Tag: real estate

Podcast “MPA Talk” Features Damon Germanides

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MPA Talk, the podcast for U.S. mortgage professionals by MPA Magazine, featured Insignia co-founder, Damon Germanides, in their latest episode entitled “Serving Up Solutions.” In this episode, host Simon Meadows interviewed Germanides for his perspective as a broker who specializes in complex loans, particularly for those who are self-employed. They discuss how he cut his teeth in the last big financial crisis of 2008, before co-founding Insignia Mortgage in Beverly Hills, California, in 2010. Beginning slowly, the company established relationships with smaller banks and credit unions, to build the business to where it is today. The son of a restaurant owner, Germanides likens the mortgage industry to the restaurant industry in terms of the tough challenges it presents – it’s been his driving force to succeed.

“My dad owned a restaurant for 43 years, an, that business is such an tough business that I used to look at the mortgage business and say, ‘as tough as it is today, man, the restaurant business is, is even tougher’. I’ve picked tough businesses because both of them have their challenges. That was a driving force early in my career, knowing how hard another business was, made me pretty tenacious.

When 2008, 2009 hit, my good analytical skills really started to shine because the business had moved away from the limited information type loans or the no doc loans or whatever. You had to have a complete understanding of the borrower’s financials, which required mortgage professionals to start to learn to read tax returns, understand cash flow, you know, do a sensitivity analysis on revenue and income, understand everything on the borrower’s financials and that, that really fit well with my skillsets.”

Damon Germanides, on why his key skills made him a good fit for the mortgage industry.

Listen to the full episode below, or via your podcast streaming platform of choice.

MPA Talk, July 21, 2023, featuring Damon Germanides, a broker who specializes in complex loans, particularly for those who are self-employed.

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Market Commentary 7/21/2023

Posted on by Damon Germanides

Markets Party On As Risk Appetite Grows Amidst Discounting Higher Rates

The investment landscape remains complex, as it has always been. With the constant influx of daily reports and updates, it’s easy to be distracted by market movements and opinions. In the equity markets, big tech companies have led to significant gains for some investors. Conversely,  a more balanced approach has yielded only moderate returns or worse for others. The risk-on trading sentiment seems to be prevailing, even as interest rates rise and the Fed indicates a prolonged period of higher rates.

In the housing market, although new home builders are thriving, existing home sales face challenges in major cities due to limited inventory.  As many banks pull out of the mortgage market and layoffs have become more common, the mortgage world shows it is not immune to its share of challenges. Smaller banks and credit unions step in to fill the gap, providing opportunities for boutique firms like ours to match borrowers with lenders who prioritize community growth, common-sense underwriting, and personalized service.

New Standards On The Horizon: Inflation, Debt, & Consumer Spending

Equities surge and multiple offers continue to be prevalent in the more affordable section of the housing market. We can’t ignore the broader economic concerns of these behaviors becoming almost the standard as they relate to the inflation fight. Unemployment remains ultra-low and the employment pool tight, commodity prices are on the rise, the 2-year Treasury rate is nearing 5%, and consumers continue to spend (even if by way of debt). It is hard to model how the massive Covid-related money spray and multiple Government stimulus programs will affect inflation. However, there is a greater than zero probability that inflation readings show signs of acceleration come the fall. This may be one reason the Fed is expected to raise rates next week and possibly again in September.

While the markets and consumers seem comfortable with the Fed’s rate hikes, we remain cautious. Powell’s warnings about potential pain may not have materialized yet, but we believe it’s essential to monitor the situation closely.

Market Commentary 7/14/2023

Posted on by Damon Germanides

Mortgage Rates Rally On Cooling Inflation Readings

The latest CPI data indicates that inflation appears to be moving in a favorable direction. The Producer Price Index (PPI) also experienced a decline, which was well received by both the bond and equity markets (PPI measures production costs). Although another 25 basis point rate hike in July is widely anticipated, further increases in the near term seem unlikely. Nonetheless, given the persistent nature of current inflationary pressures, there is concern that a thriving equity market could spur increased spending… Which would potentially lead to a resurgence in inflation. It is worth noting that speculative areas of the equity market, such as Crypto and AI, have performed exceptionally well. Such positive performance suggests the Fed may believe more action is necessary to curb inflation. While higher rates may not be imminent, it is our belief that the Fed will maintain higher interest rates for an extended period, considering that equities have nearly recovered most of the losses incurred in 2022. Additionally, we expect the Fed to continue with quantitative tightening until a significant crisis emerges.

