I had a student try to "correct" me about the expiration of the eviction and foreclosure moratorium that -- let me remind you -- expires on June 30, 2021...which is next week!
He said, "They'll just tack past due mortgage payments onto the back of the loan."
Here's the reality: that's not quite how it works!
First of all, I've been in the real estate investing business for over 25 years now (and counting). Getting a mortgage (for 15 or 30 years) is a long-term loan contract backed by the collateral of the property you are purchasing.
So, no, we're not talking about a revolving line of credit (like a credit card) or a car loan (from Ford Motor Credit) where, if you happen to miss a payment (for one reason or the other), they can maybe throw your missed payment to the back (with a fat penalty, of course).
A collateralized loan contract (mortgage) has a strict start date and a strict end date. There is no "throwing payments" to the back of a loan on a mortgage without going through an alteration of the original mortgage (via a refinance, for example).
Now, I think what ruffled my feathers so much on this is that the student who brought this to my attention is a pretty sharp tool in the shed. So, when he brought this "idea" about how be predicts (since no lender, bank, or mortgage company anywhere has "thrown" payments to the back of a 30-year mortgage that I know of yet) banks/lenders will handle the upcoming moratorium expiration, I was a little peeved.
Think about it.
You are a lender. You opened up, say, 500 new mortgages in the past 5 years. Covid hits. A bunch of people are behind on their mortgages by about a year (maybe longer), mostly because the government put a "stay" on anyone filing foreclosure paperwork in court.
June 30th comes and goes.
What are you doing on the first week of July?
I know what I'd be doing. I'd have an entire legal team in the wings, already printing out the paperwork, and getting it ready for the foreclosure war of the century.
Here's what I wouldn't be doing:
I would not be calling people 6 or more months in arears to tell them, "I know you haven't paid your mortgage in a very long time and your credit is now shot to hell but...let's do a refinance and redo your mortgage agreement since we cannot simply 'throw' your arears to the back of your payment schedule."
Right now we're in one of the hottest housing markets since...2007. I'd quickly rid the deadbeats out of my financed homes through a legal repo (foreclosure) so I can resell them at top dollar (before the music stops) to many of the millions of people crazy enough to overpay for a house right now.
I would not be "working" with people who have shown no desire or ability to pay their mortgage through the pandemic.
Besides, small banks and lenders won't really have a lot of leeway to work with people unless they have some heavy-duty money backers throwing in cash to keep their negative debt balanced on their general ledger.
Or unless somebody like Bank of America buys them out.
And, unfortunately, the bigger the bank, the less pussy-foot table games they play with people who aren't paying their mortgage. They have massive legal teams the size of Delaware to mechanically file a streamlined barrage of foreclosure paperwork with such extreme ferociousness, the poor deadbeat sap who's in arears won't even know what hit him. (Major banks and lenders have learned to treat foreclosures like a well-greased machine ever since many dropped the ball during the 2008/2009 foreclosure crisis; needless to say, they'll never let that happen again!)
One day the foreclosure deadbeat thinks he's getting one over on the bank. Five minutes later he's setting up a tent on Skid Row next to a rancid bag lady wearing a matted fur coat and Bob Marley wannabe with broken dreadlocks.
First of all, as per the mortgage agreement that all mortgagees agree to, the bank won't parlay payments beyond the end-date of the mortgage agreement. By law, they can't extend a mortgage contract without an amendment. So, for example, if you begin your 30-year mortgage on July 1, 2021, it will end on June 30, 2051.
If you decided not to pay your mortgage for a full year, what do you think will happen if you call the bank to ask them to "tack it on" to the "back" of the mortgage? You know...way out into the future in...2051?
Most of the bankers you'd be dealing today with will either have retired or will be dead by then.
And most bankers don't want to wait until after their dead to collect on a debt owed today.
Business is business, folks. That's just the way it rolls. Pandemic or not, banks have to find a way to take negative debt and show it on the plus side of their books. If they can't, they lose their ability to lend on further mortgages if the negative side of their books is too far into the red. (This is a government law, by the way, and not something I'm pulling out of my ass.)
And no bank that I know if wants to lose out on their ability to give loans -- their main source of income (through interest payments).
In my opinion, I do believe we're on the threshold of something big that's about to take place. And it has to do with the credit/debt bubble which is much larger than just the eviction/foreclosure issues we'll be having in the months to come.
Instead of living in fear, you can find out how you can begin lining your ducks up in a row by doing something productive about it now.
Yes, you can do really well in the next coming months and years.
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And...oh, this ends today!
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