Barry Habib, one of the most respected figures in the mortgage industry has been on a mad campaign to get through to the Fed regarding it’s unrestrained purchases of Mortgage Backed Securities. Late last week, he and his son, Dan, put out this piece on where the mortgage market is today. If you have not read it, I would highly recommend that you do. You will be smarter for it. Promise.
So, did the Fed listen? Here’s what they bought last week:
It appears as if they did head the warning that purchases of MBS would exacerbate the situation, as they only purchased $21 Billion today (3/30/2020) instead of the planned $40 Billion. It would better if they stopped buying altogether for a while so that we can clear the volume already in the system. It’s a delicately balanced system and when you go tinkering with one part of it, other parts tend to get a little wonky.
As counter intuitive as it may seem, we need mortgage backed securities to get worse for a while so that the whole system gets better. If not and the Fed keeps buying in an unrestrained manner, we may be looking at mortgage banking bailout to save some of the key players.
Take a look at this video from Barry Habib. He does an amazing job of explaining what’s happened over the last few weeks.
CNBC’s Steve Liesman Discusses the Fed’s Purchases on Mortgage Rates.
Liesman echoes much of what Barry says above in this video.
Can’t I Just Skip My Mortgage Payment If I Fall On Hard Times?
I can’t tell you how many times over the last few days that I’ve seen people in real estate posting that you can skip your mortgage payment due to hardship. Please STOP saying this because it is seriously irresponsible. Take a look at this post below for some basics. Above all, if you or your clients find yourself or themselves in a spot where you can’t make your payment, please, please, please call the number on your mortgage statement and discuss it with them FIRST! You may have options but if you act without facts, you will be doing more damage than good.
The current Coronavirus crisis is having a critical impact
on the Mortgage Industry, which could potentially make the 2008 financial
crisis pale in comparison. The pressing
issue centers around capital that’s required by Mortgage Lenders to be able to
function and meet covenants that are required for them to continue to lend.
Here’s How The Mortgage Market Works
Let’s begin with the mortgage process. A borrower goes to a Mortgage Originator to
obtain a mortgage. Once closed, the loan
is handled by a Servicer, which may or may not be the same company that
originated the loan. The borrower
submits payments to the Servicer, however, the Servicer does not own the loan,
they are simply maintaining the loan.
This means collecting payments and forwarding them to the investor,
paying taxes and insurance, answering questions, etc. While they maintain or “service” the loan,
the asset itself is sold to an aggregator or directly to a government agency
like Fannie Mae (FNMA), Freddie Mac (FHLMC), or Ginnie Mae (GNMA). The loan then gets placed inside a large
bundle, which is put in the hands of an Investment Banker. That Investment Banker converts those loans
into a Mortgage Backed Security (MBS) that can be sold to the public. This shows up in different investments like
Mutual Funds, Insurance Plans, and Retirement Accounts.
The Servicer’s role is very critical. In order to obtain the right to service
loans, the Servicer will typically pay 1% of the loan amount up front. The Servicer then receives a monthly payment
or “strip” equal to about 30 basis points (bp) per year. Because they paid about 1% to obtain the
servicing rights and receive roughly 30bp in annual income, the breakeven
period is approximately 3 years. The
longer that loan remains on the books, the more money that Servicer makes. In many cases, the Servicer might want to use
leverage to increase their level of income.
Therefore, they may often finance half of the cost of acquiring the loan
and pay the rest in cash.
Servicer Dilemma
As you can imagine, when interest rates drop dramatically,
there is an increased incentive for many people to refinance their loans more
rapidly. This causes the loans that a
Servicer had on their books to pay off sooner…often before that 3-year
breakeven period. This servicing runoff
creates losses for that Mortgage Lender who is servicing the loan. The more loans in a Mortgage Lender’s
portfolio, the greater the loss.
Servicing runoff, or even the anticipation of it, can adversely impact
the market valuation of a servicing portfolio.
But at the same time, Lenders typically experience an increase in new
loan activity because of the decline in interest rates. This gives them additional income to help
overcome the losses in their servicing portfolio.
