Mortgage Rates at All-Time Lows. So, Why Can't You Get a Loan??

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Mortgage Rates at All-Time Lows. So, Why Can't You Get a Loan??

Mitch Messer
Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes

If you are currently applying for a mortgage or HELOC, or are involved in a purchase transaction where someone is getting bank financing, or if you just want to understand how the mortgage lending ecosystem really operates, you need to check out the following excellent (and scary!) blog post:

http://financeonthefrontline.c...

No sales pitch, no product, just pure information.

Be sure to visit all the links cited in the post; there is some serious wisdom to be found there.

Don't be afraid; be informed!

13Reply
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Keith C.
Lender · Central Florida Markets · Member since 2017 · 137 posts · 135 votes
6y

@Caleb Heimsoth how can it be a great buying opportunity?

Has anyone lowered there asking prices yet ?

have banks started foreclosures on default loans ?

Are borrowers 90 days plus overdue yet and likely not able to catchup to payments as occurred in 2008?

We are in middle of the first inning of a 9 inning game - let’s see what happens in next 6- 9 months - what programs and money actually were delivered!

Are borrowers making timely payments !

Are sellers holding firm !

Are hard money lenders liquidating assets from borrowers who are months behind!

I wouldn’t start buying just yet - there too much uncertainty,, why do you think most Non QM lenders pulled the plug,

If your credit score is under 650 today it will be very hard getting a mortgage . What do you think that pressures places on sellers who just lost 45% of the their buying pool?

I’m on the sidelines cheering for All of US but betting on no one ,, Yet

7Reply
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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Mitch Messer I view this as a great buying opportunity

    3Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @Caleb Heimsoth, I agree 100%!

    Back in 2008 I was one of the thousands (millions?) of unprepared landlords who got absolutely crushed by rising vacancies, falling rents and plunging property valuations.

    Back then I desperately needed help, in the form of willing and able buyers. Now I'm pleased to be able to help those in that same predicament.

    2Reply
  • James Duffy
    Member since 2020 · 6 posts · 6 votes
    6y

    Great article, Mitch! I hope and rather suspect this disruption in the mortgage market will be addressed with a bailout of some sort and work itself out in the next couple of weeks.

    1Reply
  • THU NGUYEN
    Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
    6y

    @Mitch Messer

    Do you see a massive forclosure coming due to high unemployment - if current situation lasts for 2-3 months?  People will fall behind on their mortgage, don't have enough money to catchup after forbearance?   

    1Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @THU NGUYEN Yes, I suspect that most of the families that request a 90-day mortgage loan forbearance don't fully understand that they'll need to pay 3 months of mortgage payments plus their normal payment, in the 4th month.

    I do not expect most borrowers to be able to do this. 

    For many families, forbearance will put them on the express train straight to Foreclosure-ville. And, for those living in "fast-action" states like Georgia and Texas, they'll lose their homes within 30-45 days.

    I hope I'm wrong, but I doubt it.

    2Reply
  • THU NGUYEN
    Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
    6y

    "Back in 2008 I was one of the thousands (millions?) of unprepared landlords who got absolutely crushed by rising vacancies, falling rents and plunging property valuations."....

    Mitch, so with your past experience, how are you doing things differently this time?  Are you still buying currently or put the buying on hold for rental/flip?   

    4Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @THU NGUYEN Right now I'm trying to buy every great rental deal I can get my hands on! I'm on the phone from the time I awake until I collapse into bed, talking to sellers, investors, JV partners, etc.

    The 2008 Great Recession taught me to know my financials inside and out and to never, ever, buy a rental property based on the hope of appreciation. You cannot eat appreciation, and it can (and did!) disappear overnight.

    I also learned not to hide and wait for things to get better, because they don't get better on their own. Take action! Cut your losses and move on, if you have to, but move!

    See below for other lessons learned (I wrote this blog post back in 2018!):

    https://www.biggerpockets.com/...

    15Reply
  • THU NGUYEN
    Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
    6y

    @Mitch Messer, lenders are still lending there?  Are you taking no rent/no eviction into the picture when you are buying rental at this point?   

    I read your article, great insights, THANK YOU for sharing.  Seem like B class is the way to go during this time...C class: no job, can't afford rent and I can't evict so at least a few months of no rent coming out and mortgage still need to come out :( and  A class : no Cash Flow.  

    0Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @THU NGUYEN My understanding is that lenders here are still lending, but the loan qualifications have been raised a notch or two. Understandable, really; lenders are trying their best to mitigate their own risk.

    Now that the CARES Act stimulus package has been passed into law and relief checks are on their way, I fully expect Georgia to lift the eviction and foreclosure stays. Landlords and lenders are critical to our economic system. The longer they are prevented from exercising their rights to reclaim their property from non-payers, the more dominoes will fall and the worse things will get for everyone!

