Topics covered in this update video:
- Tons of employment data this week, how is it impacting mortgage rates
- New COVID income guidelines for self-employed borrowers
- Fannie/Freddie issue guidelines for buying or refinancing after forbearance
- Ask me anything in the comments section. I’m happy to go over anything you want to hear about.
Welcome everybody. It’s Josh Lewis, with BuyWise Mortgage here with the mortgage and real estate update. We’re gonna go through a couple of things, just a couple of interesting updates. I actually wanted to have some nice slides, with some additional details.
But with rates this low, and kind of what we’re gonna talk about some important news, coming out tomorrow that could move the market. Just busy here, still trying to go through stuff. So you’re gonna see I wanna jump in, actually, I don’t even know where I wanna start. But let’s jump in here.
Let’s first of all, make me smaller, and the data bigger. And let’s just start here. I don’t generally like to start with interest rates. Interest rates are the least important, part of everything we do. If someone’s looking at buying and looking at refinancing, obviously, the rate is important.
But the bigger stuff, in the context of what’s going on, the direction in the market guidelines, that stuff. But let’s start with this, ’cause right now today, the interesting information, is mortgages.
If You remember on Monday, we were talking about this pennant formation between the 50 day moving average rising, 25 day moving average going lower. And we’ve been sitting there between it, for what are we thinking, three, four weeks. We were expecting a breakout to the upside.
Today we kinda broke out below it. And what do we attribute that to? Your guess is as good as mine.
But if you look back here on Wednesday, yesterday, this one that pushed us just below with a really strong ADP, strong is the wrong word. When it really, unexpectedly positive, or less negative, report for the ADP jobs data. ADP, obviously, as you know, they may do your payroll, the biggest payroll vendor in the United States.
They aggregate that data, and they sort of every Wednesday, publish their information, I should say every Wednesday, the Wednesday before the monthly employment, the report comes out, that’s Department of Labor does they release their own number. And it’s based on what they see, with the companies that use ’em for payroll in terms of hiring and firing, and what that looks like.
It was very negative information, it was just a ton better than what was expected yesterday. As we’ve seen for the last month, the stock market says, “hey look, things aren’t as bad as we thought.” So stock prices up. And that’s really the only thing we can attribute this to.
We have the monthly employment report, coming out tomorrow morning, based on the ADP report being better than expected, people are now expecting, a positive surprise, with that report tomorrow. With that being the case, we’ve been pushed down to a lower level here in bond prices, which is bad for interest rates.
Now in the grand scheme of things, how much worse are we than the other day? About 25 basis points, like a quarter-point, So you have a $300,000 loan, 25 basis points, a quarter points, That’s $750 worse, in pricing to get the equivalent interest rates If three and a quarter, was zero points, On Tuesday, today, it’s about a quarter a point or $750 on that $300, 000 loan.
A couple things, that I just wanna follow up, on what we had talked about last week, the Freddie Mac, Primary Mortgage Market Survey, this is the average, of the last week’s, insured loans by Freddie Mac. What they report here is, last week was 3.18. It was a tiny bit up, the previous week was 3.15.
But for all intents purposes, we went nowhere, ’cause a week ago, they were reporting fees and points of point eight at 3.15. Now worth 3.18 with point seven. For all intents and purposes, those are identical, they are the same. The thing that I was talking about last week, is if we look at The National Mortgage Rate Snapshot, one year ago, we were at 3.82.
And point five and actually, here’s the one week ago their little chart is a little bit off, but 3.15 and point eight today is 3.18 and point seven. Functionally the same. But what we wanna look at is a year ago were 3.82 at point 5%, or point five points And that was actually high, the number that we usually see is point three, point four points.
Is what most people are including in terms of buying down an interest rate. So largely what we’re seeing the last few weeks with the national average, as measured by The Primary Mortgage Market Survey coming down, is simply people paying more points, to get their loan.
As we mentioned, there’s a couple, of large national lenders that are pushing that, On borrowers saying hey, rates are at all-time lows, why not pay a point, or two points and get it down to the absolute lowest level, and that may or may not be, the best decision for any individual borrower.
