I. In February, I Comically Predicted Rates Would Drop as Low as 5.5% This Year. I Missed Two Major Events That Are Very Likely to Keep Rates Elevated for Some Time.
- The Obvious: The Iran War. It increased energy prices anywhere from 50% to 140% – and those higher prices are now showing up in other prices. The Iran war further cut off supplies of other important goods (fertilizer, sulfur, aluminum, etc.) that are also now much more expensive.
- The Money Supply Increased Too Quickly. This is the biggie, as increases in the money supply are the true and much stickier cause of inflation. The Fed started to do QE (buying bonds) in December to push down short-term rates – increasing the money supply in two ways: (1) Buying bonds directly infuses new money into the economy; and (2) Lower rates foster more bank lending, which is how most of our new money is created. TLDR: When the money grows faster than the production of goods and services (which just happened) – we see inflation.
CPI inflation came in much hotter than expected yesterday, and PPI (wholesale inflation) came in way hotter than expected today (6.0%!).
Rates are now over 1/2% higher than where they were prior to the Iran war. A stock market crash could bring them down – and we will see one for sure (which I will blog about) – but it is just a matter of when…
II. What Should Borrowers Do if They Get Behind With Mortgage Payments?
I blogged about this many times after the 2008 crisis but stopped circa 2012 because it became much less common.
It is, unfortunately, getting more common again, so I was asked by an agent to address it again.
I should first add, though, that while late payments are more common, foreclosures themselves are merely back to pre-pandemic levels.
The crash bros love to tell us foreclosures are up 26% this year – and we might see a total of 475,000 this year.
But – that is about normal – and it’s a very far cry from the nearly 3 million foreclosures we saw in 2010!
What Borrowers Should Do:
- CALL THEIR LOAN SERVICER! There is no entity on the planet that wants to avoid a foreclosure more than a servicer, as foreclosures are extremely costly and cumbersome. And no, servicers and lenders don’t want to take a borrower’s home and equity… (A) there often is no equity in the end; and (B) lenders are not entitled to any leftover equity (after the loans are paid off) anyway. Main point: borrowers will be pleasantly surprised by how willing servicers are to help in most cases.
- CONSIDER REFINANCING OPTIONS. Borrowers will have refinancing options even if they are behind on payments – IF they have (1) a lot of equity (over 30% or more); (2) a good story (about why their financial woes are a one-time event and why they will be able to make payments in the future); and (3) they are not actually in “notice of default” (90 to 120 days past due) territory. If borrowers have enough equity to pull cash out too – so much the better.
- CONSIDER A SHORT SALE. A short sale is when a borrower sells his home for less than he owes. This is also something a borrower should discuss with this servicer, while also contacting a real estate agent who understands short sales.
- CONTACT AN ATTORNEY. This is particularly important when a notice of default (90 to 120 days past due) has been filed. Attorneys can’t stop a foreclosure, but they can definitely delay it and buy time. They can also help with a plan to get borrowers back on their feet. Both bankruptcy and foreclosure attorneys can help.
