Today I want to talk about Whether or not Covid has been affecting lending practices!
We've been getting the question a lot so I’ve asked my good friend McKay Wood who is a mortgage broker extraordinaire to join us and let us know what's happening in the great world of lending and mortgage funding during everything that's going on.
Patricia: Mckay I am really excited to talk to you about Covid and I'm not Covid but about mortgages and just how that's been affected
Mckay: The after Covid Dilemma
Patricia : After CovidWhere Do We Go From Here? what do things even look like, Do Banks have any money left you know... All that kind of stuff
McKay: The Economy is tanking we know that
McKay: to get into talking about a little bit but you know what, what I found is that banks are pretty hungry! They’re not meeting their quotas, business is way down,Banks typically earmark money and probably a lot of money has been earmarked to be lent out, and guess what: not as many people are buying or looking. Maybe people are just scared or nervous. So, many banks, lender, financial institutions, credit unions, they want the money to flow, they want to lend.
Patricia: Isn’t that interesting. 50% less inventory maybe closer to one-third less inventory in the market so also a lot of that slow down from our end has been supply side and not as I mean demand, you know maybe if we had more Supply but certainly the Slowdown is more supply side driven which is pretty unusual. I've never actually seen a slow down due to such an extreme lack of inventory.
McKay:Do you find the motivation of your buyers that are currently really interested is different than when it was before?
Patricia I think people are still moving if they need to move so relocations you know and I'm not sure if it's because of where we are in the country as well and you might have more insight into larger centers across Canada kind of issues than I do. For us I'm finding the people that need to move still have pretty legitimate reasons; regular stuff: jobs/families/structures changing all that kind of stuff jobs changing People relocating. We still get the military transfers and stuff like that too. So we’re still seeing that but again the inventory is so low that it's if there is a kind of drop off in demand we have so few homes right now that we aren't’ feeling it on that side yet.
McKay:Interesting, Parlaying into that, do you find that the people that are selling or at least a good portion of them are motivated sellers because they need to sell because of relocation. Are you finding that?
Patricia Yes, The people that need to sell are definitely motivated because anybody that doesn't need to sell is just sitting tight. I really don't see them fire selling though. I really want to separate “motivation” from other measures - I’m not seeing a tonne of foreclosures or anything like that like I think a lot of people thought we were going to see like 30% dip in prices and then all the sudden everybody was going to get foreclosed on.
I think the banks have some pretty strong measures in place to help out people who can't make payments for it for at least the next short-term period. I don't know if we're going to see if you know people that just can't afford their payments anymore, for now the banks have actually done a pretty good job of bridging that and made it pretty easy to access that pause in payments.
McKay:I was ready to pull out some money if you said “Fire Sale” Where do I put it?
Patricia: I know right? Where should it go? it's not there yet - let’s put it that way. I don't know what the next 6 months is going to look like but we're definitely not there right now.
McKay: That’s one of the big questions that I get constantly from people I talk to is what's going to happen? Do I go into a fixed or variable rate mortgage?
McKay: tell me the next 6 months Mr. Wood! such a big Question Mark In many ways.
Patricia: So, I know McKay you've helped our clients in so many different scenarios, you've helped them on the private side that's something that we've done quite a bit with you over the past few Quarters at least. and then you also do a great job placing them in really good quality A mortgages as well. What are you seeing? you said Banks want to lend what are you seeing out there In terms of mortgages good rates good products?
McKay: Well, let me highlight. I wrote down a couple of notes to keep this interesting and fun... there's a couple products that popped up recently that were very fascinating. there is interest free for 3:
McKay: what that means is there's a lenders that’s come forward and said you know what we want people to come into our mortgage, this particular one is a high ratio mortgage Maybe, a good rate very competitive they will cover/ waive the interest portion for 3 months... how about that that's pretty appealing. in fact, let me pull up a couple numbers. I did some math for people that are listening: this particular mortgage let's say you buy a place for 500,000, you get a 2.54 rate, that's competitive there might be slightly lower rates out there versus maybe 2.39. but ultimately you pay a pinch higher in the rate, but given the circumstances the interest payment that you would save is about $1052/month
McKay: So that equates to $3150, just here you go thanks for being our buddies and coming to our lender. so that particular lender wants to get the money out the door And they're willing to give incentives. That's a cool initiative. I don't know if you've ever heard of that one before?
Patricia: no that's new
McKay: there's another cash back programs where they're willing to give some cash back They can tweak the rare a little so instead of the rate being slightly lower they’lll tweak it a little bit - it might be slightly higher they give you some cash back in your hand. You know two or three thousand dollars.
Patricia: okay. This used to be popular like a few years ago these cashback mortgages wasn't it like 8 years ago or something like that?
