To start the show, Jason Hartman talks to a client about a tenant not paying rent. Jason shares adjusting strategies and looking for creative resolutions to the tenants that are not able to pay during these trying times. He also asks about China’s role in the world. In the second part of the show, Adam talks with a lender to give updates on mortgage rates and the advances in technology that allow the deals to be closed remotely. They also discuss a prediction by Goldman Sachs of a rise in unemployment claims.
Announcer 0:01
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the American monetary associations Podcast, where we explore how monetary policy impacts the real lives of real people. And the action steps necessary to preserve wealth and enhance one’s lifestyle.
Jason Hartman 0:28
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 he 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 hard line, 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 our 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 2:25
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, that’s nice.
Jason Hartman 2:41
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? And now this is just one of your tenants, you’ve got properties, but this one.
Drew 3:29
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
Jason Hartman 3:39
but it’s meaning you’re not the tenant. Yes.
Drew 3:42
And they just wanted to write and let me know that they’re that COVID-19 is affecting their income, they won’t be able to pay rent this month. And they anticipate they’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 4:24
I’d 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 ears. And that’s how we were designed to talk writing came much later. It’s a it’s a man made invention. So you call them up? And what happened?
Drew 5:21
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 say an 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 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. And 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 going to 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 the situation for someone that’s sort of in a 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 7:43
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 they’re 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 what 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 onto the back of the loan. You can do a forbearance with a 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 had $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 12 $100 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, builder,
Drew 10:14
if you subscribe to build the E 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 chargeback situation and having to fight that out. But I don’t think I think that it’s better than nothing.
Jason Hartman 10:31
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 assistance program, you could offer your units free to volunteers or health care workers. That’s another charitable thing you could do, you could just be in touch, like you’ve talked 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, they’re 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 could 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, they’re 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 12:37
Yeah, I mean, it 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’s 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 13:00
And you don’t have to pay your mortgage.
Drew 13:02
So yeah, they’re not gonna evict me cuz they’re not doing any eviction. Right, right,
Jason Hartman 13:06
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 and 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, 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? 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 that 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. 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 16:08
So true, searcher I mean, Trump really set this up. I mean, Trump has his downsides, but no one was paying attention to China, and sort of the abuses that were going on there. And, and,
Jason Hartman 16:21
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 going to 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 airy 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 induced debt 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. And 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 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, 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 need for housing. Go ahead.
Drew 18:41
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’s 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 bring some of that stuff back home sort of it will cause a bit of a Renaissance and anything’s possible, but
Jason Hartman 19:19
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 till I saw a couple articles about it. So maybe there will be a baby boom, accidentally. Who knows? Yeah, yeah, it’s, it’s, it’s pretty interesting. We’ll see. We’ll see. So nine months we’ll 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 has 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. You know,
Drew 20:40
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
Jason Hartman 20:48
will This is 100 year event. This is the biggest news story of the last century right now.
Drew 20:54
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 gonna be one of those events that sort of brought up and remembered, oh, yeah, for a
Jason Hartman 21:16
long time. This, by the way, and we’re gonna get into this. And, you know, I’m going to 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 a 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, 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 23:32
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, robots 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 24:03
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 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 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.
Lender 26:13
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? Thanks, Adam.
Adam 26:35
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 is in jeans, massive sell off in the stock market, with fears of the Coronavirus growing around the world, to the degree that the natural market movement and reaction of the market stall on Seuss and we got mortgage rates down to historic lows. A lot of people were able to refinance those loans to those lower rates. And to degree it lightning in the 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 in a good year, any 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 can floor and we saw that floor folks were able to refinance, again to a degree hit lightning in a bottle before market rates started to rise again, part of that reason why rates started was lenders in capacity and started to artificially price the loans higher to stop volume coming in or price loans at 90 day, and 120 day lock periods, which leads to higher interest rates because you’re protecting the rates for longer. Coupled with that, you had the Fed come in and inject $1.5 trillion into the economy. And lower the Fed funds rate, a half a point at the time. Now that $1.5 trillion had no zero that money was earmarked for mortgage backed security purchases. So there was a massive sell off and mortgage backed securities across the economy across the the marketplace, which led to higher interest rates. So you had lenders at capacity, and you had mortgage backed securities being sold off at a tremendous rate, which all led to higher interest rates because they found that they didn’t have any buyers to buy mortgage backed securities. Now China being one of the largest purchasers of mortgage debt of long term debt, obviously on lockdown as well as stopped purchasing mortgage backed securities for the time being other sovereign nations that are on hold in terms of terms of buying mortgage backed securities. So the Fed comes in last Sunday and offer 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 rates to a degree the lenders may 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 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 raised 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 the 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 are 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.
Lender 31:03
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 four, you know, not that long ago. And that’s just yeah, that’s just incredible. So when you say it’s gone up, it’s really just gone up to kind of reasonable levels and
Adam 31:20
over, 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 a global recession here with COVID-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 lender being purchased in a normal fashion, 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, the economy. Okay, so what we’re anticipating right now is kind of like a an Lender, it’s kind of unprecedented. Some markets are reacting, some are not and said 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 rates kind of a little bit higher than they would have anticipated. 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 view 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. prior to closing, we would probably lock in a lower rate than what we would have floating today, just because of that recessionary nature. So that’s kind of what we’re looking at next try, I’m just trying to explain why. All the calls we got last week for refinancing. People were surprised their rates were so high. Yeah.
