Do you know how much is out there in delinquent debt on single family homes? It is probably more than you think, but numbers have become so large they are hard to even estimate.
At the end of 2014 there was $147 billion in delinquent loans that were 90 days or older on single family houses. With an average home price of $200,000, that would be 735,000 homes with these delinquent loans.
That’s a lot of homes and the hangover is far from over. Now here is the problem that most people don’t understand: When a homeowner becomes 90 days delinquent it is almost impossible to catch up. They not only owe their monthly payment in arrears but also substantial amounts of penalties and late fees. Plus, we are talking about loans that are 90 days and older. Most of these will be older so there is even more money owed. Sure, a very slim margin will get caught up and become current, but most will never be able to.
Initially, many will start down the path of trying to work with the lender. Here again, most will not succeed. From most of the stories we hear you would think that the lenders simply didn’t want it to work out, which makes zero sense.
Then they find themselves on the path of wondering how much longer they can stay in their home and when they will be forced to short sale or have the lender foreclose on them. This is where we come into the picture and play multiple roles.
If they are interested in staying in their home, we can help them to negotiate a short sale, rent it back from us, and then repurchase it in 3 years or less. That is the first way we can help.
The second is when we own their note or mortgage. Now that we are the lender, only the sky is the limit. We will have purchased that note at such a steep discount that there is plenty of room to help them get back to a current status and keep their home.
The last way we can help is to put our short sale repurchase solution in the hands of private investors that own the delinquent notes. They would be in the same position we are when we hold the note and have a lot of flexibility to make it a win-win for everyone.
We just sat down this week to work more with our workout company that services thousands of notes for private investors. It gives them a powerful tool, when appropriate to use, to help find a solution for these homeowners. This is assuming that they want to stay. We can do this whether the note holder is a 1st or a 2nd because we can negotiate a short sale with the other note holder.
How much out of the $147 billion left in 2014 of 90 day delinquent loans do you think were sold off to private companies in 2015? Do you want to guess on this one? Only $11 billion. The remainder was held by FDIC insured banks (approximately $61 billion) and with Fannie and Freddie ($86 billion).
The speed at which they are selling off these loans is increasing because the lenders have finally recognized it as a better way to go. A big part of that is due to the regulations, and the time and costs to foreclose are forcing the sales as well. It is more efficient to sell them off.
We are glad they have made that decision and that we have $136 billion (yes, remember that is billion with a “B”) left to go.