Epic Real Estate Investing - Coronavirus - How the Mortgage On Your Investment Property is Being Affected - (With Special Guest, Caeli Ridge of Ridge Lending Group) | 974

Episode Date: March 31, 2020

In today’s episode, Mercedes is joined with a special guest, Caeli Ridge, a real estate financing expert and a CEO of Ridge Lending Group. Stay tuned as Caeli thoroughly explains how the mortgage on an investment property is impacted and what a real estate investor should do in this emerging situation! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing show for Turnkey Tuesdays with your host, Mercedes-Torris. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. My name is Mercedes-Torres, the Turnkey Girl. and I am lucky enough to be partners in crime with Mr. Matt Terrio,

the guy who created the epic real estate empire. I'm lucky enough to teach and help those busy professionals create passive income through real estate investing so they can retire even sooner. And during this absolutely crazy time of the coronavirus, I decided to take our podcast and just our listeners and viewers to a little bit of a different road in not so much educating, but really bringing on the experts so that they can speak on the topics

that are truly being impacted and affected by what's going on in our nation with the coronavirus. So this week, I decided to bring a powerhouse real estate financing expert who not only totally gets it, but is in this world every single day. She is the CEO and owner of Ridge Lending. And without further ado, I am going to introduce to you, Miss Chaley Ridge from Ridge Lending, our exclusive lender. Chaley, are you there? And can you hear me?

Hi, Mercedes. Thank you so much for having me. Hey, everybody. I'm very happy to be here. It's been a while. So I'm excited to kind of be back with you and focus on some of the information I have been getting. I've been telling everybody I've been drinking through a fire hose. So I'm going to try and articulate best I can for you all and maybe give you some examples that help detail.

Because sometimes I feel like, tell me what you think, the financing side of our business can kind of be like learning a second language, the jargon and all of that is sometimes difficult to track if you don't eat it and breathe it and sleep it. So I'll do my very best, you guys. I've got some notes here because things are changing so quickly. But what I'll be able to share is as it relates to day, the 29th of March. And hopefully there'll be some good content and intel for you all. Awesome. So, Chaley, I'm going to start with just the basics of introducing yourself. Tell me a little bit about you and tell me about Ridge Lending.

You have been our lender for quite some time. you are my personal lending, my personal lender. In fact, I'm in the middle of closing a transaction, which closes tomorrow. So tell us a little bit about that. Yes, of course. So Ridge Lending Group Gang, we're a second generation company that really focuses in this non-owner occupied or investor financing space. While we're capable of everything, the VA and the FHA, owner occupied, etc., we've really have found that our special skill sets revolve around you, the investor, and your lending needs. We are licensed nationwide, so we have a nice broad footprint.

I've been doing this for over 20 years, but what most people find more unique about me in particular is that I'm a fellow real estate investor. I've held lots and lots of properties all over the U.S. over my 20-year career. So I guess the hope is that that experience from both a lending perspective and a real estate investor adds some extra credibility. We focus on education, which is why I think that Epic and Mercedes and Madison, and Ridge line up so well is because giving that valuable kind of arsenal of data information

really just creates success for everybody. Lending is like I said, it's like learning a new language, but it is the leverage or use of other people's money, right, that they say, that gives us the greatest rate of return on our investment. So having some definitions, what's going on in that black box of underwriting guidelines? How does it apply to you and your qualifications? and then your goals, taking all of that, mixing it together, and then learning and figuring out how to optimize those qualifications. Because guys, we're investors, right? We do not start and stop with one transaction. We're going to buy and sell and refinance. As a result, our debt to income ratio, our credit, our assets, all of those very important variables to qualify are going to be fluid. So understanding how to keep them DTI at its lowest, credit score at its highest, et cetera, I think is in

valuable. And that's what, if we have a real value at, I would say that that's what I'm most proud about with Ridge. Yeah. You know, we are epic and cash flow savvy is super selective as who we use as part of our team. And one of the reasons we decided to align with Ridge lending is because of your philosophy of education. I know we go out of our way to educate that busy performance. professional. And one of the major things that stands out about Ridge Lending is when you guys pre-qualify, we always talk about our investors buying power. And it blows me away that you and your team get on the phone with our investors and explain exactly what their buying power is. And what that means is what they could afford, what they could do this year real time after they pre-qualified.

