due on sale increase?

[Conrad Cortes]

I know right now this assuming mortages is getting popular and I understand why it's appealing. I'm not a fan of encouraging it when there is a possibility of a due on sale though. This led to me thinking about the liquidity issues some of these banks are running into. I'm no expert on this but from what I understand, the core issue is the banks had a lot of long term low interest debt that they had to sell at a loss and didn't have the money to pay out when people wanted their money out. With silicon valley it was treasury bonds and with first republic it seems like it was mortgages. 

So my question is this, do you think we will be seeing these loans actually start to get called now that there is a true incentive to get these low interest loans off the portfolio? I understand that this rarely happened in the past, but now that it is a rising rates environment it seems like there would definitely be an incentive to call them now if they could find a reason. 

[Chris Seveney]

@Conrad Cortes

Should banks be doing this? Absolutely but let’s understand how loans work.

Loans are originated by a lender and some of them are packaged up and sold to Fannie and Freddie and they issue mortgage backed securities where these loans are all pooled together.

They are then managed by a servicer who collects the money and also pays the investors who invested in the security

The servicer has hundreds of thousands of loans and they are not checking on if a deed transfer occurs, they are getting paid so they are good and 99% if the time are not even aware the property changed hands.

I respectfully do not agree with now would not be a good time for banks to call loans as now is the best time because properties have equity and they could foreclose and easily get paid off.