The Double Comma Club

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Your Questions Answered Forbearance, Rates, Fannie and Freddie

March 28, 2020

This episode followed the first portion of the new Agent Ignite Coffee Talk series on Friday mornings. This week questions poured in including these topics:

Forbearance, Unemployment claims, HELOC rates, FHA loans, investor rates, furloughed limitations in qualifying, COVID-19 addendums, rate locks, jumbo loans. Listen to this episode of The Double Comma Club.

You can get more information about joining in here. 

Coffee Talk:

Agent Ignite:

Do you actually read faster than Nicole can speak? Even after three cups of coffee? Then read the transcript below:

Cara: We definitely have a few questions, so the first one that came through was, Are there any negative ramifications to forbearance on credit scores and different things like that?"

Nicole Rueth: Fantastic question. Okay, so Fannie Mae and Freddie Mac said "no" right out of the gate. The government didn't, so it was actually up to the servicer. It was strongly recommended, but not required, and that's changing. With this stimulus bill, one of the things that they're saying in there is that that has to be honored and the credit won't get destroyed or there won't be any negative lates.

Remember, they're going to have to catch up and there will probably be some foreclosures because of this, but whatever mortgage payments were missed are just going to be tacked onto the end. Most people don't make a full 30 years of payments, so that balance due will be paid when a refinance happens or a sale, but that's just going to be tacked onto the end and have to be made up. If you think of, especially those who are the majority of our FHA borrowers, they are entry-level homes.

We have this increasing population that's coming in that wants those entry-level homes. I'm not worried about that supply coming into the market and even it really depressing our appreciating values at all.

Cara: Then, do you think investors that are not receiving rental income will need to sell those properties?

Nicole Rueth:  I love that question because I think, as an investor, I'm looking for two opportunities right now. Because, remember, as mortgage holders, so as a homeowner, I can go through forbearance and I can stop making my mortgage payment. The same applies to that, it was stated, you cannot evict during this time. Landlords have to be ... I don't want to say kind to their tenants. I'm always kind to my tenants, but we have to be understanding; you're not going to evict somebody in what's going on right now.

Some people, I guess, would, and so they're mandating that you can't evict them. The same thing's going to happen. You're either going to have to have that tenant catch up or, once this is over, you're going to be able to evict them. There are investors who have done well over the last eight years. It's my expectation, and there are no numbers that qualify what I'm saying, it's simply my being in the market and what I think is going to happen.

If I was an investor, and say I was 65 or 70 years old and I had all these investments, I might just take my chips off the table now. I might just say, "I had a great eight years, I've got a tenant who's not paying or maybe we just came out of this." There are hungry investors who will buy that investment, who have a little bit of money reserved and they know, if they can just hold on for the next two to four months, maybe six, then they're going to have an appreciating asset and inventory that they didn't have before, so the buyers will come in.

I don't think it's going to be a fire sale. I think you're going to pay fair market value, but I think that there's going to be investors. There were at least some of their inventory during this time. The other opportunity I see is in commercial space. I think that there's going to be some commercial buildings, regretfully, because of businesses in the next six months.

Cara: Yep, definitely. Then this next question was in reference to when we are looking at the different unemployment claims. It says, do you know what the percentages in claims were when you look at the population in 1982, and then you look at the current population and the percentages?

Nicole Rueth: I don't have the percentages yet right now because unemployment always lags, so that unemployment number is still sitting at lows, but it won't as soon as that comes out again. That's an excellent question and I can do some research and see if I can find the answer and even post it up in the Agent Ignite group.

Cara:  Then the next one is somebody was wondering what was happening with HELOC rates.

Nicole Rueth:  Well, there are HELOC banks that are stopping. I know Bellco stopped taking any new originations, I know KeyBank stopped taking any new originations, and they're not closing their doors, they're just not taking any new originations. I'm hearing a few others that are about to do that as well. I've taken a poll of all of my folks, so if you want any names of people that are still doing the HELOCs, there are still some, I can give you the contacts that I reach out to all the time.

I'm happy to do that, but as far as rates going up right now, the HELOC rates are going to be tied to prime. Prime's not going up. Prime is not necessarily tied to the mortgage-backed securities, it's tied to short-term rates, so I expect those to probably be good for another couple of years. At some point, they will go up and there's risk associated with that, but I'm not worried about it quite yet.

Cara:  Awesome. Somebody, in the same general scope, was wondering if anything, in particular, is happening to VA loans.

Nicole Rueth:  The same as gov. The FHA and the VA are the same, so we're still doing them and we will continue to do them. I don't foresee us stopping FHA or VA. In fact, I just took a number of FHA loans from another lender who's choosing not to do them, and I understand. Some lenders, let's just put this on the table. Fairway Mortgage, we're an employee-owned company. We are extremely liquid and we're well-founded financially, and we have a phenomenal leadership. That's a little plug for Fairway.

The way we're going about this situation is we're taking every lesson that we learned in 2008 and we're making sure that we react quickly and then we save the ship. We're making sure that everything we do allows us to continue to do business. Our decision earlier this week to stop originating jumbos and then mid of this week stop originating CHFA was a pause. Neither one of those has stopped entirely.

It was a "Let's see if we continue to have investors to buy this paper," because you have other lenders that are continuing to churn out those originations, and they might close in March, but if they don't have anybody to buy that paper in April, they might not have any warehouse line left to originate any more loans. Then we had to see what was going to happen with servicing, so there's a lot of unknowns the way this particular crisis is unfolding.