So kudos to you and your team chaley because you guys do by far an exceptional job and I dare say one of the best lenders that will take the time to explain exactly where an investor stands. So thank you for doing that, Missy. Thank you, my friend. I am going to jump right into questions because you did say something that really caught my attention. You say things are changing right now on the daily so much so that it's like, drinking from a fire hose, but I want you to kind of tap into, yes, the changes, but how are they impacting all of the roles that affect us, like the broker, the, you know, the Freddie, the Fannie, all of the components. Tell me about that.

So, you know, the explanation, I'm going to start back with sort of the, I feel like we're in the apex right now, but what kind of kicked this off was, There's a lot of background, but I'm going to try and condense it. So the market crash, right? The stock market crash, it was around the 20th of February, created a domino effect. Then coupled with the coronavirus, this kind of led us to the place now. So if I can just kind of take you guys through a quick timeline and explain a few of those things, I think that the why behind the how will be, will be useful for you.

So we had the crash. Okay. As a result of that, we saw bond prices, mortgage bond prices, go up. When that happens, rates go down. And they went down fast and furious. And I mean like that. You guys remember the news headlines and things, interest rates just fell through the floor.

And it was almost like it was too much too fast. As a result, we found capacity issues, massive capacity issues. I'm going to define that in second. And then there was some serious liquidity crunches. Okay, this is all just kind of precipice to then the coronavirus just, you know, exploding literally in our faces. Let me give you an example about capacity real quick.

So in an annual span of time, you can find any combination of refinance or purchase roughly between $3 and $5 trillion of mortgage-backed securities being secured and traded annually. With the reduction of those interest rates in such a rapid-fire way, we saw in about a 30-day span of time about $1.3 trillion. of loan applications for refinances. Okay? So clearly you can kind of put that into perspective. As an industry, the capacity was, I mean,

it just came to a screeching halt. There's no way that our industry was going to be able to cover that kind of demand. So that, along with some other variables, I'll try not to go too far down, the rabbit holes, you guys, but they are artificially implated interest rates.

They had to stop the train, okay? And it was a freight train. How do you stop a freight train? The only way that that was going to happen was they artificially, officially increase the interest rates. And that happened several weeks ago, and we're still in that place because they had to clear out the pipelines, right? They had to open up liquidity for new business to come in. So that's kind of what was happening initially. From there, the other pieces

that kind of get more complicated is you've got the servicers, right? So you're a borrower. I'm a lender. I originate this loan for you. And I sell on the secondary market to a servicer. There's something called a runoff. Now, this is important because this kind of really plays in some of the damaging elements of what the corona has created for many, many industries. Nationally and globally, it's been pretty devastating. So a service runoff means that a servicer pay for the rights to service a mortgage, okay? And they make up that initial cost of buying that service over three, four years.

When we see massive interest rates go down, or when we see massive applications, for refinances because interest rates have gone down, there's a servicing runoff, right? Their paper is now being sold to a new servicer probably. They're losing that and somebody else is getting it. Well, normally that's fine. They can hedge those losses because there's lots of activity. They've got new applications coming in. But because everything's stopped, we've got these servicers having huge, huge losses. And that created even more of a liquidity crunch in our industry. So there's the first piece. Now, from there, Let me just kind of go through some of my other notes that I want to make sure that I point out because like I said, the rabbit hole is deep enough that even me, somebody that's been doing this for 20 plus years, is outside of my scope.

Okay. Secondary market stuff. So we've got the runoff. You've got secondary markets and all the liquidity. Everybody's repositioning their assets, their stocks and treasuries, everything to get that cash back. margin calls, which results in maintenance margin minimums. This is where I'm talking about that wrap. I'm not going to get into all of that,

but those things ultimately play a significant role into what's happened. So fast forward a little bit. We take all of those details, and then what do we have left? We've got unemployment, right? Everybody's heard that sound bite to 3.3 million unemployment claims in a span of a week. the prior week, 281,000. Then we got the report, the unemployment claims report that Thursday, last Thursday, 3.3 million, you guys. And the prediction is higher and higher and higher without spending too much time on that.

So unemployment, now we've got the risk of repayment, the runoff. We've got risk of default, huge default. We've got the servicers and liquidity issues. All of these things combined is creating sort of that perfect storm. and in the eye of the storm, the feds came in, and here's where it starts to get really fun. The feds came in with the intention to help, and you guys have been hearing about the forbearance that they put out as part of the stimulus package. Well, the unintended consequence that is damaging is that what people don't realize is the servicer,

even if the mortgage you or I don't make our mortgage payment, right? The servicer within the contract of the note holder still has to crack that check. Okay. Let me put this into perspective. I actually wrote this one down. Here's an example. Let's say, for example, 25% of the U.S. receives a forbearance. Okay? 25% of the United States receives a forbearance, and they have this forbearance for three months. They don't make a payment for three months. The servicer roughly is going to have to cover about $36 billion worth of mortgages and repay. Now take that and push it out to nine months. That's going to be over $100,000. billion dollars just to kind of give you a scope of what's been going on you know there's other details but i think i should kind of stop it there unless mercedes you have questions and i'm going to kind of add what i believe to be on the front lines as some relief that we should be seeing unless you have questions should i pause no no no i think you did a great job of explaining what's transpired

but i really now we know what happened behind the scenes uh the secondary it is something that you know us on the professional level understand what's going on the typical needs You novice investor may not understand that, but now you guys have a little bit of an idea. So now I want you to translate that to layman's terms. What does that mean for our new investor? What does that mean for that person that's buying that property to create passive income? Okay. So the risk right now for mortgage-backed securities is high, okay?

Very high. In fact, there's something called a bid-ask. This means that from the time that the loan funds and closes to the time that it goes back to the secondary market, this is important. I'll get to the answer in a second. I go out with my mortgages and I have an ask of a dollar. Okay. Normally I get a bid back of, you know, X, Y, or Z. About a week ago, the bid was about 50 cents for my dollar.

Okay, as an example. Right now, the bid ask is usually you're going to see zero is what they're bidding or a negative. number. There is no value right now trading for the mortgage-backed securities specifically to the Govy loans, which is different than what most of our investors are focused on. I'll explain. So the Govy loans, you guys have heard Jenny May, right? Jenny May is the security that houses the government loans, FHA, VA, USDA. These loans typically come with higher allowance. for low credit score, high debt to income ratio, et cetera. So the extra risk that's in those particular notes, along with the unemployment and all the

other things that I just said, has made it, it's just, it stopped. There is, nobody is purchasing on the government side of mortgage back securities. The good news for us is, is that 95% of investors that are buying rental properties, you can't get a loan, an FHA loan for a rental property. It doesn't exist. You can only, conventionally, the agency, that's the Fannie the Freddie. The Fannie the Freddie is alive and kicking. It is moving. It's moving slower. Rates are a little bit higher, but the agency is alive. It's doing very well. And that's where our clients are focused on now, or where they're getting their funding from. 95% of what we're funding right now is going to be agency. And that's

perfectly fine. That's the box that our clients fit into. they will also be raising the qualification bar a little bit. I just talk to you there because I think you said something really important. You and I cater to that busy professional that's looking to create passive income. They're looking specifically for investments loan, of which the loans that have really been affected by this whole fiasco are your FHA, which is your first time homeowner, or your VA. And all of those are owner-occupied.

loans, meaning the individual is buying it to live in that house. You and I focus and cater to the investor that is buying a property for investment purposes, and you're saying, Chaley, that hasn't been affected. Is that? Not on the age. That is correct. Absolutely correct. And that's the agency side. Maybe a quick sidebar. It's been about a week and a half nowish, something called non-QM. QM stands for qualified mortgage. Everybody remembers the term Dodd-Frank. Okay, within Dodd-Frank and the rules that were written post the 0809 crash, qualified mortgage, QM, was adopted, ability to repay. Those apply to Fannie Freddie loans. They're inside that box of qualifying. So everything outside of the Fannie Freddie is called non-QM. This was a very diverse