The only way to know is to pencil it out, put it on paper, and show you what it looks like. What it looks like over time, how long it takes to recoup the additional points, that you’re paying in terms of the monthly savings. Usually, people are surprised. It’s a fairly little small monthly savings, for a fairly large chunk of your equity, that you’re trading, and paying points.
The other thing, I wanted to point out is, let’s go back here. You can see, we’ve just been slowly inching down, in bond prices, which means rates should be going up. But we have watched, over the last few weeks, that rates are going down. Why is that? if you watched about a month or so ago, I first showed you guys this chart, and this is a larger reason, of why we think interest rates will be going lower.
When you look here, our historical spread, this is over the last 10 years, but the historical spread, the high was 2.2 and the low was 1.4.
And this is the spread between the 30 years fixed mortgage, as measured by the Primary Mortgage Market Survey, by Freddie Mac and the 10 year Treasury, this average over the last 10 years, has been 1.7% and right now, we are down for to the lowest level in quite some time. 2.49 by the two and a half percent spread, we had peaked up here at 2.71. So it’s improved almost 1/4%.
While mortgage bonds, the underlying investment, have gotten a little bit worse. So it’s telling you that lenders, are getting more comfortable with lending, and rates are kind of normalizing. I would expect… I don’t know, how long it’s going to take, to get back down to under 2%.
But my guess is we’re gonna get to 2%, in the next six to eight or 12 months, and why is that important? Let’s roll back over here. You guys probably think I’m nuts, going through all of these charts.
But let’s… So why am I in the wrong one? Let’s go, here we go. So this is the 10 year Treasury. The 10 year Treasury as you can see, also flat flat flat flat flat, but the yield is going up. So what we’re saying is if we normalize down to say 2%, which is higher than the last 10 years average, this can go up. So we’re at point eight, two. So the high range was about point seven, five, going back all the way to early March, this could go up to one or 1. 3.
If we were to normalize down to that 2% range, and rates are still gonna stay where they’ re at. If the 10 year Treasury stays in this range, of point seven, five, goes even lower. So really smart experts are calling and expecting them to decrease down, to the point 3% range. If we were to normalize down to 1. 7, same as we’ve seen over the last 10 years, we could see rates go to as low as 2%.
So for the most part, mortgage rates, what we’re seeing they’re identical to where we were on Monday, and maybe you’re an eighth or a quarter-point worse than where we were at that time. But the important news is what happens tomorrow. Do we get a strong employment report, and it’s going to be bad.
There’s going to be a lot of jobs lost. But is it gonna be like the ADP, where they were expecting 8 million jobs lost and it came out at like 2 million? Are we gonna see something so much better? And the markets take that as a positive and stocks are sort of off to the races.
Right now what we’re looking at, almost every predictor of the future direction, of the stock market is flashing giant warning signs saying, overbought, stocks have recovered way too quickly, from what is a major shock to the economy. So earnings, like you’ve all probably heard, of the price to earnings ratio. When earnings go down, when companies get shut down, they can’t produce their goods.
There’s no one buying them. People can’t fly. People can’t stay at hotels, people aren’t eating out at restaurants. Any number of industries are way, way down. earnings are down, but prices are up that can’t continue on, and definitely either earnings are gonna correct massively, or we’re gonna see a giant spike in earnings, Or prices of stocks are gonna come down.
The prices of stocks come down, which should be supportive to bonds, both treasuries, and mortgage-backed securities. That’s why we’re expecting rates to go lower. But that being said, in the short run, the longer-term trend, can still be for lower interest rates. But the short term trend can be contrary to that, it could pop up.
So if stocks continue to do well, and continue to defy gravity, for another week, or month or quarter, we could see treasuries get worse and mortgage rates get a little bit worse, but we could also see lenders, trying to keep their volume up, normalizing back to that spread that we’ve seen. The other two things that I wanted to touch on tonight that I think is important too, to most everyone’s pop this back up here and you can see my ugly face a little better.
Hopefully, borrowers were kind of in this grey area. As a lender, when we’re trying to determine what is the monthly spendable income that a self-employed borrower generates, generally What we’re doing, is looking back at the last year or two of tax returns, and averaging that income.
