Jason Hartman brings on a client guest to talk about their experience with a nonpaying tenant. They go into different creative solutions to help both tenants and landlords. Jason and Drew also talk about China’s role in the world.
In the second half of the show, Jason chats with Adam, an investment counselor. They talk about lender updates and mortgage rates.
Drew 0:00
You’re that kind of person and you’ve got the capital and you’re a great negotiator. You’ve got great people skills. You You could probably be a successful flipper, but it’s like a job. Right? If you’re not flipping, you’re not making money. And that’s why I prefer income property because you just make money every month.
Drew 0:18
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:08
Welcome to Episode 1424 1424. We have got our mortgage update today for part two of this show, you’re definitely going to want to hear that. There’s obviously a lot, a lot, a lot, a lot going on in the credit markets. There’s a lot going on everywhere. You know, it’s funny, folks, I gotta tell you, people are saying to me, Well, you know, they occasionally Say something. Well, Jason, are you relaxing a little bit because you’re not traveling anywhere or you’re at home all the time? Oh, yeah. That’s a nice myth, folks. I’m busier than ever. There is so much to cover. Remember, we are in the media business. And there’s an awful lot of news nowadays, as you all know, and assimilating it, bringing it to you sifting what’s important, what’s not. It is a it is a big job. But here we are. And I’m grateful to have the opportunity to do it. And I’m also grateful to have drew Baker, our client, who’s been on the show many times here today. And as we have rents due today, the rent is due, and many tenants are not going to pay. Now, here’s the thing. Tenants tend to not have as much information as landlords do most of the time, at least not landlords that are listening to the show. So most of them are going to pay their rent, but some won’t. And hey, you can’t really blame them. These are extraordinary times. And usually, you know, with your tenant, you’ve got to kind of take a bit of a hardline, Oh, you’ve got to sort of have draw boundaries and make them stay healthy because once you sort of breach that line, then tenants no longer respect it but we are living in extraordinary times and it calls for something different and this is the time to adjust. are strategies as landlords and and work on that. So Drew’s here to talk about that. We have some comments on the general economy. Drew, how’s it going?
Drew 3:09
Hey, Jason. Yeah, I reached out to you because I thought that it was interesting after getting a message from one of my tenants saying that they were not going to pay rent, I sort of suspected there would be a fallout. And, you know, that was one of the responsible ones that told me they’re not going to be able to pay.
Jason Hartman 3:26
That’s nice. They, they reached out to you. And by the way, you know, you’ve all heard drew before talking about self management, he’s been self managing for about two years now. And I think this is really one of the other great things about self management. Your tenant is going to treat you like a human and you should treat them like a human. They are your customer after all, you know, remember, the customer is always who’s paying you, right? So anyway, this really is a good you have a much better bond with the tenant when you don’t have a property. Manager when you’re self managing, so I think this will go a lot better for those self managers out there. But what did they say when they reached out to you? Now, this is just one of your tenants, you’ve got properties, but this one.
Drew 4:14
So one of the tenants reached out and said, Hey, I just want to let you know that we’re safe here. Hope you guys are doing well in California. We’re still unfortunately in California, but but it’s meaning you not the tenant. Yes. And they just wanted to write and let me know that they that Cova 19 is affecting their income and they won’t be able to pay rent this month. And they anticipate we’ll be able to start paying rent again, may 1, and they said just reach out if I had any questions. Well, I started sort of pecking at the little iPhone keyboard sort of trying to figure out the right thing to say and I just said, you know, I’m just going to call them it’s anything I say, is going to come up come across as insensitive or could possibly get misconstrued. And I also don’t want to say something that might You know, be in writing that I might sort of not want to have it be used as a weapon against me if it’s seen in a different light than it’s intended
Jason Hartman 5:09
to have to go to court at some point. And yeah, don’t do that. Yeah, this is look, folks, we were built to talk, I think communication has gone down the tubes. Since we started using text based communication. About 25 years ago, when email really got popular. I think communications become largely a disaster, people are not good at expressing themselves with the written word. Some are but not many. And also, there’s a lot of data in voice communication that does not exist in text based communication. Now, text based communication obviously has its place when you want to do something highly technical, or you want to preserve something for the legal record or for posterity. So it has its place, but mostly we were built to talk you know, God gave us mouths and years and that’s how we were designed Writing came much later. It’s a it’s a man made invention. So you call them up? And what happened?
