​Wells Fargo has announced that it will drastically constrict its jumbo mortgage program amid the market turmoil caused by the COVID-19 outbreak.

Wells Fargo will only refinance jumbo mortgages for customers who have at least $250,000 in liquid assets with the bank, according to a Wall Street Journal report. With the new policy, customers who have jumbo mortgages with Wells Fargo won’t be able to refinance unless they have money with the bank. Wells Fargo hasn’t changed policies for purchase loans, according to the Wall Street Journal.

“These difficult business decisions reflect efforts to prioritize how we serve customers and maintain prudent balance-sheet discipline,” a bank spokesperson said.

Wells Fargo also said last week that it would stop purchasing jumbo loans made by third-party mortgage bankers.

Wells Fargo was the largest lender for jumbo loans last year, posting $70 billion in volume, the Journal reported.
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While conventional, GSE-backed loans are still widely available, loans without government backing – including jumbo loans – have become harder to get as investors lose their appetite due to the recent market fluctuations, according to the Journal. Several non-QM lenders, including Angel Oak Mortgage Services and Citadel Servicing Corp., have temporarily halted originations.

The impact of the COVID-19 pandemic on the commercial real estate space remains unknown, but investors and business owners are trying to understand and prepare for the changes that may take place.

This rings particularly true for the office space sector. While many offices sit empty as stay-at-home orders remain in place across the globe, companies are being forced to consider what the workplace will look like when the pandemic is over. In a time of uncertainty, less organizations are going to feel comfortable signing a 3- or 5-year lease for office-space, much less a 10-year traditional lease.

“Flexibility is really going to be an important factor once we start emerging from this uncertainty, whether it’s two days from now or two weeks from now, it’s going to be at the top of everyone’s mind,” said Jonathan Wasserstrum, chief executive officer and co-founder of SquareFoot, a commercial real estate tech company.

Once people begin making their way back to their offices, Wasserstrum says flexible space will continue to be extremely valuable because the problems that it solves will still exist, if not grow. Smaller companies with a staff under 10 still won’t want to sign long term leases, furnish an office space, or have to set up necessities like a printer, he added.

“We anticipate a significant uptick in organizations looking for private, flexible workspace as opposed to dense coworking offices,” said Bryan Murphy, chief executive officer of Breather, a private, flexible workspace provider. While working from home may become more recognized as a more viable option for companies post-pandemic, he adds that there is no suitable replacement for in-person communication. Because of this, coworking and other flexible office spaces will have to adapt. This includes more stringent and frequent sanitation and cleaning regimes, as well as limiting the number of people allowed in one space.

As far as the evolution of the office space sector, Murphy adds that many companies may continue to work from home, even fractionally, and may no longer need such a large HQ footprint. Instead, companies can look to flexible space where they only pay for the space they need, when and where they need it.

Wasserstrum shared a similar sentiment: “More companies are learning that they can adapt to remote workplaces. We are going to see an increase in satellite offices and more people in flexible space, as we move further away from traditional long-term leases.” With many companies having to layoff large portions of their workforce, he said many companies are going to be left with empty, unused space. PivotDesk, owned by SquareFoot, is a flexible office space marketplace that connects companies with excess office space to others who are looking for something specific, whether it’s a single desk in a shared office, or a portion of a coworking space. Breather specializes in private, flexible spaces where companies can take advantage of shorter lease terms but still have a space to call their own.

Interest in flexible office space has grown exponentially in the past decade, and many industry experts expected the boom to continue. Commercial real estate firm JLL had previously stated that the sector could account for 30% of the office markets in the US by 2030. Wasserstrum said as a result of the pandemic, he expects this trend toward flexible space to accelerate.

Murphy agrees: “At the beginning of the outbreak, before any stay at home orders were issued, we had increased interest in our office spaces as people wanted to be in their own space with their teams as opposed to coworking offices.”

