Lender View: Here's what coming next....the outlook is not good.

Lender View: Here's what coming next....the outlook is not good.

Specialist · Manhattan, NY · Member since 2013 · 116 posts · 192 votes

Mortgage Update: Outlook is not good.

The economy continues to shudder to a halt. As I write, lower manhattan looks like a ghost town. My local coffee shop typically turns about $1,000/day. Yesterday, Carlos had taken $92 with $15 in tips. In Manhattan, that buys 2 subway rides and a sandwich.

So what?

Carlos lives with his extended family in a 3-unit building where he rents 2 units and lives in the basement. His tenants have asked if they can pay late. You can probably guess where this is going.....

A small portion of our loan book consists of performing mortgages (~5%). Almost all are late.

What next?

1. Expect up to 25% of mortgages to go delinquent in the next 90 days. 20% of the workforce are employed in leisure, retail and consumer-facing services. They are all missing paychecks.

2. So far, 11 states have issued debt collection, eviction and foreclosure advisories or moratoriums (requesting creditors to cease recovery activities). Most states will follow.

3. Delinquent borrowers living pay-check to pay-check will not be able to catch up. Whether it's 3 payments or 5 or 10....how can you pay when you have no job?

4. We could see a repeat of 2008. I guess its a 30% probability

Paul Birkett

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Cameron Tope:
Originally posted by @Bob Malecki:

Sure @Cameron Tope since I can't evict my tenants and they can't pay rent from being laid off should I just pay my mortgage anyway. There are thousands of mom/pop investors who will experience this. 

How many tenants do you have and how many of them are laid off? 

The odds of all your tenants being laid off is extremely low as the unemployment rate went from 3.5% to 5.5%. 

My point was that it's easier to pay a mortgage on a small portfolio of SFRs than a multi-million dollar apartment complex. 

Does that make sense?  

one of my bizz partners I was talking to yesterday ( doing a lot of that lately) has 150 unit building B class Pac Nor west .. his PM called and said to expect 40% non pay for April.. as long as this is confined to 1 to 2 months most every landlord should be able to pull through this. If its really prolonged then of course its everyone's guess.

the latest crop of I want to be a syndicator and doing their first deals I think will be the first to tumble. 

See this reply in the discussion

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    6y

    You are correct I don't see a lot of people being able to catch up on their mortgages. I suspect these missed payments will just be added to the back end of the mortgage.

    Landlords can't move missed rent payments to the back end of a lease. I think small landlords will be hurt more than Wells Fargo.

  • Cameron TopePro Member
    Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Thanks for sharing! 

    I think the people that are going to be hurt the most are the large commercial loans - specifically the apartment complexes that needed rents to increase YOY for the next decade. 

    The mom and pop investors with less than 10 SFRs will be fine. The mortgages are small enough if they have a vacancy, they can cover the payment, and the odds that all properties going vacant is pretty low. 

    It's a lot tougher to cover the note on a large apartment or retail space. 

  • Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    6y

    Sure @Cameron Tope since I can't evict my tenants and they can't pay rent from being laid off should I just pay my mortgage anyway. There are thousands of mom/pop investors who will experience this. 

  • Real Estate Consultant · Whitestown, IN · Member since 2014 · 547 posts · 933 votes
    6y

    I was discussing this issue with a group earlier today. We tossed around the idea of the hardest hit/wave of inventory may actually come from the over-leveraged BRRRR investors. I've counseled people on leverage and risk for years. This especially applies to BRRRR. At the end of the day, many of these investors want to see higher ROI's and less money invested, so they over leverage. Worse yet, they aren't keeping adequate reserves. What happens when all 3 tenants quit paying rent and one of the HVAC systems fail and needs a $1,500 fix?

    Currently, I'm polishing up on my subject-to contracts and short-sale skills right now.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Ross Denman and a lot of them do it with portfolio loan products which can get even more dicey in times like this

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Paul Birkett. I agree with you. I am eventually predicting a massive lending freeze on most loans which will cause prices to drop as no one is buying. Then mortgages will go delinquent like you’re saying and eventually to foreclosure

  • Cameron TopePro Member
    Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Bob Malecki:

    Sure @Cameron Tope since I can't evict my tenants and they can't pay rent from being laid off should I just pay my mortgage anyway. There are thousands of mom/pop investors who will experience this. 

    How many tenants do you have and how many of them are laid off? 

    The odds of all your tenants being laid off is extremely low as the unemployment rate went from 3.5% to 5.5%. 

