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Mortgage Forbearance, Covid-19, and the CARES Act

April 6, 2020 / Tom Bonetto

The Covid-19 Coronavirus has led to some challenging times for all of us.

For homeowners and business owners, the US Government has created the CARES Act to assist those whose income may have been adversely impacted by the coronavirus.

One of the components of the CARES Act is the possibility of mortgage forbearance.

Please keep in mind that forbearance is designed to help those as a measure of last resort. It is not a free pass and may have serious consequences.

My advice is that if you can pay your mortgage, make sure and do it. This is not a time to try to take advantage of an untested program that might actually hurt you down the line.

Again, unless you are facing an immediate issue, pay your mortgage on time.

What is Forbearance?

Forbearance is often misinterpreted. And while it is intended to help, it can have some dangerous repercussions. Many people are mistakenly thinking that forbearance equals forgiveness. It does not.

To be clear, forbearance means that the payments will be suspended for a short period of time, initially up to 6 months, but will need to be caught up when the forbearance period is over.

I highly recommend that you go to the Consumer Finance Protection Bureau’s (CFBP) site here… their “Guide to Coronavirus Mortgage Relief Options” has s good deal of information and advice.

One way to think about forbearance is when you buy something at a furniture store that offers “no payments” for 3 months. You still must pay for the furniture…the payments are just deferred.

But mortgage forbearance is even worse if a borrower has dug themselves in a deep hole and can’t catch up. Should this happen, the lender could enforce their right to be paid, which may cause the borrower to be foreclosed upon. They could lose all the equity in their home in the process.

How The Process Is Working Today

What’s being reported is that lenders and servicers will require three months’ worth of payments – plus the current month – once that forbearance period is up.

Per Jessica Menton’s story the USA Today: “Some homeowners say Wells Fargo, Bank of America and Chase have told them they have to repay those postponed payments – known as forbearance – in a lump sum once three months are up.“

“The problem with the CARES Act is that it doesn’t make clear how borrowers pay back the money during a forbearance period,” says Shamus Roller, executive director at National Housing Law Project, a nonprofit legal advocacy center.

“There’s a chance that something could go wrong in that process,” he says, “and it requires a lot of interacting with servicers that are overburdened with calls.”

How to Start the Process

Per the CFPB:

HOW TO REQUEST FORBEARANCE OR OTHER MORTGAGE RELIEF

Call your servicer.

You may need to stay on the phone for a while before the servicer is able to take your call.

Loan servicers are experiencing a high call volume and are also impacted by the pandemic, so may be working with staffing and technology limitations.

Have your account number handy.

Depending on your situation, I may be able to help by eliminating your debts, lowering your payment, and giving you a cash cushion during these turbulent times. Don’t hesitate to reach out to me, as it would be my pleasure to assist you!

Housing Market Forecast in Today’s Coronavirus Economy

March 24, 2020 / Tom Bonetto

Everyone is rightly concerned about the Coronavirus – as well as its impact on the economy and on housing.

But before the Coronavirus took hold, housing was very strong, with both new construction data and existing home sales at 13-year highs.

Believe it or not, we expect the strength to resume in housing when things get better, and I’m quite confident they will get better!

Sure, there might be a slower period as we practice social distancing, but most experts believe that when the economy comes back, it’s going to come back strong.

Did you know affordability is actually improving in the United States? You can find out more on that here…

In addition to that, homes are valued quite fairly; they’re not overpriced…and home appreciation has been steady and sustainable (more on that here…)

Look at this metric: when you take annual rents, the value of a home is about 17 times what annual rents would be. The historical average is 16, so we’re right there.

The peak was 24 times annual rents and we’re nowhere near that level! And if you take a look at replacement costs, home values are 1.59 times the cost to replace the home. The 40-year average is 1.58. It’s nowhere near the peak of roughly 2.

We can expect housing to come back very strong and this may be a great opportunity to buy that home you were looking for and benefit from it well into the future.

Please do reach out to me for more information and to set up your strategy!

March Mortgage Rate Update – COVID-19 Edition

March 15, 2020 / Tom Bonetto

Mortgage rates went from ridiculously low to “still not-so-bad” in just over a week. I can’t say that I recall ever seeing mortgage backed securities and mortgage rates having such gigantic swings in 6 days.

