Mortgage Rates - How Policy Shifts Could Lower Your Rate & Open Doors For First-Time Buyers

Rates settle in the fives to low sixes as policy support from Fannie and Freddie keeps pressure on mortgage costs. 

We weigh in on investor limits, VantageScore’s impact on approvals, longer mortgage terms, and the rise of non-QM options that expand access.

• Fannie and Freddie expand capacity to buy mortgage-backed securities
• Policy backstop as a lever to keep rates lower
• Vantage Score adoption with alternative data for credit access
• 40 & 50-year mortgage scenarios and trade-offs
• Non-QM growth including DSCR, bank statements, 1099, and asset depletion
• Spring market outlook and rising applications
• Practical steps for first-time and self-employed buyers

Transcript

Market Check And Rates Snapshot

SPEAKER_00 0:35

All right. Welcome to the Monday Market Update with Nikki. It is January 26th, the last week of January already. Oh my goodness. How are you?

Fannie And Freddie MBS Expansion

Limiting Bulk Home Purchases Debate

SPEAKER_01 0:44

I'm doing good. I can't believe it's, you know, the last week of January it's flown by like crazy already. It's awesome. So, well, I want to start out talking about mortgage interest rates as always. We are seeing interest rates down into the fives again, um, low sixes, depending on what you know you're doing and what kind of product you have. So that's the good news. So with the announcements of things that are going on that I'm going to be talking about, it hasn't really affected the market in a negative way, which has been actually really good for us from a steady standpoint. So I don't know if you remember me talking about last week and the last couple of weeks about the Fanny and Freddie buying mortgage-backed securities or them being allowed to buy mortgage-backed securities. We talked about it being, you know, Trump wanted to see them buy up to$200 billion in mortgage-backed securities, which if you remember right, I had talked about how when that happens, it should lower interest rates about a quarter. Well, come to find out, now that limit has actually been increased. So now Fannie and Freddie are allowed to buy up to$450 billion. So$225 billion each for those mortgage-backed securities. This is important because they probably won't do it right away, but it gives them wiggle room to do it in the future. So if something's going on with the Fed and they're not lowering interest rates at the rate that the Trump administration would like to see, he can then further direct Fannie and Freddie to purchase more of those mortgage-backed securities. That's just important for homeowners because it helps keep those interest rates low and helps put a cap on that market when they do start buying them. So at$450 billion, of course, we'll see a little bit over half a percent decrease of that in mortgage interest rates if they do buy the full capacity. So that's that's good news that's coming out of the mortgage industry right now. Um the other thing I wanted to talk about is Trump had made an announcement and put together an executive order talking about preventing large institutions from bulk buying properties. Um, because from what he was, what they are talking about is that when these large institutions buy out these properties, it doesn't give an opportunity for first-time homebuyers to be able to basically have a chance at purchasing because the pockets of these large corporations are so deep that they'll always win out in the deal no matter what. The other side of the coin says that, well, it's actually good for first-time home buyers because a lot of these investors will put in money into renovations before they resell the home. And those renovations are too costly for a first-time home buyer to be able to do themselves or to be able to pay out of pocket for. So really it's a way of just financing a renovated home versus um having to do the work themselves. So there's two sides to this story. It'll be interesting to see how this unfolds and what ultimately happens. The prediction is that only about 3.5% of homes that are purchased in the United States right now are purchased by those bulk investors. And most of those are not going to be single family homes. Most of them are going to be condos, you know, things of that nature. So really targeting that investment property area. With that being said, depending on what you categorize as a large corporation, there are also smaller companies that will purchase that are purchasing about 11% of the market right now. So those smaller companies would be like individual investors or what they refer to as mom and pop shop investors. So like anyone owning anywhere from, you know, one to, I would say, 50 or 60 homes is really that bulk of the buying up and reselling and, you know, competing with other people in order to prevent or order to compete in that single family world where the first-time home buyer might want to be able to purchase. So it'll be interesting to see how everything gets laid out. Trump has ordered Scott Bessant in to put the rules together on what this is gonna look like um over the next 30 days. So we'll have more updates on that.

unknown 4:22

Yeah.

VantageScore Rollout And Impact

40- And 50-Year Mortgage Possibility

Non-QM Loans Gain Traction

SPEAKER_01 4:22

Other things to watch out for this year. It's a gonna be a big year in the mortgage industry. We have remember me talking about like a couple months ago about the vantage credit score and how it's gonna be different than FICO. So Fannie and Freddie are working on implementing that. That will happen this year. So it'll be we'll be following that story first and foremost and saying, okay, how is this gonna work and how is this gonna help? And how do we operate under the vantage credit score versus the FICO score? The other thing we want to watch out for this year is yes, there were just talks about doing a 40-year mortgage, but we're actually seeing some indicators that there may be an opportunity even for a 50-year mortgage coming to, you know, coming in as a product. We will kind of again have to follow this story. These are all things that are going to be unfolding this year and things that I'm gonna be watching closely as the stories develop and as the new things come out. But the 40-year or the 50-year mortgage, it's probably going to happen this year at some point that it's going to come out and that to be a viable product. It'll be interesting to see how the interest rates are on that, to see if they are significantly higher than what you would get on a 30-year and if there is really any true benefit. Because keep in mind, even though you might span that loan out 10 more years, if the interest rate goes up enough, it might not make a difference from a payment standpoint. So we just have to keep an eye on that as well. Lastly, the story we're going to be keeping an eye on is the non-QM products. So back in the day before 2008, there was a lot of opportunity for a homeowner to go in and do a stated income loan, a no-document loan, things of that nature. Those were happening at a really, really, really rapid pace, which ultimately contributed to the mortgage meltdown in 2008. With that being said, since that time, those are what we call non-QM products or products where there's alternative documentation or less documentation. A good example of a non-QM is the DSCR for investment properties. In other words, the debt service coverage ratio. The rent covers the mortgage payment, you're good to go. That's really the best example of a non-QM, but there are also options where it is alternate documentation, such as using 12 months of bank statements for self-employed borrowers, using a 1099 as the income source instead of, you know, and taking some deductions off of that, instead of using full tax returns. There's opportunity to do an asset depletion loan or using your large number of assets to deplete over the life of the loan to be able to qualify for that payment. So those products are not only coming to the market in, you know, in huge amounts in droves, but they are becoming increasingly more popular, especially for people in my position when I'm trying to specifically qualify self-employed borrowers, i.e. realtors, for mortgages. They're very important for us to be able to expand on those because it opens the door for people who previously couldn't get a mortgage to be able to purchase homes. They're important for the market. And not only are they becoming more popular, but there's a huge push in the market because the interest rates are actually coming down for those products as well, which is a huge, it's a huge deal for an alternative product for people to be able to qualify for that. So just those are three things that we're gonna definitely be watching at for this year and making sure that we follow those headlines.

