 And I'm Keena Nisley and I am here with Think Tech Hawaii and the life of the land is in this real estate. And this week we have John Kiefer from comma I know mortgage groups and most of you know him as Johnny Loves. Welcome John. Thank you Keena. Thanks for having me. I appreciate it. I love what you're doing. This is a great show. So thanks. I'm glad you could be here with us. So today we are going to talk about mortgages and mortgage rates. So the first thing is what are mortgages rates? Not necessarily what are they today, but when are they? Yeah, that's a great question. I wish I wish more people asked that question actually because a lot of times someone will ask me what's the rate today? I'm like, well, I hate to say this, but it depends, right? So when you see the news and you hear the radio and they talk about today's rate is, you know, 3.875. What they're doing is they're complicating, they're getting like an average from the last few days of loans that were vanilla and giving you that number or that rate. So there really is no one rate. So what they do is rates depend on a couple of things. One is the 10-year treasury, traditionally it's been the 10-year treasury. This environment that we're in right now, it's kind of upside down, it's not really following the 10-year treasury. So for rates, you've got a par rate and it's based on how the, okay, let me just back up. Mortgages are bought and they're bought and they're sold on the secondary market as mortgage. They're securitized, so they're traded as a commodity. So that's why, that's part of the reason why there's so many variances in the rates. It depends on how they're trading, but when you watch the economic news, you may see like GSEs or MBS stocks, not stocks, but securities, those are the mortgage bonds. Okay, so when they're sold, when they're sold, they're, they're sold, they're bonded up in a big, a big group. So people are buying millions and billions worth of, of mortgages, the investors are buying them, right? And the rates all depend, a lot of it depends on inflation, unemployment, and things of that nature. So there's a lot of different factors. For an individual, a lot of it depends on your credit score, your down payment amount, the type of property you have, and the conforming loan limit in your county. So there's a lot of different things. It's like a Rubik's Cube to get to that point. So if someone's trying to buy an investment property versus a home they're going to live in, there's a different mortgage rate? Yes, that's a great question. So that's a great question. That leads me to what's called loan level price adjustments, LLPA. And you never have to know that ever again. You can just forget that. All it really is, is those individual adjustments to the rates called an add-on. So for an investment property, it's a little bit of an add-on to that base rate. If it's less than 20% down, it's a little bit of an add-on to that. And then there's your five-plus or your credit score. It's an add-on for what that is. The better the credit score, the less the add-on. And that's how it gets built out. So when you see the news that says rates are, the Fed cut rates to 0%, we've talked about this in the past, but that's just a little bit of, how can I say it nicely, not messaging it correctly, because that's not the mortgage rates they're talking about. That's the Fed funding rate, which has to do with banks lending each other money between the banks and lending each other money. And it has to do with credit card rates and maybe key locks and things like that. So what are some things that can impact the mortgage rates? Is something that we see that happens that can impact the mortgage rates? Sure. Inflation is the main thing. I would say inflation is a big thing. So let me just give you a little bit of the history of what's going on with the mortgage rates and how they're really being impacted. So when mortgages are sold on the secondary market as mortgage bonds, if they conform to the government standards, they're purchased by two government-sponsored entities called, you may have heard of this, Fannie Mae, Freddie Mac. VA and FHA loans, those are a different bucket of loans. They're all just construed on these conventional loans right now. So they're sold and mortgage servicers are the companies that they pay a premium for the rights to service that loan to collect the payment. It's who you write your mortgage check out to every month. So what they do, this is a little inside scoop on this, is they pay about 2% of that loan amount for the rights to service that. Okay, that's what they pay. And then it takes about three years for them to break even. So when mortgages are refinanced quickly, they're kind of left holding the back. It's a loss. Okay. And so what happened in the beginning of March of this year, just not too long ago, was there was a really big refinanced boom. And all of us loan officers were just getting as many loans in there as we could, conventional loans, all kinds of loans. We were just jamming up, filling up our pipelines, saving money, saving money, saving money, saving money. Everyone was like, yes, yes, yes. The world was beautiful place. And then there were two unintended consequences too. The first was the lenders didn't have any capacity left. They were maxed out. There's no, we can't take any more loans were full. The second thing is they were losing, they were losing money. The investors were losing money. The services were, servicers were losing money because if you, let's say you, you'd say you're an investor and you buy a mortgage for, you buy a pool of mortgages for, they're at 4%. So you're expecting 4% return on this for the next eight years or so. All of a sudden that 4% loan was bought out for a loan at 3.25%. And now you, that's a big loss and you're not getting that back. So the