Posted Friday, August 20th, 2021 by Richard Roy
Forbearance: What is forbearance? How is forbearance impacting the housing market?
As the forbearance program comes to an end and foreclosures begin, how will it affect the availability of property into 2022? In another segment, we will be talking about construction costs in the United States. Why has the cost of lumber gone up and what are the long-term effects on its overall cost? We also discuss ways in which construction in the United States may need to change.
Brett: In this segment, we’re going to be talking about the forbearance program. The foreclosure crisis that is inevitably facing Americans is that it’s going to be beginning here, actually, in two days, when the foreclosure moratorium ends on federally backed mortgages. Let’s be clear about that. Federally backed mortgages. If you’ve got a conventional mortgage with a lender, you probably didn’t receive any benefit from the government’s moratorium, because those conventional loans from lenders can do whatever they want to do. But if you’re loan is backed by the US government and the taxpayers and we say U.S. government as if they are the taxpayers. Actually, your loans are insured by Me, Glenn, Richard, and everybody else in America that pays taxes. If it is underneath that program, then you have a moratorium where they cannot foreclose on you for any circumstance. It doesn’t matter why, until after July 31st. Then after September 30th, the forbearance programs end, and we’re going to get into that talk about forbearances and what those are, and how that will impact the foreclosure crisis that’s coming. I say crisis. This is not 2008. I believe at the end of the day you’re going to have about 3% of mortgage holders, maybe 3.5% facing foreclosure, and the majority of those will be able to pull themselves out of it. Back in the crash of ’08, you had tens of millions of people in foreclosure and their homes were upside down in values. So we’re nowhere near 2008, 2009. So, anybody listening here: Don’t panic.
Glenn: Not only that, but the banks learned a lot about how to handle these situations with loan modifications, short sales, etc. They learned a lot about that back in 2008, 2009 up through, 2012 and 2013. So, those programs are going to be a lot smoother than they were. You and I used to fight that battle every day.
Brett: Yeah. For those investors are listening, and your mouth’s watering because you’re thinking, oh, here we go, we’re gonna have a closure crisis and we’re gonna be buying houses for pennies on a dollar. Remember, the housing market is up 20 almost 24%, right? They expected a crash this year. Everybody expected a crash. I remember one specific genius real estate agent locally here in Memphis who said, no, it’s not gonna crash, it’s gonna go the opposite direction, and it did. It did exactly what I thought it would do.
Glenn: It must have been me.
Richard: I don’t know anybody like that.
Brett: It’s because you’re from Britain. There are no people like that in Britain. But yes, it went the opposite direction. There’s a varying list of factors that cause that issue caused the growth, and there are different opinions about it, but at the end of the day, it went up 24%. So, when the foreclosure process begins on a lot of these homeowners, there’s the argument that they’re just going to put it on the market, they’ve got an increase of 24%, if you have a $200,000 house that you bought and have a mortgage on, and your house is worth $240k to $250 now. So, you’ve got equity. So let’s throw it on the market and sell it for $235k quickly, to get out of it, and pay the bank off to stave off all foreclosure. Because listen, when the foreclosure clock starts ticking, the bank doesn’t care if you have a buyer because they can take that home in the courthouse step, sell it tomorrow, and get all their money, plus make money. I know they claim they can’t make money, but they’re gonna charge you legal fees, late fees, processing fees, foreclosure fees, and they will eat up every dime of the potential equity and it’ll go in the coffers of bank of America, or Citi-Bank, or whichever bank it is. It’s not that they’re gonna return it. The only thing, if they sell the house for $149,000 and you owe $148,000, by law they’re required to return that $1,000 to you. Because they’ve covered their costs, recouped their money, but the banks… There’s not an easy way to put it. Listen, there are a lot of shady lenders out there and they find ways to nickel and dime you to death and steal your money when they foreclose on you.
Glenn: Sometimes they just, outright, break the law. And we caught them doing it on more than one occasion.
Brett: They do. We challenged them many times in court for doing that, and we won a bunch of those, we lost some but we won a bunch. So when this foreclosure crisis happens, it’s not going to be nearly as big as it was in 2008, but, we are gonna have foreclosures that are gonna be happening. It’s inevitable. So, what is your prediction as to how that’s gonna impact the market?
Glenn: To me? Not much. I mean…
Brett: I don’t see it impacting it whatsoever.
Glenn: I’m with you. I mean, there’s just not enough of a mountain. Everybody wants to compare 2008 to now. I’m telling you, this is no comparison at all. 2008 was the bottom-of-the-barrel kind of fallout.
Brett: And we discussed what caused that? What caused that was that 80% of Americans had a government-backed mortgage and probably half of those people were given a mortgage simply because they had a pulse, and that’s it. That’s our government’s fault. They created that monster and it eventually came home.
