Categories: Podcast

214 – How The End Of Forbearance Will Affect Real Estate with Chris Mason

Synopsis

A mortgage broker whose area of expertise is in California, Chris Mason is our resident expert in the Oakland space and Bay Area. He works with 38 different lenders doing loans such as Fannie Mae and Freddie Mac.

Mortgage forbearance is ending soon. So I got Chris back to the show to get his thoughts on the potential impact on the real estate industry.

Key points

Mortgage Rates At An All-Time Low

Following the passage of the CARES Act, we’re seeing mortgage rates hitting lows that we haven’t seen in years.

Homebuyers are coming in droves. But with forbearance, there is no rush for people to sell their houses.

As people move out of apartments, single-family houses are in hot demand. This led to house prices in the Bay Area going up a lot.

Are There Consequences To Taking Forbearance?

Forbearance won’t affect your FICO Score, but it will appear on your credit.

This means you won’t be able to take advantage of the very low-interest rates.

With 30-year terms becoming 30.5-year terms, your missed payments just get tacked at the end of your term.

But it won’t entirely vanish from your credit, so future lenders would know you took forbearance and may take that into consideration during your loan application.

This Isn’t A Repeat Of 2008

The 2008 housing crisis pushed the government to prepare. So it’s not likely that we will be seeing massive foreclosures.

There won’t be firesales. People who have equity can sell their houses and walk away with a profit.

Other areas such as those in oil-producing areas might no longer be as resilient. With people commuting less, demand for oil has gone down.

The Impact Of The Eviction Moratorium

Chris noticed that the mean FICO score of his clients has gone up lately. Buyers are those who have the funds to buy a property and are capable of waiting for a year before they can stabilize rental income as they deal with non-paying tenants

As real estate value goes up and the interest rate stays low, there is a demand for real estate. As they say, the rich get richer.

Appraisals Taking Longer Than Before

It takes 4-5 years to train a new appraiser. Appraisal fees have risen, some even charging $900 for an appraisal that would take 2 ½ months.

Chris recommends United Wholesale Mortgage who forced their appraisal management companies to agree to a 10 business day turn time guarantee or they’d have to refund half the appraisal fee.

The One Who Closes Faster Wins

Longer appraisal and underwriting times mean longer closing times. Now, it’s more valuable to be a lender who can close in less than a month. This saves the seller from needing to pay the next month’s mortgage, which could affect their credit if they failed to pay it.

Additional Bank Loan Requirements

For those who are self-employed, banks may start to ask for your recent couple of months of bank statements as part of your loan application.

Are Condos A Good Investment Now?

More buyers are interested in the single, detached house due to the ongoing germ phobia. It’s still difficult to tell whether it’ll be a temporary thing or not. If it is, then betting on condos would be smart.

But if germ phobia is here to stay, then we might see more movement towards single houses. In line with this, the work from home folks will likely continue in that setup. However, career-minded employees know there is still value in being in the office.

Sacramento was the hottest market in 2020. Being a 2-hour drive from the job center, people have shifted to living there.