As we plunge ahead during the Covid-19 crisis, some surprises are happening.
Some good news?
As of now, buying and selling activity still remains high among social distancing measures, which is a good thing as real estate still remains an essential service. But I want to shift for a moment and talk about the lending framework in the country and how things could change in the coming year.
Lenders are perhaps the most vulnerable during this pandemic and (as of last week) housing mortgages left unpaid in April was between 2-3 million.
That’s a conservative estimate.
What is more concerning is many homeowners did have the resources to pay and elected not too.
Why is that important?
It’s important because lenders still have to pay their investors, hedge funds, etc. who bought the mortgages. EVEN IF, a a good portion of those homeowners (who did not pay in April) are in some kind of forbearance arrangement, the lender still has to pay. Conditions are coming to determine how long some lenders will allow forbearances for. The important thing to consider is if you are seeking a forbearance on your mortgage, remember, you still have to pay your monthly premium… just not today.
So what exactly will happen to lenders during a period where so many homeowners are filing for forbearances? (Many of which can do so without having to provide any condition of hardship, loss of income, or job.) It’s hard to say, but many are saying many lenders could go under, just like in 2008. It really comes down to economics and how long the country will be shut down and how great the economic damage.
However, the change is becoming sharp in the lending world. If you’re thinking of buying, probably best to start sooner than later.
Lenders are getting squeezed, just like in 2008 they are forced to create higher restrictive conditions on lending to avoid borrower default and to keep the loan in good standing and a high rating on the mortgage so they can successfully sell the note. Another reason to consider selling or buying sooner its the amount of loans available for processing or qualification in the marketplace, especially higher price points.
As of this week, Jumbo loans are in a free fall with the the Jumbo MCAI experienced a 36.9% freefall (According to Housing Wire.)
What does this free fall mean exactly? Less liquidity for lenders to offer loans over $500K. Which is why many agents are seeing a transaction softening in million dollar price range and secondary home markets right now. Some markets are slower to react than others though.
Similar to 2008, we could see higher priced transactions involving cash only sales with no lender financing offered (other than owner financing). Alternatively, in situations that financing is allowed, homeowners will be forced to lower their sales price significantly.
But what about if my price range is below 500K?
Again, loans are still be originated and processed in this price point but again, as time passes it may become harder to qualify after the coronavirus ends. FHFA Director Mark Calabria says, “the mortgage lending landscape will change as the country recovers.” Cambria also stated some tighter standards outside of GSE mortgages and their respective changes might become semi permanent.
For those of you who do not know what is a GSE mortgage is. The Definition is as follows:
Government sponsored enterprise (GSE) mortgages are mortgages that are insured by the federal government. The purpose behind GSE mortgages is to facilitate home purchasing and to encourage financial institutions to lend money to those seeking to buy, which, in turn, stimulates the economy.
Ever heard of FHA financing? Less money down? That’s what GSE is. However, there are conditions that are put on those types of loans not inherent to other non-government backed mortgages like conventional loans, which are less restrictive long term. (Ask your lender)
What all this could mean?
Less qualifiable mortgage option types in the market place = less lenders for consumers to shop to get the best rate for a mortgage.
So, if you are thinking of buying or selling, and you’re price point is under 500k, time maybe of the essence.
As always thanks for reading. While I am certainly not an expert, I’m happy to share what is happening on the real estate frontier as it relates to your home ownership decisions!