Morning! This is MF Lending - we’re the fool-proof way to serve up mortgage and real estate market knowledge without any of the guesswork. So you’ll be like the smartest agent in the room.

Here’s what we’ve got for you today:

1. Let the Client Drive 🚘

2. May CPI Summary & FEDs Next Moves 🎯

3. Product Deep Dive: Assets-as-income 🌊

By the way, the article Your Lending Partner is More Important Than Ever is the most clicked link in this newsletter, you should check it out if you are interested.

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Nuwave Rates Today 📉

Let the Client Drive 🚘

Yesterday I was driving and a woman in a white Mazda began tailgating me. She zipped to the right lane, cut off the next car, and arrived at the stoplight one car ahead of me.

My initial response was to mock the aggressive nature and even be enraged at the woman.

We turned left through the light, she sped around the next car, and pulls left into the hospital.

You don’t know what is going on in another person’s life.

You don’t know what their priorities are - because you aren’t them.

Next time you beat your chest and tell a client that you know what is best for them, or this is the right way to buy a house or get a loan - think of the driver.

May CPI Breakdown & FEDs Next Moves

Headline inflation rose 4.9% (down from 5.0% last month).

Notable changes:

1. Used car prices were the highest monthly change at 4.4% - these are propping up the inflation number - and this month seems like an outlier. Moving forward, as the costs revert to the mean, it should reduce inflation substantially.

2. Shelter (rent & primary residences) seems to have crested - the rise of these costs is slowing dramatically and we should see them drop in the upcoming month’s report. This will also help bring down inflation as shelter makes up 40% of CPI.

New FED Predictions

According to market predictions - there is a 99% chance that the FED will issue a rate pause in the upcoming June meeting.

The real question will be - what will the FED do at the end of July? According to market predictions, it’s a coin flip between a pause & a possible rate cut in July.

In even better news these FED prediction models show an 82% chance of rates by September.

…and a 99% chance of rate cuts by November…

Takeaways for Agents

Overall this report was extremely positive for the summer.

If shelter costs continue to fall - as predicted - we could potentially see a rate cut as early as July. This could be the beginning of the end.

To be clear - even with 25-50bps of rate cuts in ‘23, it does not mean that clients will be able to start refinancing to lower payments. We could potentially start seeing interest rates hover around 5.875%-5.99% as early as this winter.

I believe this would not only help the affordability problems faced by buyers but also help with the inventory issues as sellers will have less of a payment shock if they decide to swap into another home.

As always, we will keep you updated on any substantial changes 😎

Assets-as-income

If you have clients that are retired, it does not mean they are ineligible for a home purchase. For conventional loans, you have the ability to use retirement assets as income to qualify your borrower.

There are two ways to calculate this income: Asset Depletion & Distributions

a. Distributions

This is the simplest and most effective way to use assets as income. The client can ask the custodian of the retirement account to set up a monthly distribution from the account to go directly into their checking account. We need to show the following:

1. Where the funds are coming from (retirement account statement)

2. Amount of distribution (letter from custodian)

3. Distribution is ongoing and the client has received it for at least one month (bank statement where distribution is received)

4. The account has enough funds for the distribution to continue for at least 3 years - called “three years of continuance”

If these conditions are all met, we will use the distribution amount as income - just like wages.

As an example -

Let’s say a retired client with full access to her 401(k) has a retirement account with $600,000 in it. She has no debt and wants to purchase a $500,000 home with 50% down from the sale of her last house. (Estimated monthly payment ~ $1,850)

She can call her custodian of the 401(k) and ask them to set up a monthly distribution of $4,500. That is what we can use as her income.

DTI: (1,850/4,500 = 41%)

3 yr continuance: $4,500 × 36 months (3yrs) = $162,000 ✅

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b. Asset Depletion

If you have clients who do not want to set up a distribution - the alternative option is asset depletion. Simply put, this option takes the balance of the account and assumes even withdrawals throughout the loan term.

Here is the calculation for the same client (above) with $600,000 in assets:

[$600,000 - any penalties ($0) / 360 (term of the loan) = $1,666.67 monthly income to qualify]

Typically - this asset depletion option is used in tandem with other income (such as social security or pension) as a way to supplement the borrower’s qualifying income.

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Assets-as-income can be an amazing way for retired clients to get qualified for a conventional loan. Hope this is helpful

The Cul-de-Sac

Mark your GCal 📆

1. Jun 14th - FED Meeting

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you found it valuable.

— Michael F DiLucchio