But the Coronavirus has caused a virtual shutdown of the US
economy, which has created an unprecedented amount of job losses. This adds a new risk to the servicer because
borrowers may have difficulty paying their mortgage in a timely manner. And although the Servicer does not own the
asset, they have the responsibility to make the payment to the investor, even
if they have not yet received it from the borrower. Under normal circumstances, the Servicer has
plenty of cushion to account for this.
But an extreme level of delinquency puts the Servicer in an unmanageable
position.
“I’m From The Government And I’m Here To Help”
In the Government’s effort to help those who have lost their
jobs because of the Coronavirus shutdown, they have granted forbearance of
mortgage payments for affected individuals.
This presents an enormous obstacle for Servicers who are obligated to
forward the mortgage payment to the investor, even though they have not yet
received it. Fortunately, there is a new
facility set up to help Mortgage Servicers bridge the gap to the investor. However, it is unclear as to how long it will
take for Servicers to access this facility.
But what has not been yet contemplated is the fact that a
borrower who does not make their very first mortgage payment causes that loan
to be ineligible to be sold to an investor.
This means that the Servicer must hold onto the asset itself, which ties
up their available credit. And with so
many new loans being originated of late, the amount of transactions that will
not qualify for sale is significant.
This restricts the Lender’s ability to clear their pipeline and get
reimbursed with cash so they can now fund new transactions.
Mark To Market
This week – Due to accelerated prepayments and the
uncertainty of repayment, the value of servicing was slashed in half from 1% to
0.5%. This drastic decrease in value
prompted margin calls for the many Servicers who financed their acquisition of
servicing. Additionally, the decreased
value of a Lender’s servicing portfolio reduces the Lender’s overall net
worth. Since the amount a lender can
lend is based on a multiple of their net worth, the decrease in value of their
servicing portfolio asset, along with the cash paid for margin calls, reduces
their capacity to lend.
Unintended Consequences
The Fed’s desire to bring mortgage rates down isn’t just
damaging servicing portfolios because of prepayments, it’s also wreaking chaos
in Lenders’ ability to hedge their risk.
Let’s look at what happens when a borrower locks in their mortgage rate
with a Mortgage Lender. Mortgage rates
are based on the trading of Mortgage Backed Securities (MBS). As Mortgage Backed Securities rise in price,
interest rates improve and move lower. A
locked rate on a mortgage is nothing more than a Lender promising to hold an
interest rate, for a period of time, or until the transaction closes. The Lender is at risk for any MBS price
changes in the marketplace between the time they agreed to grant the lock and
the time that the loan closes.
If rates were to rise because MBS prices declined, the
Lender would be obligated to buy down the borrower’s mortgage rate to the level
they were promised. And since the Lender
doesn’t want to be in a position of gambling, they hedge their locked loans by shorting
Mortgage Backed Securities. Therefore,
should MBS drop in price, causing rates to rise, the Lender’s cost to buy down
the borrower’s rate is offset by the Lender’s gains of their short positions in
MBS.
Now think about what happens when MBS prices rise or
improve, causing mortgage rates to decline.
On paper the Lender should be able to close the mortgage loan at a
better price than promised to the borrower, giving the Lender additional
profits. However, the Lender’s losses on
their short position negate any additional profits from the improvement in MBS
pricing. This hedging system works well
to deliver the borrower what was promised, while removing market risk from the
Lender.
But in an effort to reduce mortgage rates, the Fed has been
purchasing an incredible amount of Mortgage Backed Securities, causing their
price to rise dramatically and swiftly.
This, in turn, causes the Lenders’ hedged short positions of MBS to show
huge losses. These losses appear to be
offset on paper by the potential market gains on the loans that the lender
hopes to close in the future. But the
Broker Dealer will not wait on the possibility of future loans closing and
demands an immediate margin call. The
recent amount that these Lenders are paying in margin calls are
staggering. They run in the tens of
millions of Dollars. All this on top of
the aforementioned stresses that Lenders are having to endure. So, while the Fed believes they are
stimulating lending, their actions are resulting in the exact opposite. The market for Government Loans, Jumbo Loans,
and loans that don’t fit ideal parameters, have all but dried up. And many Lenders have no choice but to slow
their intake of transactions by throttling mortgage rates higher and by
reducing the term that they are willing to guarantee a rate lock.
