In the medium term I think this is going to be worse for the mortgage market than some people seem to realize. So far a lot of my performing loans actually had payments in the last week which surprised me, but I expect that to change.
What do I think is next?
1. I think 25% of mortgages going delinquent is probably a good number. I wouldn't be surprised if it is a little higher.
2. I agree there will be a lot more foreclosure and eviction moratoriums. I think there will be some required mortgage forgivess like in Italy as well.
3. I agree the paycheck to paycheck folks won't be able to catch up after a few months of job less. I expect to mod a lot of loans and move missed payments to the back end.
4. I think we will see broader job losses than in 2008. But 2008 had more structural changes in the economy, and a lot of those lost jobs didn't come back. This time around I think the losses will be deeper but less structural. So you have a huge number of hourly workers losing jobs in restaurants, hotels, etc, etc, but then for the most part they should all come back once the quarantines eventually end.
In the meantime I'm re-pricing as well. I'm assuming that most paying loans will stop paying for at least a few months and some will go completely non-performing. For non-performing I'm assuming a much longer timeline, and ultimately a drop in the values of the underlying real estate. I put out a few bids in the last week and will probably continue to do so. But I don't expect to close on too much as it will take a while for sellers to adjust to the new reality. I'm still continuing FC's and debt collection, if borrowers have been affected by this I will obviously work with them.
It will be interesting to see where pricing ends up. I don't think it will go all of way back to where things were in 2008, but they will be very different from where they have been over the last 12 months. Ultimately there will be some great opportunities but I think it will take some time for the market to get there.
