Shivani Peterson has one word to describe what it’s been like working in the mortgage industry since the pandemic hit.
“It’s a circus,” said Peterson, a mortgage advisor at All Western Mortgage in Reno. “In 2020, I don’t think I saw my family or slept.”
Peterson likely speaks for most mortgage advisors across the country. Last year, lenders extended a record-setting $4.3 trillion in mortgages, according to Black Knight Inc., a technology and mortgage data company. The previous record was set in 2003, when the Federal Reserve cut interest rates and spurred a boom in refinancing that led to $3.8 trillion of new mortgages that year.
In 2020, home lending skyrocketed as an unexpected byproduct of the COVID-19 recession. While the pandemic put millions of people out of work and made it tougher to show homes to prospective buyers, it also ushered in record-low interest rates that prompted millions to refinance and lower their monthly payments or trim the length of their loans.
The 30-year fixed mortgage rate plunged below 3% last July and stayed put for seven months before creeping above 3% in March. As a result, a flood of homeowners — more than 9 million — saved money by refinancing last year, per Black Knight Inc.
Shivani Peterson, a mortgage advisor at All Western Mortgage in Reno, says the industry has endured major volume issues during the pandemic.“Literally, half of Americans qualified to refinance their loan and were trying to do it all at the same time,” Peterson said. “So, we had major volume issues across the industry. We were working a lot to meet the demand and get all of these purchases and refinances closed. And we were also working overtime to advise people, because some were scared — they lost their job in the middle of a transaction or they weren’t sure what the future looks like for them.
“The job transitioned heavily from sales to advising.”
Other factors have supported the refinance boom. Homeowners waiting out the pandemic in their living rooms suddenly had time to do the paperwork. And that paperwork didn’t have to be filed in person thanks to the accelerated shift to digital business during lockdowns.
This was a change for an industry accustomed to appraising properties and doing closings in person, said Cory Henderson, branch manager at Mann Mortgage in Reno.
“Nothing was ever face to face, it was over video or the phone, and scanning and email,” said Henderson, noting he recently went to his first in-person closing since mid-March 2020. “The personal touch that lifers in this industry are used to providing for their clients? That’s gone away.”
Moreover, homeowners have increasingly used refinancing over the past year to pull cash from their homes. And many used the money for renovations, said James Anderson, executive vice president at Greater Nevada Mortgage.
James Anderson, executive vice president at Greater Nevada Mortgage, notes that many borrowers these days are at a disadvantage because they’re competing with buyers paying with cash or putting down large down payments.“With the rates as low as they were, people were able to take a good amount of cash out to do home improvements,” Anderson said. “And many times, keep the same payment or still lower their payment, even with cash out. That’s how ridiculous it was. You could take cash out, it didn’t hurt your finances, and you can get some stuff done on the house.”
HURDLES TO HOMEOWNERSHIP
All the while, people who want to break into the housing market face hurdles.
Home prices, which usually drop during an economic slowdown, have skyrocketed during the pandemic, propelled by record-low supply of homes for sale and a rush of well-off workers looking for second homes or space for home offices.
That’s especially true in Northern Nevada, where high demand and low inventory has led to record-setting median home prices, pushing many middle-income families and laid-off workers out of the market.
“We had many borrowers who qualified for loans to purchase homes that — with the limited inventory — couldn’t get into the homes or were getting priced out,” said Anderson, noting many of those borrowers were competing with buyers paying with cash or putting down large down payments. “If you’re a seller, and you can get a cash buyer or a large down payment buyer, there’s a good chance that transaction is going to close, so you’re going to choose those most of the time.”
Henderson said the “mass migration” out of California into greater Reno-Sparks is making it difficult for many Northern Nevadans to move into homeownership.
The recent ability to do paperwork remotely helped support the refinance boom, notes Cory Henderson, branch manager at Mann Mortgage in Reno.“You have people selling their house in San Jose for 2 million bucks, and they come over here and that house they just sold for $2 million is $600,000,” Henderson said. “For them, that’s on sale. They don’t care that they’re going to pay over-asking for it.”
CREDIT SCORES AND FINANCIAL STABILITY
People seeking home ownership also saw lending guidelines tighten early in the pandemic due to concerns about the financial stability of borrowers amid the COVID recession, Peterson said.
“We had to verify that you are still employed about five extra times before closing,” she continued. “And it couldn’t be from a supervisor, it had to be from someone in HR, and it had to be the morning of funding; it couldn’t be up to two days before like it normally is. And we needed to know if your job had been impacted by COVID at all or would be in the near future. So, lenders definitely were a little bit risk-averse.”
Credit scores are also playing a role. According to the Federal Reserve Bank of New York, about 70% of mortgages issued in 2020 went to borrowers with credit scores of at least 760, up from 61% in 2019.
While on paper it appears borrowers are having a harder time getting approved for a home loan, Peterson said the numbers are skewed.
“It wasn’t lenders as much tightening their guidelines, it was sellers that made the shift,” Peterson explained. “If you’ve got a large down payment, odds are you’ve got a higher credit score, too. When they collect their data, they see all of these people who closed had higher credit scores, but it wasn’t necessarily the higher credit scores that got them the house.
“It was probably putting more money down and using a conventional loan versus FHA (Federal Housing Administration) loan.”
SURGE IN SECOND HOMES
The booming market has also propelled a mad dash for vacation homes, and lured investors to fix up old homes and flip them for a profit.
So far, in 2021, buyers snapping up second homes and investment properties in all of Nevada accounted for 8.13% of all mortgage purchases, said Henderson, citing Mortgage-Backed Security (MBS) data he provided to the NNBW.
It’s an uptick from 2020, when the state saw 6.63% of such mortgage purchases.
“Our market, which encompasses part of the lake (Tahoe), has some real second-home opportunities,” said Henderson, referring to Northern Nevada. “We have an opportunity to have more second-home purchases than, for example, Omaha, Nebraska, or some places that are not as appealing for outdoor activities.”
Henderson, however, pointed to the fact that Fannie Mae and Freddie Mac have responded to the trend by putting up barriers.
The government-backed mortgage giants earlier this year began to cap how many of these loans it purchases. The new restrictions, Henderson said, are that no more than 7% of the mortgages that lenders sell to Fannie or Freddie can be tied to second homes or investment properties.
Still, some feel the effect of the new rule could be faint. Motivated buyers could choose to pay with all cash, eliminating complications around financing.
“If you’re going to buy a second home, you’re going to buy a second home,” Anderson said. “You might buy a little bit less of a second home, but you’re probably still going to do it.”