Blog - Insignia Mortgage

Market Commentary 10/18/2024

Posted on October 18, 2024 by Damon Germanides

Mortgage Rates Higher As Economy Continues To Grow

Interest rates have settled in the 4%–4.10% range on the 10-year Treasury, as the economy continues to show steady momentum. Housing starts met expectations with a consistent pace in single-family homes and a decline in multi-family, while the market absorbs the significant supply that recently came online. The consumer remains resilient as the cumulative effects of inflation continue to be a pain point. Nonetheless, the US stock market continues an upward trend, seemingly unaffected by talk of slower Fed rate cuts, rising oil prices, and ongoing geopolitical concerns. Mortgage applications have decreased as the base rate for 30-year conforming mortgages has climbed back into the mid-6% range, amidst the rise in interest rates.

In mature markets like Los Angeles, which depend on existing home sales, there has been a noticeable slowdown since the mid-summer uptick. The luxury market is facing adjustments, with many high-end properties sitting on the market. As interest rates rise, sellers may feel increased pressure to lower prices. Regardless, there is a significant number of buyers waiting for a price correction to offset the higher financing costs and secure a better deal. We anticipate many potential buyers are waiting for the outcome of the upcoming election, which is now less than three weeks away.

While the recent spike in rates may cause hesitation, Insignia Mortgage is here to guide you through these market changes. Our high-end, non-QM lending solutions have been curated to meet to your specific needs. Case in point, some of our team’s most recent loan successes include 2 week closings and 98% LTVs.

Case Study: $10.5M Commercial Bank Funding

Posted on October 2, 2024 by Damon Germanides

Insignia Mortgage recently closed $10.5M Commercial Bank Funding. This case study showcases Insignia’s unique ability to get truly complex loans funded.

In this scenario, a sophisticated developer approached Insignia Mortgage for bank financing. The developer did not want funding from a private money source and was looking to develop a business relationship with a commercial bank. The property was financed with an initial loan for 70% of the purchase with a secondary vehicle customized by the bank for the construction improvements. A 24-month term was offered to allow ample time for improvements and the sale of the property. The developer returns significantly increased by lower cost of capital and optimized finance structure which lowered carry costs. Exceptional work by our Head of Construction Lending & Broker Associate, Todd William Harris.

At Insignia Mortgage, we understand that what works for one client does not always work for everyone. Especially when your financial picture doesn’t adhere to the strict model that many conforming lenders demand. Connect with us to learn more about our non-QM lending solutions.

Market Commentary 9/20/2024

Posted on September 20, 2024 by Damon Germanides

How Low Will The Fed Go?

Recent Conversations on Rate Movements

Mortgage rates have been trending lower in anticipation of a potential Fed cut. The implications of recent interest rate movements have been the focal point of recent discussions between Insignia Mortgage and our network of clients, real estate brokers, and bankers. Of critical concern is the actual short-term rate cut at the Fed’s forward guidance, commonly referred to as the “Dot Plot.” This guidance signals what Chairman Powell described as a “recalibration” of interest rates, with the median Fed Funds rate projected to decline to 3.375% by the end of 2025, down from 4.75% today.

Why the 50 Basis Point Cut?

The Fed’s dual mandate is a delicate balancing act to maintain stable prices and robust employment. With signs of a softening labor market, the Fed has determined that lowering rates is necessary to realign the economic environment. Prior to the meeting, there was significant debate over whether the cut should be 25 or 50 basis points. Supporters of the 50 basis point cut argued that a slowing economy warranted more aggressive action, while proponents of a smaller 25 basis point cut highlighted factors such as record-high stock market levels, persistent inflation, ample liquidity, and a still-healthy 4.2% unemployment rate.

A 50 basis point cut is uncommon, and as this decision takes hold, some are questioning what specific data may have driven the Fed to take this larger step. The issue is whether the Fed sees economic weaknesses that the broader market may not yet fully grasp. The economic data remains mixed, with some indicators surpassing expectations while others underperform. Be reminded should inflation pick up, the Fed will be quick to respond, especially if the markets overshoot on rate expectations and animal spirits take hold.

