6 Million Homeowners Are Struggling

Hello, my name is Tim Jones with Foreclosure.com. I want to introduce our guest today, real estate broker, investor, foreclosure and short sale specialist, Randy Patrick. Randy, thank you for joining us today. Hey, Tim. Thank you for having me. Always a pleasure. Definitely. Definitely, friend. So let's jump in. You've been in real estate industry for years. What indicators are you seeing that suggest we may be headed for another housing crash? Well, the cool thing about what's happening nowadays is that, you know, if you were around or doing business back from the last housing crisis, and you sort of look where we are today, a lot of this stuff is mirroring what happened back in 2007 and 2008. So, you know, if you listen to the news, we are having a significant amount of inventory increase. So now a lot of it is, you know, when we say housing crash, I mean, a lot of times we refer to that as a national thing. I think what we're going to have is maybe more metro specific locations having issues first before it becomes much broader base. But a lot of locations are having a significant increase in housing inventory. All right. So more properties are coming on the marketplace. And, you know, it's funny, you would think that, well, you know, is it a buyer's market? Well, it's becoming a buyer's market right now. Sellers still haven't really reduced their price points significantly. But even though we're looking at that increase in inventory, we can still see a lot of price points. So if you're a real estate agent or have access to the MLS, you can take a look at, you know, price decreases. So we're seeing price decreases all the time. Things that are going under contract, I forget what I was listening to the other day, but basically seller concessions. It's like every deal now buyers are, you know, are getting smarter, or at least their agents are that are representing them. And they're asking for seller concessions, whether it's FHA mortgage buyers or anything else like, hey, you know, let's get what we can and see if we can take anything off the table, which is kind of cool. From the real estate investor perspective, one of the telltale signs is wholesalers. So when wholesalers, you know, they always try to make as, as you know, as big a bang as possible when they're moving properties, right? Well, now we're starting to see the whole, that wholesale margin is getting smaller. And personally, you know, I'm on a lot of email distribution lists. I'm seeing, you know, last week's, you know, property is now price reduced. Okay. So they can see that they're dropping their price now, which is, you know, which is kind of interesting. Fix and flipper market too, same thing. Like in other words, if you're buying a property that you're going to put money into and rehab and resell, well, you know, are there some pullback in that, but already like at least a lot of the better fix and flippers that I know, or the ones that are more concerned, they're adjusting their price point. So today's ARV, their after repair value, they're, they're saying, okay, if it's, if it's X today, well, if it's roughly four to six months from start to finish from project to sale, to closing, you know, they're reducing their internal ARV by 10 or 15% saying, okay, you know you know, maybe it's worth $500,000 today, but let's bring it to 450 realistic price point, you know, for six months from now, because we're, they're seeing reduction as well. You see, so everyone's making adjustments and I think, you know, last but not least we're seeing the foreclosure filings. So as much as, you know, it's sort of been sort of pattering along, you know what I mean? I think we're starting to see a little bit more indication of, of, I mean, clearly your, your group would know, be the one that would know that for sure with all the data you have, but you know, like from, if you're talking to the lay person, the casual user, if you start reviewing the data, certain counties, certain locations are starting to see a pickup for various reasons. But again, you know, you only can kick the can down so far. And a lot of the people that weren't saying not paying, or maybe we're caught up with some forbearance and still are kind of in that limbo area, the lenders are now going, okay, guys, it's time that we start to, to recoup our interest now, you know? No, that's very interesting. And definitely has changed a lot since the last time we spoke in the beginning of 2023, especially in our markets and, you know, South East Florida and Southwest Florida, you starting to see those inventories increasing, you know, that's for sure. Well, you kind of mentioned this, but with the home values remaining high and mortgage delinquencies on the rise, do you think we're facing a gradual correction or a sudden wave of foreclosures and short sales in the next six to 12 months? Well, the next six to 12 months, I'd say it's still going to be gradual. You know what I mean? Like, like we have, you know, overall economic issues regarding whether it's unemployment increasing now, just the normal inflation, you know, it's up and down. We don't know what's going on. The Fed still hasn't really, well, they've been more, they haven't decided on lowering rates, they've decided they're not going to lower rates for a while. So, you know, as long as you have that, that's putting downward pressure on prices and people will start to graduate to either paying less, offering less and looking at the distressed market. But when you still have things, you know, the economy being still very expensive for people, you're just going to see more and more defaults coming. So I think the next six to 12 months will be the start, you know, we'll start to see the slide and, you know, and again, people will gravitate towards this as we know, like everybody's, you know, resale, fix and flip, wholesaling, whatever that is. But then eventually they'll realize, I can't pay this or, you know, the market's changing. I don't want to get caught. Like, you know, the expression, you