Cash for Keys: The Controversial Process That Could Save You Major Eviction Headaches

turnkey-mistakes

Cash for Keys is the practice of paying tenants to leave your rental so you don’t have to evict. It doesn’t feel great—but there are major benefits.

View the full article: Cash for Keys: The Controversial Process That Could Save You Major Eviction Headaches on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

Dec. 24: Rates go up, they go down; a deep dive into what is moving rates and deals being done by the Agencies

I’ve been in capital markets since the mid-1980s. No presidential administration has eliminated business cycles. Although stocks have given up their gains from 2018, rates have been moving lower as of late (including this morning due to political issues). At what point, if ever, do people and analysts talking about an economic downturn actually cause an economic downturn? The problem, of course, is that anyone with any money in the stock market has seen their net worth decline, including those saving up for a down payment. Lenders are focused on thinking about aligning their cost structures with current loam volumes, but it is good to know what is going on rate-wise.

Are we going to see another refi boom? Any investor who purchased a fixed-rate mortgage, as a whole loan or in a pool, in the last six months is suddenly concerned about their investment (the loan) paying off early. Can small lenders afford early payoff penalties? And if rates fall, generally a good thing for lenders, but property values fall 10%, what does that do to anyone who obtained a 90% LTV loan in the last year? Refinance with no equity? I’ve seen this movie…

Yes, mortgage prices are based on supply and demand, and MBS traders price them numerically as a spread off of the risk-free U.S. Treasury market. Most mortgage REITs tend to reference “basis” risk in their discussion around sensitivity to Agency MBS spreads. Spread, or basis risk, is simply the risk that Agency mortgage assets (or any other asset) will underperform a benchmark product with similar duration, such as interest rate swaps or treasury securities. Spreads are, therefore, one good metric to identify relative value for holding Agency MBS, or how much one is paid in excess of treasury yields to own the idiosyncratic risks inherent in Agency mortgages (the biggest being prepayment risk). While the duration of MBS and a hedge may be similar, spread widening implies the yield on mortgages has increased relative to that hedge, which all else equal, should improve the levered return available on new investments. Most mortgage REITs prudently hedge to a tight duration gap in their portfolio, but spread risk mostly goes unhedged.

Looking at the economy, many believe that a dramatic slowdown in our economy is imminent but not necessarily reflected in stats – yet. Sure enough, as we wind up 2018, going back to October most US economic indicators continue to look strong. Retail sales increased 0.8 percent in October following a small decline in September. October’s increase was driven by higher gasoline prices and service station sales are expected to fall in November due to declining oil prices. Most categories, however, were in positive territory for the month and consumer conditions are strong heading into the holiday season. Consumer prices increased in October, driven by energy prices as well. Again, these were expected to decline in November. Core CPI was up 0.2 percent in October and up 2.1 percent for the previous twelve months, in line with the Fed’s inflation target. Industrial production inched up 0.1 percent and manufacturing output increased 0.3 percent for the month despite a decline in auto production. Small business optimism remains high and many reported plans for hiring and capital expenditures. Respondents were less enthusiastic about earning expectations as wage pressures and borrowing costs continue to rise.

Non-depository lenders exist because warehouse banks exist and secondary market investors exist. In the secondary markets the Agencies are doing deals, laying groundwork for a single security, and transferring credit risk away from taxpayers to willing buyers. MLOs should know that all these help rates for their borrowers. And next year the secondary markets, and with them the primary markets as beneficiaries, can look forward to the single security!

On December 20, Freddie Mac priced a new $937 million offering of Structured Pass-Through K Certificates, which are multifamily mortgage-backed securities. The company expects the K-086 Certificates to settle on or about December 28, 2018. The K-086 Certificates are backed by corresponding classes issued by the FREMF 2018-K86 Mortgage Trust and guaranteed by Freddie Mac. The trust will also issue certificates consisting of the Class B, Class C, Class D and Class R Certificates, which will not be guaranteed by Freddie Mac and will not back any class of K-086 Certificates. The A-1 class has principal of $43.6 million, a weighted average life of 6 years, a coupon of 3.67%, a yield of 3.28%, and a dollar price of $101.99. Class A-2 has principal of $832.99 million, a weighted average life of 9.86 years, a coupon of 3.86%, a yield of 3.49%, and a dollar price of $102.99. Finally, the A-M class has principal of $61.35 million, a weighted average life of 9.91 years, a coupon of 3.92%, a yield of 3.55%, and a dollar price of $102.99. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. K Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.

