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0% Mortgage Interest Rates & How They Are Affected By The Coronavirus

Monday, March 23, 2020   /   by Andy Mandel

0% Mortgage Interest Rates & How They Are Affected By The Coronavirus



- All right, we are recording, we are live. For anyone who doesn't know my name is Andy Mandel, I'm a Broker Associate with RE/MAX Advisors. We have locations in Boca Raton and in Coral Springs. Today we're here to talk about what's going on in the market with interest rates. There's a lot of crazy stuff going on, a lot of headlines. So I got Scott Lushing, who is my preferred lender with Fairway Mortgage, so I wanted to interview the experts on mortgages so we're gonna talk to Scott. He's gonna give you all the information. Before we get into mortgages though I do wanna take a second and I want to answer the question that I've been hearing all week which is, Andy, how's the market? What's going on in the real estate market? I know mortgages are a part of that, but as far as what's going on with buyers and sellers we're taking it day-by-day, hour-by-hour, minute-by-minute. You know these things are changing so quickly with all the news updates that whatever I tell you is going on today is gonna be totally different from tomorrow and the next day and the next day. So we're taking it day-by-day. I do have a lot of buyers and a lot of sellers who are puttin' the pause-button on everything. They're saying, you know, let's just revisit this when the smoke clears and I'm totally supporting that decision. Whatever is right for you and your family is the right decision for you and I support that, but my job is to continue to be there, to educate and to inform and to let people know what's going on now and what's going to be going on in the future. You know what's next? So I'm doing that with a lot of these videos that we're puttin' out. So you can you find them on our social media, if you're watching this on my social media already, you obviously have our channels. If not, if you got this in an email and you wanna follow us below you'll have a link to our Instagram, our Facebook, our YouTube page, Goggle, Zillow, it's all right there. Feel free to give us a follow or to look at those pages and see the updates. But we also do have some clients right now who are in a position where they need to buy or sell. They have a home that was already under contract, or they had a job transfer, a death, a divorce, whatever it may be and we're doing everything we can to still help those people with following the CDC guidelines and the best safety protocols. So we're doing virtual showings, we're doing SMART marketing. Video is huge right now so we're doing a ton of video tours. I did make another video about how we're helping our buyers and sellers navigate this with technology so feel free to look out for that video. But we are still in business, we're still helping people while still doing it as virtually as possible. So importantly if you're one of my clients or, then let me know if there's anything that I can do to help you out. We're here to be of service, so it's not a sales pitch. If there is anything I can do to help you whether it's pick up prescriptions, or whatever it may be, let me know I do wanna be of assistance. So, let's get right into it with Scott. Scott works with Fairway Mortgage. They are the second largest nation-wide retail mortgage lender. They're a huge company, great great company, and I can't speak more about all the good things that they do, but I will let Scott answer this question. Scott, if you don't mind telling everyone what is it about Fairway that's so great and so important, especially in times right now?
- Thanks Andy, you know one of the biggest things that's happening in the market is there's a liquidity crunch basically, a lot of money being pulled out of the mortgage sector. So when you're a large company you've got, you know, basically a lot of liquidity, a lot of warehouse banks, warehouse lines, that you can use. What a lot of people don't realize is although Fannie Mae and Freddie Mac buy mortgages the lender has to first fund that mortgage and close it. So when you show up at a closing table that money's coming from us, it's coming from one of our warehouse lines. So we fund it with the warehouse line, it gets sold. Now if that warehouse line comes to you and shuts down and cuts you off you're not closing loans and you're out of business. So with some of these small lenders they're being told, hey you're about to lose your warehouse line, you don't have enough liquidity, you have to put more collateral up. That's why a lot of these smaller businesses unfortunately you might hear about smaller lenders going out of business during these times. It is a pretty crazy market. Again, that's why with some of the larger lenders you are pretty much good to go as long as they're still in business taking applications and everything you're good. We've always been a purchase-focused company. Of course we do refinances just those are different, those, the turn-times on refinances might be longer than purchases. As of now our purchases are still going strong and there is no blip on, you know, nothing's changed at all, it's business as usual, just virtual.
- So you guys have a lot of liquidity which I know is obviously a good thing given all the craziness in the market so that there's no real risk of Fairway going out of business being the sellers No, no no, we're actually an employee-owned company, we're also not backed by a hedge fund. You know a lot of these lenders usually a hedge fund, or they get their funding from elsewhere, we're a self-funded company. You know we-- Oh yeah, oh we're in great shape. In fact we get emails over the weekend people are still working, we're still closing loans.
- Good, so Scott, to get into interest rates and what's going on in the market right now. There was a big headline at the beginning of last week that the Federal Reserve was lowering the fed funds rate to zero and I know a lot of people if you don't necessarily follow the news that much you might think, wow, interest rates are going to zero. Can you explain what the fed funds rate is and how that affects mortgage interest rates?
