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Full Transcript:

Roy: Good afternoon. Good afternoon. Attorney Roy Oppenheim here for our 26th consecutive “Zoom at Noon.” Last week, we talked about the K-shaped Recovery and how the economy is basically creating winners and losers. It’s kind of like the best of times and the worst of times, while at the same time. This week we’re gonna be talking about How Interest Rates are Fueling the Single-Family Home Boom. As usual, I wanna thank my sponsors Oppenheim Law, our law firm, and Western Title and Escrow. As many of you know, we’ve been servicing the community of South Florida and the entire state now for over 30 years. Besides myself, we have my partner, Ellen Pilesky and we have Jeff Sherman, and I have my partner who’s handling the controls today and Mia Singh senior associate in Paola Vergara and Wayne Patton. Wayne handles our trust mistakes and Paola handles our intellectual property. And Mia is a commercial litigator who also helps with providing services in the area of probate.

I also want to introduce our guest, Steve Perrigo, and Steve has been in the mortgage business for 30 years. He’s been in the mortgage lending business specifically as a senior mortgage consultant and originator and he specializes in residential financing with Clear 2 Close Home Loans. Prior to the residential mortgage origination business, Steve was involved in underwriting, so he knows a lot about what it takes to get a loan approved. Again, for those of you who are gonna be considering to refinance your homes or even be buying a new home obviously Western Title is here to serve you as well as of course, the law firm and we hope we’ll be able to assist you in those areas. So, even though last week, we talked about a K-shaped recovery, there’s also a V-shaped economy that we wanna talk about today. And the V-shaped economy is occurring more on the side of the upper half of the K for those folks who are doing okay in this environment.

And what we’re seeing here is the strong housing environment that has occurred during the pandemic. If we take the cursor, we can see that obviously, during the crisis, month after month, after March, the number of homes that were being purchased in terms of home sales, you know, dropped almost precipitously, you know, by 30%, and then very quickly came back up. And so, we see that with the dark blue with new home sales, which has gone off the top and have broken records that we haven’t seen in years. Existing homes, which is the orange also is doing quite well, and then purchase mortgage applications, which is the gray one is kind of a reflection of both of those, but it does doesn’t take into account those people who are buying for cash. And that’s why the blue is so high is because a lot of new homes are being purchased, actually for cash. So, we’re seeing this crazy V-shape. Like hear we’re seeing an interesting picture that Atlanta Oppenheim who put this presentation together decided to include.

This is someone in front of the Plaza Hotel in New York, I’m not sure exactly what he’s doing. But he’s doing something and it just reflects the new world that we’re in. By the way, some of these chart, we get it from the Federal Reserve, and they produce great, great work, and this comes from the Federal Reserve in, I think, St. Louis. If we move the picture possibly a little bit away we can actually see that this is a four-week moving average of initial jobless claims. And we’ve seen that those jobless claims are dropping precipitously, and still slightly higher than they were at the peak of the last crisis, but it’s coming close to actually coming back to 1980, actually, not even to 2000. So, we’re getting close to where we were in terms of new claims, but that still doesn’t reflect the fact that over 10% of our population is unemployed and in Florida, it may even be 11%. We look at personal consumption expenditures. Again, if we can move the picture, what we’re gonna see is that our consumption habits are now after we get through that little V, again, as we can see back to where we were in 2015.

So, we’re buying spending where we were about five years ago. So, right now we’ve lost, you know, five years of consumption growth, but presumably, after the notion of there being a vaccine of some kind or therapeutic care really, really kicks into the level that the administration suggests, we could see some accelerated consumption based on all the cash that’s on the sidelines. And that cash is in money markets with over $7 trillion, as I mentioned before, and now we’re seeing a lot of wealth effect that we really haven’t talked much about in terms of people who think that they have no more money than they did before because. They were spending less and be because their 401ks in there and their stock portfolios are starting to bulge. And so, they’re gonna want to use some of that money to consume in terms buy new homes, going on vacations, eating out. But all that is not gonna happen until such time that there’s a vaccine and people feel comfortable to get out of there and fly again.

