The Tidwell Report

The Real Estate market remains active and very busy. Though the quantity of home sales are down year over year, Many escrows that opened post-Coronavirus have closed and many are preparing to close. While some listings required price reductions to sell, the consensus was that they were overpriced from the start since listings in the same area sold with multiple offers.

So the market remains strong and stable in Southern California. If the pace of new home listings slows much more, then home prices could continue to rise simply because the demand for homes remains noticeably stronger than the current supply of homes for sale.

Demand for homes for sale may also increase if there is any truth to the rumors that mortgage rates could dip below 3%. This could offset some negative impacts that a sharp increase in the supply of homes for sale (either from investors or from homeowners who are out of work and want to limit their economic damage) could have on home prices.

HERE IS WHAT THEY DO NOT TELL YOU ABOUT THE F-WORD, FORBEARANCE
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act allows a homeowner with a federally backed mortgage loan, regardless of delinquency status, who is experiencing a financial hardship that’s due directly or indirectly to COVID-19, to get a forbearance for as long as 360 days.

What is forbearance? A forbearance is a suspension or reduction in payments. Once a homeowner requests forbearance from their lender or loan processor, their loan enters a forbearance status during which the principal and interest is deferred, and no fees, penalties, or interest beyond the regularly scheduled amounts will accrue on the borrower’s account.

Some believe that Forbearance is a gift without downside especially when they are told that forbearance WILL NOT have a negative impact on the borrowers’ credit report. What homeowners are not told when discussing their options with their lender or loan servicer is that the loan forbearance WILL appear on the borrowers’ credit report.

If a borrower has the means to pay and is not suffering financially, it may be wise not to request forbearance because a future potential creditor may draw a negative inference simply because it appears in a borrowers’ credit report. And in the future, their borrowing capacity and borrowing costs may be negatively affected. Immediately after the Great Recession started, some borrowers saw lenders review their available credit lines without notice and saw the amount of available credit decrease significantly. Some might argue that a worse case scenario would involve being denied for a mortgage refinance or getting a new loan altogether.

In fact, while forbearance WILL NOT hit or bring down a borrower’s credit score, the mere fact that there is a note on the borrower’s credit report, saying the loan is in forbearance, makes it impossible for him to refinance. For example, if rates go lower–rumors are floating around that they may–borrowers with a loan in forbearance will not be allowed to either refinance or obtain a new loan until one year after the loan payments are up to date again (assuming that the borrower’s loan is backed by Fannie Mae and Freddie Mac, which, along with the Federal Housing Administration and the Department of Veterans Affairs, fund or insure the vast majority of mortgages from lenders)..

If you or someone you know has or is considering forbearance, you may want to let them know this as well as the fact that the CARES Act does not address what happens to home insurance premiums and property taxes. The act only addresses mortgage principal and mortgage interest, so it is a good idea to verify with the loan servicer whether the borrower is required to pay these amounts during forbearance.

With nearly 4 million borrowers in forbearance on their mortgage, the question still remains of just what happens when their forbearance period ends. As it turns out, borrowers may not have to repay their missed payments at all until the end of their loan thanks to a new repayment option from Fannie Mae and Freddie Mac

I am available if anyone has any questions about how all of this works or questions about the market.

UNEMPLOYMENT
*claims jumped for the eighth straight week – Another 3 million American workers filed first-time unemployment claims last week*
To put it in perspective, before eight weeks ago the highest weekly unemployment claims in history were just over 600,000 during the financial crisis. This week’s 3 million was the lowest number of new claims in eight weeks. That brings a total of over 36 million workers laid off in the last eight weeks. Officials are hopeful that we will see a decline in new claims next week as some workers return back to work. Others are skeptical as employer liability and social distancing guidelines will severely impact businesses‘ willingness and ability to reopen.

HOME SALES
Home sales for April will be released next week. Preliminary numbers have the number of closed sales down 40% and prices almost unchanged from one year ago. We will have the official numbers in next week’s update. Pending sales have increased for four straight weeks so June and July should be better than April’s numbers.

STOCK MARKET
*lower on renewed trade fears*
Stocks gave up most of last week’s gains as escalating tensions over China’s interpretation of President Trump’s remarks over the cause, and disclosure of the Coronavirus epidemic have disrupted trade agreements made earlier in the year. A key inflation index showed the largest decline in core inflation in over 60 years. This shocked investors who are now worried about deflation, which would lower the price of goods and services reducing profits.

By The Numbers:

• The Dow Jones Industrial Average closed the week at 23,685.52, down 2.7% from 24,331.33 last week. It’s down 17% year to date.
• The S&P 500 closed the week at 2,863.70, down 2.3% from 2,929.80 last week. It’s down 11.4% year to date.
• The NASDAQ closed the week at 9,014.56, down 1.2% from 9.121.33 last week. It’s up 0.5% year to date.

TREASURY BOND YIELDS

• The 10-year treasury bond closed the week yielding 0.64% down from 0.69% last week.
• The 30-year treasury bond yield ended the week at 1.32% down from 1.39% last week.

MORTGAGE RATES
*at record lows and may go lower*
The Freddie Mac Primary Mortgage Survey released on May 14, 2020, reported mortgage rates for the most popular loan products as follows:

• The 30-year fixed mortgage rate average was 3.28% almost unchanged from 3.26% last week.
• The 15-year fixed was 2.72%, unchanged from 2.73% last week.
• The 5-year ARM was 3.18% unchanged from 3.17% last week.

Have a great Sunday!

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