- Excellent question. So, no mortgage rates are not at zero. The fed funds rate is the rate that banks lend money to each other at. It does impact things like prime rate. You've always heard of prime rate in association of your credit cards. If you look at your statement it'll say, your rate is prime plus a margin of 12% let's say. So, prime, fed funds drops, prime drops. It also drops the rate on home equity lines of credit, but not 30-year and 15-year fixed rate mortgages. That actually is determined based on the mortgage backed-security market, it's all these different numbers in the background. But rates did drop a little on Monday, but not because of the fed funds rate, but because the fed stepped in and said, they're gonna buy mortgage-backed securities which ends up lowering the rate and then on Tuesday, Wednesday, and Thursday, the rug got pulled out. There was a liquidity crunch, all the money was pulled out in the mortgage-backed security market to go toward the new stimulus and rates went up between 3/4 and a full percent in a matter of 72 hours. So it's, it' was ugly. People that were gettin' 3 1/4 were now being told they're gettin' 4 1/4, if we're not locked in.
- So, what would be your suggestion. If you're going through this process right now, if you haven't, you can't first of all, you can't lock in your rate until you are under contract on a property, correct?
- Yeah, so you're gonna wait until you actually have a contract and then the question is, lock or float, what to do? And I always tell people this, if you're okay where it is now, whether you're happy or not, if it's affordable and you wanna be able to sleep at night, lock it. Do I think rates will go back down after this run-up, well they actually did go down on Friday, that's why I said till Thursday, will they keep doing down, no one knows. But if you can now say lock in 3.75, or one discount point or whatever, and you know that if it goes to 4 1/4 you can't close, your debt-to-income's too high, you can't afford it, then lock it in now if you're good there. So I, you gotta be careful, take what you have. I would say refinancing is a whole different ballgame, refinances picked up for about a week and now they're gone because our rates now they're where they were two months ago. You know--
- Let's talk about refinances 'cause there was a huge boom in refinances a week and a half, two weeks ago, it was all over the news. Rates were cutting down, down, down and everyone rushed to refinance. What happened with interest rates after everyone rushed to go refinance their house?
- You can point it to, one everyone refinanced and there is capacity. For example, there are one to two trillion dollars of mortgages done a year and that's what lenders can handle. When half of the 11 trillion in outstanding loans said, I wanna refi, all these lenders were like, aahh, you know I was working until 1:30 every morning. So what a lot of lenders did was raise their rates to stop the flow of business, makes sense. You can't sell, we should say you can't produce, so that was one component. But the main component that impacted rates was all of the liquidity pulled out of the market. So let's say rates a few months ago were 4%, a few days ago it might've been 3 1/4, a big rush to refi, now you're back up at four, there go all the refis. 'Cause if you didn't refi a few months ago why would you refi now? So that's, it just came to a complete halt, refinances just stopped completely.
- I think the stat that I saw was that refinance applications year-over-year, it rose like 479%, or come crazy number, and for the consumer at home can you imagine your work load almost quintupling, going up almost 500% in a matter of a week or so, that's just a crazy stat.
- Yeah, it really is. It's again, any single business can't handle that, so again, what most lenders did was artificially raise their rate to stop business, not 'cause they wanted to make more money 'cause they literally didn't want the business they couldn't handle it.
- So what are you seeing going forward, I'm not asking you to prognosticate and predict the future 'cause I know no one has a crystal ball, but what would be your suggestion to buyers going forward here as far as interest rates and mortgages go?
- So, a lot of buyers have to buy regardless of where rates are. People bought when rates were 18%. So if you are moving you have to buy, you wanna buy, buy, rates are still ridiculously and historically low. We're, you know, we're back into the high-three's range, maybe even mid-threes for some people, we'll see tomorrow what comes, but you're not gonna not buy because the rate went from 3 1/4 to 3.75, or from 3.75 to 4 1/4. So the buyers that wanna buy you're still in a great position. You might even be in a better position 'cause what's happening is you're not gonna have as much competition. As you know a lot of buyers might be sitting on the sidelines for a short time period and these sellers still need to sell. So I would, I would be very excited if I were a buyer right now and still That is, to touch on that that's exactly what I'm seeing is that, like I said in the beginning, a lot of my buyers and sellers both put the brakes on and they said, you know, we're gonna wait until the smoke clears and the dust settles on this. But there's always people who have to buy, there's always gonna be people who have to sell whether it's a death, a divorce, a job transfer, you know, something like that, people have to sell. So what I'm telling my buyers, whether you're buying now, or if you wanna wait until summer when things clear up, that's fine that's your choice and whatever's best for your family I support, but what I recommend is don't put the process off. The preapproval doesn't expire. If you can get preapproved now who knows you might find a vacant property, someone moved out, or it was investment property and the tenant moved out and they just don't want the home anymore and you may be able to go in there and put an offer on a property that three or fours weeks ago may have had five or six different offers and bid the price above list price. You may be able to get that property for a very very good deal because you were vigilant and you were ready to buy when the opportunity presented itself. And that's really what I'm seeing right now is the smart buyers are going through the steps right now to put themselves in the best position to find the right house and to buy the right house when it hits the market. Whether it's now, May, June, a lot of people don't want to wait until May or June. Hopefully this will all clear up by then, but think about it. There's gonna be so much pent-up demand from sellers and buyers looking to put their homes on the market to get something under contract, that there's gonna be a flood of buyers, a flood of inventory, and it's gonna be absolutely crazy so sometimes now is better than later if you're in the right financial position. What I am cautioning my clients, and I'm sure you can speak for this Scott, is you have to be in the right financial position. You know if you have a steady job, if you have job security with everything going on in the market, it could still be a good time for you to buy. If you're worried about losing your job, if you're in the travel, leisure, hospitality type industry then there's a lot of layoffs going on right now, going on. I have a couple of my good friends whose businesses had to furlough them. I totally get that it's definitely not the right time for everyone to be buying, but if you're in the right position, you got good job security you might wanna take advantage of the low interest rates while they're here.
