Let’s forget about whether it’s okay for a mortgage to be easily obtained. Yes, I’m looking at you Rocket Mortgage. Thanks for riling everyone up.
Instead, let’s talk about mortgage approvals and the weather. Yes, there’s apparently a correlation.
When it comes to buying a home, spring is traditionally the big season because the weather thaws (in places that are cold) and people begin to list their properties as more folks begin to look.
That doesn’t mean you should or have to list in spring, it’s just the busiest home buying season of the year.
With regard to mortgages, the busy times tend to be when interest rates are the lowest. For example, loan applications have surged in the past several weeks because the stock market has taken a beating.
As a result, mortgage rates have fallen for six consecutive weeks, including all five weeks this year. So much for those dark 2016 predictions, eh?
Of course, most of the increase in apps is attributable to refinancing, with home purchases still pretty flat because we’re not yet into spring (even if it’s in the 90s in LA). Oh, and inventory is still a problem.
Anyway, not all of these applications will ultimately be approved. Plenty of mortgages get denied for all sorts of reasons.
Should You Wait for a Sunny Day?
But what if I told you’d have a better chance of approval if you applied for a mortgage while it was sunny outside?
Well, a recent working paper by the Federal Reserve Bank of Cleveland found that the weather plays a significant role in loan approvals.
The researchers main finding was that positive sentiment associated with local sunshine leads to higher credit approvals, whereas negative sentiment thanks to cloudy days results in quite the opposite.
The paper, “Clouded Judgment: The Role of Sentiment in Credit Origination,” relied on hourly data of cloud cover for each county-day, finding that the approval rate for credit applications went up by 52 basis points (or 0.80%) on “perfectly sunny days” and slipped 113 basis points (or 1.41%) on “overcast days.”
Put simply, loan officers who are in good moods “make more optimistic assessments about loan prospects than officers in a bad mood.”
In other words, if the underwriter is feeling good, they might say, “This loan has some risk but I think the borrower will make good on their payments.”
Conversely, if they’re in a sour mood, they might say, “This loan has no chance of being repaid.”
It’s a lot more involved than that but most people wouldn’t be interested in reading 30 pages of weather-related credit decisioning if I had to guess.
The takeaway without getting too nerdy here is that you might have a better shot of getting approved for a mortgage while the weather is nice.
Apparently underwriters are in better moods when it’s sunny out, and that slightly better mood might be just enough to squeak an iffy loan file through.
Now this isn’t to say you can apply for a mortgage with zero qualifications just because it’s a beach day in February. If your credit score isn’t up to snuff and you’ve got no assets and limited job history, you’re probably still out of luck.
But if your loan approval comes down to an exception or a judgement call, you might have better odds on a balmy day than a blustery day.
The paper also found that the sunshine effect is stronger when managers have more discretion in that approval.
Sunny Loans Carry More Risk
Unfortunately, an abundance of sunshine might not necessarily be a good thing. The researchers also discovered that a “weather-induced positive mood” increased risk tolerance.
Yep, an increase in sunshine correlates with riskier lending. And it’s apparently fairly significant.
In short, less cloud cover translates to more loan approvals with lower FICO scores and higher loan-to-value ratios, attributes that make loans riskier.
So maybe lenders should lock underwriters in a room with no windows and no joy. Oh wait, I think they already do that. Maybe it’s all just a coincidence.
Regardless of the weather, do your homework before you apply for a mortgage so you get approved no matter the weather.
A stronger loan file will likely also result in a lower mortgage rate and more choice of lenders, allowing you to comparison shop and save money.