Private Mortgage Funeral? Long Thread

Week ago I called for the death of private mortgages

And yet we still see offers for private mortgages?

Dead Lender Walking?

Let's break it down

There are some really old, really strong MICS (Mortgage Investment Corps) out there

2/

/2 They are well managed were always careful and mainly Private First Mortgages, some have billions under management, many over $100M

They never lent over 75% loan to value, some averaging much lower

They're okay, there will be pain but they're going to be fine

3/

3/ Then there are "the others"

Range in size from as small as $5M up to big ones, common feature: New

Founded last 5 years mainly by mortgage brokers

So: no previous mortgage admin background, no legal expertise, no experience in loan defaults, nada

Just selling loans

4/

/4 Good at roping in investors too, many Acredited, many NOT, some Mom &.Pop

I am NOT saying these MIC operators had bad intentions at all

But many liked the high 14% to 18% yields of second mortgages and the ease of selling them

And some went to 85% loan to value

5/

/5 Queue the funeral music

Oh and BTW some of them lent to small developers and on raw land: Yikes

90% of second mortgages were refinances so they were for people in debt already, now those folks take deferral from their bank on the first mortgage

Yowsers! TROUBLE

6/

/6 Deferral causes the first mortgages to GROW eroding equity

Top 3 Bad Things for Mortgages:

Unemployment
Unemployment
Unemployment

Oh 4th Thing: Property Value Decline

Payment default only has one effective remedy: Power of Sale Action

The Courts are Closed

7/

/7 So why still lending? Because there's still cash in the MIC and they need to pay their bills

Some HAVE suspended lending, we have

Some are flogging 6 Month Prepaid Second Mortgages as DEFERRED mortgages, love the stones on them

One thing I don't know: values

8/

/8 Do property values drop? Don't know. But likely some erosion and when it happens BOOM 85% seconds are chewed up just when the MICS are facing redemptions

I saw this movie once before in 1991

Here's something the second mortgage MICs don't know about: Investor Litigation