As we continue to navigate these unprecedented times, KCBS Radio is getting the answers to your questions about the coronavirus pandemic. Every morning at 9:20 a.m. Monday-Friday we're doing an "Ask An Expert" segment with a focus on a different aspect of this situation each day.
Today we’re taking a look at mortgages, housing and more with Guy Cecala, publisher of Inside Mortgage Finance.
Q: Let’s start with a broad view from where you sit; you’ve been following this industry for a long time, you’ve written books about it. Right now, how is the mortgage lending industry dealing with this?
There have been mixed reactions in terms of the response. Frankly, we thought we saw everything after the financial crisis and the mortgage meltdown and the foreclosure crisis and all that, but 10 years later this is a completely different kind of animal and the mortgage industry is going to struggle in dealing with it. We’ve already seen some struggle and challenges as they try to deal with forbearance requests as well as making new mortgages for home purchases and refinancing.
Q: So let’s talk about nuts and bolts. One of the things that arose very early on, people were saying ‘Look I am in the middle of a real estate deal,’ either sellers or buyers. And they’re wondering how they’re going to close a deal when the offices are closed.
The mortgage industry has a lot of capability to do remote closings. They can do closings with docu-sign and e-signatures and a lot of other things. What they can’t do is, to the extent there's a survey is being done or something like that on a property, appraisals, those are all challenges. And depending on what the specific circumstances are, they can work around it. The industry is making a huge effort to try to get deals closed if they possibly can but clearly they’re being delayed. And just at a state level, not all state offices are operating anywhere near 100%, so anything that needs tax records or approval is slowing to a crawl.
Q: Knowing how generally conservative the industry is, and much more so since the ’08 meltdown, are lenders going to be willing to say ‘yeah get that to me when you can’ or is this going to stall deals?
I think it’s going to stall deals but it depends on where you are in the process. If they’ve already gone through underwriting and everything else, they may ask you to confirm you’re still employed and getting a paycheck, but if you’re just starting the process it’s going to be a lot more challenging. And frankly, there’s some lenders who want to cut back on business and don’t want to do a lot of new business and are hiking interest rates to deter applications. Some of them are reluctant to do re-fi’s because they don’t feel they’re as pressing as home purchases so there’s a lot of uncertainty out there now.
Q: Let’s get into some of these more specific questions. First one here says, "I live in a townhouse that has homeowner association dues. I’m looking for who I can contact to find out if there are any new laws that would defer my dues until the lockdown is over."
Most of the relief that has come down has either come down from the state in terms of state requirements that landlords have to give renters or homeowners some sort of forbearance and allow them to skip some payments. I don’t know if any of them, and particularly California, has done anything for homeowners associations.
I know the federal CARES Act, which also offered some relief to borrowers, didn’t cover homeowners associations fees and dues too so that’s probably something you’re going to have to work out. Unfortunately homeowner’s associations are like a small business, too. If you stop paying them they’re going to say they can’t do any of the work they’re supposed to do.
So I don’t know how that’s going to work out, it’s really very specific and they should try to contact whoever is the head of the homeowner’s association because I’m sure there are others in the building that have that same question.
Q: While I’ve got you on the subject, any idea whether the HOA’s themselves might qualify as beneficiaries under the CARES Act?
I think they might. I’m aware of one I'm familiar with that has applied and was approved under the CARES Act for that very reason. Homeowner’s associations are usually corporations, they’re not non-profits so they should be covered by it. You have to keep in mind though that a lot of the aid covers salaries and other lost income, not specifically people not paying dues. So you’d have to look into that but there is probably relief available to them, at least in terms of a loan.
Q: My daughter’s purchasing a mobile home. She’s got both a mortgage payment and a space rental in the mobile park and laid off due to COVID-19, can’t pay the mortgage payment or the space rental. What protection do mobile homeowners have?
Mobile owners, particularly if she has a mortgage on the property, should have some protection. It’s a different situation if you don’t own the underlying property or are just renting in a park or something like that. But generally there’s national forbearance that’s being offered and for two or three months at least, sometimes as long as a year, they’re forgiving payments or at least forgoing payments. The real issue is going to be that there’s no procedure being discussed for how you’re going to catch up down the road.
Q: That’s a good stopping point to ask you to explain the difference between forgiving and forbearing.
As far as I can tell, no one is talking about forgiving. Forbearance means you’re just deferring the payments.
So let’s assume the best case scenario: you’re laid off for three months, you can’t make your mortgage payment for three months. They’ll say 'that’s fine, we won’t nick your credit or hold you responsible for missing those three payments.' But once those three months are up, let’s assume you get rehired, those three months payments are due technically.
That’s going to be very hard for most people who are having trouble paying one month’s payment - they’re not going to want to pay three months at once, or have the ability to do that. Then you’re going to have to work with the lender or the landlord to structure some way that that can be tacked on at the end of your mortgage, or a little bit paid off at a time. But again we haven’t got anywhere close to working out those kinds of details, unfortunately.
Q: Do you know what the overall big lender situation is on forbearance and working with people on payments?
The CARES Act specifically states that lenders are required to offer up to a year’s worth or forbearance or missed payments. However it appears that only applies to government-related mortgages. And of course California has a lot of jumbo mortgages - those over about $750,000. And so in those cases it’s being left up to the individual lenders like Bank of America.
