Is this thing on?
Hi, I’m Erin Spencer.
And I’m Stacy Smith. And this is Between Two Brokers a podcast about real estate, business and life. Hang in there. We’re smarter than we look.
Welcome everyone to another episode of Between Two Brokers. Today we have our very, very, very special guest, Bill Payne with First Home Mortgage here to answer all of our questions about what is happening in the mortgage markets. What could be more exciting than that? So the mortgage markets are driving our market, well not driving, affecting our market. I don’t know, I haven’t looked at the last stats, email, but we’re like doing 50-60% of the number of transactions that we were in terms of properties going under contract as we were this time last year. So, do I have a lot of cash buyers still? Yeah, thank you. Thank you for hiring me to be your agent and don’t stop. And if you have cash, call me. But, for the people that are getting loans, we are 100% beginning to see, like just pull back, pull back on price, hesitation. Should I wait until rates go down? What’s happening with rates? So, Bill, I really just want you to take it away and tell us like some of the things that you’re seeing. You and I have had deals recently where we’re like literally pinching pennies and figuring out, okay, how are we going to make this happen with rates? And you told me, you know, this is the effect of what’s happening in the mortgage market. So just tell us what’s happening.
Yeah, that is so true. What people could afford or qualify for a year ago is night and day, as of today. So, all right, generally speaking, conventional interest rates are in the high sixes to low sevens, their rates are still very volatile. You see a quarter percent swing in a span of 48 hours. That’s not normal, but that’s the world we’re living in. Now. Jumbo interest rates are in the mid sixes to the higher sixes. They are not as volatile as conventional. Conventional interest rates are Fannie Mae, Freddie Mac. They move more quickly with the market whereas a jumbo loan is like a boulder and that it moves much more slowly. So, as interest rates are increasing, jumbo loans are typically a little less expensive than conventional. But, the opposite does occur when Fannie Mae, Freddie Mac, conventional interest rates start to decline, it will take jumbo loans a little extra time to start to go down as well.
Okay, what is a jumbo loan? What’s that number for us?
For us, in South Carolina, it’s $647,200 or higher, that is considered a jumbo loan. Now that changes January 1 2023, then the conventional loan limit becomes $715,000. So that means somebody could as long as the loan amount doesn’t exceed $715,000, they can get away with just putting 5% down, that’s gonna help sustain home values, especially in like the 29466 area, West Ashley, James Island.Where those home values have crept up to that price point, it is going to help first time homebuyers.
Wow, January 2023, something to look forward to, the jumbo loan limit increases. And, while you’re on the jumbo loan, can you tell us because it is different in different areas? For instance, jumbo loan limits and L.A. are different. So how did they determine that?
It’s because they are high cost areas, just homes are more expensive.
Right, right. So it’s based on average sales price or something like that? Okay.
Some economists sat down and said, hey, things are more expensive here. We’re just gonna adjust those loan limits more.
Right. And I remember when jumbo loans like not too long ago, I feel like it was like $415,000. That was five years ago. Yep. Whoa, whoa, it’s called inflation. Damn!
So, I want to ask about ARMs. Two of my other mortgage lender friends from the dog park have been saying that they are recommending them. So let’s take someone like Stacy who moves every two years like she’s in witness protection program, versus me who I will live here for 400 years in the same house. An ARM would not be appropriate for me, but for someone like Stacy if she can use an ARM and get a lower rate because she’s not going to stay there for seven or 10 years. Does that make sense for her right now?
It does. Okay, so there’s a couple of caveats to that answer. There is what’s called an inverted yield curve. And that means interest rates for shorter term loans are the same or slightly higher than longer term loans. So a seven year ARM typically yields a higher interest rate than a 10 year ARM. The opposite should be true. A 20 year fixed yields a higher interest rate than a 30 year fixed The opposite should be true there and if it’s a Fannie Mae, Freddie Mac backed loan, then the 30 year fixed is yielding the same or a slightly lower interest rate than an ARM. So that’s, without getting too technical, it’s just the weirdness in the economy. But that’s not always true. That is rarely true. And usually, an inverted yield curve is a sign of a potential recession. So that’s why all of the figureheads on the news, and everything you read is saying, hey, recession is forthcoming, we’ll see. But that’s only for Fannie Mae, Freddie Mac products. If you have a bank that offers a portfolio product, also called a non conforming loan product, which is what a jumbo loan is, they create their rules, they are lending their own money, so they get to dictate the rules. They don’t have to naturally follow what Fannie Mae and Freddie Mac say. Usually, the underwriting requirements are more difficult than a Fannie Mae, Freddie Mac loan, but then the bank, because it’s their own money, can offer a lower interest rate on an ARM than what Fannie Mae or Freddie Mac would back. And all they’re trying to do is capture clients by doing so, but also knowing that the arm is only three or five years long, maybe seven, and they’re going to get their money back in short time.
