Why Mortgage Notes in 2021
2020 has been one hell of a year! The global pandemic and resultant State-ordered measures to ‘stop the spread’ have devastated businesses and markets all around the World. Now, as we now creak and groan into 2021, investors are diversifying, seeking security, growth and income outside beleaguered financial markets.
AN OPPORTUNITY IS COMING MORE LOAN IN DEFAULT THAN 2008
THERE WILL UNDOUBTEDLY BE SOME GREAT BUYING OPPORTUNITIES FOR NOTE INVESTORS IN 2022 AS INSTITUTIONS SEEK TO RID THEIR BALANCE SHEETS OF BAD DEBT
Contract for Deed
AN OPPORTUNITY IN COUMING
MORE LOANS IN DEFALT THAN 2008
The go-to asset class for investor seeking diversification has always been real estate. But direct ownership of physical property can be time consuming and expensive. That’s why mortgage notes are high on the agenda for savvy investors in 2021. You get all the income and security of real estate with none of the hassles of ownership.
With central banks still printing money like its going out of fashion (and showing no signs of stopping), one thing you can bet on in 2021 is more inflation. So holding a charge over appreciating assets like real estate seems like a very wise choice.
Different Types of Notes to Buy in 2021
The best type of mortgage notes to buy in 2021 will largely be defined by your own investing goals. Are you looking for passive income? or to capitalize on discounted assets for a capital gain? Whatever your goals, there are effectively two types of real estate note you can buy; performing, and non performing.
Non Performing Notes
If you are prepared to get your hands dirty and really commit to learning all the ins and outs of investing in real estate notes, you should probably aim to buy non performing notes. These are effectively bad debts on which the borrower is more than 90 days overdue on payments. Lenders and other note owners sell their non performing notes to exit their investment for quick cash and avoid lengthy and costly foreclosure proceedings.
There are lots of strategies for investing in non performing notes. Many investors will attempt to rehab the note by modifying the terms with the existing borrower to get the note re-performing. They will then either sell the note for a profit, or keep it for the income.
If a non performing note cannot be rehabbed, the investor might foreclose the loan and work out an exit strategy through the real estate. Some investors simply flip non performing notes to other investors when they buy large volumes of notes from banks.
There is likely to be some great opportunities to buy non performing notes in 2021 due to the economic impact of Covid-19 in 2020. While many pundits are predicting a wave of foreclosures, this doesn’t make any sense. Foreclosures take a long time to process (years in some cases), so banks will much more likely sell off their bad debt to investors way before the point of foreclosure.
If you want to buy mortgage notes purely for the income, and you’d rather not try to absorb an entire industry’s worth of knowledge and education, then buying performing notes is going to be your thing.
There are going to be some amazing opportunities in the real estate market in 2021. A chronic lack of affordable housing combined with an overflow of heavily discounted assets makes for a great investment opportunity. This means there will be lots of opportunity to find performing notes for sale.
Characteristics of Mortgage Borrowers During the COVID-19 Pandemic
- Since the beginning of the COVID-19 pandemic, the number of borrowerswho are behind on
their mortgage has increased to a level not seen since the height of the Great Recession in 2010.
Many mortgage borrowershave taken advantage of forbearance programs that permit them to
temporarily stop making mortgage payments. 1
Millions of mortgage borrowers in the United Stateshave entered forbearance since the start of
the COVID-19 pandemic; hundreds of thousands more were delinquent on their mortgages and
did not obtain forbearance, even though it was readily available to most borrowerswho reported
a COVID-19-related hardship. Publicly available numbers indicate that the total number of
borrowers in forbearance has fallen substantially since the start of the pandemic with around
4.9 percent of active loans remaining in forbearance; in addition, nearly 0.75percent of active
loans being reported as 30+ daysdelinquent and not in forbearance as of March 2021.2 In this
Special Issue Brief, we explore the characteristics, including demographics, of borrowers in
forbearance, borrowers who were delinquent but not in forbearance, andborrowers who were
neither delinquent nor in forbearance (i.e., “current”) during the COVID-19 pandemic.
Researchers have examined the effects of the pandemic on housing, but there exists limited
informationabout the characteristics and demographics of individual homeownersduring the
pandemic. According to a recent Bureau report based on survey data, Black and Hispanic
homeownerswere more than two times as likely as white homeowners to be behind on mortgage
payments as of December 2020.3 This is consistent with research from the Federal Reserve
Bank of Philadelphia (Philadelphia Fed) using mortgage servicing and credit report data, which
shows that some groups of mortgage borrowers hadhigher rates of non-payment during the