JP Morgan’s better-than-expected outlook for the second quarter has set the tone for earnings season. Wells Fargo, among other banks, also reported earnings and increased loan loss reserves for its commercial portfolio. In the coming weeks, we predict more write-downs of office loans from regional banks, given their significant exposure to commercial office loans. A 2008 redo appears unlikely even as some parts of the commercial real estate market experience growing stresses.

There is a noticeable uptick in purchase money loan activity, potentially driven by added inventory within certain areas. This observation is based on local market assessment, including discussions with realtors, monitoring real estate websites such as Zillow and the MLS, and the presence of more “for sale” signs in the neighborhood. Pre-approval activity is escalating, with a majority of pre-approvals falling within the $1 million to $3 million price range. In terms of refinances, we are seeing a growing number of requests. The majority of these refinance requests are coming from self-employed borrowers who aim to consolidate higher-interest business debt, credit card debt, or commercial debt through a home loan refinance.

Q2 2023 Transaction Spotlights

Posted on by Admin

Throughout the second quarter of 2023, Insignia Mortgage has solidified California’s Jumbo Loan Experts. Our portfolio of jumbo loan successes this past quarter is a testament to our team’s dedication to surpassing client expectations.

Q2 2023 Transaction Spotlights

$9 Million, 75% LTV, 5.500% APR

The highly qualified borrower was seeking maximum leverage on a new home purchase. His financials were difficult to analyze due to the major expansion of his company over the last year, which affected net income. An additional challenge in closing the transaction was coordinating with a very nervous seller, who was quite worried as the two previous buyers could not obtain financials.

$2.2 Million, 80% LTV, 6.250% APR

Insignia Mortgage was approached by a client looking to close escrow on a property with 2 missing bathrooms. The borrower wanted to complete the remodel of the bathrooms himself. Insignia located a lender willing to close on the unfished property and allow the borrower to complete the remodel himself.

$4.6 Million, 43% LTV, 6.500% APR

The borrower approached Insignia Mortgage for an Owner Occupied Construction Loan after the purchase of a lot. The borrower recently sold his business and is being paid a salary over the next few years by the company. Insignia Mortgage was able to locate a lender that was able to use the client’s balance sheet and income to qualify for the Owner Occupied Construction Loan.

$980K, 43% LTV, 8.500% APR

The borrower required a DSCR loan after being turned down for a bank statement loan on the property. Funds were going to pay off another debt. Insignia Mortgage was able to locate a max LTV lender who was also OK with vesting the property in an LLC and providing cash out.

$3.05 Million, 80% LTV, 8.475% APR

The borrower was looking for maximum leverage on a new home purchase using his business bank statements. Insignia Mortgage located a lender that provided 80% financing and LLC vesting with a closing in under 20 days

$1 Million, 68% LTV, 6.250% APR

Insignia Mortgage canvased the lending marketplace for a sharp pencil 30-year fixed-rate loan for this very qualified borrower. Our hard work paid off as we were able to locate the best-priced option and won the deal for our client.

$2.1 Million, 50% LTV, 8.500% APR

The borrower was looking for a loan program that would not verify income, as she was self-employed and she earned income both domestically and abroad. Given the complexity of her financials, it was decided to utilize a no-income or employment verification loan program.

$1.62 Million, 80% LTV, 5.875% APR

The borrower just moved from New York to California. After renting for a month, he found a condo in Marina Del Rey he wanted to purchase. Insignia Mortgage was able to locate a lender with below-market rates to quickly close the loan with no origination costs.

Market Commentary 7/7/2023

Posted on by Damon Germanides

Yields Rise As Strong Wages All But Ensure Fed Rate Hike

The ADP report this Thursday marked a significant week for the bond market, as both Treasury and Mortgage rates exhibited a notable increase. Fortunately, Friday’s employment report met expectations, easing some pressure on bonds. The probability of the Fed raising rates later this month is now nearly 100%, with elevated wage inflation and the strong job market. In addition, bond traders are realizing that interest rates will remain high for an extended period, due to persistent global inflation and forecasts of potential interest rate hikes in other countries (like the UK).

