March 24 - mortgage news from lonnie Glessner

Lonnie Glessner

Draper & Kramer

HIghlands Ranch 80129

Cell: 303.881.6374

NMLS 270417

COMB 100008910

Fannie and Freddie yesterday released guidance on appraisals from now until May 17th. They both will accept a desktop appraisal in which an appraiser does not view the home or a drive-by appraisal and will not require a physical interior inspection of the property. The appraiser may rely on public records and the MLS pictures and descriptions instead of their own personal observation. However, if a borrower is buying a second home with less than 15% down a full interior inspected appraisal is still required.

Thankfully many purchase loans with a borrower putting 20% or more down don't even require an appraisal as Fannie or Freddie may already have a recent appraisal on the property. The only way to find out is for us to underwrite the loan file with the property address and purchase price.

For cash-out refinances a full interior inspection is required. Also, a rate-term refinance of a loan not owned by Fannie or Freddie (possibly a FHA loan pay off) will require a full interior inspection. Rate-term refinances of loans owned by Fannie or Freddie can be completed with an exterior only appraisal or a full appraisal.

So far no changes from FHA or VA and I doubt there will be any changes.

Fannie and Freddie also announced yesterday a policy change on the verbal verifications of employment we have to do right before closing. They will now accept an email verifying that the borrower is still working or their most recent paystub or most recent bank statement. This change is in effect thru May 17th as well.

Several title companies have announced "Drive and Sign" closings in which your client will sign their paperwork from the security of their own car. Our clients will be handed an envelope with their paperwork and the closer will review the paperwork with them by phone. Then, when the closing is done the closer will collect the documents from the clients and bring the docs back inside the office.

Here is a great story I found that you should share with your clients and SOI right away whether they are selling or buying a home currently. What are the best disinfectants? Soap and water, bleach and water, or rubbing alcohol. Here is a link to the story-- 

On Thursday we started receiving critical updates from some of our Non-QM Lenders and I was on Facebook Video Call yesterday where this was mentioned as well. These are some of the BIG investors in this space that have stopped closing and funding loans and are no longer accepting new loan applications-New Rez, Galton, Redwood, Sprout, DeepHaven, Angel Oak and Caliber Portfolio. Why is this happening? Their funding comes from REITs and bonds and these mutual funds and ETFs have had a HUGE RUN ON THEIR MONEY by their individual and corporate investors and there is very little money left. These are the loans that are in danger-

• Self-employed clients getting a bank statement loan
• A borrower getting a jumbo loan with < 15% down and not through a bank.
• Borrowers with high debt to income ratios and average credit scores or less.
• People with bankruptcies in the last 2 years, short sales in the last 3 years, or foreclosures in the last 7 years.
• A real estate investor who doesn't fit into the Fannie and Freddie Box they may experience problems closing their loan now.

All of these loans are considered a conventional loan, but they are a non-agency loan type, with very different guidelines and rules. They are also called portfolio loans in some instances. I would encourage you to check in with your buyer's lender to learn more. 

 Before the Coronavirus was our economy strong? Yes!

• The unemployment rate nationally was just 3.50% and in metro Denver 2.5%.
• Income in CO was growing about 6% a year, the highest rate of the growth in the country.
• Across the nation in 2019 56% of all home buyers were first-time home buyers.
• Median home prices have been increasing at a year over year rate of 5%+ for the last 5 months.
• Consumer Confidence had been above 120 since August 2018 according to the Conference Board. This index had been under 100 for a large majority of the decade before fall of 2016.
• People were spending money and the GDP was growing faster than 2% a year.
• The Dow broke 30,000 for the first time.

