Blog with MAE Capital

Week 3 Real Estate and Mortgage Update

March 30th, 2020 9:40 AM by Gregg Mower

We are now in week 3 of the mandatory shelter in place order.  Since my last update things have become clearer on why we are at a standstill.  On the Real Estate front, it is pretty easy to report on as it is stopped for the most part except for existing purchases and some commercial deals.  Our private money division is still seeing activity and people willing to lend in this environment, but it has slowed as well.  Interest Rates have not done us any favors over the last week, but we are seeing some life as things start to get figured out.    The appraiser dilemma is in the beginning stages  of getting figured out as well. 

Let’s look at interest rates and why they have not gone down to the lows they should be at.  I read an article this morning that clarified things for me a bit more in an area where I had not paid attention to until now.  The area of lending is the servicing side (where mortgage companies collect your payments).  Think about it, if the government has mandated mortgage companies to stop collecting payments from homeowners for a period of at least 90 days what will happen to the mortgage company?  Mortgage servicers must collect payments from borrowers and then they have to pay out on the bond they created and sold to Wall Street.  The mortgage servicer still must make payments to Wall Street but if they have not been able to collect payments form the borrowers they will go broke quickly.   I believe this has a large part to play in how new loans are being priced up front.

The 2 Trillion-dollar Stimulus Bill that is being signed by the President today does not carve out any funding for mortgage servicers as they don’t fall under banking in most cases. What this means is that while the Government has suspended mortgage payments from borrowers the lenders still have to make their payments on their bonds to Wall Street.  This will get figured out in the next round of Stimulus, we hope, but until then mortgage bankers don't have their servicing portfolio to hedge their origination pricing so interest rates will stay high.   Until this aspect of the mortgage industry is figured out we will see higher than normal interest rates and a degradation in service from all originators in the mortgage industry.  As it stands all of the loan companies have to go to the same well to get their water, so to speak, so no one company in this crisis will outshine another for this reason.  At MAE Capital we are a Broker which means we have access to funding across the nation, so we have our finger on the pulse of this evolving issue.  MAE Capital will also be the first to find lenders that are willing to lend or adjust their rates down and when the market changes we will be on the forefront of the new economy.

As for appraisers in this market, which is another hold on closing loan transactions and Real Estate deals.  Fannie Mae (FNMA) just announced new guidelines regarding what is acceptable for appraisers to deliver in this market.  FNMA said that appraisers can do a drive bye appraisal and the agent or the homeowner can send interior pictures to get an appraisal done.  FNMA also gave guidelines on “Desktop Appraisals” which are appraisals done from information only such as public record information and MLS information any other sources other than physically going to the house.  As for refinances we are seeing more appraisal waivers being offered for those borrowers with good payment history and a lower loan to value.  All these steps are positive and are moving in the right direction, but the time to implement these new guidelines is a major hold up. 

Meanwhile the market for Jumbo Loans and non-Agency loans (non FNMA, FHLMC, GNMA) and non-qualified mortgages have basically closed down.  In fact, today we got news from a few “Non-QM” lenders that they have shut their doors indefinitely as they have no money to lend.  What this does is take an essential segment out of the Real Estate market that is essential for many investors seeking capital for fix and flips, construction, and rental property loans.  We have received several notices today that companies have closed their doors that originate and close these loans.  This market will take months to come back if ever. 

On a positive note, I see the Qualified Mortgage market (Agency loans; FHA, VA Conventional Loans) coming back in the next 3-4 weeks as this all get’s figured out and the Stimulus Bill.  I say 3-4 weeks but that could change based on the “curve” flattening out and how the contagion mutates and changes and hangs on in our society.  The mortgage market will need some definite infusions of money from the Stimulus Bill in the serving side of the business before rates can come back to where they should be.   We will be seeing interest rates in the 2s when this all shakes out so if you have been thinking of refinancing now would be the time to get your paperwork in order.  However, if you have lost your job we can’t refinance you until you are back to work, but that may change as this evolves too.  So this virus is killing us in more ways than one, but as Americans we will persevere.     



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