Author Topic: Read This If You Own Bank Stocks  (Read 3221 times)

BG2008

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Read This If You Own Bank Stocks
« on: March 24, 2020, 01:46:31 PM »
I have mentioned a few times that my family and I own 2-4 unit NYC residential rental buildings.  In the last week, my relatives have been getting quite a few request from otherwise great tenants asking for rent deferral.  Their reasoning is very sound as they cannot go to work on the construction sites and restaurants etc.  Obviously, this impacts my relatives' ability to service their mortgage.  I think most of them are set up where if 50% of their tenant pays, they can pay that mortgage.  Governor Cuomo also signed an executive order forbidding foreclosures.  But I heard that the wait is literally 3 hours to get someone on the phone and the banks have no clue on how to handle this as they are slammed with request from homeowners for mortgage deferral.  I doubt the banks want to become equity owners in most homes and part of the stimulus bill is supposed to handle this.

This is likely very obvious, but I hope this anecdote provides a bit of insight into the seriousness of the situation. 


Gregmal

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Re: Read This If You Own Bank Stocks
« Reply #1 on: March 24, 2020, 02:15:23 PM »
From what I heard, the mortgage deferral also only refers to owner occupied units, not investors. I could be wrong through.

rb

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Re: Read This If You Own Bank Stocks
« Reply #2 on: March 24, 2020, 02:41:43 PM »
Well... we all pretty much expected this. If 25% of the US population cannot handle an $800 emergency. Then this was gonna happen with a shutdown.

I think that the banks learned from the last crisis that mass foreclosure is a dumb move so I don't think you'll see that at least from the big banks government orders or not. From the bucket shops who knows.

I think the size of the damage will be determined by how quickly things pick back up. Banks effectively lengthening mortgage terms by 3 months is a big nothing. It's just a liquidity event. But if you go to prolonged 10% unemployment then it stops being a liquidity event and it becomes a solvency event for bank customers. Then it becomes a problem.

I'm actually not so concerned about the restart. They seem ready to pump so much stimulus into this there will be more coke than in Scarface for the economy. It probably doesn't hurt that it's an election year. The Republicans are usually the ones that block these things but now their guy is in the White House so they'll be air dropping the 100% pure Colombian stuff. 2 trillion is not enough? Here's another 2 trillion! Remember in the wake of 2008 crisis the fed did 250 billion in QE between November and March. I think this time around they more than that last week.

Spekulatius

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Re: Read This If You Own Bank Stocks
« Reply #3 on: March 24, 2020, 02:49:29 PM »
Well... we all pretty much expected this. If 25% of the US population cannot handle an $800 emergency. Then this was gonna happen with a shutdown.

I know that a huge part of the population canít handle a $800 emergency, but I am surprised they so many real estate investors canít handle on or two skipped rent payments. I mean we are like 3 weeks into this.
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Orchard

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Re: Read This If You Own Bank Stocks
« Reply #4 on: March 24, 2020, 04:10:53 PM »
I know that a huge part of the population canít handle a $800 emergency, but I am surprised they so many real estate investors canít handle on or two skipped rent payments. I mean we are like 3 weeks into this.

If you invest in an asset that unlevered returns less than 1% you have to make it up through leverage and eventually will believe that cash is trash.

rb

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Re: Read This If You Own Bank Stocks
« Reply #5 on: March 24, 2020, 04:37:27 PM »
Well... we all pretty much expected this. If 25% of the US population cannot handle an $800 emergency. Then this was gonna happen with a shutdown.

I know that a huge part of the population canít handle a $800 emergency, but I am surprised they so many real estate investors canít handle on or two skipped rent payments. I mean we are like 3 weeks into this.
It's really for some of the same reasons why some people can't handle an $800 emergency. They "REALLY" must have that investment property. Or probably more accurately those investment properties. You'll be surprised how many people I know in this space that talk like Goldman bankers but shouldn't even be allowed to hold a calculator.

From the banks' perspective they're probably pretty safe. Those type of properties are pretty well collateralized. The banks this time around will play like angels. If you're regular Joe they won't foreclose, let you skip payments, etc. In order to "help with the effort"  ::). But if you're a small commercial/residential real estate investor and you have the misfortune to come up for refinance now they'll rip your eyes out.

Spekulatius

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Re: Read This If You Own Bank Stocks
« Reply #6 on: March 24, 2020, 05:46:52 PM »
I know that a huge part of the population canít handle a $800 emergency, but I am surprised they so many real estate investors canít handle on or two skipped rent payments. I mean we are like 3 weeks into this.

If you invest in an asset that unlevered returns less than 1% you have to make it up through leverage and eventually will believe that cash is trash.

I have entertained investing in real estate directly, but the cash returns really needed a lot of leverage to make them work. I actually think that the deals you get with public Reits are way better than most single property deals or syndicate deals that I have seen.
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Enrico Pallazzo

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Re: Read This If You Own Bank Stocks
« Reply #7 on: March 24, 2020, 05:49:29 PM »
From what I heard, the mortgage deferral also only refers to owner occupied units, not investors. I could be wrong through.

This changed as of this morning:

https://mf.freddiemac.com/COVID-19/
https://www.fanniemae.com/portal/media/corporate-news/2020/renters-covid-19-multifamily-7002.html

Basically, multifamily owners will be allowed to defer mortgage payments if they agree to pause evictions due to non-payment of rent.  My day job is to own/operate multifamily investments, so I pay a lot of attention to this :-)

BG2008

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Re: Read This If You Own Bank Stocks
« Reply #8 on: March 24, 2020, 06:33:49 PM »
Btw, I am not saying that my relatives can't pay their mortgages if their tenants skip rent for a month.  They have quite a bit of liquidity.  Their simple and naive way of buying NYC residential rentals will make 95% of public market investors look like chumps with regards to their 10-20 year track records. 

matts

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Re: Read This If You Own Bank Stocks
« Reply #9 on: March 25, 2020, 01:17:56 AM »
From what I heard, the mortgage deferral also only refers to owner occupied units, not investors. I could be wrong through.

This changed as of this morning:

https://mf.freddiemac.com/COVID-19/
https://www.fanniemae.com/portal/media/corporate-news/2020/renters-covid-19-multifamily-7002.html

Basically, multifamily owners will be allowed to defer mortgage payments if they agree to pause evictions due to non-payment of rent.  My day job is to own/operate multifamily investments, so I pay a lot of attention to this :-)

Only about 50% of all multi-family mortgages are Fannie/Freddie insured.

This a big help for the other half, but the way I see it, almost all tenants will choose to not pay rent, even if they can. It will just be too easy to say they were negatively affected by the virus: "I have to help my parents/sister" etc. I see the word spreading on social media that you can just skip rent for a while. there is no incentive for anyone to keep paying. You can't kick them out and it won't affect their credit rating.

So you have multi-family managers that get minimal rents coming in, but still have to maintain the building, pay for utilities (if they are not individually billed to renters directly from the utility)

If you can defer mortgage payments, you will still be cash squeezed because of costs, and if you can't defer, then you are at the mercy of the lender.

I can see the pressure on landlords to limit evictions continuing for months, not weeks. Even once people are allowed to go look for work, many of them will not find one right away.

What are you seeing in your business?