Two new shocking moves by regulators appear set to dash any hopes of a swift U.S. economic rebound.
That is unless distressed property and debt investors continue to step in and solve the issues by acquiring and flipping non-performing loan notes.
Between backpedaling on crucial rule changes designed to create more jobs and plowing millions into failing financial programs, governing agencies appear to be derailing progress toward national healing and prosperity. And it could be felt deep in the pockets of taxpayers across the country.
At the same time, the S&P/ Case Shiller index shows U.S. home prices rising by the most in seven years, signaling a great time to invest in real estate, especially with the current discounts available.
So what’s going wrong? What are the banks hiding? How can flipping non-performing notes turn it all around? And how are the savviest investors capitalizing on the opportunities?
While there has been incredible progress made in the U.S. economy and property industry there are still some holes that need to be patched in order to continue to propel the country in the right direction.
Property prices are up; foreclosures are reportedly down. However, mortgage delinquency issues need to be cured and more jobs created in order to ensure a long, sustainable upward run.
Many regions, even those that have been the hottest, still have 30% to 50% growth left in them to get back to level, and according to historical cycles; should double in the next decade. Yet in order for this to happen they need job growth and a sustainable fix to foreclosures. Sadly, those at the top appear to continue to have a short-term outlook when it comes to these two factors.
So what new threats do we face and why is investing in non-performing notes the solution that will turn it all around?
SEC Sabotages the JOBS Act
The Jumpstart Our Business Startups law, a.k.a. the “JOBS Act,” that passed Congress in 2012 was heralded as the savior of America. It was to make it simpler for individuals to invest for greater returns while spurring business growth, start-up activity and massive job creation. Unfortunately, just as the benefits were scheduled to kick in in September 2013, regulators appear to be shutting it down in a dramatic bait-and-switch move that will sap faith in the system for good.
Coverage of a new Securities Exchange Commission proposal by Bloomberg shows the entity essentially back-tracking on the lifting of the 80-year-old ban on promoting private investments. This was supposed to be a pivot point, a game changer for the better. However, the new proposal essentially puts all of the old restrictions back in place, or at least according to angel investors and lawyers makes navigating the process such a treacherous minefield that no start-up or small business will dare to attempt raising funds for fear of the repercussions.
This leaves real estate the one sector with promise of creating substantial jobs, due to the ease and simplicity of raising money for it.
Federal Housing Finance Agency’s Short-Sighted Plug to Plunder Taxpayer Pockets
In a knee-jerk reaction to massive bank layoffs the government’s Federal Housing Finance Agency (FHFA) is poised to push a frighteningly expensive short-term fix on the market – a “fix” that could extend the foreclosure crisis and bleed coffers while depressing some hard hit communities.
HARP loan applications have reportedly made up 40% of a home loan refinances recently. After rate rises in May 2013, applications for these loans dropped off 54%. In all, U.S. refinance applications are down 65% in the last four months. This is certainly at least partially responsible for major banks laying off thousands of workers.
The FHFA’s response is apparently to make a big PR and marketing push to encourage more borrowers to seek HARP help. The issue is that these government programs have failed so notoriously so far that they have really just cost taxpayers more money and have extended the foreclosure crisis. Almost half or over 300,000 participants in early modification programs had re-defaulted by the end of April 2013. That’s after many millions were poured into them.
These borrowers have subsequently still had to face foreclosure or seek third party, private loan modifications. So the only ones that really benefit from another government Band-Aid (that won’t last) are the banks receiving compensation for participating and those whose jobs rely on posting better digits in the short term.
What the country needs are more investors to step in and take control to provide lasting solutions for homeowners and the banking system, and to create jobs.
Fortunately, there are many appetizing investment opportunities to choose from right now.
Cherry-Picking from the Non-Performing Note Abyss
Those that have been tracking non-performing loan data with DistressedPro.com know all too well that throttling by banks has resulted in just 3% of distressed inventory being publicly visible as REOs. Behind that is coming a tsunami wave of $210 billion in non-performing residential loans.
The majority of these notes are defaulting for the first time. Spread across 2,505 U.S. banks there ‘s a lot for investors to cherry pick. On the residential side currently, you can find potential sweet spots in one- to four-family homes and HELOCs based upon volume.
According to their latest reporting, the top ten U.S. banks with the highest dollar volume of residential HELOCs 90+ days late are:
- JP Morgan Chase
- Bank of America
- Wells Fargo
- Regions Bank
- Fifth Third Bank
- U.S. Bank
- PNC Bank
- Capital One
- Manufacturers and Traders Trust Company
The top ten banks with residential loans 90+ days late as of July 2013 were:
- Bank of America
- Wells Fargo
- JP Morgan Chase
- U.S. Bank
- PNC Bank
- OneWest Bank
- Capital One
Some of the most well-known banks have clearly been hit up pretty hard by some distressed property and non-performing note investors, but there are hundreds of others as well as credit unions and asset management companies which have billions of dollars in default debt and which have largely flown under the radar of most. Here, forward thinking investors have the ability to jump ahead, cherry pick sweet discounts on REOs, and buy notes from banks with significant equity.