SPEAKER_00 7:33

Wow, that's a lot. It's a lot, yeah.

SPEAKER_01 7:36

A lot's gonna be changing in this year.

SPEAKER_00 7:38

That's crazy. So I just wrote down a couple of things. So for the people that weren't on the call with a van and score, can you explain just a little bit about that? Sure.

SPEAKER_01 7:48

So right now, when we qualify someone on a mortgage, they have we have we pulled their credit score from the three credit reporting agencies, Experian, Equifax, and TransUnion. It's called a FICO score, and they give us a predictability of paying on time for long-term debt. And so that's really what your credit score is composed of. What a Vantage Score does is it looks at alternative sources, things like rent payments, utility payments, cell phone payments, maybe even a Netflix payment, things of that nature that are more predictive of someone's everyday living, not just what reports to their credit. So basically it'll it'll analyze different accounts that they have, whether they pay on time, whether they put them on automatic payment, things of that nature. And it'll give a combined score between what's reporting on credit and what how they live their everyday life to be a better, what some say is a better predictor of how they're going to be able to pay for a mortgage. So it has some advantages for people who have lower credit because they've had a prior bankruptcy, or they have lower credit because they have, you know, had a car repo in the past or something that takes a long time for their credit to recover from. It'll give us a more accurate pay history saying we don't necessarily need to hold that past derogatory credit against you at a 620 score. We can look at the vantage score and lend based on how you live your everyday life. Especially helpful for people who have made different decisions or who have changed their lives financially. It could really help those people. It'll also help first-time home buyers, people who don't have a lot of established credit, if they've been renting for a year and they have been paying on their Netflix and they've been paying their utilities and everything's been paid on time, but none of that reports to credit, it'll help those buyers as well. Very specifically, right now I have a couple who's 19 and 20 years old, freshly out of high school, and they want to buy their first home. And so using what we call non-traditional credit resources to help them purchase a home is really the path that we go down.

unknown 9:44

Wow.

SPEAKER_00 9:44

Yeah, that's amazing. Good. I just want I uh update my memory as well as anyone that wasn't on that call. And then I got some information. I've been seeing some emails uh regarding putting the limit on you know the cash purchases or trying to give the first-time home buyer the opportunity before corporate or these smaller investors come in. I heard a date of March 1st. Have you heard anything about it being put in to affect, and maybe that was just the training? Do you know approximately when that might take place or when they're going to be talking more about the timing?

Clarifying Buyer Preference Rules

SPEAKER_01 10:24

I don't, you know, I have actually that's the first time I've I've heard anyone actually say that there's going to be a lit or some sort of legislation or anything put in place to limit who can buy what property. I do know, I think we had talked about it happening in New York with that whole process, but I don't, I haven't seen that roll out to any other states or any other opportunities. It might just be them, you know, NAR encouraging realtors to encourage their sellers. However, from a pure lending standpoint, we cannot, cannot prefer someone lend, you know, we can't prefer lend over anyone else, you know, whatever that is. So I'm not sure how much regulation there's going to be to that or how much you could get away with in that in that capacity, because there are obviously discrimination and lending laws and things of that nature that might prevent that from happening overall.

SPEAKER_00 11:14

Yeah, it seems like there's still a lot to be figured out. Um as always.

unknown 11:19

Right.

SPEAKER_00 11:19

And that all of a sudden it's like, oh, it's happening. So no, that's why it's so important to get to these calls, Nikki. This is amazing. I think I say that every call, and I say that I say that every call, but it truly is like what you bring to this call and the awareness and everything that is coming, it's gonna be something I'm excited for 2026. I'm excited for everything that's coming. And I really, yeah, this is this is good information as always.

SPEAKER_01 11:44

And we've definitely seen an uptick in loan applications over the last week as well, which is good to see with the interest rates just kind of stabilizing into that five percent five range. It's you know, it's nice to see those applications picking up as well.

Spring Market Outlook And Wrap

SPEAKER_00 11:56

Yeah, absolutely. Well, I know in Minnesota here we usually have the spring market hits right after the Super Bowl, which should should be when we're out of the sub-zero temperatures too. So let's go. Hopefully. All right, well, appreciate you. Thank you for showing up as always. Absolutely. Anyone listening, either on the podcast, social media, YouTube, where do they find you?

SPEAKER_01 12:20

In Instagram and TikTok at mortgages from Mn to A Z. Otherwise on Facebook under Nikki Erickson and on LinkedIn as well. Perfect.

SPEAKER_00 12:29

All right, we'll see you next week. Thanks so much. All right, yeah, bye.