Tag: coronavirus

06_26_2020_blog

Market Commentary 6/26/20

Posted on by Damon Germanides

Major U.S. indexes fell this week as Covid-19 cases surged, putting the economic re-openings at risk. The resurgence of Covid-19 overshadowed what had been positive consumer-related data this week. Consumer spending, which had been on the upswing, slowed down. The notion of a quick recovery is unclear and the rise in infection rates suggest the recovery will be choppy.  Should the economy stall, we fully expect there will be more Fed stimulus and lending programs to help individuals and businesses get to the other side.  

Home buying and mortgage applications, at least in Southern California, have seen a major uptick. We are encouraged by this activity. Housing has been sheltered from this pandemic and is in a much better place than other real estate sectors, such as commercial properties and retail. Our L.A. office has been receiving a surge in applications as borrowers’ businesses recover and interest rates remain at historical lows. While we don’t expect rates to go too much lower, if equity volatility continues to increase, we may see rates drop. 

06_12_2020_blog

Market Commentary 6/12/20

Posted on by Damon Germanides

Stocks sold off hard this week following a strong rally last week which had been ignited by a better than expected May jobs report. Thursday of this week (June 11, 2020) was a risk-off day that shook the equity markets as the market digested sobering comments by the Fed chair regarding the economic recovery combined with regional upticks in Covid-19 infection rates. Yet there is a positive takeaway in yesterday’s brutal pull-back. After a dramatic rise over the past several weeks in stocks, sharp sell-offs washed out speculators and may help prevent a bubble. Lately, there has been a lot of chatter about speculators profiting by betting on de facto bankrupt companies whose prices in some instances have surged more than 100% in a single day.  

Friday morning provided some relief to equities with a partial rebound. This is a welcome sign that Thursday’s sell-off was not the beginning of a deep sell-off. Treasury and mortgage rates fell as money moved into the safe haven of government-guaranteed bonds. The Fed’s stimulus operations will continue indefinitely which will keep interest rates very low and will also entice investors into more risky assets such as stocks, high yielding debt, and real estate. 

The Fed is committed to propping up the markets as we work through the process of getting our economy back on track. No doubt this will take time but there are some encouraging signs of a nascent economic recovery. However, the economy remains very fragile.

Currently, mortgage rates are low and may go lower. Lenders are slowly gaining the confidence underwriting files a bit more generously. Housing supply is in our main market, Southern California, and buyers are re-entering the market. These are all welcome signs that the worst may be behind us. Continue to expect mortgage rates to be priced favorably, especially on higher loan-to-value loan transactions, but perhaps not quite as well one would expect. Once banks have a better handle on the direction of deferred payment, we believe pricing overall will improve even further. Keep an eye on infection rates, manufacturing data, and consumer confidence. If these data points move favorably, interest rates on mortgages will price sharper in the coming months.      

05_29_2020_blog

Market Commentary 5/29/20

Posted on by Damon Germanides

Core inflation is non-existent in the U.S. and for the moment presents no challenges to the Fed.There’s a massive stimulus being pushed out to the debt and equity markets as well as to Main street in response to Covid-19’s biologic shock translating into an economic one.

On Friday, Fed chair Powell reiterated a by-any-means-necessary attitude to support the economy in the event of the second wave of virus-related economic setbacks. Later in the day, the equity markets responded with relief to President Trump leaving the U.S.-China trade deal untouched.

Mortgage rates have remained flat even after Core PCE fell to less than 1%. While we believe mortgage rates will move lower later in the year, we still believe that banks are keeping interest rates padded above their corresponding benchmark U.S. treasury yields while simultaneously keeping an eye out for easing loan deferments and reduced unemployment. 

Americans’ savings continue to increase due to a combination of government assistance and sheltering in place. Evidence is mounting that consumption will rebound as life begins to return to normal. Traffic to websites such as Zillow has surged as prospective home buyers are researching potential new homes. Also, the stay-at-home orders have prompted people to re-evaluate their current housing situations. As a result, many families are deciding that it is time to look for a new home or upgrade their current home. 

In closing, Insignia Mortgage’s brokers are encouraged by the increase of purchase activity in the last few weeks. The coronavirus situation has temporarily stalled action in the real estate market, boosting supply. Buyers are definitely taking advantage of this situation and benefitting from historically low mortgage rates, which make housing payments very manageable.

05_22_2020_blog

Market Commentary 5/22/20

Posted on by Damon Germanides

The U.S. economy is slowly reopening, a welcome sign to our small business owners. Social distancing will keep customer-facing businesses operating well below capacity. However, it is important that businesses open before too much time passes and customer habits change for good, and employees move on. Policymakers will be looking to balance the threat of the disease against the risk of long-term structural economic destruction as our country tries to normalize. It will be interesting to see how consumers respond to the re-opening of malls, restaurants, and other communal businesses.  So much remains to be seen. We hope only for the best. 

The weekly unemployment numbers continue to increase, but at a slower pace and within the range of economists’ expectations. Lower-paying, customer-facing jobs have been most affected. The government response to this crisis, while far from perfect, has been effective at getting money to those who needed it most. The government is expected to take some hit on the PPP loans and other disaster relief programs but those programs are providing a lifeline to small businesses. The Federal Reserve back-stopped the entire bond market preventing a total collapse in both the equity and debt markets. If the Treasury and Fed had not worked as quickly as they did, things would be much worse at the moment. While there is still a tremendous risk to so many business owners, and there’s a long road to recovery ahead, never underestimate American entrepreneurship and innovation.  