Drew 6:05
Yeah, so I was talking to the tenant, we were trying to figure out sort of a good situation. I told him, Hey, listen, this is a team effort for this, you know, short period of time. And we’re doing okay, here in California. I hope your family’s doing well over there. I said, here’s the difficulty is if I have expenses associated with my house over here, and I have expenses associated with your house over there. And if we’re not making any effort towards working together towards covering those bills, I’m sort of having to, you know, go and reach over and take care of that. And it’s a strain on us over here. So I said, like, let’s try to work together. If you can make some payment. Like he said, of course, I can’t pay till May. And I said, Hey, if we can make some effort to pay off, you know, and I didn’t even start In amount, my wife said, you know, maybe you should say, Hey, can you pay half? I didn’t even say an amount I just said, pay what you can, you know, please help out. Of course, he understood he was reasonable. And he offered to pay 75% of the month’s rent, which I was shocked. But I gladly accepted, accepted and said, Hey, I’ll waive the late fees. So there’s not going to be any late fees associated with this. But try to see if you can do what you can in the next you know, couple months we’ll reassess as each month goes on. So that went well for that. Now, I am worried about what’s gonna happen with regards to my other tenants that aren’t so responsible as to give me a heads up even though this was you know, two days before, but you know, March people worked two weeks out of the month before this all went to hell. So I don’t know what’s going to happen in May. situation. I don’t see this situation for some That’s sort of in its starter home situation. In some cases, I don’t see that situation getting better in May. So I just really wanted to stress to them, like, Hey, we got to put our best foot forward. And I don’t want it. If it gets worse, I don’t want to push the push a little forward here while we can in this month. So I kind of reached out to you and wanted to get your thoughts on, like being compassionate.
Jason Hartman 8:27
Yeah, I think I think that’s a good question, Drew. I think this is the time to practice compassion. And, you know, it’s it’s kind of funny the way we think as humans. You know, we’ll give money to charity. But then when it comes to our own business or our own tenants, we don’t give there. It’s just kind of an odd thing. And I’m making a massive generalization of course, you know, there are several things you can do. You could agree to do a forbearance, which is why your lender is going to do for you if you go to the lender and play the game of hot potato, which by the way, I recommend, you know, the lenders are doing bailouts and they’ll easily give a 90 day forbearance if you just ask for it. And all you have to say is due to economic circumstances, literally, that’s it. And they don’t ask you to provide any documents or anything. Although I will say when you go to your lender, get that in writing, you must have some document from them. They’re not supposed to do any negative credit reporting or anything, but they will let your loan slide for 90 days. That’s pretty much the universal thing, maybe up to a year, okay. And then just tack it on to the back of the loan. You can do a forbearance with the tenant, you could just provide free rent. And you know, if they lost their job, you could just do something charitable. Of course, that’ll reduce your income tax burden. So it is deductible. Remember, the government is your partner in all of this. Or you could reduce the rent, maybe you have $300 a month positive cash flow, you could reduce it by $300. Remember, the tenant is not totally down and out, they are getting a 1200 dollar bailout check. And then if they have kids, they’re gonna get $500 for each kid. And if they’re two adults, they’re going to get 1200 each, that’s most likely what will happen that’ll just appear in their bank account. So remember, if they lost their job, they’re not getting zero, okay, the most likely scenario is they’re getting something from the government, or they’re getting some severance from their employer, or the payment doesn’t cut off right away. So you can offer you know, essentially like an emergency repayment program. You could ask them to pay with a credit card. Okay, if you have a merchant processing account, which, by the way, is very easy to get through square or stripe. It’s very easy to get a merchant processing account just as an individual person, you know, yeah, yeah building if you subscribe to DMC pay, there is an option for your tenants pay by credit card through that service. Right? I just never have done that, because I don’t want the charge back situation and having to fight that out. But I don’t think I think that it’s better than nothing. I agree. I agree. So you’ve talked before on the show, how you subscribe to build them. And you do that basic minimum account that I think it’s like $40 a month to use their