Tag Archives: mortgage note buyers

Opening the Dam – Mortgage Note

They’re back!  Late night infomercials are once again seeking the gullible to talk about how easy it is to make money in real estate with little risk.  The newspaper headlines help them, with announcements of skyrocketing housing prices and values reaching their peak in cities like Denver and Dallas.  Savvy investors and mortgage note buyers know that almost all of this boom can be attributed to actions of the Fed.  Their actions include keeping interest rates low, feeding trillions of dollars of “free” money into the economy to create the illusion of prosperity, and assuring everyone who will listen that they have everything under control.

In housing, the reality is quite different.  The percentage of Americans who own their homes is at the lowest point (65.1%) in a generation.  Ownership has been declining among all ethnicities and income levels for several years.  There are a number of reasons why so few people own their homes:

  • High unemployment, especially for full-time jobs.  Ignore the 7.4% rate published by the government, as it is woefully inaccurate.
  • It’s still difficult to get a home loan without good credit and some amount of down payment.
  • Banks have been holding on to houses to keep inventory artificially low, though that is slowly changing.
  • Recent price increases have made it difficult for first-time buyers to get in the game.  The price increases have been driven almost entirely by hedge funds, investors, and foreign money.
  • Volatile market and economic conditions are making some folks nervous, so they stay on the sidelines.

Mortgage Note BasicsIn my view, high unemployment is the biggest issue and it seems unlikely to improve soon.  Nationwide, full-time employment is down by 5.17 million jobs and total employment down 2.2 million jobs since 2007.  According to CNN Money, 76% of Americans are living paycheck-to-paycheck, meaning that they have no savings or, at best, a 3-month cushion.  About 36% of millennials (ages 18-31) are still living at home with their parents.  Rising college enrollment and delayed marriage contribute to part of this figure, but I believe that the lack of well-paying full-time jobs is by far the biggest factor. 

And yet, you may be wondering, how does this jive with the headlines showing that the housing market seems to be doing well by all of the traditional measures?  In California, home prices are up 25% over the past year, and someone recently paid $82K just for a parking spot in San Francisco.  Interest-only loans are increasing and housing mania is back for the financially able.  And there is the issue, as “financially able” refers mostly to hedge funds, investors, and rich foreigners.  Those groups have been driving home sales and prices upward – not the middle class or lower income groups.

At some point in the near future, markets and consumers will realize that the positive economic news is largely a façade.  Nobody knows exactly what the trigger will be or when it will happen, but the results will be ugly.  It is like all of the bad news and economic weaknesses have been hidden behind a big dam.  When that dam springs a leak and eventually collapses, you don’t want to be downstream holding a lot of stocks or risky real estate.

Planning in the New Year – Is It The Right Time To Sell A Mortgage Note?

It wasn’t long ago that we celebrated the coming of new year –  we watched the ball fall, made some resolutions and some noise, and toasted to 2013.

Starting fresh is what the new year is all about. While we do reflect on the past, for example how we capped off 2012 with a tumultuous presidential election and concerns about the fiscal cliff, the new year is really more about planning for the future. As we look ahead and consider changes to come, it’s a good time to review finances and consider the best use for our investments.

The decision whether to sell all or part of a mortgage note (also often called a real estate note, deed of trust or promissory note) usually boils down to two main categories.

First: Simplifying Life

While holding a mortgage note can be a good investment and receiving monthly payments beneficial, managing the responsibilities and risks inherent to holding a mortgage note can feel burdensome at times. If you find any of the below to be stressors, it may be a good time to consider selling your mortgage note:

  1. Managing payments, insurance, and taxes for your mortgage note.
  2. Planning your estate for heirs.
  3. Settling finances in the event of a divorce.
  4. Assuming the risk of non-payment of a mortgage note or bankruptcy of the payer.
  5. Unexpected changes due to the divorce or death of the payer.
  6. Worrying about default and foreclosure.
  7. Concerns with the real estate property becoming devalued.

 Second: Cash Requirement

There is no question that life changes, planned or not, often come with expenses. Selling a mortgage note is a fairly simple way to raise a lump sum of cash quickly, and can be significant depending on the value of your mortgage note. Types of life events that may warrant selling a mortgage note are not limited to, but include the list below:

  1. Covering medical expenses
  2. Paying for college tuition.
  3. Planning a wedding and/or starting a family.
  4. Buying new real estate.
  5. Making a career change and/or investing in a new business.
  6. Transitioning into other investments or reinvesting at a higher interest rate.
  7. Purchasing a vehicle and other high cost items.
  8. Funding travel plans.
  9. Managing retirement expenses.