    Thanks for your kind words regarding my post. Yes, I'm a huge fan of B, B- and even some C+ properties, if the terms are right!

    1Reply
  • Drew Hittner
    Member since 2019 · 45 posts · 16 votes
    6y

     @Mitch Messer

    I'm a mortgage broker by trade. Just a mere 6 weeks ago it would be considered normal to write 4 streamline refinances a day. Seems like the lender overlays and costs went up over night. This one really hurt the primary only residence homeowners just looking to get out of their high rate. 

    I know it may seem like most homeowners would have at least 3 months of reserves, but typically it's not the case. 

    2Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @Drew Hittner Yikes! I absolutely agree, 3 months of reserves is a pretty onerous requirement, particularly these days!

    So, how long do you see things remaining this tight? Surely, this can't be the "New Normal," can it?

    Thanks for the insight!

    0Reply
  • Drew Hittner
    Member since 2019 · 45 posts · 16 votes
    6y
    Originally posted by @Mitch Messer:

    @Drew Hittner Yikes! I absolutely agree, 3 months of reserves is a pretty onerous requirement, particularly these days!

    So, how long do you see things remaining this tight? Surely, this can't be the "New Normal," can it?

    Thanks for the insight!

    Pricing could change overnight, but guideline/overlays will not. Because if you think about why, when a lender makes a guideline/overlay change to make their applications cleaner(higher FICO, reserves, strong DTI, low LTV, shorter terms) they know application count will be way down. When the app count goes down so do the income, then the employees. It happens fast, I saw loanDepot walk out 30 processors in 2018, only to offer them the job back 6-8 months later.

    What I think will happen is HUD will come out another program similar to HARP. Although you could argue this point forever, the government will do something for the people that own and are barely getting by.

    4Reply
  • THU NGUYEN
    Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
    6y

    @Drew Hittner:  UWM is one of my the main wholesale lenders that my broker uses.  He said it now needs 6 months reserve and no longer let broker earned lender credit so borrower has to pay for some points in order to get the loan.  Rate is higher for investment property, and fees are also higher....but to me conventional loan for investment is still the best rate that I can lock in for 30 yrs...so I am ok.  

    0Reply
  • Drew Hittner
    Member since 2019 · 45 posts · 16 votes
    6y

    @THU NGUYEN Is a huge player too. If they make changes, all the small lenders will follow suite.

    0Reply
  • Keith C.
    Lender · Central Florida Markets · Member since 2017 · 137 posts · 135 votes
    6y

    @Caleb Heimsoth how can it be a great buying opportunity?

    Has anyone lowered there asking prices yet ?

    have banks started foreclosures on default loans ?

    Are borrowers 90 days plus overdue yet and likely not able to catchup to payments as occurred in 2008?

    We are in middle of the first inning of a 9 inning game - let’s see what happens in next 6- 9 months - what programs and money actually were delivered!

    Are borrowers making timely payments !

    Are sellers holding firm !

    Are hard money lenders liquidating assets from borrowers who are months behind!

    I wouldn’t start buying just yet - there too much uncertainty,, why do you think most Non QM lenders pulled the plug,

    If your credit score is under 650 today it will be very hard getting a mortgage . What do you think that pressures places on sellers who just lost 45% of the their buying pool?

    I’m on the sidelines cheering for All of US but betting on no one ,, Yet

    7Reply
  • Ricardo S.
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 166 posts · 88 votes
    6y

    Just imagine you’re an out of state landlord with one maybe 2 properties plus your primary. Then Covid 19 comes along and your company lays you off! Now, you call in for a forbearance for 90 days on your properties. Your tenants then call and say they cant make May’s rent because they were furloughed. Just keep in mind that principal and interest may be deferred but taxes and insurance cannot and you will soon receive a letter from your banks stating a escrow shortage because of the deferments. Then boom you get a letter in the mail from me saying something along the lines of this:

    Hey I noticed you own a property in x area. I am interested in buying it outright or take it subject to the existing financing if you were affected by Covid 19 ...

    This will start happening by July at the earliest.

    3Reply
  • John Collins
    Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y
    Originally posted by @THU NGUYEN:

    @Drew Hittner:  UWM is one of my the main wholesale lenders that my broker uses.  He said it now needs 6 months reserve and no longer let broker earned lender credit so borrower has to pay for some points in order to get the loan.  Rate is higher for investment property, and fees are also higher....but to me conventional loan for investment is still the best rate that I can lock in for 30 yrs...so I am ok.  

    Can you cash flow on 15 yr loans? Or only 30?  

    0Reply
  • Will G.
    Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    6y

    @Mitch Messer do you recall what your vacancy rate went up to? It would probably be prudent to factor that # in to new deals.

