More foreclosures coming?

Question

Interesting article on non-agency mortgage delinquencies from the 08 crash.

Why bubble-era home mortgages are a disaster waiting to happen - https://on.mktw.net/2SpkCRx

Brian Ploszay · Answer

I think that most of the bad mortgages from that era have gone bad already.  Ten years later, there is a greater chance that borrowers have regained some of their equity.  In some very distressed areas, there are still many houses that are under water.

Jay Hinrichs · Answer

were do you think all the NP  seconds come from this is it..

Brian Egr · Answer

NP seconds aren't going to have the same effect as the NP firsts did in '08 though, are they?

Logan Hassinger · Answer

@Amad Osman

Depending on the holder of these mortgages/notes, the speed at which they move these distressed assets or deciding to move them at all is a function of a number of things.

Bank of America for example has almost 2  Billion in NPL’s. Now that only makes up a small percentage of their total portfolio but those loans can be in any number of areas.  The bank then staffs a distressed asset team to help sort through, perform workouts and sell assets.  These distressed asset teams are made up of people “just doing a job”. They aren’t there to clean up the ENTIRE mess.

Another point as to why a bank would be holding these nonperforming assets and not foreclosing is the risk exposure that is opened up to having an REO on the books, and therefore the official owner and needing to do keep up with property preservation. That’s just added expense that they might as well allow a dead beat borrower to bear.

At the end of the day, a bank is in the business of lending not real estate. Managing a loan portfolio worth trillions and having less than 2% be nonperforming is just part of the business. It’s a diversified loan pool vs diversified RE for RE Investors.

Bill B. · Answer

Think about all of our parents or grandparents that lived through the Great Depression and then spent the rest of their lives preparing for another. I grew up in the Midwest with grandparents that mentally never recovered. They spent their life worrying about the next depression and never really seemed to enjoy life.

I can see the same thing being said about a certain percentage of people that lost their houses, or maybe more likely people who’s parents lost their house. They thought they were well off, they didn’t know how close to the edge their parents were living. Assuming 30 more years of economic growth they’ll still be talking, or in the Midwest just silently thinking about the next crash and acting accordingly.

Brian Ploszay · Answer

NP Seconds are an investment that I avoid.  They get wiped out during any foreclosure.  They are hard to reperform or foreclose in my market.  (I've bought notes buy only in my region).   And seconds were placed on a minority of loans back then.

There are naysayers that say waves of commercial loans won't be refinance-able.   I'll wait and see.

I am of the opinion that the recession won't be as real estate driven.  And the depth of the last real estate crash will probably be a once in a life time event.

I've said this on posts before - watch for any uptick of defaulted mortgages as a potential indicator of a future foreclosure wave.  Right now, defaults are low.

Chris T. · Answer

Brian, what data do you use to watch for defaulted mortgages?

Per this article, it states that Non-agency RMBS loans are rising

"In 2012, just 2% of all these delinquent borrowers had not paid for more than five years. Two years later that number had skyrocketed to 21%."

Jay Hinrichs · Answer

I may be a little off base here but you have a small second of 10 to 20k that is in default. the property is in the mid west and underwater. you simply walk from it.. not worth the cost of foreclosing.. so you sell the NPn 2nd for 5 or 10 cents on the dollar and let the private sector work it them out.

Amad Osman · Answer

@Brian Ploszay I thought the same but this article indicates that’s not the case. Many of these mortgages have been delinquent for over 5 years and many of the mortgages that were modified have defaulted again. Even if the properties have regained value, if the owners are 5+ years behind on payments it may still be a lost cause. I’m surprised these notes have not been sold off.

More foreclosures coming?

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