nevertheless, it wants to build a lasting relationship with its clients.
Close the mortgage deal in a single day
New York City-based Better.com offers a one-day mortgage process that allows homebuyers to get their pre-qualification letter within a few hours. Traditional loan approval can take days to complete. However, Better.com’s product speeds up the process. Vishal Garg, Founder and CEO of Better.com, told MarketWatch that the company had done $188 million in one-day mortgage funding commitments this year.
While other companies offer fast approval processes, Better.com’s push to speed up the mortgage process could appeal to those who have gone through the traditional route and found it time-consuming.
The buyer may receive the seller’s rate
Anaheim, California-based Carrington Mortgage Services is discussing helping buyers get “assumable mortgages.” Here, qualified homebuyers can purchase a home and take over the seller’s mortgage rates. This promotion particularly appeals to sellers who have secured ultra-low mortgage rates and are worried about losing that deal.
It is more enticing to assume a mortgage that may have originated at 4% than to obtain a new one at 6% or 7%, according to Greg McBride, Chief Financial Analyst at Bankrate. That’s not a message that would have necessarily been heard during a lowering rate period.
Assumable mortgages have existed for decades, but many homebuyers and sellers have primarily overlooked them. However, assumable mortgages are becoming more popular among buyers and sellers with the current housing market. This is because they offer several benefits to both parties.
Assumable mortgages may provide lower interest rates than those in the present market, making them a desirable alternative for buyers. The buyer can take over the seller’s mortgage if it has a cheaper interest rate than what is now offered. This saves money on interest throughout the loan. It can lower the cost of the house and ease the buyer’s mortgage payment.
Assumable mortgages can also make it easier for buyers to qualify for a loan. When a buyer assumes a mortgage, they take over the payments from the seller. Thus, they do not have to go through the process of applying for a new loan. This can be especially helpful for buyers who may have a lower credit score or do not have a substantial down payment. If the seller has already been approved for the mortgage, the assumption process can be a simpler and faster way to secure financing for the home.
For sellers, assumable mortgages can be an attractive option because they can help to make their home more marketable. In a competitive housing market, having an assumable mortgage can be a selling point that sets a home apart from others. It can also make it easier for a seller to find a buyer, as the assumable mortgage can be a more affordable and accessible financing option for buyers.
The mortgage industry suffered a significant downturn in the previous year as interest rates soared. Buyers retreated from the market. Mortgage lenders attempt to reinvigorate the business and attract home buyers by offering new promotions. However, the sentiment towards the housing market remains weak among consumers. Moreover, the demand is expected to remain subdued until improvements in affordability are made.
The promotions offered by companies such as Flyhomes, Better.com, and Carrington Mortgage Services may help attract buyers. However, the effectiveness of these tactics depends on the economic backdrop and consumer demand, which remain uncertain.