I. Peace Is Up; Oil & Rates Are Down
Oil and bond traders clearly believe a legit Iran peace deal is in the works (despite skepticism from almost everyone else), as both oil prices and interest rates have fallen.
It will be very interesting to see how much rates fall when an actual peace deal is signed – given that we have so much inflation already baked in due to massive supply constraints in energy, fertilizers, food, and many other products.
II. $1.2M Home In A $4M Neighborhood Is Cash Only
We were recently asked if we could finance this absolutely gorgeous Palos Verdes home. We have funded numerous transactions in that area, so as soon as we saw the list price of $1.2 million, we knew no institutional lender (bank, credit union, or mortgage bank) would lend against it.
This is because the home – a beautiful ranch house on a 3/4-acre lot with Pacific Ocean views – is obviously listed for at least 60% to 65% under market.
And whenever a home price seems way too good to be true, it is almost always way too good to be true.
When underwriters and appraisers see significantly underpriced homes, they do not think… “Oh, that is so nice of the seller to sell way under the market…” They instead say, “No seller ever leaves money on the table for no reason. Please explain why this home is selling for under the prevailing market value.”
All mortgage banks are very good at accommodating “as is” sales of properties that have condition issues – as long as: (1) there are no concerning comments in the purchase contract or the MLS, e.g. credits for roof repairs, or comments about the house sliding into the ocean – lenders frown on that; (2) There are no visible and obvious condition issues such as obvious roof leaks, badly sloping floors, or glaring foundation problems; and/or (3) the home is not priced so far under market that the discount cannot be explained without referencing major lot or structural defects.
A sale price that is 20% to 25% under market can be “explained” with comments about a complete lack of updating, significant cosmetic deferred maintenance, pet odors, an undesirable floorplan, badly worn or overgrown landscaping, etc. (many things work, as long as no structural issues are referenced).
But when discounts become too large, underwriters and appraisers will do extra digging and often request inspection reports.
So, even if the MLS comments on the above listing did not mention landslides or cutoff utilities, the underwriter would still call for inspections. No amount of “cosmetic” or “deferred maintenance” issues would warrant a $2.5M price cut (and yes, this is an extreme case that we don’t often see; we more often see 25% to 30% discounts for a variety of reasons).
III. No Income Verification Loans: Far More Popular Than I Expected
I did not expect “no income verification loans” to become as popular as they are for several reasons: (1) the interest rates are higher; (2) they developed a stigma after the 2008 mortgage meltdown; and (3) there are adjacent products that are easy to qualify for, with lower rates.
But for borrowers with insufficient assets for an “asset-based loan” or insufficient bank deposits for a “bank statement loan,” no income verification loans are often deal-savers – offering far lower rates than “hard money.”
Note: Today’s no income verification loans are NOT like the loans we saw prior to 2008 because today’s require much better credit, a 20% down payment (vs. 0% down pre-2008), and substantial reserves.
In addition, most of our no income verification loan borrowers have clear plans to pay off their loans once they establish income.