Impact on Mortgage Rates

As anticipated, interest rates have been trending down ahead of the Fed’s decision and mortgage rates have benefited. Currently, mortgage rates hover between 5% and 6%, with some high-net-worth clients securing rates below this range. Lower rates could stimulate homebuyer activity and potentially motivate sellers, many of whom have held off due to high financing costs, to finally list their properties. This would provide much-needed relief to the housing market, which has been constrained by limited supply, high prices, and elevated interest rates. After nearly two years of multi-decade highs in mortgage rates, this drop offers welcomed relief to both the residential and commercial real estate sectors—industries that are highly sensitive to rate fluctuations.

How Low Could Rates Go?

Looking ahead, mortgage rates may settle between 4.5% and 6.5%, depending on the length of the fixed-rate period. Borrowers seeking short-term floating or adjustable-rate mortgages could see rates below 5% in the coming months as the Fed continues to ease short-term rates. However, several headwinds could keep long-term rates higher than some might hope. These include a growing federal deficit, the substantial government debt burden, large-scale financial commitments to green the economy, and the significant investments needed for businesses to adopt and integrate artificial intelligence to remain competitive.

Insights On Inflation, Interest Rates And The Jobs Market

Posted on September 14, 2024 by Damon Germanides

Interest Rates: The Fed’s Delicate Balancing Act

Interest rates have moved lower over the past 60 days as the Federal Reserve pivots from focusing solely on inflation to taking stock of a slowing labor market. While inflation has eased, it’s important to note that prices aren’t falling – costs remain high, although they are not rising as quickly. This shift suggests the Fed might opt for a 25-basis point rate cut, the likelihood of a larger 50-basis point cut seems low due to recent signs of lingering inflationary pressures. While this gives the Fed room for a modest rate cut, it also serves as a reminder that inflationary pressures remain, and cutting rates too much could risk reversing the progress made so far in controlling price increases.

Slowing Labor Market

Labor market data points to a slowdown in hiring, which could signal weaker economic growth. These factors give the Fed a reason to consider a rate cut to avoid restricting economic activity. A 25-basis point cut would send a signal that the Fed is still supporting growth, without taking too aggressive an approach. A larger cut, however, risks overstimulating an economy still facing inflation concerns.

Wall Street vs. Main Street

While financial markets have remained highly liquid—evidenced by rising equity markets and strong demand for corporate debt—Main Street is still feeling the sting of higher borrowing costs. Consumers face elevated interest rates on mortgages, auto loans, and credit cards. This divergence between the health of financial markets and the struggles of everyday Americans puts the Fed in a tough spot. Cutting rates could ease pressure on consumers, but the question remains whether that relief is worth risking a potential uptick in inflation.

The Case for a Cautious Approach

In weighing its options, the Fed faces arguments both for and against cutting rates. On one hand, a rate cut would relieve some financial strain on consumers, especially those affected by higher borrowing costs. On the other hand, financial markets seem healthy enough without immediate intervention. Cutting too aggressively could undermine the gains made in controlling inflation, which is why a cautious 25-basis point cut seems the most likely move for now.

Case Study: $11M Private Debt Fund

Posted on September 6, 2024 by Damon Germanides

Insignia Mortgage recently closed a Private Debt Fund for $11 million. This case study showcases Insignia’s unique ability to get truly complex loans funded.

In this scenario, a high-profile borrower approached Insignia Mortgage to discretely locate $11 Million bridge loan to sell. The borrowing entity was a complex foreign trust, and the property involved as a condominium located in Manhattan, New York. Insignia Mortgage located a lender that gave the borrower the loan for 12 months, with a 12-month extension option, at 10.75% for an LTV of 30%.attain a more expensive loan. The loan closed in under 3 weeks with all of the moving pieces.