Pandemic update. What we’re seeing in this picture is that there are parts of the country that at this point are almost unaffected by the pandemic and it’s self-explanatory where those areas are. You have some hotspots, but there are places in the country that it’s really life is normal. You’re going to restaurants, schools are open. And so, it isn’t a one size fits all and the idea that you can, you know, open the entire country, close the whole country. It’s kind of like real estate, it’s location, location, location, and depending on your location is gonna determine exactly what’s going on. So, we’re seeing like in Wyoming or Montana, or where many people have decided to move from some of the Eastern and West Coast, that things are pretty normal. And restaurants are serving indoors and schools are open and so it’s just an indication of where things are going. In terms of Florida, we’re seeing, you know, both nationwide in Florida that there are a reduced number of cases, the number of deaths are dropping.

And in South Florida there, in certain parts of South Florida, they’re talking about maybe reopening the schools and going to phase two where some restaurants would be…and bars may even be allowed to open and even athletic clubs will be able to have more people come in. So, this is all very positive. I wanna now move to Steve, Steve Perrigo. Good friend, someone we’ve been doing business with for quite some time. And Steve, you’re there buddy?

Steve: I am here. Good afternoon.

Roy: Thank you so much for joining us today. And, you know, you’ve been really just so helpful in this whole process to us and me personally, and I appreciate you coming on board today. Thank you so much.

Steve: My honor for your consideration, sir.

Roy: Let’s go to this first slide. Millennials Help Power This Housing-Market Rebound. Let’s talk about millennials and what’s going on with the mortgage market if you would be so kind.

Steve: Well, as we all know, that there’s a lot of multi-generational living going on right now. And the millennials are either living at home and then getting tired of it and finally dipping their toe into that pool. And they’re really what’s fueling a lot of the home purchases out there. There’s a ton of people that are making application, as you showed in your previous slide. It really does show the interest of these folks to go out and make the time now to buy their house.

Roy: And so, let me ask you, where are they getting the downpayment from typically, because that’s always…I mean, I remember growing up, you know, as a young adult, that was always a tough issue for friends of ours and for ourselves is, you know, how do you get that downpayment?

Steve: So, downpayment obviously comes from a lot of a number of sources. As a mortgage lender, we like to see it in savings. We like to see that that person has been able to obtain the savings themselves. However, the government and FHA and VA lending, even the USDA lending is very favorable with gifts. And Fannie and Freddie, after the number of years, finally kind of got on board with that. So, gift funds are a big portion now of what people are doing.

Roy: So, you must be seeing a lot of that, I would presume. So, tell me about this for people who are related and also gifts for people who have unrelated.

Steve: All right, so really, there are four acceptable sources of gift funds. They are family, employers or labor unions, close friends or fiancés, and then charitable organizations or governmental organizations they give grants. And so, you know, obviously that covers the spectrum. The more interesting one is family. They’d like you to be a blood relative, that’s the preferred thing. But what’s interesting is you get into close friends and fiancés, the verbiage that’s used in the FHA book is clearly defined and documented interest. So, you have to be able to show that there is a relationship between that person who’s gonna be your fiancé or your close friend. And, you know, convince or sell an underwriter that this isn’t, you know, just a person that is random in your life that’s…

Roy: So showing your engagement ring on Facebook would count as evidence.

Steve: You know what? I’ve actually seen people show announcements for marriage. I’ve seen pictures of engagement rings, it contracts for venues to get married in the future, those types of documents, so it has to be well documented.

Roy: So, here we have a picture, Steve, of literally people lining up either to make offers or to actually go through showing. There are places all over the country right now where when a house gets listed within an hour, you could have five or six offers, and sometimes they’re overpriced, I mean, over the asking price. And so, a lot of that must have to do with low interest rates. Let’s talk about that.

Steve: Yeah, the interest rates are absolutely fueling this thing. You know, obviously, interest rate is dependent upon a person’s qualifications. It’s dependent upon the amount of money for downpayment that they’re exercising and obviously, credit scores is the largest impactor of people’s interest rates.

Roy: And interest rates right now are at absolute historical lows. Are they not?

