Why More Borrowers Now Fall In The Jumbo Range And Why This Trend Will Continue

Why More Borrowers Now Fall In The Jumbo Range And Why This Trend Will Continue

As we all know, the price of homes increased all across the country over the past year. Many borrowers who never thought they were Jumbo borrowers, all of a sudden, became a Jumbo borrower! The challenge….not all Jumbo borrowers fall neatly into Prime qualifications. They need a non-QM Jumbo option to purchase a home. This is not trend, but a scenario that will become more and more common. The answer…..a lender who has multiple Jumbo options including a non-QM product.

Angel Oak Home Loans offers more than just Jumbo Prime and our team includes experts on understanding “A” paper, Prime and non-QM borrowers. In this episode, guests Donnie Walton and Wellborn Price talk about their specific regions and what it means to be a Jumbo borrower.

As we all know, the price of homes increased all across the country over the past year. Many borrowers who never thought they were Jumbo borrowers, all of a sudden, became a Jumbo borrower! The challenge….not all Jumbo borrowers fall neatly into Prime qualifications. They need a non-QM Jumbo option to purchase a home. This is not trend, but a scenario that will become more and more common. The answer…..a lender who has multiple Jumbo options including a non-QM product.

Angel Oak Home Loans offers more than just Jumbo Prime and our team includes experts on understanding “A” paper, Prime and non-QM borrowers. In this episode, guests Donnie Walton and Wellborn Price talk about their specific regions and what it means to be a Jumbo borrower.

Michael Chabot
Hey guys, welcome back to another episode of Your Mortgage Matters brought to you by Angel Oak Home Loans. I’m your host Michael Chabot and today we are discussing rising prices of real estate and how that is affecting buyers and home financing. Today we’re joined by Donnie Walton and Welborn Price. Donnie entered the mortgage business in January of 2007. As a loan officer for a large mortgage mortgage company, excuse me in Plano, Texas. He has managed branches of multiple mortgage companies in the Dallas area, and been able to use his experiences to develop a tremendous team of mortgage professionals. Donnie entered the US Army after college where he excelled in his telecommunication field, and then he spent nine years working on fiber optic telecommunication equipment for several equipment manufacturers. He uses the skills the military taught him and the attention to detail he developed while working as an engineer to counsel and structure mortgages for customers. His philosophy is to get to know his customer situation from the beginning to ensure he advises them properly with the structure of their mortgage. Wellborn price began his mortgage career in 2002, and is a graduate of Xenix, the mortgage Academy of excellence and an environment of changing rules and regulations. Wellborn excels at understanding the mortgage process and effectively communicating with his clients throughout the process to exceed their expectations. Whether you’re purchasing your first home, buying a vacation home, or building your dream home Wellborn will help you find the best options for your individual needs with integrity, professionalism, and attention to detail. Gentlemen, welcome to the show.

Donnie Walton
Thank you.

Wellborn Price
Thank you.

Michael Chabot
Great to have you guys here. And before we dive in, so this show, as we said at the beginning is all about the rising prices in real estate and what the challenge is it is to our clients, realtors, other loan officers etc. So just a quick stat here from the National Association of Realtors. They report that home sales price over a million dollars increased 244% year over year in May. Lawrence Yun, chief economist at the National Association of REALTORS stated that this is because wealthier Americans have benefited greatly during the pandemic, thanks to the rising stock market, which typically helps grow net wealth. So there is a greater demand for luxury housing. Now, this is most likely due to low mortgage rates and gains in the stock market market excuse me, which make purchasing higher priced homes easier now, for many people. I’ll go to you first. Donnie, I know we talked your market, you don’t see a lot of jumbo stuff, but I’m guessing you definitely see a big price appreciation in your marketplace.

Donnie Walton
Yeah, you know, I’m kind of a backup lender for a lot of different builders. So a lot of times the the customers I’m working with are a second look. And so when I have those higher sales process like that, I’m often working on a portfolio loan, you know, that we have here at Angel Oak, but we’ve seen a lot of appreciation with home prices, you know, appraisals, things like that. Yeah.

Michael Chabot
And Wellborn I know so real quick. So Donnie, you’re in the McKinney, Texas area, which is just outside of Dallas, Texas, correct?

Donnie Walton
That’s correct. We’re about probably 30 to 40 miles, you know, away from Dallas, perfect

Michael Chabot
and Wellborn you’re in the Greater Atlanta area. Is that correct?

Wellborn Price
Yes. I’m in the in the Buckhead area.

Michael Chabot
You’re in the fancy area that we call that Beverly Hills from outside of Atlanta. Right. I love it there. It’s it’s a beautiful place. So I would ask you the same question, but in a different way. You’ve you’ve seen I’m guessing a huge price appreciation in that market.

Wellborn Price
Yes, we yeah, we have. And, you know, I you know, the some people listed their house a year and a half ago and didn’t sell it and they relisted it this year for $200,000 more in it. It sells and it appraises so yes. There’s been a lot of appreciation here.

Michael Chabot
Yeah. And real quick. So before we get into it a couple more market stats. So I printed this is crazy year over year. Austin, Texas 42.2%. Price Appreciation. Boise, Idaho, 35.3%. Miami, Florida has 25.8 Phoenix, Arizona 24.9 Denver, which is the area I’m in now. 20% appreciation St. Louis 9% Baltimore, 9%, Greenville, South Carolina 8.7, Philadelphia 7.3. And even Cleveland, Ohio. 4.8. Sorry, they didn’t Wellborn didn’t have Atlanta in the stats that I pulled. But I’m guessing Atlanta has got to be up in the 30% range.

Wellborn Price
I would Yes. Yes.

