Barney Frank just announced today in the Huffington Post that he’s preparing to re-open the bankruptcy cramdown debate this fall in a financial regulatory reform bill – he claims there aren’t enough borrowers getting put into loan mods, so he’s looking to the courts to help meet the purported demand. I agree with him on one thing: allowing bankruptcy judges to cramdown firsts is a way to inject much-needed underwriting into the market.

It could also greatly supplement your own loan modification initiatives as an investor – let the courts underwrite instead of doing it in-house, I say! Will it hurt principal balances? Sure, but then any savvy investor would have proposed a principal write-down in the first place given the high recidivism rates for the term and rate adjustments we’ve seen industry-wide.

Weak Dollar will impact note investors

In other news … the dollar has officially tanked. As one Brown Brothers Harriman analyst pointed out today: “As we have stepped away from the abyss people have a healthier appetite for risk” and so they’re dumping dollars and seeking better yields elsewhere. Whether the bulls have won out and whether the economy has turned the corner for good (led first and foremost by house prices), is a topic for another day.

The impact of a weakening dollar, however, is inevitable pressure on the Fed to raise overnight rates in an attempt to prevent further weakening. Bernanke will face increasing (and polarizing) pressures, in my opinion: balancing demand for dollar-denominated debt (investors will have little interest in low-interest rate Treasuries with an underlying stagnating US economy) vs. higher-yielding investments abroad.

Exports are being bolstered by US-manufactured products being priced as cheaply as they have been in over a year, against Asian-denominated currencies, but the mortgage market will come under increasing pressure if rates were to rise. Follow the Fed closely – the next FOMC meeting is Sept 22-23.

The impact of higher interest rates on note investors? Lower yields; larger discounts; and potentially a weaker refi market to exit into. If rates really increase dramatically, this could change a number of investors’ strategies from re-perform (why re-perform at below-market rates?) to cash out (short sale and deed-in-lieu).

Dean

A critical skill when buying notes aka defaulted loans aka defaulted mortgages aka nonperforming notes aka ‘bad paper’… all the SAME THING!

Actually, a critical skill, no matter what kind if investing you are doing… be it doing Short Sales, or any other types of Foreclosure Real Estate Investing!

Check out this short Video, which is an excerpt of a 20-min on the subject.

It’s a FREE bonus as part of the ‘A-Z Profiting from Defaulted Mortgages Business-in-a-Box’ 16 hour+ Training Course.

You can get a FREE 2-hour sneak peek into the ‘Finding Non-performing Notes’ Course I just finished.

It covers:

- the 4 ways to find non-performing notes
- the difference between Good, Bad and Ugly note brokers (there are
probably 20 Uglies for every Bad, and 5 Bads for Every Good – not
that I’ve been counting)
- the art of “Going Direct”
- the inside scoop about the Yellow Pages
- and lots more

My wife Michelle teases me that buying nonperforming notes is boring enough as it is. so I might as well give you the option to opt out after hearing me praise “the 1R” 18 different times!

OK, but full disclosure here, she’s got a lot of respect for the fact that I can run a nationwide real estate investment business and still drop off and pick up our 1 yr old and our 2 1/2 year old daughters to and from daycare almost any hour of the day.

If you want to learn how to build a note buying business that could send you all the non-performing note deals you’ve ever wanted, without having to work at that once you got it up and running, you’ll definitely want to take a look at the ‘Finding Notes’ Course!
No hard sell here… Just watch the first 2 hours for FREE and see what you think.

Well, I’ve since gotten well over that fear, and YOU’ll get over your fears about this industry – WITH THE HELP OF THE BANKS THEMSELVES!

What is YOUR biggest question or concern about note buying?

Share your most burning note buying question with me and I will do my best to ‘demystify’ it for you in this blog later on.

Tomorrow I’ll be interviewing Janet – who’s been a Secondary Asset Manager (a fancy title for the person who holds the keys for us Note Investors) for years at a national bank, and who’s agreed to answer my (and your) most burning questions about the note buying business.

Get those questions in now, so that you have a chance to get them answered this week!

