Blog - Insignia Mortgage

Market Commentary 4/17/20

Posted on April 17, 2020 by Damon Germanides

The details of reopening our economy are still in flux. State governors are taking the lead and will coordinate their efforts for optimal results in that arena. Equity markets responded positively on Friday to some positive news from our biotech sector on cutting-edge coronavirus treatments. While we are a long way from a normally functioning economy, any and all positive news on how we can start to get back to work is welcomed. Expect April economic data to be horrific. The hope remains in a May re-opening of the economy safely and gradually. Look for a tick up in auto sales both new and used as a signal that we are returning to normalcy.

A national shutdown is a black swan event that is rarely accounted for in investment or lending assumptions. The pandemic has caused great suffering with unemployment expected to hit somewhere between 15% and 30% near-term, with a recovery thereafter. It is no easy task for lenders to navigate an environment where income is on hold, liquid reserves have been hit hard, and appraised values are expected to be lower, not higher in the foreseeable future. This is why lending rates are priced higher than what borrowers are expecting, which seems contradictory in this environment. The link between U.S. government and mortgage spreads has untethered as portfolio lenders (the only lenders in the jumbo mortgage space) demand a higher premium for elevated risk levels.

Portfolio banks are where deals can be done quickly and with certainty and this is where Insignia Mortgage shines. Our lending relationships for residential transactions are fully functional and while guidelines have been pulled back, you can expect reasonable purchase and refinance applications to close. Interest-only loans are still available as are cash-out up to 60% to 70% loan-to-value deals. We anticipate interest rates to gradually move lower as economic activity is ramped up along with the assumption that the virus curve declines as the economy opens.

Insignia Mortgage Update On The State of the CA Residential Lending Environment

Posted on April 10, 2020 by Damon Germanides

As of today, there are signs that the practices of social distancing, sheltering in place, and handwashing, are all helping to flatten the curve in California- Insignia Mortgage’s primary lending market. How the virus will affect our spending and work habits once we can go back to work is anybody’s guess, but it appears obvious certain sectors of the economy may not recover for many years. Other industries will likely get back to normal fairly quickly.

With these thoughts in mind, my hope is this note will give our borrowers and referral partners some updates about the state of the CA residential mortgage market.

Portfolio Lending By Banks and Credit Unions

Insignia Mortgage has long-standing relationships with local lenders, such as banks and credit unions who are still actively lending, although with tighter underlining guidelines. Loans originating right now include a small bump in interest rates to compensate for the perceived greater risks in the marketplace. However, overall interest rates and terms are still very attractive. Additionally, many big banks have raised interest rates and are focused on lending to current clients of the bank.

For the most part, it is business as usual and the following loans remain available:

Interest-only loans are still available.
Cash-out loans are still available as are complex loans, including those for entrepreneurs, foreign nationals, and professional real estate investors.
Foreign buyers can still finance their purchases. Expect 10% of the loan amount to be requested as a required deposit, along with 60% loan-to-values. For high net worth foreign buyers, lenders are still offering loan amounts up to $25 million.

Investment property loans are being capped at 60% – 70% off the purchase price or appraised value and interest-only options are still available. Transactions requiring complex underwriting which include transactions inside a 1031 exchange. Also available are loans requiring the borrower to be an LLC, limited partnership, or corporation.
Turn Times Purchase turn-times are holding steady at around 30 to 35 days. Refinance transactions are closing in approximately 40 to 55 days. Rush requests are being considered.
Loan-to-value guidelines vary but you can expect deals to be looked at favorably with loan-to-values up to 80% of the appraised values. Consider that lenders are backing off on loan-to-value the larger the loan request. Most lenders we speak to are quite comfortable with loan-to-values at 70% of the purchase or appraised value and 65% on super-jumbo loans.
Loan Underwriting is an important matrix for the moment. Lenders will consider liquidity and reserves more so than before as income is harder to assess while the economy is on lock-down. Expect the lender to check on income status throughout the loan process, especially in industries where borrowers are unable to work.
Prospective borrowers with strong balance sheets including real estate with choppy tax returns are still excellent candidates for loans assuming liquidity can cover all mortgages for at least 6 months.