Steve: They are absolutely at historical lows. I’ve seen on my money sheets, as low as 1.99, 2.25. It’s available and it’s out there if you wanna pay for it.

Roy: Right. Steve, we already have some questions. By the way, those of you who are uninitiated, this is supposed to be interactive, and Steve and I are interacting but the whole idea is for you all if you have questions to participate or comments or disagree with something that we’re saying. Chime in, make a comment, and we’ll be glad to address it. We already have three or four questions. Let me ask the first one. Are there new mortgage requirements such as required higher credit scores or higher downpayments?

Steve: Yes, and we can thank COVID-19 for that. When the COVID struck back in March across the board, everybody tightened up the guidelines for lending especially in that FHA or that government arena. We saw the minimum credit scores go, that lenders want to accept and I stress that that’s a lender thing. It’s not the FHA, but a lender thing. And they raised those 3.5% downpayment rate, credit scores from 580 up to in many cases 660. And some companies even went higher than that.

Roy: And also the jumbo market seemed to seize up initially during COVID, what was going on there, in your opinion?

Steve: Yeah, it absolutely did. Again, because so many people, this thing just has affected so many people, self-employed people. There are special now underwriting guidelines and additional documentation that all lending institutions and Fannie and Freddie instituted, you know, to make sure that a person is, A, still working, or B, even if they’ve kept their job, that their hours aren’t impacted, or the flow of their business was not impacted.

Roy: Someone wants to how long do you think the refinance boom will last? And so, what they’re asking you is, how long will the Federal Reserve really keep down interest rates, I guess, is really the correlate to that question.

Steve: Well, the speculation is and what they’ve told us and I say, told us, because that could change tomorrow if the economic factors change. The plan is really to keep rates in the same range where they’re at now, all the way through next year.

Roy: Well, certainly through the election.

Steve: Absolutely. Through the election. But, you know, like I say, right now they’re kind of saying all the way through at least next year, they’re gonna keep that bank lending rate down, which should correspond to these rate of interest for the period of time now, that could absolutely be affected by different economic factors. And if we start seeing inflation, they’re talking about that perhaps…matter of fact, in the Fed statement, they said that they were open to it running a little hot at times and if that happens, that could change the whole game.

Roy: So, that could be a precursor to what I was alluding to earlier that if and when…now I’m gonna say when, but it really is if. When there is a vaccine, and it becomes publicly accepted as opposed to, “Oh, we have a vaccine like the Russians have a vaccine.” Okay, when there’s a vaccine that we all find comfortable to take. Things are gonna just go crazy, because there’s pent up demand and the expectation is, and we do the Zoom on this, that there could be another roaring 20s, that there just could be just enormous amount of cash and that would, you know, increase velocity, and by the end of the day would increase inflation which means at that point, the Fed would have to increase interest rates slightly, probably.

Steve: Absolutely. And we’re seeing that already in little bits and pieces of things with all of the Fed stimulus money that’s hit the marketplace. I don’t know if you heard the report that came out the other day with new builds are just going through the ceiling right now. But you’re seeing that lumber prices are 111%, higher this year than they were last year. So, this is just an example of some of the inflation that they can see and those are the things that they’re watching for. And when that begins to happen across the board, that’s where…

Roy: And within your industry, there’s almost a form of inflation, you artificially increase prices to reduce the volume. You’re, like, throttling back the velocity and volume of applications because you just can’t handle it. Let’s talk about that because people have no clue about that.

Steve: Yeah, so yeah, we are absolutely right now I’m going through a capacity challenge in the industry. So, when this thing started and interest rates really kind of rock bottom for the first time even before COVID, that happened back in January and February was the first little blip of it. And they say that there are about…what’s the number, 5 million to 7 million people who can benefit from a refinance based on where interest rates are now. Well, when that number hit the 3% and 2% range, the market went crazy with refinances and they were up like 600% at the beginning of the year. So, obviously, there’s only… Oh, sorry, go ahead.

Roy: I won’t be shameless here. But, you know, what we’re suggesting for those who are listening with friends and family, if you have an interest rate that’s somewhere north of what do you think? Three and a half, 4%.

