A lack of housing supply and high-interest rates prevent many first-time homebuyers and low-income borrowers from purchasing a home.
The Federal Reserve continues to tighten its monetary policies to combat inflation even though interest rates have fallen slightly in recent weeks.
One mortgage sweetener that may result in a broader range of borrowers being able to afford houses is temporary rate buydowns, says FBC Mortgage CEO Rob Nunziata.
About 70% of FBC Mortgage’s originations in 2022 were new construction (including its joint venture volume), Nunziata said, noting that the majority of temporary rate buydowns provided were paid for by builders.
Home prices grew in November at an annualized rate of 7.7%, down from October’s 9.2% gain rate, according to the National Home Price Index from S&P CoreLogic Case-Shiller released recently. Despite the downward trend in home prices, overall home values continue to rise.
NAR reports the weakest showing in existing-home sales since 2014 in 2022, with a drop of 17.8%.
Nationally chartered housing-finance agency CBC Mortgage’s president Miki Adams said it’s also important to note that temporary rate buydown loans [TRBLs] can be more beneficial if used together with other down payment assistance programs. While CBC Mortgage does not offer a temporary rate buydown program, it offers down payment assistance through second mortgages issued along with FHA-insured mortgages for first-time homebuyers.
TRBLs are not a new concept, but they have only recently been reintroduced to the market, with several nonbank lenders offering rate buydowns this past year as 30-year fixed rates reached nearly 7%. Guild Mortgage, NewRez, Rocket Mortgage, loanDepot, and United Wholesale Mortgage are among the lenders that offer TRBL programs in addition to FBC Mortgage.
According to Ben Hunsaker, a portfolio manager at Beach Point Capital Management who specializes in securitized credit, a new government-subsidized rate buydown program may be a popular idea in concept but is unlikely to gain much traction at the moment.