Foreclosures down? Well, kinda….
A little background.
I used to do a LOT of short sales. Obviously, very closely tied to foreclosures.
No secret – Banks are in business to lend money. Currently, they will give you ~0.5% on a CD and lend your money out at ~4-5% or more.
When they have a home loan that is a non-performing asset (buyer not paying), eventually they will take it back thru foreclosure. Some states are quicker than others. i.e. Oregon, Washington, Idaho can take only 6 months but New York (and other states) minimum is 18 months.
Banks can only hold so many foreclosed properties and values on their books. What does that mean? 4 houses x $100k loans is the same as a $400k loan.
Banks are allowing people to live in big houses because that bank doesn’t want to take it back… for a while. Plus a $400k house takes longer to sell than a $100k house.
Dodd Frank increased penalties that banks incur.
After a house is on the books, the bank has to put up to 10x the dollars aside that they CANNOT lend out. Yikes! Mucho dinero!
Additionally, if a bank has too many on their books their credit rating goes down. Then they have to pay a higher interest amount when the bank needs to borrow money.
So… banks have NOT been taking them back thru foreclosure to avoid the penalties of Dodd Frank. Some people have been living without making payments for 5 years in some cases.
Banks have now moved to sell the loans or notes, rather than exercise foreclosure. Interesting evolution.
How does this help us? Since a lot of houses are in limbo, they are not available to investors.
If you put a note or finance a mobile home, could you sell it to a note investor who can’t get a foreclosure?
If you were at the Mesa event, you met Mike, who did 25+ last year.
Stay tuned …