All Forum Posts by: Chris Mason

Now isn't the time to rely on "no doc" or "non-qm" or "subprime" mortgages. Those are only reliable in a bull market. We saw the bottom drop out of them in March 2020 when they more or less stopped existing until the Fed turned the money printing presses on.

And, that's happening again. I've received at least a dozen variations of the exact email below just in the last week. For context, a normal 1 week rate lock extension is something like 0.14% of the loan amount in extra fees. Check this out:

And, having played this game before: the underwriters at all the non-qm lenders are about to add extra conditions and BS, they will find "reasons" why your loan isn't cleared to close, and have slower turntimes, to ensure that you will ALWAYS need an extension, and/or blow the rate lock and lose the loan entirely, at the 11th hour (after you've removed all contingencies). 

The next step is for the rug to be pulled out entirely, loan denials even when loan docs are out for your signature with the notary, it happened in 2008, it happened in March 2020 (until the Fed $ printers were turned on), and I wouldn't be at all surprised if now (that the $ printers are off again) it happened again, and BOOM there went your $20,000 earnest money deposit, forfeit to the seller, with no practical recourse against the bank (no serious lawsuits or settlements came of it in 2008, or March 2020).

Quote from @Joseph Hammel:

Closing paid on the 11 unit I bought in Sept. These rates are STILL out there folks. 

 6 months ago. lol.

If it really were that simple, I'd buy a bunch of Amazon stock at the February 2020 price.

Or I would tell you the price I paid in Feb 2020, and insist that you could "still" buy it for that price. 

 I have $5 here that says at least two of those three loan officers have NMLS numbers that are 7 digits long and that start with a 2, indicating that they started doing mortgages to catch the COVID-19 refi boom, and weren't doing it before that (the 3rd person was having an off day, hey it happens). Should have been a 5 minute phone call, hopefully no one took you through the full grinder and multiple back-and-forths for paperwork before denying this as presented.

TLDR: Yeah, you signed a lease saying that you're on the hook for $6k. That means you're on the hook for $6k. You don't get to say "hey so Jimbo didn't pay his portion of the rent, but here's $4k, please only evict Jimbo, not the rest of us." That's not how it works, and Fannie Mae is well aware of this, so the DTI math accurately reflects reality. It would be the same thing with cosigned mortgages, or anything else where you're each jointly AND individually fully obligated for the full amount. Pretty standard millennial stuff.

The path around is it is a DSCR loan. Due to all the rate hikes in the Fannie world, DSCR loans no longer have a rate that's substantially different from Fannie, if at all. Fees will be a tick higher.

My tiktok account got suspended for mentioning this, but an actual "real deal" war in Europe would likely be a factor pushing rates down, not up ("inciting violence" is the rule I apparently broke, if curious, because I'm certain Mr. Putin is, of course, following me on tiktok and factoring what I say into his decision making :P ). 

Assuming the fed does nothing in response to such a conflict, the economic uncertainty would cause folks on Wall Street to sell higher risk things (higher risk and higher reward asset classes), like stocks of companies that export things to Europe and Russia, and park the sale proceeds somewhere "safe" (lower risk, lower reward asset classes), like mortgage backed securities. 

On top of that, there's a good chance the Fed would feel pressure to turn the money printing presses on. Maybe they ignore that pressure, maybe they don't. If they turned the easy money printing presses back on, that too would tend to drive mortgage rates down.

 Since the 1980s, it's been a truism that rates go down over time. In 2018 everyone was having a heart attack because rates had gone up so much. 2019, almost all of them refinanced. Usually it's 2 or 5 years, but that's the pattern.

Just go here and ctrl+F for "Fed"

https://www.wsj.com/news/econo...

The more occurrences of "fed," the higher rates just got. 2/14/2022 is at 9 occurrences. Every single occurrence represents a sell-off of mortgage backed securities, some asset manager going "hmmmm let's place a $100b sell order" for mortgage backed securities. They may or may not have any idea what they are doing, they get paid for assets under "management," they do NOT get paid on profitability (case in point, selling now means they bought high and sold low...). At the end of the day they have to show someone that they are "managing," and that means "doing things when the things are in the news so when someone asks if I am doing the things, I can show that I am doing the things, because doing the things is good, and not doing the things is bad." And, again, it's not about profitability to the fund managers, it's about showing the people that they are doing the things to manage the things.

