How loan officers are saving deals as mortgage rates cross 6.6%

Loan officers are shifting their playbooks to keep deals alive as mortgage rates climb north of 6.6%. Originators are encouraging borrowers to ask for more seller credits, recalibrate their home search criteria and rush to close deals as quickly as possible.

Rates for 30-year fixed mortgages reached 6.62% on Friday afternoon, up 5 basis points from the prior day, according to Mortgage News Daily. At HousingWire’s Mortgage Rates Center, rates for 30-year conforming loans stood at 6.63%.

“Rates rose today in response to rising oil prices. That’s not good for affordability, but in my experience, borrowers rarely change their behavior overnight due to a single rate move. It usually takes sustained news and social media coverage of rising rates before buyer confidence and behavior really start to shift,” said Brendan McKay, owner at Bethesda, Maryland-based McKay Mortgage Co.

McKay told HousingWire he has not lost any deals due to the recent rate increases. “I may lose one that locked in with a local retail lender earlier this week. I’m still able to offer better terms, but the gap has narrowed,” he added. 

While it’s too early to see the immediate fallout from Friday’s rate jump as borrowers tend to react to more sustained moves, lenders are bracing for a crucial testing period.

“In this particular case, the next two weeks look a little bit rough, because we also have a holiday coming; usually we’ll monitor foot traffic on open houses on the holiday weekend, and that’ll give us a really good indicator of what’s happening,” said Gino Fronti, executive vice president and West division president at Lower.

So far, the pipeline is holding, but it requires active management. “Over the last couple of weeks, we’ve seen no deals fall apart, but people in escrow go to the seller and request a 2-1 buydown. That’s the strategy that we’ve been using to keep the deals together,” Fronti said.

Sellers whose properties have been sitting on the market for weeks are increasingly willing to offer credits rather than risk having to relist. In the Los Angeles area, Fronti said these credits typically range from $10,000 to $20,000. That “would be equivalent to the next price reduction they would have to do to find a new buyer anyway,” he added. 

Lenders are also making efforts to save the deal, with Fronti noting that companies are “running a little bit thinner (in margins), maybe waiving a processing fee or something minimal.” 

Borrower reactions

How borrowers are reacting to the higher-rate environment also depends heavily on their tax bracket. Adam Neft, a Columbus, Ohio-based LO at Ultimate Mortgage Brokers, said that for borrowers with higher socioeconomic status, such as those earning $400,000 a year, a rate increase is “often more of an annoyance than a real pain point.”

But that’s not the reality for the broader market. “Not everybody’s making that level of income, at least my clientele,” he added.

For the typical buyer, Neft said he is having to get creative. That means pushing for seller credits to buy down the rate or completely adjusting the home search criteria — a tough conversation for buyers who started looking a few months ago when rates offered some relief in the high 5s.

Across the country in Mount Pleasant, South Carolina, Phil Crescenzo — a branch manager for NFM Lending — is seeing similar dynamics. He noted that inventory has increased slightly in his market, opening the door for more competitive offers and aggressive seller incentives.

Seller credits between 3% and 5% are not uncommon depending on the sale price, he said, with the funds directed toward temporary or permanent rate buydowns.

Additionally, some buyers are simply tired of waiting or are being pushed by life events like a new baby or an empty nest. To accommodate them, Crescenzo is leaning into alternative loan products, including adjustable-rate mortgages and bridge loans. 

With rates hovering “between the low 6% range and 7% for several years now,” Crescenzo said he’s not “scaring people away, but stressing urgency when an application’s open or the value of moving forward today and not having the unknown in the future.”

LOs expect conditions to remain choppy for at least the next two weeks, holding out hope that the recent inflation spike is only a temporary headwind due to the Iran conflict. 

“The quicker the closing, the better, because I don’t think the market is going to get better,” Neft said. “The conflict in Iran, from what little I know, doesn’t look like there’s an easy resolution. The longer it takes, the longer the chance of interest rates going up is. Hopefully, it’s a short-term thing.”

Meanwhile, for some buyers, the psychological hurdle of higher rates is softening.

Kevin Leibowitz, based in Brooklyn, New York, said his clients at Grayton Mortgage view elevated rates as transitory, believing they will have the ability to refinance in the not-too-distant future. For others, a $25 to $100 increase in the monthly payment isn’t enough to derail their homeownership plans.

“Now, that being said, refis have fallen off a cliff,” Leibowitz said. “Unless we get peace in the Middle East, inflation eases and all of this lines up very quickly, it’s very tough to argue for rates coming down fast anytime soon.”