The coronavirus has clearly had a massive impact on our daily routines and the overall economy. What will it mean for the mortgage lending industry?
Banks on the Run
Despite once again being among those receiving the most in bailout funds, they, as usual, don’t seem to have any intention of passing on the same help to their customers.
Many banks across the country have at least closed physical branches and their websites and call centers are overwhelmed as they shed employees.
When these institutions get swallowed up by their own fear and overreact, they cause exactly the outcomes they were fearful of.
It’s quite likely many banks and lenders will close before this is over. The real estate investor website, Connected Investors, says 30% of its private lenders have already fled.
We don’t want to be responsible for a run on the banks. Especially when online payments are more important than ever. While some will crash, this current administration seems to be all in on big bailouts. Banks may be bought and merged, but your money should still be there.
Tighter Lending Criteria
Despite public announcements of expanding credit lines for customers, we can probably expect the opposite to be true in reality. Expect banks to cut revolving credit card, personal, business and home equity credit lines. This will compound the issue of tightening lending standards and higher credit scores requested. And then on top of it, they are responsible for crushing customers, hitting customers with higher rates and fees.
Just a couple weeks into this coronavirus mess and Chase already announced it would not be making any home loans to those with credit scores under 700, and without a 20% down payment.
This is clearly counterproductive, as it will likely speed up the decline of property prices as struggling owners cannot sell their homes.
The one thing that is different from 2008 for now, and that the Fed is getting right is low interest rates. Behind all the fake news surrounding the last Great Recession, was the fact that one of the major leading causes of the crash was the simultaneous hiking of interest rates and tightening of mortgage lending. Recent low rates make it much more likely borrowers can and will perform, and more have the hope of finding viable financing in the year ahead.
Bank Stock Performance
General stock Earnings reports are not good as of Q1 2020. Chase bank set aside $8.3B to cover loan losses in this quarter. Retail sales are down. Mortgage origination volume will be way down. Lack of confidence in banks, and declines in deposits, are likely to drive bank stocks down further. So far we haven’t seen an appropriate amount of correction to bring stock prices back to reality and in line with real fundamentals. That is on the horizon. We’ve already seen billionaires like Jeff Bezos and politicians quietly ditching stocks before the worst news of COVID-19 was made public.
Everyone should also be on the lookout for bills and legislation and new rules quietly being passed and snuck into other packages during this time. News of them may not pop up for a while. Though, expect there to be some surprises down the line..
Until stocks correct, it continues to be wise to shift to more tangible direct investments that provide income.
Cash Will be King
There will be many great opportunities to invest in the mortgage and real estate space in the next 2 to 24 months. However, with limited public retail lending, as with 2008, those who get to take advantage of them will be those with cash, and who preserve the highest credit score ratings.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund