NextHome: REAL Update 04.27.2020

Hi everybody, this is Keith Robinson with your real update for today Monday. What is today the 27th? Yes. So there you go. If you don't know what day it is, I've just helped you out. Today is Monday the 27th. Super glad to have you here for the real update. As you know, this is just our time to update, of course, our company, but also the industry. That's why we share it on Facebook Live. That's why we make this information public for any and everyone. Because in times like this, communication is key. Let me do some housekeeping first and then my friend Chris Harris and I are going to unpack some stuff on the liquidity issues that have been going on. And usually we have these done in a PowerPoint format, but because we are going to be decreasing the webinar cadence, I think we probably won't do. Right now we've been doing two weekly webinars just on Covid related stuff. And I think we're now to the point where it's a new normal. We'll probably take that down to one per week instead and it'll be more topic driven than update driven. So we wanted to show you some of the places we go to get some of the information. So I'm going to do a little share here. So you should now be able to see on your screen I've got a bunch of browser tabs up. This world O meter is actually where we go to pull all the data for total cases, new cases, total deaths, et cetera for the United States. This is also where we pull the graphs that we've been paying attention to as, as we talk about flattening the curve. And that's what you can see right here is as you can see again, we hit that little, that spike up in late April a couple of days ago. But since then we've been kind of bouncing within that range, which is really important. And this is Worldometers.info is where you would go. And then you can really get directly to this. You can also look at other countries and their breakdowns. But this is, you know, this is good news. I think it, I've been hearing rumors may have even already been announced. I've been prepping for this webinar, but that California where I live, they're going to be extending the shelter in place for another month. Not sure if that's official yet or not. But you know, as we start to keep paying attention to these graphs, I can go look at the California numbers. Sorry if that's making anybody dizzy. But we can start to look at seeing the California numbers and see how it's changing. So World O Meters is where we go to get a lot of information. Just wanted to share that with you so you can check it out. There's also been some questions about internally inside of our company about the Next Level Power series. This is four weeks of tons and tons of content. This is available for anyone. But if you're with our company and you bought a ticket to conference, then you get this. If you didn't buy a ticket for conference, you can still buy a ticket for these series. But this is our way of providing content plus other things that we're doing for people who went to conference or we're going to go to conference that we had to cancel. But we've got David Knox, who's amazing, Dean and Jack talking about agent archetypes, John o' Leary, who we've seen a couple times. Basically what we did was we got the who's who, the best of the best that we've ever had at conference and we invited them all to come and do some sort of series. As you can see, these are three and four hour series packed with content to deliver. So this is out there if you want to plug into that. I get asked this question a lot because we've been cranking out so much content for you guys from a social media standpoint. So if you go into our intranet and you go on the marketing tab and then specifically go over to the COVID 19 templates, that's where a lot of what you've been looking for is. And I'll jump over to the PowerPoint in just a second, show you some of that. But it's relatively easy to find here. In addition to this is my personal favorite. The thank you to the frontline workers. Right after this webinar, I'll be changing that to my Facebook cover photo. But lots of good content for you to use and to communicate and try not to break this. But let's see if I go over to the PowerPoint if this will work. And I think it did. Please hold. Yeah, so now you can see the PowerPoints. This is the download and I'll show you where that is in just a second. But this gets you all of the content that we've been putting together for social media content. Or really you could do whatever you want with it. But tons and tons of great ideas, great thoughtful content, some great quotes. I'll get into one of my favorite ones. Virtual coffee is never a bad idea. I love this quote, even though we're apart, you're in my heart. We're all in this together. Some of the newer ones that just came out, the fun facts one, I've seen this one making the rounds. I think this is funny and awesome. So some these, I really love thanking the frontline workers. My sister's a doctor, my mom's a retired nurse. So these really resonate and mean a tremendous amount to me. So you can find all those. Let me switch to share back. You can find all those right here. And all you have to do is go to the COVID 19 templates. You download it right there in the center of the screen and you will get that download with all of the content there. So that's there for you. I've just been getting that question a lot, so I wanted everyone to have that information. Also. Our conference for 2021, this website is live2021 Houston.Nexthome.com 2021 Houston.Nexthome.Com Register for conference for 2021. We will be taking over Texas and really excited about that, of course. And so make sure you get your tickets. I got one more quick update and then we're gonna get me and Chris Harris talking. But we also have launched our website, humansoverhouses.com the origin of this was. The origin of this was that there was just so much fear in the industry. It's interesting to think about it now. The things that we were afraid of, things that we were afraid of not that long ago, and how that perspective has changed. We used to be afraid of ibuyers. Now most of them have hit the pause button on their business. Humans over houses, basically. To put it in its simplest terms, it simply means that if we take care of the humans, all of this other stuff will take care of itself. Don't worry about the house. The house is the vehicle that we serve, but the people are what we really take care of. We thought that this would be the great time to launch this website because we have so much content. So you'll see the most recent webinar that we've done is here, going across the top. You can see the coming up webinars. You can see past webinars. This is what is coming. This is our featured webinars. And you can pull up all of those. You'll see my big noggin multiple times in there because all I do is webinars. Now. This is saving your seat for the real update. And then all of our podcast information that we've been doing so Everything is here, tons and tons of great content for you. And I also like this resources tab. It's got some of the government resources here. It's got news and updates, other resources, and then all the presentations we've done and the links to those. Well, all the dangerous word, many of the presentations we've done and then links to those and then other real estate centric stuff. So under the resources tab, there can be some great stuff. Good question, Steven. Yes. So is humansoverhouses.com something to share to the world? The answer is yes. We are making this content be available for anyone in the industry, anyone outside the industry. Obviously, it's got a heavy real estate bank because that's what we do. But it is designed, it's open for everyone. There's no login. Anyone who wants access to this information, it is here for them to. To get access to. So we're not trying to hold. This isn't the hold anything back time. This is the share with everybody time. And so, yes, humansoverhouses.com is available for any and every one. All right, so there's our quickie updates. And now I'm going to stop sharing and invite Chris Harris, who runs our joint venture mortgage bank and is. He doesn't look old enough to have been in banking for a long time, but trust me, he has. I've gotten to work with him for the last year and a little bit, and what I love about him is he's incredibly knowledgeable, but he can sort of. He doesn't always talk banker to me, which I like and can make things make sense. So since we've been talking about the liquidity crisis a couple of different times, I thought it would be a good idea to just unpack that a little bit. And since for some folks it might be the first time they're hearing it, I do want to start with how did this sort of liquidity issue start? Don't tell anybody, but we were at a bar in South Carolina a little over a month ago, right?