product line for those that can't qualify Fannie Freddie. Maybe they have more than 10 finance properties. It could be a variety of things. And it wasn't just for investors, it was for everybody. Non-QM is dead. It's gone. I don't know. when it's coming back, I don't know if it's coming back, but there is zero non-QM fundings in the country anywhere. Okay. Additionally, Jumbo loans also off the table. Jumbo loans, I think, 765,000 and above. Certain zip codes might have a little bit like Hawaii, I think, or there's a few that have higher levels. Those are also gone because they, in addition to the risk that we've been talking about, those even exponentially increase those risks. So those are

finished. But yes, for us, the conventional that Fannie Freddie, that's where 95% of our investors are purchasing and using funding for their investment transactions. Yeah. You know, it's interesting. I'm personally buying an investment home, as I said, at the top of the podcast. And so I started investing its no secrets in 2003, 2004. And rates back then were 12%. I mean, crazy rates. And I remember there was a first and a second. I bought everything with the first and the second. And today, you know, I personally just locked my loan last week and it was five and an eighth, five point one two five. And that I was like five and an eighth. Oh my goodness. That's so high. I wanted the fours. And the reality is five and an eighth is like

nothing compared to what it was back in the day and what it could potentially be, I don't know, in the year, nobody has a crystal ball. But the reality is that even if rates are at five and a half, six percent, you're borrowing money for 30 years and I make all of my clients do a 30 year fixed. At a five and a half percent, like, are you kidding me? That is still dirt cheap. Now, nobody has a crystal ball. I'm not committing to the 5 percent.

And we talked about the date at the beginning of this podcast. But my point is that people are now trying to cancel loans because they're getting a rate of five and a half percent and they're saying it's too high. friends it is not too hot so uh chile i'm going to let you go on to what you were going to say uh about freddie and fanny from this point well let me i just need to say i love you thank you for thank you for bringing that up that's that's actually perfect i'm glad that this is going to be part of the content that the listeners are going to see in here um that's important you guys so let me dovetail on that just for a second mercedes most of us have short memories i think it's

human nature i'm guilty of the same thing because you're right a five percent interest rate on a 30-year fixed people, okay? First of all, I should probably say, the United States is one of maybe two countries on the planet that provides a 30-year fixed mortgage. Okay, most countries have maybe a five-year, 60-month repayment. Think about that for a second. What do you think the principal and interest payment difference is between a 60-month amortization or a 360-month amortization? It's huge. So that's the first thing. The second thing, the second thing, is that for most of us, we're looking at price points and loan amounts between maybe $80,000, $200,000, $250,000. We're not looking at $5,000, $600,000 mortgages where a quarter to a half a point can make

a pretty significant difference. What we're talking about is even a full percentage point on $100,000 or $150,000 might only equate to $50,000, $60,000. In the big picture, without taking and getting too psychologically bound that interest rate, think about it from, don't be short-sighted. You've got to think about the long play in this. The other thing is that I wanted to mention that a lot of people forget to think about, when rates go up, what happens to rents? They're going to go up as well. Now, they're not going to go in tandem with each other, but over three, six, nine, 12 months period of time, when rates go up, rents will follow suit. So keep that in mind. And you guys obviously should be appreciating rents on an annual basis of what Mercedes-2.

percent, three percent. I don't know what you guys advise, but that's the other thing that you can count on as investors on the buy and hold big picture. Don't be short-sighted. Yeah. Now, I do focus quite a bit on educating our clients to look at the big picture. And when we're talking about cash flowing, you know, sometimes a property only cash flows $150, $200 a month. And the reality is that's not a big deal when people just look at the one property. But when they look at the cash flow, in addition to the tax benefits, the deductions, the appreciation, the depreciation, like the big picture of everything, it makes a huge difference over time. I often say, you know, building wealth and creating passive income, it doesn't happen

overnight. It's a process and it's a slow sometimes ruling process. But the reality is, if you do it, numbers don't lie. So look at the numbers and really look at all of the numbers. And if a difference is a quarter in the rate, really evaluate what that quarter in the rate means to you. At the end of the day, it really doesn't mean a whole lot after your first year. So thank you for saying that, Shaley. Okay, so let's jump into the client that is worried about what the market is doing as far as loans.