Furthering the Fed’s unintended consequences was the
announcement to cut interest rates on the Fed Funds Rate by 1% to virtually
zero. Because the Fed’s communication
failed to educate the general public that the Fed Funds Rate is very different
than mortgage rates, it prompted borrowers in process to break their locks and
try to jump ship to a lower rate. This
dramatically increased hedging losses from loans that didn’t end up closing.
Even Stephen King Could Not Have Scripted This
It’s been said that the Stock market will do the most
damage, to the most people, at the worst time.
And the current mortgage market is experiencing the most perfect
storm. Just when volume levels were at
the highest in history, servicing runoff at its peak, and pipelines hedged more
than ever, the Coronavirus arrived.
Lenders need to clear their pipelines, but social distancing
is making it more difficult for transactions to be processed. And those loans that are about to close
require that employment be verified. As
you can imagine, with millions of individuals losing their jobs, those
mortgages are unable to fund, leaving lenders with more hedging losses and no
income to offset it.
What Needs To Be Done Now
Fortunately, there are many smart people in the Mortgage
Industry who are doing everything they can to navigate through these perilous
times. But the Fed and our Government
needs to stop making it more difficult.
The Fed must temporarily slow MBS purchases to allow pipelines to
clear. Lawmakers need to allow for first
payment defaults, due to forbearance, to be saleable. And finally, the Fed must more clearly
communicate that Mortgage Rates and the Fed Funds Rate are not the same.
We have faith that the effects of the Coronavirus will
subside and that things will become more normalized in the upcoming months.
Credit: Barry and Dan Habib – MBS Highway
NMLS# 1466899
IF YOU ARE AT ALL INTERESTED IN MORTGAGE RATES, PLEASE READ
THIS:
Mortgage Crisis and Fed Unintended Consequences
March 26, 2020
The Coronavirus Meltdown
The current Coronavirus crisis is having a critical impact
on the Mortgage Industry, which could potentially make the 2008 financial
crisis pale in comparison. The pressing
issue centers around capital that’s required by Mortgage Lenders to be able to
function and meet covenants that are required for them to continue to lend.
Here’s How The Mortgage Market Works
Let’s begin with the mortgage process. A borrower goes to a Mortgage Originator to
obtain a mortgage. Once closed, the loan
is handled by a Servicer, which may or may not be the same company that
originated the loan. The borrower
submits payments to the Servicer, however, the Servicer does not own the loan,
they are simply maintaining the loan.
This means collecting payments and forwarding them to the investor,
paying taxes and insurance, answering questions, etc. While they maintain or “service” the loan,
the asset itself is sold to an aggregator or directly to a government agency
like Fannie Mae (FNMA), Freddie Mac (FHLMC), or Ginnie Mae (GNMA). The loan then gets placed inside a large
bundle, which is put in the hands of an Investment Banker. That Investment Banker converts those loans
into a Mortgage Backed Security (MBS) that can be sold to the public. This shows up in different investments like
Mutual Funds, Insurance Plans, and Retirement Accounts.
The Servicer’s role is very critical. In order to obtain the right to service
loans, the Servicer will typically pay 1% of the loan amount up front. The Servicer then receives a monthly payment
or “strip” equal to about 30 basis points (bp) per year. Because they paid about 1% to obtain the
servicing rights and receive roughly 30bp in annual income, the breakeven
period is approximately 3 years. The
longer that loan remains on the books, the more money that Servicer makes. In many cases, the Servicer might want to use
leverage to increase their level of income.
Therefore, they may often finance half of the cost of acquiring the loan
and pay the rest in cash.