How the housing market will be affected by the pandemic over a longer period of time remains to be seen, but there are signs that some consumer behavior will begin to normalize. There is certainly pent up demand for many products which is encouraging for the housing market, and our consumer-led economy. Low interest rates (which may even go lower assuming a successful re-opening of the economy) should act as a tonic to both the purchase and refinance market.  Home supply remains constrained and the warmer weather of late spring and summer should act as a tailwind for people looking to buy homes as studies suggest coronavirus appears to be less virulent in the warmer weather.

Insignia Mortgage remains committed to helping clients access attractive financing. Our lenders continue to make common-sense decisions and offer out of the box solutions with very attractive interest rates and terms.

05_15_2020_blog

Market Commentary 5/15/20

Posted on by Damon Germanides

In another dismal week of economic data, equity volatility increased while bonds closed the week out the week essentially unchanged. Further adding to the horrible economic news, U.S. and China tensions increased as well as the U.S. is set to impose restrictions against Huawei Technologies.

Fed chairman Powell spooked markets this week with his comments calling for more federal financial support or risk long-term damage to the U.S. economy. Truthfully, no one knows how the economy will re-open and we need to support our citizens with both monetary and fiscal stimulus to avoid small business owners sinking to a point of no return. Federal support along with congressional bipartisanship is needed as businesses many businesses will need the lifeline of the government to be in order to hang on long enough to gradually reopen during the coming months.  

On the residential lending front, we are starting to see a little bit more optimism as some lenders begin to loosen up Covid-19 related guideline overlays. This is welcome news as we are also seeing a slight uptick in new purchase inquiries in what is normally the busiest home-buying season of the year. Some lenders have lowered interest rates and expanded loan-to-value guidelines in a bid to grab market share. Overall, the lending landscape remains tough to navigate, but transactions are closing, and that’s a win in this otherwise challenging moment.

05_08_2020_blog

Market Commentary 5/8/20

Posted on by Damon Germanides

The April jobs report was the worst on record with over 20 million of the U.S. workforce currently unemployed. Our hearts go out to each and every person who has lost their job as a result of Covid-19. However, the U.S. equities market is trading up today, so we ask ourselves, “what gives?” Perhaps the market is telling us the worst is behind us. We sure hope so, but we still believe there will be a tough road ahead as our governors and mayors slowly begin to re-open up the economy.

Interest rates remain pegged near zero on U.S. T-Bills and the 10-year U.S. Treasury bond has traded within a tight range over the last couple of weeks as volatility has subsided. However, mortgage rates have untethered from the U.S. Treasury rates as banks have raised interest rates and tightened guidelines, understandably. We expect mortgage rates to trade better if and when the U.S. economy can re-open without significant spikes in Covid-19 infections. 

Commercial lending, including multi-family, so far has been hit the hardest due to so many tenants or renters unable to pay their rent. Despite this, we are starting to see some relief as lenders slowly re-enter the market. Expect several months of payment reserves as part of the loan request, also known as an interest reserve, and reduced loan-to-values and risk-based pricing.

On the residential lending front, there has been no better time in my career to be a mortgage broker. Insignia Mortgage’s many long-term relationships are paying off as we are customizing loans for our clients day in and day out. Our suite of lenders all have different risk appetites, so having optionality and pricing power with different lenders has resulted in our ability to place loans that other large money center banks have declined. 

We continue to offer the loans for the following scenarios with very fair rates and terms:

  • Interest-only purchase loans, refinances, and cash-out loans for primary residences, second homes, and investment properties.
  • Non-occupant co-borrowers.
  • Foreign national loans.
  • Cross-collateralized loans and Asset consumption loans.
  • 1031 exchanges and loan structure with LLC, LP, or corporation as borrowers.
05_01_2020_blog

Market Commentary 5/1/20

Posted on by Damon Germanides

Economic pain caused by Covid-19 deepened this week as the unemployment numbers hit 30 million people. Expect next week’s April jobs report to hit 20%. With consumer spending down, and so many people out of work, it was no surprise that Q1 2020 GDP contracted by – 4.80% and will likely be followed up by a much larger drop in Q2 2020. The Fed and the federal government are implementing a “by any means necessary” approach, which is echoed by the European and Japanese central banks and governments as well. These trends continue to backstop our economy. It’s hoped that the approach will boost economic recovery once the U.S. economy is turned on again, as well as support asset prices. We sure hope this is the case but are also aware that consumer and business behavior has changed due to the pandemic and the recovery could take much longer than anticipated. 

Regarding housing and lending, Covid-19 hit the spring buying season hard. However, interest rates remain low and may drop further over time, enticing more buyers into the market. There are also signs that the non-QM market is slowly reviving, which is a positive sign, especially for cities such as Los Angeles which have many self-employed borrowers. Big banks continue to pull back from the marketplace. Our office has received an unprecedented number of requests for financing the past few weeks as borrowers look for alternative financing options. We are happy to report that for the most part, our partner lenders remain committed to pulling out all the stops to help borrowers refinance or purchase homes. In our opinion, there has never been a better time to be a broker with long-term lending relationships and that is proving to be a great benefit for our clients during this very difficult time.

04_17_2020_blog

Market Commentary 4/17/20

Posted on 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.

03_27_2020_blog

Market Commentary 3/27/20

Posted on 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. 

Insignia-blog-3-20-20

Market Commentary 3/20/20

Posted on 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.