πŸ•™ Mortgage Minutes - Episode 2: Austin is a resilient city with more homes on the market

πŸ•™ Mortgage Minutes - Episode 2: Austin is a resilient city with more homes on the market

Hi, I'm Jennifer Goodman with Realty Austin. Welcome to Mortgage Minutes. This is a regular show that I host with my dear friend Shawn Andrew of Vista Lending. Welcome, Shawn. Hey, how you are doing? I am well. How are you today? Doing really well, doing great. It is June and the proverbial market is heating up and our town is heating up. Yes. Start at all about 48 hours ago it felts like. Yeah, we've hit triple digits and everything is heating up. From the stuff that's going on downtown and streets being closed, to more houses coming on the market than we've seen in quite some time, to the mortgage industry doing what it's doing.

So without further ado, let's jump into Mortgage Minutes. Let’s do it. All right. So, let's start with – we are through May at 2020 and we were at the very beginning of June, do you want to give us a brief overview of what ended up happening sort of in May before we jump to what's going on with mortgage rates this week in June? Yeah, you bet. So, May, you know, it was a very stable market and what I mean is rates kind of just traded in a really, really tight range. We talked about what happened in March and April with the Federal Reserve jumping in and getting support. Meaning buying mortgage bonds to lower rates, which worked. And they just continued to do so and they did in a really, really tight range. Low 3s for the most part with no points. You can get under 3, 2.7, 2.8 if you're willing to buy discount points and for each individual person. That's just a scenario, but you have to price out and figure out if it makes sense to buy down the rate.

For most people, it doesn't. So, the majority of interest rates with great credit for conventional loans in the low-30s, 3.1, 3.2 for the most part. The last few days have been really follow, you know the market, the stock market, and the bond market kind of haven't known what to do and the stock market has been on fire. I mean everything, they totally erased all the losses that they took in March, March, 23rd was the day that the big sell-off started and they're back to where they were before.

And you know I subscribe and read people that are much smarter than me and it's baffling. No one really understands why other than the Federal Reserve in addition to buying mortgage debts has been supporting and flooding corporate America with stimulus north of four trillion dollars. You know, when you look at fundamentals of job losses as people stay at home, people aren’t traveling. I mean all those in a normal market would have had a really bad impact on the stock market and rates would have even gotten lower. Well, just in the last 48 hours, 2-3 days, stocks have been down the last few days. We're seeing improvements. Rates fell to 3% this morning on the 30-year fix with no points. So, you know, it's it's unknown. I mean I haven't been telling people to play interest rates thinking that they're going to drop further because they should already be lower, they're not. So as long as the Federal Reserve's there to to stimulate the stock market and provide the quiddity and all kinds of new loan facilities that they're coming up with or large corporations and small and medium-sized business, you're probably going to see stock stay kind of where they are, potentially go higher, but if the virus continues to have you know really negative impacts on the economy, job losses, etc., we could certainly see the rates go lower in the future.

I'm hearing this and I'm hearing the same things on the streets. And you know, what I'm reading and what I'm listening to – everybody's saying the same thing in it. It's this… it says, it's this balance unlike anything that we've seen in the past and when we look at the national level and then we look at where we are in Austin, in particular, we have a robust local economy. However, our rates are not based on a robust local economy, they're based on the global economy. And you know, what the Fed is doing and continuing to do with bonds and as new information is coming through with PPP and how things are being paid for small business and you know ultimately shifts are taking place as more and more of these companies get to start up or in phase 3 here in Austin, we're super fortunate in that.

We've been hit less severely by coronavirus. Our lockdown has been shorter than most cities. And as far as being even in the state of Texas, we have been quite fortunate relatively speaking with obviously full condolences to anyone who has suffered any loss or currently. We are a resilient city and with that in mind, we are in a housing boom of market. I mean we've been identified in you know the top four or five markets in the country for housing. And we're up in both for-sale and enclosures as things continue to move forward as more and more people are venturing out into the housing market. And there was that, you know people held the reins tight and now it's like spring market hitting in June if you will. Yeah, absolutely. I'm feeling it as well. You know, March and April, I was busy because of refinances of course, but you know nobody was not how minority get pre-approved, didn't feel like where the folks wanted to go, either on the buy or sell side, wanted to go walk around other people's houses or have other people in my house, right? But really about two weeks ago, Mid-May, this is what the folks started bringing new homebuyers will contact me to get pre-approved.

