EP1: COVID & How It Affects Your Mortgage Note Business

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In our first episode of the Paperstac Podcast, we break down a couple relevant articles that we've seen about the unemployment and issues this may cause for everyone - not just in the note business but globally.

You can also view this on Youtube at CoVid & Mortgage Notes.

As Mortgage Note Investors - we try to look at ways of helping borrowers and both as lenders and borrowers succeed in this moment of crisis.

With Ricks more than 15 years experience in the real estate industry he's able to bring a different eye for things. In the last real estate crisis Rick was steadily flipping, rehabbing and building a large team of investors with him.

We'll be documenting how we think this time around there will be great opportunities to find a silver lining for not only the investor - but the people in the home.

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Transcript

EP1: Covid & Mortgage Notes 
 

Rick Allen: [00:00:00] All right, so how's it going, Rick Allen? 

 Good, Brett, how are you, man? Good. This  

Brett Burky: this is gonna be our first episode of the podcast for Paperstac. And this is their  

Rick Allen: initial, I'm so excited, man. We've talked about it for so long. We're like, Hey, we're gonna, we're gonna do this. And we just always we start, it's just tough to find the time, but right now, under the stay at home order, we've got time. 

Brett Burky: That's right. This is our practicing of social distancing. Yeah. We're gonna be trying to make this relevant to the current situation going on in the note industry. From now and then moving forward, episodes here on out. So the, there's a lot happening. And so what we would want to do for each episode is cover a couple [00:01:00] articles. 

We're gonna have Rick share a tip that is something that would be good for you and your note business. And that's pretty much it. We're gonna try to keep these straight to the point under 30 minutes. And so that you we know that you guys have a lot of things going on in your own life and we want you to do, get in and get some knowledge. 

Get what you need to know for now, and then some tips for how to run your note portfolio better and then get back to work. So that's it. So starting with that this episode is a course sponsored by Paper Stack. If you do not have account as of now, please go over to paper stack.com and sign up and start browsing some notes because there's an increase in inventory right now. 

I've seen we've had probably. In last two days, like six or seven seller onboardings trying to put a lot of assets on. So I don't know if you've seen that, Rick? Did you see Cplex?  

Rick Allen: Yeah, I did. I think we've had something. I think we had a 20% jump in just the volume of loans on there, which is, and that's over the past like 10 days. 

So it's remarkable. I think it's definitely indicative of the time people trying to get out of loans or people [00:02:00] like, look, let's just Go find another place to sell loans. I've heard there's rumors running around some of the bigger, hard money lenders that are on. A Pier Street I heard was having some issues potentially, and we've had a lot of hard money lenders coming and flooding onto the platform. 

So if you're looking to buy hard money loans, they're definitely there. As well as just some traditional QM nine QM stuff.  

Brett Burky: Nice. Yeah. All right, let's jump straight into the articles for today. Sometimes there is articles that come out, but, that are interesting, but these are interesting. 

So the first one we're gonna go over is something that came out just today, here on the the 4th of April, is that the unemployment records. It's the highest since the last 45 years because of what's going on with the coronavirus. And that's gonna really affect how the housing market works. And, with all these people unemployed being someone in your position that has been through oh eight and seeing things change, I'd like to get your professional opinion as a note investor. 

Not only that, as a real estate investor of. [00:03:00] What do you see as how we can, as note investors and real estate investors, how we can help the people that might become unemployed so it doesn't end up like something like 2008 where they were dragged around, but just overall, your professional opinion. What do you think? 

Rick Allen: Oh man, it's there, there's a lot in that question. Yeah. Unemployment records highest monthly increase in 45 years. Understandably I think as you look at it, and we've got. It seems every day there's one or two or three more states that are saying, look, there's a stay at home order intact. 

And from the looks of it it's not gonna be let up anytime soon. At least for Florida. I know we're through, what was it, through the end of April? Having talked to, a couple of my family members are in the medical field working in the emergency room frontline fighting this I've heard at least middle of May, you're looking at four, six, maybe even eight weeks, that's gonna have a It's gonna have put a strain on people to do work. Starting first and foremost, I think the first people to feel it were the, was the service industry, [00:04:00] right? Yeah. Pretty much they all just got, they just got crushed. 

Cuz people, with the social distancing and not being able to go out in public and go and congregate at restaurants or bars or whatever it is, people are losing money and With that, the unemployment rate people are filing for unemployment, rightfully thank goodness there's something there to help support 'em. 

And then, we've got this the stimulus package that came out that president Trump signed, which hopefully should help. You look at it and say, $1,200. I don't know that's gonna, that's gonna do a lot. And it's gonna, there's gonna be missed mortgage payments, there's gonna be missed rent payments. 