Mortgage Banks

Mortgage banks that are offering anything other than government products are on hold. If the Fed is not active in that specific asset class (look up private RMBS), there is simply no bid for that security offering.

However, with the massive liquidity flooding the market from central banks, we expect this market will return once the U.S. re-opens the economy, but with lower loan-to-values and higher FICO score requirements.

Bank Bridge Loans For Developers

One very interesting loan for real estate developers in the high end luxury market is a bridge-to-sell loan product that is still being offered by a large FDIC lender. This loan will take out the construction loan and give the developer up to 2 years to sell the property.

Terms are as follows:

Max loan amount of 55% of appraised value up to $25 million.
12-month interest reserve built into the loan.
Note rate of 6.50%.
Broker and Bank Origination Fee 2%, all in.
The home must be listed on the MLS.

Hard Money Loans

Bridge lenders are still offering loans but it is important that you know your lending source as re-trading and or non-performance near closing due to the investors’ cold feet is very possible.

Forbearance

We are encouraging clients who are truly in need of forbearance to speak with their lender or loan servicer. However, it is important to keep in mind that forbearance is not loan forgiveness and the money will be owed at some future date. There are serious consequences to not paying your mortgage on time. Therefore, we are advising that borrowers seeking forbearance speak to their attorney, financial advisor, or CPA about the consequences of accepting a forbearance prior to going through with it. Accepting a forbearance today could prohibit you from being approved for financing later on and therefore the forbearance should be reserved for those borrowers who truly are in need of it and have no other means of paying their mortgage timely.

Property taxes are due for LA County and can be paid online. Other counties within CA should check due dates.

To sum up, we’re still going at it, as are our lenders. Terms have shifted in this new volatile landscape somewhat, but we remain actively committed to helping our clients resolve their mortgage needs during this unusual and complicated time. Please contact us by phone or email to get the ball rolling or ask any questions.

Be well and stay safe!

The opinions expressed above are the views of Insignia Mortgage. Individuals are encouraged to do their own research and speak to their individual advisors on the matters discussed above.

Market Commentary 4/3/20

Posted on April 3, 2020 by Damon Germanides

COVID-19 continues to be the focus as the entire world fights this disease and many countries hit pause on their economies to help tame the spread of the virus.

The U.S. saw the highest weekly jobless claims on record on Thursday as well as a downright awful March employment report. While the numbers were horrible, it was not unexpected. As we have opined previously, economic data is meaningless when the economy is on hold. What is important is COVID-19 testing, infection rates, and government assistance programs. We need testing to determine who is sick or has built an immunity to the disease so they may stay isolated or go back to work, and we need assistance to keep businesses from laying off staff or closing down so that once the virus passes, the economic engine can begin to churn.

The state of the residential mortgage market has tightened, as expected. However, our suite of lenders are still active and are offering common-sense underwriting. Most lenders are now offering drive-by appraisals as a safety-first response to the virus. Mortgage rates have decoupled from U.S. Treasury rates as banks are pricing mortgages higher in response to the volume surge and uncertainty of the moment (same with the commercial market). Liquid reserves are key and are being weighed more heavily on jumbo mortgages than income analysis. Interest-only loans and cash-out refinances are still available but at reduced loan-to-values. Overall, our lenders want to continue to help clients through this difficult time with a slightly more cautious approach when underwriting larger loan requests.

Market Commentary 3/27/20

Posted on March 27, 2020 by Damon Germanides

Major fiscal and monetary stimulus out of the U.S. helped to thaw out the mortgage-backed security market which locked up last week in response to unprecedented volatility in global financial markets caused by Covid-19.

The Fed’s response was big and bold as was Congress’s and it helped to soothe the secondary mortgage and corporate bond markets. However, with a third of the U.S. not working, it is unclear how lenders will underwrite loans.

For the moment, Insignia’s lender partners are being quite flexible in structuring new loans, but this could change over time should U.S. workers be unable to return to work in a few weeks.

The non-QM mortgage banking sector of the market has been decimated. Those types of loans, which are riskier by nature, are on hold. We imagine that a fair number of lenders who offered these types of loans will go out of business or greatly scale back their loan products.

Thankfully, Insignia Mortgage has spent years building relationships with community banks and local credit unions. For the moment, these federally-regulated lenders are actively lending, albeit a bit more cautiously. Nonetheless, they remain active and willing to provide financing to our borrowers.

