As you know the mortgage industry is experiencing some unprecedented challenges today and ahead. As your mortgage expert we’re here to answer any of your questions and your client’s questions. Having started in the mortgage industry in 2003 I’ve been through the crash in 2008, weathered that storm and we will continue to push through these uncertain times. I continually watch the stock and bond market, I have a good handle on what’s happening and want to provide you some insight as to what we can expect moving forward.
Mortgage rates generally follow the 10 year treasury yield, and more specifically mortgage backed securities. At the bottom of this email I’ve pasted where MBS are trading at the moment. Mortgage rates are pricing no where near where they should be, but I’m optimistic this will change when the newly announced 2 trillion dollar stimulus CARES ACT package starts getting distributed. When Covid-19 initially started in China we saw mortgage rates dip to 50 year lows as investors pulled money from the stock market and placed it in safe haven assets like bonds. During that time mortgage lenders were inundated, as of Monday of this week Quicken Home Loans has approximately 46 billion dollars in locked loans. As investors realized Covid-19 was going to have a far greater economic impact than originally thought the sell off continued dramatically and most investors had to sell everything they had, including safe haven assets like bonds, gold, ect. to cover margin calls and gain any liquidity at all. Because of this sell off mortgage rates took a huge hit. In a one week time we lost what took a month to gain in interest rates The federal reserve then announced QE5, they purchased 500 billion in treasuries and 200 billion in MBS, this helped MBS price better and we should have seen a drop in rates, but we didn’t. Why didn’t we see that drop in rates? Mortgage lenders fund loans from warehouse lines of credit, these same lines of credit are also used by corporations to handle their short term funding needs while they await payment on goods and services already delivered. If you’ve read the news you’ll see that major corporations like Heinz, and Boeing drew their entire lines of credit down to zero. There is a huge liquidity crunch right now and mortgage lenders have priced themselves out of the market, not wanting to take on any new loans because they don’t have the capacity to fund them at the moment. We’re hoping that as the new stimulus money hits, and the current backlog of mortgages currently on the books begins to clear out the lenders will open up and allow the true pricing of mortgages to take hold. We are still open for business, still taking applications and talking to clients about mortgages. We are not affected by any shelter in place order, and continue to operate as usual. Below are some recent announcements from some investors, this is a constantly changing environment, it’s very important to get the financing ironed first.
- Temporary appraisal flexibilities:exterior and desktop appraisals allowed on purchase loans of fannie mae and Freddie mac owned loans
- Desktop apppraisals: Allowing for purchase transactiojns when an interior and exterior appraisal is not available
- We are also seeing more appraisal waivers on purchases period, I have a client who just closed a purchase at 80% ltv that required no appraisal
FHA(This is not for every investor, only one at this time, but this is a good example that any fence sitting buyer can have the rug pulled out from underneath them at a moments notice.)
- Some investors are not allowing new locks on government full doc loans with ficos below 620
- Other measures require some loans with gift funds as a down payment to have an additional 6 months reserves.
- Per AUS, however loans with DTI > 50% require a min 700 FICO or 6 months reserves
- Per AUS, however loans with DTI > 45% and the FICO is < 660 require:
- 6 months cash reserves, or Residual income in excess of 120% of VA required (only applicable if borrower’s place of business remains open and is calculated on borrower’s current level of pay)
- Manually underwritten loans now require a maximum 45% DTI
- If using Self Employed income or 1099 income, the income will be reduced by 25% to account for a disruption in the business unless the borrower can document 12 months of reserves.