software just to manage your own properties. Now, that’s a software that a lot of big property management companies use also. But it’s great that you use it and I know you looked at them and talked about that on a prior episode. So we won’t go into that today, but it has a credit card processing option. You can use government programs created for landlords and renters like section eight, you know, they could jump on to a government assisted program. You could offer your units free to volunteers or healthcare workers. That’s another charitable thing you could do. You could just be in touch like you’ve done About with these renters who can’t pay the rent, you could ask them or you could go get a rent insurance policy. And those are available. There’s becoming a lot more of interest today. And you got there are many companies that offer it, check them out. We’ve had a couple on the shows over the years, you can offer to split up the payments, and have like a sort of a layaway repayment plan. Pay me something this month, and then let’s add $100 to the rent next month and the month after to sort of pay it off. You could do a one time only discount, maybe for early payment or something. And if they’re handy and drew you’ve done great at this, you could trade them for working on the house, okay, heck, their home, they don’t have anything to do. And you know, some of you listening to this, literally have contractors renting from you living in your units. Maybe they could fix up the house and you could offer them a trade. Okay, so there’s lots of creative options. But just remember, this is the time when you need to be more creative. And you also need to be more understanding. Normally, you know, we would say, look, you got to be kind of strict with your tenant. But this is not the time for that. This is the time to talk to work things out to be creative, and things will work out well for all parties.
Drew 13:22
Yeah, I mean, the benefit of having the self management thing is you kind of have a little bit more of a direct pulse on what’s going on with tenant. And I think the thing that my first perception of this was that there is going to be a moral hazard of everyone going like, Hey, there will, everybody’s not paying their rent, so I’m not going to pay it either.
Jason Hartman 13:44
And you don’t have to pay your mortgage. So yeah,
Drew 13:46
they’re not gonna evict me because they’re not doing any eviction. Right,
Jason Hartman 13:50
right, right. And remember, most tenants don’t know this. They’re not paying attention to this kind of news. Okay, the word will get out but they don’t all know this. So Don’t think that they do. The moral hazard concept is really a game of what I call Trickle Up economics. And I saw this happen during the Great Recession, you know, first it starts with someone not paying their rent. And then that landlord in commercial or residential property says, Hey, lender, I can’t pay you. I can’t pay the mortgage. And then that lender goes to the government and says, We need a bailout, or they default on their bondholders and their bondholders say we need a bailout. So it’s Trickle Up economics, as opposed to trickle down economics that you’ve all heard, of course, okay. So it’s a pretty crazy interesting time, but we’re gonna see more of this. So just be prepared. This month is sort of a very important month for the economy. Most of our podcasts are pretty evergreen, and we can replay them on flashback Friday, because the same rules that applied 10 years ago, apply today. But what we’re in right now is a very, very unusual time. By the way, a couple news items here. FHA has now and VA government sponsored loans, have or government insured loans have now joined the government sponsored entities Fannie Mae and Freddie Mac, in relaxing their lending standards. Okay. Coming out of the Great Recession 1012 years ago, depending on how you count it, you know, most of us said that, look, the banks have overcorrected. They’re being too strict. Okay. And now, they’re going to sow the seed of the next mortgage crisis, because they’ve now all relaxed the standards. How much have they relaxed? I don’t exactly know, and don’t have time to get into the details anyway, it’s probably not that important. But if it goes on too long, and it’s not just a temporary thing, it could lead to the next mortgage meltdown in seven years. So just remember I said Here in 2020, okay. Also another news item I want to share with you. And this is from a government consultant, okay, on Twitter, who did work for the Communist Party of China, the Chinese government, okay, the CCP. And he said, he said this in his tweet. This is Tony Nash. By the way, I don’t know if he’s been on the show, I can’t remember. But he said, it’s actually incredible how quickly, China’s role in the world has changed. nobody trusts China anymore. Nobody will invest in China anymore. Nobody wants to be in China anymore. And this will hurt all of Asia, not just China. By the way, Drew, I noticed you liked that post when I posted in our private content group.