In the last week, we:

1) Received two checks totaling $7,000 from a borrower in Silver Creek, GA, on a loan we paid $65,100 for (Reperforming Loan)

2) Got a call from a borrower asking us whether we could get her refinanced if she brought her boyfriend on title to her home (Refinance)

3) Learned that a property we just bought a first mortgage on – and that was listed for sale – was just RENTED on a lease option contract (Refinance, Reinstate or Property Sale)

4) Filed for foreclosure on a borrower in Bossier City, Louisiana, who hasn’t responded to any of our letters, and were reminded about the special way that foreclosures are handled in Louisiana (Foreclosure)

5) Bought a $76K first mortgage on a home in San Antonio, Texas worth $160K, and laid out our plan to generate a 50% rate of return on our investment (Refinance)

6) Made an offer to one of our borrowers to sign a Deed-in-Lieu of foreclosure - putting $20K in her pocket and lining up for us a potential gain of over $100K on a $72.5K investment (Deed-in-Lieu)

In just one week in our note buying business, we’ve seen action on all 5 Exiting Options (you’ll learn these in the Course).

WANT TO LEARN MORE?

Join me Tuesday evening 2/26 (TOMORROW) at 7PM, for the first in a series of 4 Note Buying webinars on Step 4: Managing & Exiting Notes. (Again, if you can’t make it, or are reading this too late: no fear… we can still get you access to the replay links.)

If you missed it: we will put on various note buying online courses, for example one on Step 2 of the note buying process – How to Determine a Purchase Price – on any non-peforming note.

Or one on ‘Managing & Exiting’ your Note Buying deals.

Thanks again to all of you who came yesterday! Hope to see you at the next one or on one of the webinars.

Here’s Downey’s non-performing loan portfolio (with thanks to calculatedrisk):

Click ( here for larger image).

What’s interesting here is that Downey’s working to restructure or modify a growing portion of these loans (as are most banks). A full 40% of these assets are now “reperforming” loan mods, which Downey calls its TDRs (troubled debt restructurings). Many reperformers are often sold as well.

Their 8-K quarterly filing can be found here.

Take a look at the note below out of this week’s Economist. We’re sure to see more and more non-performing notes available in the secondary markets – this type of a move would only stem the flow of those notes into hands of private investors.

From this week’s Economist:

America’s housing market may yet justify dusting off Depression-era institutions, such as the Home Owners’ Loan Corporation, which bought and refinanced distressed mortgages.

Here’s a little background on the HOLC (thanks to Amy Hiller at UPenn)

At the urging of President Franklin Roosevelt, the US Congress created the Home Owners’ Loan Corporation in June of 1933 . “Implicit in the legislation which I am suggesting to you is a declaration of national policy,” Roosevelt stated in his message to Congress. “This policy is that the broad interests of the Nation require that special safeguards should be thrown around home ownership as a guaranty of social and economic stability, and that to protect home owners from inequitable enforced liquidation, in a time of general distress, is a proper concern of the Government.

HOLC offices were quickly set up across the country, and applications for assistance were accepted beginning in August 1933. HOLC offered federal bonds to lenders in exchange for mortgages already in default, providing new fifteen-year mortgages at five percent interest to homeowners who were, in turn, expected to repay their new debt to the federal government. HOLC made one million loans across the country between 1933 and 1936, the only years for which it was authorized to make new loans. Eight out of ten of these homeowners paid their HOLC mortgage and kept their homes; the other 20 percent lost their homes to foreclosure by HOLC.

Just to put this into perspective, the US population was 125 million in 1933 – the first year the agency issued loans. Assuming housing / population of roughly 1:4 – that would mean approximately 31 million homes. So the agency issued loans on roughly 3% of the entire housing stock in the country – significant to say the least.

Judging by the steady growth in non-performing assets, the feds may not have a choice but to create such an agency.

A few of the ones we use as inputs into potential future appreciation / depreciation include:

Zillow’s quarterly market survey … this is a useful look at the largest 125 MSA’s using Zillow’s algorithms to estimate appreciation / depreciation both quarterly (Q3-Q4) and yearly (06-07). A summary of the data -is available here.

Another good source of info is First American’s Core Mortgage Risk report – the latest one is summarized right here. First Am has extensive data sources and their analysis is usually good.

And finally, this just in from the National Association of Realtors – year-on-year price changes by MSA. The data seems to track well with Zillow’s MSA analysis (didn’t expect Zillow to track against any comparable, did you – yes, well they’re not as bad as everyone makes them out to be – you just have to know how to use Zillow data).

Would love to meet you there!

If you are not close enough to attend: fear not… we are almost ready to launch a bunch of web-based note buying information over at NoteBuyingProfits.com. It’s gonna be fun & informative!

Plus, as always, we will put more and more free note buying resources on the blog as well!