Market Commentary 08/24/2024

Posted on August 24, 2024 by Damon Germanides

Fed Pivot Helping To Lower Mortgage Rates

Quick Thoughts on the Economy:

On Friday, Jerome Powell confirmed what many of us already suspected—the Federal Reserve is planning to lower interest rates. There is now almost a 100% chance of a rate cut in September. As expected, equity markets rose and bond yields fell. However, it’s important to note that the Fed’s decision to signal lower rates is driven by concerns about the job market, suggesting the economy may be slowing.

This week, the Labor Department made a significant revision to its job data, revealing that nearly 1 million fewer jobs were created than initially reported. This revision may explain why consumer optimism is waning and why we’re seeing a slowdown in big-ticket items like autos, home improvement, and housing. The impact of lower interest rates on a slowing economy remains to be seen. Historically when the Fed first lowers rates, markets tend to become more volatile, and equities often decline.

Mortgage Rates & Housing:

Mortgage rates continue to improve as larger banks become more aggressive in anticipation of the Fed’s pivot. For high-net-worth borrowers, mortgage rates are approaching levels below 5%, which could significantly boost the high-end housing market. For the broader market, rates are trending lower, with many lenders offering deals in the high 5% to low 6% range—a major improvement from just a few months ago.

New home sales in July exceeded expectations, with existing home sales also showing improvement. Refinances have increased, likely because homeowners are looking for cash. With the substantial rise in home values, the cheapest form of debt remains on one’s home.

Indicators to Watch:

We are closely monitoring weekly unemployment data, the slope of the yield curve, oil prices, and consumer confidence, to gauge the overall health of the economy. While no one can predict the future with certainty, these indicators provide valuable insights into how aggressive banks might be with underwriting and rates, as well as the general mood of the market.

Market Commentary 08/16/2024

Posted on August 16, 2024 by Damon Germanides

Mixed Signals Push Mortgage Rates Lower

Input and consumer inflation continue to decline, indicating a strong week for the equity markets. It’s important to note that inflation is still rising overall. The cumulative effects of inflation remain a significant challenge for many working families. Retail sales exceeded expectations once again, highlighting the resilience of the U.S. consumer. Nonetheless, with rising credit card balances, reports of laid-off employees struggling to find new jobs, slowing travel, and low- to middle-income consumers running out of cash, there are growing concerns that the economy may be on the brink of a recession.

The decline in bond yields across the curve reflects concerns about the health of the U.S. economy. Even with lower rates, the housing market—particularly in the lower to middle segments—has not seen a significant boost. Homes are staying on the market longer and buyers are struggling to qualify for their desired properties. On the other hand, the upper end of the market remains active, as wealthier individuals enjoy cash generated in the equity markets and risk-free returns over the past few years.

The de-inversion of the yield curve, along with the rise in unemployment, has old-time economic historians on edge. When unemployment increases by 50 basis points (0.5%) or more from its low, it often signals that a recession is on the horizon. We’ve already exceeded that threshold with July’s unemployment reading.

This concern is echoed in conversations with business owners ranging from small operators to large family-run or private companies, with hundreds or even thousands of employees. While the challenges may not yet resemble those of a deep recession, the business environment is undeniably less fluid and more difficult than in recent years.

For those of us in real estate, there may be light at the end of the tunnel if interest rates continue to decline. Rates are finally dropping below 6% on many products, indicating hope that the worst may be behind us. Lower rates should provide much-needed relief to homebuyers across the market.

Market Commentary 08/02/2024

Posted on August 2, 2024 by Damon Germanides

Mortgage Rates Fall Significantly As Economy Shows Signs of Slowing

Mortgage interest rates have experienced a significant decline in response to signals the US economy may be slowing. Let’s explore what has changed over the past few months that’s impacting the direction of interest rates and the economy.

First, unemployment has been rising gradually, with today’s job report missing expectations and spooking the markets. The unemployment rate now stands at 4.3%, up from 3.5% just a few months ago. Additionally, the 2-10 year inverted Treasury spread, which was as wide as 100 basis points, has nearly de-inverted, indicating a high probability of recession. Oil prices have dropped into the low 70s, another important indicator of waning economic demand, as manufacturing consumption slows. Housing data recently softened, with home starts facing an unanticipated downside in June. While this week’s significant drop in mortgage rates should help the housing market, the cost of building and buying a home remains a challenge. Consumer debt has been growing, and consumer confidence has been negative. Finally, many large consumer-facing businesses have warned that consumers are struggling, with many putting food on credit cards and paying over time, which is not a good sign.

