This post is not about staying personally hydrated while dealing with the COVID-19 virus. It’s actually about keeping the mortgage market, and by extension the real estate market “hydrated”, and what it all means to you. You may have noticed wildly fluctuating interest rates (as much as 1.25% in a single day!) and are wondering: “What the heck is going on?” You may also have many questions about mortgage forbearance, whether you can and should re-fi now, or the implications for your purchase decisions as a result of the virus. There is a TON of bad info out there so I’m going to shed a little light on some of these important questions. Today’s post will address the mortgage side of things and tomorrow you will get one on the broader real estate market. I have been involved in daily briefings with elite local lenders, top producers from my company as well as others, and am mining trusted local sources of information.
First let’s talk about the mortgage forbearance programs. It’s important to note that they very substantially from servicer to servicer so if you are considering participating in the program with your lender make sure you know what you are getting into. Some have reasonable terms, such as any deferred loan payments are merely tacked on to the principle balance (which is painful enough) and no adverse credit impact (though it’s now wise to assume that might not change). Others are incredibly penal, where say you defer the payments for 6 months and then at the end of the forbearance period all 6 months are due! Regrettably there are many people out there, who through no fault of their own, find themselves facing a reality in which the decision to do mortgage forbearance is not elective. For those people you have my prayers and any assistance I can provide. Communicate with your mortgage company and work cooperatively with them to get the best outcome possible.
I can’t stress the following statement enough. For those who have the ability to tighten their belt a little and continue to make their mortgage payments you absolutely should do so, for several reasons. One is of course financial. No matter how it is handled it will cost you more in the long run to defer your payments. The second is we are all in this together. With huge numbers of mortgages now ending up with deferred payments, mortgage servicers who rely on the cash flow to operate their businesses are finding themselves in a liquidity crunch, which is hampering the entire mortgage system.
Mortgage Financing 101 class: Most lenders are originators who make money originating loans and then turn around and sell them to investors for the servicing. However, many of those investors now do not have cash, because they are not receiving all the expected payments (uncertainty demanding a rate premium and the devaluing of those loans due to the interrupted cash flow are for the 202 class or a subscription to the WSJ). Guess what that does to rates?! Serious volatility and spikes is the answer. Originators who used to have 100 investors lined up to sell to might have 6 now, or in some instances NONE! Margin calls on loans they have in process are squeezing them as well. At the end of the day, there will be a lot of under capitalized lenders who will go out of business.
The offshoot of all this, as one of my clients who is thinking about re-financing, buying or selling? Accurate up to date information is more powerful and important than EVER! Working with the best lenders is crucial. The terrain is what it is, but there are ways for us, working as a team, to position you to do well no matter what your housing or mortgage needs are. In fact the market dynamics might create both some buying and selling opportunities. People still need to, not want to but need to, buy and sell for various reasons and we are in the most robust real estate environment in the country. Give me a call and let’s strategize on the best way to move forward for you, and look for my post tomorrow on what’s happening today on the real estate side.
It’s a good life.
Chris
