Short Sharp Shock? Not so much.....

[Paul Birkett]

Mortgage Update: Outlook is not good.

The economy continues to shudder to a halt. As I write, lower manhattan looks like a ghost town. My coffee shop typically turns about $1,000/day. As of 15 minutes ago, Carlos had taken $92 for the day. He had collected $15 in tips. That buys 2 subway rides and a sandwich.

So what?
Carlos lives with his extended family in a 3-unit building where he rents 2 units and lives in the basement. His tenants have asked if they can pay late. You can probably guess where this is going.....

A small portion of our loan book consists of performing mortgages (~5%). Almost all are late.

What next?
1. Expect up to 25% of mortgages to go delinquent in the next 90 days.

2. So far, 11 states have issued debt collection, eviction and foreclosure advisories or moratoriums (requesting creditors to cease recovery activities). Most states will follow.

3. Delinquent borrowers living pay-check to pay-check will not be able to catch up. Whether it's 3 payments or 5 or 10....how can you pay when you have no job?

4. We could see a repeat of 2008. I guess its a 30% probability

What are we doing about it?

1. We have pulled bids on several new trades. Everything is repricing and nobody knows what the right price is.

2. We are ceasing all foreclosure and debt collection activities. I'm the only one in the office

3. We are preparing for the largest influx of non-performing paper we have seen since 2008.

Things will get better but we expect a very tough 6 months ahead. We will do everything we can to save another 2,000 families from foreclosure. I'm worried it won't be enough.