never want to catch a falling knife. So people will start to become aware of that. I think also, you know, so look for the next six to 12 to be gradual. And then I think we've got a good three to four years of this happening, which if you take a look at the last, you know, crisis, you kind of, you go from like 2000, you know, it was like 2008 to, you know, 2011, 12 being the trough, like from the peak to the trough. And then, you know, you had a couple of years coming up. So you had like, you know, four or five, six years of this volatile period. So I would say we were probably not going to have as long, maybe three to four years, because we have better data and more information. And we've already been through a cycle before, right? That's the key part. If you've been around, or you've like, I always say to people that come to my events or listen to my information, it's like, you know, we don't have a crystal ball, but we have a time machine because we can go back and we can look at what went on and use that information that can help us plan going forward. No, that's great information. And that goes perfectly into my next question. So in 2008, subprime loans played a significant role in the crash. What factors do you see today that could be causing instability in the housing market? Well, first of all, I think we go back to, say, well, actually, even pre-COVID. I mean, you guys probably saw it on your end too, like I was looking at all the foreclosure data, and it was spiking. Like 2019, just before COVID, it was really going up. It's like, okay, here we go. COVID came, and then we were faced with that eviction and foreclosure moratorium, which essentially shut the distressed market off for a couple of years. Everybody jumped into forbearance plans, literally millions of people. And the issue or the problem that I have is that, you know, it was difficult to get data and information at that point in time. Like you heard, oh, we have X number of people in these forbearance plans. And then, ooh, well, these are people that are exiting forbearance. Well, when you exited forbearance, it wasn't always clear whether, okay, did you fix your problem? Are you paying your mortgage now? Or did the timeframe of forbearance just stop? Okay. And then now you had to move to loan modification slash loss mitigation. And a lot of those people can't get loan mods. So, you know, they're actually in that what I call shadow inventory. They're not being foreclosed on, but they're not paying a mortgage. There's a big number that's not there. Then afterwards, well, you know, sort of during the last part of COVID and going forward, you know, we had exponential increase in property values, right? So that's problematic. And, you know, when you look at, you mentioned subprime, well, we don't have subprime lending per se, but we have FHA lending. And FHA is, you know, lower down payment, lower credit score, higher debt to income ratio. So to me, that's our new subprime. And if you start researching FHA loans and FHA loan delinquencies, you know, recent vintage FHA loan originations, like we're talking from 22 and 23, you know, they have an exorbitantly high default rate. So it's kind of like, hey, I jumped in, I paid a high price to my property, I was able to get an FHA loan. And then, you know, market changes 5%, you're underwater, you need to sell this closing cost commissions. Now you're 10% underwater, what are you going to do? You see? So those are the things that I think replace subprime, just that perspective. But here's the thing, lenders want to lend. Over the weekend, I heard a radio ad, and I actually just looked it up before our call, because I want to make sure I understood this. So I actually heard Rocket Mortgage is offering 1% down loans. Believe it or not. Yep. So I literally pulled it. And it was a bit of qualifying. But essentially, what they're doing is that, you know, need a qualifying FICO score 620 or better. It's kind like subprime, right? Single unit primary residences only. I guess what they're doing is they're taking a 2% grant they're giving you, and then you've got 1% down. And there's some DTI limitations, of course, I think ratios you got to work with, but you got to be a certain median, close to certain median income for your area. But the point being that, you know, as we're, what I always find is that lenders who aren't lending, just before we see a crash, because it happened last housing crisis, start offering weird and wonderful programs to actually attract money and attract buyers, but at the wrong time, because if you're buying at the peak of the market, or the market has just sort of gone over the peak, but it's not quite apparent yet, and you're putting little down, okay, and you're getting into a big mortgage, well, guess what, that's that's almost predatory as far as I'm concerned, because your prime, you know, prime, you know, housing loss, how foreclosure opportunity as a year or two goes on, you see? That's very, that's a very good point. And as far as what you were saying earlier, I know exactly what you're talking about. Because so many people I know, I call it FOMO bought, right? They were so, there's so many people going to these properties and listings where if they didn't put in a bid, they were going to lose it. So people were doing it without even really understanding the potential increase in the taxes when they bought at that price. But even more so specifically down here in Florida, or around the country, but as the insurance, you know, people were not anticipating those hike increases. And I know a lot of people that purchased in 2021, 22, and thought they were getting a great deal, but then just didn't anticipate some of the additional costs that were coming in. So that that makes sense. And it's interesting what we're seeing now. So, you know, what opportunities do you see for real estate investors in the shifting market? I know you mentioned FHA, is now the time to start looking for distressed properties? Oh, definitely, definitely. I mean, they're out there, I guess you