Currently, borrowers should understand that there’s a disconnect between U.S. Treasuries trade and mortgage rates at the moment. Lenders are trying to balance the increased risk associated with this pandemic against loan volume against a backdrop of a very difficult work environment. Don’t be surprised to receive rate quotes higher than what you would imagine given the low rates the U.S. government is borrowing at.

Market Commentary 3/20/20

Posted on March 20, 2020 by Damon Germanides

Mortgage interest rates continue to increase as these instruments diverge from U.S. Treasury in the face of unprecedented uncertainty due to the biological shock to the global economy induced by the coronavirus. Economic data is meaningless at the moment as the sole focus remains on viral infection rates and whether and how quickly the U.S. can flatten the curve on the number of people infected.

China and South Korea are showing real promise as the number of infections has subsided. Our hope is that the devastation we are witnessing in Italy is not repeated in our big cities here in the U.S. Both California and New York have paused their economies to help suppress the spread of the virus. We prefer to be optimistic that these drastic measures will work, but only time will tell.

With the government and Federal Reserve pumping unprecedented funding at this problem, we believe that our economy will recover and that the probability of the world seeing its first global depression of the 21st-century remains unlikely. However, significant economic pain is assured, and the recovery will not be without cost. We expect to see unemployment rates skyrocket and many businesses fail.

On the mortgage front, we are seeing the more creative loan products put on hold. These are the programs designed to accommodate the self-employed and real estate investors. Our primary bank and credit union lending sources continue to lend and to offer attractive terms, albeit with interest rates a bit higher than the public is expecting due to the intense uncertainty surrounding the mortgage market at the moment.

Market Commentary 3/13/20

Posted on March 13, 2020 by Damon Germanides

All global financial markets have experienced max volatility as the novel coronavirus has reached pandemic levels. This has increased the odds of a global recession. U.S. government bonds sold off on Thursday as investors fled to cash. The market rebounded on Friday afternoon as a response to the White House’s declaration of the outbreak as a national disaster. We hope with this announcement can institute responses that will start to get ahead of this disease.

Economic data is not relevant at the moment. However, the U.S. economy was in a good place prior to this pandemic so the hope is that the economy will recover once the virus has abated. In addition to the White House declaring this a national emergency, the Fed and Congress will be pumping in fiscal and monetary stimuli at unprecedented levels to help ease the blow to business and individuals affected by the virus.

On the lending front, our lending sources are operational, have contingency plans in place, and are actively working on both purchase and refinance transactions. Interest rates are at historical lows which is important for those looking to buy a home or refinance debt. It is worth noting that the 10-year Treasury has moved from a low of under .500% to back near 1%. This is actually a positive as rates going to zero would be problematic for our nation’s banks and for the insurance companies which collectively finance our debt.

Market Commentary 3/6/20

Posted on March 6, 2020 by Damon Germanides

Coronavirus fears have driven interest rates across the developed world to historic lows. Equity markets have reacted violently to the uncertainty around how this new disease may disrupt global supply chains and affect overall economic activity.

In response to these concerns, the Federal Reserve stepped in earlier this week with an emergency 50 basis point rate cut. This cut was an attempt to promote confidence throughout the financial system and push down short-term interest rates, which will help corporations and individuals attain lower-cost financing.

There is no way of knowing what affects this virus will have on the globally interconnected economy and if it will send the world into a recession. What we do know is that it will eventually run its course and that disruption will stop once our scientific community develops remedies to combat the virus. It is important to note while the virus is very contagious, it does not appear to be extremely deadly for most healthy individuals. As a result, travel and leisure businesses will be hit hardest should the virus spread. On the other hand, the U.S. service economy (70% of the U.S. economy) is derived from service) may adjust better than currently being forecasted in the equities market given all the technology tools that permit employees to work remotely.

In other news, the February jobs report was a good one with a better than expected job creation number, while unemployment remained at 3.500%. However, even a good jobs report didn’t matter as the equity markets shrugged off the good news.