Some argue for the Fed to exercise patience and assess the long-term effects of their rate hikes on the US consumer and the economy. Despite this pushback, there are signs that the rate increases are making an impact. Banks are becoming more cautious with their underwriting box, consumers are exercising caution in their purchases, manufacturing data is declining, and credit card balances are rising as stimulus funds dwindle. One might wonder where we would be if the AI investment theme didn’t re-ignite animal spirits. Additionally, large apartment investment firms are facing challenges as floating rate debt reaches a tipping point, where monthly interest expenses exceed property cash flow. The pain of higher interest rates is gradually spreading beyond the office sector to other real estate asset classes.

An illustrative example demonstrates the risks of buying at very low cap rates:

  • 2021 Investment Environment Net Operating Income: $100,000 Cap Rate: 3.75% Value: $2,667,666
  • 2023 Investment Environment Net Operating Income: $100,000 Cap Rate: 5.75% Value: $1,739,130

This example equates to a loss of almost 35% on the property due to the movement in cap rates. While we don’t anticipate a systemic crisis in commercial real estate, buyers who relied on aggressive assumptions and maximum leverage may face difficulties ahead.

Rate Hikes & Real Estate: What’s Next?

Higher interest rates are influencing the existing housing market, resulting in continually elevated home prices, despite interest rates returning to 7%. This situation may limit what potential buyers can afford. Furthermore, the potential for an increase in housing supply seems plausible if equity markets reverse course in response to ongoing Fed rate hikes. Sellers may choose to sell their homes while existing home market inventory remains tight, rather than waiting for a recession or other negative events. Notably, the Southern California superluxury market is experiencing a swell in inventory as ultra-wealthy individuals are less inclined to expand their home portfolios. It will be intriguing to observe what factors will entice these buyers back into the market. Only time will reveal the answer.

Market Commentary 6/30/2023

Posted on by Damon Germanides

Equity Markets Dismiss Central Banks’ Inflation Concerns

The resilience shown by the equity markets and the US economy has surprised many, us included. While we have previously expressed concerns about a possible recession, the economy continues to strengthen. Most forecasters have interpreted the upward revisions to GDP, a tight labor market, and a stabilizing housing market as a sign of two more rate hikes to be added by the Fed. This prediction comes amidst rising worries over the economy picking up the pace again. The latest PCE report has indicated a slowdown in overall inflation. Nonetheless, the report still highlighted persistent service inflation at 4.6%, supporting recent comments from the Fed about the need for higher interest rates in the long run.

A Case For Higher Rates

Real estate investors typically focus on interest rates, construction costs, and cap rates. On the other hand, the equity market is a key indicator of consumer sentiment, risk appetite, and innovation. The recent surges in the tech-heavy Nasdaq index should drive increased demand for home purchases and renovations. Individuals who have seen their equity holdings rebound may be more inclined to invest in a larger and better home. Despite the cooling of the spring buying season, we are witnessing a rise in pre-approvals for new homebuyers. These buyers are willing to accept higher interest rates in a tight existing homes market, likely due to an increase in their financial assets. This so-called wealth effect is what the Fed is trying to curb, but even with substantial rate hikes, its impact has yet to materialize fully. Consequently, we believe that the Fed may veritably raise rates further, with a 6% Fed Funds rate not outside the realm of possibility.

A Case For Lower Rates

Conversely, an argument can be made for maintaining rates at current levels. With consumer spending slowing down, as stimulus measures wind down, and as lenders become more cautious in their underwriting criteria. Each day, higher interest rates have an impact on real estate investors, business owners, and borrowers, as the cost of financing all types of debt has significantly increased. While goods inflation has declined, service inflation may follow suit. Rental prices are also dropping. While the equity markets have experienced a rally, most gains are attributable to a handful of large technology companies. Excluding these companies would leave the overall market relatively flat. Additionally, the 2-10 spread, a measure of the yield curve, is significantly inverted by over 100 basis points. Such inversion is generally seen as a concerning sign and may indicate that financial markets are already facing significant constraints.

Market Commentary 6/16/2023

Posted on by Damon Germanides

The Fed Delivers A Hawkish Pause

The Federal Reserve’s dot plot strongly suggests that interest rates will continue to rise in increments of 0.25 basis points, with potential hikes in both July and September. This trajectory would bring the Fed Funds terminal rate to 5.75%. However, accurately predicting the impact of further rate hikes on the economy is a difficult task. There are valid arguments both for raising interest rates and for taking a pause.

