Future of Housing Market, Seller Financing & Mortgage Delinquencies | Real Estate Notes Show

Episode: Future of Housing Market, Seller Financing & Mortgage Delinquencies Expert Melody Wright@m3_melody Dave's Goals and Plans: - We're buying more seller finance notes now instead of bank notes due to interest rate changes - We need to discount seller finance notes significantly because we're targeting 12% returns and property values can drop 20-25% - We will not buy land or mobile homes as they don't fit our portfolio strategy - We're developing an Infinity return calculator to help note creators structure first and second positions - We're hesitant to buy older notes originated at 3-4% rates because the discount needed to achieve our yield targets is too steep Nathan's Goals and Plans: - Seller financing must be done correctly through proper mortgage loan originators to protect all parties - Rising interest rates are the major driver pushing borrowers toward seller financing deals - Bank-originated notes available now have delinquency issues and are from 2-3 years ago, not recent originations - Immigrants in Texas and other areas prefer seller financing over banks due to trust issues, willing to pay higher rates - Proper origination of seller finance notes makes them more attractive to note buyers like Dave and increases the purchase price Key Recommendations: - Originate seller finance notes correctly through licensed mortgage loan originators to maximize marketability and buyer interest - Note creators should consider structuring first and second positions to sell portions of notes and pay off debt quickly - Buyers should apply significant discounts to seller finance notes due to market volatility and default risk potential - Evaluate property collateral value carefully as market drops of 20-25% could force foreclosure situations - Focus on seller finance notes in 9-12% interest rate range rather than older bank notes at 3-4% rates Topics Discussed: - Shift from bank-originated notes to seller-financed notes due to interest rate environment - Impact of rising interest rates on borrower qualification and financing options - Risk management in note buying - property valuation and default scenarios - Differences between Dave's and Nathan's investment criteria and portfolio strategies - DME (Note investing conference) scheduled for May 2-3, 2025 as networking opportunity Guest Insights: - Melody Wright has significant YouTube following and impressed hosts at previous DME conference - Melody's background includes mortgage industry experience starting September 2006, witnessing the pre-financial crisis mortgage boom - She observed delinquency rates rising from 1.71% in Q3 2006, providing historical market perspective we're going to dive into discussing the current market of housing as well as delinquency before I get there I'm your host Dave puts from jkp Holdings alongside me as always Mr Nathan Turner hello hello hey sorry about that for a few minutes guys what's up new man is summertime coming to in which is kind of sad school starting back up tell us about what you're seeing in the market currently and what's going on with the notes space right now really inter interesting I'm seeing more and more of seller finance notes coming up it's been kind of surprising honestly um I know it's been around forever I mean I I I did it back in the early 2010s and it's been around so much longer than that if you talk to some people that have been around for a little bit longer they it's been around forever but it's just more and more lately I feel like we're seeing a lot more seller finance specifically people that are doing it as a business where they're acquiring property selling it on terms and looking to sell the note seen quite a bit of that lately yeah absolutely uh I think people this space is changing quite a bit right um I think what we're it a few months ago we Dove a few years ago we dove into seller financing and we've now living and breathing it on a regular base in the notes space something we didn't have five six seven years ago right right it's amazing how we adjusted as times changed for those who don't know us and are new to us we've been in the notes space for over a decade and for the first 10 years of our business we bought from Banks hedge funds and we bought nonperforming notes there were years thousands of them yes thousands yes and so we bought our a pretty good share I mean not thousands but we bought a pretty good share of those notes over the time and is great but that's one of the things I love about the no business there are so many different ways to approach it and so as times change as the market changes it's easy to step sidestep and move into another another version of notes that it's always been there yeah absolutely um I think though for our understanding what do you think the major reason why it's changed that's a really good question um I think a big part of that is rising interest rates uh with interest rates being higher it's tougher for people to qualify to bank um I think that's a big reason I'm also hearing and and I'm curious what you've heard as well I'm hearing from a lot of especially in Texas um immigrants who are coming in Who Don't Trust Banks and they were they're happy to pay a higher interest rate simply because they don't trust Banks and they would rather do a seller finance deal at a higher interest rate yeah it's it it it's amazing because just a few years ago um reason we weren't buying seller finance we didn't have to right we were able to get a lot of that stuff done because of what was available to us right right and now we're in a spot where we are chasing 8 10% returns just a few years ago now that's gone up because of our cost of capital's gone up right where we've gone the last couple years on the show is really connecting the owner finance seller finance World rap world to the note world because we can buy a lot more seller finance owner finance notes than we can Bank R notes and the major reason is interest rates changing right yeah most people say well interest rates at bank are seven and a half eight per.

we're telling you we're not buying the paper that originated six months ago right we're not buying paper that originated years ago most of the notes when we buy from those funds are coming from a couple years ago delinquency when it trickles down to our level yeah and we're certainly not buying stuff from four years ago when interest rates were at 3% yeah it just it doesn't make sense for us or for them yes and I think it's not available to us to buy the S and a half percent loans and we can't buy the three and a half percent loans and for those who are create notes listen carefully the reason is for me to get a 12% return I need to Discount your 4% loan dramatically down to get my 12 I have a yield chart if You' like to reach out so that's the problem right and the fact that listen you can make a 30-year note but a note value is in the property the collateral and the numbers behind it so when notes is sitting at 5% to get at 12 is a lot of money change right so for me it's really difficult to say but seller finance notes are 9.

