Mortgage rates drop, Inflation slows down

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1. FHA proposes ADU policy update

The Federal Housing Administration (FHA) has introduced a draft Mortgagee Letter (ML) aimed at updating mortgage insurance requirements for single-family homes that have accessory dwelling units (ADUs).

The proposed updates seek to provide more flexibility for calculating market rent and using ADU rental income to qualify for FHA-insured mortgage financing. If approved, more borrowers will be able to qualify for FHA financing for properties with ADUs, including 203(k) renovation loans.

Although the current FHA policy permits the purchase, rehabilitation, or refinancing of properties with ADUs, it does not include rental income from an ADU in a potential borrower's qualifying income. The draft ML is open for stakeholder feedback.

2. Mortgage rates drop, Inflation slows down

Mortgage rates have been declining over the past few weeks, revitalizing a slow spring home-buying season. Some conventional loan rates have fallen by over half a percent, encouraging potential buyers to enter the market.

Freddie Mac reports that the 30-year fixed rate mortgage fell to 6.27%, marking the fifth consecutive week of declines. Lower rates have led to an 8% increase in applications to buy a home.

Recent data, such as the Consumer Price Index (CPI) and jobs report, indicate a moderating job market and slower inflation, which has boosted optimism among homebuyers. Economists expect the housing market to benefit from this increased demand during the peak season.

Although the Federal Reserve may need to raise short-term rates in May to address inflation, which is still more than twice the target level of 2%, mortgage rates are expected to remain in the 6-7% range seen over the past few months, as long as progress is made on inflation.

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4. Mortgage applications surge

Mortgage applications increased by 5.3% during the week ending April 7, as the 30-year fixed mortgage rate fell to 6.3%, the lowest in two months. This rate drop brought potential homebuyers back to the market.

Purchase applications rose by 8%, rebounding after hitting a 28-year low in February. The refinance share of mortgage activity decreased to 27% of total applications, while adjustable-rate mortgages dropped to 6% of total applications.

Applications for Federal Housing Authority-backed loans increased by 0.3%, reaching a 12.3% share, and Department of Veterans Affairs-backed loans accounted for 12.8% of applications, up from 11% the previous week.

5. First Federal Bank to acquire BNC National's mortgage division

First Federal Bank is set to acquire the mortgage division of BNC National Bank, which includes its consumer-direct technology platform. The acquisition will expand First Federal's origination footprint in the Midwest and Arizona.

The terms of the transaction, expected to close in the second quarter, have not been disclosed. The acquisition will provide First Federal with entry into new markets where BNC has offices and includes the onboarding of "substantially all employees" of BNC National Bank's mortgage division.

BNC National Bank is the latest in a growing list of banks that have downsized or exited the mortgage space in recent months due to increased costs, regulations, and operational challenges.

☀️ See you on Monday!

🧊 Around the web: Draw an iceberg. See how it would float and learn. (Link)

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