​In an effort to adapt to current conditions with social distancing, SquareFoot is offering virtual tours, so companies looking to move into flexible space can still see an online listing that they are interested in. Similarly, Murphy says Breather is seeing continued interest in their product as companies prepare for their return to offices.

Bank of America has announced that it is allowing customers to defer mortgage payments during the financial crisis caused by the coronavirus pandemic.
The move, the bank said, is part of a series of measures aimed at easing the financial burden on its customers.

Clients can also request to defer payments on deposit accounts, credit cards, and small business and auto loans. Customers who wish to request loan payment deferments can call the bank’s client services number to discuss their hardships.

"Our clients rely on us every day and for every aspect of their financial lives," Dean Athanasia, president of Consumer and Small Business at Bank of America, said in a statement. "We're going to continue to provide convenient access to the important services they count on, and the additional assistance and support they need during this difficult period."

The bank also said it has temporarily halted foreclosure sales, evictions, and repossessions. ​

​As each new day brings another wave of anxiety related to the spread of the coronavirus, also known as COVID-19, many financial experts have expressed concern that US economy might stall or even backslide into a recession. However, several leading housing market experts believe their sector can withstand whatever tumult is created as a result of this health crisis.

"While the risk has significantly increased that the coronavirus outbreak will disrupt economic activity, our research indicates that housing will be one of the economy's brightest spots in 2020," said David Berson, senior vice president and chief economist at Nationwide. "Strong, underlying housing demand factors, including above-trend household growth, solid job gains and declining mortgage rates, are driving what is looking to be a strong annual performance."

At the moment, Berson, added, the US housing market was in a strong place. Nationwide’s latest Health of Housing Markets report found nearly 60% of the largest 400 metropolitan statistical areas achieved a positive housing market ranking in the first quarter of this year. Of the 233 markets with a positive ranking, 214 are classified as plus-one and a further 19 as plus-two (the report places a maximum value at plus-four). Across the country, only 29 metro areas fell into the negative category, all of which are performing at minus-one (minimum value of minus-four), while 138 metros were in the neutral category.

If the coronavirus were to have an impact on housing, Berson added, the risks could be linked to government-insured and jumbo loans.

"FHA and VA loans now comprise more than 23 percent of the nearly 40 million mortgages in the US, the highest share since 2001," Berson said. "While delinquency rates for these government-insured and jumbo loans are low today, deteriorating economic conditions could put these loans at rising risk."

Also weighing in on the coronavirus was Daryl Fairweather, chief economist with the Seattle-headquartered brokerage Redfin. Fairweather observed that 2020’s housing market got off to a fine start, with January’s home prices and sales both up 7% year-over-year while low mortgage rates made homebuying more affordable for many buyers. She added that the US housing market still favored sellers, although the coronavirus could bring lower demand from foreign buyers.

Fairweather also cautioned homebuyers to consider their individual financial situation rather than the news headlines.
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“If you want to buy a home and feel confident in your financial position, don’t hold out for lower home prices,” she said. “Even in the event of a recession, I expect home prices to remain fairly stable. If you feel that this year is the right time for you to buy, I think there is an advantage to moving quickly. Mortgage rates may not stay this low for long, and there is a good chance competition and prices will heat up this summer, which is the typical time home prices peak each year.”

But a different view was offered by Lawrence Yun, chief economist at the National Association of Realtors, who noted his organization’s latest flash survey found “11% of Realtors indicated a reduction in buyer traffic and 7% are reporting lower seller traffic when asked directly about the coronavirus impact on the market.”

​Yun stated that while “lower interest rates can help overcome the economic and health anxieties” in this coronavirus-obsessed moment, he nonetheless predicted home sales will “be chopped by around 10%” compared to what could have been if the coronavirus outbreak never occurred.

Property investors are about to discover just how much the global fallout from the coronavirus pandemic has spread from deserted and cast-off buildings to their bottom lines.