Can lenders that are the bank, do whatever they want to? Because it’s their money?
Yeah, in theory, they can, but the lenders, you’re now talking to the CEO of the bank, or head of risk assessment, those are the individuals that determine how, what the underwriting requirements are and who, what they want their clientele to be. So it’s not just like, hey, look at this loan, and we’re going to check a couple of boxes are good to go. Every bar we’re still, especially in this economic environment, has to meet that bank’s individual requirements.
Let’s give a shout out to one of our partners, Bill Payne, with First Home Mortgage, our number one mortgage guy who’s never let us down in 18 years. Is that why he’s number one? That’s why he’s number one! He makes us look good. Our clients always have a seamless deal. He’s so good at communication, and he has the best team too. He definitely does. And he’s accessible and available to explain things thoroughly. And he’s so patient with our clients.
And quick to respond because this is a fast moving business.
So whether you are a buyer, seller or real estate agent in town, if you haven’t called Bill Payne for your mortgage needs, you are missing out people.
Bill Payne with First Home Mortgage.
Call today! Why do you ask that question?
Because I’ve just dealt with a couple buyers lately where it’s like different lenders have different products, but this one lender was like, well, we are the bank, we can do whatever we want to we’re not a mortgage broker where we’re shopping rates from the actual lender.
So they can’t do whatever they want to they can do whatever they’re.. those were his words…Yeah. You know, stop being friends with that person, reckless behavior and lies. No Bill Payne.
And we’ve gotten the question before, like, what’s the difference in a realtor and a broker or an agent? So, do you want to explain the difference in the lender and a broker for the mortgage world?
Yeah, you have like a, you have a mortgage broker, you have a mortgage banker, you have a loan officer that works with the bank, I’ll dumb it down, but you have a broker who collects all of buyer’s financial information, and then ships it off to a third party. Then that third party controls the underwriter of the loan, what’s required, controls the process from beginning to end. So that a broker in that sense, loses control over the loan. That’s the world I came from. That’s how I started and when I got into business, it’s just it’s a risky way of doing business because you don’t have control. That said, sometimes brokers are able to get a slightly lower interest rate. That’s the only reason you would go to a broker. A banker, that’s what I do, is we control the underwriting of the loan from beginning to end. It’s our underwriters, it’s our cash, we ultimately lend the money. And then we securitize that loan with a bunch of others like millions and billions. And we turn those loans over to Fannie Mae, Freddie Mac, VA, FHA, to whomever we underwrote that loan for so that means we underwrite the loan to their requirements. The last one is if you work for a bank, such as let’s say Truist, they offer an incredible Doctor loan, probably the best in this area, Doctor loan isn’t going to Fannie Mae or Freddie Mac or the VA, that is something, that is a loan type that they created. As long as the doctor checks all the boxes, all the requirements, then they will be eligible for that loan. So that’s a unique loan product that’s unique to Truist bank and those loan officers.
Okay, I just remembered what it was, it was the seller was like, why can’t they lock in their rate? And I said, well, we can’t until we have a contract. And for the house that they’re buying, they were able to do a 30 day lock in shop, where you can lock in while you shop, but I think that was coming from a bank, like the actual lender, not a broker who requires the contract before you can lock in.