People had approved back in January, February. They kind of hit the sidelines, they're back in the game and you know over the last two weeks, I've certainly had have to write multiple approval letters with a safe buyer because it appears that it's still a seller's market and with the amount of inventory that's out there and the amount of buyers trying, folks aren't getting into multiple offer situations, which is just kind of mind-blowing given everything else that's going on, but it just shows the demand and folks moving here still to be in our community.

It says something about for sure. I'm with you and there's a lot of activity happening both in Austin property as well as some of the sub markets if you will in the surrounding markets like the Georgetown and Leander of the world. As people are determining whether or not going forward, they're still going to be driving to work, or if they're going to be driving to work as often and so now that commute may not be such a big deal if you're going to work three or four days at home versus coming into the city five days a week. So as companies start to evolve and they're looking at their productivity and they're looking at cost of spaces and everything else that you know that it costs to run their business, I think we will continue to see as we move forward in upcoming months how many people, you know going to continue to work from home and do their job.

And what that will do from a commercial aspect remains to be seen, but I mean we're seeing so many shifts in the city right now as you know with our city trying to increase density and more builders coming in and building right in the downtown core so that that housing is continuing to evolve, as more people maybe don't want to be in high-rises built and they want smaller units, etc. Our densities are continuing as maybe some of these corporations which either in the past or maybe in future, you know may move out a little bit to add density which is a great nod for Austin and to your point as people continue to move here.

I mean we've got Apple, we've got Dell, we've got Google, you know we've got you know the offshoots from Amazon. We've got a lot going on so that that resilience in our city and the continuing of Silicon Valley to flow in of the northern… some of the northern states where people are trying to escape snow is going to keep going I think. Yeah.
So, I'm glad to hear that from you and it is shifted from a mortgage refy to people actually considering mortgages. So with that said, let's shift over to talking about mortgage forbearance, which is our second topic today.

Mortgage forbearance – we talked quite a bit about it last month and I would love to hear an update from you on what's happening in mortgage forbearance land? Yes, we talked about forbearance last month and just to kind of update on that, there happened some changes but for anybody that didn't see last month's video – Fannie Mae, Freddie Mac, FHA, all the loan programs basically announced that you could go in forbearance, which means you didn't have to make your mortgage payment.

Austin

And it was real loops. At first, they said for a year that some servicers were like, oh no, 90 days. And nobody really understood what the ramifications will be, you know with this report to your credit. We should have to pay it back, they said yes. And then they said no, but anyway, from a statistical standpoint, somewhere I keep seeing varying numbers between 8 to 10% of all mortgages in the US are in forbearance now. And that's crazy because that's trillions of dollars in debt. And so what has changed the industry because the government didn't really give us great insight or messaging on how we should deal with it as mortgage lenders. If you were in forbearance, you couldn't get a loan. So if you are currently in a loan in forbearance and trying to buy a new home, no lender will lend to you.

If you were trying to refinance that loan and it was in forbearance, no lender would lend to you. If it was an investment property, you weren't on forbearance on your primary, but you are in forbearance on an investment property because your tenant couldn’t pay, you couldn't get… they now come back really within the last week and provide its guidance. What's another interesting statistic is and I see varying numbers on this as well, but it's high. Somewhere between 40-50% of all loans in forbearance are actually performing.

They are paying, they're making their payments, but it was kind of like an insurance policy that wouldn't hurt if you could do this, so they kind of got it just in case they needed it. So, if the loans in forbearance but you've made your payments, you can get a loan, refinance, or purchase. If you're in forbearance and haven't made your payments, you're not going to be able to get loan until you're out of forbearance and have caught up on any past due payments there is.

And it's still unclear from servicers to servicers because the government comes out and makes all these rules, it sets the regulations but they don't own the loan. So, you know, they're being managed through servicers who have to kind of figure out – well, are we going to tag it onto the back end of the loan and or do we want them to bring themselves currency in three months, six months, nine months, whatever it is, but the gist of it is, as of now, there's more guidance.

We know what clients have to do if they're in forbearance and you know, 8-10% of total loans, that is a lot of people. So, we've run into it. We've had several clients here in my office that are in forbearance and we were in that no-man's land portion of just not knowing what to do, and kind of have to put folks on hold. With that said, in mortgage forbearance right now, I guess it will… we are in a bit of a standstill than unless your individual companies are letting you know, whether it's a 90-day120-day, 6-months a year, is that correct? That's it. Wow, so really there's those three options where people are playing in where they're requesting mortgage forbearance and they may be repaying. They're requesting mortgage forbearance and they're not paying at all, and then there's the land of like maybe, they're partially paying. Like, how does it work? Is that an option for people to keep that minimum, that amount owing lower so that they can catch up? You know, me not being… so this is all just industry article and news that I read, not in the servicing world, I don't know.