A flood of demand for refinancing combined with volatile credit markets last week caused mortgage rates to actually spike on Tuesday and Wednesday. By Thursday, buyers for mortgage debt had largely stopped making bids.

Borrowers who were looking at a 3.25% or a lower rate on a 30-year mortgage the prior week were quoted 4% on Tuesday and then above 4.25% on Wednesday.

When U.S. mortgage rates spiked last week, the entire market clogged up on Thursday and bidding on mortgage loans essentially stopped.

Secondarily, the Federal Reserve cut the federal funds to near zero on Sunday, adding to their earlier rate cut of a half a percent last week.

The Fed has also stated it will purchase $700 billion in bonds and mortgage backed securities on Sunday. Last week’s Fed injection was to allow banks to have the appropriate levels of cash reserves.

This new one is to bolster markets ahead of potential coming weaknesses.

Nearly all of this was in direct reaction to the COVID-19 (Coronavirus) threat and fears of an economic calamity that could be brought on by the virus.

Stock trading was halted for 15 minutes a few times last week due to a 7% drop in the market.

Treasuries tumbled to levels never seen before and the stock market dropped to a point where the Dow officially entered the bear market, ending the 11-year run in bull market territory.

Given all this, mortgage rates should have seen a serious decline last week. Instead, they’ve climbed nearly 0.75% in the last couple of days.

Why the disconnect? There are 3 main reasons for this anomaly:

Capacity

Mortgage applications soared 55% last week from the previous week and demand for refinances rose to an almost 11-year high, as borrowers responded to the historically low rates.

Because of this volume, multiple investors actually stopped taking applications due to capacity concerns. Many mortgage lenders would no longer accept locks less than 60 days for refinances. Their systems are stressed and they do not have the capacity to originate, process, and underwrite such an extremely high influx of loans.

Essentially, mortgage lenders are trying to put 10 gallons of water in a 2 gallon jug.

So, investors are raising rates to combat the surge in an attempt to slow things down a bit.

Out With The Old and In With The New

The surge in refinances has increased prepay speeds for securities backed by recent mortgages. This is essentially shortening the term of the investment and reducing the expected return of previous mortgages by the investor and servicer.

With this increased flood of refis, many previously funded and serviced loans are actually money losers now.

These losses for investors and servicers will see their revenue streams from their mortgage servicing rights dry up. Most mortgage servicers see a break-even of 3 years for each transaction – and most mortgages are kept on an average for 7, so there’s generally a tidy profit for the average loan.

A vast majority of the loans being refinanced are less than 3 years old – many are less than 18 months old, as a matter of fact..

So, investors are adding in some padded profits to cover those losses…and they do they by increasing mortgage rates they charge to borrowers.

Margin Calls

Because of the intense stock market drop this week, many investors were forced to sell their most easily liquidated assets to cover stock losses.

Many of those assets were mortgage backed securities that had appreciated and were easily available to be sold.

In the short term, that made mortgage backed securities more expensive, forcing rates higher in the short term.

Fed Rate Cut and Mortgage rates

Also, many erroneously believe that Federal Reserve rate cut directly correlates to mortgage interest rates moving downward. As you can see by the piece I’ve written here, the Fed does not control mortgage rates. As a matter of fact, there have countless times where the mortgage rates moved higher the day fed cut the federal funds rate.

Note that the federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis. This is not what drives mortgage rates – it does influence them, but does not “set” them.

Treasury Yields and Mortgage Rates

The 30-year fixed mortgage rate and 10-year treasury yield generally move together because investors who want a steady and safe return compare interest rates of all fixed-income products.

You can find out more on that here…

This week, that relationship seemed to disappear, as the 10-year treasury plummeted and mortgage backed securities increased, due mainly to the 3 factors listed previously.

What Does The Future Hold?

It’s important to understand that mortgage rates are still extremely attractive relative to historical norms.

Until things normalize a bit, we can continue to expect volatility in the marketplace, although yesterday’s Fed actions could move the market in the short term.