Steve: Yeah, absolutely north of 4%. Absolutely north of 4%. And I’m telling you what, we’re seeing people refinancing who have rates currently in the 3.25% and 3.5% range. Now, the strategy there obviously for them, they’re not gonna save as much money but what they’re doing is reducing terms, and a lot of them are going to 25 and 20 and 15-year mortgages, and then taking advantage of the time savings.

Roy: And also if you’re planning on staying within your home for at least a year or a year and a half, you’ll breakeven and that’s the breakeven point [inaudible 00:16:12].

Steve: Well, again, it depends on the amount of your closing costs, the amount of your balance, and how much you spend on those closing costs.

Roy: Next question, is it easier or harder for self-employed people to get a loan because of COVID?

Steve: It is harder. No question about it. Like I say, the lending institutions have all instituted what are called overlays. And those are special things that they need to be more comfortable to, again, assure them that self-employed person hasn’t been affected by the pandemic.

Roy: This is a technical question, but I’m gonna ask you. Are asset-based or stated income loans out the window or products like that still exist? If so, what are the parameters?

Steve: They absolutely still exist, believe it or not. And again, when COVID hit, that all dried up for about 90 days. Now we’re beginning to see some of that asset-based and that non-qualified mortgage or non-QM mortgage.

Roy: Are those what we call liar loans and what got us in trouble last time?

Steve: You know what? They’re not. And I’ll tell you the reason why. So, what they’ve done is they’ve kind of gone around the block and, you know, you have to be able to prove that you can make a payment. And so, even the non-QM stuff, they’ve gone into things like using bank statements, 24 months’ worth of bank statements, 12 months’ worth of bank statements, 6 months. I saw, one of my investors this week released a two-month bank statement program. Now, you’re not just given two months, and they’re gonna say that, “Oh, that’s exactly what you make.” No, you’re gonna have to get a P&L statement from your accountant to show what you did last year, and where your money is, but it’s a whole lot less than…or a whole lot better than those that don’t show the money on their taxes.

Roy: So, there are probably some retirees who are on the Zoom today and I guess the question, how do retired people get mortgage loans? Whether they’re reverse mortgages or regular mortgages when they may have retirement assets but their income is not that great. So, how does that work? It’s very interesting.

Steve: So, the asset-base stuff, they’ve lessened or laxing [SP] a little bit of those guidelines now and what they’re doing in a lot of cases, they take the total amount of assets that someone has, and they divide it by 36 months. And then they can actually use that money because that’s what they’re drawing off of for their mortgage qualification. That’s what they use for their qualifying income.

Roy: Someone is saying, “Where do we see rates in the next three months or next year? Have the VOE requirements change because of COVID? [inaudible 00:18:42] and tell people what VOE is, please.

Steve: All right, so VOE is verification of employment. And during the COVID crisis, they were verifying employment all the way up until after your loan closed, to make sure that you didn’t close on Friday and resigned on your job on Monday. So, verification of employment, the standard guideline was you did a verbal verification before closing, it could be anytime 10 days before. Well, when COVID hit, they changed that guideline and they brought it all the way up to we need to see the last pay stub you have before closing and were verifying your employment on the date that you fund. So, everything was very labor-intensive and tied the system up. And again, you talk about the capacity issues that are going on and just the sheer number of loans that are out there, that really has worked against the timing of how long it takes to close too.

Roy: There’s a question here about banks versus mortgage brokers. Tell us what the difference is in terms of the rates and the process because, you know, some people think you can only borrow from a bank when it comes to mortgage, but in fact, the mortgage brokerage community probably controls what percent of all mortgages [inaudible 00:19:50]

Steve: It’s actually growing back at the peak and that happened before the last crash. Independent mortgage brokers were at about 65% to 70% of the originations. Now, after the crash, that fell drastically, actually. And now, I think the numbers last I heard, they’re about 25% to 30% of the market. But, you know, it’s real simple. If you go to your bank, they have one set of guidelines or one set of programs, and they’re a bank so their box is gonna be a lot smaller than an independent, you know, non-FDIC insured bank. So, now you have mortgage bankers that are out there who have the ability to buy and sell loans, deliver both to Fannie and Freddie and to different correspondence, and that opens that box and makes it a little bit bigger. And so, it also expands the qualifying guidelines. So, when you’re doing business with a banker or mortgage broker, there’s more opportunity because they have more sources. It’s not just one [inaudible 00:20:53]

Roy: Now, most banks or a lot of bank use portfolio, right?