Hundreds of corporate executives tracked in earnings calls around the world in the past five months addressed the urgency to cut real-estate costs, according to an AI model trained by Bloomberg to scour transcripts. Tactics include cutting office space, accelerating branch closures, renegotiating rents on warehouses and even shutting data centers.
In 4,767 global earnings calls between July 21 and Dec. 8, about one in eight machine-generated transcripts revealed that firms were rethinking their real estate needs, with many on track to save millions of dollars in the process.

While the pandemic has squeezed landlords and clobbered securities linked to commercial real estate, the damage to cash flows stands as the long-tail risk for investors. In an estimated $10 trillion global pool of properties held for investment purposes, the industry’s main sources of capital -- pension funds and insurance firms -- count on the steady income to pay for their own long-term commitments.

“That’s the key rationale for buying real estate. Most landlords are in effect pension and insurance funds and ultimately that’s who is going to be paying for it,” said Adrian Benedict, head of real-estate solutions at Fidelity International in London. “If the whole central tenet of security of income is undermined through this crisis, you are storing up a world of trouble.”

Investors are already hurting: a global index of real estate shares has shed more than 10% this year as a gauge of all types of stocks surged about 13%. On the debt side, delinquencies on US commercial mortgages climbed to almost 6% in November, according to the Mortgage Bankers Association. Risk premiums for BBB-rated commercial mortgage-backed securities have almost doubled since the start of the year, according to Bloomberg Barclays index data.

As the global recession deepens and companies brace for the new normal that follows, business will require less space than pre-COVID. An October survey by the UK’s Institute of Directors found that 74% of companies planned to make more use of working from home once the pandemic subsides, with more than half intending to reduce the amount of workspace they use.

While the coronavirus vaccine has thrilled investors worldwide and sent real estate stocks rebounding, celebrations may turn out to be premature. The kind of changes that officials have been discussing have often been of a permanent and structural nature, with the forecast savings being largely welcomed by company shareholders and analysts.

“We will implement a hybrid working model for many of our colleagues and reduce our real estate footprint by approximately 12%.”

- John Kritzmacher, Chief Financial Officer, John Wiley & Sons Inc.

• Earnings call date: Dec. 8
• Company description: New Jersey-based education information services provider
• Real estate footprint: 38 locations globally
• Estimated savings: $7-$8 million annually from 2022

Even firms that mainly rent space in cheaper locations are targeting cuts.

“We want to save 35% of our square meters at the headquarters,” Jan Juchelka, Chief Executive Officer of Komercni Banka As, a Prague-based lender, said on an August call, discussing the company’s new “smart office, flexible workplace” plan that combines home-working and hot-desking to make radical cuts.

The pandemic has also served to accelerate the demise of branch banking. Lenders including Tupelo, Mississippi-based Renasant Corp., Amerant Bancorp Inc. in Florida, Zurich-based Cembra Money Bank AG and North Carolina’s Truist Financial Corp. were among those discussing more cuts and closures during the period.

“We plan to close 104 branches in December and January and are looking at ways to bring forward more branch closures in 2021,” Truist Financial’s CFO Daryl Bible said on an Oct. 15 call.

Our real estate strategy will “match the footprint to the new expected normal, which, in many cases, reduces our footprint by 50%.”

- Mark Harris, CFO of Heidrick & Struggles International Inc.

• Earnings call date: Oct. 26
• Company description: Chicago-based global executive search firm
• Real estate footprint: More than 50 locations globally, typically prime city center office buildings
• Estimated savings: Initial $6 million a year, with an additional $5-8 million as strategy progresses

It’s not just offices being ditched and downsized. S&P Global Inc., the financial-information provider, was also planning to consolidate its data centers, CFO Ewout Steenbergen said in a late July earnings call. He said that COVID-19 would “change how and where we work.”

Despite emerging as a big winner from the pandemic thanks to the explosion in online shopping spurring demand for storage, pockets of the industrial-property market have also been hit. Major customers including airlines have suffered from the collapse in global travel.