mortgage servicers ran out of money. If they're not there, they didn't have any liquidity left. So they couldn't buy more servicing loans. And so everything was coming to a crescendo. And a bad way crescendo and, and the only, the result was they just put a break on everything. So they raise the rates and say, okay, we can't do no more loans. So we're going to price loans so that the demand is not there. So unfortunately there were people in escrow who didn't lock their loans in time and now they went from a 3% loan to a 4% loan or worse. The good news is that the Fed, the Federal Reserve started buying these mortgage backed securities. They started buying mortgage bonds to add the liquidity back. And they started off, they were buying like 50 billion with a B a day. They were buying 50 billion a day. And then it was 40 billion and then it's down to not today. It was, I think six, six billion they bought only six billion. And, and the, the, the great thing about that is that now the, the rates are stable, the market is stabilized. It's not crazy high. It's actually low, but it's stable. So, so there's, there's some stability there. So, okay, great. So where do you think right now we're stable? We're kind of holding steady. Where do you think they're going to go? That's a great question. Where would you predict? No guarantees. Well, I'm an optimist at my heart at heart. So I, I'm pretty sure they're going to get better when I'm not sure the good news is right now they're still really good. If you fit into the conforming box of loans, 20% down, good FICO score, you're golden. The rates are like best they've been in years. In fact, you don't even have to have 20% down still get a really good rate. If you're, if you have a low down payment, like 3%, then it's going to be, you still do it. It's just not as attractive. The rate's not attractive. The mortgage insurance is a little steep. You can still be done. So that's the PMI that people see on their estimates. Correct. So what's PMI real quick, just so people kind of get some clarification. Sure, sure. So mortgage, mortgage insurance is insurance. You as the homeowner buy to protect the investor in case you default. So here you're coming in because, because mortgages with lower down payments are riskier to in the eyes of a lender because there's a higher rate of default. That's just fact. And you know, they have all those actual tables that explain all that. Yes. And where the risk is everything. Side note VA buyers. Are the top. What's the word I'm looking for? The lowest default rate. Better than even better than the general public. It's awesome. Yeah. All right. So let's talk about what everybody's wondering. For parents. The F word. Yes. For parents. So first of all, I know what is it? So forbearance. I know what a forbearance is because I did it on my student loans. And it was a mistake. Forbearance is basically pushing the pause button on your mortgage. So you don't have to make the payment or you negotiate some, some reduced mortgage payment to with your lender. So that's what I'm looking for. So I'm going to talk about a couple of things, a couple of things with this. It wasn't. It's intended as a last resort. It's intended to help people. That's the intention. The intention. The intention was great. Everyone understands that. What, what wasn't messaged properly and wasn't handled properly by. By the. By the government. By the federal housing finance administration. Is. Is that. One, they made it look like. This is free money. It's like, I don't have to pay my mortgage for three months or six months. Yay. Right. It's not true. The second thing, it's absolutely not true. The second thing is that there is no proof of burden. Like all you have to do is raise your head and say, uh, yeah, COVID-19 is affecting that. I need, I need a forbearance. Done. So now you have people who first of all, they think it's free, it's not free money. It's not, and they think that it's for everyone and it's definitely not. So for those of those who need the, the forbearance on their mortgage. Do it. If you, if that's, if you have to do it, do it. If you don't have to do it. You have, you, you know, you're one of the fortunate ones that has the funds in your, in your account that you can keep making your mortgage payment. Please do. Because if you don't, you take it a huge risk. Huge risk. And one of the risks. Is. Um, you know, people are losing their jobs every day. Even today, right? Um, I saw a statistic today that said. 19 million homeowners out of work right now. In America. 19 million people who have mortgages are out of work right now. That's a, that's significant. And 10% of mortgages are in forbearance right now. That's huge. That is. And hopefully. Not hopefully, but the ones who are in forbearance needed it. Hopefully they need, because if not, let's say, let's say you're a. Let's say you didn't need a forbearance. You could have paid your mortgage payment. You thought you just want to take a little break. Okay. You've got like a six, a three or six month forbearance period. And something tragically happens or your job is cut unexpectedly. And now you want to forbearance. You're going to have to pay it back as a lump sum. Well, you're already halfway into it. And. At the end of the forbearance period, you're supposed to pay it back as a lump sum. Another thing that wasn't meant. A message correctly. I'll get into that in a second. That's kind of changed a little bit. And if you can't make that payment, you know, they're going to threaten with, with, you know, foreclosing on your home. That's what they'll threaten. Because they want their, they want their money back. So if you can make that payment, please do. And that goes with your water bill, your electric bill, your cable bill, your phone, everything. If you can make your payments, please do. You're