If you are in the process of deciding if selling a mortgage note makes sense for you, you may want to contact a  reputable mortgage note buyer for further advice and information.

 

Brown and Gray in California

Although this article does not deal directly with real estate, mortgage notes, or mortgage note buyers, overall economic conditions and state regulations affect all of these areas and more.  I share the information below to make the readers aware of what is happening in California and the path that we are heading down. 

Leading up to the election a few weeks ago, Californians experienced a barrage of TV advertising and seemingly signs on every street corner telling us to vote for Proposition 30, which would raise the sales tax ¼ percent-point and increase the income tax for anyone making over $250,000 per year.  Failure to pass the proposition, we were told, would mean massive budget cuts, especially to schools.  The implied message was that “if you care about children, you have to vote for this law.”  A majority of under-informed voters bought that argument, and the proposition easily passed.

Shortly thereafter, the legislative budget analyst assured Californians that the budget would soon be balanced.  “Yeah, we’re saved,” cheered the masses.

The problecalifornia-BANKRUPTm is that higher taxes do not lead to higher revenues, especially for a poorly managed, economic basket case like California.  According to the state controller and Mish, November’s tax receipts were $807 million below expectations, and overall revenues are below target since the fiscal year started in July.  Meanwhile, actual expenditures were $2.2 billion higher than expected.  Throughout the first five months of the fiscal year, the state has already put itself in a financial hole.  The higher taxes kicking in next month will only hurt economic growth and drive investments to other states.

Bloomberg has started running a series of articles about how California got to be such a fiscal mess.  It started when Jerry Brown granted collective-bargaining rights to state workers during his first term as governor more than thirty years ago.  Gray Davis, who was recalled by voters in 2003, made a further mess of things by giving public unions nearly everything they asked for.  Not coincidentally, the unions were exceedingly generous in their donations to his political campaign.  Jerry Brown, elected again a couple of years ago for another term as governor, is continuing down that path.

The list of despicable actions by Brown and Gray Davis is long, but here a few examples comparing California to the next 11 most populous states, courtesy of Bloomberg:

* California public employees earned more than their counterparts in nearly every type of compensation – wages, overtime, extra duty, and one-time lump sum payments.
* Brown has chosen not to curb overtime expenses or limit payments for accumulated vacation time despite the state’s budget problems.
* The per-worker costs of delivering services in California vastly exceed even those in other collective bargaining states like New York, New Jersey, Illinois, and Ohio.
* Californians have suffered through ongoing budget deficits over the past decade, and now face the country’s highest debt and Standard & Poor’s lowest credit rating for a state.
* 240 California state employees received at least $100,000 in accrued leave payouts last year, compared with 42 for all of the other 11 states combined.  Chris Christie, the governor of New Jersey, calls such payments “boat checks” because they can be large enough to buy a yacht.
* When Davis took over as governor in 1999, he unwound curbs put on pensions, leading California’s annual payment to pension obligations to go from $300 million that year to $3.7 billion in the current fiscal year.

Prison guards, highway patrol troopers, prison guards and nurses, and other public employee unions have made out like pigs at the trough of taxpayer money.  Despite the escalating financial crisis in the state, public employee unions have made only minor concessions.  The governor and Democratic legislature continue to insist that the state has a revenue problem instead of recognizing that it is entirely a spending problem.  Since that philosophy is unlikely to change, I’m confident in predicting more propositions for higher taxes within the next four years.

Finding a Floor in Housing

“U.S. home prices rose in September for the sixth straight month, signaling that the housing market is in the midst of a recovery” screamed the headline in MarketWatch earlier this week.  Indeed, there has been positive news for housing lately.  Besides rising home sales and prices, foreclosures have been declining and stocks of homebuilders have done well this year.  Prices have risen significantly in Phoenix and some coastal areas in California and Florida, with numerous stories of bidding wars and sellers’ markets.

Consumer confidence has also reached up to levels not seen in the last few years, and housing is seen by most economists now as more of a help than a hindrance to the general economy.  One large financial institution is predicting that home prices will increase 4-5% annually for the next several years.  On the note buying side, some of my fellow mortgage note buyers are acting like we have returned to the glory days of 2005 and 2006.  Clearly, the media and many “experts” believe that the real estate recovery is well underway.