McKay: You know what they've actually been there. They’ve never changed, there are still a few groups that have it in their offerings. now they're kind of pulling it out holding it up and showing it to people. oh hey look at this…
Patricia: remember this thing that we do…
McKay: I think it does stem back to the challenges of the Covid environment and people maybe not having a cash-flow like they used to; Reduction in wages even some lost wages. those were a couple of cool programs I thought.
are you finding, just in your own network, are you finding people are losing jobs?
Patricia: We have had a few people drop off. Absolutely. March-ish the end of March there was really this separation of people that were able to continue moving forward and people that had to get on the fence. Either they had lost their jobs/ been laid off, and as you know, now can no longer provide pay stubs other documents they need, even though these people are likely going to have jobs to go back to in some form we hope. yes, there has been a portion of people who we just had to park it for now. percentage-wise I'm not sure
McKay: you and I have done a bunch of different unique files, you talked about the private Lending... this is an interesting current opportunity, for some people who can't make mortgage payments they can do mortgage deferral. You deal with your lender, they helped you you have a plan but ultimately you have to pay back
McKay: it's still going to come out of your pocket
Patricia: actually I have a question about that McKay. does that get tacked on to the end of the term or the end of your amortization?
McKay: it's based on different lenders, on how they structure it. they all want it back so the question is how does it come back. I don't know the logistics of each lender and how they do it but different lenders do different things. you're still under the gun to repay it
Patricia: eventually that's what's going to happen some way
McKay: in the end everything is tallied up so if it never came... it would come in end. The good thing about the deferral programs is they don't penalize you on your credit bureau
McKay: going back to private lenders. there's some people that are really struggling. But they have a lot of equity. this comes back to maybe the retirement demographic the people were winding up are jobs. the ones with very little income but a lot of equity in their home. there is a mortgage called the reverse mortgage. you may have heard that but it takes the equity and pays you from your equity and you don't have to put out anything it's just literally takes your own equity and pays you to live. your Equity slowly goes down but that's just how the system works. with other people who have lost their jobs maybe they're not in that same demographic, they’re still young ambitious good looking - whatever they are - they could potentially go to a private lending mortgage temporarily until their situation changed.
let's say they have a mortgage $250,000 on a $500,000 property. perhaps they lost their job I don't have a lot of savings whatever it is maybe they're just in a weird spot..
Patricia: well, a lot of people look at their home as that large savings portion…
McKay: which it is. So for those people you can tack on a second mortgage. let's say you need... if I had $30,000 that would get me to the next place oh, I know where that next place is my work is you know queueing it up but it may not be for the next 4-5 months and quite frankly I've used all my deferral component... it is a fix, it does cost money, but it can be a very stress-free solution for those kind of people
Patricia: that's very interesting I never really thought to use the private mortgage that way. food for thought for sure.
McKay: It literally, you would process it, it would be money in the bank suddenly, there's an extra $30,000 sitting there certainly budget still be smart…
Patricia: don't spend it all in one place right?
McKay: But it gives them the flexibility if you have a lot of equity. something to consider
Patricia: that's really great to know thank you
are we seeing longer timelines? is it taking longer for approvals? I know you tee us up when we're writing contacts and give us an idea of how long you'll need for financing. we are always putting you under the gun and saying can you get this done in 4 days because you know you don't have a life you can do mortgages all night and day. what are the time frames longer now?
McKay: When covid initially hit, let's back up a month, when that initially hit, a lot of these lenders they were going to obey the laws of the land and try to protect people so they started
Transitioning to home.
Patricia: you mean work from home?
McKay: Yeah work from home, for example typically when we would send a file into a lender the underwriter the underwriter manager would be there they could see the file they could coordinate together troubleshoot if there's a problem or concern it's not quite like that as much now. I find a lot of these Underwriters and processing: they are from home. I don't want to read between the lines here but I have a feeling that they scrutinize things a pinch more because there is nobody looking over their shoulder like right there. So processing times have been delayed significantly As they made that transition. you remember the early days there were a few files where we were just pulling our hair out at the delay.
Patricia: I remember being asked for an extension or two and it's like okay everybody breathe it's okay we got this. Because even eight months ago you just couldn't do extensions there were people waiting
McKay: so processing times has changed a little bit overall it is slightly slower. maybe the way it's being processed maybe there's been some people who have been let go. there's a few lenders out there that drastically reduced. it just depends, we get really smart on where we go and the timelines we have in place then we weigh out rates and the mortgage itself. that's a great question, I don't even know we are rolling into summer here soon and once we get totally open I wonder what will happen to processing times.
