The mortgage world continues to tumble with no end in sight. Lenders are eliminating loan programs, raising interest rates, and making borrowing even more difficult. COVID 19 is not only having an effect on our health but now begins to take a toll on our prosperity. Interest rates on conventional type lending continue to raise then drop-in pockets. Some days we get some very low rates, we call the client to see if they want to lock in the interest rate, and when we click the button to lock, the interest rate has already risen .75% In 20 years of being a loan originator, I have never seen this kind of rate swings.
Government loans? Servicers are very discouraged in buying these loans. With the promise of the government stating they will allow one to defer, or put up to 3 payments into forbearance has rocked servicers to the core of not wanting to buy these government-backed loans. You see, if the servicer buys a loan, they now SERVICE the loan, meaning they receive your payment of principal, interest, taxes and insurance and PMI if applicable. Then they make the principal and interest payment to Ginnie Mae, the owner of the loan or mortgage back security. If the borrower decides to defer payments or put them in forbearance, the servicers will not receive your payment. However, the servicer is still obligated to make the principal and interest payment to Ginnie Mae and make the taxes and insurance payments. So now the servicer is out of 1,2, 3, or even 4 payments. This has an effect on their cash flow to buy more mortgages from us the lenders. You multiply this by the millions of loans, this starts to add up very quickly. Do you get the picture?
So this is why we are seeing interest rates rise on these Government loans such as FHA, VA, and USDA Rural Development loans. In fact, I see the borrower having to pay discount points to achieve a decent rate and many borrowers do not have the resources to buy these discount points. These programs were designed to help borrowers with lower down payments and minimal reserves in the first place.
I had lost 9 transactions just this week due to borrowers being laid off, furloughed, or the elimination of their job completely. We cannot close a mortgage without the borrower’s income and the job is stable. Many borrowers may think unemployment even though temporary, is a source of income. Not in the lending world. If you are laid off for any reason, without a guarantee letter of return you will not close that mortgage. So, the 9 home buyers canceled transactions this week, makes another 9 home sellers sit on the fence. They can’t even sell their home as Realtors are not allowed or deemed essential. So, no home sales in Michigan for the time being unless it is a virtual sale. Surprisingly I have seen some of these happening
Even if they can get the home resold, getting the appraisal may be a delay. We are seeing appraisers refusing to go into the homes, having long turn times or only doing a drive-by appraisal. Yes, a drive-by appraisal. Recently Fannie Mae has released some guidance on some transactions, that a drive-by appraisal may suffice. Also giving the appraiser the latitude to make the decision to enter the home or doing a drive-by appraisal. I wonder what’s going to happen when an appraised value comes in low on a drive-by appraisal? Chances are to dispute the value that interior photos may be needed. Funny, I just had an appraiser do a drive-by appraisal and have the homeowner inside doing a Facetime interior inspection. Innovative I must say, and I actually can see this being done in the near future as this social distancing will stick with us for a while.
The FHA 203k rehab loan, the MSHDA Down payment assistance program, and several other programs suspended until further notice. Too many to list. Credit scores? The minimum credit score went from 600 to 640 with us on Government loans. Other lenders, I am reading raise the scores to 680 for an FHA loan. Never see that before. This will change day by day in some cases and I will try to keep up to speed to report to you.
So these will be trying times as we tug along here in the next few months. I can’t wait to go out to eat, have a couple of beers and just socialize again. I surely hope the best for this country, our families, friends, and co-workers. As much as I have always focused on taking care of my own family and their needs, I really miss people. I guess it took an event like this for me to better understand how ungrateful I actually may have been, for the other people around me. I miss people. I think it is human nature to be around people, and I surely do miss it.
Here is a video update for you. Please let me know any questions, concerns or ideas you may have. Thank you