Friday, March 5, 2021
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Hedge Funds Begin Entering Foreclosure Arena

I had to laugh earlier today. An old Client of mine called me up asking where in the hell I got information to support my view that default paper was already being purchased. He said there was no way that any foreclosures could begin until middle to late next year. I thought about the question for a moment and as I laid out an explanation that there is more to read on the internet than Twitter and Facebook, I heard him take a deep breath. When I stated that there were more business channels than CNBC or Fox Business, I heard him slam his phone. The call was cut off and I have to presume that his next action was to reach out to his phone provider in order to get a new phone ordered. You see, there appears to be a unilateral move by enormous hedge funds to rapidly move into the foreclosure arena. And moratoriums be damned, the money is flowing like the blood from a stuck pig. The reality is that the kids out there today playing with a couple of billion dollars have no clue how real commerce functions. You can always identify them as the ones whom have dozens of ideas and schemes; however, they do not even have a single, concise form to receive and process information in a meaningful manner.

Information is the most valuable commodity on the face of the earth. And intelligent people have learned that information is neither good or bad; information comes in multiple flavors; and information must be expertly interpreted in order to capitalize upon strategic action. To that point, Globe Street has a couple of good pieces out tracking the movements,

The single-family rental market is seeing an uptick in activity as investors gravitate to its strong business case. As [an] example, Rockpoint Group, a global real estate investment management firm, just announced it has formed an exclusive $250 million joint venture with Resicap, an owner and operator of single-family rental homes based in Atlanta, GA. Together, Rockpoint and Resicap expect to acquire, renovate, and lease 4,500-5,000 single-family rental homes at affordable price points in suburban neighborhoods in the Southeast US, Florida, and Texas.

And just a couple weeks ago, Rockpoint Group threw yet another $375 million at Dallas-based Invitation Homes on a similar venture.

A total of over $1 billion, including debt, is expected to be deployed by the JV to acquire and renovate single-family homes in markets within the Western US, Southeast US, Florida, and Texas, where Invitation Homes already owns homes. The homes are expected to be similar to the homes in Invitation Homes’ existing portfolio.

Moratoriums are generally intended for those whom believe they actually exist. This narrative that either Democrat or Republican solutions are better than the other is as old as the concept in which plebes honestly believe that legislators represent them. In fact, while the CDC has their pet project out there stating that if you make under $100K per year, you cannot be evicted, it is actually pre-supposed upon the fact that the evictee knows how to navigate through the myriad of forms necessary to be filed and the financial wherewithal to prosecute the matter. Even so, the moratoriums are really meaningless when we look at the lion’s share of foreclosures available. Humor me and take a look at the below graphic, compliments of Amherst Holdings,


You see, out of the 124 million or so residential mortgages in the US, over 60% of them are not governed by what we generally call QM Agency loans. That means that no matter what the government wants to spin in the headlines, they really have no recourse to prevent foreclosure. All told, the estimates are roughly 15.6 million defaults. More on point, though, there is a term called Sale Leaseback. What this means is that Investors will come buy your home and simply lease it back to you. And in times like these, many families are open to anything which will keep a roof over their head.

The Foreclosurepedia Nation is well aware of the fact that I rub shoulders with Fortune 500 firms. They do not necessarily like me and I have no love for them. It is a symbiotic relationship. To that point, I was asked to look into the crystal ball and come up with a predictor with respect to the propensity of never recovering from default status — regardless of moratorium or not. I posited that utility payments are the deciding factor.

Utilities are the one set of payments that no matter what, the vast majority of Americans cannot recover from other than bankruptcy. And you know what? That data is readily available. In fact, if you really begin to stir the data pools out there, you are going to find that the vast majority of those whom are behind on their mortgage payments, during COVID, also have utility bills in the thousands of dollars. Utility bill debt, as a marker, is a far more superior predictor than virtually anything else out there during COVID.

Many jurisdictions have laws which prevent the disconnection of utilities during the winter season — and rightly so. With that said, as opposed to looking at properties to target based upon delinquency when we discuss the fine tuning of asset targeting. If you see a history the inability to pay utilities over several months, those mortgagees would be more receptive to either Sale Leaseback or Cash For Keys.

Anyone whom is out there believing that waiting until next year to begin pursuing default paper is wise will be the same ones whom sit on the sidelines, yet again, during this housing rush already underway.

Paul Williams
Linux addict buried deep in the mountains of East Tennessee.



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