Despite some concerning economic data, the US equity market has recently experienced significant growth. Even a hawkish Fed has had little influence on cooling off this recent rally. In the face of such data, this rally creates a wealth effect and eases financial conditions. Such does not align with the Fed’s intentions. Additionally, the US consumer remains strong, evidenced by better-than-expected retail sales. The housing sector, particularly in more affordable segments, has seen a surge. Multiple offers are becoming common in spite of mortgage rates hovering around 6.00%, with rates having doubled compared to over a year ago.

The State Of The Economy

Regardless of these small successes, several manufacturing reports indicate a weakening economy. The yield curve has steepened again and weekly jobless claims have risen, all of which support the argument for a pause by the Fed. It’s worth noting that labor is a significant cost for most businesses. With a tight labor market, wages have moderated yet continue to rise. The Fed considers wage inflation and a tight labor market as factors that justify ongoing rate hikes.

The current expensive stock market, fueled by AI mania and investors trying to catch up after anticipating a market downturn, may have a positive effect on residential real estate. Investors recouping losses or utilizing gains to purchase homes can contribute to this result. Nonetheless, mortgage underwriting remains challenging. Banks are not giving money away despite higher interest rates. Our office diligently surveys over 20 lenders daily to find the best execution for prospective borrowers. With almost 20 years of experience in the industry, we can confidently say that these are some of the most challenging times. The main cause of these current challenges is the combination of a tight housing supply, the limited amount of new construction in our primary market, and the overall high cost of coastal housing markets. 

Market Commentary 5/26/2023

Posted on by Damon Germanides

Mortgage Rates Rise As Economy Proves Resilient Amidst AI Mania

The recent surge in AI-focused technology companies has been caused by pure momentum. The soaring movement in these stocks raises concerns about a potential bubble. While AI is an exciting technology and its impact on businesses will undoubtedly be transformative, the current buying frenzy may lead to adverse outcomes for overvalued tech stocks. The combination of AI mania and the overall equity market rise may also give the Federal Reserve justification to raise short-term interest rates, once again. The betting market currently predicts a 60% chance of a rate hike in June. Despite tightened lending standards, the equity market exhibits resilience. Alongside an increase in PCE inflation data, the Fed will likely continue addressing inflation concerns. Given the persistent nature of inflation, a rate hike in June seems more probable than not, although we hope to be proven wrong.

The dichotomy between luxury and essential home purchases continues to define the housing market. Clients seeking homes under $3 million face multiple offers and even bidding wars for properties priced to sell. The hardiness of consumers and the overall economy is impressive. Nonetheless, the increasing demand for affordable housing, up to the upper-middle-class segment (homes under $2 million), necessitates attention. It is concerning to witness bidding wars in certain pockets of the market amidst economic uncertainty and epoch-making interest rates. Consequently, several homebuilder stocks are also reaching historical highs.

A Pivot In Purchasing Priorities 

Inflation remains a persistent issue. Retailers like Costco have indicated that consumers are making more selective choices when purchasing bigger or more expensive goods. This is one sign that the average American is being negatively affected by inflation. Be that as it may, consumers are still willing to spend on experiences and travel to compensate for a prolonged lockdown. They instead reduce their purchase of items like televisions and washing machines. On the higher end, Restoration Hardware reported poor sales as customers pull back.

Mortgage rates have quietly and significantly increased, with some conforming rates exceeding 7.00%. While the AI hype dominates headlines, Treasury yields have made an equally notable move, but unfortunately not in favor of borrowers. The 2-year Treasury yield has risen over 25 basis points this week, closing at 4.56%. This substantial increase suggests that the bond market anticipates further action from the Fed. In early May, the 2-year Treasury was trading around 3.72%. This drastic shift in yields and the resulting implications deserve close attention. Additionally, the 2-10 Treasury spread has re-inverted to -76, an indicator often associated with recessions. The inversion of the yield curve should be monitored closely.

Currently, equities are driving the market, obscuring concerns about a potential debt ceiling standoff, overpriced tech stocks, or higher interest rates. It is a fascinating yet challenging time to analyze these market dynamics.

Market Commentary 5/19/2023

Posted on by Damon Germanides

A Tale of Two Housing Markets As Rates Rise 

Even with the rise in interest rates, the limited supply of existing homes for sale is leading to multiple offers on the more affordable properties entering the market. This growth in demand is a key factor behind the surge in builder stocks reaching near all-time highs. New home construction is crucial as many homeowners are hesitant to sell their homes. This situation also highlights the importance of recognizing that real estate markets cannot be generalized. The ultra-high-end existing and new home market, particularly homes priced over $10 million, is not experiencing the same level of activity due to higher interest rates and concerns about the economy. 

