For many of us, the COVID-19 pandemic affected our lives and will take the next two years to get it normal. It has reshaped the way we live our lives. Given that the epidemic has had a significant impact on the US economy, it will be the right time to address the elephant in the room, “how will the mortgage markets function post COVID-19”.
What is happening?
The impact of the pandemic and the new implications by the government may have some new rules for the commercial property loan lenders. Since people are losing their lively hoods, the mortgage industry will also get affected by it. People will look for more easy repayment options due to limiting of income sources. According to our predictions, some of the changes that happen will be:
– Phase I: The incoming calls will witness a surge from the loan seekers to get a complete understanding of their available options and how they can continue if/when the new rules introduced.
– Phase II: Every borrower will see a spike in an increased number of delayed payments for 30+ days. It will also include all the borrowers who forgot to inform their lender about their situation, especially those who have not opted for a government-backed loan program.
– Phase III: Several borrowers will find it challenging to recover complete financial wellness, and lenders will find it difficult to continue making payments against their mortgage. They will have to rely on some liquidation or repayment plan that eases their dilemma.
The Mortgage Market Scenario
At the beginning of March, the lending process in the mortgage market was still the same, with only government-backed and hard money loans available in the market. For a short time, the market rates fell to three percent for the first time in 30 years, where the conventional lenders saw some refinance spike. However, hard money lenders were still working with the same lending terms established over the last six years. People were still at easy with business, but coronavirus around the corner, things will get tougher.
Its mid-June, and things took a significant turn due to coronavirus. Every non-qualified mortgage lender, including the hard money lenders, halted their loan acquisition operations abruptly in the secondary buyers market.
All the lenders stopped their activities due to the lack of profit or even at par price that the market. The secondary markets were offering a price that offered a 20 percent discount. We will see similar trends in the coming months as people default on their repayments, and lenders will shy away from providing any new loan.
All those hard money lenders that followed the ‘originate to sell’ business model in the secondary market were also those affected by the offers that came with 20 percent discounts. By this time, the hard money lenders, owing to the market conditions, had suspended their ongoing loans and since then have been idle.
The mortgage market scenario
The following are some of the recent loan market statutes.
– Jumbo loans: There are very few lenders who are funding this loan, which others still refuse to sell the jumbo loans within the secondary market.
– Hard money loans: Currently, hard money loans are like a bright light in the loan market. Several lenders still have some funding available and willing to lend only to select few situations.
– Conventional loans: Conventional loans are still available to the buyers, but they come with a renewed set of underwriting.
– Portfolio lenders: When things are going right, credit and bank unions are something that every buyer avoids for loans because they come with stringent guidelines and massive paperwork. However, during the wrong time, credit and bank unions are the first to get flooded with new loan requirements as they continue lending even during a downturn.
What can the lenders do?
Responding to some of the basic queries during these challenging times will come in handy for both the lenders and the borrowers. Private capital investors recommend some of the following necessary actions:
Set up a COVID-19 hotline within your business and help address all the queries that your borrowers may have.
– Address the process change
Several processes will be changed during the time of crises, which means that the guidelines of your business will also be revisited. It is crucial that these changes are addressed by your team to your clients and explained thoroughly.
The COVID-19 situation is for nowhere. Therefore, make the most of technology and get your business and processes automated to avoid the risks involved.
Going forward: Borrowers
Get your loan while you can
In the current scenario, it will be ideal for applying for the loan and getting it while you can, even if this means that a hard money loan is the only option in the market. Read up and get all the information about the new loan conditions and norms and ask questions to your lender.
At private capital investors, we are well updated with all the latest changes in the funding process and are here to guide you at every step of the way.
Be aware that hard money lenders are currently juggling payoffs that come with funding the new loans. With our economy slowly deteriorating, several hard money loans will not be able to close with a property sale or refinancing option.
When this situation arises, it will become challenging to obtain, the ever so readily available, hard money loans. If you are exclusively looking for hard money financing options, then we suggest getting it now while you can, that is, while the lenders have the money to lend.
In the new usual scenario, the loans are taking longer to close, be patient, and wait for the transactions to complete. Appraisers, escrows, notaries, underwriting, and all the others are working beyond their full capacity to approve and dispatch the loans. Be prepared for your loan request to be completely restructured, switched (opt for a different lender), or reshaped, only to get an approval.
Since there will low income generation, commercial real estate loan lenders will look at your other income sources to work our loan repayment tenure, interest rate, and monthly EMIs.
Going forward: Lenders
The pandemic is changing our lives, which means that digital adoption across all industries is going sooner rather than later. Now, consumers will heavily depend on digital tools and gathering virtual experiences for their requirements. Lenders will soon have to ease up to the option of the remote workforce and depend on collaborative tools, which makes it easier to interact with both employees and customers.
Working in the current situation means keeping a close eye on the future. Don’t be fixated on only solving short-term problems. It is about time that you think strategically and looks for solutions that will stay with your business for a longer time.
All the commercial real estate loan lenders and mortgage experts should immediately address some of the challenges that we have come across and form a workforce at the frontline. For now, before you navigate into unchartered territories, you must consider the following actions:
– Start operating with agility
– Scale your operations
– Use technology automation
– Adapt and introduce new ways of thinking
Everything May Change
The nation right now is facing mounting economic stress on an unnerving different front. However, unlike many situations that are slowly worsening, the pressure on the mortgage market is manageable for now, as long as the market can manage and handle it quickly.
Of course, there is a massive concern of acquiring and funding large cash requirements, and dealing with it smartly. But, if these issues and concerns are not addressed, they can mount up to problems that will be difficult to resolve, which will become extremely damaging for the consumers, excruciatingly tricky to treat, and more significant to drag to recovery. Given how daunting our future looks like, we must implement positive, actionable insights.
Things may change in a few weeks or may not depend on how COVID-19 progresses or gets contained. As of now, nobody knows how the market will improve.
Therefore, focus on the market situation, make wise decisions, and approach the right lenders.
For funding or guidance requirements, you can contact our team of professional experts, and we will be here to guide you along the way.
Private Capital Investors has been providing services to investors who want to invest in commercial real estate. We offer all types of loan programs like a bridge loan, hard money loan, stated income loans, etc. We have experienced commercial loan advisors who help you get the right commercial property loan as per your requirements. We deal in mostly all types of commercial properties like multifamily, retail stores, senior housings, offices, shopping centers, daycare, etc.
Stay safe and healthy!