Michael Chabot
I agree. Yeah. So So I want to ask each one of you. I’ll go to you first. Donnie is what does the market look like in your area? First of all, as far as demand, price growth, etc.

Donnie Walton
We’re still extremely short of inventory here. You know, a lot of stuff I’m doing is new construction, but we do work with a fair amount of real estate agents. It seems like all the offers being made are still multiple offer situations, you know, so we’re really having to go above and beyond, you know, with talking to listing agents, you know, we do a lot of vetting on the front end of our pre approvals. Because a lot of times, you know, when there’s a multiple offer situation you’re going in is higher or highest and best. So a lot of times are offering above list price, we’re having to make sure that the bar has the funds really explain this to the client, what this really means, you know, that you bring these additional funds to close a hump and appraise. So we’re seeing a lot of challenges like that, that we haven’t seen in the past.

Michael Chabot
So are you seeing multiple offers? And highest and best on new construction as well?

Donnie Walton
Yeah, absolutely, with a lot of builders that we work with, things have changed a little bit on on how they’re doing stuff. So the builders have changed either from you know, a lot of them aren’t even offering to contract on a home until, say, a certain stage, a cabinet stage, things like that. And then when they do put those homes up for sale, its highest and best at just like a pre existing home, you know, and so part of the pre approval process with these builders, is as a preferred lender, we’re having to go in and actually verify that the borrower has these funds, and all that otherwise, that the biller really don’t want to even contract with while, you know, it just, it’s just funny how things have changed over the last eight months, when it comes to the inventory. And it’s affected new construction as well. Yeah, and

Michael Chabot
I think we’re seeing that nationwide. So, so wellborn, what it what does the market look like in your area? Is it the same thing tight inventory?

Wellborn Price
It is, and, you know, it seems like every you know, some open houses, the realtor say you know that 40 people coming through, and the next day, they have eight, eight to 10 offers. And they want their clients to you know, get to the top of the list. So they tried to reduce the the financing contingency, and then also the appraisal contingency. And then a lot of them they also over bid for the house. You know, where they’re paying 50,000 more just to get the house. Sometimes that appraises sometimes it doesn’t, and they gotta you know, make up the Delta. You know, we do have, you know, I have some realtors that write a contract. And I’m like, Well, can you do the appraisal in five days? I’m like, No, we can’t do that. I’m like, Well, another lender. And I’m like, well, we can’t do that. But I don’t even know that how they how that’s possible. But you know, we Yeah, it is tough. And what I’ve done recently is, you know, on taking from a, you know, they’re close to doing if they’re in a jumbo situation, and they’re close to doing a conforming Fannie Mae or Freddie Mac loan, is if they’re going to make an offer on 123 Main Street, what we do is we have their their loan application, we’ve run into the system to see if they even need an appraisal. Because a lot of times they don’t if they put an extra 50,000 down, and that gives them a leg up, you know, where they can put a zero appraisal contingency in there. And they don’t have to have to do that. So that’s one way we’ve been winning, some are getting to the top of the list with submitting offers make

Michael Chabot
sense? And for those of you listening, you know, we’re, we’re insiders here. So on a conventional loan, we run it through an automated underwriting engine. Fannie Mae has theirs, do you? Freddie has theirs. I think it’s called loan prospect, or now or they changed the name back in the day. So we all know it as LP Right? That’s what we call it, that will tell us if an appraisal is required or not. And Donnie, I’m going to pivot to you real quick, because you do a lot of government loans. government loans do not allow

Donnie Walton
appraisal waivers Correct. That is correct. And, you know, I actually had this conversation this week, because we’ve got, you know, a veteran right now in this situation where he’s willing to pay above the appraised value, but because VA has escape clause, we’ve had to have a lot of conversations with the listing agent, you know, trying to reassure that the borrower is willing to pay above the appraised value, we’ve even had to vet the funds. The borrower went ahead and told the listing agent, how much money they have in the bank and all that. So it’s, it’s things like that, that we haven’t had to do before. But when it comes to FHA and VA, because of that escape clause, those types of buyers are really at a disadvantage when it comes to a multiple offer situation, because even though they came paid above, there’s no really way to lock them into it. contractually, right. So it makes it it makes it tough. Yeah.

Michael Chabot
So Wellborn I know in your area you’re doing you’re seeing a lot of homes now that have entered into that jumbo range of financing. And before you answer that question, let’s tell people what makes a loan go from a conventional loan to jumbo in your area, at least let’s tell them that if you don’t mind.

Wellborn Price
So, so the conventional loans are are tapped out right now for 28 to 50. And then soon, we’ll be going up to 625. And we were actually able to process those 625 loans now, but so over, you know, over the last two years, you know, you have a 20% appreciation, a lot of these loans are going from conventional area into a jumbo arena. Another item we have is going back to trying to get first and first, in first position when you make an offer is most people are, aren’t able to sell their house, they can’t do a contingency to sell their house. So they’re putting less money down, which makes them go into a jumbo loan until they can sell their their current home. So there, they got to qualify with both payments. But you know, a lot of times we do a jumbo loan, and then they you know, they will pay the loan down. You know, later and then they can This is maybe too technical, they can do a recast after six months where they you know, they put down an extra 500,000 They can recast the mortgage payment to reflect the new balance. But yeah, I’ve done you know, typically I do 25 to 30% of my businesses jumbo right now it’s it 50% Of all the ones that I’m doing so

Michael Chabot
and I think what what a lot of people, a lot of clients, realtors, etc, are Jumbos kind of like it scares them that word, right? Because typically, the qualifying box for a jumbo loan for Fannie Mae and Freddie Mac, if you guys can see my hands, it’s about this big and Jumbo was about that big, right? And so it causes a lot of fear in the marketplace. And I think what’s great is, as we know, here at Angel Oak, we have a lot of products that that can address that and we’ll get into those products. Before it gets too far away, though, I want to go back to Donnie real quick and talk about the escape clause in relation to appraisals when you’re doing government loans. Can you explain what that means to those that are listening?

