Mortgage lenders are getting creative to combat the housing affordability crisis fueled by rising interest rates, rolling out novel products and blending existing options to keep borrowers in the market.
Bayview Asset Management — which closed its acquisition of Guild Mortgage in November — rolled out a new program on Monday. Partnering with real estate startup Estately, the firm is combining a traditional mortgage with a land lease.
“We do a first mortgage that’s Fannie Mae-eligible, a first mortgage loan on just the house, and then Estately is going to buy the land underneath that house and do it on a 50-year leaseback to the consumer at 5%,” Michael Lau, managing director at Bayview, announced on stage Tuesday during a session on lender perspectives at the Mortgage Bankers Association (MBA)’s Secondary and Capital Markets Conference in New York.
The product, Lau explained, cuts monthly mortgage payments by roughly $300 in high-cost areas. The initial rollout is targeting Colorado, where land accounts for up to 35% of a property’s total loan amount. Estately also notes on its website that the program significantly reduces upfront costs for homebuyers.
If a borrower defaults, Lau explained that the land and the home will be repackaged together and returned to Fannie Mae.
Michael P. Patterson, chief operating officer at Freedom Mortgage, said in the same session that prolonged periods of high rates naturally breed industry innovation. Lately, he has observed a notable uptick in buydowns paired with adjustable-rate mortgages (ARMs).
“We are looking at the products that are there and probably starting to be creative with the options, putting the options together,” Patterson said. “We just, as an industry, got to make sure we don’t go too far in that creativeness that we try to offset an affordability issue and create a delinquency issue later.”
Where are rates heading?
The executives’ comments come as mortgage rates inch closer to the 7% threshold, driven by inflation fears tied to the ongoing Iran conflict.
Even if hostilities were to cease immediately, executives estimate the economic ripple effects will linger for six to 12 months, hindered by supply-chain inertia, depleted strategic petroleum reserves, and the pass-through of surging diesel and energy costs.
“We’re going to feel the effects for a long time,” Patterson said.
Overall, the mood among mortgage executives about rates remains cautiously pessimistic. The base-case forecast anticipates rates hovering in the 6.3% to 6.5% range for the remainder of the year, with a maximum of one Federal Reserve rate cut potentially dropping them near 6.1%.
Conversely, an upside scenario could push rates to 7% or beyond if triggered by one or two more geopolitical shocks. The consensus is that there are few catalysts on the horizon to drive rates meaningfully lower.
Jeana Curro, managing director and head of agency MBS research at Bank of America, weighed in on the macroeconomic outlook during a market trends session. Curro said mortgage rates are currently running hotter than expected, but the bank still projects rates settling near the 6% mark by year’s end.
“We headed into this year thinking affordability is the most important topic for the midterm elections; you’re going to see some effort to push mortgage rates lower. We got a bit of that in January with the MBS purchase announcement,” Curro said.
“The events in the Middle East have really been a challenge, they’ve really injected a lot of volatility into the market, pushing rates higher. … But this administration moves really fast when it moves.”
John Sim, managing director at JPMorgan Chase, added that the bank’s rate forecast has shifted to 6.25%, up from sub-6% projections at the start of the year. Still, he cautioned that these figures can “change very rapidly.”