Shocker.

Yes, shocker. Five or six weeks ago. And this was even before all the COVID stuff had hit and there was some liquidity issues and then that got exacerbated. Maybe unpack that a little bit for us just for contextual purposes.

Yeah. So thanks for having me, by the way. Always great to be a part of these calls. Enjoy my next homies. So hope you guys are doing well. There was a lot of things that were going on initially in the first week or two. We were like everybody just trying to figure out what this was looking like. I call it the sky was falling. The sky was falling and we just didn't know exactly where the pieces were going to fall and what the major issues were. And some of those changed. So initially it was the hedging of the market on our rates. Rates went from a low portion to a very, very low rates overnight, then jumped right back up. But a lot of this has been around liquidity issues that are on servicing and then servicing, going into the mortgage forbearance issue, which is really the part that's plaguing mortgage lenders today. So starting with the hedging piece, when you hedge at a certain point, point in the market, the market drops and then you try to cover what that looks like. There's capital calls and there's commitments that you've been given and now the market's below that. You can't sell that rate. So there's one part of the capital piece and a lot of folks have been able to move past that. The second piece was servicing and the cost of servicing. When you book loans and you close loans, you get a price for the cost to service a loan. And we might have closed that loan. Someone bought a house last year, you would say, hey, that loan's gonna pay for servicing for six, seven years. And all of a sudden they're refinancing and literally $11 trillion worth of refinance of mortgage backed securities are eligible for refinancing. Right. So initially your servicing value went from somewhere around 150 basis points, let's call it, to maybe nothing. So there were fire sales on servicers. So initially pricing and what you're getting for those loans were causing problems from a liquidity standpoint. Fast forward again to go ahead.

