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Mortgage Industry on the brink of collapse

    

A stolen headline

Yes, I stole this headline because it is so impactful... and TRUE.  CNBC has been following this story on the continual ramifications of COVID-19 on the mortgage and financial system.  In my opinion, this will end up being worse than the financial crisis of 07-08 by far.  The foundation of mortgage lending has started to crack all across the industry.

A plea to stay in business

This Saturday, a large number of lenders sent a plea to federal regulators.  The message: "We need cash now!"  Correction, "Save us!!  We need cash to keep the mortgage system in America running!".  So unless the government wants to re-wind to the 1930s way of getting a mortgage, then they better do something quick.

The problem with Forbearance

Granting borrowers a mandated 90 days of no mortgage payments comes with a big price-tag for the servicer.  The servicer still has to pay the bond holder.  That coupled with the already HUGE problem the Fed caused with their stimulus (read about that here) puts lenders in severe financial problems. 

Credit CNBC: Mr. Cooper, the largest non-bank servicer in the nation, with close to 4 million mostly government-backed loans has already granted more than 80,000 forbearances, and the requests keep flooding in.  Jay Bray, Mr. Cooper’s CEO, helped federal regulators set up the plan.  He said he was told there would be federal cash for servicers, but that part of the deal never made it to the final act. 

“It’s frankly frustrating and ridiculous that we do not have a solution in place,” said Bray. “There is going to be complete chaos.  We’re the largest non-bank. We have a strong balance sheet, but for the industry as a whole you’re going to start seeing problems soon.”

I have said that the "you know what" hasn't hit the fan yet... well it's about to.  You will see many lenders closing their doors in April/May.  They just can't pay to stay open. 

My phone is ringing off the hook

The calls that are coming into me is just what I predicted.  This smelled like what I went through in 2007 when borrowers were being stranded at the closing table.  What's happening now is a bit different.  Some borrowers are being quoted a rate that is 2% higher than maybe a week ago.  Some are being told that their lock was canceled.  Some are being told that they can't lock in until after the loan is completely out of underwriting and within 15 days of closing.  Some are just being quoted a "slap in your face" rate quote designed to discourage them from applying. 

What to do?

Ensure that your lender is OK.  If any of the above calls are being made to you (like they were to me) then it's time to ask a few more questions and maybe find a new lender.  Thankfully my company is doing good.  We have significant cash in the bank and a large fund backing us.  Many lenders out there are still in good shape as well.  You just need to find them. 

Also, it's important not to let this evil virus stop you from refinancing or purchasing you next dream home.  Rates are still historically low and on purchases, sellers are negotiating with Buyers!  It's not the Seller's market it once was.  

Questions or concerns?  www.loanwithrick.com

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