Is the housing recovery sustainable in the short (< 2 years) and medium-term (2-5 years out)?  In the short term, anything is possible, so I would not even hazard a guess unless I could read the minds of politicians (though I’m sure that I would not like what I would find if I could).  Over the medium-term, any recovery is susceptible to headwinds, including:

1. Falling household incomes and high household debt, in combination with a high unemployment rate, means that most families are in no position buy a house.  The banks are still being fairly tight with real estate loans too.
2. A large percentage of current home buyers are investors (27% in 2011) or foreigners (including Chinese looking for a safer place to park their cash).  These are groups that are more volatile than typical homeowners and are likelier to jump ship at the first sign of trouble.
3. Lots of mortgages are still in trouble.  There are 1.6 million homes in some form of foreclosure backlog (per RealtyTrac), 2 million foreclosures in progress, between 1.5 million and 4 million homes at least three months behind on payments (per Barclays Capital Research), and 10 million mortgages underwater.  There have been 5 million completed foreclosures since 2006, out of 50 million households carrying a mortgage (per Dr. Housing Bubble).
4. Interest rates, currently around 3.5% for a 30-year fixed loan, have been held unnaturally low by the Fed.   Those rates must and will go back up, making loan payments more difficult for many.
5. The federal government is involved in nearly every mortgage loan out there.  This is the same government with trillions of dollars in debt that it has no way of paying back, where the Federal Housing Administration will soon need a bailout, and where a change to the mortgage interest deduction is being considered (though I don’t think the deduction will change much).

When considering what will happen with the U.S. real estate market, we must also consider indirectly related factors and competing investments like the stock market, real estate trends in other countries, world economies, and similar characteristics.  When I look at the structural issues facing the U.S. and other major economies, along with the continued ineptness of politicians and bureaucrats, it is hard to be optimistic about most investment types.  I’ll go out on a limb to predict that any current recovery will be short-lived and that housing prices will be at least 10% lower in five years than they are now.  Feel free to call me at the end of 2017 to either congratulate or ridicule me for my prediction.

Selling a Real Estate Note 101: Best tips for selling and buying a mortgage note

Welcome back to our series “Selling a Real Estate Note 101”. If you have been following along, hopefully you have gained a basic understanding of what is a mortgage note, the process of selling your mortgage note, how the value of your note is determined, what to look for in mortgage note buyers, and some knowledge of your note sale options. If you would like more information on any of the above topics, please call us directly so we can help answer your questions.

Now that we’ve covered the basics, we wanted to summarize the most important tips for selling a mortgage note (also called a real estate note or promissory note), and helpful tips on how to create a mortgage note for a future sale.

Best tips for selling a mortgage note:

  1. Familiarize yourself with the process of selling a mortgage note, how the worth of your note is determined, and what to look for in a mortgage note buyer- BEFORE you start requesting quotes. Having your paperwork and questions on hand when speaking with potential note buyers will facilitate the process of negotiating the sale of your note.
  2. Explore your options; every mortgage note is different. For example, selling only some of your payments (known as a partial) may be more advantageous for you and may offer a higher rate of return. A trusted and reputable note buyer can help you determine your best options.
  3. Verify that there are no upfront fees to the seller (with few exceptions), as these are already figured into the purchase price.
  4. Make sure the mortgage note investor checks the credit of the payor/buyer upfront to avoid any sudden drop in purchase price quotes due to unforeseen credit issues.
  5. Review your written purchase agreement with a Real Estate Attorney, if possible.

Seascape Capital Best Tips for Selling and Buyer a Mortgage Note

Tips on creating a mortgage note for owner financing (also called seller financing):

If you currently hold a note that you may consider selling in the future, one option is to sell your real estate note to a buyer using owner financing. Some of the common reasons people choose owner financing include: attracting more potential buyers for your property, offering more flexible terms (often the case when working with buyers who are not able to obtain financing through a bank), or managing a sale between family members or as part of a divorce agreement. These tips can help you create value and structure your mortgage note for an optimal sale through owner financing.

  1. The larger the down payment, the better. For residential, a down payment of 10% is ideal, 20-30% for commercial notes.
  2. The more equity in the property, the better. This is achieved, in part, with the down payment mentioned above, as well as principal payments received. This adds value to the mortgage note.
  3. Consider the credit of the buyer and always obtain a current credit report. Ideally, the credit score should be 600 or above (the higher, the better). Their credit rating can influence the value of the note and can play an important role in determining a down payment to protect your property.
  4. Make sure that the sales price is aligned with current market values and that interest rates are comparable to bank rates.
  5. As with most real estate, the condition of the property is another important consideration when creating value for your note. A note will be worth more when the property is in good condition, located in a desirable area (with access to power and water if it is a land contract), and is currently owner-occupied and well maintained.

Whether you want to sell your mortgage now or in the future, we hope you find these tips helpful. If you have any insight that you would like to offer our readers based on your experiences with selling notes, or would like us to address any particular topics of interest, please share them in the comments below. As always, thanks for reading and please feel free to pass this information on to others!

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