from the desk of Insignia Mortgage

Insignia Mortgage Update On The State of the CA Residential Lending Environment

As of today, there are signs that the practices of social distancing, sheltering in place, and handwashing, are all helping to flatten the curve in California- Insignia Mortgage’s primary lending market. How the virus will affect our spending and work habits once we can go back to work is anybody’s guess, but it appears obvious certain sectors of the economy may not recover for many years. Other industries will likely get back to normal fairly quickly.

With these thoughts in mind, my hope is this note will give our borrowers and referral partners some updates about the state of the CA residential mortgage market.

Portfolio Lending By Banks and Credit Unions

Insignia Mortgage has long-standing relationships with local lenders, such as banks and credit unions who are still actively lending, although with tighter underlining guidelines. Loans originating right now include a small bump in interest rates to compensate for the perceived greater risks in the marketplace. However, overall interest rates and terms are still very attractive. Additionally, many big banks have raised interest rates and are focused on lending to current clients of the bank. 

For the most part, it is business as usual and the following loans remain available:

  • Interest-only loans are still available. 
  • Cash-out loans are still available as are complex loans, including those for entrepreneurs, foreign nationals, and professional real estate investors.
  • Foreign buyers can still finance their purchases. Expect 10% of the loan amount to be requested as a required deposit, along with 60% loan-to-values. For high net worth foreign buyers, lenders are still offering loan amounts up to $25 million.
  • Investment property loans are being capped at 60% – 70% off the purchase price or appraised value and interest-only options are still available. Transactions requiring complex underwriting which include transactions inside a 1031 exchange. Also available are loans requiring the borrower to be an LLC, limited partnership, or corporation.
  • Turn Times  Purchase turn-times are holding steady at around 30 to 35 days.  Refinance transactions are closing in approximately 40 to 55 days. Rush requests are being considered. 
  • Loan-to-value guidelines vary but you can expect deals to be looked at favorably with loan-to-values up to 80% of the appraised values. Consider that lenders are backing off on loan-to-value the larger the loan request. Most lenders we speak to are quite comfortable with loan-to-values at 70% of the purchase or appraised value and 65% on super-jumbo loans.
  • Loan Underwriting is an important matrix for the moment.  Lenders will consider liquidity and reserves more so than before as income is harder to assess while the economy is on lock-down.  Expect the lender to check on income status throughout the loan process, especially in industries where borrowers are unable to work.
  • Prospective borrowers with strong balance sheets including real estate with choppy tax returns are still excellent candidates for loans assuming liquidity can cover all mortgages for at least 6 months. 

Mortgage Banks

Mortgage banks that are offering anything other than government products are on hold. If the Fed is not active in that specific asset class (look up private RMBS), there is simply no bid for that security offering. 

However, with the massive liquidity flooding the market from central banks, we expect this market will return once the U.S. re-opens the economy, but with lower loan-to-values and higher FICO score requirements.

Bank Bridge Loans For Developers

One very interesting loan for real estate developers in the high end luxury market is a bridge-to-sell loan product that is still being offered by a large FDIC lender. This loan will take out the construction loan and give the developer up to 2 years to sell the property. 

Terms are as follows:

  • Max loan amount of 55% of appraised value up to $25 million.
  • 12-month interest reserve built into the loan.
  • Note rate of 6.50%.
  • Broker and Bank Origination Fee 2%, all in.
  • The home must be listed on the MLS.

Hard Money Loans

Bridge lenders are still offering loans but it is important that you know your lending source as re-trading and or non-performance near closing due to the investors’ cold feet is very possible. 

Forbearance

We are encouraging clients who are truly in need of forbearance to speak with their lender or loan servicer. However, it is important to keep in mind that forbearance is not loan forgiveness and the money will be owed at some future date. There are serious consequences to not paying your mortgage on time. Therefore, we are advising that borrowers seeking forbearance speak to their attorney, financial advisor, or CPA about the consequences of accepting a forbearance prior to going through with it. Accepting a forbearance today could prohibit you from being approved for financing later on and therefore the forbearance should be reserved for those borrowers who truly are in need of it and have no other means of paying their mortgage timely.

Property taxes are due for LA County and can be paid online. Other counties within CA should check due dates.

To sum up, we’re still going at it, as are our lenders. Terms have shifted in this new volatile landscape somewhat, but we remain actively committed to helping our clients resolve their mortgage needs during this unusual and complicated time. Please contact us by phone or email to get the ball rolling or ask any questions.

Be well and stay safe!

The opinions expressed above are the views of Insignia Mortgage. Individuals are encouraged to do their own research and speak to their individual advisors on the matters discussed above.

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These are the opinions of the author. For financial advice, please talk to your CPA or financial professional.