Real estate transactions, mortgage underwriting and loan program availability has been affected substantially by a combination of the local health orders attempting to fight the populations exposure to COVID-19, and the economic fallout caused by the “Stay in Place” lockdown. This a moving target, but this is the most recent overview on what’s transpiring.
Real Estate Sales
Even though the California state orders designates Real Estate as an “Essential” business, municipalities are treating it in different ways, with their own limitations.
Los Angeles City: Essential Activities includes “Professional services, such as legal, leasing and real estate transactions, payroll or accounting services, when necessary to assist in compliance with legally mandated activities. Open houses and in-person showings of housing for lease and sale are prohibited.”
Los Angeles County: Essential Businesses includes “Professional services, such as legal, payroll or accounting services, when necessary to assist in compliance with legally mandated activities, and the permitting, inspection, construction, transfer and recording of ownership of housing, including residential and commercial real estate and anything incidental thereto”.
Understand the basic sale scenario in Los Angeles. A property can be listed and sold, but it has to be done in a cyber mode. No physical showings of the property. Gets tricky as photography and other marketing elements where it takes a human visiting a property is omitted. Buyers have to submit an offer with the inspection of the property as a contingency of the transaction. Smart agents are requiring up to date documentation and verification of buyer’s ability to close the transaction. A fair percentage of recent transactions, can’t close, for various reasons. Loans are moving targets also.
Mortgages
Mortgages can have changes a couple times a day. The secondary markets for the loans have major issues as I’ve conveyed in previous blogs.
Basic Freddie Fannie (QM-Qualified Mortgages) loan programs are ok, but have tighter underwriting parameters. Rates are still good.
Jumbo and Non-Qualified mortgage programs have disappeared, been suspended, or have much tighter guidelines. Rates are up.
Ginnie Mae loans or FHA and VA have much tighter parameters. Streamline refinance programs are now basically full documented and require appraisals.
Note: In the best of times not all lenders are credited equal. That’s even more of a reality today.
Income is being scrutinized heavily. Regardless of previous income, the documentable income during the shutdown is being used, and… is the job or business the borrower owns or works for solid, and will be around after the shutdown?
Some loan programs and lenders allow for waiving the appraisal interior inspections. That’s a variable, and any loan over 85% loan to value requires a full appraisal. Sales have slowed substantially, so recent comparable sales will be harder to access, making accurate appraisal valuations more difficult.
Notaries are working around the social distancing. Congress is attempting to push through a bill allowing for e-notarizations on a national level. They’re presently not allowed in California.
Forbearance
Those taking advantage of mortgage forbearance payments may have a harder time getting a new mortgage for a fair amount of time. As I was predicting, lenders are already discussing how they will tighten their underwriting on borrowers that had to have a forbearance.
NOTE:
- Forbearance is not deferment.
- Forbearance isn’t a payment plan.
- Forbearance is not forgiveness. The zero payments will result in a balloon or more likely, other modification options down the road
If a borrower goes into a forbearance on their existing loan, current guidelines from Fannie and Freddie say they ARE NOT ELIGIBLE to get a new conventional loan if they have deferred any payments because while credit suppression is applied, they are actually delinquent. If you can pay the payment, then pay it. There is additional guidance coming out from Fannie Mae and Freddie Mac later this week. For now, a good rule of thumb is in order to get a NEW mortgage, you have to be PAYING your existing mortgage on time.
A forbearance is there for anyone who needs it. The intention is for a client who has lost their job or income and cannot pay, versus someone who simply does not want to pay.
Some real estate agents and clients will want to ignore the Stay in Place criteria. Legally just by wearing an mask, gloves and standing 6 feet appear doesn’t meet the criteria. The LA City Council can still tighten the criteria, or institute fines, if they don’t believe the industry is behaving.
Lets hope this virus malfunction doesn’t last much longer. Regardless of the Gov’t pushing through stimulus packages, the longer the shutdown goes on, the deeper the damage to the economy. We’re coming from a very hot real estate market, to one that has a multitude of (hopefully temporary) issues.
Personally, unless there is a distressed scenario where time is of the essence, my new listings are being held off the market, till the coast clears.
I’m accumulating borrower’s support documentation for refinance and purchase loans, and determining on a case by case basis the timing of loan origination, type of loan program, and best lender for execution. No better time to be a loan broker with several lending options. It’s a very distressed industry presently. Some lenders will not survive this economic hit.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
Leave a Reply