could say, optically, they're not there. So you're not going to see distressed properties listed on the MLS, etc, right? However, if you get a data service like yours, and you start pulling back the onion, peeling back the onion, seeing what's out there, you're going to see a lot of pre foreclosures, a lot like pre probates, things like that. So, so, you know, that that's the situation is that there's so much happening, but it's not quite coming to the surface yet. So that's why I say kind of mirrors last housing crisis, like it was quiet. If you knew what was going on, you're gonna be the first ones to venture out into the, you know, into the field and start looking at these things and getting your hands on deals. And then eventually, you know, real estate agents will start to figure this out, etc, etc, the market will start to shift. But I think there's a huge amount and again, this is the difficulty with data is that, you know, it's a moving target, right? So people are losing their homes, people are getting foreclosure filings, people are in loan mods, like it's really hard to quantify that data. But you know, you guys like but you guys got enough that had good data that, you know, you can just look like you can pick a zip code, you can niche down to, you know, maybe mortgage type, like a big thing we're looking at now is reverse mortgages is a great opportunity. People are passing away. And a lot of them aren't even in probate yet. So there's some good stuff going on there. So yeah, I mean, the distress market is, and again, untouched. And let's go back a few years, everybody wants to, you know, get it on the way up, right? Well, by buy it today, I might make 10% next year, or I'll just break even if it doesn't work, right? So people like to play the upward game on appreciation. And a lot of times they, they forget that if you actually look behind the scenes, and start actually detailing what's going on, you make your money when you buy and if you buy distress, because you're getting the best price points or best discounts when you're working, you know, like pre foreclosure, probate, code violation, that type of market, you know. That's, that's great advice. Thank you, Randy. So for homeowners who are struggling to keep up with the payments, what advice do you have? Are short sales a better option than, you know, potential foreclosure? Well, it's a good, it's a very good question, because we talked to a lot of homeowners, and we have a process where, you know, we vet them through a local, you know, real estate attorney to that reviews their personal situation. So, you know, as investors, or even as licensed real estate agents, or real estate brokers, you know, we're not necessarily lawyers, we're not tax professionals, we're not financial planners. So it's one of those things that, you know, you can, you can look at a home and you could say, well, you know, does the home need a short sale? Yeah, but does the person need a short sale? So I always think that a person, the homeowner should consult somebody, so they understand the ramifications, not on this, again, that's not the right word, like this, what goes on, so they could understand the financial implications, if any, what's the best solution for them? Should they pursue, you know, if they want to keep the house, should they pursue loan modifications, or trying to do workout programs with their lender, that's a potential option. But, you know, for 99% of the population, an actual short sale is better than a foreclosure. You know, a short sale doesn't really ding your credit, so to speak, because your credit's already kind of dinged with the non-payments. We do know a foreclosure does, you know, add some additional hits to your credit. But the main issue with respect to foreclosure is that, if you let it go to foreclosure, it's a judgment against you, right? And in the majority of states around the U.S., you know, even after it's sold the auction, the lender can still come and collect that judgment and harass you over the next number of years, which is not that great. So, you know, that's why I would say, you know, counsel, you know, talk to a professional. You know, as much as, you know, I am a licensed broker, you know, and I've been doing this for, you know, 20 years now, you know, there's still things that I don't know, and as real estate agents, we're not really in a position to give financial advice, you see. So the average agent, you know, says short sale, well, you know, to me that's, yeah, it probably makes sense, but you might want to do a little more research as a homeowner, just to make sure you understand what's going to happen in the future, you know. Yeah, no, that's great advice. I mean, we always tell our audience and users to, that our platform helps with due and due diligence, but you always want to talk to a local expert and expertise, and whether it's legal questions or, you know, real estate, you know, questions, everything, you should always talk to an expert. So thank you, Randy, that's very helpful, and thank you for sharing your wisdom with us today. That's all the time we have for today. If anyone has questions about short sale opportunities, how can people get in touch with you? Well, very straightforward, you can look me up, my email is straightforward, it's randyatluxuryshortsales.com. Okay. randyatluxuryshortsales.com, that's the best way, that's the way I primarily check, you know, in the future, you'll start to see more videos from me, you know, Facebook, Instagram, whatever, I'm going to start getting back into that. But the past year or so, just plugging away at deals and building the pipeline and getting prepared for what's gonna be a pretty active next three to five years, let me tell you. Well, thank you again for sharing. We'll make sure to put a link down to your channels below, okay? If you found this video helpful, please like it and subscribe to our channel. Don't forget about our free foreclosure email alerts. Until next time, I'm Tim Jones with foreclosure.com and thank you for joining us today.