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

16 Replies


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

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.

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. 

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. 

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.

@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

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?  

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. 

 

@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.