By Jeff Lazerson | firstname.lastname@example.org | MortgageGrader.com | January 31, 2021
Beverly Rowe is living a landlady’s nightmare.
The physician’s assistant hasn’t been able to work because she has to stay home and care for her chronically ill, elderly mother, fearing her mother would not survive a COVID-19 infection.
So, she relies on rental income to pay the mortgage on the triplex she owns in Los Angeles. That, too, has been sketchy.
One of her tenants now is $25,000 behind on rent, causing Rowe to burn through $30,000 in savings to cover her expenses.
Rowe’s mortgage lender offered her three months of payment forbearance, but told her that she’d have to make up all the payments after 90 days by way of a balloon payment.
“I’m thinking of selling the property,” she said.
Swathi Bhumireddy, who works in the software industry, charges $3,200 per month for her Lake Forest rental house.
Since COVID, her work-from-home tenant has had a spotty payment history.
“I’m forced to sell stocks to pay the mortgage when I don’t have the funds,” said Bhumireddy.
Some help may be on the way for landlords like Rowe and Bhumireddy, who have struggled to cover their mortgage during the pandemic.
The state Legislature passed Senate Bill 91 on Thursday, Jan. 28, clearing the way for distribution of $2.6 billion to landlords and utilities to settle some of the debt accumulated by low-income tenants during the coronavirus pandemic.
The measure also extends the state eviction moratorium, due to expire on Sunday, through June. Gov. Gavin Newsom signed the bill Friday, and the state expects to begin distributing aid in March.
Gov. Gavin Newsom signed the bill Friday, and the state expects to begin distributing aid in March.
The measure uses federal rent relief money to pay up to 80% of back rent owed from April through March by tenants earning less than 80% of their county’s median income.
Landlords accepting the money must agree to forgive the remaining 20% of unpaid rent.
To meet the annual tenant income limitation, a family of four would have to earn less than $90,400 in Los Angeles County, $102,450 in Orange County, and $60,250 in both Riverside and San Bernardino counties.
Help also is available on another front.
Many mortgage lenders are quietly stepping up to help landlords by easing mortgage qualifications.
In the early days of the COVID-19 pandemic, lenders were frothing at the mouth for proof of recent rent payments made by tenants.
The mantra to mortgage brokers and other originators back then was, don’t you dare turn in a file without the motherlode of documentation.
And if tenant payments were sketchy, the underwriter might require the borrower to qualify based on the mortgage payment plus insurance and tax costs while eliminating rent as part of the landlord’s income.
This made refinance qualifying impossible for many mom-and-pop landlords who didn’t have enough total income.
Now, many lenders aren’t even asking for anything beyond the previous years’ tax returns and schedule E, reflecting the rental profit and loss.
This is a huge new opportunity for landlords with unreliable tenants to reduce their mortgage interest rates and even pull out some cash to be more liquid.
Mortgage rates for well-qualified landlords are running at about 3% for a 30-year fixed. In my experience, most landlords are willing to refinance if they can shave 1 percent or more from their existing interest rate.
“This is very progressive. Landlords are still obligated (to pay the mortgage) and they can burn through money quickly,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance.
Why the softer lender stance?
Even though total forbearance numbers ticked up this week from 5.37% to 5.38%, these numbers have held steady, according to the Mortgage Bankers Association weekly survey data. There is wide optimism that the herd immunization process will get us past COVID-19 sooner than later.
Another reason is the vast majority of tenants have been paying their rent through the pandemic.
California landlords have suffered somewhere between $1 billion and $3 billion in unpaid rents, according to Debra Carlton, executive vice president of the California Apartment Association.
But the U.S. Census’ latest Household Pulse Survey showed 82% of California renters reported this month they are caught up on rent payments. In Southern California, 78% reported they were caught up.
Candice Blair, property manager for 120 landlords, says just two out of her 120 tenants are not paying rent.
Cecala remains cautious.
“Our problem doesn’t necessarily end when COVID ends. California unemployment is at 9% with a disproportionate number in restaurants and hospitality,” said Cecala. “It’s going to be two years.”
Freddie Mac rate news: The 30-year fixed-rate averaged 2.73%, down 4 basis points from last week. The 15-year fixed-rate averaged 2.2%, 1 basis point lower than last week.
The Mortgage Bankers Association reported a 4.1% decrease in mortgage applications from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $233 more than this week’s payment of $2,232.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2%, a 15-year conventional at 1.875%, a 30-year conventional at 2.375%, a 15-year conventional high-balance ($548,251 to $822,375) at 2%, a 30-year conventional high-balance at 2.5% and a jumbo 30-year fixed at 3.125%.
Eye catcher loan of the week: A 30-year, non-owner fixed at 3% with 0.25 point cost.
Louis Hansen of the Bay Area News Group contributed to this column.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
Jeff Lazerson - Mortgage Columnist since 2011