Servicer Dilemma
As you can imagine, when interest rates drop dramatically,
there is an increased incentive for many people to refinance their loans more
rapidly. This causes the loans that a
Servicer had on their books to pay off sooner…often before that 3-year
breakeven period. This servicing runoff
creates losses for that Mortgage Lender who is servicing the loan. The more loans in a Mortgage Lender’s
portfolio, the greater the loss.
Servicing runoff, or even the anticipation of it, can adversely impact
the market valuation of a servicing portfolio.
But at the same time, Lenders typically experience an increase in new
loan activity because of the decline in interest rates. This gives them additional income to help
overcome the losses in their servicing portfolio.
But the Coronavirus has caused a virtual shutdown of the US
economy, which has created an unprecedented amount of job losses. This adds a new risk to the servicer because
borrowers may have difficulty paying their mortgage in a timely manner. And although the Servicer does not own the
asset, they have the responsibility to make the payment to the investor, even
if they have not yet received it from the borrower. Under normal circumstances, the Servicer has
plenty of cushion to account for this.
But an extreme level of delinquency puts the Servicer in an unmanageable
position.
“I’m From The Government And I’m Here To Help”
In the Government’s effort to help those who have lost their
jobs because of the Coronavirus shutdown, they have granted forbearance of
mortgage payments for affected individuals.
This presents an enormous obstacle for Servicers who are obligated to
forward the mortgage payment to the investor, even though they have not yet
received it. Fortunately, there is a new
facility set up to help Mortgage Servicers bridge the gap to the investor. However, it is unclear as to how long it will
take for Servicers to access this facility.
But what has not been yet contemplated is the fact that a
borrower who does not make their very first mortgage payment causes that loan
to be ineligible to be sold to an investor.
This means that the Servicer must hold onto the asset itself, which ties
up their available credit. And with so
many new loans being originated of late, the amount of transactions that will
not qualify for sale is significant.
This restricts the Lender’s ability to clear their pipeline and get
reimbursed with cash so they can now fund new transactions.
Mark To Market
This week – Due to accelerated prepayments and the
uncertainty of repayment, the value of servicing was slashed in half from 1% to
0.5%. This drastic decrease in value
prompted margin calls for the many Servicers who financed their acquisition of
servicing. Additionally, the decreased
value of a Lender’s servicing portfolio reduces the Lender’s overall net
worth. Since the amount a lender can
lend is based on a multiple of their net worth, the decrease in value of their
servicing portfolio asset, along with the cash paid for margin calls, reduces
their capacity to lend.
Unintended Consequences
The Fed’s desire to bring mortgage rates down isn’t just
damaging servicing portfolios because of prepayments, it’s also wreaking chaos
in Lenders’ ability to hedge their risk.
Let’s look at what happens when a borrower locks in their mortgage rate
with a Mortgage Lender. Mortgage rates
are based on the trading of Mortgage Backed Securities (MBS). As Mortgage Backed Securities rise in price,
interest rates improve and move lower. A
locked rate on a mortgage is nothing more than a Lender promising to hold an
interest rate, for a period of time, or until the transaction closes. The Lender is at risk for any MBS price
changes in the marketplace between the time they agreed to grant the lock and
the time that the loan closes.
If rates were to rise because MBS prices declined, the
Lender would be obligated to buy down the borrower’s mortgage rate to the level
they were promised. And since the Lender
doesn’t want to be in a position of gambling, they hedge their locked loans by shorting
Mortgage Backed Securities. Therefore,
should MBS drop in price, causing rates to rise, the Lender’s cost to buy down
the borrower’s rate is offset by the Lender’s gains of their short positions in
MBS.
Now think about what happens when MBS prices rise or
improve, causing mortgage rates to decline.
On paper the Lender should be able to close the mortgage loan at a
better price than promised to the borrower, giving the Lender additional
profits. However, the Lender’s losses on
their short position negate any additional profits from the improvement in MBS
pricing. This hedging system works well
to deliver the borrower what was promised, while removing market risk from the
Lender.
But in an effort to reduce mortgage rates, the Fed has been
purchasing an incredible amount of Mortgage Backed Securities, causing their
price to rise dramatically and swiftly.
