The Coronavirus pandemic has affected various aspects of life over a short period of time. It has single-handedly changed our daily routines in one way or another. Surprisingly enough, even with the quick spread of COVID-19, the real estate market has remained active. However, what this virus has undoubtedly done is began to pile up a massive log jam of delays that people will experience throughout the process of their real estate transaction for months to come.
The supply chain involved in the buying and selling processes is beginning to get all backed up; everyone from the mortgage companies, to attorneys, appraisers, title companies, cities/towns, and registries are all overloaded and now not able to work under normal conditions due to social restrictions. It is important that everyone involved understands why these delays are happening and what, if anything, they can do about them.
Mortgage:
Initially, the Coronavirus made interest rates drop to historic lows of as little as 3% which consequently caused refinancing applications to go through the roof. This is a great thing for existing homeowners as it puts more money in their pockets every month. It’s also good for home buyers as it saves them a lot of money in interest and enables them to afford more. In addition, every Spring the real estate sales season kicks off and the purchase business gets very busy with homebuyers. With the mild Winter, it was busy even before all this. The problem now is not only are mortgage brokers so busy that they cannot keep up, but the entire mortgage system is strained. To make matters more complicated, over the past week rates shot back up over 4% and many don’t understand why. There are several reasons: One is that there are not enough secondary players like Fannie Mae and Freddie mac who can buy the mortgages fast enough after they are funded. This is why the Federal Reserve stepped in last Sunday and bought 200 million dollars in mortgage-backed securities. We expect them to do that several more times. In addition, mortgage companies use warehouse lines of credit to bridge the debt from the time the loans are closed until the time a secondary player buys it. Well, in a matter of a week many mortgage companies maxed out their lines. To decrease demand, they raised rates. Rates are expected to settle back down by late summer or fall once the whole system adjusts back to normal.
On Monday, March 23rd, the Federal Housing Finance Agency officially allowed lenders to obtain employment verification via an e-mail from the employer, a recent year-to-date paystub from the borrower, or a bank statement showing a recent payroll deposit. Which is one step for mortgages made easier for everyone!
As a buyer, what can you do about it?
Now it’s more important than ever to hire the right mortgage broker and mortgage company. Any mortgage broker can get your loan done when times are good, so long as you qualify. But the real test comes during volatile times for the mortgage market and right now is the most volatile it’s been. It’s critically important that you work with a large and strong mortgage company to ensure that they come through with the loan.
Attorneys:
In Massachusetts, we are an attorney state which means it’s mandated that attorneys close all real estate transactions. Currently, attorneys are also having to deal with excessive amounts of refinancing just like mortgage brokers. Attorneys are the ones who pull titles, negotiate purchase and sale agreements, order municipal lien certificates from cities and towns, obtain payoffs from existing mortgage companies to be sure they are paid off at closing, then ultimately close the transactions. They are an integral part of all real estate and refinancing transactions. In title states like New Hampshire, title companies close real estate transactions so all the same applies.
As a buyer or seller, what can you do about it?
Make sure to work with a real estate specific law firm that specializes in conveying real estate transactions every day. These attorneys know the system inside out and know how to get transactions closed as efficiently as possible.
Appraisers:
Appraisers have to go out and confirm the value of each property that is obtaining a new mortgage. Put yourself in a bank’s shoes; you are not going to lend money on a home whether it’s for a purchase or a refinance until an appraiser confirms the value and matches what you’re about to lend to the applicant. Right now, there are thousands upon thousands of loans being ordered and every one of those properties needs appraisals.
On Monday, March 23rd, the Federal Housing Finance Agency officially allowed appraisers to appraise homes without going inside so that they don’t have to potentially get exposed to the Coronavirus. This is safer for the appraisers and the homeowners and though it appears that this will make this part of the process faster, many appraisers don’t necessarily feel it will because just as much information and research is required on the appraisers part.
As a buyer, what can you do about it?
The mortgage broker sometimes has an impact on who does the appraisal and sometimes they don’t, depending on the type of loan. However, this all starts with the mortgage broker. Make sure to go with a good one. Another thing you can do is decide who you are going with for your mortgage as early as possible so there is no delay in ordering the appraisal. In fact, it is a good idea to order it as soon as possible.
Cities & Towns:
This week delivered a new batch of hold-ups as town halls closed which created a multitude of delays in many ways. Now attorneys cannot obtain municipal lien certificates to find out exactly what is owed in taxes, water, sewer, and any other municipal utilities. Fire departments are only focused on essential activities which now means that fire inspections are being put on hold. The good news is on Friday afternoon, March 20th, with the help of the Massachusetts Association of Realtors, the governor signed an order that allows a fire certificate to be obtained 90 days after closing. This enables transactions to close without them in hand so long as the State of Emergency is in place. In addition, several sales cannot be finalized until permits are signed off on or occupancy permits are granted, and that becomes an issue when cities and towns are closed.
As a buyer or seller, what can you do about it?
Generally, with cities and towns there isn’t a ton you can do about things, but here are a few tips. As a seller, once the State of Emergency in Massachusetts ends, contact your local Fire Department well in advance of your closing to allow for enough time to get it scheduled. If you are a buyer, not getting too stressed out about permits and other things would be a good idea unless there is a specific reason to really look into things.
Title Companies and Examiners:
Every mortgage loan requires title insurance. For a title company to provide title insurance they understandably insist on having a title examiner review the title. Now title examiners suddenly have triple the orders and it is impossible for them to keep up, especially when registries are now closed. This adds another layer of complication to the transactions.
As a buyer, what can you do about it?
Make sure to hire a real estate law firm who is constantly ordering titles. They will have leverage with those title companies and examiners due to all their volume and yours will likely get done faster.
Registries:
Last on the supply chain are the registries of deeds which have also closed causing substantial closing delays this past week. The good news is all registries are now allowing e-filings. But it isn’t that simple. Attorneys always notarize all important documents to ensure that there is no fraud. Notaries are supposed to be done in person. But now everyone wants to social distance and many people don’t want to leave their homes! Therefore, right now many attorneys and other players involved in real estate are trying to get Governor Baker to sign a bill that will temporarily allow attorneys to notarize documents virtually as long as they can watch the parties sign virtually via a video conferencing system.
As a buyer or seller, what can you do about it?
Once again, the importance of hiring the right lawyer and law firm that specializes in real estate is key here. They will know the right way to navigate this.
This is all happening while buyers and sellers are remaining active. Anthony Lamacchia filmed on Monday, March 16th showing the stats of where we were at in terms of homes listed, pending, sold and canceled. Some sellers are coming off the market, but not a dramatic amount or in droves like one may think. Look at this past week for example. On Monday at 4 PM there were 10,853 homes for sale and on Friday at 5:30 PM there were 11,824 homes for sale- that’s an 8.9% increase. There have been some buyers that have bailed out of deals but, there are many still out there searching and putting in offers. Since the demand is still so high this Spring market, as it always is, the decrease in activity has remained minimal and we are not feeling the effects as of yet.
Even with the quick spread of the Coronavirus, our industry and the Spring market have proven to hold strong for the time being. We do foresee the activity levels dropping within the next week but are confident that some demand will remain. The important thing to understand is the ripple effect of all parties involved in a real estate transaction and the delays that will come because of this chain of supply. If agents, along with their buyers and sellers, work together patiently and develop plans and extensions that work for each particular transaction, deals don’t have to fall through just because of these delays. This will not last forever and we will get through this.