Let me break that down even further, if that's okay. So what I heard a lot going on there. Yeah, there's a lot. That's a lot. That's a lot. So I will speak knucklehead so I can just. Because that was a lot. Right. So let me distill it down even further. It seemed like it was kind of a three punch combination. Right. There was a jab that was. Man, our credit facilities are already stretched just because of the sheer volume because rates went down so much. So that was the first one and that was really kind of starting just as Covid was emerging. Right?

Correct. We were carrying in record volume. Right. Rates were already low. The purchase business started off early in the year. So we were carrying huge pipelines. Correct.

Then the cross that came in was now we have a servicing issue with some of the forbearance stuff and just some mysteries around that and the fact that I already had stuff on my line. Well I guess the cross was really that rates went up, right? So rates went up or rates were so volatile that I was getting things stuck on my credit line and then the left hook was the finisher shot for liquidity anyway was the this forbearance issue and how if you have a loan on your books where someone hasn't made a payment it almost makes it unsellable. So that sort of one, two, three punch wasn't really expected and is what has caused some of the freezing up of the credit facilities. Is that a good layman's?

Yeah. So the ability to have a loan and put it into forbearance was part of the CARES act that was signed in from Congress to help support Americans during the time of this pandemic. The impacts of that initially which with the Mortgage Bankers association supported and the community supported to help relieve borrowers didn't see all the way through major impact which was there's also if you go into forbearance the loan does on an FHA loan the insecurity owner so that the 401ks and the mutual funds that own that mortgage backed security they still have to be paid their yield. So that payment still has to be made, has to be made by the mortgage servicers if the borrower doesn't make it. So that was millions of dollars that was coming onto the scene for these huge servicers that are servicing hundreds of billions of dollars of servicing and costing a lot of money that has to from a payment standpoint. The government did help come to the aid and support that piece for the FHA loans. But then you left behind our conventional loans and the conventional issue on your closing a conventional government from Fannie or Freddie, one of the government backed agencies. You couldn't sell the loan if a client or with that loan went into forbearance. So by the time you close a loan and it's purchased and if during that time somebody went into forbearance you would own that loan as a lender and it would be held essentially on your warehouse line or if you're a bank and you weren't prepared for that and basically right now the numbers almost 6% of loans in the US are in forbearance right now. So this was a major causing this liquidity problem. And I think we should talk about what that means to our borrowers and to our agents. Today.

So we sort of told you how we got here and then basically the net effect has been a couple. Well, I guess there's several net effects, but one is banks in general are trying to figure out and navigate their way through this. But with the increase in mystery, they're really not wanting to do a tremendous amount of loan volume right now. Right. Is that accurate? Yeah.

I mean, kind of think about as a kid putting your hand in the cookie jar and your mom or dad catching you and slapping you and. Right. This is the response. I'm sure there's a scientific term for that response, but I don't know. But you know, you learn like ouch, that hurts. So I'm not going to do it anymore. And that is, you know, closing loans that end up going in forbearance. What has caused is lenders to get more conservative in their credit guidelines. Not all lenders, but a lot of lenders are pulling back and what they're doing lending on right now because of the pain it causes.

And that's where we're seeing some of these articles like we saw last week where banks are increasing their minimum FICO scores, they're increasing their minimum down payment requirements. If they're going to. They don't want to consume the same risk that they were willing to consume a month ago because of the liquidity issues for the things that we just talked about.