This, in turn, causes the Lenders’ hedged short positions of MBS to show
huge losses. These losses appear to be
offset on paper by the potential market gains on the loans that the lender
hopes to close in the future. But the
Broker Dealer will not wait on the possibility of future loans closing and
demands an immediate margin call. The
recent amount that these Lenders are paying in margin calls are
staggering. They run in the tens of
millions of Dollars. All this on top of
the aforementioned stresses that Lenders are having to endure. So, while the Fed believes they are
stimulating lending, their actions are resulting in the exact opposite. The market for Government Loans, Jumbo Loans,
and loans that don’t fit ideal parameters, have all but dried up. And many Lenders have no choice but to slow
their intake of transactions by throttling mortgage rates higher and by
reducing the term that they are willing to guarantee a rate lock.
Furthering the Fed’s unintended consequences was the
announcement to cut interest rates on the Fed Funds Rate by 1% to virtually
zero. Because the Fed’s communication
failed to educate the general public that the Fed Funds Rate is very different
than mortgage rates, it prompted borrowers in process to break their locks and
try to jump ship to a lower rate. This
dramatically increased hedging losses from loans that didn’t end up closing.
Even Stephen King Could Not Have Scripted This
It’s been said that the Stock market will do the most
damage, to the most people, at the worst time.
And the current mortgage market is experiencing the most perfect
storm. Just when volume levels were at
the highest in history, servicing runoff at its peak, and pipelines hedged more
than ever, the Coronavirus arrived.
Lenders need to clear their pipelines, but social distancing
is making it more difficult for transactions to be processed. And those loans that are about to close
require that employment be verified. As
you can imagine, with millions of individuals losing their jobs, those
mortgages are unable to fund, leaving lenders with more hedging losses and no
income to offset it.
What Needs To Be Done Now
Fortunately, there are many smart people in the Mortgage
Industry who are doing everything they can to navigate through these perilous
times. But the Fed and our Government
needs to stop making it more difficult.
The Fed must temporarily slow MBS purchases to allow pipelines to
clear. Lawmakers need to allow for first
payment defaults, due to forbearance, to be saleable. And finally, the Fed must more clearly
communicate that Mortgage Rates and the Fed Funds Rate are not the same.
We have faith that the effects of the Coronavirus will subside and that things will become more normalized in the upcoming months.
So, yes, the market has been insane these
past few days. Down, up, down, up and little reason behind the huge swings
we’re seeing in both directions, other than we’re living in uncertain times and
the market hates uncertainty.
What does this mean for your specific
situation? As of today, I am suggesting that my clients, who have loans
originated with me to “sit tight”. With the current rate environment, we simply
need to wait for our moment of opportunity to pull the trigger.
The market gurus are suggesting that we will see “windows of opportunity” in due time. Those may be fleeting. Here is what I’ve told many of my clients calling about refinances to improve their rate, shorten their term, home improvements, debt consolidation or school tuition: If you are considering a change to your home finance situation, you need to be “in position” to take advantage of any rate fluctuation. This will allow you to meet your specific home finance objectives.
What does that mean? If you want to refinance for any
of the reasons I listed above, we need to make sure your file is in order and
ready to submit. This means I need your loan application completed, credit
pulled, all docs in order, supporting information, sent initial disclosures to
you for signature, sent your file to underwriting and maybe even started to
line up your appraisal.
Then, we wait for the rate that we’ve agreed upon to
become available. When it does, I lock it. Does that make sense to you?
I’ll continue to be in touch with
relevant information and education, so that you will be an informed consumer.
Feel free to share this with anyone that you think would be interested in it.
My goal is to have them thank YOU for the introduction.
You’ve no doubt been watching the market
and the news regarding the Fed’s interest rate cuts and commitment to purchase
$500 billion in Treasuries and another $200 billion in mortgage backed
securities. Many thought that this would alleviate the uncertainty and perhaps
tame the market volatility. Unfortunately, it did not.
So, what happened?