I've seen stuff out there about people trying to have a rent strike for tenants. I say that not just everybody agreeing not to pay and something needs to be done really. Because, there's another article we'll talk about a little bit, but it's there's a bit of a trickle down effect to where for the tenants, if they choose not to pay their mor or their rent, which, if they don't have the money, it's you have to look at it and say I need to either pay. 

My rent or I need to get food or toilet paper if you [00:05:00] can find it. Or, you have to make those decisions. And there, we've already seen something with the government agencies on mortgages. Then saying look, we're gonna implement some strict guidelines. I think, it might be a good idea to just bring in that other article right now. 

Okay. A little white paper that was written for mortgage servicers, they're bracing for the new forbearance impact and the gover the HUD stuff and the government backed loans. They've got strict orders like, look, you're forbearing. These people's payments. And so the servicers are all kind of being governed by that and they're like, look, we have to start not, we're allowed to work with the borrowers. They don't have to make their payments right now cuz of the financial distress that's going on. And the servicers are actually being encouraged to, on their non-government backed loans. 

Which is where our investment portfolio falls. They're encouraged to treat those borrowers the same as the government borrow. So there's a [00:06:00] huge implications across the board with regards to. It's a small business, the mom and pop shop the, the unemployment rate escalating. 

If they're, if the renters are not making their rental payments, then the homeowner or the investor who's on that, if they've got a loan on it, there's a chance they're not gonna be able to make their mortgage payment. If it's a government backed loan. Should that should that investor, if they've got a tenant in there, if they don't have to make their mortgage payment, should they be requiring their tenants? 

Yeah, pretty much. Yeah. Do you think they should be having their tenants make their rent payments? I don't know. That's I would say no is my initial thought. But it's interesting to see, we're right in the thick of it, brett? We're, I'm seeing it from a note investor side. 

I'm seeing it from the business owner side. I'm seen as somebody who owns rentals, so it's kinda one of those things where, wow, you're getting to unfortunately see this from all different angles. I, so I should mention the stay at home dad working from the house. You and I are very fortunate that our jobs can be [00:07:00] done right here, virtual in a digital world, such as a fashion and paper stack. But, we're getting to see it from all different sides and it's changing the way things are going.  

Brett Burky: [00:08:00] Yeah, I think so too. In, in terms of what you're saying with the the people that aren't able to make their mortgage payment shouldn't have to rent. 

That's almost seems like whatever that rule is where what do you call it? You have it a lot of, in the PSAs where, if somebody's collecting on collecting rent and they're not paying it, it's there's a r name for that.  

Rick Allen: Oh, if they're not paying their mortgage. Yeah. There's some clauses in there where you can have rents assigned. 

But I just think, this is a global thing. It's not just, it's, yeah, it certainly is starting it started out global. You can go all the way down granular to, the, you and I live in the same neighborhood. The basketball court is closed right now because the CDC says basketball's one of those things you're just not allowed to do. 

So there's, they put a cone inside the basketball goal, so you couldn't play if you wanted to. Oh, I didn't see that.  

Brett Burky: It's  
 

Rick Allen: just one of those things where it's a global thing, but it goes [00:09:00] down to very granular to where, even in our neighborhood, It's affecting things. So I think one of the things people really need to do is just have some compassion. 

Oh yeah. Hopefully you're getting shown compassion. Hopefully, the covid stimulus packages is working its way through the filters in the banks. I know the SBA stuff, we started looking at all that, and it's just, everything's a process. But for somebody who's having, if they're an investor, And they've got a renter in there and they're not having to make their mortgage payment. 

They should not be making that renter make their rental payment. It's  

Brett Burky: just, yeah, the thing that's interesting to me is that if you look at the current situation, we are in 2020, how different This is from 2008. Yes. In 2008 we had social media, but if somebody's doing something that's just bad, like in terms of really holding something over, like a lot of the companies are scared. 

They're like, who's gonna be the person that. It's gonna get roasted, because if somebody does, they're gonna, the, everyone's in it together. And that, that would just, I think, if you're talking about, pr, [00:10:00] make sure your PR is important right now because somebody can really blunder and really screw up their reputation. 

And not only for now, but I don't think people are gonna forget this. It's, somebody screws up now, it's it's kinda On social media, I always say be careful what you do because it's like trying to scoop out scoop pee from a pool. Once it's in there, it's gone. It's, you're not getting this thing out. 

And so that's a good way to look  

Rick Allen: at it. Yeah. And one of the things I also think is there's no reason not to try to help people out if you can right now. Because I think there's gonna be, Financially, there's gonna be blemishes that come from this and I think they're gonna they're gonna be wiped. 