This is great for investors seeking wealth preservation, fast cash, value investing, and high yields, but how can it help bailout taxpayers and the economy?
How Acquiring and Flipping Non-Performing Notes Can Save America
Buying notes from banks and flipping mortgage notes to other buy-and-hold investors offers a solution for pole vaulting the above mentioned hurdles with the JOBS Act and FHFA’s doomed programs.
Solving the foreclosure crisis now by taking over non-performing loans and restructuring the debt saves the public from being drawn into the fray and tens of millions of dollars wasted on temporary fixes that don’t stick. That also means keeping more money that can be applied to improving communities and quality of life rather than squandered or ending up fattening bank exec’s bulging bonus checks.
This fast tracks us out of the crisis, provides more security for Americans, and allows the country to move forward to prosperity rather than sweating the roof over their heads or wondering where to escape to for lower taxes next.
It’s no secret that real estate is one of the greatest job creators. Whether it is acquiring distressed REOs and rehabbing and recycling them, or building a distressed debt investing business, both can create numerous jobs. This also helps poor money back into local economies and keeps the wider economy running in a positive direction.
By taking over defaulting loans and curing them with meaningful modifications many parties are helped including:
- The new note holders gaining capital and ongoing passive income
- The homeowners who would otherwise be forced from their homes
- The families of these homeowners who are able to continue moving forward
- Local communities and neighbors that avoid blight and depreciation
- Community residents who avoid budgets being burnt on maintaining foreclosures
- Banks and shareholders who are able to shed non-performing loans and recapitalize
- New buyers who are able to borrow the capital banks are regaining
However, the key to success and difference between this and failed government initiatives is committing to sustainable loan modifications.
Sustainable Loan Modifications
Investors, whether holding or flipping the non-performing notes they are buying from banks can help in providing sustainable and lasting loan modifications, which benefit both sides.
This can involve lowering interest rates, re-capitalization, bringing loans current, payment reduction by extending loan terms or principal balance reduction, or a combination of several of these factors.
The benefits for the borrower and homeowner are clear. It enables them to stay in their homes with a payment they can afford, along with all of the side benefits of homeownership for them and their families.
However, it also actually provides many benefits for the note-holder, too. A performing note holds a lot more value and can be resold with an appealing profit margin. For those holding the notes it also means a better source of cash flow. A renter has little motivation to maintain a property or keep up payments. An owner with a vested interest is far more dedicated to protecting their interest and the property’s value. This provides ongoing passive income, and even with rate reductions, often with far higher yields than available elsewhere today.
However, perhaps even more significant than the money is having provided direct help to homeowners and families in need – that’s priceless.
Yet, while the opportunities are there and benefits substantial for distressed debt investors, some still gripe about having access to sufficient capital or leads.
Data and Deal Flow
With the immense amount of opportunity in the non-performing note pool today there is no reason any investment firm or solo investor should be coming up short on deals.
There are more distressed property deals there than any of even the largest hedge funds and private equity giants could take down alone. It’s simply a matter of access to data, contacts, and liquidity.
Contrary to some misconceptions these three pillars of investment aren’t the private domain of well-off trust fund babies living off of their parents connections either. Capital and information has never been easier or more affordable to access.
Commercial mortgage lenders, private global investors, wealthy Americans eager for better returns and to ride the real estate train, hedge funds and now angel investors and venture capital firms are eagerly looking for investors to fund. In fact, funding isn’t just available and plentiful; many of these organizations are fighting over each other to get their money to work.
The days of immense research hassles or having to rely on twisted media statistics are over too.
Masses of data on U.S. banks, their non-performing note and REO holdings, selling habits and capabilities and even contact information is now complied by software called BankProspector.
Bankprospector not only serves up the raw data and metrics required to make informed decisions, but it streamlines and automates the entire process for quick, effective, and profitable note-investing.
So whether you are completely new to non-performing note investing and just want to get started the most intelligent way, or are an industry veteran looking for an easier and more profitable way to snag appetizing opportunities and connect directly with deal makers, BankProspector could be exactly what you have been searching for.
Putting It Into Play
Whether focused on making big money fast by flipping non-performing notes, looking to expand residual passive income streams for early retirement or a more enjoyable retirement, impressing partners with a new way to generate superior returns, or simply wanting to have a firsthand role in really ending the foreclosure crisis and bringing about social good – you’re almost there.