There are several items a note buyer should verify before purchasing a note. Both are related to the Payor. A note buyer needs to confirm the payor will continue to pay. We are buying a dependable cash flow. To that point, they are foundational. Details the impoortance of both.

Recently I attended the NoteWorthy Convention in Scottsdale. Kevin Shortle spoke of opportunities in the note arena specifically loan modifications and non-GSE foreclosures and modifications. The following article was an op-ed in MSN Money and is so on target. With the changing economics on the horizon, the re-default rate will increase and may very endanger the US mortgage and housing markets.

Wall Street and the news media have paid considerable attention to U.S. home mortgage modifications, but not much notice has been given to the growing problem of re-defaults on these modifications. Re-defaults are a massive problem — and endanger the U.S. mortgage and housing markets. Many of these loans were guaranteed by the FHA

What is a mortgage modification? In the midst of the housing collapse more than a decade ago, mortgage modifications were rolled out to enable millions of delinquent homeowners to avoid having their home foreclosed. In its latest report, the nonprofit Hope Now consortium — the major source for modification data  — estimated that 8.7 million permanent mortgage modifications have been implemented in the U.S. since the end of 2007……….The 8.7 million permanent modifications do not include the temporary fixes that lenders have provided.  According to Hope Now, roughly 17 million temporary solutions have been rolled out under what’s called “Other Workout Plans.”  The two most important ones are called forbearances and repayment plans. Under these plans, millions of delinquent borrowers were provided a temporary deferment or reduction of the payments due until their financial condition improved. These temporary solutions are not reported under permanent modifications.  Nevertheless, owners given temporary workout solutions are considered current on the mortgage……………………….

In its most recent report for the first quarter of 2019, the OCC noted that 21% of the most recently modified loans had re-defaulted within six months.

More than 3 million loans guaranteed by the Federal Housing Administration (FHA) that were in Ginnie Mae pools had been modified between 2008 and 2013.  A 2014 report found that they had performed badly. Roughly 57% of these modified loans had re-defaulted by 2013

Click Here To Read the Fill Article

Two days ago a very close friend called me with a market alert. He said for the first time sine 2008, for 4 days in a row, the overnight lending market rate between banks utilized to keep bank liquid jumped to 10%. He asked me, “What is the normal hard money lending rate in real estate?” I answered 10%. To that point, that is a significant occurance. Does that mean banks liquidity is not there? Yes.

Then today I noticed an article on wallstreetparage.com discussing the very same topic.  In escense, the FED is buying up bank debt to keep up the banks liquidity. These are not small time banks–rather the big ones like Bank of America, Goldman Sachs, Citigroup, JPMorgan, Morgan Stanley.

Also, Deutsche bank is leading the pac of il-liquidity.

“The worst of it is that regulators on neither side of the pond have seen fit to rein in the dangerous interconnections that Deutsche Bank has as a major derivatives counterparty with mega banks on Wall Street as well as other European banks. (See After a $354 Billion U.S. Bailout, Germany’s Deutsche Bank Still Has $49 Trillion in Derivatives.)

According to a 2016 report from the International Monetary Fund (IMF), Deutsche Bank is heavily interconnected as a financial counterparty to JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America as well as to big European banks. The IMF wrote that Deutsche Bank posed a greater threat to global financial stability than any other bank as a result of these interconnections. When the IMF made that assessment in 2016, Deutsche Bank had tens of billions of dollars more in market cap than it does today.”

Bottom line for the reason of his call–watch what youpay for assets. Some hedge funds/banks are dumping assets to achieve liquidity.

Capstone has always been a value buyer, NOT  a speculative buyer. To that point, we only buy if there is a large safety net. THE WORD OF THE TIME IS–“SAFETY”

The following article is from www.wallstreetparage.com.

What Has Frightened Wall Street Banks from Lending in the Repo Market?

Last Friday the Federal Reserve Bank of New York made it clear that its interventions in the overnight repo lending market were going to be a longer-term action. Call it what you will, the Fed has effectively returned to quantitative easing (QE) where it buys up Treasuries, Federal agency debt and agency mortgage-backed securities (MBS) from financial institutions in exchange for loans.

According to the New York Fed, the program has now been extended to at least October 10 and likely thereafter in one form or another. The Fed will be pumping in $75 billion daily in overnight repo loans while infusing $30 billion in 14-day term loans three times this week for a total of $90 billion in term loans.  Click Here For the Full Article