I personally would be much more comfortable knowing that my company is making a few decisions, maybe even ahead of the curve, but decisions to protect the 85% of the business, which the 85% of the business is vanilla. It's your Fannie Mae, Freddie Mac, VA, FHA, and there we are extremely secure and we will continue and we'll pick back up on the jumbos and the downpayment assistance maybe in a couple of weeks or a month.

As soon as we see servicing picking back up again and being well-funded and investors buying the paper.

Cara: Then we had a question on when the dust settles, how much will buyer demand to be affected by the buyers that were good to go, having to then re-qualify, and will that cause any lag, and if so, how much?

Nicole Rueth:  I don't think it's going to cause any lag. Many banks can, we can get a qualification out in a couple of hours. Other than if you have a temp employee or an hourly and you need verifications of employment, that kind of stuff is a little bit slower. Right now we're dealing with third-party services, so the IRS is having a huge delay and even a gap, in some cases, on the 4506-T, so that's the verification of your tax returns.

Every time we're getting something, and then, of course, the home inspections of the appraisers. We're finding solutions when we're coming up against a problem and the whole industry, I'm pretty impressed, is moving pretty quickly to say, "Okay, so an appraiser can't go into a home. Here comes Fannie Mae, Freddie Mac, and the government, and FHA will follow suit saying a desktop appraisal is okay, or a drive-by is okay given the circumstances," so we're getting solutions very quickly, especially in this ...Everything's happening in a condensed ... If you go back to '08, it took six months for this stuff to unpack and dissipate, and this is just happening. It's like a year in a day. It's amazing to me.

Cara:  Got you. Then somebody was asking what the investor rates were right now. They had a couple of clients wondering what that was like.

Nicole Rueth: I'm not even going to quote a rate on something like this right now. Investor interest rates are higher, obviously than primary homes. Primary homes and second homes are the same interest rate. Investment rates might be a point higher. I would be shooting myself in the foot if I actually ... Because, like I said, if we're quoting anywhere from 3.25 to 4.25 on a primary home, depending on the day, and depending on the scenario, maybe we're quoting 3.875 to 4.99, in that range. It so varies.

Cara:  Alex asked with it being harder for people to get government-funded loans, what do you think a safe credit score and DTI limit would be for first-time homebuyers looking to get into a home now that there's limited downpayment assistance?

Nicole Rueth:  That credit box will tighten and it will tighten until we get through this. We're already seeing some announcements coming out. Fairway's announcement will come out. All of us are saying because we used to be 580 for VAs and 600 for FHAs, it's all going to start to look more like a conventional box because we're going to have to make sure that we have sellable paper. We have to have a loan that we can then sell on the secondary market.

Cara:  Kelly asked can people still qualify for loans if they'd been furloughed?

Nicole Rueth:  Had been in the past or currently ... Been furloughed. I was thinking forbearance, my apologies. If they have been furloughed, it is going to depend. If they don't have a paycheck coming in, sometimes when people are furloughed, they still get a base pay, but if they're not getting any pay at all, they're going to have to wait until they get some sort of payback. We're going to have to qualify them on something, whether that's a cosigner.

I just did another couple, one spouse was furloughed but the other one had enough employment that we could qualify them to still buy, so it's taking a look at each individual case and finding the solution. There's always a solution in there somewhere. You just have to work hard enough to find it.

Cara: Then, someone asked, on the brokerage side, we have a COVID-19 addendum to put the RE contracts on pause. Are rate locks being paused or extended on the lending side?

Nicole Rueth:  We have not had a pause yet, so the rate lock is a very real cost and it all goes back to the insurance that we have to place and then finding that and the margin calls, there is a very real cost to locking in an interest rate. At this point, I have not heard, honestly, and I will ask that question. I have not heard of any non-cost-related pause; I've only heard of having to pay to extend the rate.

Cara: Got it. Then, we have somebody who's wondering how you can help buyers who would need a jumbo loan, how can they best help them now that those are limited or nonexistent?

Nicole Rueth: Yeah, and they're definitely limited. There are some banks that I know for a fact are still doing them. The interesting thing about that is when the other lenders are taking a position of lowering their risk by not doing them, and all of them start to go towards the few banks that are still doing them, those banks won't do them very long because, obviously, their percentage of risk is going to go much higher.

Then the question is just because you lock it doesn't mean it's going to close. We're going to find that, after all these loans that close in March, there are going to be some lenders that might have liquidity issues, that are having problems locking, and we just saw Zillow canceled all their contracts literally days or a day before closing. I don't know that that'll be the last time. I'm not worried about that at all with Fairway Mortgage, not even a little, actually.

The solution on those is I still have second lenders, so I would do a first and second loan. I'm still doing a number of those and then we would just refinance them in six months into a jumbo loan because the jumbo loans will come back. It's just a pause.


Cara: Are conventional loans going to be required to get forbearance under current legislation?

Nicole Rueth:  Freddie Mac and Fannie Mae came out saying that they were allowing a 60-day forbearance. FHA, gov, came out saying that they were highly suggesting it. That will change with this stimulus package that is getting approved today, so all of them will have access to the forbearance.

We're going to do this again next week because it's happening. Every day something's happening and I'm getting out on videos as much as I can. Guys, keep watching the social media, I'm just sharing everything I find, so if you have questions, even e-mail me and I can post about it if it's a big thing or I'll just stop and answer that, but definitely stay tuned.

Every week we're going to do some version of this, making sure that I'm available, answering questions, sharing what I have learned that week because I'm learning a lot every single day. All right, well, thank you guys so much for joining us. I'm looking forward to chatting with you soon. Bye-bye.