Whether it's, if you miss your, if you miss, a mortgage payment, which they've worked on a credit card payment. I think what happens is there's gonna be this blip, I dunno if it's gonna be a blip, cuz it, this is definitely gonna be longer than a blip, but it's gonna be one of those things where people are gonna be able to There's gonna be some rules or financial rules written over. Look, if you miss your payments during this time, it's cuz of this. Hey, there's gonna be some forgiveness there. Yeah. [00:11:00] And you can already see it. I can't believe they signed a 2 trillion. 

Brett Burky: Yeah, I did the math on if there's 375 million people in the United States, and I'm like, wait a second, should everybody get more than 1200 bucks? It came to the like almost 7,000 per person. I was like,  

Rick Allen: huh. Yeah. You got they signed 2 trillion, but you gotta understand like how it was worked out 350 billion to the S B A loan. 

So that's,  

Brett Burky: oh, okay. That's  

Rick Allen: what I did. Yeah. So it's not, and or to the to the, the paycheck or securing your paycheck or what, I forgot what it's called. But so to where small businesses in an effort to keep their employees employed you can go get a loan that is two and a half times your monthly payroll. 

So your monthly payroll is 10,000. You can go get a loan for 20, what's that? 25,000? So that, and it's unbelievable terms. It's 0.5% interest rate. It's a two year loan. There's six months of no making [00:12:00] payments, and up to 75% of it can be totally forgiven. Wow. Yeah, it's just bananas. 

But, you look at it, you say it's great that they're doing that because then you're gonna keep people getting paid. Yeah. One of the biggest things with this pandemic is especially on the medical side, is, yes, it's bad. Yes, people are dying. But what happens is, It's if everybody gets sick, it'll overwhelm the healthcare system. 

To where the healthcare system, they just can't handle it. And the same thing is by putting these sort of stops in there. Imagine if this wasn't there, if people just started dropping and filing filing for unemployment. Yeah. It would be even higher. Because, I know. 

A lot of friends, a lot of guys that I hang out with, they're small business owners. A lot of girls are small business owners to the point to where like they, serious conversations I've had with them over the past 30 days looking at this as what are they gonna do? We're in Orlando, Florida, and [00:13:00] one of my good buddies he runs an events planning thing, a corporate events planning. 

Wow. Yeah. So everybody's coming to Florida, he had like something like 2.7 million in cancellations in March. Geez,  

Brett Burky: that crushes a business, right? Yeah. And that's very true. So yeah, that's, that stuff's scary. Yeah. Like my dad's he was at Darden forever and he had a lot of stock in Darden. 

And restaurants are closed up. I have heard some things where they're trying to I know, I forget where it was, Morton's or something, was selling off all their wine bottles, and so they were getting rid of all their current wine and it's like at a discount and it's that's. 

One way of doing it, cuz they're, they're trying to get rid of some of the stuff like that. I'm like, that's interesting. But that's all I've heard. I'm gonna order, if I can order takeout and kinda keep a business, yeah. Going, I'm gonna do it. 

Rick Allen: Yeah. We're fortunate, like you said, that we can do this order, if there's a, if I'm gonna order takeout or I'm gonna order it from, I'm trying to focus on small business right now. Yeah. Yeah. Like the, anything I can do. Small business, there was a big. [00:14:00] I saw that in, at the very beginning. 

It was like two weeks ago. Somebody that we do business with, they were saying that they went to one of the nationwide coffee firms or places you could get coffee, some of the, the specialty coffee stuff. And they had actually raised the price of coffee by 20 20 cents. While this is starting, and I don't know, I hope. 

I don't wanna say their name because I don't have all the facts, but I hope that's something that's not for real. But anyways, on that, I'm like I'm just supporting all small business right now. Just because I know that they're the ones that are really feeling the pinch really hurting. 

So I do what I can to help out in that's in that sense. But yeah,  

Brett Burky: yeah, you make adjustments. One of my daughters has a piano teacher, and and she works out of her house and she's, and that's, I'm just, That's tough. That's her whole soul business is teaching piano. 

Yeah. And so for us, she was like, what do you want to do? I was like, we'll figure it out. That's when I decided to, I was like, we got this. We can, if she could see you, it's just the same. She can hear you. We're just not there. And it's we're not canceling. [00:15:00] That's, I'm gonna, if I can do my part doing that, I'm gonna keep it going. 

Some things, like this there's a gymnastics usa I was gonna cancel that anyhow, but that's a germ fest. Like that's, it's very germy there. So beyond that, this so as a note investor and you've given opinions on what you think about the current state of the industry. 

Where would your professional opinion be in, if I'm a guy with the portfolio of, let's say, 50 loans, and I'm looking at it saying, okay, I've got a percentage that are already nonperforming. I got some that are performing. What's my strategy here? Where am I, where's my focus and what am I worried about? 

Rick Allen: So right now the focus is gonna be on survival because right now what's going on is ultimately you're gonna have to probably fall in line with what's going on with the government loans. You're gonna have to guarantee some forbearance on them. So hopeful, hopefully. If that's happening, you need to go out there and take advantage of the SBA loans that are out there. 

If you're running a small business, if this is your business, you have less than 500 employees[00:16:00] you can go apply for these things. No credit needed, no personal guarantee needed. So it's, that's where I would be, I would say, look, what do I have to do to get through the next, I'm planning for two, probably two to four months. 

Like you have to do something to get through that. Cuz you're gonna have people who are gonna stop making payments on their loans. It's just gonna happen. What's the percentage? I don't know yet. It's, that's the thing is this is really April's gonna be that first. Month where we look at it and say, huh, how many people didn't make their loan payment? 

And I'm expecting a big uptick in that. The thing that really stinks, and this is the numbers that people probably are not thinking about is so there's still taxes that need to be paid. There's still insurance that needs to be paid, and the servicers are still on the hook. To pay those. 

There's nothing written in there that says, look, you don't have to pay these. So the are now required to keep making those [00:17:00] payments for the taxes and stuff like that. For like somebody like us, The that's a pass through thing. That Bill just comes right to us. So now we still got those bills that need to be paid. 

We still gotta pay taxes, we still gotta get paid insurance. And then when it comes time for the forbearance agreements, or ultimately what's gonna happen is they're gonna, forbearance agreements are gonna turn into loan modifications. Cause when you forb something, you just push it back a little bit and they have to, Payment planning get caught? 

Ultimately what's gonna happen is you're gonna have to do a loan modification. And so this is just gonna, it's gonna take everything you have and it's gonna start stacking costs on there. Wow. There needs to be some, yeah, there needs to be some, and I know that every time we do a loan modification, my servicer is happy to take their fee, pound of flesh out of us for doing it. 

So it's. There's a lot of hidden costs here and hidden, billions of dollars that are gonna be charged. Work with your [00:18:00] borrowers. Do what you can to try to keep them paying. If you work with a small boutique servicer, do everything you can to work with them to avoid doing another loan modification and avoid doing, Yeah, you have to, you should have to work with them. 

That's all there is to it, really. And just stay vigilant and positive,  

Brett Burky: yeah. What, speaking of, on the positive note, it, it does sound very, gloomy right now. Is there any silver linings you're seeing that you're like, look, you know this part sucks, together, we'll get through it, but what is your silver lining? 

What's keeping you hope alive  

Rick Allen: in your mind? For us, we're using as a way to, there's several Borrowers or if you got borrowers in your portfolio who haven't made payments in a while, or you've got we've got contract for needs that we're turning into notes. We're using this as that restart mechanism or Hey look, we're gonna go ahead and move you forward in this way. 

We're actually using embracing the Modification or actually the, the conversions. So we're just using this as a way to reach out to people and say, [00:19:00] look, this is what we can do for you. And come at it just from a different angle. But that's smart institutional pass. I think the more. 

You can work with your borrowers depending on, there's just different levels of relationships you have with your borrowers, but it starts building up some some of that relationship backwards you have with them to where Oh, yeah, I can see that. They worked with me and maybe, I'm not saying it's a hundred percent, but maybe the next time that they're like gonna make their mortgage payment late or miss it, that they're like, Yeah, those guys worked with me. 

Yeah. That's gonna happen, but it's just something you can do and it's the right thing to do,  

Brett Burky: no, I think that goes a long way. Cause at this point people are gonna remember where they were kinda like a nine 11, granted it wasn't like one day where it happened. So that's kinda, where were you? 

During this time it was just I was at home. I that's pretty much where I was saying I was at home. But I guess that's it. If you're listening to this and you are a user of Paper Stack, we'd love to hear from you. We're gonna be doing, bringing you on and hearing about your experience of your transaction, either as a buyer or a seller on Paper Stack. 

And again, if you hear this and you're. [00:20:00] Listen to an while you're driving or something like that, and you're just always wondering, man, I wish the paper tech did this. We're all ears. So we listen to everything that comes over. We put it on the board on every Thursday I guess we put it on the computer now. 

We go through and say, look, this is important. People have asked for it. We say two step tech. If we've seen something twice and it's something we can do, we're gonna do it. Thank you for listening and watching our first episode. There'll be plenty more and yeah. All  

Rick Allen: Rick episode, Brett, next episode. 

We'll tell him the story. We'll tell him how Paper Stack came to be.  

Brett Burky: Sounds good. I'm ready. All right, buddy. See.