Donnie Walton
Well, basically, what that means is, is that individual buyer has the ability to get out of that contract should the home out appraise, you know, and I talked to some friends of ours or of mine, you know, this week, they’re actually real estate brokers, it’s the husband, wife team, they got a phenomenal real estate team, like 25 agents underneath him. And I was asking him about this exact same thing, you know, and basically, with as a buyer, you have the ability to get out of the contract or the home out appraised. So contractually, even if they were to list something under special provisions and things like that, explaining that they’re willing to go ahead and pay above, I guess that escape clause still does not Trump that, you know, and so technically, they can still walk away. So there’s there you have to build a level of trust with the listing agent. You know, and this is where the lender comes into play. And what we’re doing is just trying to educate that, you know, so other things that they’re trying to do as well, to strengthen those offers, is go with a larger option fee, you know, on the contract, and also shortening that, that that financing period, instead of 21 days, maybe doing it in five days, or eight days, you know, things like that, to really make it appear stronger, you know, multiple offer situations. Yeah,

Michael Chabot
I tell you, what I like about this episode that we’re doing is it’s great to get different perspectives from different areas around the country, right, where Donna, you’re seeing price appreciation, but you’re still doing more conventional and government stuff Wellborn you’ve seen your business jump, you know, another probably would you say 15 to 20% in Jumbo. And I’ll ask this Wellborn to you first is what are the challenges that you’ve faced, since you’ve seen this increase in more jumbo financing in your marketplace?

Wellborn Price
Going back to trying to get them in the best position to when the house is you know, they’re they’re living in a million dollar home and they want to buy a you know, a $2 million home and they haven’t sold their million dollar home. So now we’ve got to figure out how to qualify him or both payments, even if the their whole house is going to sell three days after their new house. So we’ve got some unique products that were able to figure that part out. But it it is a challenge because you know back in the old days everyone sold their house or had it under contract before they looked. If they do that now they’re going to you know, they may never find a house because it’s hard to they want to go under contract and then sell their house.

Michael Chabot
Yeah, and I think what we would all agree is what makes Angel Oak a special place to to originate mortgages and to be able to serve people is we have products that fit a lot of needs. For example, we have a jumbo program that opens the qualifying box it has a higher what we call debt to income ratio to help if you have to carry both mortgages right to qualify for a short term loan Wanna go back to to Donnie, because I get this a lot in my market. And I’m really interested to see if you get this government loans, like have a bad reputation, for some reason, I feel at least in so I’m licensed in as few states, the majority of my businesses in California and Colorado, California, for sure. government loans, VA loans, especially have like a bad name, because everybody thinks the seller has to pay all the closing costs, that the appraisals are, you know, 10 times harder. Can you demystify that for us place?

Donnie Walton
You know, it’s the same thing here, you know, FHA and VA, they get a bad rap, you know, and unfortunately, just because somebody is going FHA or VA doesn’t mean they don’t have any money. It doesn’t mean that, you know, they’re maybe not credit worthy is somebody else, you know, there’s a lot of reasons why a client may want to go, you know, FHA, over conventional, even other qualify for a conventional loan, you know, it could be something as simple as different ratios just a tad higher, because we’re only using one income, maybe the spouse hasn’t been earning commission for two years, we can’t use that income in the household, you know, so there could be any number of reasons. And me personally, I think a lot of times, you know, if you’re listing your home, you know, you might be limiting your pool of buyers, you know, by not being willing to consider, you know, that veteran or that FHA buyer

Michael Chabot
agreed, and I think really, what, what needs to happen is, and maybe it’s from us as, as loan officers in the industry is we just need to educate consumers and our real estate agents, more on the strength of those products.

Donnie Walton
I completely agree, you know, every buyer’s agent that I work with and builder sales rep that I do business with, I’m always willing to get on the phone and explain to that listing agent, you know, this is the situation with the buyer, extremely qualified, you know, we’ve done our due diligence, there’s very little risk of this thing falling apart. You know, we do a lot more work on the front end, just to make sure, you know, running certain reports, you know, cavers reports, things like that at the very beginning, just to make sure, you know, because we really want to reassure the listing agent, that it’s a qualified buyer, we don’t want to take anybody down a rabbit hole, that doesn’t end up with the close loan.

Michael Chabot
Yeah. And that’s, you bring up a good point that I’ll come back to, because I want to ask Wellborn in your marketplace, because it’s a little bit different. How are so I’ve had Liza on who’s you know, from our company who heads up, you know, the portfolio product department, and I want to ask you, wellborn, in your, in your area, with the increase in pricing and the size of your loans, are you seeing a lot of portfolio demand there.