“We have a team dedicated to pursuing additional cost-reduction initiatives for cash preservation,” Air Canada Deputy CEO and CFO Michael Rousseau said in a July call. “In addition to labor and fleet rightsizing, areas of focus are maintenance, real estate, IT and other fixed-cost areas.”
“You negotiate and get some relief for times like this. If the situation continues, we’ll perhaps have to extend and ask for greater relief.”

- Ashish Dikshit, managing director of Aditya Birla Fashion and Retail

• Earnings call date: Nov. 6
• Company description: Mumbai-based fashion retailer
• Real estate footprint: Over 3,000 stores across more than 750 cities
• Estimated savings: Rent for six months through September dropped about $18 million from a year earlier

The breadth of the pull-backs is striking. Domtar Corp., which operates paper mills in the US, is exploring site closures, while Waste Connections Inc., which operates recycling centers, expects to reduce rents. Even companies in health care, like Tennessee-based retirement home operator Brookdale Senior Living Inc., are securing cuts from landlords.

​“The rent reductions that we received are significant and permanent and they total more than $500 million,” Brookdale CEO Lucinda Baier said on a call in August.

Many companies’ cost cutting plans are still at an early stage, and will take some time to filter through to investors’ bottom lines. As workers prepare for some kind of return to buildings next year, long-term questions about real estate needs may even grow more urgent as concerns about health, safety and human interaction become more entrenched.

​“We are going to move into a new world where people have the right balance of working from home and working in the office,” John Rogers, CFO at advertising group WPP Plc, said on an Aug. 27 earnings call. “That will mean that we need less office space going forward.”

Fannie Mae's Home Purchase Sentiment Index (HPSI) may have reached its peaked for now, dropping slightly in November as consumers report a more cynical view of homebuying conditions.

In November, the HPSI dipped 1.7 points month over month to 80 – marking its first drop after three straight months of increases. The index is down 11.5 points year-over-year.

"This follows the HPSI's recovery of slightly more than half of the loss experienced during the first few months of the pandemic," Fannie Mae Chief Economist Doug Duncan said.

Fannie Mae also reported that the sentiment gap between homeowners and renters was at a near survey high last month.

"Interestingly, the gap between the HPSI broken out by the homeowner and renter subgroups hit a survey high in August but, despite narrowing slightly, remains elevated and well above the survey average," Duncan said.
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Duncan explained that homeowners have regained more of their purchasing confidence than renters, "in part because homeowners have been less likely than renters to have had their jobs and finances impacted by the pandemic."

Three of the six HPSI components fell month over month in November. Component highlights include:

• The net share of Americans who say it is a good time to buy a home decreased three percentage points to 57%
•  The net share of Americans who think it is a good time to sell posted a 2% month-over-month gain, up to 59%
• The net share of Americans who expect home prices to go up in the next 12 months rose 8% to 41%
• The net share of Americans who believe mortgage rates will go down in the next 12 months went down 14 percentage points to 8%
• The net share of Americans who say they are not concerned about losing their job in the next 12 months saw a decrease in November, down six percentage points to 76%
• The net share of Americans who reported that their household income is significantly higher than it was 12 months ago inched up three percentage points to 25%

Nationstar Mortgage LLC, a mortgage-loan servicer, has been ordered to pay over $74 million to settle complaints from approximately 40,000 borrowers.

All 50 state attorneys general, as well as the Consumer Financial Protection Bureau (CFPB) filed lawsuits filed in federal court on Monday that alleged Nationstar failed to properly oversee third-party vendors or respond to borrowers’ complaints, as well as other offenses.

In a press release, the CFPB said that Nationstar, which is owned by Mr. Cooper Group Inc., has agreed to pay around $73 million to the group of borrowers as well as a $1.5 million penalty. The statement estimates the whole deal, along with state settlements, will yield around $85 million in recoveries for consumers and more than $6 million in penalties and fees.
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In a separate statement Nationstar, as well as two other servicers: U.S. Bank National Association and PNC Bank, agreed with the Justice Department to pay more than $74 million to remedy “serving errors” that negatively impacted borrowers in bankruptcy.