Economy Update
So initially I was going to talk about interest rates are low, you should obviously be encouraging people to buy. But I think everybody ... Well, I'll give you a couple of talking points on that. But I think there's some more ... I don't know. Investors are having other questions on really how Covid is going to shake out in the longterm. And we've got a presentation and we updated it a little bit about some things that you can say to people as you're talking to them about what's going to happen to the future with the pandemic. So when is the economy going to recover? Is this going to be like 2008? What about all the job losses? What do I need to know right now? What should I do when you're talking to your clients? So it's crucial and gets out ahead of these things and again, have some talking points. I think everybody can agree this was a pretty great summer in terms of real estate in Portland. That wasn't necessarily projected to happen.
So we're going to try to look forward just a little bit. When is the economy going to recover, or when is the recession going to end? I don't know. There is no crystal ball about that. But here are some facts and figures for you guys to look at. This is Bloomberg. The economic recovery has lost momentum, but not reversed. It continues to add jobs although layoffs are still elevated. I think a lot of this is going to ... When the election happens, things ... It's just too hard to know what's going to happen through the end of the year. But I don't think many economists foresee long-term doom and gloom as much as we had going into April and May. So we're seeing quite a bit of a bounce back.
Are we going into a recession? Yes, it is a recession. But a recession doesn't equal a housing crisis. And there are some pretty clear cut figures to go over that. This graph shows that in the most recent five recessions in American history, only the Gulf War Recession and the Great Recession led to negative home pricing changes. The reality is recessions normally don't impact the housing market. So I think all of you can see ... The stock market went down terribly for a long, long time, and that created some pretty incredible interest rates. And in the Portland housing market, you're not seeing that much inventory. People are still getting out there and buying. So a recession doesn't actually mean a housing crisis. And a lot of economists are saying that the housing sector might actually get us out of this recession.
So is this going to be like 2008? The Great Recession, people are expecting it to follow a similar trajectory, but there are actually some pretty significant differences. And a lot of that has to do with the appreciation of homes before 2008. So if you can look at this slide, I'm far for you guys that are on the phone, but essentially what these slides show that in the six years leading up to the housing crash of 2008, there was significant home appreciation, like double-digit figures in the two years leading up to the housing crash. That's not really happening right now. There has been a steady incline in home appreciation. These are national figures, not Portland figures. But housing prices in Portland, there's been a little leveling off of that, but they're not appreciating through the roof unless you had done something major, like a remodel or something like that. So there's a significant difference between what happened in 2008 through now.
I think you guys can all understand that it's pretty much a seller's market right now. The average day on the market is 42 days. So there's not a ton of inventory out there. But also the buyers that are qualified for home loans, that is also [inaudible 00:00:04:00]. So it wasn't exactly your average summer, but there are still qualified people that are out there ready to buy houses and that are making offers over-asking. I couldn't find the graph that I had found, sorry. But if you look back to 2007, off the top of my head, I think the figures were something more like six months of supply inventory on the market in 2007 and 2008. And again, now we're in 1.2 months of inventory. So you should still anticipate a fairly robust fall. In winter, obviously, things slow down, but it's not the doom and gloom of way back when.
And a lot of the unemployment projections rates are showing yeah, it's pretty scary right now, but it's not like ... I guess, what I heard, there was an analogy, it's not like a hurricane where everything is wiped out and nothing is going to ever get back to the way it is going to be again. Yeah, it's going to be incredibly different. It's more like a snowstorm. Things are ruined. You need to rebuild. But everything's not going to be wiped out. Economists are projecting that we're going to slowly be able to get back to more normal employment rates.
What you can do and how you can talk to your borrowers. And right now, how are things changing? So the main thing that I am really trying to talk to investors about specifically is forbearance is not forgiveness. If you're having a conversation with anybody, especially an investor that owns income property, they should not even mention the word forbearance on the phone with their mortgage lender. Some lenders are required to report that to the credit reporting agency, even if they just ask about it.
So if somebody needs to ask and if ... That's not the way with Fairway, if somebody asks me about forbearance at Fairway, I don't have to do that. But if they're being surfaced by another lender right now, they need to know that that can have a significant impact on their ability to qualify for a loan. Right now, if you want to get a jumbo loan, you can't have a forbearance, even if it's 100% repaid, for the past 12 months. I think Fannie Freddie now, you can have forbearance on there, but it has to be fully repaid and you have to have three months gone by. So things are changing pretty rapidly with forbearance, and it can really affect people's ability to qualify for new loans, especially if it's an investment property.