Right, exactly, exactly. You're also seeing some funding issues where you're getting down to the closing time and those warehouse lines are full. Keep in mind you've got all of this. I'm holding loans on my warehouse lines as a mortgage banker and I've got record volume because rates are low and refinance there and there's, there's, they can't pack it all in on these lines and they're having issues funding loans. So we've heard of some issues there where you know it's your closing date but yet I can't fund on your loan because we don't have the ability or the capacity to do that time. Those are some extreme cases, but they are going on. But you're seeing a lot of lenders, especially on FHA loans, they are increasing their credit score requirements where that generally you can go below 600 on an FHA loan. And most lenders are, I've heard 647 hundreds of big time in the news with the banks going into seven hundreds on all lending for the bigger banks. So right now more than ever there is just a lot of disparity between one lender to the other and it also impacts rates and costs and fees. Right. So hey, if I'm going to do well, I want to make more money on that rates of increase per lender from one to the other. We've been in a very stable world from a mortgage standpoint for many, many years. So all lenders really offered the same thing in most cases, most products, programs. But what differentiated a lot with service and relationships, that's changed. If you Remember back in 2008, every lender had something different going on. They looked at things differently. What we call in the industry overlays. They were, lots of overlays have come back into the market. So it's very interesting what's going on right now.

And is that also what's caused sort of a retrenchment or a pullback on jumbo? I know there's still, or I believe there are some banks that are doing it, but a lot of banks have, have gotten out of that jumbo market.

Yeah. So anything that's not protected by the gse. So the government stepped in in the last downturn and took over Fannie Mae, Freddie Mac. And so everything that's a government backed loan is now the government signaled we're going to take care of that for the foreseeable future and invest in those mortgage backed securities. So if you're not in this non qm, if you're in the QM space, which is qualified mortgage, it's really a safe place to be. Other than the servicing liquidity issues that we talked about a little bit earlier. Outside of that, we call that non qm. So anything beyond the conventional loan guidelines of Fannie and Freddie Mac, which would include jumbo loans, we also had our non QM loans, some people call them subprime, but our bank statement loans, those, they've kind of disappeared. The reason for that is that there's not a market out there right now where people are investing in that. So that was all invested mostly on the private market or being housed within the banks and they've really tightened up quite a bit. And then without the secondary offerings, that business has really come down to a dwindle on the jumbo non qm, for the most part, we've seen that go away completely.

So if I'm in a jumbo market, Northern California, the coast, but really most major metropolitan cities have some jumbo market that mean it's closed out, like it's dead, or is it still there? There's just fewer players.

I'd call it a trickle. Yeah. So it's, there's just fewer players. There also means the cost for those loans have gone up. You know, some of the banks are still aggressive when it, when it, for a purchase situation and just not, not as aggressive on a refinance situation. But we, to give you an example, you know, we, we had 15 different outlets as a lender from a jumbo perspective, then we're two or three left that are out, still working. So it's still available, it's just limited.

What about second homes, vacation homes? Has that financing changed at all? Or is that pretty similar? What's the story there?

Still bank to bank and lender to lender, but not as heavy impact as their jumbo space. So as long as once again it's going to follow into the conventional GSE guidelines, if you're, if you're protected by the government as mortgage backed securities, which investment properties are that meet their guidelines? Secondary homes, they are also part of that, then you're still, you know, safe and able to lend on those.

Okay, I'm going to pause for just a second to see if there, I'm going to ask you another question or two, but this is your chance if you've got mortgage or banking questions. How long, Chris, do you think, until this starts to loosen back up? And maybe a twofold question. First question, a scale of 1 to 10, 10 being the tightest mortgage, the least liquid mortgage market you've ever seen. This is a what? And then how long until we get back to where we were two months ago?

Yeah, the answer to the first one, what have I seen worked and led through 2008 downturn. That was I think probably a step worse and harder. Although it took over three or four months to fully show itself and this was a shorter time period. So both been difficult. I'd say that one was a little more difficult to navigate through than the one we're in right now. Neither one of them are great, but the government has stepped in and allowed us to continue to practice and good lenders with good sound lending practices in the past or strong cash positions are really thriving right now. So there's lenders out there obviously at cmg, we're really excited about position we're in. We've not changed our guidelines. Our credit score requirements on FHA are conventional. We stayed the same way. So we were in a great position and excited about the position we're in. Some of the lenders were not so, you know, from a difficulty. It's, we're in a little different situation than we were in 2008.