Drew 16:52
So true. I mean, Trump really set this up. I mean, a Trump has his downsides, but no One was paying attention to China and sort of the abuses that were going on there. And,
Jason Hartman 17:05
and and, and the liberals kept hammering Trump on the trade war, the trade war. And, you know, he wanted to bring jobs back to the US. Well, I think he’s gonna get his way now, because businesses do not want to have all their eggs in one basket. Okay, they’ve seen their supply chain disrupted. This, we’ve talked on prior episodes about becoming supply, demand shock, and my prediction that we’re going to come out of this with a stagflation area environment. And that’s pretty miserable for most people. It won’t be miserable to those of you listening to the show, because you’re going to know how to combat it. And you already do, because we have inflation and two step destruction, and so forth. But it’s it’s pretty interesting what’s going on. We finally learned that guess what countries need some degree of autonomy. They need borders, and they need fair trade, income. Companies need to manufacture on shore, we cannot have the situation where China could withhold antibiotics because they’re trying to get something in the trade war from Americans, okay? We we just cannot have this. You cannot outsource everything, especially critical things, some things. Sure outsource it. That’s great. I like free trade as much as the next guy. But there are limits to that philosophical idea. So interesting. Drew, I got to ask you a question. Do you think this is interesting because it could go one of many ways. But some have predicted that nine months from now there’s going to be a mini baby boom, because everybody’s at home with nothing to do. So what do they do? They either get in fights and arguments, or they jump in bed and make a baby. So what do you think is going to happen, you know, is the divorce rate going to increase now that people are getting Cabin Fever And arguing, or is there going to be baby boom or maybe both. But either way investors, it means a greater need for housing. If you have another kid or two, you need a bigger house, or you need to get out of that apartment. Or if you get in big arguments and you get a divorce, then you need two houses rather than one. So either way you increase the housing, go ahead.
Drew 19:25
Statistically, I doubt it will make a big difference either way, because I think having the economy be shattered is different than just people are going to be less likely to want to have another kid and that financial burden. And I you know, when you come back from World War Two, and the economy is starting to just start to go, but nine months from now, who knows? But, you know, the thing I think that could be interesting is when you start to diversify the supply chain, and maybe you bring some of that stuff back home sort of it will cause a bit of a Renaissance. And anything’s possible, but
Jason Hartman 20:03
I have I have read articles by the way on this note, I had to bring it up that there is a looming shortage of condoms. I’m guessing a lot of those must be made in China. I did not know this stuff. I saw a couple articles about it. So maybe there will be a baby boom accidentally. sooner? Yeah. Yeah, it’s, it’s, it’s pretty interesting. We’ll see. We’ll see. So nine months will tell. Also another interesting tweet, by the way, and then we’ll get to part two of today’s episode, but rip to the Federal Reserve. Okay, and this is, I are on belly, okay, on Twitter, whoever that is, I don’t know who it is. Okay. This is huge. The scheme essentially merges the Fed and the Treasury into one organization. So meet your new federal reserve chairman. Donald J. Trump. And you know, Trump is spoken out about the Fed. He doesn’t like the Fed. Okay. And the last president that I know of that really spoke out against the Fed was john F. Kennedy. And he was assassinated. So you don’t want to speak out against the Fed. But yeah, that’s, that’s pretty interesting.
Drew 21:24
You know, Jason, I want to ask you something. The thing I i think is, it just kind of dawned on me about how this is like such a huge event in society that will This is
Jason Hartman 21:33
100 year event. This is the best news story of the last century right now.