So what should you do right now? Continue to prospect for leads, continue to nurture those leads. Obviously, these are things that you're hearing from everybody at uptown anyway. But just because we're in a little bit of a different timeframe when it comes to qualifying for a loan, doesn't mean that people can't. But you should make sure that you're vetting people very carefully before you're writing offers for them. It's not just you guys, but I've seen people that have come to me with a purchase agreement that's signed and ready to go, and their borrowers, for lack of a better word, are fucked in qualifying for the loan. So you really need to make sure that you're getting people pre-qualified. We're having to call people's employers 24 business hours before we close a loan to make sure that they still have their jobs. So things are tightening. Things are a lot more strict. So make sure that you're working with your lender, even if it isn't me, to make sure that your borrowers are going to qualify for the houses that you're showing them.
So again, these things are changing daily, but people's credit scores can be impacted in a lot of ways in this recession. So somebody that you think was rock-solid six months ago might not be rock solid right now. We should probably run their credit report again, see what's going on. People aren't qualifying for the same things that they used to in terms of refinances. Credit score qualifications have changed, so you need to think about that when you're saying, "Oh, we can do this for you." It's changing. So I'm happy to answer ... I'm happy to field any questions like that.
If you want to come to me to educate your clients, I'm happy to do that. I can email this to you. This is all silly stuff, so not [inaudible 00:08:41]. Anyway, pre-qualify your borrowers. That's really going to be the most important thing. And come to me if you have any questions. Try to set me up at least a month or two before you think people are actually going to buy.
You guys got any questions?
When you were showing the slide about the appreciation leading up to '08 versus right now, obviously appreciation was still decent for this time period versus the last time period. But do you think that things tend to a little bit more EBQ? Does that bode well for the future as opposed to-?
Yeah. That's essentially what the argument is, is there's not a bubble to be burst at this point, yet people are requesting forbearance and there are some hard economic times. But for the most part, loans that people have gotten and mortgages that people have tried to qualify for in the past 10 years are loans that they can afford. So it's bad economic news. It's not great housing. The housing market didn't cause this recession. And to be perfectly honest, a lot of people that we're able to afford homes and have qualified for a mortgage are the same people that still have their jobs. There's a lot of people in the service industry and there's a lot of blue-collar people that didn't own their homes, who didn't have loans before this happened, that is really struggling. The poorest people are going to be impacted in the next coming years. The people that can afford their homes and have been able to afford their homes in the past are more likely to be able to afford their homes in the future. Does that make sense?
Do you think because of that, there's going to be a decline in first time home buyers and stuff like that?
I don't know. I mean, I'm still getting a lot of first-time buyers. I don't have any data on what first time home buyers is like in the past three months. But I've got to say that there are more people that are willing to start looking into if they can qualify for a loan because they know that the [inaudible 00:11:04] is at 3% right now. Anybody who has a college education that has 10 grand in the bank is saying, "Can I afford a home right now?" And the answer might be yes. So they understand that this is the time to jump on locking in a 30 year fixed loan at this interest rate. Because how do we get lower than a 2.5% interest rate on a 30 year fixed loan? It seems that it has to bottom out at some point. And I think a lot of people understand that overarching idea.
Have the programs changed for first time home buyers? As far as-
So the Chenoa Fund, the Chenoa down payment assistance program did open back up about a month and a half ago. So there were no down payment systems programs that Fairway had access to. Because a lot of times, again, those are for people that don't have very much money in the bank and it's a higher risk loan, absolutely.
Can you explain to everyone what that-
So the Chenoa Fund is essentially a federally funded grant program where they will have a second mortgage associated with their home purchase that is forgivable after 10 years. So they buy the house for 3.5% down, but that 3.5% is subsidized for the government. And if they keep the house for more than five years, it's also forgiven. And then if they live in the house for 10 years, that 3.5%, they'll pay interest on it for the first five to 10 years, however long that is. But then it's essentially forgiven. So it's a "0% down loan." They will still have to bring in money for closing costs or get the seller to pay for closing costs, though. I would never say somebody that has $1,000 in the bank is a good candidate for a home loan, but it's happened.
Five grand. Come to me with somebody that has five grand in the bank. But people that are wanting that down payment assistance oftentimes have poor credit, so they have to have over 660, and they can't have a lot of liabilities on their credit report. So in order to qualify for a 0% down program, we have to be able to maximize all the income that they have and they need to not have auto loans, car payments, all of these things because their monthly loan amount is going to be higher because they have that second mortgage, to begin with. So we're not just talking about the initial principal interest taxes and insurance. They're going to have a second loan for the first 10 years. So we need to be able to maximize their income in order to qualify for that payment, that additional payment on that second. Does that make sense?