what should a client do or the average person do to either prepare themselves to what's coming if they're seriously considering on becoming real estate investors? So if you are seriously considering or even if you're sitting on the fence and considering the advice, the strong advice that we're giving to our active current clients and even our prospects are get your financial ducks in a row. And this is true today as it was a year ago or a month. ago or two months ago. You really want to get all the financing pre-qualification work done and out of the way so that when you find something that you are wanting to pull the trigger on, you can do it at a

moment's notice. The other thing is, is that as time goes on, this will level out. This is not going to last forever. Now, I don't have that crystal ball, I wish I did sometimes, but in the coming weeks and probably months, we will start to see the corrections. Absolutely. I'm very, very keen to hear how the kind of secondary stimulus package that the feds are going to be putting out to the mortgage side of the things that we talked about is going to have an impact. I mean, potentially this thing could be done for the mortgage side of things in weeks, right, where interest rates get really, really low again, which I believe is going to happen. That's not to say that you want to clog up your pipelines and just kind of hold and sit on the fence because you just don't know. And for 20, 30 bucks a month, like we just talked about, is probably not those worth of. those Vegas odds. But in any case, get your pre-call done, ideally with Ridge, of course.

Get that work complete so that when we have an opportunity that we want to strike on, we can do it at a moment's notice. I should maybe comment, Ridge does things a little bit different. Mercedes alluded to this. Our pre-cold process is affectionately coined the gauntlet. We want piles of blood and DNA samples is my token mortgage joke. I think I might I'd have to come up with some new material on that, but we want everything up front. But the good news is once we have your bones, right, your template, education begins. The transactions themselves become a foregone conclusion. We've taken you through Helen back.

I know exactly how that loan's going to go from A to Z. No extra surprises. And finally, what will I think entice most of you here is that once we do have all of that template information, we do not have to take you back through prequel every single time. We will update your file with pay stubs and bank statements, you know, the things that expire, refresh, and be able to move on. So when you're thinking of having me fitted for cement shoes going through the prequel process, just remember that.

It's a one-time exhaustive thing. That's true. And I will attest to the process at first is grueling, but you only have to do it once. And then you know your buying power. And at the end of the day, really understanding where you stand financially, it makes a huge difference, not only for today, but for your near financial future. Yeah, it's no doubt that we are in crisis mode. The nation is in crisis mode and we're all scared because nobody knows what's going to happen. But I always say the one thing that is needed to combat fear is preparation.

So if you prepare yourself and you align yourself to really reap the opportunity because I know there is opportunity. And I honestly think it's sooner rather than later. I was part of the mortgage industry crash back in 2007, 2008. I survived it. And the one reason why I survived it is because I prepared for the next stage. And I didn't even know what the next stage was. So I know with our help, Chaley, we can educate and prepare our listeners to take that step when they're ready. So, So yeah, getting pre-qualified is what we need to do. So, Chaley, if someone wanted to reach out to you, how do they connect with Ridge Lending and Ms. Chaley Ridge?

Yes, several ways, gang. You can go to our website, ridgelending group.com. There's a short intake form if you'd like to get our getting started package. This details all of those items needed and next steps for that prequel process I spoke about. you can call us toll free at 855 7474343. 85574 Ridge is a nice easy way to remember. Or you can email us info at ridgelendinggroup.com. Any of those ways is a proficient way to contact us.

We're here on standby at your service, whatever you might need. We look forward to serving you. I will say, my friend, that your team's communication is by far the best. that I've ever experienced. You reach out to them. They will reach out to you, sometimes within a few minutes, but I will say within a couple of hours, they are phenomenal for that.

So make sure that you tell them that I sent you because the epic people and the casual savvy people get extra love. So I hope, I truly hope that, as I say, every week, that I got your wheels turning because it is my goal to create financial, freedom in your world. And whatever that means to you, I am here to support it. Chaley and the Ridge team are here to support it. So do not hesitate to reach out to us because we are here for you. Until next week, without further ado, I will bid you an epic week. Thank you, Chaley, for joining us.

My pleasure. Bye. Your portfolio has seen better days. But this too shall pass. And the best for you is is yet to come. Together, we'll get you there faster. We're cash flow savvy. And we'd like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival.

Go to cashflowsavvy.com. More building, less waiting. Cashflow savvy.com. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com. on.