We have, you know from my company, we have a sub-servicer. So, we are a direct lender, we're selling these loans to Fannie Mae and Freddie Mac, but then they need a servicer and we don't want to be the collector of payments. We like to do what we're experts at and focus on that and so you know, we contract out for sub-services. And I'm just… I don't know just because I've never played in that part of the industry before. Yeah, why you wouldn't. And it's changing. I mean it keeps changing and between you trying to keep up and me trying to keep up and what people are doing, I think everyone's literally doing the best they can at this point because ultimately, everybody wants to pay their mortgage and then have the opportunity to you know really fie when the time comes and I can't imagine if you're in a position right now where you know maybe you're not working and your mortgage is about to come due and you haven't been able to pay, then you know, then what happens to these folks? So, it's a tricky situation and I'm sure that there's as much leniency as there can be given the situation and the evolution of the marketplace.

So yeah, thank you for that catch-up. It's good to know that the support is being there,it is there for people and that it continues to evolve and that the market is shifting as best they can to uphold everybody in their homes and create the opportunity for people to stay in them. So that is good news and I'm glad that the programs continue. I agree. So that takes us now to government loans which is our third topic of the day. What would you like to share with us for June in the world of government loans? Yeah, for sure. So to clarify what we mean by government loans, I mean the government has their hand in every mortgage product there is, basically. But a government loan is a government-insured mortgage.So, we're talking about FHA, VA for veterans, USDA, or rural housing. When everything fell apart in March and we talked and we've talked about this earlier, the Federal Reserve came in to give support, they totally focused on conventional mortgage products – Fannie Mae and Freddie Mac. They weren't purchasing mortgage bonds that weren't government securities. So, you know, there was about a 30-day period where two things happened – the Federal Reserve wasn't purchasing that debt, so we saw the rates go up, and then we saw them go up even more because of a little unique language in a contract between a servicer on a government loan, the person I make my payment to and then HUD housing urban development manages the FHA loan program, VA and all that.

So, the language in a contract basically states,the borrower, me, cannot does not make the payment to my servicer, then the servicer must remit or forward the principal interest to the bondholders in HUD. That freaked the market out. Number 1) That means servicers, you know they were looking at the amount of job losses, the amount of loans going into forbearance. How they just you know… they were scared to death, they were going to be you know 10% of their loan portfolio isn't making their payment and they have to send that payment regardless.

So you saw the market just get out of government loans, which is horrible because those are the loans, a lot of first-time homebuyers, not as great credit, allows higher debt ratios. You know it supports a large part of low to moderate-income lending, and it just went away. I mean I remember I priced one for a client. We've talked about conventional loans being below 3% and that's where they did it for the last 60 days. I lived in an FHA loan and it was 5% and it was 4 points that you had to pay.So, 4% of the loan amount as a feed even by that rate. Well, the down payment on an FHA was 3.5%. So, it was going to have 4 points by now the rate. They had finally… HUD and the FHA commissioner finally it worked out some things with the Department of Treasury and that language is now not being enforced. Sobeing enforced. So government loans come back. Yields on those rates have dropped and it's becoming a much more normal part of the market now, where it just kind of, it disappeared.

Nobody in the industry had the guts because they were disappeared to do them and the investors on them didn't want to be there because they were afraid folks wouldn’t make payments. So., that's come back and that's really good news. Great news, especially when we're talking about the part of the economy right now that is probably the hardest hit considering where we are and in Austin especially, like we need that economic base that so many live in to be able to not only buy but maintain their mortgages if they are or not in forbearance, but also the ability to buy and move forward. So, I'm really glad now that things have eased up and you know, we're in phase 3 that we have a little bit more clarity on lending so that, especially for veterans. And you know, I mean, please, like we want that support. So, I'm really glad to hear that the government has really jumped in and they're doing what they're doing now with those mortgages that they're backing, so that's great news.

Absolutely. That is great. Well, thank you so much for your time today, Shawn. It's been great as always and we will let people know where they can connect with you if they have any questions on mortgages. And I look forward to connecting with you again in a couple of weeks. My pleasure and me too. Great seeing you. Great seeing you. Thanks for tuning in to Mortgage Minutes. I'm Jennifer Goodman with Realty Austin and that was Shawn Andrew of Vista Lending..

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