Drew 21:38
Yeah. And I mean, you know, I feel like in every conversation, you’re talking, you know, they joke about how every conversation ends up going back to Hitler, you know, or it seems like every conversation goes back to terrorism or goes back to 2008 or goes back to, you know, the.com bubble. I mean, this is going to be one of those events that sort of brought up and remembered, oh, yeah, for a long time This,
Jason Hartman 22:02
by the way, and we’re gonna get into this and you know, I’m gonna make my presentation on pandemic investing available to all the listeners. So stay tuned for that. The problem is, I can’t finish the darn thing I thought it was finished and, and I presented it a couple of times to a couple of groups. And then I have to keep adding to it because so much keeps changing. But this is a generational shift. Folks, I’m telling you, things have changed, essentially, forever. When I say that I mean for generation, and that’s about 25 years, give or take public gatherings, just everything has changed. You’re going to see a reversion to simpler lifestyle in many ways. You’re going to see a new focus on maybe what’s more important in life. You’re going to see a new kind of interesting focus on a different kind of environmentalism. You Maybe one I actually agree with a little more than the past sort of communistic environmentalism that we’ve had. I’m just telling you things are changing radically. But most of all, for investors, a mass migration coming toward lower density housing. And guess what? For the past 16 years, that’s what I’ve been helping all of you invest in lower density, suburban style housing, there is going to be a huge migration toward that. When this blows over. And people in places like New York City and high density LA, they want out, okay, and I am sure I am right about this. I’ve never been so sure about any prediction as I am about this one. And by the way, if you haven’t heard my episodes on it on this show, or the holistic survival show, look up un agenda 21 Okay, which means 21st century of how the United Nations has this sort of global agenda to push people into higher density environments. Well, there’s going to be a real mood against that kind of thing. So just just look that up. There’s some conspiratorial aspects, but it’s it’s pretty interesting either way.
Drew 24:16
There’s definitely I mean, you know, it seems like for the last decade, there’s been this push towards investing downtown’s. And the young people, you know, getting the old Nabisco factory retrofitted into these single loss. Yeah, cobots downtown. And I think you’re going to see a bit of an inspired unraveling of that, and you’re right suburban sprawl and sort of investing more in that in that area. So giving people a little more space is definitely going to be a good place to be.
Jason Hartman 24:47
Yeah, so that’s where your money is listeners and good for you. You know, I have many friends that own a lot of high density apartment units that kind of thought they were too good to invest. In single family homes, and they, you know, they said, Well, no, I only do commercial real estate on my bigwig. Guess what? The home has proven to be the undisputed center of the universe. And guess what? Everybody has become much more tech savvy. And I don’t mean high tech. I just mean, now they’ve people like my mother, okay, who could probably never before this use zoom, or Skype. Okay. She did use FaceTime on on her iPhone. Now. They’re they’re seeing that you can do things remotely. And guess what else? The emperor has no clothes. And that is going to be the university system. The emperor has no clothes, because now all of those kids have been told. Go do go take your college classes online. And guess what? There’s a university not too far from where I live. I go there once in a while to throw the ball to my dog. And I just look around and I think all these buildings that this campus is totally empty right now. And all of these buildings, I don’t think they’ll ever be repopulated. I just think it’s an absolute sea change. And the way colleges have been just overcharging people for decades now, that’s over. Because suddenly, if people can’t have a college experience the same way, and it’s just online learning, which is infinitely scalable, they’re not going to pay the price. Thankfully, they’ve woken up, they’ve realized the emperor has no clothes. And there’s a lot of good stuff that’s going to come out of this, folks. I know it’s a hard time now. And I hope everybody’s safe and well, but a lot of a lot of silver linings in this dark cloud. So we’ll get through it. And Drew, thanks for being on with us today. We got to play a little segment before we go for part two of the episode today. But thanks again for joining us.
Adam 26:57
Welcome to this edition of the mortgage minutes. We are joined by one of the lenders from Jason’s network. We decided we needed to do this because there’s a whole lot of stuff going on in the world, actually, these days. And investors want to know what mortgage rates are looking like. So what are mortgage rates looking like right now?