On December 7th, Freddie Mac priced three new K-deals, structured pass-through certificates backed by floating-rate multifamily mortgages. The first deal, K-F54, mostly mortgages with 10-year terms, has a size of $818 million and is expected to settle on or about December 14, 2018. The pool has a weighted average life of 9.55 years, a coupon of 1-month LIBOR plus 48bps, and a dollar price of 100.00. The second deal, a K-P Series offering comprised of two groups, one group of first-lien and junior-lien mortgages with fixed interest rates and a second group made of first-lien and junior-lien mortgages with hybrid interest rates. Freddie Mac expects to issue approximately $684 million in K-P05 Certificates, which are expected to settle on or about December 17, 2018. The certificates are guaranteed by Freddie Mac and are backed by 60 seasoned multifamily mortgages from the company’s retained portfolio. There are two offered classes to this deal. Class A has a principal amount of $244.5 million, weighted average life of 2.36 years, a coupon of 3.203% with a yield of 3.13% and a dollar price of $99.99. Class AH has a principal notional amount of $440.5 million, weighted average life of 2.56 years, a coupon of 3.254% with a yield of 3.26% and a dollar price of $99.81. The third deal, K-J23, was backed by underlying collateral consisting of supplemental multifamily mortgages. The $161 million in K-Certificates are expected to settle on or about December 14, 2018. Freddie will have two offered classes, class A-1 consisting of $53 million with a weighted average life of 2.75 years, coupon of 3.17%, yield of 3.11%, and dollar price of $99.99, while class A-2 has a principal amount of $109 million, weighted average life of 3.71 years, coupon of 3.75%, yield of 3.26%, and dollar price of $101.4973. K-Deals are a part of Freddie’s business strategy to transfer a portion of the risk losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds, with the certificates normally featuring a wide range of investor options with stable cash flows and structured credit enhancement.

On December 17, Freddie Mac Multifamily priced a $1.1 billion offering of Structured Pass-Through K-Certificates backed exclusively by multifamily mortgages on seniors housing properties. The K-S10 certificates, Freddie Mac’s tenth K Certificate offering backed exclusively by seniors housing, are expected to settle on or about December 20, 2018, and include two senior principal and interest class, one interest-only class and one class entitled to static prepayment premiums, all unrated. Class A-7 has a principal amount of $648 million, a weighted average life of 6.81 years, a discount margin of 56, and a coupon of 1-month LIBOR + 56. Class A-10 has a principal amount of $537 million, a weighted average life of 9.60 years, a discount margin of 61, and a coupon of 1-month LIBOR + 61. Freddie Mac Multifamily sources its seniors housing loans from a select group of multifamily lenders and purchases a variety of seniors housing loans including those backed by independent living properties, assisted living properties, memory care properties and senior properties with a limited amount of skilled nursing care.

Also on the 17th, Freddie Mac priced a new $555 million offering of Structured Pass-Through K-Certificates. The K-1509 Certificates, which are expected to settle on or about December 20, 2018, are backed by corresponding classes issued by the FREMF 2018-K1509 Mortgage Trust and guaranteed by Freddie Mac. The K-1509 Trust will also issue certificates consisting of the Class X2-A, X2-B, B, C and R Certificates, which will not be guaranteed by Freddie Mac and will not back any class of K-1509 Certificates.

