Lending Questions Answered with Bill Rodriguez

Our guest this week is Bill Rodriguez, a local lender in Colorado.  We picked his brain about general lending information, as well as how he thinks current events and new regulations will affect the industry.  

Bill came out to Colorado back in 1999 to work in the telecom industry with his father.  After watching the dotcom bubble burst and seeing his father forced into early retirement, he decided to go into something more stable.  He’s been working in real estate for the last 17 years, witnessing the wild ride of 2008 and all of the big changes that came with it.  After trying out different roles, he decided to stay with mortgage banking, because he wanted to stick with what he does well.  Now, he’s a loan officer with Cornerstone Home Lending, helping people get loans to buy their personal and investment properties.  

How can new investors help themselves when they enter the market?

Bill says that if you’re willing to live in the property for two or more years, you’ll give yourself a distinct advantage.  That way, you’re escaping capital gains taxes and can schedule any updates to the property over time. 

What’s the best down payment amount on an investment property?

It’s hard to say because there’s a lot happening in the markets right now.  Rates can depend on the time of day, and people’s appetites for risk vary.  Bill generally believes that if you’ve got the cash, 20-25% down is best for holding the property over the long term.  However, if you’re just trying to get into the game, and it still makes sense, you might look at putting less cash down.  He personalizes it for every client depending on their individual circumstances.  Regardless, Bill agrees with my mantra: find the lender first and the deal second. 

What is your 10 Day Ready Program?

Cornerstone’s 10 Day Ready Program allows clients to close 10 days after they find a home.  A standard contract is 30 days, and a fast close in this market is 20 days, so 10 days puts clients at an advantage.  The reason they have to keep it at 10 days is due to the regulatory rule that customers need at least 7 days to review documents.  Appraisals are turned within 24-48 hours thanks to Cornerstone’s own appraisal management company.  This program gives clients a leg up in a competitive market because the seller and listing agent know that the lending won’t fall through.  

While this is a more expensive process, it gives clients a distinct advantage, especially for investors putting in offers on vacant properties.  The program only applies to conventional loans; VA loans require their own processes and use their own appraisers.   

Clients interested in this program have to provide documentation ahead of time in order to complete underwriting.  They’ll be given a list of documentation to provide, and they’ll be approved for a loan within 72 hours of them submitting everything.

What are the benefits of having a local lender?

Without bashing the competition, having a great local brand helps the dynamic with the listing agent and seller.  Cornerstone has an impressive brand in Colorado; in Longmont and north, they have 73% market penetration.  People have experience working with Cornerstone Retail or with one of their joint ventures, such as with Oakwood Homes and The Group.  This name recognition and reputation puts agents at ease, because they know Cornerstone can get the job done.  

What can investors do to be good candidates for loans?

In this market, you have to vet everything upfront.  It’s critical to talk to a good local lender ahead of time to get their expertise.  Many investors are self-employed and are encouraged by their CPAs to write off business expenses for tax purposes.  Mortgage officers, on the other hand, are going to squeeze every dime out of your return to help you qualify for a loan.  

It’s important to think of CPAs and mortgage officers as a panel of financial advisors who you consult jointly to figure out how to maximize write offs while still having what you need to execute on a mortgage.  Get engaged with a lender early in the process so you can scale up income if necessary.  

Documentation concerning sourcing funds to close can drive people crazy, especially if that money is coming from a multitude of sources.  The sooner you talk to a lender the better in order to review tax returns.  Most people know their credit score, so the lender won’t need to pull it until later in the process.  However, lenders can help clients figure out how to maximize their FICO score to better qualify.  

How do new FHFA restrictions affect investors?

The Federal Housing Finance Agency (FHFA) recently passed a rule that if mortgage lenders deliver over 7% of their loans to the secondary market (investment loans and second homes), they will need to factor in additional costs. 

There’s a lot of misinformation out there.  People think that there’s a cap at 7% and Fannie and Freddie won’t accept any more loans, but that’s not true.  These restrictions mean that there will probably be higher rates and fees to investors.  Once mortgage companies are over the 7% limit, there will likely be an additional charge or may mean a higher rate or higher fees on the same rate.  

In June, rates were all over the place depending on the lender.  These differences come down to the cost of doing business for each lender.  Now that things have settled down and there’s a leadership change with the Consumer Financial Protection Bureau (CFPB), we’re seeing things calm down in terms of cost.  The impact of this rule doesn’t seem to be as strong as people initially feared.  

Is forbearance affecting the market?

Forbearance occurs when mortgage payments are deferred; delinquency means someone has gone through the forbearance period and is still not making payments. 

During the pandemic, forbearance numbers got really high and caused a lot of concern.  Since then, the numbers have come down pretty significantly.  A big marker of homeowners being in trouble and not making payments is the delinquency stat.  Looking at that stat from January 2008 to 2020 gives us an idea of where we are now compared to the last big financial issue.  In Colorado, that number is less than 1%.  

In all of Colorado, there are 2.4M homes.  If all of the homes that are delinquent came on the market at once, that’s less than two months of inventory.  A balanced market has six months of inventory, so that wouldn’t make a dent.  In Colorado Springs, there is currently two weeks of inventory; if two months’ worth came on the market, it wouldn’t affect pricing.  People are waiting for a wave of foreclosures that we’re not seeing.  

There’s more equity than ever, with a 30% average nationally.  The majority of people in forbearance have options to tack on loan modifications, or sell and still walk away with money.  

How is loan servicing affected by the pandemic?

Many mortgage companies contract out loan servicing.  The companies are still the noteholder, but the administrative piece is done by another entity.  When the government decided that people didn’t need to make mortgage payments to stay in their homes it was a good idea, but the note holder still needed to be paid, which was the responsibility of the loan servicers.

Cornerstone did a presentation at the time to help people understand loan servicing platforms and why things dry up.  Many servicers purchase a servicing platform for a fixed percentage, but if people aren’t making payments, it gets devalued.  Servicers were getting margin calls that forced them to raise capital overnight, which created a lot of tumult at the time.  Even with the extension of the foreclosure moratorium and forbearance, though, Bill says the market is calming down and he isn’t hearing as much about it these days.  

Cornerstone is happy to announce they are building their own servicing facility in Denver, which will bring in 200 jobs in January of next year. 

Will inflation rise? How will that affect the real estate market?

Bill calls inflation the archenemy of interest rates.  With the market downturns, there’s an opportunity to keep rates low in order to ensure people continue moving and buying properties.  The Federal Reserve is stepping in and massaging things to keep rates low; there’s so much market manipulation that it’s hard to gauge where we should be.  

Bill thinks there are realistic scenarios in which rates could go lower, but doesn’t see them going negative like in parts of Europe.  He listens to experts on the subject who say that once all of the inflationary pressures of the stimulus work their way through the economy and people go back to work, it’s possible to see lower rates.  There is a chance of a coming recession, and rates typically trend lower during those times.  It’s hard to say for sure because we’re in uncharted territory.  

Clients are getting rates in the mid-3’s on investment properties, locking in that rate over 30 years on an appreciating asset.  From a long term perspective, lower interest rates now become less burdensome over time as rates go back up.  

Should I put my investment loan in my name or an LLC?

When looking at traditional financing from Fannie and Freddie, they don’t allow LLCs.  The loan has to be in someone’s personal name because they don’t do commercial loans.  If you use one of those loans and decide to transfer it into your business name, Bill says you need to make sure beforehand to review the terms of the loan.  Such a move could be considered a sale to the business, which would activate a due on sale clause.  While he hasn’t personally seen this happen, it’s part of the equation when making this kind of decision.  

Connect with Bill

Bill encourages people to reach out early in the process.  His consultation comes with no obligation because he’s focused on helping people understand what they need to do and answer any questions.  He hopes to earn their trust and their business.  

To connect with Bill:

• Website: www.rodriguezhouseloans.com
• 303-877-6323 or direct line: 303-926-0070
• Brodriguez@houseloan.com 
• Facebook

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Lending Questions Answered with Bill Rodriguez