In this 20 page simple slide deck, I explain How The Coronavirus Took Down the Mortgage Industry In Less Than 3-Weeks. This information is for real estate agents, mortgage loan officers, home buyers and sellers wishing to refinance.

1. How The Coronavirus
Crashed The Mortgage
Industry In Less Than
One Month
The WHY behind the ”new-normal” that every
homeowner, homebuyer, mortgage broker, and real
estate agent needs to know moving forward.
March 30, 2020 @dankellermtgThe WHY behind the ”new-normal” that every homeowner, homebuyer,
mortgage broker, and real estate agent needs to know moving forward.
@dankellermtg
March 30, 2020

2. Who Is Dan Keller
I am a Seattle area mortgage professional. I’ve been a
mortgage loan officer since 2008, and have been
blogging about mortgages since 2010
(www.mymortgageguydan.com).
Professionally, I manage a branch for CrossCountry
Mortgage in Edmonds, Washington and teach at the
University of Washington as an affiliate instructor in their
undergraduate and graduate school of real estate.
Since 2016, I’ve been recognized in the Top 1% of loan
officers in America, and hope to use my experience and
wisdom in mortgage finance to make sense of impact the
Coronavirus is having in the mortgage industry.
@dankellermtg

3. THE TRAILER-OVERVIEW
COVID-19 is having a critical impact on the Mortgage
Industry, which could potentially make the 2008
financial crisis pale in comparison.
What’s happening is serious. The media doesn’t cover it,
and all the consumer sees is news like “The FED dropped
rates to 0%”, along with “Mortgage rates fall to historic
lows...” (Leading to an all-out refi-frenzy!)
Although both are true, the misunderstanding and
utilization of FED dollars is literally crushing the
mortgage industry. The issues today are centered around
the capital needed by Mortgage Lenders to meet the
covenants that are required for them to continue to lend.
Let me explain... (And follow the dates listed in red)
@dankellermtg

4. How It Works: A borrower goes to a Mortgage Originator
to obtain a mortgage. Once closed, the loan is handled
by a Servicer, which may or may not be the same
company that originated the loan.
The borrower submits payments to the Servicer, however,
the Servicer does not own the loan, they are simply
maintaining the loan. This means collecting payments
and forwarding them to the investor, paying taxes and
insurance, answering questions...
While they maintain or “service” the loan, the asset itself
is sold to an aggregator or directly to a government
agency like Fannie Mae, Freddie Mac, or Ginnie Mae.
THE MORTGAGE MACHINE
@dankellermtg

5. Next, the loan gets placed inside a large bundle, which is
put in the hands of an Investment Banker.
That Investment Banker converts those loans into a
Mortgage-Backed Security (MBS) that can be sold to the
public. This shows up in different investments like Mutual
Funds, Insurance Plans, and Retirement Accounts.
The mortgage servicers role is very critical. In order to
obtain the right to service loans, the Servicer will
typically pay 1% of the loan amount upfront. Oftentimes
financing half of the cost of acquiring the loan and
paying the rest in cash. Because of this structure, the
breakeven point for a loan servicer is 3-4 years.
Now that you know this, let the story begin...
BUNDLED UP & SOLD!
@dankellermtg

6. COVID-19 SPREADS
COVID-19 is a strand of the coronavirus that was first
reported in Wuhan, China in early December 2019.
Since this is the first human-to-human case of this virus,
there are no antibodies in the human body to fight the
illness. COVID-19 can lead to pneumonia in both lungs,
organ failure, and death as we’ve already witnessed.
Because of the severity of this virus and the high amount
of deaths in since January 2020, COVID-19 is classified
as a World-wide pandemic. The global economy has
come to a standstill, small businesses destroyed, and the
financial markets have collapsed in less than a 2-week
period. This virus has caused more financial damage in
4-weeks than 2-years leading up to the 2008 crash.
@dankellermtg

7. HISTORIC LOW RATES
I was first advised about COVID-19 on our monthly
branch manager calls with our CFO in late February. At
that time there were already concerns of COVID-19 and
the impact it may have on the economy.
As COVID-19 began to spread rapidly, investors (Wall
Street) began to re-evaluate their portfolios to less risky
assets such as bonds, mortgage-backed securities, and
treasuries (which is normal w/ market volatility).
As this happened, by March 7rd mortgage-backed
securities became an attractive investment as we saw
mortgage rates fall to historic low levels, which in return,
caused a massive surge of refinances in the US.
@dankellermtg

8. HERE TODAY, GONE...
But this didn’t last long. By March 9th, mortgage rates fell
to the lowest point in US history (30-yr fixed rates were
locked at 3.125%), and then by March 17th, 30-yr fixed
rates jumped back up to 4.75% and higher!
This surge in refinance activity (and volatility) nearly
crushed the mortgage industry. Banks and mortgage
companies across the US couldn’t handle any more
volume.
On the outside, this was great! Everyone was busy..
Right?!? But an ugly storm was brewing, and bank
managers and owners saw it coming...
March 2020
@dankellermtg

9. MORTGAGE SHORTAGE?
I’ve never seen this before, but the demand for mortgages
exceeded the supply at banks and on Wall Street (is that
even possible?).
(Quick refresher from what we all learned in school
about basic economics: As the demand for a product
increases and supplies become limited, costs go up!)
And just like toilet paper and pasta at Costco, low 30-yr
rates were GONE, and more so, some banks, servicers,
and mortgage brokers were closing their doors to both
new business and even permanently!
Why? Isn’t a lot of business good?
@dankellermtg

10. LIQUID-RATE-TION SALE
As businesses have annual liquidation sales, the
secondary markets found themselves overstocked with a
product (mortgage-backed securities) they couldn’t sell.
Here’s why: Banks and lenders funded record levels
(billions) of low 30-yr fxd. mortgages in March 2020 to
sell as mortgage-backed securities on the secondary
market to investors.
The oversupply of mortgage-backed securities meant that
investors were not purchasing the assets as quickly as
they hit the market (as they usually do). This sent the
price of mortgage-backed securities plummeting.
The drop in the value of mortgage-backed securities is
what caused mortgage rates to RISE 1.5% overnight!
@dankellermtg

11. THE FED SAVES THE DAY
By March 19th, the Federal Reserve saw the impact
COVID-19 was having on the economy.
To avoid a complete collapse of our economy and the
mortgage world, they scheduled an emergency meeting
over the weekend and dropped the FED rate to 0%.
On top of that, they committed to infusing $700 billion
dollars into buying mortgage-backed securities.
(And no, mortgage rates did not drop to 0%. The FED
rate is the short-term rate at which banks borrow and
lend against. It impacts the US Prime rate which affects
credit card rates, auto loans, and lines of credit.
@dankellermtg

12. RATES DROP, AGAIN!
On March 20th, mortgage rates dropped back down from
4.75% to 3.25%! The FED dropping the FED rate to 0%
didn’t cause mortgage rates to drop, the 1-billion dollar
infusion into the mortgage-backed securities market did.
But this back-fired badly. As rates dropped again, (even
lower than before), mortgage applications skyrocketed
(again), and that’s when mortgage servicers began to
panic.
See, once a mortgage loan is closed, a servicer (it may be
the bank or a servicing partner) buys the mortgage
servicing rights, which is the right to collect payments
and pass them to the investor. In return, the “servicer”
receives a fee for servicing the loan (remember from
earlier?)
@dankellermtg

13. MORTGAGE SERVICERS
Here’s the problem, most mortgages that were originated
in the last year or two were ALL getting refinanced.
Mortgage servicers need 3-4 years of collecting payments
to break even on their servicing rights. When a
homeowner refinances, there are major losses for the
servicer.
So as rates dropped again due to the FED infusing
billions into the mortgage-backed securities market, the
potential for early payoff losses dropped the value of
mortgage servicing.
All of this caused the value of mortgage-backed securities
and mortgage servicing rights to plummet. But the FED
had a choice to make – keep money cheap.
@dankellermtg

14. SERVICERS TAKE IT HARD
The FED’s decision to buy more mortgage-backed
securities will crush servicers and many private banking
companies that service their own loans.
Why? Because mortgage servicers are required to pay
investors even if they do not receive payments from the
borrowers.
Servicers may be obligated to billions of dollars in
payments that they will never receive.
The future implications of this on the market, rates,
economy, and mortgage money is TBD... For now,
mortgage servicers are ”taking one for the team” (and the
FED is the pitcher here).
@dankellermtg

15. GUIDELINES CHANGING
It gets worse, now for Americans... On March 25th (yes,
we’re still in March, this ALL has happened in March
2020), it was reported that 3.5 million Americans filed
for unemployment.
You add up the global economic slow down, national
financial/mortgage volume problem, COVID-19
spreading and killing people at an alarming rate, and
now, uncertainty in the employment markets due to
home stay orders being issued through April 2020....
This is why COVID-19 has the potential to cause more
damage than the 2008 recession. Both investors and
lenders are now re-evaluating lending risks to borrowers
and tightening guidelines daily (and as we speak).
@dankellermtg

16. ON THE HOOK
The loan programs that many home buyers use in the
Seattle markets are being drastically changed:
JUMBO mortgages – loan amounts over $741,750:
Borrowers will need a min of 20% down and 700 plus
credit with a low debt ratio to qualify.
FHA/VA/USDA mortgages – will undergo stricter credit
score guidelines (min to be raised to 580 from 620) and
tighter (lower) debt ratios will be required.
State Bond Zero Down mortgages – suspended at this
time, case by case with similar updates as FHA/VA.
Unfortunately, many of these changes have already been
made, thus nullifying pre-approvals previously issued.
@dankellermtg

17. THE PERFECT STORM
Until the storm calms and COVID-19 is under
management, I hate to say this but we’ll continue to see
volatility in mortgage rates and tightening of most ALL
loan program guidelines.
Mortgage rates and program guidelines always follow
economic trends. Good economy = borrowers bring low
risk to default. Poor economy = higher risk.
As we weather this storm, expect less people to qualify
for home purchases and refinances, slowing the housing
market in certain areas for sure.
Real estate agents – triple check ALL of your pre-
approvals on your listing and w/ buyers.
@dankellermtg

18. CALM SEAS AHEAD
Before COVID-19 hit, the economy was firing on all
cylinders. Unemployment numbers were the best we’ve
seen in the history of the US, and housing was on fire.
Once the financial markets recover from COVID-19,
many economist believe that we will recover quickly and
bounce back stronger than before.
The Gov’t has committed to buying ”unlimited”
mortgage-backed securities which will keep rates low
and money in the hands of consumers.
This is a great reminder for all of us to tighten up our
spending, take better care of our money, health, and
others.
@dankellermtg

19. NEED HELP?
If you have questions or need help, I want you to call me.
There are two ways I’m helping people right now:
(1) Lowering your mortgage rate: If you have a 30-yr rate
above 3.75%, reach out to me and I can get you a
savings options report.
(2) Mortgage Relief/Assistance Due To COVID-19: If
you have lost your job or contracted COVID-19 and are
having trouble making your mortgage payment, here’s
what you need to do:
(1) Do NOT miss a mortgage payment if you can help it.
(2) Call your servicer immediately to apply for assistance.
(3) Reach out to Fannie Mae to apply for mortgage relief
at www.knowyouroptions.com
@dankellermtg

20. CLOSING THOUGHTS
@dankellermtg

21. I AM HERE TO HELP
If you have any questions or need anything, please reach
out to me at dankeller@myccmortgage.com or directly
call/text me at (425) 350-7136.
May God bless you and be well my friends!
Credits:
Inspired by a colleague of mine, Anthony Bird of Riverside Finance. Special thanks to Barry
Habib, with MBS Highway for always delivering valuable and useful content for loan officers.
@dankellermtg