Drew 27:18
Thanks, Adam. Let me give a brief history of what’s happened in the last couple of weeks. You know, traditionally, the mortgage market would move in tandem with, you know, the 10 year yield. And note as that goes up and down, mortgage rates tend to follow that, you know, for the most part, mortgage backed securities wouldn’t be traded up and down similarly to how that yield that 10 year yields trade. So what we saw was a huge massive sell off in the stock markets, with fears of the corona virus growing around the world, to the degree that the natural market movement and reaction of the market fall on Suze and we got mortgage rates down to Story laws. Now a lot of people were able to refinance those loans as those low rates. And to degree, it lightning in a bottle. Because you have typically got like 11, the mortgage market and $11 trillion business or industry. If you look at a normal year, the mortgage industry across the country can handle about $3 trillion of mortgages and a good year, and a 50% purchase and 50% refinance. So when you have four or $5 trillion worth of business or mortgages trying to refinance to historic lows all in one month, lenders reached capacity pretty quickly, there becomes a floor to the market regardless of what the market does. So Subsequently, the Fed goes to zero to 10 year yield trades down to less than a half percent. But mortgage rates hit a floor and we saw that floor folks were able to refinance, again to integrate lightning in a bottle before market rate started to rise again. Part of the reason why rates started to go up was lenders had capacity and started to artificially price a lot higher to stop volume coming in, or price long that 90 day and 120 day long periods, which lead to higher interest rates because you’re protecting the rate for longer. Coupled with that, you had the Fed come in and inject $1.5 trillion into the economy. And lower the Fed Funds raise a half a point at the time. Now that $1.5 trillion had no zero and that money was earmarked for mortgage backed security purchases. So there was a massive sell off of mortgage backed securities across the economy across the the marketplace, which led to higher interest rates. So you had lenders that capacity, and you had mortgage backed securities being sold off at a tremendous rate, which all led to higher interest rates because they found out they didn’t have any buyers to buy mortgage backed securities. Now China being one of the largest Just purchasers of mortgage debt have long term debt, obviously on lockdown as well as stopped purchasing mortgage backed securities for the time being, all their sovereign nations that are on hold in Turkey in terms of buying mortgage backed securities. So the Fed comes in last Sunday and puts another 700 billion into the economy 200 billion of which was earmarked to purchase mortgage backed securities which kind of stem the tide a little bit of rates going higher. However, it didn’t really give too much confidence to the market last week, and we saw red to a degree, the lenders degree be uncertain on where to price their mortgage rates. This week, this morning, we’re looking to see some normalcy, I suppose, lenders are still very, very wary of where the market can go. The Fed is buying mortgage backed securities, so that stabilize that a little bit and we’re seeing rates kind of return to somewhat of a normal level. But for our folks for our clients. For the investment property investors and guys who have multiple properties under, you know, under management, maybe I’d rates like five, five and a half percent. I’m looking to refinance, that market really has, again, we missed that market, because it was so fleeting. And rates are very similar to where they are now when you purchase a home maybe 18 months ago. So we are seeing rates right now hovering around, you know, 4.75 or even 5% with 25% equity or 75% loan to value on a purchase deal. We’re seeing rates around four and a half percent right now. So that’s pretty good compared to last week when these rates were about a point higher due to the uncertainty in the lender world.
Adam 31:47
It all matters on you know, you said it’s, it’s gone up since then. But I mean, you were able to get rates you know, below for, you know, not that long ago and that’s just yeah, that’s just incredible. So when you say gone up. It’s really just gone up to kind of reasonable levels and
Adam 32:04
went up over five last week. It’s kind of normalized. We think it’s going to stabilize. And we think obviously, we’re going to be heading into the global recession here with cobit 19. Yeah. And we don’t know how long that’s going to be. So in the national market again, when we hit a recessionary period, mortgage backed securities are when they’re being purchased in a normal fashion and when they’re trading in a normal fashion, mortgage interest rates will go down, they will normalize and they will trend down because of the recessionary nature of the economy. Okay, so what we’re anticipating right now is kind of like a an unknown, it’s kind of unprecedented, some markets are reacting, some are not Fed is kind of beefing up purchases and mortgage backed securities, which is absolutely helping stabilize things. So we anticipate that rates will improve. So as a relates to the folks out there who may be under contract, and are just seeing great kind of a little bit higher than they would have been to see What we’re doing is we’re generally floating everything right now we’re getting everything underwritten. We’re getting everything approved, collecting all the necessary documentation forever for underwriting approval, but we’re floating the interest rates with a new that that interest rate will be lower and move in a more normal method or more normal transactional way. Once we, you know, just realize the recessionary nature of the economy. So, prior to closing, we would probably lock in a lower rate than what we would have snorting today. And just because of that recessionary nature, so, that’s kind of what we’re looking at next try and just trying to explain why. All the calls we got last week for refinancing, and people were surprised their rates were so high.
Adam 33:40
Yeah, so one thing I’ve heard from a lender friend of mine, was that there’s a big spread right now, or at least there was recently between 20 and 25%. down like it was bigger than it usually is. What or did you see that and kind of is there still, um, it was like a one person spread between the two. Are you seen something like that still?
Adam 34:04
Yeah, I mean, on the normal market, that’s probably about a half a point, three, eight to a half point difference in rate between 20 and 25%. Down. Last week, we’re seeing about a point, I think this morning, I priced one out 20 versus 25. And it was about three quarters and point or a five eight point difference in that rate spread between 25 and 20%. down. So it’s normalizing and coming back to the kind of typical typical fashion or the spread that we would normally see between those two down payment options. You’re certainly going to see a little bit better and rates for purchase money as opposed to refinance money. Both spreads the differential there is still a little exacerbated, you know, a 25% down purchase and four and a half percent today. If that was a say an equity position for a rate and term refinance, same size loan investment property, single family, it’s probably about a half a point higher rate today. So that spread is still a little bit exacerbated and hasn’t really normal. But we do anticipate that it will. So, you know, I think Fannie and Freddie are still getting a grip on what the Fed action has taken, what the stock market is doing. All of that has an impact on rates, but not one. One of the reactions in the market will dictate where rates go, Oregon who’s purchased the mortgage backed securities. Now, one more thing I will add in this conversation, I suppose is, you know, typical unemployment figures or unemployment claims on a weekly basis of around 600,000. Every week, Goldman Sachs came out last week and predicted that unemployment claims this week literally will rise up to 2.25 million, but that does put pressure on rates because the perception of risk when we’re lenders are pricing rates out is to cover or to anticipate mortgage defaults due to temporary or long term unemployment. Yeah. So when you see unemployment numbers, quadruple, Basically, in the space of a week, that will have an impact on mortgage rates. So while the market might be normalizing, and the Fed might be buying mortgage backed securities, and we might see China and sovereign nations come in and buy us debt again over the next week or so, the unemployment figures do tickle with 19 might have an opposite effect on race as well. So it’s still a very uncertain time. So very impressive, very unprecedented times. And, you know, best thing to do would be to call us and help us monitor the race if you’re looking to refinance or get a sense of where the market is, and maybe scheduling another call from two weeks from now to see where the market is then maybe take advantage of a more normal market. So if we get to say July or August, and the fears of coronavirus have tapered off potentially, and but we’re in a recession, you know, or at least we’re I guess at that point we couldn’t technically be in a recession since we wouldn’t have two quarters of Down growth. But you know, we would all know that we’re in a recession, what would you expect rates to get down to. So I think I think the market will react more normal or begin to react normally. Once you see Colin by calling 19 numbers taper off or start to head south rather than going on right now everything is on the upside more and more cases every day. And there’s more and more deaths every day, creating more and more uncertainty and more and more panic. Dates across the country are locking, locking down movement of people and companies of industries to degree or shuttering doors and laying people off. So right now, until those numbers start to go down until they start start to see or the market says get defensive containment and and those numbers start to improve. That’s when I think even though we might still be in a recession that we’ll see market mortgage rates start to react more normally and come down in relation to the recessionary nature of the economy. But I think by July and August, should this you know, the fear of growth of the pandemic be tapering off and be more contained, so to speak, and health systems are able to treat folks with the disease. And then I think you’ll see mortgage rates come down to a more natural level and, and be reflective of the be recessionary nature of the market. So, hopefully by then, that’s what happens. But until we see those numbers start to decline. I don’t think the market will really have a lot of confidence. And the Fed may be the only buyer of mortgage backed securities until that happens.
Adam 38:39
Yeah, so if, you know we mentioned the unemployment numbers and you know, the skyrocketing numbers, if that comes in, you know, say we have 2.2 million in this one, but then we see kind of a decrease to you know, maybe I mean, I think it’s gonna be higher than 600,000. But you know, if we drop down to 1 million even Yeah, how much have an impact do you think that would have?
