All Forum Posts by: Alex Forest

Interesting perspective. 

Regarding "I will buy in again when there's blood in the street" I have the same thinking. I tasked myself this past week along with some current and former partners/managers to 'gear up' for the (perceived) coming foreclosure boom as idle money prepares for 'something'. So I looked at as much data as I could find; SEC filings, county records, demographics, loan data, commercial lender disposition, etc.

In the end, I find that I disagree with my initial thinking, which if I read you correctly was consistent with your sentiment.

I do, though, believe in facts (referring to "They can throw out all of the "facts" they want".) Without facts, I am just speculating and speculation complicates investment decisions. I know you say you don't trust the GSEs, but their 10-K provides tremendous insight into the 2020 lending environment.

Of the 1.1M loans that received a forbearance in 2020, 337,086 were "Reinstated" and 167,388 were "Liquidated" (paid off). Only 13,277 are classified as "Modification" and 83% of loans that received a forbearance and subsequently received a completed modification were current. The bottom line is loan modifications (statistically) have worked. This is all on Fannie Mae 2020 Form 10-K page 112.

But here's a key data point. While there are 524,555 loans in active forbearance, only 62,144 have an "Estimated mark-to-market LTV ratio > 80%". This is the critical marker for "Higher-Risk Characteristics of Single-Family Loans." Reference: FNMA 10-K, also on Page 112.

Based on the facts I see, I just don't anticipate a massive deluge of foreclosures on the horizon. County data supports this position. Historically, county data (Wake, NC) for my company's major investments by value has been a reasonable proxy for trends in other parts of the county. While not iron-clad, I feel comfortable with the premise that my analysis should represent many other regions in the US.
The chart below, based on Wake county NC courthouse filing data, shows that we were already in a period of low recorded defaults and foreclosures. (The substitute trustee filings are a marker/indicator for defaults.) The number of foreclosures in Wake county so far for 2021 is just 12, and S-TR is 500. 

My summary: For the foreseeable future, property owners who remain in default who are unable to pay will just sell on the open market without significant systemic financial implications. The event induced recession does not compare to the systemic financial distress of the Great Recession. 

@Alex Forest he is talking about how much it costs to buy down the rate. That is just a fee on top of the other bank closing costs.

For example: a few months ago I refinanced a single family home that I have as a rental. I had to pay normal closing costs (loan origination fees, title fees, etc.) of about 3-4K. But I also had to pay a 1% fee to buy down the rate from 4.5ish to just under 4%. So I had to pay an additional $1500 - $2000 to lower the loan’s interest rate from about 4.5 to 3.875. Total monthly savings on the interest would be about $60. So if I plan on keeping the rental for more than 2-3 years then it is worth it to pay an additional $1500 - $2000 to pay down the rate because in the long term I’ll be getting more cash flow and paying less interest.

But now, I was talking with my banker yesterday and she mentioned that the fee to buy down the rate is going from about 1.5% to 4% to buy it down to the lowest amount of around 4%. In other words to get a loan for say 150k on a home worth 200k, I would need to pay a rate fee of 6k in addition to all the other closing costs if it is an investment loan or 2nd home, thus bringing up the closing costs from say 5k to 10k. This will essentially have a negative effect on the refinance part of the BRRRR method.

You know what they say, if the government wants to slow or stop a behavior, they just tax it to death.

Simply put, that's why the last 9 months are an awesome opportunity for an investor.

investor rate of course. Max I can buy is up to 2.5%.  Now perhaps the max I can buy is 4% after this FM announcement.

all my rental is 2% only. I buy points :)

To be very honest, all this REI only makes sense if the interest rate is 2-3%, then the return is good. Even 4% is just so so... For 5% I'd rather invest in syndication.

Just one week ago I was going over options for my first investment property with a lender, and she said this was coming down the pike. Maybe it's just not a good time to get into REI right now. Although I do keep hearing, the best time to plant a tree was 20 years ago, and the second best is now. Is it a good time to for deals or a better time to wait it out?

There is an article today which says certain 'hot' states saw a net decline in population but a double digit increase in home sales and prices and no that state is not California. What I deduce is there is an investment frenzy like 2007 / 2008 where people where gobbling up investment properties with a speculation mindset. Of course lending standards were different. Or rather there were no standards at all. I am not sure how tight they are today. They used to be tighter for sure.