Steve: Some of them do but a majority…and yeah, the portfolio banks, you know, they can make their own rules, which is real nice. And you referenced stated loans earlier. I’ve got a handful of portfolio loans that, you know, if you’re putting 25% or 30% down and you’ve got a 740 credit score, they don’t make you give your tax returns, your anything. Basically, you don’t even have to state, they’ll do it based on your credit and the downpayment that you’re doing.

Roy: Steve, someone wants to ask you [inaudible 00:21:25] question. Are you concerned that the big housing demand will lead to a housing bust when things steady themselves out?

Steve: Ask that again.

Roy: I’m sorry. Are you concerned that the housing demand that we’re seeing right now will lead to a bust, housing bust when things steady themselves out?

Steve: I don’t believe so. And certainly not here in South Florida, you know, you hit the nail on the head earlier when you said location, location, location. You know, obviously there are gonna be some areas in the country where things level off quicker than others and it’s where do you wanna be, right? Out there in Montana, they’re certainly not gonna see the demand that we have here in Florida or, you know, a lot of the coastal areas where the demands are a lot higher. You know, I see this thing being a case of supply and demand and until there’s more people who wanna list and even of the inventory based on the number of people who wanna buy. You know, the mortgage paper is what killed it last time, because of all the hybrid loans and the state products. But we have the strongest mortgage guidelines and paper that we’ve written in the lifetime of history behind us now, so it’s a pretty good combination.

Roy: I’m sorry, I may have shared this slide with you. But it shows how boomers now, as we talked about earlier, are the biggest folks who are applying for loans compared to the millennials, Generation Z, Generation X. It’s really fascinating. And around 2017, it looks like, that’s when there was the convergence between Gen X, I guess, and the boomers.

Steve: Yeah, the baby boomers…

Roy: Not the boomers, and the millennials, excuse me. I apologize.

Steve: Right, right. And so, you know, again, you had that phenomenon of the baby boomers cases, a lot of them went to buy bigger homes because of things that were going on in their lives and they had multi-generational type of situations going on. And so, they needed more room and with COVID, certainly, it brought out people who were living in the city who wanted to get away and have more space and more room. And that’s just really, really fueled the demand.

Roy: And I think it’s fascinating. We’re seeing what’s going on demographically in the community, of course, the silent generation, I mean, they’re getting older so that they’re kind of non-issue. But it is fascinating the boomers are…I mean, I keep saying the boomers, millennials are starting to drive the real estate market and the mortgage market more than any other demographic. So, that’s fascinating. Steve, you and I were talking about either last night or yesterday, sometime, about how people who have mortgages, if they just would pay their mortgage every two weeks or twice a month, how they could shorten the length of…

Steve: Yeah, it’s a little trick that’s in the industry that, you know, it’s getting a little bit more well-known now as people begin to talk a little bit about it. But, you know, mortgage loans are all simple interest loans. And so, the more often that you reduce that balance, the less interest you’re being charged, because it’s always based on the outstanding balance.

Roy: If you could pay every Friday, you could pay a quarter of your mortgage payment.

Steve: Absolutely, you sure can.

Roy: And if you did that, you would knock off years, right? Years.

Steve: Yeah, the approximate is about 7 years on a 30-year mortgage, if you just paid it weekly, or paid it even bi-weekly.

Roy: Right, unbelievable. So, that’s kind of a neat thing. And that doesn’t mean you’re actually shelling out more money. It just means you’re shelling it out faster and turning that interest clock…not turning it off, but you’re slowing that interest clock dramatically.

Steve: Yeah, your effective rate of interest is much lower because you’re paying it so much quicker and it’s not charging as much interest.