Adam 39:02
I think it has a huge impact because it takes less than the perception of risk of default and mortgages comes out a little bit further comes on the more from the from the lenders point of view and from a risk point of view, because that people are back to work, right. So that risk of defaults should normalize, I mean, your typical default, you know, race on any given not seven years, probably between two and a half to 3% or less. So, when when unemployment numbers spiked like that in a week, there’s more, there’s a bigger perception of default risk. So, that gets priced indirect, just just across the board, so none of the numbers come down and the Cova 19 numbers start to come down. I think you’ll see a more natural mortgage raise either next to that, you know, like the, like I said, the recessionary nature of the market.
Adam 39:55
So what you’re saying is what the investors should be looking at as the Fed and other entities make moves is if you want to know what’s best for your rate, you want to see either the Fed or other entities buying up mortgage backed securities. And when that starts happening, yeah, we’re gonna see rates dropping a lot. So you know, if the Fed makes a move, but they don’t include mortgage backed securities, it’s not going to really impact us. But if you see him come in making a huge purchase, that’s kind of when we should look at the rates potentially dropping significantly.
Adam 40:26
Well, yeah, I think that’s great. I mean, obviously, the more demand we have, the longer lasting at the rates will
Adam 40:34
bring confidence back to that market. So
Adam 40:37
you know, right now, we’re just with certain rates and certain coupons that we had, okay, we’re locked in there are no buyers for that. There’s no return on it. So that’s why we’re seeing mortgage rates get higher because you know, those buyers out there lumpy returned to cover the losses on the other, the premium field. So, again, it’s a general sense of what’s going on but I just wanted to explain these are the reasons Rates move high very quickly. And they come down a lot slower than they go up. As we see, as he said, if we see things taper off, if we see numbers, and they’re definitely unemployment or Cova, 19 goes out, then the market should improve, but it will be gradual, it won’t be that sharp drop rate that we saw in the stack solavei days in a row, you know, so,
Adam 41:25
so how much if we continue to see unemployment go up? Like, you know, you said the 2.2 million, say it even stays around that or goes up to 2.5 or something? What rates kind of would you see us moving up to where we’re gonna move up into the sixes we’re gonna move into the sevens even kind of what rates would need to be determined? Really, I think that’s, that’s an unknown. You know, there’s some folks out there that I spoke to in the industry over the weekend. Now we’re predicting you know, rates to go up. Primary home ranch to go north about five and a half 6% but I don’t know it’s impossible. Hotel,
Adam 42:02
because you can still see you still see unemployment spike where you can see bigger mortgage backed security markets, purchasing mortgages, so it might offset each other. The recession, the nature of the market, a may offset from that as well. It’s really impossible to predict where rates would go either up or down at this point. But, again, the reason for the call today was just to kind of explain why we’re seeing such volatility in the market.
Adam 42:26
All right, well, is there anything else investors need to know? Are we covered at all?
Adam 42:30
No, I would again, I would say, you know, if you are under contracts, don’t hesitate to proceed and move forward with your contracts. We do believe the market will improve from the right perspective. We can get all of your loans approved and quantified. And one thing that we are getting questions on I suppose, is our closing loans because they’re probably 19. Our appraisers going out is notaries coming and finding documents for folks? So we’re working on obviously, Fannie and Freddie are developing a contingency plans, I suppose to allow loans to close by mortgages. mortgage companies like us are deemed essential businesses. So we are still operating. So they’ve made some concessions. We’re generally doing drive by appraisals now. And we’re working on E signatures in order so that folks can sign their documents electronically. Maybe scanning their IDs and, you know, taking videos of them signing, which are going notarized electronically. So there’s things like that coming to allow us to continue to close loans. But for the folks that are under contract and kind of on the fence, I would float the rates for you, I would get everything approved. I wouldn’t get the mortgage rate to improve once they do we lock in the rate for you. So the good thing as well is because if you do lock around and the market continues to improve, we will renegotiate and float that rate down for free. Like there’s some added protection and if you did lock in the current market rate today, we’re not close For a month, the market could very well improve and we can slow you down. So we anticipate that that occurring also, but what they are making some concessions as a relates to appraisal there needs to notaries and you’re an agent, the fear that folks have loved, you know, being exposed or exposing someone else. Well,
Adam 44:16
I appreciate your time. Thank you very much.
Jason Hartman 44:21
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