That causes mortgage rates offered to consumers to increase. 

The fed does not set mortgage rates by setting the fed rate. But it drastically impacts mortgage rates by spurring MBS sell-offs. JPOW burps on camera and boom there went $250,000,000,000 of back-end profits for mortgage banks. 

 https://singlefamily.fanniemae...

Converting that 125 bps base pricing difference to rate at the approximate ratio of 50 bps -> 0.125% to rate, your effective interest rate is in the 4.875% to 5% range.

Which means you locked it last week, or at least I hope you did. Because a day ticked, it's now Monday morning rather than Sunday, and as I mentioned earlier, that means rates have already gone up.

FYI:

For the last little while, differences between this day and that are significantly greater than differences between this lender and that.

It had to keep myself from laughing at the dude earlier today who wasted a week on this (count backwards 5 candlesticks on the below image), and then called me a week later (today) expecting me to honor what I told him a week prior. 

Lock it up, stop wasting time. :)

Mortgage backed security sales prices below, 6 month chart. Stock ticker "MBB" is a mirror, if you have robinhood or etrade or whatever. As this continues to plummet, back-end profit for banks goes down, so they have to make up for it with more front-end profit out of your rate and fees. 

Nov/Dec and before, I was spending time comparing this lender v that. 

Lately, it's more a question of which lender can I register the loan with the quickest, before we get hit with yet another mid-day rate hike. And, how fast can I get that borrower to complete the online application so I have something to register, without them feeling too pressured.

BONUS NOTE: Interestingly, they keep re-scaling the vertical axis. See those "small" drops in November? According to the November scale (when I would look at this image in November), they were BIG drops at the time. But now, due to re-scaling, getting dwarfed by Jan/Feb, they look like "small" drops. According to the scale that was in place in October, those teeny tiny drops in October (today's scale) were also giant drops at the time.  So these aren't just rate hikes, they are literally scale-changing rate bumps, like when you stop measuring something in inches and start measuring it in feet or yards.  The fact that you switched units of measure entirely is the most telling thing of all, you're no longer talking about pounds of gravel, you are talking about TONS of gravel. 

The last couple times I've compared/contrasted, the DSCR (for LLC) and Fannie (for a human person) loan options had similar rates, but the fees on the DSCR one were higher. Up to you if that's worth it, you kind of knew/know going into it that the LLC comes with more fees.

Fast, cheap, reliable. 

Pick two.

- These are not Agency loans where the $500k loan has the back-end sale to Fannie for $520k. So no magic wildcard there.

- These are not Jumbo loans, where it's a high net worth individual, so no wildcard there either.

- These are not low income owner occ loans where there's tax credits and all that, so no wildcard love there either.

Something like one of those magic love wildcards are why, in the normal course of events, it can feel like your clients get all three, or damned close to it. If a place is reliable and fast,  the $20k of back-end gross profits can go a looooong way towards making it cheap (did you know that in the normal course of events, underwriting fees have NOTHING to do with profit directly from those fees? They're just there b/c consumers are skeptical of free things, that's 100% the ONLY reason underwriting fees are common on Agency loans! It distracts Johnny Consumer from that $20k someone else is making on the back-end).

No magic wildcards for non-qm.

Fast, cheap, reliable. Pick two.

You're a realtor. You've probably told people "great location, great price, great house. Pick two." Same thing here. Buying from a friend at a discount would be an example of "magic wildcard love" that lets your buyer get all three, but that's not normal. 

The trap your consumer may fall into is falling for fast and cheap. They "over-book," and deny "overflow" loans at the 11th hour 3 days before CTC, they're only actually funding the sexiest loans, according to their internal non-transparent criteria (maybe they are looking at something like median income trends in that zip code for the last 10 years, just to pick something it wouldn't even typically occur to you to check for). That could cost your client an earnest money deposit, as well as all tax advantages from doing the  time-sensitive 1031 exchange. Pick any other combination of the two, and the 3rd one will have something like this.