On December 18, Freddie Mac priced a new $634 million offering of Structured Pass-Through K-Certificates backed by floating-rate multifamily mortgages with ten-year terms. The approximately $634 million in K-F56 Certificates are expected to settle on or about December 28, 2018.The K-F56 Certificates will not be rated, and will include one senior principal and interest class, one interest-only class, and one class entitled to static prepayment premiums. The K-F56 Certificates are backed by corresponding classes issued by the FREMF 2018-KF56 Mortgage Trust and guaranteed by Freddie Mac. The KF56 Trust will also issue certificates consisting of the Class B, C and R Certificates, which will be subordinate to the classes backing the K-F56 Certificates and will not be guaranteed by Freddie Mac. Class A is offered with a weighted average life of 9.69 years at a discount margin of 56 and a dollar price of 100.00.

On December 13, Freddie Mac priced a new $794 million offering of Structured Pass-Through K-Certificates backed by floating-rate multifamily mortgages with seven-year terms. The K-F55 Certificates are expected to settle on or about December 20, 2018, will not be rated, and will include one senior principal and interest class, one interest-only class, and one class entitled to static prepayment premiums. The K-F55 Certificates are backed by corresponding classes issued by the FREMF 2018-KF55 Mortgage Trust and guaranteed by Freddie Mac. The KF55 Trust will also issue certificates consisting of the Class B, C and R Certificates, which will be subordinate to the classes backing the K-F55 Certificates and will not be guaranteed by Freddie Mac. Class A has a weighted average life of 6.71 years, and a coupon of 1-month LIBOR + 51 for a 100.00-dollar price.

On December 19, Freddie Mac priced a new $720 million offering of Structured Pass-Through K-Certificates, which are multifamily mortgage-backed securities. The K-SL1 Certificates are backed by one loan with floating and fixed rate components and twenty-three underlying properties controlled directly or indirectly by Starlight Group Property Holdings Inc. K-SL1 is expected to settle on or about December 28, 2018. The transaction collateral is part of Freddie Mac’s single-asset, single borrower (SASB) series of certificates, which transfers first loss credit risk on either one or multiple properties owned or controlled by a single sponsorship group. The K-SL1 Certificates will not be rated, and will include three senior principal and interest classes, one interest-only class, and one class entitled to static prepayment premiums. The K-SL1 Certificates are backed by corresponding classes issued by the FREMF 2018-KSL1 Mortgage Trust (K-SL1 Trust) and guaranteed by Freddie Mac. The K-SL1 Trust will also issue certificates consisting of the Class B, C and R Certificates, which will be subordinate to the classes backing the K-SL1 Certificates and will not be guaranteed by Freddie Mac. The AFL class, consisting of $160 million in principal, has a weighted average life of 4.87 years, a discount margin of 47bps, and a yield of 2.8335% for an even 100-dollar price. The $400 million AFX-1 class has a weighted average life of 5.90 years, with a discount margin of S+55bps, a yield of 3.2869% and a dollar price of $100.35.

On November 19th, Freddie Mac announced its second Agency Credit Insurance Structure Forward Risk Mitigation transaction, which transfers up to $400 million of credit risk on a reference pool of single-family loans with a maximum unpaid principal balance of $12 billion. ACIS AFRM is an innovative front-end credit risk transfer offering that allows Freddie Mac to transfer mortgage credit risk simultaneously with the acquisition of loans by securing committed private capital and by providing stable pricing over a pre-determined time horizon. The industry’s largest and most diversified loan reference pool and a multi-tranche structure that accommodates investors with varied appetite for risk. The transaction attracted high demand among insurers and reinsurers, more than doubling the number of counterparties compared with the first ACIS AFRM transaction announced in January 2018 on this reference pool consisting of 30-year fixed-rate loans acquired between Jan. 1, 2018 and June 30, 2019, with loan-to-value ratios between 61 percent and 97 percent. Since the ACIS program inception in 2013, Freddie Mac has placed more than $10.6 billion in insurance coverage while expanding its investor base. Since 2013, the company has transferred a significant majority of the credit risk on approximately $1.2 trillion of UPB on single-family mortgages and grown its investor base to more than 230 unique investors, including insurers and reinsurers.

