Mortgage Getting Called in During Recession

[Sam Zawatsky]

What are your experiences or knowledge about the potential of mortgages getting called in during a recession? I was informed by a family member that someone they knew had a mortgage called in on one of their investment properties in 2009 (meaning that the lender sent them a notice that they must immediately pay their remaining entire principal balance , or go into foreclosure). Is this a real possibility, and something to consider when looking into purchasing / cash out refinancing this year? There has been the consistent threat of a market crash, and while I'm not so concerned with the housing prices, I am concerned about the possibility of not being able to get a cash out refinance mortgage with under a 7 percent interest rate on BRRRR properties or getting my existing mortgages called in, causing foreclosure or bankruptcy. Any thoughts?

[Chris Mason]

Quote from @Sam Zawatsky:

What are your experiences or knowledge about the potential of mortgages getting called in during a recession? I was informed by a family member that someone they knew had a mortgage called in on one of their investment properties in 2009 (meaning that the lender sent them a notice that they must immediately pay their remaining entire principal balance , or go into foreclosure). Is this a real possibility, and something to consider when looking into purchasing / cash out refinancing this year? There has been the consistent threat of a market crash, and while I'm not so concerned with the housing prices, I am concerned about the possibility of not being able to get a cash out refinance mortgage with under a 7 percent interest rate on BRRRR properties or getting my existing mortgages called in, causing foreclosure or bankruptcy. Any thoughts?

 Your friend didn't tell you the whole story. No one ever does. The person with bad credit never takes responsibility for that fact, they blame it on the car salesman who ran his credit 10 times, for example. They don't tell you about the car repo and pattern of missing credit card payments.

As others mentioned, one possibility is that it was a HELOC. In that case, that is the whole story, HELOCs got called, it happened. In 2020, the availability of new HELOCs plummeted to nearly zero.

If it was a 1st position mortgage in 2009, it could be that they also started enforcing owner occupancy requirements. Remember the "stripper scene" in the Big Short where she said she owned 5 houses ("and a condo")? She probably bought all five as an owner occupant (chasing the lower down payment and better rates), months apart. So there's a really good chance that character would have had several mortgages called due when the SHTF. But she wouldn't tell you that she committed mortgage fraud several times in a row, she'd just say the banks are evil nefarious bad guys out to get her, etc (also, here's your excuse to watch the stripper scene again for, uh, research).