I. I Mentioned Last Week That 100% of a Buyer’s Down Payment Can Be Gift Funds. I Had Several Questions in Response, so I Thought I’d Share a Few Reminders.
1. Who Can Gift?
A. For Fannie, Freddie, and Jumbo, it needs to be a family member, domestic partner, or a fiancé. Family member extends to grandparents, aunts, uncles, and cousins, and I have yet to see relationships closely verified.
B. FHA is much more flexible. Gifts can come from family, domestic partners, and fiancés, but also from friends, employers, unions, down payment assistance programs, and the neighbor’s dog… (OK, maybe not the dog, but FHA is very flexible!).
2. Who Cannot Gift? “Interested Parties” can’t gift. This includes builders, real estate agents, lenders, and sellers.
Note: This is why lenders do not allow excess closing cost credits (that exceed actual closing costs) to be applied to down payments.
3. Interested Party Gift Exception: Gift of Equity. When one family member sells a home to another family member, lenders allow the seller to “gift equity” to the buyer – and that equity can serve as a down payment (even though no cash exchanged hands).
II. The Commercial Real Estate Lending Meltdown That Never Happened
This is fascinating to me because there were so many predictions of a lending Armageddon after COVID. Work-from-home policies emptied offices everywhere, and lenders were suddenly left with commercial office building collateral that did not come close to covering loan amounts.
Hundreds of billions of dollars of loans were suddenly exposed, and we saw constant stories of commercial real estate getting handed over to lenders by owners when debt levels exceeded values.
Blackstone famously paid $605 million for 1740 Broadway in Manhattan in 2014, and they handed it back to the lender (CMBS holders) in 2023 when its value fell far below its $300 million loan.
Westfield Mall in San Francisco was famously appraised for $1.2 BILLION about 10 years prior to selling for $133 million.
Not only did a major credit crisis never emerge, but I learned yesterday that banks are aggressively lending against commercial real estate again.
We avoided a meltdown for many reasons, including: (1) it was mostly an office problem. Other aspects of commercial real estate, such as multifamily, industrial, warehouse, and retail held up. (2) Most of the office lending losses were outside the banking system and thus less damaging to the economy. (3) Forbearances allowed lenders to extend the loans out just far enough to keep them alive. And (4) the slight rate dips in 2024 and 2025 provided additional relief.
My main point though is this: The U.S. economy is amazingly resilient. So the frequently predicted crashes we see regarding every aspect of our economy – often never come.
III. Beware of Zillow and All Call Center “Pre-Approvals.”
A borrower came to us a few weeks ago with a Zillow pre-approval in hand. The problem? The approval was for $100,000 more than the borrower could possibly qualify for.
Zillow and most call center lenders are worried about one thing and one thing only – selling more loans.
They pack bodies into their orgs with minimal training, at a time when the industry is more complex than ever (despite AI) – making advanced training more necessary than ever (despite AI).
