Soon enough, mortgage rates are going to hit 7%.
The last time we hit 7% (7.04%) was briefly in January 2025. On Thursday, the rate hit 6.95%, its highest in 19 months.
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The last time rates were over 7% for a sustained period was the spring 2024 and fall and winter 2023, according to Freddie Mac data.
Based on my own experience, hitting 7% will be a psychological ceiling for many homebuyers, who will stop home shopping in earnest. National Association of Realtors data indicates sales in 2023 and 2024 were the lowest they’ve been in 30 years.
The $40 trillion federal debt and the U.S. war with Iran (leading to much higher energy prices) are two of the many reasons why inflation is on the move again, spiking interest rates.
What can federal policymakers and Congress do for American home shoppers to put this 7% genie back in the bottle? And, what else can they do to knock down home acquisition and refinance costs?
Let us count the ways.
Activate demand
Brad Seibel, president of Sage Home Loans, thinks it’s time for Fannie Mae and Freddie Mac to again start buying mortgage-backed securities. When these mortgage titans buy mortgage-backed securities, it creates demand in the secondary mortgage market, helping to lower mortgage rates.
“I imagine the agencies are getting pressure to reverse current policy and begin to support the housing market again by purchasing MBS to address the markets over reaction to short-term oil prices,” Seibel said.
Get ride of pricing adjustments
Eliminate or at least reduce the Loan Level Pricing Adjustments or LLPAs. LLPAs are upfront fees charged by Fannie Mae and Freddie Mac to account for the risk of your mortgage. The charges translate to either higher interest rates or additional loan origination points. Your lowest middle credit score and your down payment percentage are the primary drivers of LLPAs.
The lower your credit score, the higher your charge. The less the down payment, the higher your charge.
Look no further than Ginnie Mae (the government-owned corporation guaranteeing payments on FHA and VA mortgages to investors). Ginnie Mae does not charge LLPAs on government backed mortgages.
Bundle buying packages
Create a single price, Costco-like bundled package discount for all real estate settlement services such as the real estate agent commission fees, mortgage lender fees, title insurer, escrow agent and notary.
Homebuyers would certainly save many thousands if not tens of thousands of dollars for bundled services.
For example, let’s say you are buying a $1 million home, putting 20% down. Instead of the real estate agent getting 2.5% commission, the agent accepts 1% for being part of a bundled package. That would have been $25,000 at 2.5% but at 1% it is $10,000 (saving $15,000).
The mortgage loan originator accepts half a percent instead of the typical 1% on the $800,000 loan amount. That’s $4,000 instead of $8,000 (saving $4,000). The title insurance, escrow or closing agent and the notary might be $4,500 but the discounted rate brings the total charges to $2,800 (saving $1,700). The total savings would be $20,700 in this hypothetical situation. Not bad.
A bundled system such as this is illegal today. In fact, today you run the risk of going to prison under Section 8 of the 1974 Real Estate Settlement Procedures Act, or RESPA for providing bundled discounts.
Streamline lending
In its June , the Mortgage Bankers Association thinks reforming loan origination compensation would help increase affordability. Current rules prohibit lenders from offering lower interest rates or reduced fees when borrowers present competing offers. This is certainly not consumer friendly, in its current form.
Another good suggestion from the MBA is to permit a conventional (Fannie and Freddie) streamlined refinance options. FHA and VA have a longstanding policy for streamlined refinancing whereas the borrower shows an on-time mortgage payment history. He or she can then lower their mortgage rates and payments without an appraisal and without income, asset and employment verifications.
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A single bureau credit report could save consumers a lot of money, according to Mindy Leisure, director of credit education at Advantage Partners Solutions. The single bureau credit report would cost roughly $45 whereas the current tri-merged credit report costs as much as $360 for a married couple.
Leisure thinks Congress would need to enact a law requiring all credit data furnishers to report to all three credit bureaus (Experian, Equifax and TransUnion). Today, there is no requirement to report to all three bureaus. That’s why credit scores can be so dissimilar.
That’s also why there are risks in using a single bureau today — some creditors report bad credit marks that should be considered by underwriters just because the creditor doesn’t report to the bureau being selected.
“It could work. It would be a much more viable option if all data furnishers report to all three bureaus,” said Leisure. “It will also create competition in the marketplace.”
Waive appraisals
Fannie and Freddie should allow appraisal waivers, also known as value acceptance and Automated Collateral Evaluation, respectively, on properties worth $1 million or more.
Today, where appropriate closed loan data exists and clearly validates the estimated property value, Fannie and Freddie offer appraisal waivers. An appraisal runs about $650 to $750.
But for any property estimated at $1 million or more, you can never get an appraisal waiver.
For example, if it’s a $2 million sales price, and the mortgage is going to be $900,000 (meaning there is 45% loan to value or 55% in equity which is a very safe amount of skin in the game), there is still no waiver.
Appraisers generally charge more with higher home prices due to more square footage to measure and the process is more complex as there may be more time and effort involved in coming up with the value.
Federal policymakers and Congress have all the power. Every one of these ideas is feasible. Will they take action to unlock the keys to the kingdom by lowering rates and reducing settlement charges?
Freddie Mac rate news
The 30-year fixed rate averaged 6.95%, 19 basis points higher than last week. The 15-year fixed rate averaged 6.26%, 17 basis points higher than last week.
The Mortgage Bankers Association reported a 4.1% mortgage application decrease compared with one week ago.
Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $832,750 loan, last year’s payment was $379 less than this week’s payment of $5,512.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6.25 %, a 15-year conventional at 5.99 %, a 30-year conventional at 6.75%, a 15-year conventional high balance at 6.375% ($832,751 to $1,249,125 in LA and OC and $832,751 to $1,104,000 in San Diego), a 30-year high balance conventional at 6.875% and a jumbo 30-year-fixed at 7.125%.
Eye-catcher loan program of the week: A 30-year mortgage, 30% down, 5.99% for the first five years payments, and 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or [email protected].
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