Lender 32:56
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 an It was like a 1% spread between the two? Are you seeing something like that still?
Adam 33:18
Yeah, I mean, in the normal market, that’s probably about a half a point, three, eight point difference in rate between 20 and 25%. Down. Last week, we were seeing about a point, I think this morning, I priced one out 20 versus 25. And there was about a three quarters in 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 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. Bull 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 the same equity position for a rate and term refinance, same size loan investment property, single family, it’s probably about a half a point higher and rate today. So that spread is still a little bit exacerbated and hasn’t really normalized. 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, other than who’s purchasing mortgage backed securities. Now, one more thing I will add to this conversation, I suppose is, you know, typical unemployment figures or unemployment claims on a weekly basis. hover around 600,000. Every week. Goldman Sachs came out last week and predicted that unemployment claims this week when rates will rise up to 2.2 5 million, but that’s put pressure on rates, because the perception of risk when we’re lenders or pricing rates out is to cover or to anticipate mortgage default due to temporary or long term unemployment. 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 due to COVID-19 might have an opposite effect on rates as well. So it’s still a very uncertain time. So very, very unprecedented times. And, you know, best thing to do would be to call us and have us monitoring arrays, if you’re looking to refinance or get a sense of where the market is, and maybe schedule another call from two weeks from now to see where the market has done and maybe take advantage of a more normal market.
Lender 35:58
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 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.
Adam 36:23
So I think I think the market will react more normal or begin to react normally, once you see COVID. By COVID, 19 numbers taper off, we’re starting to head south rolling going north. Right now everything’s on the upside, there’s more and more cases every day, 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 a degree are 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 some sense of containment. And and those numbers start to improve. That’s what I think even though we might still be in a recession that we’ll see mortgage 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 the more contains 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 the 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.
Lender 37:55
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 going to be higher than the 600,000. But you know, if we dropped down to 1 million even, yeah, how much of an impact do you think that would have?
Adam 38:19
A huge impact because it takes less than the perception of risk of default. And mortgages comes out a little bit further conservative and more from the from the lenders point of view and from the risk point of view, because that people are back to work, right? So that risk of default should normalize mean your typical default, you know, raise any given Natural News value between two and a half and 3% or less. So, when an unemployment numbers spike like that in a week, there’s more there’s a bigger perception of default risk. So that gets priced into rates, just just across the board. So unemployment numbers come down and the COVID-19 numbers start to come down, I think you’ll see a more natural mortgage rate as it relates to that do like the, like I said, the recessionary nature of the market.
Lender 39:11
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 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 39:42
Well, yeah, I think that’s, that would improve rates. I mean, obviously, the more demand we have the 90 reacting at the rates, we’re locking them out, brings confidence back to that market. So you know, right now, just with certain rates and certain coupons that we had out there, they were 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 that are out there lumpy return to cover the losses on the other, the previous deal. So, for gager, it’s a general sense of what’s going on. But I just wanted to explain, these are the reasons why rates move high very quickly. And they come down a lot slower than they go up. So as we see, as he said, if we see things taper off, if we see numbers, as relates to the unemployment, or COVID-19 goes out, then the market should improve, but it will be gradual, it won’t be that sharp drop in rate that we saw in the stack Naresh, solavei days in a row, you know, so,
Lender 40:41
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 a random move up into the sixes, we’re gonna move into the sevens even kind of what rates would
Adam 40:59
I mean, it’s yet to be determined? Really, I think that’s, that’s an Lender. You know, there are some folks out there that I spoke to in the industry over the weekend that were predicting, you know, rates to go up when primary home rates to go north of five and a half 6%. But I don’t know, it’s impossible to tell. 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, may offset some of 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.
Lender 41:41
All right. Well, is there anything else investors need to know? Are we covered at all?
Adam 41:46
Yeah, I would. Again, I would say, you know, if you are under contracts, don’t hesitate to proceed to move forward with your contracts. We do believe the market will improve in the right perspective. We can get all your loans approved and qualified. And one thing that we are getting questions on I suppose is how we’re closing loans because of COVID-19 are appraisers going out is notaries coming and finding documents for folks? So we’re working on obviously, Fannie and Freddie are developing contingency plans are supposed 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 were generally doing drive by appraisals, now. We’re working on E signatures, ie notaries so that folks can sign their documents electronically, maybe scanning their IDs and taking videos other than signing, which are done 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 rate for you and get everything approved, I would anticipate the mortgage rate to improve once they do we lock in the rate for you. So the good thing as well is with us, if you do lock around in the market continues to improve. We will renegotiate and float that rate down for free. That there’s some added protection there. If you did lock in the current market rate today, but we’re not closing for a month, the market could very well improve and we can slow you down. So we anticipate that that occurring also, when they are making some concessions as it relates to appraisal relates to notaries and you’re relaxing the fear that folks have of you know, being exposed or exposing someone else.
Lender 43:32
Well, I appreciate your time. Thank you very much.
Jason Hartman 43:36
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