Wellborn Price
More so I’ve go into Danny’s VA, I’ve got a one, you know, a nine people don’t realize that you can do a jumbo VA loan as well, and guys buying a $900,000 house and he’s got to put 8% down, but he gets all his you know, VA benefits that we can use. And he gets a excellent rate, great closing costs. So VA is you know, a great and back 15 years ago, I would you know, I was scared of FHA and VA because it seemed like every appraisal that came in, they would pick it apart or say it need to be repaired. I have not seen that. It’s just like a regular appraisal this day and age they don’t they’re not nitpicking like they used to or requiring repairs, you know, I mean, sometimes it doesn’t even repair but most of time not. Sure. Question. All right,

Michael Chabot
actually, I like that answer. And you and you both bring up good points, which is, let’s let’s just specifically focus on government loans for here for a minute. First of all, a lot of people don’t realize, VA, you can do depending on you know, down payments and stuff. You could I mean, I’ve done $2 million VA loan, you know, I mean, client had, you know, was putting down $300,000. And I said, Hey, you’re a veteran, let’s do a VA loan, you’re gonna get the best rate. You know, the best terms. It’s my favorite loan in the marketplace. I love it. I mean, first of all, we’re helping either active military or veterans or family of and, you know, it’s an absolute great loan. I wanted to go back, though, because Donnie brought up such a great point, I want to ask you both this. This is really about this question is really about and I know we’re going in a different direction, but I’m cool with it. This is really about setting yourself apart and servicing your clients and your partners, meaning your real estate agents, your builder partners. Let’s talk about things like cavers. Right. And that’s just a report that needs to be run. You know, recently guys, and then I’ll let you both comment. I had a client come to me that was turned down somewhere else for a VA loan. And I said, Well, did they pull your certificate? This guy was in escrow under contract. And I said Did they pull your certificate of eligibility? And he’s like, Well, that’s the problem. They did. And I don’t have entitlement He was he was a reservist, and he didn’t have enough years on and never got his entitlement. So very quickly, you know, because we’re going down this route, I want to talk about, you know, those little things, some some caveats and areas where maybe, and it doesn’t have to be a government loan, but where you guys have jumped in a been able to save things or fix things that weren’t that hard. If you just followed the details from from from the start, and I’ll start with Donnie, and then we’ll go to you Wellborn.

Donnie Walton
No, it’s funny, I’ve actually run into the same thing, you know, in, you know, I think what makes loan officers good loan officers as they learn from past experiences, you know, and so I’ve come across that before, and I’ve learned, you know, that things can come up just because you fill out an application saying you’re a veteran, you spent some time, like you mentioned, the reserve, as you know, you may not have the points, you know, and so I think part of what we need to do as an originator to serve as our client, the buyers referral source, as well as the listing side is you really want to vet the client, the buyer on the front side, you want to do all the due diligence to do that you can with the COEs the cavers, reports, just to make sure we had a qualified clients at the end of the day. I mean, you don’t want to take anybody down a path that ended up in the ideal result of moving into their home. Yeah, you know, so it’s very challenging a lot, you know, a lot of moving pieces to a loan, depending on the type of loan we’re doing. But I think doing that due diligence on the front side, and running all those reports to make sure is a starting point to provide service across the board. And I’ll

Michael Chabot
same question to you well born to do would you like me to repeat it? Or? Yeah, if you would mind. The question really was is, you know, how do you set yourself apart? How do you see, you know, like, we just said, the devils in the details in our business, right? And just a couple examples of maybe where your team or yourself was able to, you know, jump in on something where it was falling apart somewhere else because they didn’t do their due diligence.

Wellborn Price
That happens a great deal. I got a call this morning on a big purchase a $2 million to the lady is today as she’s got getting divorced, and she’s getting her first alimony check. Well, the other lender, she’s supposed to close in two weeks. And you have to have a six month history. I mean, yeah, six month history of receiving the alimony before we can use it. So now this, this lady is scrambling, because the lender just got back to her and said, You know, I don’t know what to do. So we’re looking at our products, we’re trying to find a co borrower, we’re doing a bunch of different stuff. But it you know, it does happen. But what you know, a lot of times, if you just take the loan application as submitted through the system, you don’t know all the intricacies of, you know, how things like that with the how long you’ve been in reserves and things like that. So to have a car, do the application have a conversation with them is great. One thing about Angel Oak is one of our I guess slogans or mottos is built for speed. And, you know, I try to get everything into underwriting as soon as possible. And we’re, you know, we turn it around in 24 to 48 hours. So someone submits a loan to me on Monday, I may have it underwritten by Thursday. And I would know at that point that, you know, we got a problem, or we’re, you know, we’re good to go. So I think it’s finding a good loan officer that’s in they’ve got a good company behind them that they can do that. Because, you know, a lot of lenders are, you know, they submit their loan apps, and the people don’t hear from them for three weeks. And by then it puts everybody in a bit bad spot.

Michael Chabot
Yeah. Agreed. Good answer. And, you know, I would say that, I think the general public, you know, consumers in general think that mortgages are easy because of some of the commercials and advertisements they see. And on their phone like, oh, look, I’m approved. We all know that. That’s not the case. I always tell everybody, doing mortgages is like building a custom home. Right? Everyone’s different. Everyone has their challenges. And what I what I love is that Donna, you said this on a on a team call that we had yesterday, is you love to be the second look lender. And I think that’s I love being in that position two. And this does get to a question, but I think we all agree it’s great when you get that call, obviously, we don’t like to hear that somebody has been turned down for mortgage elsewhere. But what we love is to be able to, you know, show the s on our chest, you know, and say, Hey, we have a solution. We can help you we can help you get into your home. Let’s talk about I don’t like this to be a commercial, but I really want to talk about some of the ways that both of you have helped clients where, as you said, Well boy You know, they come to you, and they’ve been turned down elsewhere and talk about maybe an example, or some product that we have here at Angel Oak, that you’re able to help somebody achieve that dream.