Patricia: I think you bring up a really good point, this is something I talk to when I'm talking to people about the difference between someone like yourself who is a broker and literally has access to hundreds I'm institutions in the country some that we don't even know about certainly you open up the whole world a private lending to help some of the clients we had last year. so you're able to know how different lenders work what strengths and weaknesses they have and how that's going to help the client. I've always been really impressed by your ability to talk to someone understand their life, understand what they are forecasting for the next year for the next five years for where they want to be financially and helping them understand what product is going to get them there. it's not all about 5 year fixed rates. it was posted rates just aren't everything! we talked about this especially for clients who may be are in the military you need to move at the drop of a hat or peoples whose situations are changing you have to look past some of that stuff and I think when you're talking about knowing some of the lenders just made me think of how well you know the landscape of Lending.
McKay: thanks for that. I find it interesting, a lot of the people we don't actually meet with, and of course in our current situation we can't meet with them. every now and then we might get on a zoom or Skype or something like that. the trust that these people put in us is huge. we look at these pieces of paper and these conversations which really lays out these individuals we know them really well. it's a very weird dynamic. further to what you said, a mortgage broker has access to lots and lots of different lenders and that is their strength. yes it's rates you want the best rate at the best time, it's going for the extended ratios because something may not work anywhere except at a specific place and then location is another component. it's learning all the time you know how it is. Its funny, when I became a mortgage broker, I'm still many years in and I just think do I even know anything it's a learning process with new Solutions new puzzles. I think that's what keeps it exciting if you can get your head around the timelines and the stress. and you're marvellous
Patricia: Right. No losing anyone their dream home and you're good.
McKay: I know Patricia that you are a very strong mentor you've actually mentored me a lot in different ways in business. just your disposition super happy; positive which is a big part of your success I think. how have you found that impact on your business I know you work with some really strong Realtors, your team, how is that really benefited during these times?
Patricia: A lot of it has been keeping a clear head and a clear Focus. I think there was a lot of panic in the beginning. like we said there were clients who thought they were in a very strong position and there were very strong numbers leading into the spring Market. I think everyone thought we would have a far far stronger Market this spring in 2020, and then all of a sudden this thing we got hit with this giant and Global issue. so I think staying clear minded staying focussed, remembering to keep the things that are within our control at the Forefront what we do everyday. that was probably the biggest thing, and just remembering, I think there was this energy at first that okay there is covid-19 everything will be a little off until further notice I think there was a lot of that out there and then it was NO we are not off we're going to work harder because that's going to determine what coming out of this is going to look like. so we reached out to our entire database we checked in with everybody and see how they were doing. from that we were getting feedback from clients, everybody was in different stages with their work with how shocked they were how they were impacted. we just made it our mission to be the steady ship. we're actually doubled efforts in some areas as opposed to calling it in.
McKay: in speaking to you and some of your agents and some of my agents as well, it was turning out to be the best year yet at the beginning.
Patricia: totally, February was awesome
McKay: it really has been an adjustment. if we work as hard as we normally do and I mean this for everyone reading or listening we can build the momentum. even the pipeline scenario preparation for when the lights come on crushing through everything in the end.
Patricia: Totally. I think to the interesting thing for us was we had already spent the last two years with our company moving towards more virtual tools. so we didn't have a hiccup as well we were able to keep operating the way we were operating . obviously we all miss each other and it would be nice to have a Friday meeting where we can all hang out. there is a bit of that Dynamic that's lost but we are finding it more and more through Zoom. we meet in Zoom often and we work in Zoom together. even if you're muted accountability is there and you can see everybody's face and you know everybody's working right along with you. I think having some camaraderie alongside you is important. just having the right people around you is awesome.
McKay:Yeah you are a very FaceTime individual and as a realtor you have to be on. I have to say I'm a little spoiled because I can look call greasy and grumbly back here and no one knows. I just need to sounds good. the reality is in our system we have done very little differently then what we were already doing. the only hiccup was a bit of a down-tick but everything else was the same. it'll be interesting to see how it pans out in the next while.
Patricia: well you always look good whenever we see you MacKay. I don't know what you're talking about.
I'm going to actually post a couple extra notes about what we've been discussing here is there anything else before we wrap mortgage wise? you actually pointed out some great rates: like you said oh 2.54 that's not a big deal but remembering how cheap money is right now still it's just a good reminder
McKay: yeah the times of sub 2%... we can see them. 2.20 is there; it's ready for people who have less than 20% down let's go get it it's a variable but I'm curious to see how the economy goes the disposition of lenders. I've read some articles lately that’ve said we should be sub 2% even on the fixed side. what lenders are a little hesitant managing your profitability, they all make lots of money we know that. it'll be interesting to see how that process is in a little while.
Patricia: thanks so much for watching some really great information from Mckay thank you very much Mckay, please get in touch if you have any questions. If you have questions about specific lending products let us know we're always happy to help and answer anything that we can. Reach out if you're wondering how this can affect you directly have a great day