Answering Your Questions About Mortgages and Refinancing

KCBS Radio is answering your questions about all things coronavirus every weekday at 9:20 am

As we continue to navigate these unprecedented times KCBS Radio is getting the answers to your questions about the coronavirus pandemic. Every morning, Monday-thru-Friday, at 9:20 a.m., we're doing an "Ask An Expert" segment. Each day we'll focus on a different aspect of this situation. 

Today we're talking a closer look at issues surrounding mortgages and rent payments.  To answer your questions, KCBS Radio's Stan Bunger spoke with Guy Cecala, CEO and Publisher of Inside Mortgage Finance. 

We talk on a morning when there’s a headline in Wall Street Journal that says “Flying Blind in a Credit Storm: Widespread Deferrals Mean Banks Can’t Tell Who’s Credit Worthy.” Well that’s not good news for the banks and it seems not good news for borrowers.

You’re right, because the bank reaction, or the lender reaction, when they’re unsure is to tighten and underwrite across the board hoping that the tougher scrutiny will protect them, but it’s not good for borrowers. They’d much rather be able to be evaluated on their individual basis and not have their lenders assume there’s something lurking in the background.

I’m sure we’ll get into that in some of the questions that are coming in, but in general, have any of the laws or regulations that have been propagated since the pandemic hit put any walls around what the lenders can or should be doing with this kind of information?

Not really. Ironically, the law was intended so that somebody who was put out of work temporarily or furloughed wouldn’t necessarily get dinged on their credit if they had to miss one or two payments on a loan or whatever else. However, because it’s not entered their credit report, the lender is assuming the worst and it’s probably going to hurt consumers rather than help them. 

Is it wise to pay cash for a million dollar home if you have to sell your stock to do so when interest rates are so low? What are the tax ramifications? 

Under normal circumstances, and I would have said “pre-pandemic,” it probably would have made sense to finance the mortgage because rates are so low, and why not take advantage of it and preserve the amount of money you can invest in the stock market. 

Unfortunately, as a result of the pandemic, and it’s starting to fix itself a little bit, but the jumbo loan market—those are generally loans over $750,000—have not been priced as competitively as other loans. It’s been harder to get a million dollar mortgage than it has to get a $500,000 mortgage and that rates you’re paying are generally higher. So it’s not clear cut, it’s improving as lenders become more accustomed to jumbo loans going forward. I think if you ask me that in a month from now I’d say probably say go ahead and explore and get the mortgage.

We’re also going through very uncertain times in terms of investments and it’s not clear how much you’d be giving up if you had no debt and just forgo investing in the stock market for the short term. 

For those folks who delay paying their mortgage, what can they expect to happen to their credit scores?

For the time being, their credit scores are on hold affectively, since lenders aren’t supposed to report borrowers who are on forbearance, but the reality also is they’re pretty much going to be unable to get a new loan during that period because lenders will probably ask them about any forbearance that may be going through or secured at this point and that’s probably going to prevent them from getting a new credit card or some other things. 

Let me ask for you for a little more detail on how this forbearance works because people are continually confused about it. Is it a government program you go to the government for, or is it a government program you go to your lender for?

It’s more of the latter. It’s basically a requirement that all lenders who have government-related mortgages, and that’s really three-quarters of them in this country, are not allowed to demand you make mortgage payments, and you have a process where you can seek basically forbearance for three-months increments and continue it for up to a year in most cases. 

The lenders are required to do it, the lenders are the ones who collect your payments and are doing it. It’s not a government program in and of itself where you get relief from the government or anything else.

Is there any sunset date in reaching out to do this? Obviously a lot of people would have done it early, but as this thing plays out more people are seeing their financial futures less certain than they thought they were.

Interestingly, a number of people—I think about a third of the people who sought forbearance—didn’t actually use it. So they got kind of an approval to do it. The thing about forbearance is you can’t just start missing mortgage payments, you have to contact your lender and request it. You give them a reason, you don’t have to necessarily have to document it and say, “I’ve been laid off,” and you get it in three months segments and can renew it after that. 

A lot of people are starting on their second three-month segment, I think it started in March.

If you have a fair credit score and a strong employment history are you more likely now to be approved for a mortgage or is that unchanged?

I think it’s unchanged. You shouldn’t have any problem getting it. I guess it boils down to what good credit is. Before the pandemic, good credit used to be considered in the high 600 credit score. Now it’s moved up higher into the 700 or low 700s and that’s what lenders are generally looking at to give a quick approval and access the money. 

With so many people out of work and so many businesses closing, what is a good or poor credit score right now?

700 used to be considered strong, now I think it’s closer to 750 given the uncertainty out there. But generally if you have over 700 credit score you shouldn’t run into a lot of problems, at least getting mortgages or most credit.

I’m hearing about the low interest rates, but I’m wondering if I’m going to run into any issues when I try to refinance because my wife was furloughed from her job (she’s technically still employed). So a lot of questions like will lenders still consider her employed? Will they calculate income in this situation, etc.?

