Understandably, we are fielding inquiries from our partners and customers wondering when we will begin to close and fund rental and small balance commercial loans. Considerable uncertainties remain. Here are a few of the items we are watching closely that we believe we need greater clarity before loan funding can commence:
PricingOur Federal Reserve has intervened multiple times since the crisis began, including providing massive support to the investment grade bond market and the agency mortgage backed securities market. The Fed’s actions have helped put a floor under these markets to allow for real price discovery (for an example of an unintended consequence, see MBA NewsLink). We now are waiting to see when some of that benefit will trickle into the non-agency mortgage markets.
EconomyHow long will we be sheltering in place, and what is the true impact on the economy? In particular, what is the impact on renters and property values?
LogisticsWhile mortgage financing, as part of financial services, is considered mission critical, the pandemic is disrupting appraisals, title company closings, notaries, municipal activities and other aspects of the mortgage process. For example, it is hard to close a mortgage loan if you can’t get an updated tax certificate, or record the executed mortgage, or obtain an internal appraisal.
MoratoriumsHow are the rent, mortgage, eviction and foreclosure moratoria going to play out? We underwrite our loans based on property level cash flow. It is difficult to underwrite such a loan if it is unclear whether renters are required to pay their rent, borrowers are required to pay their mortgages, and courts are required to enforce default remedies.
Is there a scenario where loan fundings could commence relatively soon? Yes, and it likely will involve a breakthrough in a highly scalable therapeutic treatment for COVID-19. This could take a variety of forms: a therapeutic drug regimen; a series of improved treatment protocols; or a preventative (such as the hydroxychloroquine and chloroquine preventative in trial in NY).
We will continue to keep you posted on the improving or changing outlook for these items and others impacting the availability of financing for single-family rental and small balance commercial properties.