Bank of America has been fairly aggressive in terms of announcing that it’s willing to work with borrowers and offer them forbearance and so I think they’re one of the better lenders at offering to work with you. The real challenge of course now is with any of these programs you’re supposed to contact whoever services your mortgage - where you send your check every month - and talk to someone about what they offer and how you sign up for it. And you can’t even get people to answer the phone, so that’s problematic in and of itself.
Q: I’ve been nervous since the ’08 financial meltdown ruined my credit. What’s the best advice for hanging on to my home and my credit this time?
The good news is, this is considered an extraordinary issue and nobody is saying they’re going to ding your credit if you call your servicer and actually ask for forbearance or the ability to defer some of your payments. So I think in the short term you have less to worry about. It’s going to be longer term, when you have to work out a payback problem or system.
Q: With the delay by state order of tenant’s rent payments, it severely affects my cashflow from paying my mortgage and other vendors - PG&E, property tax, etc. Can I also defer these payment obligations without penalty?
Yes, I believe so. Most utility companies are offering some sort of forbearance on a short term basis. And once again, you’re supposed to contact them all. You’re not supposed to just say ‘I guess I don’t have to make all these payments.’ You need to contact anyone, tell them what you’re doing, how long you think it’s going to last.
Q: Any advice regarding mortgages that would apply whether it’s a residential property or a commercial property?
It’s less certain for commercial properties. That, I don’t think was specifically covered in the federal CARES Act and generally governments are less likely to extend relief to commercial properties.
That being said, that’s one of the questions that comes up now is, ‘I’ve got a small retail business and I’ve contacted the landlord about missing some payments’ and then the landlord says ‘I have to get approval from my investor’ and then the investor has to get approval from their lender. So it’s fairly complicated and so far I haven’t heard any good solutions to that.
Q: We are three weeks into our mortgage re-fi process with a broker. Generally they tell you don’t make any new credit applications during this time, but my husband does need to file for his business relief funding under the Paycheck Protection Program. Should we wait to submit this application and maybe lose out until the re-fi is over, or would banks or lenders make exceptions for this kind of loan application at this time?
Supposedly the paycheck programs are not counted against you or as an application for new credit, so I think you can go ahead with that. The issue with dealing with a mortgage broker is they’re working through a lender who’s ultimately going to make the determination on way or the other.
But the broker should be able to give you good information on what’s the outlook for getting this closed and is it going to impact you by trying to seek any of these relief programs. The relief programs are set up specifically so you’re not supposed to be dinged on a credit basis or denied credit based on it.
Q: There are seven years left on our 3% rate mortgage at $1500 a month. In anticipation of a layoff, should we re-fi to a longer term mortgage at a lower payment (saving $1000 a month) or should we use our savings account to pay it off? We have enough to cover the entire balance and have some left. That would decrease our monthly expenses.
I guess if you can pay it off, that’s always the best avenue. It could be problematic trying to refinance now, particularly if you don’t have income and everything else to support it. So I would definitely say if you’ve got the payoff ability and you can survive after that without that payment, that’s the better route.
Q: Let me ask you what your crystal ball sees on mortgage interest rates, short-term, medium-term?
Well frankly, mortgage interest rates should be at record lows and the only reason they’re not is because we’re dealing with a pandemic and lenders don’t have to offer low rates. But you can still find rates around 4% or a little under for government-related mortgages. The problem has been the jumbo mortgages. Lenders are a little spooked on doing that and frankly they don’t have to offer great rates, so the rates tend to be a little higher.
Q: I’m in the middle of a divorce and trying to buy my almost-ex-spouse out of the equity in the home. Trying to qualify for a jumbo or maybe a traditional plus a HELOC to cover it creatively. But here are the complications: I’m a 1099 contractor suddenly not working and currently not even sure if I can get unemployment, additionally, my name’s not actually on the loan for this house although it is on the title. So if I go into forbearance because of the unemployment situation will that affect my qualification for a new loan if I can do that quickly? I got a lot of options working but have not made a forbearance move yet on the current mortgage. Thanks, sorry it’s long and complicated.
It certainly is complicated. My guess is a new lender is going to hold it against you that you’re attached to another mortgage, period. And also if you’re seeking forbearance on that, I think a new lender is going to be reluctant to want to make you a loan. It’s even compounded more if you’re an independent contractor and you’re facing lower wages or no wages for a short term. It’s going to be very difficult.
Q: I’ve been reading a lot about the trouble with mortgage processors and we pay our mortgage through one of these processors, not directly to the lender. Should I be worried?
I guess you should be, yes. Because unfortunately, if there are problems with the processor handling the money ultimately you can’t turn and blame the processor, the lender is going to hold you responsible. So this may be a good time to rethink using a processor. Most lenders and servicers have direct deposit, automatic payments, things you can automatically wire once a month. I would suggest seriously looking at an alternative payment system.
Q: Any last thoughts comparing this with what we all went through not that long ago, with the ’08 recession?
In ’08 we really saw a mortgage crisis and foreclosure crisis unfold over two years. Everything now is much more condensed and we’re seeing the same level, if not greater unemployment and missed payments taking place over a matter of months. It’s going to be a real challenge for the mortgage market to deal with that moving forward.
The best case scenario is we return to some sort of normalcy after four or five months. Worst case is this drags out for a year and it takes years to recover.