Roy: Very interesting. Any other [inaudible 00:25:09] we have here? What is the acceptable credit score to qualify for a mortgage? I mean, I guess that so open-ended, but I’ll let you play with that.

Steve: All right, well, thank you. And credit score’s is really what it’s all about. And that really is going to determine your mortgage rate, as well. And so, right now, the conventional credit score, bottom line, bottom end is 620. And that’s just for a standard conventional loan, those with loan amounts up to 500, 10,000, 400. Now, when you get into FHA, they’ve dropped that now and it goes down to 580. But what you have with those interest rates…I’m sorry, with those credit scores is you have what are called loan-level price adjustments. So, the cost of that rate is more, the lower your credit score is.

Roy: Interesting. I want to also ask you what your thoughts were about the banking community or lending community’s thoughts on lending on a condo versus a single-family home right now. And if there’s like an extra interest rate that’s being kind of plugged in because the condo market hasn’t responded as well as, as the residential, family home market.

Steve: Well, Roy, Florida is very special in that regard. We have our own set of rules when it comes to condos, it’s different than anywhere in the country. Unfortunately, because of the number of condos that we have and how they’re managed, 90% of the condominiums, 90% to 95% of them don’t qualify for what’s called a full review, which is what Fannie and Freddie, the secondary market requires in order to buy a home with less than 25% down on these condominiums. And so, by virtue of that, people have to come in and put larger down payments on these condos in order to fit into the association guideline. The association, you know, say there are rules and guidelines having to do with what passes that full review. And a limited review is with 25% down, and it skips a bunch of the questions that you have to…and association guidelines that you have to have in order to buy with less down.

Roy: And that’s just for Florida or South Florida or you think that’s, like…

Steve: No, that is the whole state of Florida and it’s different than the rest of the country. So, limited review in Florida is 25% down, the rest of the country, it’s only 10% down. So, we are special here and we have our own set of rules.

Roy: Is there any other questions? Let me see. You think… Let me see. “Because of the refine boom, lenders are swamped with business, should realtors go 45 days on an offer?”

Steve: You know what, it’s the more time you give somebody is typically the better, but I’m not gonna tell you that I don’t have investors and again, it all builds into price wow. If you need something done quickly, I’ve got a lender, I can close you within two weeks. Now, it’s gonna cost you a little bit more in either discount points or interest rates because the guy who’s giving that kind of service is not gonna be the best price guy on the street. So, can you get a deal done? Absolutely. My purchase monies right now are closing between 25 and 35 days. I’ve got a handful of investors, even people who want really, really attractive interest rates on a purchase that always takes priority over the refinances. And the mortgage market knows that they have to take care of those transactions in a timely fashion so they make sure it happens.

Roy: Steve, we are, as usual, out of time. I could keep going with you, and people could keep asking us questions probably for another half hour. But I wanna, you know, thank Steve Perrigo of Clear 2 Close Home Loans. Steve, this was great, I want to thank you. For those who’ve been with us now for 26 weeks, I wanna thank you all for joining us. As we know, our law firm is here to assist you, a lot of stuff we’re doing right now is COVID-related. Sometimes we have situations where people can’t close on a home, they could be the buyer, they could be the seller, or something realtors involved. And we’re dealing with all those situations, we’re dealing with tons of commercial leases right now representing both landlords as well as tenant trying to work things out. We have a lot of folks whose businesses have been shut down for such a long period of time that the likelihood of their recovery is not very high and they have to consider, you know, Chapter 5, subchapter 5 in a Chapter 11 bankruptcy, and we’re assisting people in that area.

I mean, there’s just a host of issues that we’re dealing with. But for those of you who, you know, are able to refinance in great time, finding a home right now, great time, selling a home even a better time. Western Title, our sister company, can more than assist you with that. And of course, Steve can more than assist you on the brokerage side. So, once again, I want to thank everyone at Oppenheim Law and Western Title for joining us today at “Zoom at Noon.” And we look forward to seeing you next week for “Zoom at Noon” number 27. Have a great week. Steve, thank you so very much. Take care. Bye-bye.

Steve: Pleasure. Thank you.