That’s something else that’s playing out in a case-by-case basis. I guess if you can demonstrate that you have no trouble paying your mortgage payments, even with your life furloughed or whatever else, I don’t think any lenders are going to have trouble refinancing you. Obviously if that’s going to impact your ability to make mortgage payments going forward someone’s going to be reluctant to refinance you.

I hear advertised rates, and then they turn out to include high fees and points and so on. Do you have advice on an easy place to find real rates, all factors considered?

Quick answer is no. What you need to do is shop around. It’s a big mistake if you don’t talk to three lenders, and they should be different types of lenders. I always recommend to go to a bank where you bank and maybe keep savings accounts or checking accounts. Try a credit union if you have access to it. And try a non-bank, like Quicken, where you can go online and they can give you information and compare what they tell you.

And you have to factor in any fees or hidden costs. When you’re financing a mortgage or getting am mortgage, you want to know what your monthly payments are going to be. Factor out any upfront costs or whatever else is going to be included in that. 

Are there still refi programs where you can withdraw up to $250,000 for a house with a high equity position without an inspection?

I believe there are. It depends on what your loan-to-value ratio is, like everything else, it’s tightened. It used to be, if the amount you were taking out and your existing mortgage is under 80%, they would do it. Now it’s probably closer to 60 or 70%.

What’s the general big picture regarding refis right now?

Everybody’s looking to refinance and capitalize on really record low interest rates, certainly in our lifetime. That being said, there’s a of demand on it, and lenders don’t necessarily have to offer the lowest prices possible. In theory, mortgage rates for refinancing should be somewhere around 2.5%, in reality it’s closer to 3%.

So when we hear the rates should be around 2.5% and they’re in the 3% plus range, is it profiteering on the part of the lenders?

Yes. They don’t like to hear that word, too, but when you have a line outside your door, you don’t have to offer the best pricing or the best rates. 

I hope to refi this year into a 15-year mortgage. With COVID-19 and the unknowns of future employment, does it make sense now to look at a 30-year instead to save money? My current 30-year loan is eight years in at 3.5%, in addition, are lenders allowing for cashout to pay for a secondary heloc at this time? What would the fees around that look like?

If you can afford a 15-year mortgage, there’s never been a better time to get it, particularly on high-balance loans. Lenders, particularly for mortgages over a million dollars, like the shorter terms and are generally more competitive in terms of the rates, so more importantly more than ever, if you can afford the 15-year mortgage go ahead and get it.

In terms of being able to get money out to pay off an existing heloc, generally lenders will require you to do that when you refinance and in terms of cashout that they’ll give you on refinancing, it’s subject generally to at least the 75% total combined loan-to-value ratio. And as you might imagine, during tighter underwriting periods, lenders don’t like cashout refinancing. They’d much rather do it straight.

If someone who has a hard money loan on a house with a private lender and is still employed and has been making monthly payments to the private lender wants to switch to a conventional loan, are there any particular programs they should be looking at?

No, once again they need to shop around. As far as a new lender is concerned, it’s a new loan. They don’t necessarily care about the track record of a hard money lender or a private lender, unless they’ve reported some credit deficiencies or missed payments. Otherwise, it’s good to go with a new lender.

I’m wondering about manufactured home interest rates. This is one on its own land, not one in a parking lot where you rent space. I’m a first-time home buyer. Is it true manufactured home rates are higher than stick-built rates? My credit score is 860, the interest I was approved for was 4%, but I keep hearing around radio ads with 2.5% rates. Can you help me understand why 4% is considered low and why manufactured homes have higher rates?

Manufactured homes aren’t considered as valuable as a fixed home, built-on property that you own, and they just have a shorter life-span. So that’s why they tend to be somewhere between a car loan and a recreational vehicle loan and a regular mortgage on a stone property. That’s basically the difference. And you’re generally always going to pay higher for a manufactured house loan.

You mentioned the credit scores are now higher, in the 750 range, does this mean there are no programs for someone with a credit score in the high 600s.

No,  I didn’t mean to imply that. Generally, if you have a high 600 score, you can still get a mortgage, you may pay a slightly higher rate. So if the going right is say 2.5% for someone with a 750 score, you may have to pay closer to 3% when you get it. 

In speaking with younger colleagues, family members and friends, when we talk about these interest rates and—my wife and I have told stories about our first home—and when we told them we paid a double-digit interest rate, they think, no that can’t be true. What was the peak? How high did it get in the 1970’s and 1980’s?

I can give you an idea of my age, because when I first started out in the 80’s, I can tell you the 30-year fixed rate was about 17.5%. That’s how high rates got, and they spent the next 20 year just going down.

We own several rental properties and some of our tenants are withholding rent, which is allowed here in California. So far, we’ve been making our mortgage payments but I’m starting to get a little nervous about cash flow. Any advice?

I guess they need to talk to regulators and figure out exactly what’s going on. The goal is not to put building owners or rental housing owners out of business, too, because everyone recognizes they still have to pay taxes the property even if they can’t collect the rent. So, that’s something you really need to look at with what’s allowable and whether you’ve got financing, too, that’s gotta be paid and whether you can seek forbearance on any loan obligations you have that’s provided to the rental housing.