better off in the long run. So as far as, as far as mortgage. Payback. So. So there's two government sponsored entities that we talked about a little while ago. Fannie Mae and Freddie. Well, yesterday. Freddie Mac came out and said, okay. Doesn't have. It's not good. You don't have to be hit with a lump sum. At the end of the forbearance period. We'll work something out. Because I think they've got the, they see the long term where if you've got. You've got. 10% in forbearance right now. You don't want to. Contrary to property belief. Lenders do have a lot of money. They don't. That's not their business. Their business is collecting mortgage payments, not selling homes. So they'll do whatever they can to not have to foreclose on your home. So I think that they've got the poor side to know that we need to negotiate with our clients. And let's, let's work something out. So we all, you know, because our economy needs to keep pumping too. So. So what brought on the forbearance? What made the lenders go, oh wow, we need to offer. What happened? What was that timeline? Yeah. Yeah. So the timeline. So we've got the, the March. Madness. March madness to a. I was heartbroken when the real March madness was canceled. By the way. So there was this Russian refinances, everything's great. And then, you know, we had the unintended consequences with, you know, where lenders are backed up and then they're losing money. And then. Go forward about three weeks, four weeks. And now you've got COVID virus to the United States. So we've got the March madness, March madness to a, I was heartbroken when the real March madness was canceled. By the way. Hard broken MBA to. So there was this Russian refinances. Everything's great. And then, you know, we had the unintended consequences with, you know, that COVID virus to the United States. Stay home orders. And all these different states finally hit our state of Hawaii. And because of that, the government said, okay, you can go into forbearance as long as you, as long as you have a loan that's backed by Fannie or pray. Fannie may or Freddie Mac. The, the loan that you have with your local bank or a loan that's. And not traditional non-traditional loan. Those aren't eligible for, for, for, forbearance. Those people have to go to their actual lender and work something out. So it's just government sponsored entity backed loans. Fannie and Freddie. Okay. So. So where was that they, uh, COVID virus hit people lost started losing their jobs. And rates started really going higher and higher. This is a few weeks ago. And it was government loans were pretty expensive. It was really night and day from just the previous month. And it was, it was amazing. And, um, So what happened was they, uh, like it kind of got worked out in that, um, the government decided to help some of the investors by continuing to buy these bonds. So they're helping them out. So right now there's a big push in Congress with lobbyists and real estate mortgage and just economic lobbyists that are pushing for the government to help the mortgage servicers. Remember the ones that want the rights to service these loans. Here's something I failed to mention earlier. The, so the homeowner doesn't, if the homeowner is in forbearance, they don't have to make their mortgage payment. The mortgage servicer has to make that mortgage payment to the investor. So now you've got these, these mortgage servicing companies. Who can't collect the mortgage to pay the investor. And they're running out of liquidity. They don't have any funds left. So they're, they're folding. But they're right. And so, you know, the SOS, the 911 call was made up to, to the, the lead, the, the head of the, the FHFA, his name is Mark Calabria. And he basically said, you know, too bad, so sad. And he's not helping. And so there's outcry. People are calling for him to be removed from office. He's appointed. They're calling for him to be removed from office. I mean, if you Google this guy, his name is Mark Calabria. If you say his name to mortgage people, they probably won't smile. Because he is not doing our economy any favors. And he's basically saying, just let them fail. And we'll let the larger mortgage servicing companies buy up the little ones. What he, what he doesn't understand is that the little, the littler ones handled two thirds of the mortgage originations last year. And so he says, they can just fail. And it's fine. See you wouldn't want to be, is what he's saying. So, all right. So let's go back. And you're saying that the Freddie Mac and the, the Fannie Mae can be bought. What about VA loans? Can they go into forbearance? USDA FHA. Are they all in that bucket of they can go into forbearance? Also. Okay. One great thing is that they've helped the veterans out. So the veterans out. The mortgage servicers are getting. I wouldn't necessarily call it a bailout. Because they didn't do anything wrong. The coronavirus hit. Hit the country. It's not like, it's not like it was subprime lending or. You know, sleazy lending practices. This is just a pandemic that, that hit our economy and our government decided to shut down. So there was no fault of these mortgage services or lenders. Right. One great thing is that they've helped the veterans out. So the veterans that go into forbearance, they've helped the veterans out. So there's no fault of these mortgage services or lenders, right? So the government is helping the servicers of those government loans. So they're good. That's why VA loans are still fantastic. The rates are amazing for being able. Yeah. Amazing. So one, one. Okay. So I'll connect back up again to the conventional. With Mark Calabria. He, he was getting all this pressure from all these lobby groups, even senators were calling his office saying, what are you doing? Right. He said, okay, okay, here's what we'll do. You servicers make the first four payments. If someone goes into forbearance, servicers are responsible for the first four payments. After that, we'll take it. But you get this Kena. If it's a first time home buyer. We'll, we'll, we'll buy the loan, but it's going to cost you five points, 5%. And if it's, if it's a refinance, like if it's a refinance, a rate and term refinance, we'll charge you 7%. In other words, loan servicer, not the home homeowner. Yeah. The home buyer is fine. They're protected. Okay. But the loan servicer has to pay these extra percentages. That's, that's loan sharking by the government. Okay. Okay. So on that note, let's talk about the new guidelines that there's have implemented probably as a, um, maybe a ramification of all of this has been going on. Absolutely. Absolutely. That's, that's exactly what's going on. In fact, Oh, two days ago and today I got new guidelines from different lenders that we use. One said cash out refinances. We're not doing them anymore. None, zero. And the reason why is because, um, if someone doesn't make their very first payment, the government isn't buying that loan. So whoever funded that loan stuck with that loan. They're just not buying it because the risk is too high in their eyes. So, so one lender said, actually several lenders said no more cash out refinances. And the other one said, yeah, you can still do it, but it's going to cost you three points. So they're hedging, right? 3%. Yeah. On top of what. Let's tell them what a cash out refinance is. Cause maybe some people haven't ever done one of those. We did. Yeah. What's a cash out refinance. All right. Cash out refinance is when you, um, refinance your mortgage and you, and you take out some cash. From the equity of your home. So for example, let's just say your home is worth a million dollars just for the math. Makes the math easier. And you owe $600,000 on your mortgage. So you have $400,000 of equity. You can take out 200,000. Into a new mortgage where now your mortgage was 6,000. Now your mortgage is 800,000 and you have 200,000 cash in your bank. So scale it that way. Those are risky. Yeah. You can see why when you hear it that way, right? Oh yeah, definitely. So what are some of the other new guidelines that we're seeing? Sure. You have to have a higher, a higher credit score. Now. Um, the debt to income ratios are. Tired or now. So instead of being 50% so that's income ratio is. Your gross monthly income. Has a ratio to how much your monthly debt is each month. Monthly debt. And your monthly income, whatever that ratio is. So we'll say you make $10,000 a month. Just because the map is easy. $10,000 a month. All of your monthly recurring bills, including the mortgage. The insurance, the taxes, your car loan, your credit cards, everything. The minimum monthly payment has to be under $5,000, which is half of $10,000. Some lenders are tightening up and now it's 36%. So your purchasing power just shrunk quite a bit. For some, for some. For, for borrowers who don't fit that conventional box. I talked about earlier. So if you have a great cycle score, a great credit score. Good size down payment. You know, 10, 15, 20%. Then. And you don't have a lot of debt. Then you're going to get a fantastic rate even today. For sure. So what kind of credit score. Are most of the lenders looking for. That's, that's actually gone through. So it used to be 620 and you can do a convention alone. 620 some, some would go as low as, you know, 605 maybe for getting an exception. Now. They want you to 650, 660, 670 in some cases. I've actually, I've actually seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. I've seen it. With the. Six, 70. In some cases I've actually seen it go. Up. And then come back down within a week. Yeah. So it's just, it's just, I don't know. It's, it's, it's up to the independent lender and how they want to do it. So if somebody is ready to buy a house. And they want to get a loan. What should they do? give them a short version of what do they need to do first if they want to buy a house. The first thing they need to do is call me. That's exactly right. Call, text, or email me. Of course. And the next thing they need to do is all seriousness. The first thing you need to do is contact a lender. That's the first thing because you don't want, you don't want to send, you don't want someone to go shopping for a home if they're not pre-approved because they could be wasting their time. And they could fall in love with the home they can't afford. So let's, let's get them into a price range that one, they're comfortable with. Two that they, one that they can afford to that they're comfortable with. And then go from there. So depending on what kind of work they do. We need their one last one month pay stubs. Bank statements for two, two months. So that's, that's kind of things ID. It's pretty easy. It's much, much easier than it used to be, especially in the digital age. So, okay. So they can kind of do that over the phone, text, or maybe scan any of these documents and you can give them a number. Then you would reach out to your real estate agent. Yes, we always push for your approval. So this has been great because I've learned a ton. And I would love to have you back again because we have a whole much better business that we wanted to talk about. We do have to, we've used our time here. I did want to let everybody know on our next show, we will have Ron Salvador who works with Robert Kiyosaki of Rich Dad Poor Dad. He's a professional cash flow teacher. So he's kind of going to come to us about where we should be investing. Should you still be investing and the direction you should be going. But thank you so much, John, for being with us. And thank you. Tech Hawaii. And this was the life of the land is in its real estate. And I'll see you guys in a couple of weeks. Thank you. Thank you, Kira.