This week’s shake-up in equities is no surprise, and this type of volatility is something that investors must be willing to stomach from time to time. Momentum works both ways, and the combination of greed and momentum created complacency. Think about the state of the world and how equities have been able to shrug off bad news over the last 18 months. High beta momentum trades in AI stocks created both an expensive and complacent market, despite earnings estimates missing the mark. Corporations also attributed the current landscape to consumer fatigue, the impacts of cumulative inflation, and a more difficult business environment.

However, real estate professionals, brokers, and mortgage folks have been in a deep industry recession since the end of 2022. With the odds of a recession or a Fed error in not easing soon enough, interest rates have fallen, leading to better days ahead for those in residential real estate. Well-qualified borrowers looking for a mortgage should now see rates, depending on product type, down payment, and potential banking, ranging from 5.5% to 6.25%. This is significant news, as just a few months ago, mortgage rates were over 100 basis points higher. Borrowers requiring stated income or other more opaque products have seen rates move into the mid-6s to low-7s. Government loans have increased considerably, with 30-year fixed products now in the high 5s.

With interest rates trending below 6% and potentially headed to 5%, we expect to see a pickup in both refinances and potential existing home listings. Many homeowners who were married to their mortgage may reconsider a move up or move down as mortgage rates become more favorable.

Last thought. Technically speaking, bonds are very oversold and the move lower has been swift and violent so we are advising on locking-in clients who have active loan applications.

Market Commentary 07/26/2024

Posted on July 26, 2024 by Damon Germanides

Mortgage Rates Move Lower With Cooling Inflation

Mortgage rates performed well this week as inflation showed signs of cooling. Next week, the Fed meets to share its outlook on the economy, the direction of interest rates, and inflation’s trajectory. This meeting is crucial, as there are warning signs that the economy is slowing, such as poor consumer confidence readings, and very high credit card balances. The cumulative rise in inflation has hit many hard and the average consumer is stretched thin. Nonetheless, the economy continues to chug along, as evidenced by the better-than-expected GDP reading this week.

Should interest rates fall further, you could see jumbo ARMs down into the mid-5% range, which is great news for the luxury market. For first-time home buyers or middle-market buyers, some community-based programs up to $1M are being offered with rates at or below 6%. Interest rates below 6% offer welcomed support to this market in qualifying for mortgages. Remember, it was not that long ago that mortgage rates were well over 7% and in some instances touching 8%.

With an election around the corner, it will be fascinating to see how the Fed navigates the next two meetings. The Fed aims to remain politically agnostic, so there is a low probability that the Fed may cut rates in July to avoid influencing the election. While we believe interest rates are restrictive, we are not convinced the Fed is ready to make the final cut. One look at how equities bounced back this week illustrates how much liquidity is still in the market. Also, corporate spreads remain very tight, suggesting too much money is chasing too few deals. However, market momentum pushes yields lower, and we will take it.

Case Study: Bank Bridge Loan for Distressed Property

Posted on July 26, 2024 by Admin

Insignia Mortgage recently closed a bank bridge loan for a distressed property for $3 million. This case study showcases Insignia’s unique ability to get truly complex loans funded.

In this scenario, the borrower approached Insignia Mortgage for funding to purchase a distressed property. Insignia Mortgage was able to locate a bank bridge loan for the client. The property was purchased with a cross-collateralization loan, and the borrower will be remodeling the property to make it habitable. The bank provided the borrower 24 months to complete the remodel and will help with the refinance into a permanent loan upon completion. This lender allowed the borrower not to have to use private money for the purchase, saving the borrower from having to attain a more expensive loan. The loan closed in under 3 weeks with all of the moving pieces.