So five grand in the bank and no debt.
Minimal debt. Not like-
A fortune.
Yeah, yeah.
And you said that jumbo loans are back.
Jumbo loans are back, but you have to have 20% down. 5% of jumbo loans are not back. We're hoping that maybe at 10% or 15%, or I guess the 85% to 90% LTV jumbo loan will come back from Chase and Wells, but they have not happened yet. And they take a lot more time. So if you have somebody that's looking in the $650,000 to $700,000 range, we need to get them to the max, the conforming loan limit of 510 for $1,000. And they need to have that cash in the bank to either get to the conforming loan limit or put 20% down on a home loan. So that has been challenging, I will say. Because yeah, people will qualify. We have friends that qualify for a jumbo loan, but getting 20% down of $700,000 is difficult for even people that are pretty well to do. So I will be so happy when a 10% down jumbo loan comes back because a lot of people can afford that. But I don't make the underwriting.
Do you have any guess on how long?
I really don't. And we've asked over and over. And we don't have our own jumbo products, so it's all Chase and Wells Fargo and US Bank, but they're not doing it themselves either. So yeah.
I think that's it. You guys got any other questions? Any other questions? Nicole, Tanner, Jacob?
Can you say the thing about forbearance again? Some people can't use the word forbearance or-
Yeah. So forbearance is more new, essentially set up to not pay your mortgage for a certain number of months. But that doesn't mean that you don't have to pay that money back. You will have to pay at the end when your loan becomes fully amortized. And so if somebody wants to qualify for a new conventional, like a Fannie or Freddie loan, they have to have repaid back in full those months that they missed qualifying for a new loan. And then it has to be, I think, three months since they've repaid it back in full. So essentially, underwriters are qualifying people for loans based on their ability to pay their monthly mortgage. And if somebody didn't pay their mortgage for two months six months ago, we want to see that A, they've paid back all of that principal balance, and B, they've been able to do it for the next three months. And now Fannie and Freddie are allowing people to do that and now get another home loan.
For jumbo loans, if you didn't pay your mortgage for a couple of months and went into forbearance, you will not qualify, as it stands right now, for 12 months after you have forbearance on your loan, just because they don't want to take that risk on people. People did it. I would say I've talked to a couple of lenders and they're like, "Oh, well, we could have paid our mortgage. We just didn't because it was forbearance." And that's a mistake. That's a serious mistake and will affect your ability to buy.
Right. Well, I was curious more about if you said forbearance on the phone [crosstalk 00:17:12]-
Oh. Well, so if you call your lender and ask questions about forbearance like, "What's going to happen?" So they're not reporting it. It's not going to affect your credit score if you get a forbearance. So if I deferred my mortgage and took forbearance for the next three months, it's not going to affect my credit score. It's not supposed to negatively impact your credit, but it will show up on your credit report so that if I wanted to turn around and buy a new loan, it's going to show just like a bankruptcy or a late payment. So yeah, maybe my credit score maybe didn't go down, but I do have a big red line on my credit report that says, "Forbearance, three months." And we can see exactly the date you started forbearance, exactly the date that you started repaying that back.
And so if somebody called my servicing department, they wouldn't be calling me if somebody potentially wanted to go on forbearance. They should call me, not my servicing department. But if they call to ask, "What goes into forbearance? How could I set it up?" Some mortgage companies require their employees to report that to the credit reporting agencies. So it's still this really big gray area, but it fucked over a loaner, too, for refinancing recently. Just inquiring, "Hey, what would happen if I did forbearance?" Because they knew that they weren't going to refinance their home. So they said, "Oh, I'm just not going to pay it. I'm not going to pay three months or two months of my mortgage because I know when the payoff happens when I reapply at a lower rate, it'll get paid." But no, now they don't qualify for that new loan.
And I think maybe some of those things have gone away, but it's just so dicey. Everything is just really day by day with underwriters, and they're being so much more conservative right now. And it's not just us. We've talked to other lenders. We save deals from other lenders because it's a lot more of a conservative underwriting.
Yeah. So basically don't inquire unless you're absolutely going to do it.
Yeah. Or don't talk to somebody who's actually purposing your loan. Talk to somebody who wants to sell you a new loan, have them look into it. Because they're not going to report you to the credit agency.
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