I believe Covid-19 is like a Category 4 Hurricane hitting the entire country at once. But, this storm will pass and beautiful days will come again. During every disaster the economy STOPS as people shelter in place. But, once the storm has passed the economy BOOMS with repairs and reconstruction and life getting back to normal. Knowing how much we Coloradoans love to eat and drink in restaurants and bars, imagine the waiting lines and lists at your favorite restaurants after this storm blows through. For the 3 ski resorts that will reopen I imagine their parking lots will be packed full early in the morning for each remaining day of ski season. The Rockies may sell out every home game for as far as the eye can see once baseball season starts. Our fitness centers and gyms will be packed full with people again. Hotels, bed and breakfasts, AirBnbs will be sold out for weeks and months to come. Life will return to normal soon I believe and our real estate market will be RED HOT again. 

Below is a picture (coming soon) of the 3% mortgage bond chart for trading since March 2nd. The first 5 candlestick are from the first week of March and look very normal. The first large red candlestick happened on March 10th and it showed that prices varied by 65 basis points during the trading day. This means we had 2 or 3 sets of rates for the day.

The first huge red candlestick occurred on March 12th and on this day prices varied by 151 bps. Rates were changing non-stop this day if I could even lock in a borrower's rate. This was the first time in the last 2 years we ever saw prices vary by more than 100 bps in 1 day. The huge green candle occurred on March 16th the day after the Fed's announcement as bond prices varied by 149 bps on the day. Green candles are good days for bond market and for lower rates. We saw rates improve dramatically on the 16th.

The next Huge red candlestick occurred on the 18th and pricing varied by 150 basis points on this day. We now had experienced 3 times in the last 5 trading days a price range of basically 150 basis points in 1 day. This is incredibly remarkable when you consider this never happened before.

It gets better.

On the 19th we have a tiny green candlestick with incredibly long wicks at the bottom and the top. The small candlestick means the open and close prices for the day were very close to each other, in fact within 4 basis points of each other. But, during the trading days prices ranged by a whopping 258 basis points! Rates rose ¾% on this day at 1 point.

On the 20th we see a huge green candlestick as mortgage bond pricing improved dramatically by 159 basis points from opening bell to closing bell. WOW! During the trading day prices varied by 225 basis points. Rates on Friday improved by 3/8%.

Now you know why Tums are a new food group for me. LOL!

I have been reviewing and studying Japanese Candlesticks for nearly 20 years and for the last 2 weeks specifically technical trading analysis has NOT mattered! Thankfully we as a company offer our clients and YOUR CLIENTS an interest rate float-down option. We lock in their rate and now their rates can NOT go any higher. But, if rates improve before closing we can get them a better rate. We do charge an additional fee for this option and it's $600 on $300k loan, $800 on a $400k and $1000 on a $500k loan. But, this option provides incredible PEACE OF MIND for your clients and I am encouraging all my new clients to do this right now.

The Fed on Monday morning announced Quantitative Easing Infinity. Why? It's needed to "support smooth market functioning." I said in last Monday's newsletter that the Fed's actions to purchase $750 billion in bonds was not enough and I was right. It will now be in the trillions. Here is what the Fed will be doing-

• They will be buying $75 billion a DAY in Treasuries.
• They will be buying $50 billion a DAY in mortgage bonds. This also includes commercial mortgage bonds for apartments as Fannie and Freddie provide a lot of financing for affordable apartment housing.
• They will buy $300 billion in lending geared towards Main Street businesses using SBA loans to keep these businesses open. However, I expect this will NOT be enough money.
• They are starting new liquidity facilities to ease the crunch of corporate bonds as there is deep concern about the corporate bond market crashing.
• They will also be purchasing Commercial Paper which is the lifeblood of business short-term lending needs.
• The Fed will also begin buying muni bonds to support local governments.

This caused mortgage rates to drop back into the 3's on Monday. But, I don't think we will see rates at 3% or below for a while. First, we as lenders still have so much business to close before we drop rates really low and cause demand to soar again. Second, I can tell that the Fed on Monday was purchasing primarily mortgage coupons at 3.50% and 3%. Usually mortgage rates run about 1% higher than the coupon rate. For us to see 3% mortgage rates again will require the Fed to shift their focus to buying the 2% coupon. Maybe this will happen later in the week or next week. But, I doubt any lender will drop their rates to 3%.