Despite potential negative news such as debt ceiling talks and rising interest rates, the stock market remains unfazed, largely driven by the future of AI. A deeper inspection reveals a crowded trade, with eight stocks, including Microsoft, Google, and Meta, accounting for the majority of gains this year. Excluding these eight stocks, the market performance is relatively flat or slightly positive. 

The Federal Reserve remains vigilant as the June possibility of another 0.25 basis point interest rate hike starts to gain traction, although it remains uncertain. It is worth reiterating that inflation is a challenging problem to tackle. While goods and housing inflation are easing, the unemployment rate below 4% continues to exert pressure on wages and services, making a swift return to 2% inflation unlikely. Additionally, inflation remains persistent in most developed countries, with even Japan defying expectations by recording inflation well above 3%. 

The Mortgage Maze 

Quietly, interest rates have climbed back above 3.500% on the 10-year Treasury note. The future of rates will depend on how Congress addresses the debt ceiling and the potential for further flare-ups with regional banks. One thing is certain: obtaining financing for residential and commercial properties is becoming more challenging, requiring more expertise to navigate complex loan scenarios. Moreover, there is a significant divergence in rates among lenders, as illustrated by the discrepancy of 0.5% in the loan scenario priced today, emphasizing the value of a knowledgeable broker. 

In this dynamic market environment, we remain committed to providing our clients with expert guidance and solutions to successfully navigate the ever-evolving lending landscape. 

Market Commentary 5/12/2023

Posted on by Admin

Inflation and Slowing Economy Weighs Heavy on Consumer Confidence

The results of Friday’s University of Michigan Consumer Sentiment Report (UMCSENT) were lower than expected, emphasizing the impact of inflation and a slowing economy on consumer confidence. UMCSENT holds significance as it provides insight into the current sentiment of consumers, and the reading was not favorable. As we have previously mentioned, we believe that tackling inflation is always challenging. Although we anticipate short-term interest rates are approaching their peak, interest rates are not likely to decline as rapidly as some may hope. The Federal Reserve made a critical mistake by allowing inflation to exceed 9%. As a result, they will have to exercise caution in reducing interest rates until there is clear evidence that inflation has been effectively addressed.

In terms of the Consumer Price Index (CPI), overall inflation is showing signs of abatement. Regardless, super-core inflation ( which the Fed closely monitors) remains elevated. The Fed is prepared to accept a rise in unemployment and sustain potential market repercussions to bring down inflation. This strategy hinges on the recognition that inflation disproportionately affects the most vulnerable individuals. Additionally, it is important to consider that other factors continue to exert pressure on the prices of goods and services; like the post-Covid uncertainties in global supply chains and the absence of cheap labor from China. 

Housing Supply, Consumer Sentiment, and Lending Sources

The surge in interest rates has prompted a decline in existing home sales. Borrowers looking to upsize or downsize their homes are hesitant to give up their mortgage rates of around 3% in exchange for new rates of 5% to 6% or higher. This trend has contributed to the rise in stock prices of new home builders. The housing market remains constrained, particularly in larger cities, due to limited supply.

There are concerns surrounding regional banks as deposits flee and smaller banks face  balance sheet challenges. Stronger banks are positioned to acquire weaker ones. While these mini-regional bank crises are not systemic, they are creating a tighter lending environment. Many of these banks were involved in services like commercial office space as well as provided financing options for non-institutional sponsors, construction, and other specialized loans that larger money center banks often refused. We expect to witness further episodes of bank-related issues in the coming months.

At Insignia Mortgage, we are navigating this environment proactively. Our team of professional loan brokers has identified several interesting lending options, including credit unions, boutique banks, and larger private banks that offer excellent terms for the right clients. Here are some highlights:

  • Loans up to $4MM with loan-to-values up to 80%
  • Interest-only products available for high net worth borrowers up to $20 million
  • Bank statement loan programs up to $7.5MM with rates in the low 7s
  • Financing options with as low as 5% down payment for loans up to $1.5MM and 10% down payment for loans up to $2MM
  • Foreign national loans ranging from $2MM to $30MM

We remain committed to finding innovative solutions and serving our clients with exceptional lending opportunities amidst this challenging market landscape.