The Impact of Not Paying Your Mortgage.

The Impact of Not Paying Your Mortgage.

If I know anything at all about human nature, it’s that we will always do what’s in our best interest over the common good. We will almost always act independently according to our own self interest even if that means putting others at risk. This is most true when it comes to money.

Since the CARES Act was signed into law, a tsunami of homeowners has rushed their mortgage banks asking to take advantage of the forbearance entitlement provided by the legislation. I’ve seen some early estimates that approximately 2 million homeowners have applied in the less than 3 weeks the legislation was enacted.

The problem is, even though this legislation is well intended to preserve homeownership it doesn’t change a critical and often overlooked fact and that is, these mortgage banks are still required to make tens of billions of dollars in payments to security investors. Now, to the average man on the street, this may not seem like a big deal because they wrongfully assume their mortgage bank has tucked away hordes of cash as some sort rainy day fund. The reality is much more dire than most of us know.

Out of an over abundance of caution, let me explain this another way. John and Jane Smith want to buy a home so the run down to their local mortgage lender, ABC Home Loans LLC, who offers to give them a mortgage. All John and Jane must do is make a monthly payment, every month for the next 30 years. What the ABC Home Loans LLC then does is sell off John and Jane’s mortgage to another bank, XYZ Investments LLC, who then bundles their mortgage with potentially a hundred other people. When XYZ Investments bundles these mortgages together it becomes a mortgage backed security. XYZ Investments then can sell slices of shares of that MBS (Mortgage Backed Security) to investors who then collect dividends of those monthly mortgage payments that John and Jane make.

Even though mortgage lenders started doing a better job ensuring applicants were more credit worthy in recent years, partially due to the lessons we learned during the MBS crisis of the Great Recession, the truth of the matters is, I don’t think we could have ever foreseen a pandemic national emergency that would lead to over 16 million jobless in 3-4 weeks. Combine this with the fact that a reported 78% of Americans say they live paycheck to paycheck and nearly 50% of those say that they aren’t able to save anything more than $100.00 a month along with mortgage lenders being legislated to offer up to 12 months forbearance and I’m not sure the MBS market can hold up under that sort of pressure.

It’s simple, when homeowners stop making mortgage payments, MBS’s will begin to suffer, and value will begin dropping. Once again, for the average man, that may not seem like a big deal, they may not understand how that impacts them but, let me try saying it this way. MBS’s are everywhere. They can be found in retirement and pension funds across the spectrum. In fact, if you have any sort of retirement account, chances are, you have some sort of MBS or at least a collateralized debt obligation (aka CDO) from an MBS. When John and Jane don’t pay their mortgage, it will have a direct impact on all of us.

Try as hard as the government may, at the end of the day, increased jobless claims will equal foreclosures. If you can’t pay your mortgage, you can’t stay in the home. We might be able to postpone the inevitable but, at the end of the day, homeowners need a job and they need to be working to maintain homeownership. If we continue to see multi-million jobless claims per week, up to June or even July, as recently predicted, I fully expect to begin seeing conventional foreclosure claims as early as September or October 2020. As for the CARES Act will likely postpone most government insured mortgage foreclosures for at least 6 months and potentially a year, I would expect a trickle or FHA / HUD / VA / USDA / FDCI and Fannie Mae / Freddie Mac foreclosure early winter 2020 with the majority hitting early summer 2021.

Keep in mind, this isn’t the whole story. I haven’t even discussed what happens to housing inventories, supply and demand cycles, equity depreciation, etc… In this article, I’m just trying to inform and educate people as to what impact simply not paying your mortgage has on your bank and why it’s so important to pay that mortgage if you can. I know and understand we will all do what’s in our own best interest but make no mistake, not paying a mortgage when you can hurts us all, in the long run.

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Jesse was originally licensed in September 2005 in the Great State of Tennessee. He started his career right as the real estate industry saw it’s worse collapse since the Great Depression. As a result, Jesse sought out opportunities to work directly with banks, focusing his career liquidating foreclosed homes. He worked with some of the country’s largest lenders, asset management companies and quasi government supported entities. This highly competitive field introduced Jesse to an intense time of development where he received top notch education direct from national policy makers, government entities, multi million dollar portfolio managers and many others. As the economy changed and with it the real estate market, Jesse changed as well.

As a direct result of listing and selling foreclosed homes, Jesse found that his career could also turn into a passion helping prevent foreclosure. He believed he could naturally transition his business from selling foreclosed homes to helping homeowners avoid foreclosure all together. His experience and knowledge working with banks gave him invaluable insight on what homeowners could do to avoid foreclosure. More importantly his experience would give his clients an edge when working with their banks to prevent foreclosure, keep their home, or if necessary sell their home and transition to more affordable housing.

Jesse has built a career working with some of the hardest real estate transactions known. He has worked with homeowners who are facing seemingly insurmountable odds, negotiating with lenders who don’t see homeowners as nothing more than just a number. Where others would have thrown in the towel and given up, Jesse has persevered and proven to his clients he cares. He has managed millions of dollars in real estate at any one time and worked with over 30 different lenders and banks both directly and indirectly.

Now as our country is once again facing the real possibility of a housing crisis due to the Coronavirus and REO is stepping back into the spotlight, Jesse is ready and prepared to work diligently in helping our country face this challenge with honesty, integrity, humility and grace. "As a REO Professional, I know REO is about people helping people. When we are talking about a family losing their home due to financial challenges, we must remember we are in the people business above and beyond anything else." Jesse Gonzalez

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Comments

  • I agree 100% with you. I see this in the long run as being devastating to many homeowners who are hoping to make it thru this time. At the end of their forebearance they will have to make payments. Who is to say they will be in a position to catch themselves up. I know many agents who will be there to try and help them thru these times but only so much can be done. I agree with everything you say, unfortunately. Thanks for your research and your views.
  • Thanks
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