Conventional mortgage refinance volume has fallen off a cliff as rates are more than a point above Freddie Mac’s all-time low of 2.65% set in January 2021.
Conventional loans are also very slow, due to a shortage of homes for sale.
But the mortgage machine needs to be fueled. And so, there are always exotic mortgages for hard-to-qualify borrowers when demand dwindles among the A-paper crowd.
Are we going to go down in memory of the mortgage meltdown first? Confusing and confusing during the Great Recession, there was a cornucopia of thin or even zero down payment financial instruments with names like “undocumented mortgages” (no documentation of income), NINA (no income , no assets) and of course NINJA (no income, no job, no assets).
Fast forward to 2022. Brand new from the exotic world of mortgage manufacturing comes what I call NADA JOB, NADA CREDIT (no job and no credit report) for investment property financing.
If you are a real estate tycoon in the field of witness protection, this loan is calling you.
Seriously, it doesn’t matter if your credit is filled with past foreclosures and bankruptcies. Or your average FICO credit score is a big, bad 500. Or even if you don’t have a social security number in your name.
A title search on you will be performed. If you are bankrupt, for example, then no loan for you. Or, if you have a publicly recorded court judgment outstanding in your name, the title insurance company will not insure title. No title insurance, no loan. These are pretty much the only disqualifiers.
Use? What work? No one needs a job or any type of proof of income to qualify for this special funding. Having a job is such a pre-COVID thought, right? Either way, if you have a job, there’s no place to put it on that mortgage application. Nobody cares.
Here are the basics: The maximum loan amount is $5 million for any one- to four-unit investment property, even mixed-use. Owner occupancy is not permitted!
You must put at least 30% down payment on a purchase or you must have 30% equity remaining after completion of the rate and term refinance or cash-in refinance.
The interest rate is 4.5% amortized over a 30-year fixed rate. Not bad. The borrower will have a lump sum payment due in five years and a first-year prepayment penalty of 2% of the loan balance if you decide to pay off the loan in less than a year.
You must preload four years or 48 months of principal and mortgage payments into a bank account accessible to the Mortgage Manager each month when your mortgage payment is due. You can use cash-out (from a cash-out refinance) to anticipate required mortgage payments.
Here’s an example: An investment property has a sale price of $2 million. The borrower must deposit 30% or $600,000, leaving a loan balance of $1.4 million. The monthly payment of principal and interest at 4.5% over a fixed term of 30 years is $7,094. Multiply $7,094 by 48 months (for these payment reserves) for an additional $340,512. In effect, the borrower comes back with 47% of the sale price for this to happen. But you also don’t have a payment for the house for four years.
Unlike standard conventional financing, there is no need to prove where the down payment funds or cash reserves are coming from. Can you tell, straw buyer?
Initially, the borrower will pay 3 points or less to acquire this financing instrument. Each point represents 1% of the loan amount or $14,000 in the example above.
Another hot exotic mortgage is a new 3-month bank statement loan, perhaps especially good for self-employed borrowers (self-employed for two years or more) struggling with stop-start-stop COVID-19 issues. over the past two years. .
The lender calculates the average of deposits on your company’s bank statements over the past three months, excluding an expense factor. The remaining average deposits are counted as income. For example, you can achieve a loan to value ratio of 75% with an average FICO score of 700 up to a loan amount of $3 million. This is for the owner-occupied primary residence only. That 30-year fixed rate is somewhere above 5% with maybe 1-2 origination points.
Do the current exotic mortgage flavors require enough skin in the game to avoid a repeat of the Great Recession exotic mortgage meltdown? I hope so.
Freddie Mac Rate News
The 30-year fixed rate averaged 3.69%, 14 basis points (fierce) higher than last week. The 15-year fixed rate averaged 2.93%, up 16 basis points from last week.
The Mortgage Bankers Association reported an 8.1% drop in mortgage application volume from the previous week.
At the end of the line : Assuming a borrower gets the average 30-year fixed rate on a conforming loan of $647,200, last year’s payment was $340 less than this week’s payment of $2,975.
What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages without points: A 30-year FHA at 3.375%, a 15-year conventional at 3.125%, a 30-year conventional at 3.75%, a conventional 15-year balance ($647,201 to $970,800) at 3.125%, a 30-year conventional high balance at 4.125%, and a 30-year jumbo buy, pegged at 3.25%.
To note: The 30-year FHA-compliant loan is limited to loans of $562,350 in the Inland Empire and $647,200 in LA and Orange counties.
Eye-Catching Loan of the Week: A giant 30-year adjustable mortgage, locked in for the first 10 years at 2.875% with 1 point.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected]