Housing MarketMortgageOriginationReal Estate

Under tight state restrictions, Michigan’s housing market perseveres

Real estate, mortgage and home construction industries are classified as non-essential businesses

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This is one in a new HW+ series examining the distinctive challenges faced in state-level housing markets.

On April 15, a Michigan advocacy group called Operation Gridlock staged the first protest against statewide stay-at-home rules. The protest criticized Gov. Gretchen Whitmer’s executive orders, claiming they were too draconian compared to the stay-at-home guidelines and non-essential business definitions enacted in neighboring states.

The core of the protest was Whitmer’s executive order No. 2020-21, issued on March 23, which decreed that “no person or entity shall operate a business or conduct operations that require workers to leave their homes or places of residence except to the extent that those workers are necessary to sustain or protect life or to conduct minimum basic operations.” Under this edict, Whitmer defined the real estate, mortgage and home construction industries as non-essential businesses.

So how can a real estate professional do their job?

“What has to happen is a buyer has to go on a whim and place an offer on a house,” said Anthony Bird, owner and senior loan officer at Riverbank Finance in Grand Rapids. “Once it is accepted, part of the contract has to allow them to visit the house with a home inspector. That’s the loophole they can use right now. They’re allowed to see the house after they’ve gotten under contract to buy it – then they can see it for the very first time.”

Real estate brokers have been unhappy with this arrangement.

“There was a house that came on the market in Grosse Point,” said Lisa Reichert Adams, a Detroit-area Realtor with Real Estate in the Pointes. “I called my client and I said this house looks perfect. But I also said that I cannot physically get in that home – because if I do, I can get an ethics violation or potentially lose my real estate license. And I like my job – I like what I do and I need to work.”

Reichert Adams worked around the problem by having the listing agent enable the buyer to go to the property on her own, adding that “she had to wear masks and gloves.” Alas for the client, the property had multiple offers and another buyer snagged the house with an all-cash offer. But despite that setback, Reichert Adams remained determined to play by the current rules of engagement, even if her peers were not.

“There are agents in my community that are not paying attention to Gretchen Whitmer’s orders and they are going into these homes that they are showing me,” she said. “I’m not willing to do that until we are told we are allowed to go into these homes.”

But even with the onerous executive orders from the governor, Michigan’s housing industry is continuing to operate. Maureen Townson, president of the Southeast Chapter of the Michigan Mortgage Lenders Association, noted that all stakeholders in the homebuying process are cooperating with greater intensity.

“Realtors indicate receiving more individual transaction updates,” said Townson, an account executive at Genworth Mortgage Insurance Corp. “Additionally, lenders are reporting much higher usage of technology with their Realtor partners to provide virtual educational updates to consumers such as forbearance and lending guideline changes – appraisal requirements, employment/income and asset verification.”

Still, the state’s housing industry is working at a shadow of its previous purchase activity levels, with some of the slack picked up by refinances.

“According to lenders I’ve communicated with, they indicate a 40% to 60% decrease in new purchase applications,” Townson continued. “Refinance activity has increased to fill capacity and many lenders are now running 75% refinance to 25% purchase. Several lenders reported record application and closing months in March and April due to historically low rates.”

Tania Maples, vice president and loan originator at Brighton-based Michigan United Mortgage, reported that her company’s revenue is down 75% since the pandemic began. Even worse, she is fielding inquiries from people she cannot help.

“I’m getting a lot of calls, but we’re struggling with people who are not qualifying,” she explained. “These calls are from people who are taking reduced pay or people who are on unemployment, and there’s a big mistake with people thinking that unemployment wages would be qualifying income. A lot of people are making some good money off of unemployment, but it doesn’t work that way. I have to tell them that if they want to buy then they need to get back to work.”

Rivebank Finance’s Anthony Bird is also dealing with his own coronavirus-induced problems.

“Once the effects of the coronavirus started to unfold, the mortgage-backed securities were swinging 100 plus basis points, which is a huge, huge amount,” he said. “And that caused such uncertainty with our lending partners – they basically said it was less risky to not lend right now than it is to lend. So, that really threw a wrench in our spokes with some of the refinances we had going in and trying to gain new business because the rates were so unpredictable. Since then, the feds have gotten involved buying mortgage-backed securities, and that’s really helped to stabilize the market.”

Bird also noted issues with the MiMortgage Relief Partnership between Whitmer’s office and the Michigan Department of Insurance and Financial Services. Under the terms of this partnership, financial institutions will agree to a 90-day grace period for all mortgage payments to either halt payments, reduce them, or modify them. Customers will not incur late fees or charges for 90 days and no new foreclosures will be initiated for 60 days.

“That’s a tricky subject right now,” he said. “Certainly, that’s a better option than not paying and going into foreclosure. But if they can’t pay, then they should call the servicer. The downside is the ones that can pay that might think it’s an opportunity to simply skip payments. And I think there could be some that elect to do that without knowing the full consequences of those actions.”

“That’s the scary part to me, with the government getting involved in promoting forbearance in Michigan and nationally through the FHFA – I think there’s a huge moral hazard in telling people not to pay their payments and advertising it as if it’s free money.”

What is going to happen in Michigan once the pandemic abates and Whitmer winds down her edicts? Maples isn’t expecting a burst of pent-up demand.

“I think that there will be some reluctancy for a couple different reasons,” she said. “I think with there not being a cure for the disease, not everyone’s going to be open to going back to regular type of business, as well as people’s incomes have been affected – they may not be able to afford what they could have had this not occurred.”

“Nor will they have the confidence that their job will continue. And I think there’ll be a lot of companies that will reduce their staffs,” Maples said.

A more optimistic forecast was offered by Paul Apostolakis, co-owner of Omega Lending in Royal Oak, who predicted many people not currently owning their homes will be eager for the American Dream.

“My theory is that those without houses are now feeling very vulnerable,” he said. “Now, people living in their homes for once – they’re not just sleeping in it. If you have been home and didn’t value it, you’re saying, ‘Oh, I’m stuck in this box.’”

Apostolakis also insisted the state is more than ready to put the pandemic restrictions in the rubbish bin, adding that “overall sentiment is that we’re ready to get back to work – we’re ready to roll.”

However, that will not happen right away – on April 24, the governor extended Michigan’s stay-at-home order to May 15.

For more state-level coverage, read: What effect is the pandemic having on California real estate and lending?

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