• Current State of Mortgage Financing…What’s Going On?
    We’re living through very historic times in the mortgage industry – times that people will refer
    back to for decades to come. And in recent weeks, there has been increasing angst and
    consternation over the state of our industry. But why? What is happening, what does this
    mean to you, and where are things headed next? Let’s take a look at what is happening
    together, so that you really understand the truth behind the headlines, and more importantly –
    understand what you should do right now.
    Non–conforming loan product rates started to come back and then vanished, almost
    overnight. Here’s what happened.
    One word – Coronavirus. That’s what happened. Although it was not widely reported in the
    media due to the virus, the mortgage industry collapsed in March 2020 and isn’t 100% back
    on its feet yet. To simplify things – let’s just look at this from a risk standpoint. Most of the
    revised non–conforming loans that came back were targeted towards investors and other self-
    employed people. Unfortunately, those are the exact groups of people that were widely
    believed will be hit the hardest from the pandemic and the resulting economic shut down. Not
    to mention, the moratorium on rent and evictions that was part of the cares act which we will
    discuss in more detail later on.
    Basically, the investors on Wall Street that buy these loans got scared and refused to buy the
    paper essentially eliminating this entire segment of the industry overnight.
    Now, there’s talk about these programs returning and to some extent, they have in a very
    small way but here’s what needs to happen before they can fully return:
    1. The pandemic, the economic shut downs, the moratoriums, etc. will need to go back
    to pre–covid status, or the new norm – whatever that might be.
    2. Once that is done, an analysis needs to be done to see if non–conforming loans
    performed worse (higher foreclosure rate) than traditional conventional and
    government loan programs. For what it is worth, I think their performance will be in
    line with the other programs.
    3. Only after getting past these 2 hurdles, can and will these programs return.
    Now, why did Covid–19 break the mortgage industry?
    The CARES act had a crippling impact on the mortgage industry and forced several large,
    national lenders to go out of business practically overnight – VERY similar to what happened
    following the 2008 housing crisis.
    Let me start by explaining what happens AFTER closing on a mortgage. The lender sells 2
    things – they sell the servicing rights to a servicer and they sell the actual note to an end
    investor in the form of a mortgage backed security (MBS) bond.
    The CARES act had a component giving people the ability to do up to a 12–month forbearance
    on their mortgage payments, WITHOUT having to prove financial hardship. I talked about this
    regularly on my daily Facebook Lives entitled “Financial Chaos” but let me break it down.
    When a borrower makes a payment on their mortgage, they are paying their mortgage
    servicer. The servicer takes their portion (usually around .25%) and the amount that will go
    towards paying taxes and insurance and then they forward the rest of the money to the
    investor who invested in that MBS bond. The problem comes from the fact that the servicer
    has to forward the correct amount of money to the investor even if the borrower doesn’t make
    a payment on a given month. Normally with default rates below 2%, it is not
  • with the widespread payment moratoriums, the entire servicing industry was on the verge of
    going bankrupt, which would cripple the industry.
    In an effort to protect themselves, they stopped buying the servicing rights.Investors on wall
    street, also afraid of getting burned, stopped buying loans as well. With no oneto sell the
    loans to and no way to recoup their money to lend to the next borrower, mortgage lenders got
    stuck with billions of dollars of loans they couldn’t sell which caused a massive cash flow issue.
    Here are two things you should you do right now.
    ONE:Patience – the mortgage industry is dealing with the problems outlined above as well as
    an unprecedented amount of loan volume so things are taking longer to close across pretty
    much ALL lending sources.
    TWO:Get educated on any new guidelines that resulted from Covid–19. Yes, all lenders have
    additional guidelines as a result of the pandemic and they are often even more strict on
    investor loans.
    Ready for some good news?
    These are certainly difficult times, but we’re all in this together…and there will be
    opportunities ahead for those who persevere. Rates are at historic lows. There could be some
    “fire–sale” opportunities in some cases where people’s forbearance timelines end and they
    can’t afford to catch up. Some people that were thinking about buying a home might now be
    thinking that it is a good idea to rent for a little longer to get past all of this uncertainty.
    Additionally, take a look at birth rates from 33 years ago (the age of the average first time
    home buyer in America) and you will see that we are at the start of a 5–year surge in housing
    demand, coupled with extremely low inventory creating quite the sellers’ market. This could
    be an amazing time for those who might be looking to minimize their portfolio.
    While this is a difficult time – it does present great opportunities for those who are best
    prepared and in the know. Take action now to ensure that you are one of the survivors, or,
    one of the thrivers. Please follow me across all social media platforms at
    FortMyersMortgageExpert or contact me at 239-435-1902 or [email protected].
    Scott is the branch manager at Primary Residential Mortgage
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