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Post US-Election Real Estate Mortgage Situation
 

 

Right after the US presidential election results were announced, and after the initial hours of financial turmoil were established, this is what Mortgage Note Buyers like us and the whole Real Estate and Mortgage industry is facing: a great deal of uncertainty.


What uncertainty does to the market:
 

Yes, the sun will continue to rise from the East every morning and set on the West every evening, but uncertainty will make everything in between a little more challenging to predict and handle.

 

It’s not going to be business as usual because there is nothing that stable markets dislike more than uncertainty, the Mortgage Notes business not being the exception.

 

After the usual conciliatory speeches and good wishes are delivered, the only certainty is that the promises made by the new President elect, if fulfilled (and we don’t know if they will be), have a potential to cause financial markets turmoil in the short and long term.

 

 

Therefore, we need to be prepared for choppy markets for the foreseeable future: Choppy real estate values, choppy consumer credit, choppy stock prices, choppy commodity prices and choppy interest rates.

 

All this put together has an implosive potential for the Real Estate and Mortgage Notes business. Unfortunately, this is not great news for an investor that is holding a mortgage note (i.e. somebody that is receiving payments on a real estate mortgage note).

 


What lower Real Estate Prices and higher Interest rates does to the market:
 

We’ve already seen Real Estate mortgage applications come down even before the elections. Due to uncertainty, this trend should continue and as a result, Real Estate prices may come down. How much and for how long? we don’t know, but is better to be informed and prepared for a scenario when you want or have to sell your mortgage note.

 

There are 2 factors that due to this election aftermath, will have an impact on the value of your mortgage note and this is very important for you to understand:

  • Lower Real Estate values will lower the Equity value on the property that you hold a mortgage note on. A lower Equity value in the property will increase its LTV (Loan-To-Value) Ratio and may drastically reduce the value of your mortgage note, especially if there was already a high LTV Ratio to begin with.

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  • Higher interest rates will potentially reduce the appeal for your note, because your note will be competing in the secondary market with other notes and with other fixed-income equity instruments that now have slightly higher return.

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Both of them combined, can be a major factor when selling your Mortgage Note.

Not everybody wants to sell their mortgage notes, but if/when you do, you want to be aware of these factors before they become critical.

 

Some recommendations:

 

These are some suggestions that should be paid attention to, due to the post-election uncertainty.

If you are the holder of a Mortgage note, whether you are thinking of selling it or not, it would be a good idea to check the following:
 

  • Get a realistic appraisal of the Real Estate value of the property you hold a mortgage on, preferably get somebody else’s unbiased opinion based on research, not yours.

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  • Get an idea of the credit & financial situation of the payer, the person making the note payments to you

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You may ask why? Because these 2 factors will affect greatly the value of your note when it comes time to sell it.


It won’t hurt to periodically keep track of this information. We are constantly dealing with note holders whose notes lost considerable value in a short period of time because of changes in Real Estate value or payor’s credit situation. So the note holders see their note ‘sell’ value diminish greatly. In some cases, they even hold on to their notes waiting for a change in the situation, but more often than not, the situation only changes for the worst and they end up dealing with delinquent notes first and then with foreclosure and payer bankruptcy, all of whom turn their notes into almost worthless instruments.

 

We cannot emphasize how important it is for note holders to understand these and other factors that affect the value of your note. For a more comprehensive list of factors that affect your mortgage note value, please visit this page.

 

As the situation evolves, we’ll be periodically updating this page and notify our twitter and facebook followers.

 

If you have any questions or are interested in selling your mortgage note, please contact us through this contact form. or fill out the online quote request form.

 

 

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