In a nutshell? Everyone wanted their
money at the same time. No, not like a long line of folks standing in line at
the ATM waiting to withdrawal their money. Instead, it was big banks and brokerages
that had large investments and some of those investments were on credit (or
margin accounts). When these banks and brokerages went to pull back their
investments or came calling for money that was owed to them, that created a
liquidity crunch.
What does that mean? There wasn’t enough
purchasing power (meaning actual cash) to make good on all the moves that the
market wanted and needed to make. That’s when the Fed stepped in with its $700
billion infusion. But that wasn’t enough, and the market basically freaked out.
Add to that there wasn’t anyone interested in buying mortgage backed securities
and now those lovely historically low rates that we had for less than a week at
the beginning of March are gone.
How Big is the Market for Mortgages?
Barry Habib, the mortgage market guru, of
MBS Highway, said in an update a few days ago that there is about $11 trillion
in home mortgages in the United States. We originate between $1.75 trillion and
$2.1 trillion in lending annually, depending on where interest rates fall. That
amount covers both purchase and refinance business. That means that between
$175 billion and $200 billion per month in volume is what the entire market for
mortgages can handle.
Where Does It Go?
Much of the volume gets sold to the
secondary market in the form of mortgage backed securities or bonds. What are
those you ask? Picture a big stack of mortgages that get wrapped up and sold as
one big chunk in the form of bonds. In 2008, these bonds were made up of
mortgages that were poorly written with little to no documentation and,
individually, highly susceptible to default. This makes the whole thing
unstable and therefore worthless, or at least worth much less, than it was
originally sold for when it initially went to market. This is why, in 2008, the
market crashed. Is that what’s happening now? The short answer is “No.”
Are we going back to 2008?
What’s happening now is those same
mortgage back securities (bonds) are for sale to the market. The quality now,
is much higher than it was in 2004-2007 because these are full documentation
loans that have been underwritten to a much higher standard, thanks to
regulation by the Consumer Financial Protection Bureau. So, why isn’t anyone
interested in buying them? Because the traders that purchase these securities
don’t believe they’ll be worth anything in 6 months. Wait, what? I thought you
said that these are higher quality bonds. They are higher quality bonds but if
the mortgages that make them up get refinanced inside of 6 months because rates
are lower (which is somewhat likely), they will become worth less than at the
time of issue. In fact, most companies need the loans on their books for 2-3
years to earn a profit.
Ok, that’s confusing, right? These bonds
have a maturity date. If the underlying assets (individual mortgages) that make
up these bonds get sold to another bank as part of a refinance before the
maturity date, the value of the bond where that mortgage was before it is
refinanced (and paid off) is diminished. Bonds are supposed to be a “safe haven”
for assets with a “guaranteed” return. If the assets that make up these
financial instruments (mortgage backed securities) are sold, then the quality
of that financial instrument is degraded or worth less. Bond traders don’t buy
things that diminish in value. The traders expect these financial instruments
to hold their value and if it appears that they won’t hold their value, well,
the bond traders will take their money somewhere else or they simply won’t buy
anything and sit on their cash. When that cash sits on the sidelines, it means
others can’t make moves with that cash that would’ve been used to purchase and
the whole thing starts to come apart. It’s not exactly where we are right now,
but things are not stable and the banks that write mortgage loans and who set
interest rates are not in the mood to play. Margins are thin and small mistakes
can mean the difference between profitability and cutting staff. Combine that
with the wave of volume that came at the banking system two weeks ago and you
have a recipe for interest rates going up. Yep, UP!
Navigating the waters of home purchasing, refinancing and real estate finance can be challenging in times of market volatility. Getting into position can be the key making the most of these turbulent times in mortgage rate fluctuation and economic uncertainty.
I read this from our American
Pacific Mortgage staff economist, Elliot Eisenberg, Ph.D. (www.econ70.com) this
morning:
“While interest rates on Treasuries have hit all-time lows,
mortgage rates have fallen, but not as much. There are at least three reasons.
First, if rates keep falling, prepayments will increase, hurting mortgage
investors. Second, lower rates suggest the economy is weakening and that can
boost defaults, hurting lenders. Third, with re-fi demand already sky-high,
lenders need not juice it with yet lower rates, which would needlessly reduce
profits.”
