This week’s guest is Eddie Speed, Chief Cook and Bottle Washer of NoteSchool and Colonial Funding Group. Since 1980, Eddie has introduced many innovative ideas and financial strategies which have allowed thousands of people to achieve financial freedom. After forty-one years in the note business, Eddie is THE guy people look to for guidance in the world of note investing. Eddie knows the importance of relying on hard data to make smart investment decisions, and in today’s episode he and Joe Varnadore demonstrate why data is so important and reveal several eye-opening findings
Lots of real estate investors see nothing but blue skies and big profits. Home prices are way up and mortgage interest rates are down. But when you take a deep dive into the data behind the market, you’ll realize that there are some serious issues on the horizon.
Today’s market is filled with head scratching contradictions. The economy is not at full strength, and yet home prices keep climbing about 2% per month. Another serious sign is that the number of delinquencies and forbearances are way higher than before the pandemic, which is affecting mortgage companies and landlords. You’ll learn more about this “shadow inventory” of homes that should be hitting the market soon and are likely to bring prices down.
In this week’s episode, Eddie Speed and Joe Varnadore take our NSTV viewers through some very significant statistics provided by the Black Knight’s Mortgage Monitor. You’ll hear Eddie interpret these numbers through the lens of his decades of experience in the note business. He explains the extremely high numbers of delinquencies and forbearances, and the government moratorium on evictions which has caused pain for landlords who need rent money to pay their mortgages.
He also shows why mortgage companies have tightened their approval requirements such as larger down payments and higher credit scores. This has put about 35% of the people who could have qualified prior to the pandemic but are now in the penalty box.
Eddie also explains a huge opportunity of how the huge gaps being left by the mortgage companies have created a bonanza for note experts who can fill this niche by creatively structuring notes with favorable terms when buying or selling properties. He and Joe also address questions from viewers during the After Party.
2:00 | Eddie gives a note industry update with latest market data for the last Wednesday of the month. He takes us through numbers provided by Black Knight’s Mortgage Monitor.
6:10 | Eddie shares there are 1.7million seriously delinquent loans, which is 4X the number of delinquencies before the pandemic. These loans are being traded in the nonperforming category. But that number is declining, but still about 8% aren’t being paid. This is what we call a “shadow inventory.”
9:15 | Eddie shares that fewer than 4% of mortgages are in forbearance which is lowest since April 2020. Only 2.3% of Fannie Mae mortgages are in forbearance, and just under 7% of FHA are in forbearance. Way more than half of all GSE (government-sponsored enterprise) loans are Fannie Mae and Freddy Mac, but 40% of the loans in delinquency or forbearance are FHA.
11:40 | Good news is that of these loans in forbearance, 33% were removed from forbearance as payments resumed. But the bad news is that 67% went into another forbearance extension beyond the original 18 months.
14:10 | A spike in September showed the forbearances are expiring. This shows 2 million loans in active forbearance. This suggests that the current inventory shortage will soon go away.
15:25 | Home prices hit 3rd consecutive all-time high in May, going up 2% per month. Wow! Austin, Texas is on fire; up 35% over last year. At the bottom of the top 50 markets, New Orleans and Pittsburgh, are still up 10%. This is taking a toll on affordability.
19:30 | Eddie shares concern that home ownership is becoming too exclusive. 2,650,000 are not current on payments (delinquent but not in forbearance.) But add in the mortgages in forbearance and it’s about 4.5 million that are behind. One reason mortgages are falling behind is because landlords don’t have rent coming in from tenants.
24:00 | Joe describes the decline in mortgage rates, down from 2.88% last week to 2.78% this week on 30-year fixed. Then he describes the mortgage credit availability index, which has dropped immensely since February 2020, then started climbing back, but dropped again in the last month or two. Which means people need bigger down payments and higher credit scores around 770. This means that about 35% of people who could get a mortgage prior to the virus can’t get approved today. This leaves a huge gap for opportunities to offer seller financing—a huge bonanza for note entrepreneurs!
30:30 | They talk about who is buying property. It’s mainly small-time investors who own 1 to 10 units who are buying rental properties. The big players aren’t buying.
31:55 | Eddie describes additional government rent assistance to tenants, 8 million tenants are behind. But the money hasn’t gotten to the landlords.
35:50 | To get this info sent to you, email [email protected] / subject line: Market Update July 2021
36:45 | Today’s sponsor: NotesDirect and Feeding Frenzy Friday.
39:30 | After Party begins. Eddie says the small-time landlord is very stressed out and is most open the idea of offering seller financing to unload their rental properties. Eddie describes the meaning of the Credit Availability Index.