    0Reply
  • James Duffy
    Member since 2020 · 6 posts · 6 votes
    6y

    @Drew Hittner - The government will do something; but I think backstopping mortgage servicers is the quick fix to the swift changes we have seen. Whether the home owner makes their payment or not, the mortgage servicer still has to make a payment to Fannie/Freddie/Ginnie...whomever actually owns the note, and they have to pay the bond holders. If the government guarantees payment to the servicer, even if the home owner is in forbearance, then we will go back to a 'new' normal.

    1Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Will G.:

    @Mitch Messer do you recall what your vacancy rate went up to? It would probably be prudent to factor that # in to new deals.

    It wasn't so much the vacancies; it was the extreme rent drop. We'd have a tenant call to say their hours had been severely cut at Walmart, so they could no longer afford the $1K rent and were moving out. Not great, but survivable. 

    However, once the old tenant left, every single prospect that came forward could not afford more than $800. So, we had to choose between remaining vacant or taking a 20% income haircut. And, since expenses like taxes and insurance were unaffected, if you weren't getting $200+ in positive cash flow before the downturn, you were now in Negative Land and thus officially screwed. 

    Oh yeah, and that's just one property! Multiply that by 10 or 20 or 50 and you can see why so many landlords took it in the teeth in 2008 and beyond.

    That's why I've been sadly shaking my head over the past two years whenever I'd see folks do deals with a whopping $68 in monthly cash flow. "Don't worry, I'm just buying for the appreciation," they'd say. I actually attended a REIA meeting last year (I won't say where) in which the presenter, the "voice of experience" for that group, got up and encouraged investors to endure negative cash flow for up to 3 years on the insane promise of inevitable wealth and riches to be made sometime in the future.

    Made me sick to my stomach to watch.

    9Reply
  • Will G.
    Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    6y

    @Mitch Messer thank you for your extremely valuable perspective. Too many who frequent this site don't want to hear the downside risks to r.e.

    So when you pull the trigger on something nowadays is 20% rent reduction cushion built into your model?

    1Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Will G.:

    @Mitch Messer thank you for your extremely valuable perspective. Too many who frequent this site don't want to hear the downside risks to r.e.

    So when you pull the trigger on something nowadays is 20% rent reduction cushion built into your model?

    Absolutely! I won't even consider a buy-and-hold deal unless it generates at least $200 in monthly cash flow. For the mid-market houses I'm looking for, that's a decent cushion, although obviously the more the better. Also, needless to say, I do not buy based on projected appreciation.

    That said, I don't know for certain that the 2020 Atlanta market will see the kind of severe rent plunge that we saw in 2008, when inventory was high and new construction of residential houses was at an all-time high.

    SFH inventory has been low for well over a year, so this limited housing supply, coupled with the continued strong desire so many folks have to live in (and even move to) Atlanta, suggests that rents should remain fairly stable.

    4Reply
  • Brenden MitchumBusiness Member
    Rental Property Investor · Atlanta, GA · Member since 2019 · 1k+ posts · 872 votes
    6y

    Hey @Mitch Messer! 

    Just wanted to say there are so many little bits of gold in this discussion. Thanks so much for sharing your wisdom and experience during an uncertain time. 

    Hugely helpful!

    [email protected]404-737-0018
    2Reply
  • Mitch Messer
    OP
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    Thanks @Brenden Mitchum! I'm happy to contribute what I can while I'm learning what I can.

    This thread sums up why I love BiggerPockets: As Ken Blanchard says, “None of us is as smart as all of us!”

    4Reply
  • Scott TitusPro Member
    Rental Property Investor · Lake Ozark, MO · Member since 2017 · 102 posts · 86 votes
    6y
    Originally posted by @Keith C.:

    @Caleb Heimsoth how can it be a great buying opportunity?

    Has anyone lowered there asking prices yet ?

    have banks started foreclosures on default loans ?

    Are borrowers 90 days plus overdue yet and likely not able to catchup to payments as occurred in 2008?

    We are in middle of the first inning of a 9 inning game - let’s see what happens in next 6- 9 months - what programs and money actually were delivered!

    Are borrowers making timely payments !

    Are sellers holding firm !

    Are hard money lenders liquidating assets from borrowers who are months behind!

    I wouldn’t start buying just yet - there too much uncertainty,, why do you think most Non QM lenders pulled the plug,

    If your credit score is under 650 today it will be very hard getting a mortgage . What do you think that pressures places on sellers who just lost 45% of the their buying pool?

    I’m on the sidelines cheering for All of US but betting on no one ,, Yet

    @Keith C I think this is spot on. I think it’s still to early to say for sure. It’s caused me to put two deals on hold due to the uncertainty. Both are multi-family deals and if the market actually takes 15-20% correction, it will be significant cut in value. I’m starting to see some fear and anxiety in my market, but it’s WAY to early to say it’s 2008, or even close. No one knows what will come of this, it is unlike anything we’ve ever been through. 

    2Reply
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