Busting the Employment Myth! Assumability Part II

I was at the park this morning watching my Bernadoodles run around in circles aimlessly, crashing into each other and falling down for no reason – while the smart dogs looked on utterly perplexed. That actually happens; Bernadoodles are not the brightest bulbs, and the labs, huskies, springer spaniels, and pointers get very confused by their erratic behavior. This is me hoping that dog-intelligence does not correlate to owner-intelligence…

Anyway, one of the owners of a smart dog (Springer Spaniel) helps manage the pension fund for a large corporation, and he was telling me this morning how the economy is booming because the employment market is so strong. And I thought… “uh, oh… even my Bernadoodles know better – so I better put this myth to bed!”

But First, A Few Follow-Up Notes From Yesterday's Blog About Assumable Loans

I received a ton of feedback in response to yesterday’s blog: Assumable Mortgages; How to Get a 3% Mortgage in a 7% World, and I wanted to touch on a couple of things.

1. How Long Should It Take To Get An Assumption Approved? If buyers want to assume a seller’s FHA or VA mortgage, they must get formally approved by the existing noteholder or servicer. A very savvy agent emailed me yesterday though to let me know that she heard that it can take “45 to 120 days for a lender to even consider approving” a formal assumption. As a result, we looked into this, and we were informed by HUD that lenders/servicers must provide an answer within 45 days of receiving a complete loan package, per HUD’s formal guidelines. So, if anyone is seeking a formal assumption, and they experience any foot-dragging, they should contact HUD immediately. Buyers should also be very diligent about providing a complete loan package too, as I suspect servicers can use that as an excuse to delay things.
2. Cash To Close Can Be An Issue/2nd Mortgages. Another savvy reader reminded me that cash to close and/or down payment funds can be an issue too, as buyers must accept the exact loan balance against the property. Hence, if the loan balance is $400,000, and the property’s price is $550,000, buyers need to come up with $150,000 plus closing costs – and many buyers do not have access to that much cash. So, this is just a reminder that buyers looking to assume a loan can get 2nd mortgages to help fill that gap.

Employment Myth!

Here is the point I want to make again: Unemployment does not surge until after we are in a recession. Today’s ostensibly strong labor market is irrelevant.

I will illustrate this with two charts: An informative one, and a TERRIFYING one. In the chart below, the line represents unemployment, and the gray bars represent recessions.

A quick glance shows that unemployment ALWAYS bottoms out right before recessions, and then surges after we are in a recession. Unemployment bottomed in April at 3.4%, and now it is 3.8% - which should sound some alarm bells.

But – see farther below for the really scary chart!

Unemployment Rate & Recessions

The Really Scary Chart!

The chart below shows the percentage of the civilian labor force unemployed 15 weeks or longer. And, every time the number turns up, we go into a recession.

And the number just turned up…

Percent of Civilian Labor Force Unemployed 15 Weeks & Over

I could also share numerous media reports about the job market cooling like this one from the WSJ, The Job Market Boom Is Over, but I think the data above is the most telling.

Barry Habib also likes to remind us too that first we see hiring slow down, then we see employers cut hours, and then we finally start seeing the layoffs.

We’ve seen the hiring slow down and the hours getting cut, so now the final step seems imminent.

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