Rates for home loans slid as investors snatched up bonds in the wake of an intensifying global trade war.
The 30-year fixed-rate mortgage averaged 3.82% in the May 30 week, down from 3.99%, Freddie Mac said Thursday. It was the lowest level since September 2017 for the popular product, and its sixth-straight weekly decline.
The 15-year fixed-rate mortgage averaged 3.28%, down from 3.46%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.52%, down eight basis points.
Fixed-rate mortgages follow the path of the 10-year U.S. Treasury noteTMUBMUSD10Y, +0.03% . Investors are flocking to bonds as trade war worries wallop markets and the end of the economic cycle appears to be drawing nearer. When bond prices rise, yields fall.
Freddie Chief Economist Sam Khater calculates that most mortgages taken out in 2018 are now eligible to be refinanced. But the favorable climate for rates may be of little help to Americans in the housing market. Aside from the usual concerns about whether there will be any properties available for those who want to buy, new research shows that most consumers have little idea about what’s involved in getting a mortgage.
A recent study from Fannie Mae shows that most consumers “overestimate mortgage qualification requirements.” When asked the minimum FICO score lenders require for mortgages, the median response was 650. In fact, borrowers with credit scores as low as 580 may qualify for mortgages. When asked the minimum down payment lenders would require, the median response was 10%, when in fact many programs, including some backed by Fannie, allow borrowers to make down payments as low as 3%.
What does this lack of awareness tell us? Fannie researchers note that it shows that even Americans who do know their credit scores “need to understand what to do with that information.” Crucially for the industry, they also note that “misperceptions about mortgage qualifications may be holding people back.”
If consumers believe it’s far more onerous to get a mortgage than is actually the case, “they may avoid further research or preparations, such as saving for a down payment or improving their credit,” the Fannie researchers wrote.
But the lack of financial literacy about mortgage lending may be a deeper problem than helping would-be buyers. As the researchers wrote, “Even populations that might seem to be more knowledgeable, such as current homeowners, those who say they are actively planning to become homeowners in the next three years, and those who demonstrate general financial literacy, are not much more knowledgeable than the rest of the population about mortgage requirements.”