If you haven’t locked and started already with a refinance, then I recommend that you get ready to do so, as timing could be everything. Once the investors clear out some backlog and more economic data comes out (especially concerning COVID-19 ), mortgage backed securities will most likely get a boost and mortgage rates should ease back down once again.

My advice is to stay patient and be ready to move when the numbers work for you.

Secondly, inflation (the arch enemy of interest rates) is low, and the latest measures show that pressures are actually easing…again, good news for interest rates in the long term.

What Can You Do Now?

I recommend that you reach out to your mortgage lender right away and put a plan in place for a future drop in rates. It would be my pleasure to give you some scenarios that might help you in your decisions making to know when/if you should make a move. Don’t hesitate to reach out to me for more!

March Home Appreciation and Interest Rate Update

March 3, 2020 / Tom Bonetto

Good news for home owners and buyers alike – home appreciation remains strong.

Interest have moved to historic lows due to multiple factors, including the virus scare.

The Federal Reserve has cut it’s funds rate by .50 basis points in an attempt to “provide a meaningful boost to the economy”, per Chairman Jerome Powell.

With these things in mind, make sure you have a solid game plan to navigate the market right now. Think about inventory, equity in your home, second homes, and investment properties as strategies to build wealth.

It’s also a good time to take a look at refinancing any properties you own, as rates have dropped significantly over the last 2 years.

The housing reporting benchmark, CoreLogic, reported that home prices rose 0.1% in January and 4.0% year over year.

graph of current and forecast home prices rising

The year-over-year reading remained stable from last month’s report. CoreLogic forecasts that home prices will appreciate by 5.4% in the year going forward, which slightly higher pace. from the 5.2% forecasted in the previous report.

This is great news for would be buyers, as they can expect a great return on their investment!

Do reach out to me to find out more, as it would be my pleasure to help you determine the right strategy for today’s environment.

Building Mental Toughness in Baseball

February 8, 2020 / Tom Bonetto

I’m linking to a very important article from Dr. Gene Coleman on building mental toughness in baseball. Dr. Coleman is a strength and conditioning consultant in the MLB and has written numerous articles on the mental and physical sides of the game.

This article comes from the Professional Baseball Strength and Conditioning Coaches Society and I invite you to read the entire piece here…

I’ve highlighted and quoted some of the key passages that I believe would be most useful for players:

What is mental toughness?

Webster’s dictionary defines, mental toughness as “the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances.”

That’s actually a pretty good definition.

“Coaches say that mental toughness is resilience; the capacity to recover quickly from difficulty, failure, and defeat. Many sports scientists say that mental toughness is an acquired positive mindset.”

What are the characteristics of mentally tough athletes?

“Mentally tough athletes have clarity of mind and firmness of purpose. They desire to be great, and settling for good is never an option. They know how to win and stand tall in the face of adversity.

They make fewer mistakes and possess a work ethic, winning mentality and self-confidence. Mentally tough performers refuse to be intimated. They are able to stay focused and manage pressure. They hate to lose, but don’t dwell on defeat.

They accept losing as an inevitable consequence of meeting someone better on a given day. They are gracious in defeat and positive about the future. They believe in themselves and are positive about the future.”

How do you become mentally tough or tougher?

“This is the million or sometimes the multi-million-dollar question. There are a number of effective approaches that baseball players can take to help develop and improve mental toughness.

There are number of excellent sports psychologists that can help as well as reputable self-help books, articles and internet websites. There are also a few basic things that all players can do that have been shown to be effective first-steps to include the following:

Control what you can control

Nolan Ryan says that you should never lose because the other team was better prepared than you.

The only thing that you can control is how you prepare for the game. That includes how much sleep you get, timing, frequency, size and quality of meals, emotions, body language, mental state, work ethic (consistency of skill work, physical conditioning and recovery techniques), body language and response to success and failure.

Randy Johnson said that he went from being a good pitcher to a great pitcher when Nolan Ryan helped him control his emotions and body language both on the mound and in the dugout.

Nolan explained how his body language and emotional response to failure could have a positive effect on the opposition and negative effect on his teammates.

Once he understood this and was able to control his negative thoughts, poor body language and emotional outbursts, his mental attitude, confidence and performance improved significantly.