Here’s some thoughts on the three things he mentions:
I’ve told 5 people in the last two days that the bottom of the
rate market was Monday 3/2/20. Yep, BEFORE the Fed announced their emergency
cut of 50 basis points (or one-half percentage point). Why haven’t rates fallen
further? One, because the Fed Rate cut does not have a one-to-one effect on
mortgage rates. Sometimes rates have gone UP after a Fed cut. And two, the
super smart finance guys (the one who control the market for stocks and bonds)
bake in any potential cuts that the Fed might make well in advance of any cut
taking place. They all knew it was coming and the market had already made its
move lower—WEEKS BEFORE THE ACTUAL CUT. Now, with everyone jumping on the refi
wagon, the banks are in no hurry to offer you the lowest rates because they
don’t have to, mostly because they know you want it. There it is—Supply vs.
Demand.
Here’s what I am telling my clients: if you want to be a surfer,
you need to be a strong swimmer and you must be able to balance yourself on the
board. Does that make you a surfer? NO! You have BE IN THE WATER with your
board and you MUST BE IN POSITION to catch the wave-THEN, YOU ARE A SURFER.
Until then, you’re just a strong swimmer with good balancing skills. Want to
catch the refi rates at their lowest? Get your loan application in with all
your docs and be ready to catch that wave when it comes (and it will), so you
can lock in the lowest rate.
By the way, getting the lowest rate isn’t always the best DEAL.
Fees, loan costs, SERVICE matter too and as colleague of mine once said to me:
“The sweetness of a low price is far outlasted by the bitterness of poor
quality.” Like many things in life, you get what you pay for. Want great
service, competitive rates and an “easy” button. Call me.
2. “Lower rates suggest the
economy is weakening and that can boost defaults, hurting lenders.”
Some of you may be thinking that we’re heading for another 2008
melt down, where the housing market went to hell and people were throwing their
keys inside the door, closing it and walking away. Some of you shopping for
homes are rubbing your hands together, thinking you’re about to be Lowball
Larry with your offers. Not so fast. Remember that the reason people were
walking away from their homes is because the loans were poorly written with
little to no documentation and those crappy loans were sold to the secondary
market where things imploded right around October of 2007. Afterwards, very few
of us could buy the homes that the banks were forced to reposes because the
banks were in such bad shape and didn’t have the money to lend or the
guidelines were so strict, no one could qualify!
Does the possibility exist that we’re heading for a higher default rate? Maybe, we must wait and see what the future holds. Let me share an article from TransUnion written at the end of last year. Look at chart they put together below. Five-year trends on Mortgage Delinquencies are down more 35%. So, really, at the moment, the signs don’t point to a housing bubble, just based on people making their payments.
Here’s an article I put
together on demand for housing in 2020 and beyond. Simply put,
there isn’t enough supply to keep up with the wall of buyers aged 32-35 that
are starting to realize that city living is great when your young but having a
family and owning pets is somewhat easier in the suburbs or at least when you
have a backyard or park nearby. Check out this nifty graph that shows the
population curves for the 66 million millennials in the U.S. Remember that WAVE
I was talking about earlier? Check out the ones below. Can you say, Tsunami?
3. “With re-fi demand already
sky-high, lenders need not juice it with yet lower rates, which would
needlessly reduce profits.”
Folks, at the end of the day, banks are businesses. The goal for
any business is to maximize profits. If they discount, then the lose that
potential. The pipeline for refinances is so full right now that rates are
going to remain relatively stable for a couple weeks and maybe longer. However,
just like when you are surfing, the waves come in sets. If you want to
refinance and catch the lowest rate, you’d better get in the water now or you
risk missing that next wave.
Want to talk more about home finance? Need to pull cash from
your home equity to put the kid through school, renovate that kitchen or bath
or maybe buy that second home or investment property you’ve been thinking
about? We need to talk. Soon. Call me today so we can discuss your specific
situation.