What almost everyone knows is 60,70, 80% of businesses have been negatively impacted by the shutdowns with Coronavirus, might have been a little bit, it might have been a lot. So lenders were left to their own devices, largely to figure out how do we calculate income, for these people? Fannie and Freddie issued guidance saying, that we’re gonna look at two months of bank statements.
So We were… Almost all lenders are required, get a statement from the borrower, stating how impacted their business was by the virus. I have business owners, who their income went up, for the majority most went down, some of them entirely. The best example, I have a hair salon owner, that’s wanting to buy a house.
She was shut down for two and a half months here in Southern California, and probably hairstylist in most parts of the country, into the same situation. So in the letter, stating how they were impacted, we need a year to date, profit, and loss showing what that income looks like on a year to date basis.
And when you two months bank statements, supporting what we’re stating that income looks like. For the most part, it’s harder for self-employed borrowers, to qualify right now, because we don’t have a pay stub, issued by a third party and employer, showing us what they’re making and conforming with written verification of employment income looks like.
It’s really important. Obviously we’re in California, we help borrowers throughout California. If you’re outside of California, make sure you’re talking to an expert, ’cause it’s super easy, to look at the documentation. The way we’ve always looked at it, and tell someone “Hey you’ re great, “you qualify.”
When in reality under the current situation, and for the foreseeable future, we’re gonna be looking at some different data, and having a look a little more closely, at self-important, employed borrowers. Another piece of news, that happened while I was out, I haven’t had a chance to touch base on.
I just wanted to point out that, both Fannie and Freddie have come out and stated that, if you’re in forbearance, it used to be 12 months waiting period, before you are eligible, for financing either to purchase or to refinance. And both of them have stated, that they will allow borrowers once they are done with their forbearance.
So either it’s brought current put behind them, or they’ve entered a repayment plan, and they’re three months, into that repayment plan successfully. We can go back and do a loan, either to refinance or purchase a new home. Both of those pieces of information are good news.
There’s so much misinformation, in the early parts of the Coronavirus, of what’s gonna happen, and people panicking. And I feel like we’re getting clarity, slowly but surely, more questions have come up, more people have had time to sit down. and think it through, and come up with solid decisions, on the part of Fannie Freddie, FHA, VA, of how we’re gonna come through these things.
For the most part, it’s pretty logical, there’s nothing working, against borrowers, or making it unnecessarily difficult to qualify, other than just the employment, and income environment that we’re in right now. So always wanna point out the resource, that we have available.
My business partner Scott Schang has created the forbearance report. forbearancereport.org will also get you there. Any information that you’re looking for. We continue to see misinformation, not just in the news media, or blogs, or other people making comments on social media, but big major national servicers, giving people incorrect information, about what they are able to do in terms of forbearance, getting out of forbearance, qualifying after forbearance.
So continue to use that as a resource, if we can help you, reach out, had a couple of borrowers this week one in Idaho, and one in New York City found us through one of these videos on YouTube.
We’re were unable to help them directly, but we have a great network, of someone that we connected, both of them one in New York City, one in Idaho Falls, and we’re able to get them connected. Feel free to reach out, if you don’t have a local trusted expert resource. We have ’em, we’d love to connect you with someone So that you’re getting the right answers.
And if you’re in California, obviously, as always, we would love to help yah. If you’re finding this on on YouTube, which we’re streaming live there also, make sure you subscribe, Scott and I, are gonna be really increasing, the volume of content that we’re putting up there.
Like the video, subscribe. Same thing with the YouTube channel. Make sure you like us, follow us on Facebook, because we’re gonna be ramping up the content, that we’ re doing, getting a lot of good feedback, both in terms of “Hey this is good content.” But also asking, “Hey can you talk about this? “Can you talk about that?”
We’re gonna be taking some of that feedback, and really getting some tailored information, out on different topics that you guys are interested in. So let me know, how we can help. Thank you for checking in. It’ll be interesting.
We’ll be back Monday night, and super interested to see what happens with tomorrow’s employment report. All right. Have a great night. We’ll talk to you soon.