    My point was that it's easier to pay a mortgage on a small portfolio of SFRs than a multi-million dollar apartment complex. 

    Does that make sense?  

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Cameron Tope:
    Originally posted by @Bob Malecki:

    Sure @Cameron Tope since I can't evict my tenants and they can't pay rent from being laid off should I just pay my mortgage anyway. There are thousands of mom/pop investors who will experience this. 

    How many tenants do you have and how many of them are laid off? 

    The odds of all your tenants being laid off is extremely low as the unemployment rate went from 3.5% to 5.5%. 

    My point was that it's easier to pay a mortgage on a small portfolio of SFRs than a multi-million dollar apartment complex. 

    Does that make sense?  

    one of my bizz partners I was talking to yesterday ( doing a lot of that lately) has 150 unit building B class Pac Nor west .. his PM called and said to expect 40% non pay for April.. as long as this is confined to 1 to 2 months most every landlord should be able to pull through this. If its really prolonged then of course its everyone's guess.

    the latest crop of I want to be a syndicator and doing their first deals I think will be the first to tumble. 

  • Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
    6y

    @Bob Malecki, how do you intend to deal with your lenders? Have you started the conversation that you might not be in a situation to make those payments?

    And most licensed nonQM lenders have bowed out of NOO loans until this is over. Luckily the few deals we are working on are with a family office.

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    6y

    @Jay Hinrichs

    I agree - the I read a book and will be a syndicator crowd will be the first to fall in MF. For single family be similar as it will be those who are over leveraged and have almost no reserves.

    Based on some readings today FHA loans appear to be disappearing and those with lower credit scores will have to put the 20% down but rates are suspected to be significantly higher.

    This will open up some opportunities for owner financing product.

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  • Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    It is going to be a long road for a wave of foreclosures to happen.  Homeowners and tenants are being protected by government entities, for now.  If a tenant misses three payments, they can catch up easier if the amount is re-amortized into the length of the loan or back ended.  Basket case borrowers will give up their properties.  For example, a busted restaurant owner's problems lead to full bankruptcy. 

    I find some different conclusions from @Chris Seveney post. If the low down payment mortgage product disappears for awhile, then the for-sale-market completely stalls. Pricing weakness follows. You'll see lots of MLS listings that say "short sale." And an uptick in foreclosures for folks who need to sell, can't sell, and will walk away. The nuances here are that there may not be a foreclosure wave for people who were in trouble and want to stay in their properties.

    PS:  I have now witnessed several hard money lenders who have stopped lending.  The fix and flippers are going to be in decline.  End sales probably will not make pro-forma anyway. 

    PS#2: There may be an opportunity for me to buy lower end rental houses, as the home buyers and some investors are disappearing altogether.  I thrive in this product.   Any property that has a significant mortgage will take time to unwind.

    PS#3:  Residential rental market recovers fairly quickly.  We won't be getting back some of those lost rents. But future will be o.k.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y

    @Brian Ploszay agreed on that score.. up until this month foreclosures were are a record low.. just ask the NPN folks

    starting in April with missed payments there will be all sorts of work outs and the 90 day foreclosure halt.. then you take the 3 to 24 months to process them. and well its going to be a long time in certain markets before they hit the market.

  • Member since 2019 · 16 posts · 9 votes
    6y

    i saw a poll on redfin, which might help. https://www.redfin.com/blog/co...

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    6y

    The question really is what is the govt going to do as a response?

    I believe it is too early to tell what the outcome is going to be on this. While it does not look good, what if the banks are compensated to avoid foreclosures and provide borrower workouts?

    What is the lending world going to look like in 6-12 months?

    There are too many variables in the market to attempt to calculate an outcome. Also with the data - can the govt abstract the data to determine a remedy to limit damage ?

    With this being an election year the current administration is going to be very aggressive in any response

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  • Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Chris Seveney I agree that there are just too many unknowns to know what will happen for sure. The best we can do is closely monitor what's going on and adapt as best as possible.

    I read that Fannie, Freddie, and FHA back 70% of the loans out there. They've already put a 60 day moratorium on new foreclosures. We're all impatient to see things get done but they will figure this out in the next couple of months.

    Unemployment benefits and other government attempts to help will also kick in over the next few months.

    When people start going back to work, that will also help prevent defaults or let people get caught up and that will happen without any further government involvement except for letting people go back to work. That will also reduce the mortgage default pain.

  • Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    6y
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