Government-guaranteed interest rates have touched levels most of us believed we would never witness unless we were in a full-on depression. The 10-year Treasury ended the week at .78%, which is remarkable, but also a bit scary. While banks lowered interest rates, it is important to note that as rates approach zero, it becomes increasingly difficult for banks to earn a net margin. The result is that mortgage rates remain higher than what some customers believe mortgages should be priced at. Should interest rates remain low, we would expect mortgage rates to continue to slide lower. However, we do expect that rates will move up once a clearer picture on the coronavirus emerges. It is our belief that rates will remain low for quite some time.

Market Commentary 2/28/20

Posted on February 28, 2020 by Damon Germanides

The fear surrounding the rapidly emerging COVID-19 threat has pushed U.S. Treasury yields to an all-time low. Worldwide equity markets plummeted in the worst week for equities since the 2008 financial crisis. With this biological event creating both supply and demand economic shocks, it is not clear how fiscal stimuli will help soothe the markets, but it appears likely that a coordinated international central bank package may be introduced next week to help stop the bleeding in equities. Furthermore, there are rumors that pharmaceutical companies in Israel and around the globe are racing against the clock to rapidly develop a vaccine and/or other anti-viral therapies.

From an economic standpoint, the virus has disrupted international supply-chains and hurt travel and leisure businesses. If the virus continues to spread or becomes a pandemic, it will affect consumer and business spending patterns. The virus is having a trickle-down effect on our economy and is hurting stocks as companies scale back earnings guidance/ Economists are lowering growth prospects. Keep in mind, these “black swan” types of events are impossible to handicap and the markets will remain volatile until there is a clearer understanding of the virus.

From an interest rate standpoint, government-guaranteed bond yields are now at historic lows in the U.S and may even go lower as the 10-year U.S. Treasury bond sits at 1.16% and may be headed to under 1.000%. However, mortgage rates are not at all-time lows, yet remain incredibly attractive. Many lenders we are speaking to are instituting a hard floor on interest rates and are not interested in lowering mortgage rates further for the moment.

Therefore, our posture which for the last many months has been biased toward locking in rates has now changed to floating rates in anticipation of a major internationally coordinated central bank coronavirus stimulus package. Should rates plummet further, banks will be forced to move interest rate floors to stay competitive.

Market Commentary 2/21/20

Posted on February 21, 2020 by Damon Germanides

The 30-year U.S. Treasury bond hit an all-time low on Friday as investors fled riskier assets and sought the safe haven of U.S. government-guaranteed debt. The causes for concern were weak overseas manufacturing data and ongoing uncertainty in handicapping how the coronavirus (now named “COVID-19”) will affect economic growth in the coming months. Should this virus become more of a problem, interest rates will plunge. For now, no one knows how this virus will evolve, but to date, it appears to not be as deadly as biologically similar infections.

Earlier in the week, bond yields held firm even after hotter than expected PPI and Core PPI inflation readings.

Home buying season should be a good one with interest rates remaining low for the foreseeable future. Supply and affordability will be the bigger issue, especially in the more expensive coastal markets. Building permits surged but housing starts fell which should put even more pressure on short term supply concerns.

With rates near historic all-time lows, we continue to believe that locking-in is the right course of action. The wild card is the potential threat that the coronavirus will have on global productivity. For now, that risk is low, but it may change. If the virus becomes an international pandemic, expect the U.S. 10-year Treasury to touch 1% or lower.

Market Commentary 2/14/20

Posted on February 14, 2020 by Damon Germanides

This weekend marks the unofficial start of the spring home-buying season. The combination of low-interest rates and overall good economic data out of the U.S. supports the belief that home sales and home-related activities will be robust. With the Fed staying on hold for the moment, and, with the odds favoring a rate reduction, the cost of financing debt is very attractive.

One concern remains home affordability. How far borrowers are willing to stretch may hurt higher end coastal markets. However, the demand for a luxury home product is strong (Jeff Bezos just purchased a $165 million home here in Los Angeles).

The 30-year Treasury auction this week was met with strong demand even with the offering being consummated with the lowest yield ever offered. With $13 trillion negative rates globally, the U.S. bond market is one of the few places where high-quality bonds change hands with positive yields. This phenomenon will cap how high-interest rates can go up in the U.S. With the 10-year near 1.500%, locking in at these levels is prudent, but interest rates may go lower. The uncertainty of the coronavirus could push rates higher or lower depending on how the virus spreads.