The U.S. 10-year closed last week unchanged at 2.79% as news of the impending U.S. government shutdown dominated the media cycle throughout the day. The House passed a bill that funded several government departments and provided $5.7 billion in funding for border security but it did not pass the Senate. Separately, but adding to the confusion, U.S. Trade Adviser Peter Navarro told Nikkei that an agreement with China in 90 days will be difficult to attain. China’s annual Economic Work Conference concluded with a statement suggesting, among other things, “Significant cuts to taxes and fees will be enacted in 2019.” China is also said to be maintaining a course of “prudent” monetary policy, which some think leaves the door open for providing policy stimulus via rate cuts.

And to put a bow on the week of Fed news, New York Fed President Williams said that being data dependent means listening to the markets and that the balance sheet runoff is not “inflexible,” implying the Fed could reevaluate its view in 2019 if necessary. Finally, in other MBS-related news, President Trump named current Comptroller of the Currency, Joseph Otting, as acting director of the FHFA beginning on January 6 when he replaces Mel Watt, whose term is expiring. Mr. Otting is expected to serve in the role until Mark Calabira, who has been nominated, can be confirmed.

The only scheduled economic release on today’s calendar is the November Chicago Fed National Activity Index (+.22% versus +.02 expected). There’s an early bond market close ahead of Christmas Day tomorrow. Wednesday brings S&P Case-Shiller Home price Index for October before things pick up Thursday with MBA Mortgage Applications for week ending Dec. 22; Initial and Continuing Claims; FHFA Housing Price Index for October; New Home Sales for November; and Consumer Confidence for December. The week closes with Advanced International Trade in Goods for November; Advanced Retail Inventories for November; Advanced Wholesale Inventories; and Pending Home Sales for November. We begin today with the 10-year yielding 2.77% and Agency MBS prices roughly better .125 on the partial government shutdown spooking the markets – they don’t like uncertainty.

Thanks to Alabama’s Brandon Snider for sending this “Twas the Night Before Closing” video!

“’Twas the night before closing, when all through the house

Not a creature was stirring, not even a mouse;

The boxes were packed in the garage with care,

In hopes that their moving van soon would be there;

The realtors were nestled all snug in their beds,

While visions of commission checks danced in their heads…”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Low Down Payments Can Help Borrowers AND Lenders.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2018 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

The Most Shared Kitchen Photo of 2018

By Melissa Dittmann Tracey, REALTOR(R) Magazine

Of the 17 million professional photos of home interiors and exteriors on Houzz, it was this photo of a gray and walnut kitchen that captured the most attention over the year:

The kitchen was designed by Justin and Tyler Sachs of Stonington Cabinetry & Designs. The kitchen features a combination of gray and white accents and warm wood, like the walnut on the island, vent hood, and open shelving.

“Though white cabinets are still a favorite, gray is now the top wall color choice,” says Houzz editor and writer Gwendolyn Purdom. “Renovating homeowners are also opting for features such as Shaker-style cabinets, L-shaped layouts and engineered quartz counters more than in years past—and this kitchen highlights all three.”

from Styled, Staged & Sold http://bit.ly/2GB073u

BiggerPockets Money Podcast 52: Creating a Life Worth Living Before Retirement With Roger Whitney

Roger Whitney learned early on that your life doesn’t always cooperate with your plans. The passing of his mother – who had always worked hard and saved for ‘later’ made him realize that ‘later’ doesn’t always happen. So he set out to create a life he loves – and NEVER wants to retire from. But […]

View the full article: BiggerPockets Money Podcast 52: Creating a Life Worth Living Before Retirement With Roger Whitney on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

How to Use Price-to-Rent Ratio to Analyze a Location

marketing-presentation

One of the most popular numbers people like to consider when analyzing a location is the price-to-rent ratio. In other words, what is the average ratio of the median monthly rent divided by the median purchase price in the area?

View the full article: How to Use Price-to-Rent Ratio to Analyze a Location on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

How Pivoting Allowed Us to Find an Extra $195,000 on a Deal

I always talk and write about the ability to handle any transaction, and this is a classic example. I call this pivoting. Once you get really good and comfortable with this (being able to change directions with a deal), it will pay you very well.

View the full article: How Pivoting Allowed Us to Find an Extra $195,000 on a Deal on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.