Yep. Okay, I think I'm stalling just a second. I don't see any questions, which is cool. I think that here's what this really means to us from a transacting real estate standpoint. It is so important right now that you, you always have a close relationship with your lender partner. It's so important. Right. Buyer can't buy unless the bank will fund it, unless they're paying cash. But it's critically important right now to make sure that you are not. All banks are the same. It was pretty similar two months ago. Today that is not the case. We've been working on kick saving a couple of deals for nexomies across the nation. And you need to have that outlet for yourself. So whether that's, you know, you need that person where if your deal goes sideways, you've got someone that you can trust that you've got a long standing relationship with to come in and help out. So now more than ever, it's always been important, but now more than ever it is critically important. Chris, is there anything else you'd add on that topic?

No, I think you nailed it. We call it a second opinion or backup lender. Right. Somebody that can come in and do some things. So if you, if your borrower is getting pre approved today and wants to purchase a house and some reason is told no, you may want to go take a look at somewhere else. And that does go back from 2008. Everyone was on different plate playing grounds and different products and looking at things differently. Same thing goes for today. Even if it's, you know what my mortgage relationship I've had for 20 years and he can close a loan and he still may be able to close the loan or she may be able to close the loan, but now their bank or lender may be playing with some different guidelines that somebody else out there. So shopping is important from a rate cost perspective. Important. These are sensitive times and I would say as well that this is a great time while folks are sitting on the sidelines maybe or ready to jump in at some point soon to go talk to a mortgage lender, get them pre approved and just kind of say where's our credit score? What can we improve it over this past period? So there's the right timing for that. We've been really surprised on how many purchase applications that we are taking. We're all kind of trying to figure this all out. Some of it's regional, but we've been really, really happy. And as a mortgage lender, we Generally see the pre approvals before you guys see the contracts come in. So we've positively expected something a little bit different and positively have been shocked on the other side. So hopefully that continues. We appreciate our partnerships. A lot of that has to do with our partnerships that we have. So thanks for having me on this call. You guys keep making it happen.

Before we wrap, I do want to say we're seeing the same thing. It seems like there are, of course, some buyers who lost their job who cannot buy a house right now. And that, you know, that sucks. It's a very technical term that I learned in business school. Right. That sucks. And then there are some people who are just too afraid to take action right now, which is understandable. But it seems like that desire for homeownership is. Or trade up or trade down or the desire. I think most people believe that this is short. And so many people are still. They still have that urge to transact on the buy side. Whatever that life event was that made them want to buy a house or buy a different house or change houses or whatever, that seems to be incredibly resilient in this time. And I think it's because most people think it's short. Because to your point, we're seeing, of course, there's less buyer demand than there was six weeks ago or two months ago, but not as much less as we would have thought. So I agree with you wholeheartedly on that. I'm gonna close with one other thing. This one is a little more personal. A good friend of mine, one of our franchise owner, Billy Alt, his brother has tested positive and he's a frontline worker. I believe he is a fireman or a paramedic. I believe he's a paramedic. And I think he's either in an ambulance or on a fire rig. And it's the second person who's close to me that has caught it. A friend of mine, if you're in Northern California, a friend of mine, Rick Jiha, suffered through it, and, you know, thank goodness he made it through. But this is, you know, especially the front, frontline workers. They have such a special place in my heart. I said, I think in the open that my sister's a doctor, my mom's a retired dialysis nurse. We really need to thank those folks. They deserve so much credit. So much of our empathy, so much of our love, and so much of our thoughts should go to them. So, Billy, if you're on this, we're thinking of you. If any of you know, Billy, shoot him a text or email. He'll probably kill me for mentioning this.