Current State of Real Estate Financing: March 16, 2020
The information below is to simply inform you and help you make educated decisions about your investments. It is NOT to instill fear or anxiety. We’ve had more than enough of that lately.
What We Know
We have spoken to banks, lenders, title companies, and many others in the industry. This is what they’re saying:
Everything is going so fast we are just taking it day by day and week by week.
Currently, banks are mostly concerned about small businesses (i.e. restaurants and bars) getting closed for months. Small businesses ARE their business. Even though the Fed dropped their rates to zero, this will not help businesses with closed doors. How do these businesses cover rent and deal with food rotting in their fridges? How will the hundreds of thousands of workers pay their rent? Banks are looking for the government to announce plans to help these small businesses with payments and inventory.
From an investor standpoint, if small businesses close, unemployment will rise. And with unemployment comes the inability to pay rent. If you own rental properties, that will impact you and your rental loans.
We also believe banks will be a little tighter on lending over the next couple months. They will push more of the government backed programs and mortgage loans they sell off to FNMA or Freddie Mac.
Traditional conventional/conforming lenders.
They are overwhelmed with refinances. Last week, they had to raise rates to slow down volume.
When the Fed lowered their rate to zero it made little impact on these types of loans. Really, these lenders face two constraints:
- Too many loans for their resources.
- Mortgage Backed Security investors pulling away in these uneasy times and no longer purchasing these loans off their lines.
In other words, they have tons of incoming loans and no place to sell them. With the government buying mortgage backed securities over the weekend, it should free up some capacity.
Bottom line: These lenders are in business and will keep lending. Expect longer closing times and some pickier underwriting.
Private lenders and Non QM lenders.
We ARE all still open for business, but we have concerns on what is happening in the rental markets.
We also understand this is a time to look for opportunities. However, with banks slowing down, there will be more deals falling into this financing bucket. That means there will be a capacity issue, as well. Our focus will be on good, STRONG investors (with proven track records) and strong deals. The so-so deals (tight on potential profits to the investor) will be scrutinized closely and carefully.
Now, if homes sales slow down, then money will not be turning as fast to put back out. That means lenders will have to tighten lending to see how sales impact investors.
Real Estate Closings:
A key part to all transactions is title insurance. Title companies are reliant on their counties to stay open to get updated recorded documents and releases. If counties start to shutdown, we may not have title insurance to close deals.
What We DON’T Know
To be honest, a lot of things. The future is fuzzy as the world faces changes every day. We are CONFIDENT, however, that things will be OKAY and this is a golden opportunity for investors to take advantage of their finances and secure their futures.
How Investors Are Reacting
- “Great rates!”
- “Turbulent times. I should wait and see what happens.”
What YOU Can Do
- Stay calm. Stay informed. Keep an eye on the markets where you invest. Take time to chat with realtors, title companies, and other industry professionals to stay in-the-know.
- Evaluate all deals with a closer eye. Make sure they’re strong before you invest your money.
- Be active AND proactive. Don’t sit back and wait to see what happens. Take the bull by the horn and take actions now. Think beyond today and invest in your future.
- Check in with your tenants. How are they doing? How will their status impact you?
- Maintain/improve your credit score.
- If you have a bank loan, check in with your banks.
- Find ways to bring in more money while you can. Interest rates are at an all-time low, and the lines to take advantage of them are increasing. Hop in line now so you save yourself A LOT of money in the future.
Money helps drive the real estate investment engine, and we all need to stay informed on where it’s flowing. Those who are well capitalized and looking to benefit from this market will need financing. And there are still many options available.
What are you experiencing?
Want to chat more? Contact us with your email address, and we’ll keep you up to date as the real estate investor market changes.
Feel free to send us questions, comments, and feedback! We’re here for you during this turbulent time.
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