- Yeah, I got a few contracts in the last 48 hours and I actually did have that heart-to-heart with both the buyers about now what they view the industry they're in and their comfortability level and they're super excited to buy 'cause they're fine there. And I will tell you one of the scenarios, and this is what the anomaly going on is. So one guy who I'm getting the contract today, it's already executed, the seller of that home was already under contract to sell. He went and found a property that he wanted to buy that's under contract. The buyer of his home backed out, job security issues right now, he's standing there going, I can't close on the home I wanna buy if I don't sell my home. So my buyer stepped up and he actually is getting himself a deal. So, there could be some times out there right now where you could get a deal 'cause you have a seller that's still needs to sell.
- That definitely makes sense. So, just overall you would say interest rates are still at historic lows. If you had one tip for a buyer right now, someone who wants to get preapproved, what would be your one piece of advice?
- Reach out now, I mean, especially if there's a little slow down, get all your ducks together, let someone look at your credit, give you any advice if there's anything you need to do in the meantime, but be ready 'cause you never know when that opportunity is gonna come out. Pre-approvals they're technically good indefinitely, some of those, when does this expire? Well at the end of the day, as long as your credit doesn't get trashed, and you still have your job, your preapproval is good indefinitely as long as your lender looks at your credit, looks at your income, looks at your assets up front, and then that stuff continues similarly going forward it is still good. Your credit report's good for 120 days with us so I would not stop right now. I would get all your ducks in a row. That doesn't mean you have to buy now. And then the other thing I tell people is you don't know when you don't know. I had someone who said they had perfect credit, everything's great, finally okay, let's take a look, I looked, there was a medical collection put on one month before. Their 763 score dropped to like a 682 because of that one medical collection which was legit. It actually was a bill they paid, they got a letter we got it removed, but if they were ready to make an offer they wouldn't have had time to get that deleted. So I always say, never wait, let's look at everything now even if you're not buying this minute, so that's my advice.
- Yeah and about having your interest rate jump up 40, 50 points it probably saved them a good amount of money as far as their interest rate got lower and they probably didn't have to pay points up front for that.
- Yeah and it also saved them on the PMI as well and frankly they don't have to actually delay making an offer wondering if they'll get that letter to get it deleted, so they had some time.
- So there's a lot of craziness going on the market right now. Scott, I wanna thank you very much for joining us today. If you guys found the valuable please feel free to share this video with your network, share it on social media or whatever you want. If you have questions abut real estate feel free to reach out to me. If you've got questions about mortgages, or anything like that, I'm gonna put Scott's information all over this, feel free to reach out to him. Trust me he's available day or night, works the craziest hours you've probably ever seen, but he is a fantastic mortgage lender and he can definitely make this process easy for you. So Scott.
- Can I throw one last thing in there?
- Yeah.
- For those of you reading this that are already under contract check with your lender and make sure everything's good, make sure they're economically sound, because so far this weekend, you know, we're a pretty large branch, we actually, not myself, there were three contracts that we got from different places where they actually had to pull their stuff from other lenders because of the issues going on. I don't want anyone to risk losing their deal because of what might happen with the lender. So if you ever have any, want an opinion, or you do have to pull it and you're in a time crunch let us know we could still do a 12-day close and believe it or not if you can get a rush appraisal we could close loans in as little as 12 days if you've got all your dots together.
- So, what we always say to our team is the agent that you work with matters. It's really important to work with someone who knows what they're doing. It's extremely important, almost more important, that the mortgage person you work with matters and that you work with someone good and reputable. So Scott, thank you for always being such a valuable tool to our clients. We really appreciate it on our team here and thank you guys for tuning in.
The Mandel Team at Re/Max
Andy Mandell
9615 Westview Drive
Coral Springs, FL 33076
954-610-0563

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