Despite interest rates dropping across the board from Treasuries to 30-year mortgage rates, hard money interest...
COVID-19 Expectations of Hard Money Lenders
Everyone we talk to at FCTD has an opinion about the COVID-19 pandemic, from borrowers, Realtors, mortgage brokers, lenders, escrow officers, and everyone else we talk to during the day. Listening to people is fascinating because it shows where people get their information from. Sources of information are far ranging, from scientists, doctors, friends on the front lines or in the medical field, financial analysts or journalists, right-wing and left-wing media, along with YouTube conspiracies that go viral on social media. Everyone has facts, alternate facts, opinions, and fears that come out in conversation.
Today, I’ll focus on the expectations of hard money lenders during the COVID-19 pandemic to help borrowers understand that we’re flying into unchartered territory. Every lender has a different hypothesis of how COVID-19 will play out based upon what they’re reading and hearing, their past experience in downturns, the structure of their lending business, if they’re loans are leveraged or unleveraged, current loan portfolio performance, future obligations, etc.
Below are several of the expectations of hard money lenders from conversations I have had over the past two weeks:
- Inflation coming in 2021
- Deflation happening in 2020
- The virus will be contained after Q2 2020 and people will go back to work
- The virus will last for at least 18-Months with repeat breakouts when people go back to work and this winter’s flu season, causing the economy to be shut down again
- Great Depression
- 30% Unemployment
- Unemployment will level off soon at about 25 million people
- Forbearance and foreclosures rising
- Vacation rental properties paid for by AirBnB and VRBO will be wiped out
- Office rents may never come back
- Endless fiscal stimulus from the Federal Reserve
- Who will The Fed choose as winners and losers if they start buying stock, corporate debt, and auto loans, in addition to buying US Treasuries plus Fannie Mae’s and Freddie Mac’s mortgages?
- Real estate prices will drop by 30% by the time this is over
No two lenders share the same opinions or expectations. They all get their information from different sources, but usually, with hard money lenders, their information sources are reliable and factual. I don’t hear any conspiracy theories coming from lenders like I do from other mortgage brokers, who, despite their lack of education or professional experience in constitutional law, seem to be experts in the Constitution. The same could be said for their “expertise” in medicine, infectious diseases, and vaccines.
Most lenders realize that they do not know how the COVID-19 pandemic will play out. It could be a short blip in history contained to Q2 2020 or it could go on for one or two years, leading to a deep recession or even a depression. Every lender we talk to is looking for macro indicators to validate or invalidate some of their personal experiences with current loans in their portfolios or new loans they are originating. The macro data and information also provides confirmation to some of their biases, preconceptions, and fears.
All the hard money lenders agree that testing needs to be ramped up significantly before people can go back to work and the economy can slowly start up again. If people are not confident in the safety of their health at work, then they will not return to work for fear of contracting COVID-19 and falling ill or giving it to a friend or family member more susceptible to the illness.
As we make our way through the COVID-19 pandemic, the expectations of hard money lenders that FCTD works with will keep changing with each passing week as new information emerges in the macro economy and our own sphere of hard money lending, whether it’s with new loans or loans in the servicing portfolio. FCTD and our hard money lenders are still originating new loans, funding the best credit risks and also finding creative ways to make deals work, like using multiple properties to accommodate a real estate investor’s financing needs and the lender’s need for security with added collateral.
Do you have a real estate project that needs funding? Contact us and we’ll help you explore your hard money and private money financing options.