Are you the guy who shrugs his shoulders and puts his head down when you give up a run or a teammate makes an error? Do you sit in the corner of the dugout after you make an error or strikeout with the bases loaded, or are you the guy who says “my bad – get him next time,” stands up and supports your teammates? Your actions and reactions can affect not only your performance, but that of your teammates and opponents.

Controlling what you can control is an effective first step to improved mental toughness and performance. You can help your team by being a good teammate, getting on base, making a play in the field, expanding the opposing pitcher’s pitch count, advancing on a passed ball, etc.

Help comes in many forms. At the MLB level, most managers ask their players to do three things to help the team win: 1) be on time; 2) be a good teammate; and 3) respect the game. They don’t ask for shutouts, game winning hits, hi-lite plays or home runs.

A good teammate has a good work ethic, takes care of his body, shows up early, stays late, has a team-first attitude, doesn’t sulk when he fails or gloat when he succeeds, doesn’t point fingers, picks his teammates up, accepts blame and gives credit. If you are on time, a good teammate and respect the game, the other things will take care of themselves.”

Have a Positive Attitude

“Your attitude and emotions can affect how you and your teammates perform both on and off the field. Don’t let your performance affect your attitude and emotions.

Coaches, teammates, parents and fans should not be able to tell what kind of game you had after a win or loss. Remain even keeled after both wins and losses. Be happy after a win and determined after a loss, but don’t get too high or too low after either.

Be disappointed and determined after a loss even if you had a great day. Good teammates are able to control their emotions and have a positive attitude even under unpleasant circumstances.”

Dictate your attitude

“Don’t let your personal or team performance dictate your attitude. Having a positive attitude makes you look good in the eyes of your coaches, fans, parents and teammates.

Be in control of your attitude when you show up to the field, during the game, after the game and on the ride home. Leave what you did yesterday in the past. You can’t change it. Don’t worry about the future. You can’t control it.

Control what you can control. Stay in the present, trust your preparation and make the most out of the game in front of you.”

Do the Hard Things First

“Determine your weakest skill and work on it first both at home and during practice.

If you are having trouble with backhand plays, work on them first when your body, mind and reactions are fresh. Don’t save them for last when you are fatigued.

Fatigue inhibits performance. Avoid doing the most important thing when you are tired. If you are having trouble with your breaking ball, work on the spin first at a shorter distance, say 20-feet.

A sprinter who is having trouble with his start, doesn’t run 100-yards every rep. He shortens up and works on getting out of the blocks and his first 3-4 steps. If you can’t control the spin at 20-feet, throwing 60-feet won’t make it better.

The same goes for hitting, catching balls in the outfield, blocking balls behind the plate and running the bases. Work on what you are having trouble with first. You going to be only as good as your weakest link.

Working on your strengths will not improve your weaknesses. Identify your weakest links and address them head on the first thing every day. Work smart. Have a plan, execute the plan, reevaluate the plan and make adjustments when and where needed.

If you are a catcher and having trouble blocking balls, determine if it’s your lack of skill or lack of strength and mobility. Your body is a 3-link chain – 1) your hips and legs, 2) core and 3) upper body, arms and hands. A chain is only as strong as its weakest link. You initiate force in the lower body and transfer it through the core to the chest, shoulders, arms and hands.

You can have the fastest hands in the league, but if your legs or core are weak, you will not have the strength, mobility and speed to get your body in the right position for your hands to do their job. Conditioning enables an you to put your body in the proper position to effectively perform the drills enough times (reps) to improve performance.

If you are not in shape to do the drills properly and repeat them enough times to enhance performance, you are wasting valuable time. Get in shape to do the work and then work on the things that you can’t and don’t like to do first.

If you are lifting weights, do the exercise you like least first when you are fresh. If you wait, chances are you won’t want to work on your weakness or you will not give it your best effort. When you choose to do the hard things first, you develop mental toughness and the game and life become easier.

When you choose the easiest first, you get mentally weaker and the game and life become harder.

Developing and improving mental toughness and effective performance is not a quick fix. You can’t microwave toughness or skill. You can, however, focus on what you can do on a daily basis to make yourself and the team better. The goal should be to make your team more successful, and this starts by making yourself better.”

The Lending Coach