Glenn: And more than likely we’ll be doomed to repeat it but that’s not going to be in our generation.
Brett: So my opinion is that this foreclosure issue is to create some opportunity for some investors. Maybe some guys that want to buy and flip property. I don’t see us getting into a crash, I don’t see us getting into a market that’s going to take a deep dive. We may have a correction of 8% 5% 4%, whatever it’s going to be, but at the end of the day, I think our market is going to stay stable and I believe the correction is going to come from these homeowners or banks, that are foreclosing on the property when they launch them off the courthouse steps. See, the sad truth of it is, when people evaluate the property and its price, foreclosures and all of that, is included in that. So if you have three, foreclosures in your neighborhood and your house is worth $300,000. But those three sold for $250k on courthouse steps, your value has now dropped because you have a comparable that is a larger value.
Glenn: The worst thing about the ‘O8 recession was the fact that you had people that woke up and had lost 40% of the value in their home.
Brett: And they were working and they were paying their mortgage, but they lost value simply because everyone else went under. So you know, my opinion is, I think the market’s gonna stay strong as long as people continue buying, interest rates are gonna stay low
Glenn: The Feds are gonna keep them down there.
Brett: But they have no choice. If they raise interest rates now, this so-called inflation is gonna get so out of control that it would crush the average American into poverty. It would just destroy everything.
Glenn: Well, that’s how it impacts our investors because if you have investors wanting to do flips the cost of the construction materials to do a rehab has gone up, probably 40%. So when you factor that into a flip, if you can’t get it for the right price, there’s no sense in doing it. And, if the admin then jacks up the capital gains tax, then that’s really gonna kill.
Brett: But that’s good for us, because we compete against flippers all day long trying to pick up property that we’re trying to get. Now, there’s also a flip side to this that a lot of investors need to pay attention to. Not just lumber is an issue, but materials across the board.
Glenn: Sheetrock, shingles…
Brett: So you’ve got a home today that you’re renting for $950 a month, the tenant vacates, come September, and you’re gonna rent-ready it to put it back in the market. Be prepared for your cost to go up 4 or 5%, or maybe even 8% to turn that house. There’s a shortage of lumber and we’ll get into that article here in a bit. But Richard sent out an email saying got wood? I was like wow, our British friend’s finally coming out the closet! But let’s not get off track. I want to continue on his path of what a forbearance plan is.
Brett: So let’s talk about a forbearance plan. A forbearance plan is where you go to your bank and say, hey I cannot pay my mortgage, I’m three months behind, but in two months I’ll be back working and I should be able to get caught up. So what the bank does is, it takes your past due amount and, it just throws it up on a shelf, and it’s no longer due temporarily for however long that forbearance contract lasts. 6 months, 12 months, 2 years, whatever it is. A lot of people jump into that out of desperation and don’t really think about what’s coming, because there is a day coming when your contract expires, and the banks is going to send you a letter saying, okay you owe us $7,000, you have until this date to clear this matter up or we will begin foreclosure. Then once you go back to the bank to try and renegotiate that or maybe work out some kind of a payment plan and they will, they’ll work out payment plans with you in some cases. But if there’s a lot of equity in your home and there’s already a lot of cost that has piled up, you know, I don’t know how they’re gonna handle that, I don’t know if the bank is gonna want to work with them because I’m telling you, the lenders can make profit from foreclosure. I know, they claim they can’t, and they claim that it’s detrimental, but Glenn and I watched [LARGE BANK] screw people completely over. Because there was an ability for them to make money. During the worst time of the crisis [LARGE BANK] turned, was it one point something billion dollars in revenue that year. I will assume that most of that was from all these different fees and garbage they picked up in the foreclosures that they conducted. We watched them purposely try to put people out of their house because there was an ability for them to sell that house and make some additional cash.
Glenn: Well, if somebody comes to you and says, I want to sell you this note, it’s $150k, but we’re gonna sell it to you for $75,000, okay? But the place is worth $150k and you’re like, okay I’ll take that. And so you buy the paper and then you turn around and start foreclosure proceedings against the owner.
Brett: Because the original note is what you get back, and so you can profit. But you buy is, like you said, $150k mortgage that you buy for $75k, well guess what? You’re owed $150k on paper and therefore, you can sell it for $150m and make $75k. So, this garbage of the banks, you know, being all about the homeowner and the people – that’s complete garbage. They’re all about money. They have a license to steal from you. Now, I’m not saying that’s all banks. We dealt with some very good banks. Very good lenders, that were very cooperative and worked with our homeowners but, your big ones, they robbed people.
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