Wellborn Price
So I, for 15 years of my career, I work for a large bank, and I still keep in contact with those loan officers, friends that are still there, and they send me deals that they get denied, I had a doctor, he was buying a $2 million house. And he was passed as financing passes appraisal. And the problem was, he had some some mortgage lates. And it’s a hard you know, the, the god, their guidelines are, you can’t have a mortgage late in 24 months, well, we have a product that we would get an A paper or market rate. And we run it through our Fannie Mae or our loan Prospector. And, you know, it’s, it’s, it’s easier and it you know, it doesn’t, it doesn’t care, you know, if you have a mortgage late, it does not kick you out of the system. So we were able to, you know, the guy have $50,000 down, and we saved 250 $1,000. And I, you know, I felt like a hero, and I just did normal loan, and it was got him the same rate, and everything went, you know, was great. And I’m hoping to get more, you know, more business from my, from my brain bank referral.

Michael Chabot
Yeah, yeah. And it feels good when you can do that. So Donnie, I’ll ask you the same question, buddy.

Donnie Walton
Yeah, you know, with the book business that I have, I actually get this quite a bit, you know, I’m not second local lender with with some great build referral partners, that it’s in business over to me, and in a lot of that business, it did fall apart somewhere else, you know, and it’s a matter of us digging into it and finding solutions and stuff. But as far as the the program, I think that stands out, in my mind anyway, would be that bank statement loan. Because so many people you know, go in under contract, they get pre approved, they buy or contract on this house, come to find out tax returns within reviewed by underwriting, I’m guessing that maybe the originator didn’t review at the beginning, I don’t really know what took place. But at the end the day they don’t qualify, what’s Astra terminals, because the client took advantage of tax write offs, you know, and I had this conversation probably four or five times a week, you know, the tax returns or you know, your net taxable incomes, always not a true indicator of what you really met. Correct? You know, so I do a lot of the bank statement loans, you know, we’ll take those self employed borrowers, and we just qualify them based on deposits or 299. That’s probably the one that stands out, in my mind the most where I’m able to help my builder partners.

Michael Chabot
Yeah, that’s a great answer. And I’ll ask this question to both of you, which is, number one, I’ll start with a statement, then I’ll get to questions. So we’re seeing a huge jump in self employed borrower, buyers, borrowers, etc. We’re seeing the new term, they call it the gig economy, right? Where people have many different jobs, that they’re earning money, maybe it’s a YouTube channel, it’s a store, it’s an Etsy, you know, all these different things that don’t fit traditional lending guidelines. And as you said, dhania tax return is not a reflection of your income. It’s a reflection of the tax that you owe the government for the income you’ve earned. And so, unfortunately, the mortgage industry hasn’t changed their guidelines in many, many years. So what I love is that this company has come to the market with products that that help those underserved borrowers. Sorry, that was a long winded statement, the question for both of you, and I’ll start with Wellborn is, have you seen a huge growth in self employed borrowers in your marketplace?

Wellborn Price
I have. And I’ve also, I had did a presentation last week to a realtor group that I work with, and I, you know, self employed borrowers, if you look online, it ranges anywhere from 10 to 25, maybe 30%, which I thought it would be higher, but it’s, it’s in that range. But I would say, you know, 90% of the loan denials are probably self employed borrowers, because you get, you know, you know, a well educated person that knows all their financial Yeah, I make, you know, 1.5 million a year and I, you know, did it, uh, well, we get the tax returns, and he did ducks 1.4 series makes 100,000 But he’s wants to buy a $2 million house, so he gets to die with a bank or whoever, and then they’re scrambling and then they call, you know, call us and we’re able to do it on our bank state alone. But yeah, I have seen the self employed stuff increase dramatically.

Michael Chabot
Yeah. How about you, Danny? Now Absolutely.

Donnie Walton
You know, it’s it’s increased a lot, you know, and I think what’s kind of funny about it, not really funny about it, but you know, it’s a lot of people out there today, you know, real estate agents, builders, things like that. They’re not even aware that this program exists. You know, I’ve stood in front of a classroom with you know, 20 or 25 agents in You know, during this course, and I’ll get my 10 minutes of fame, you know, getting to talk to everybody. And when I mentioned the bank statement loan, only a small percentage of that even heard of it, you know, and so I wonder how many times the self employed borrowers get denied, didn’t get embarrassed, and then just Don’t pursue anything, you know, because they don’t know that this closet exists, you know, and so, you know, I think educating in showing that, hey, not everybody fits inside a square box. You know, if you don’t fit inside a square box, it’s okay, we’ve got solutions for you. But we have to educate our realtor partners to know that these products exist.

Michael Chabot
Yeah. And I think one of the myths in the marketplace and we’re not allowed to talk about specific interest rates here, but the the rates on those products are not what they were of yesteryear back in the hard money days and stuff like that. And you’re right, I think most borrowers indoor Realtors haven’t heard of these products. And, you know, I don’t know about you guys. But typically, the first thing I get from people, when they call me said, Yeah, I was turned down because I don’t show enough money on my taxes. I write everything off. Well, that’s, that’s basically what the tax code was written for. Right? There’s a benefit for taking a risk of being a self employed person. Right, there are additional tax benefits that you get. So what would you say right now to each of you, and I’ll go Welburn first is what’s the number one obstacle or challenge that you’re seeing in your marketplace for buyers?

Wellborn Price
Um, I guess just trying to get them under contract? I mean, it seems like, you know, they, all the lenders put in these with COVID coming around, put in these, I guess, under extra underwriting guidelines. But it seems like everybody during COVID, everyone had a really good year. It’s like I haven’t you know, so. Qualifying has not seemed to be a problem, even for self employed people. If so, we’ll take the bank statement route. But I think just getting secure in a house to to get put a contract on?

Michael Chabot
Yeah. How about for you, Johnny?

Donnie Walton
I’ll have to say the same thing. You know, I mean, I’m not running into as many challenges getting a client qualified as I am that client actually finding a home. I think inventory is the biggest issue that we’re all having right now.

Michael Chabot
Yeah, I agree. And I think what happens, I don’t know about you guys. But in my, between Colorado and California, what I see is a lot of buyers get fatigue, right to like I’ve written on 15 properties, I haven’t gotten an acceptance yet. Like I’m just gonna sit back and wait, are you guys seeing that in your marketplace?

Donnie Walton
I have, you know, you know, about six months ago, it became normal for buyers looking at pre existing, what they started then doing is going to a builder, because they got tired of looking at 20 homes making 20 offers and never getting offer accepted. So they started going to new construction and just you know, they’re gonna have the patience for the builder to build a home, it may take eight months or a year. But then you know, the builders have become, it’s very cumbersome for a builder to manage a client for that long. And when there’s a supply chain issues, it’s very hard to forecast when a home is gonna be ready. And so most of the builders at least in the DFW area that I work with a throttle back, you know, on allowing the fire so, so they transitioned over to new construction to try to get something on the contract, but even that slowed down, as well. So it’s just a very interesting market right

Michael Chabot
now. I agree. Wellborn. Go ahead, please.

Wellborn Price
Yeah, I would say and I’m sure you guys do this, as well as is, if you have a buyer, you go ahead and get them pre approved and cinnamon underwriting you basically have to be determined address so you have all the everything that you could possibly need. As far as the financing side, of course, you don’t have the contract or the appraisal, but you know, users have the borrower sitting there waiting for the next the next offer. You know, and of course you you know, a lot of times they find their dream house, but then they get the inspection and it falls through and then they go back into looking for more houses.

Michael Chabot
Yeah, just had one of those. It definitely

Donnie Walton
we did the same thing. We just closed on a VA client this morning TV DVD, you know, that way, when they get ready to make an offer, we can actually provide a mortgage commitment letter as well.

Michael Chabot
Yeah, so for those of you listening, what they’re talking about is we actually do a credit and asset underwrite of the borrower’s file. I guess we’re giving away trade secrets but that’s what we do. We’re doing an upfront underwrite. So it’s a step further than just a pre approval. So you actually have an underwriting commitment that’s still subject to clear title appraisal, right, etc. But yeah, definitely is a competitive advantage in the marketplace. Are you guys and I’ll ask Wellborn first and then Donnie, so I’m starting to see in California, not so much yet here in the Colorado area, but I’m hearing from my real For partners out there, that demand is starting to wane a little bit from buyers, meaning instead of 20 offers now they’re seeing maybe five or seven offers on a property. Are you seeing the same in your marketplaces? Wellborn?

Wellborn Price
Yes, I am. I’m also seeing a little bit of a, you know, a slowdown as well. The last 18 months has been crazy, but I have seen, you know, stuffs getting, if a house gets listed, it’s not having as much and I don’t know, if people are waiting for the spring or, you know, they don’t want to sell their house right now. They want to get through the holidays. But I think it’s kind of a, I’ve always, the fall has always been really good to me. People always say it slows down, but it’s it seems to be good in this market. So. Yeah, I mean, it is slowed up a little bit. Yeah.

Donnie Walton
How about for you, Donnie? Yeah, absolutely. You know, that same broker couple was telling you about earlier in the conversation, oh, they had told me that they’re seeing fewer and fewer multiple offer situations, you know, so instead of 15, there might be four or five offers going in on a home, which indicates a slowdown, but I’ve also seen application count drop as well, you know, so I think the mark is kind of tapering off a little bit. And hopefully we’ll get back to, you know, some a little bit more, more and more soon.

Michael Chabot
So not that we’re economic experts here. But I’ll give you my opinion, then I’ll ask you both why you think this is happening? I think that it’s impart interest rates have been starting to creep up a little bit, which does start to affect affordability. I think Donna, you talked about it before we have some supply chain issues in our economy, which is, you know, causing prices to go up, we have some inflationary pressure and energy prices and, you know, food prices. I think people are not just I think what happened during the pandemic is people were stuck in their homes, and they’re like, Hey, I’ve always wanted that, that house down the corner in that new development. I’m buying it. Right rates are super low, I can afford it. Let’s do it. That’s my opinion. Wellborn. I’ll ask you first, and then we’ll let Donnie answer also.

Wellborn Price
So are you are you saying that you’re that? Well, they’re cooped up, everybody just came springing out? And that’s why it was crazy. For the last 18 months?

Michael Chabot
Well, I think what I’m saying is that number one, I mean, look, historically, low interest rates drove refinance demand through the roof, number one. And then I think a lot of people and I know my own customers who I talked to either said, You know what, this gave me the opportunity to buy my dream home, or I’ve always wanted to move to Boise, Idaho, and I was able to get top dollar for my house and go there and buy another house and, you know, increase my, my living style, or whatever the word is you want to say. So that’s what I saw. And then I would say, I also think that part of the slowdown we’re seeing is some people kind of that euphoria has worn off a little bit, we’re seeing some price increase pressure and rates. And and some of the things that I talked about in the economy.

Wellborn Price
Yeah, I think, I think that’s definitely definitely true. And I think also, you know, some people that may want to buy a house, but they also want to buy and then put 500,000 into it in construction, and then hearing about the supply chain, they’re kind of like, alright, well, let’s put this off for a year or two, because I don’t want to buy this house and not do immediately do renovations. Because first you can’t find a contractor. And then second, the, you know, the raw materials are twice as much.

Michael Chabot
Yeah. How about you, Donnie?

Donnie Walton
I would agree. You know, I think I’ve seen the same thing here. So I agree with both of you. I say I think another thing that you add to the mix, though, is I think over the last 12 to 18 months that a lot of companies have gone remote, you know, and so they have proven that they can be successful without people coming into the office. So I think it’s also created an opportunity for some of these people to be able to move out, you know, and not have to live within a certain distance of the replacement employment. So I think that we’ve seen a lot of that, I think we will, we’ll continue to see a lot of that as well. You know, that people can now move to what I would call outlying areas, they don’t have to be in the city, they can live a suburb, you know, an hour 15 minutes away, you’ll still be successful with their work.

Michael Chabot
I agree. And I think like we said, you know, I think the pandemic just for some people like whom if I’m going to be working from home, I really need a bigger house that has an office, or I need the kids on the other end of the house when I’m working in my home office. Right. So and then of course, historically low interest rates allowed people just to afford more. Right. So let’s take off our economists hats, put our loan officer hats back on I want to talk about real quick. We’ve kind of mentioned it, but let’s talk about appraisals. Right? And I’m going to tell you what I’ve seen and then I’ll ask you guys some questions, but actually, I’ll ask a question first, which really is are you seeing a lot of gaps in appraisals meaning like your purchase price is x and the appraisals coming in short Let Wellborn take it first.

Wellborn Price
I’m not, not really I have one going right now where that was a, the list price was 18186. And the borrower, you know, wanted the house. So he offered $50,000 more. The appraisal came in and it came in at the original sales price of 1.86. And then I’m getting hate emails from them daily, that the appraiser is no good. And he doesn’t want to pay for the appraisal, because it didn’t come in at 190. Right. But so I’ve just, but if something’s list price, and they get a full price offer, I have not had that many. I think the demand is still there. So I don’t I don’t necessarily see the values going down. But I you know, I haven’t had that many except for this, you know, they over bid for the for the property. You know, and I think a lot of that is the appraisals, the appraisers cover, you’re covering their rear end if, you know, like, if the house was listed at 186, there’s been a lot, you know, the real the listing agent, everyone else has put a lot of thought into that price and knows the comps. And so when someone offers more, and the appraisal says okay, well it actually appraise for 190. They may get it, you know, looked at under scrutiny because of over appraising the value.

Michael Chabot
Agreed? How about you Danny, are you seeing the same things in your market?

Donnie Walton
I don’t run into the shorter prices very often. I mean, I’m in like it does happen occasionally. But I don’t run into it very often. I think the the buyer’s agents that I’m working with, I think they’ve learned through trial and error. And they’re doing a very good job setting the expectation as the offers are made. But we haven’t ran into too many short appraisals. If anything, we run into taking too long to get the

Michael Chabot
appraisal. Yeah, we definitely have that challenge right now. It’s, I think what most people don’t know, especially consumers and our Realtors is there’s a national shortage of appraisers, and appraisers. They’re aging. And with the the change in the appraisal guidelines and the formation of appraisal management companies, it changed the entire landscape. And so we we just, you know, we got to roll with it at the best that we can. Right. They’re drinking through a firehose, right. Yes, yes. And, you know, I think it’s, it’s, it’s important to use me to mention for those listening that, you know, the dynamics of an appraisal, right appraisers, especially on on resale homes, and Donnie, maybe you can talk about new construction, but on on resale homes, they’re looking at comparable sales in the marketplace, what has sold with similar sizes, and amenities, etc. That’s how they price it. And I know, I haven’t had many appraisals come in short, either, but the ones that do sometimes the realtor is like, Oh, I could sell it for twice what I sold it for. And I agree they probably could because of the demand. But we have to understand there, there is a formula that appraisers use. And at the end of the day, unfortunately, appraisals are also subjective. Right? The three of us could look at a piece of art, and I could say it’s beautiful. Wellborn could say it’s not bad, and Donnie could hate it. And that’s kind of how appraisals are not to such that extreme. But that’s that’s how they are. Donnie, how does it work on new construction?

Donnie Walton
Well, you know, the appraisers, I’m sure they look at MLS or, you know, try to establish comps that are already out there, you know, but when it comes to new construction, the appraiser really has to know to go into the builder sales model, you know, because a lot of times not everything, the builder sales is on MLS. So you’ve got to do a little bit of extra work to go in, collect those closing disclosures, you know, get the data, you know, from the sales team, stuff like that. So when it comes to the new construction, the appraiser really has to be comfortable walking in talking to a sales rep to you know, do a little bit of additional work.

Michael Chabot
So let’s talk about we’ve all mentioned it before, and believe it or not, man, time’s flying. We’re getting to the end of this episode. And I want to talk about inventory challenges. I know we’ve talked about it already. But are you seeing an ollie, I’ll ask each one of you this question. Wellborn Are you seeing more inventory come on the market in your marketplace? Are you seeing it tighten or kind of stay the same?

Wellborn Price
I want to say it may I think it may be less coming on market right now. I’m in you know, I don’t know if the how, like I said the holiday season. They’re not they’re waiting till the beginning of the year not but I have seen a little bit less inventory coming on to the market. But if it does come on the market is its price. Right. And it’s good house. You know, it’ll be snapped up, usually before they do their first open house because word gets out and you know, the demands still there.

Michael Chabot
Yeah. How about you, Donnie?

Donnie Walton
I think the inventory is about the same here in the DFW area. You know, I haven’t seen a huge change with it yet. Still, it’s two In the buyers a little while to find the properties. So I haven’t seen much of an endorsed change right now. still seeing

Michael Chabot
a big influx of Californians coming into your state? Yes, we

Wellborn Price
are. Yes. I think in the last 12 months, I’ve probably done 20, not 20, probably 10 to 15 people from California that are you know, they’re working remotely and all the companies out there, let them let them do that.

Michael Chabot
Yeah, kind of what I did with my family to move to Colorado. And I would just answer my own question in Colorado. I would say it’s staying the same inventories about the same, it’s still tight, it’s I don’t think it’s tightening. Definitely a lot more new construction in Colorado, California, there’s there’s really nowhere to build. So there’s not a lot of new construction and inventory is super tight. There’s not a lot coming on the market right now. And I think, you know, wellborn, you mentioned it a few times, people don’t realize like, this is the best time of the year to sell your home because you have less competition. Right. And you still have a lot of buyers. There’s a lot of pent up demand. I would imagine a couple more questions for both of you. And I’ll just ask you both. I would imagine that as more inventory comes on the market, you guys have a bullpen of buyers that are just pre approved already have underwriting approval that are ready to snap it up as soon as it hits. Yes, yeah.

Donnie Walton
Yeah. Yeah. The builders I work with, most of the builders have waiting list right now. Wow. And so they have a list of buyers. It may be 2530. DT. Just waiting a lot to open up.

Michael Chabot
Yeah, go ahead. Well

Wellborn Price
burn. And y’all may know more about this with the, the the mortgage foreclosure moratorium where, you know, I think once and I forgot what the final, they’ve extended or not. But I think you know, I don’t know how long it takes to foreclose on some of these properties. But I think there’s going to be more of some of that inventory coming available. And you know, people are my perception, a lot of people that I think is when they think of foreclosures, they think of these smaller houses. 100 200 300,000, but you know, your next door neighbor living in a million dollar home, you don’t know their finances, and that house very well could be ready to foreclose on. And it’s a perfectly, you know, great house. So I think that’s going to free up some inventory over the next. I don’t know when that moratorium is over, but you know, in the next 12 to 15 months.

Michael Chabot
Yeah, I I want to say, You know what? I can’t comment on it. I have to look it up. I I know it was originally supposed to expire sometime this year, and they pushed it out. So I’ll make sure I get that answer. We’ll put it in the show notes. I wanted to ask Donnie a quick question, which is, you talked about it earlier, is with new construction. So I’m doing a few new construction loans now. And every one of them is going way past the initial closing date, because of supply chain issues. They can’t get appliances. They can’t get now the latest that I heard was like an electrical panel is on backorder. Are you running into that a lot?

Donnie Walton
Oh, yeah, absolutely. It’s happening across the board is happening with multiple builders. That’s why most builders have changed strategies, you know, some wait till the homes closer to being built before they allow it to contract, you know, so it’s builders adapted a little bit slightly different philosophy on how to sell the homes because it’s extremely difficult to manage that client, you know, that buyer for such a long period of time, you know, even though you may give them all the disclaimers at the very beginning. But ultimately, when they’re eight months, and you know, and they don’t see the light at the end of the tunnel, you know, they get frustrated now, you know, and so a lot of work, you know, I think it’s just something people are gonna have to learn to be patient right now. And until the supply chain stuff figures itself out, we get back to something a little bit more normal on laptops.

Michael Chabot
I agree. Wellborn Is there a lot of new construction in the Atlanta area?

Wellborn Price
I would say there’s a lot of tear down the you know, one offs, not not not neighborhoods, but they’re, you know, they buy like, two doors down. They just bought the house and they’re gonna tear it down and build a you know, big, big house on it. But I mean, I know all the builders here are just slammed. So there is construction, a lot of people are also, you know, redoing their homes or adding square

Michael Chabot
footage to cash out and then remodeling their homes. So what you’re seeing is it’s not it’s not new tracks of homes, you’re seeing somebody come in, buy an older home, tear it down, rebuild it. Yeah. And

Wellborn Price
then when then they are putting, you know, condos in certain areas of town where they sure, pop those up and at 300 units pretty quickly. But

Michael Chabot
look, our businesses are all based on repeat and referral business. Right? And we are looking to make sure that we serve every client, every real estate partner, every builder partner to the best of our ability to make sure that they continue to come back to us and allow us to serve others And it’s a model that works. And I think it’s super important when choosing someone to get a loan. So, gentlemen, I know we kind of went all over the place today, but I actually enjoyed it. I wanted to pick both your brains, I think it’s really cool for our listeners to get a different perspective from different parts of the country. And I think, I guess the last question is, I think we would all agree that no matter where you’re doing business, it’s been really crazy busy, and prices are continuing to go up. Would you agree? Absolutely. Yeah. You guys are still you’re still seeing, what would you say on average, and I won’t hold you to the number but I’ll ask each one of you. Last question is, what would you what do you think the percentage of appreciation is in your marketplace? Continuing?

Donnie Walton
I’d say probably 20 25% of hell.

Wellborn Price
Yeah, definitely double double digits.

Michael Chabot
Yeah, I think we’re all saying the same thing.

Wellborn Price
Because I think the demands just gonna keep driving it up. Because there’s not, you know, supply and demand.

Michael Chabot
Yeah. And I think the great thing is, we are all we are all associated with a great establishment at Angel Oak Home Loans. We know that we have more and more products coming to the market to help people, which is wonderful. I don’t know about you guys. I’ve been doing this for a long time coming here rejuvenated me, it made me really excited because we have so many tools to help people. And it enables us to stand out from the crowd. So thank you guys so much for joining me. Thank you guys for doing what you do and being at the top of your game. I really appreciate it. And you know, guys, if you found this helpful, I know we went all over the place today, but we tried to give you a little bit of everything from inside this mortgage marketplace. Please like this, share this. Tell your friends about it. And again, you’re listening to Your Mortgage Matters. I’m your host Michael Chabot. Today we were joined by Wellborn Price, and Donnie Walton, and we really appreciate you guys listening. Take care.