The US economy in general has been in limbo and some lenders have even gone out of business or merged with other companies recently. According to those in the industry, there will be more changes to come in 2023 so here are some common questions and answers that will help you shed light on the situation.
What’s behind the shakeout?
Well, that is simple, the answer is higher mortgage rates. When the federal reserve raised key interest rates last year, home loans dropped. The 30-year fixed mortgage rate was twice as high as the historic lows reported in January 2022. Unfortunately, when the rates jump, it will push out many potential buyers because they cannot afford the home prices with a higher mortgage.
It was reported that mortgage applications went down 40 % year over year at the end of 2022 and refinancing was down 90%. When the rates increase so does the risk for banks and mortgage companies.
What if my lender goes bust?
The good news is it will not affect you if your lender happens to go out of business. You will be directed where to send your payments and your loan terms will stay the same. If you are in the process of obtaining a loan through a lender and they close shop before you close on your home, the lender should help you with finding another lender to take over the process. “What I’ve seen so far in the industry is the players work together to make sure that the borrowers themselves are not hurt,” says Mark Indelicato with Thompson Coburn Hahn & Hessen.
What happens if my mortgage servicer changes?
If this does happen, then you will be made aware of the new place to send your mortgage payments. In fact, according to the Consumer Financial Protection Bureau, the old and new service companies will need to notify you. The notification you receive will let you know when the old servicer will stop accepting payments and when the new servicer will begin accepting payments.
Are these changes a sign of a housing crash or mortgage crisis?
According to professionals in the industry, no this is not a sign of a housing crash or a mortgage crisis.
“Consumers should not be concerned about a potential crash as the one we saw during the Great Recession for several reasons,” says Selma Hepp of CoreLogic.
Even if homeowners lose their job most have a good bit of home equity since the home prices have been rising rapidly. “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,” Hepp said.