Correct. Now, we have a lock and shop as well, but the interest rate, everything lending is risk based, so they understand you’re hedging against a rising interest rate market, the interest rate for a lock and shop as compared to if you had a property address on that very given day is a shake higher, like a quarter percent, three eighths percent. So it’s not something that I typically steer or suggest to clients. I know, I’ll make them aware it’s an option, but it hasn’t been something that has been utilized very often because it was so freaking hard to get a home under contract. So a lock, shop for 30 days, that’s great if you can find a property. So now things have swung and there is more inventory. Sellers are coming down on sales prices, so it may be a product that more buyers should take advantage of. But to answer your original question, yeah, that’s why that bank or lender, and they may had an incentive where it was lock and shop for 60 days. Ours is capped at 30.
All right, Bill, what else do we need to talk about in the mortgage world?
One, y’all should start advertising to whomever purchased the lottery ticket in California and won about $2 billion. There’s your cash buyer. Okay, so the Fed meeting, the next Fed meeting is December first and second and Wall Street has put percentage odds on whether they increase the Fed rate by a quarter percent, 25 basis points, 50 basis points or 75 basis points. We’ll better know what’s going to happen come Thursday, because there’s a very important economic report that comes out that says, hey, inflation is still an issue or it’s not. And that’s what’s going to drive the Feds actions and their words. My gut tells me, the Fed has kind of, they’re going to slow down on their hikes, they will continue to hike for the next quarter, maybe two quarters. And so what’s going to occur is short term rates will continue to increase, long term rates have already kind of priced this into the market, so we’re going to see, hopefully, some stability and long term interest rates. That makes all of our jobs a lot easier, and then at that point, in the first or second quarter of next year, we’ll be able to tell if we are in a recession, just a slowdown, or what the hell we’re going to be faced with for the remainder of 2023 and that’ll drive how busy we are in real estate next year.
That’s been the conversation that we’ve been having in our office and with other agents, it’s like, you know, we feel very optimistic about the spring market. I think just because all of us are still so busy, and we’re still getting, I mean, I’m still getting all these people that are moving here to Charleston. The market still seems pretty healthy, prices are still pretty healthy. We always have a seasonal slowdown this time of year. So it’s nice to know that we’ll have a little bit more clarity in the first quarter because really, things really start to pick up March, April, May, June. I mean, that’s typically the busiest time and I mean, I’m hopeful but of course that remains to be seen. Now talking about the Fed. The Fed controls the rate at which banks borrow money, correct. Okay. So that’s why, because I mean, everybody keeps talking about I don’t think anybody knows what it is.
It’s the overnight rate that banks lend to one another. And so that is, if you had a tree that’s the trunk, and how money is dispersed and borrowed and lent to individuals and businesses is driven by what that rate is their trading.
And that’s why everybody else has to keep upping their rates because the cost to borrow. Yes, got it. Okay. What else is going on in the world Bill? In your exciting world of mortgages?
I think we all agree that things have become, we have to be more creative, things become more difficult. Oh, yeah, in just trying to get a deal that used to be a slam dunk, done just 6, 7, 8 months ago. So I feel like we’ve kind of turned the page to a new chapter of real estate. Yeah. And it’s gonna be different, maybe awkward as we all learn on the fly. But I think we’re going to get back to like, pre pandemic, kind of way life used to be. And I think that’s going to be great for us all. Yeah, and it won’t be just us trying to guess on what’s coming at us, we’ll have some stability in how we approach our businesses. And I think it’ll help the common, you know, the homeowner and the seller and the buyer so that we’ve got a kind of a clear path. Yeah, takes the unknown out. So it’s gonna be awkward to get there. But I think it’s gonna be great once we are.
Good. Bill, we love hearing that. Erin, do you have any more questions for Bill?
No, I think I’m good.
Okay. Cool. Well, Bill, thank you so much for joining us and if you ever have any questions for Bill, he is our regular mortgage correspondent that’s going to be visiting us from time to time so please shoot those over to firstname.lastname@example.org. Or DM us on our Instagram @smithspencerealestate. We will get him to answer those questions for you and Bill tell everybody where they can find you. @billwpayne on Instagram, or Google him.
Bill, do you ever check your Instagram? Maybe we should give your email address?
Sure, I can’t even access my Instagram, my wife takes care of that for me.
Well, or you can message Erin or I and we’d be happy to share his contact with you. I give out Bill’s phone number every day.
Thank you for having me.
Yes, and he saves the day for everyone. So, thanks again and we will hope that you tune in next time.