9 10 11 12 always been there and now since I can't buy those bank or R notes you guys in seller finance world are awesomely attractive yeah however we're talking off air what are some of the issues you're seeing with the seller finance paper oh the seller finance as much as I love it and and I highly encourage it I think that it's doing a great service to the world and the communities in general it has to be done correctly there is a right way and there is a wrong way to originate paper so follow the rules do it correctly do it right not only then are you protected as the originator as the lender but then it's much more attractive uh to a note buyer like dve ey and then we can we can pay you more so it it's for everybody's best interest the borrower yourself and for us to do that correctly go through a mortgage loan originator just do it right and we can do so much more business absolutely um so I know we have a bunch of stuff going on in the feed from LinkedIn and Facebook we're streaming live on both service this will be recorded we'll be put on our podcast as well as our um YouTube channel we have um but what we wanted to get into today is when Co first hit we are curious when the bubble was going to hit you know we're seeing a lot of sell refines people say well my value my property is this dollar amount and why you guys not buying it's a 13 interest loan because the fact that we understand how the market goes and that can adjust in a blink of an eye and that's scary for us right because if it defaults and we're a little bit hesitant because we live in the world everything defaulted for 10 years right that we're expecting it to default and if that happens the only thing we have available to us is the house and if that drops by 20 25% because the bubble hit we need to be able to sell it at auction and that's where we become scared right yeah ideally we don't actually want to own the property we really don't and so it's it's if that's becomes a situation where all of the sudden we become a homeowners that's our worst case scenario that's that's not what we want absolutely so we're we're looking to make this done you know done correctly we are going to buy a discount because of that risk factor and again where who we're coming from everybody's going to default everybody that's kind of in the back of our minds yeah I'm waiting for myself default put it that way that's our mindset and I think for us you know the only two things we really are very hesitant and we've had shows about this so if you're new please feel free land and mobile homes just don't fit for us I'm sure you get a lot of information from people and if you are look for land or mobile homes we're getting those call outs from people who watch our show and saying hey just reach out and say Hey listen I do buy land right we just don't buy it it just doesn't work for us doesn't work for our portfolios um and whatnot um we are for those who don't know we are two different companies we just work together on this on this show and and collaborate a lot of stuff so there's things that Nathan will buy that I won't and vice versa but um it's interesting yeah so let's real quick before we bring our guest on DME is coming up in uh in May at 2025 uh yeah new date set May 2nd and 3rd 2025 back in those who don't know anything about it what is it it is the place to get together with other node investors so whether you're brand new or you're managing multi-million dollar fund uh it's the place to come together Network talk to other people and hopefully get some deals done that's really really what we're hoping to have happen yeah and if you're no Creator note originator it is the place to meet your bride oh yeah idea that Hey listen I'm creating all these notes I'd like to sell them which is awwesome idea that if you never heard of it you can literally sell part of your note some of your note create a first second we talk about this stuff on a regular basis because creating a first second allows to buy that first a discount where I'm coming out with an Infinity return calculator that you guys can calculate and create a first and sell Nathan or myself in a blink of an eye get your debt completely paid off and have a second for next 30 years paying you Buck 25 200 bucks a month forever and we're happy you're happy and get out of it so if you're interested that please reach out and um get back to me and I I'll be sharing that link uh I shout out to a couple of our listeners for encouraging me to do that so yeah that's exciting that said we've been waiting for a housing market change for a long time we thought it was going to be covid yes and it wasn't not in the we thought it would be correct and interest rates went up we thought it happened then we thought everything was going on right and Melody who was going to be bringing on a second she showed up the DME we didn't know who she was what she was doing and she impressed us the first second talking to her so I think for me bringing Melody on here is awesome if you don't know who Melody is please look her up she's a huge YouTube following it's just amazing to hear from Melody so Melody welcome to the show and thank you for joining us oh thank you so much for inviting me and you guys have been amazing and what you've taught me about this space so happy to be here awesome awesome and that that's the first thing first of all you're impressed with our space we're incredibly impressed with what you've done so we'd love to hear about kind of your background what where have you come from what have you done yeah so and sorry I'm getting over a little cold it looks like you are too so I might have to cough a little but um you know I fell into mortgage as most people do that so my background and that started in this space was really in the mortgage space and so I was in grad school looking at my student loans and and wondering how the heck I was ever going to pay those um being you know a tenure is not really something that people get anymore typically and so I needed a job and I you know I had I had a lot of skills I'd worked while I was in grad school at the Wall Street Journal I'd worked for some private investment banking firms and so I I thought okay I'll be a project analyst and so I saw a job for project analysts I went the guy said so what made you want to work at a mortgage company and I said this is a mortgage company I mean I had no idea until this day I've never had a mortgage guys mortgage means death pledge I have that same kind of but we understand in this country that's how we afford homes homes and and so I don't have anything against mortgages I have I just I I encourage people to be prudent but I ended up at that mortgage company in no uh September of 2006 just in time to go to a party where they dropped balloons down from the sky and they had a life-size Lego house and this huge event and I turned to my friend and I said is this Enron because I'd only ever seen people dancing on stage and this excited you know from seeing from Enron sure enough Cerberus which was Private Equity had just purchased us at the top uh we were a operating under GM at the time General Motors and we were hugely successful for them when they weren't doing so well so we were the darling and so private Equity came in to purchase us and then quickly very quickly I mean in Q3 of 2006 we were at a 1.71 delinquency rate but things just started snow falling from there and because Cerberus wanted to adjust the purchase price we were very early in taking our write downs and because they had a gun to our head so meanwhile Chase City BFA they were late to the party and and I would encourage everyone to understand they're always going to be late to the party and I can I can give a quick example JP Morgan just came out with his earnings release when they were talking on the street they were T they didn't mention anything about their home equity portfolio being over six % delinquent not a word but if you go into their 10 Q it is and so they're going to put off those write Downs as long as possible and so I would just say to everybody if you're getting your news from mainstream media you're going to be behind the curb that's just the way it is unfortunately that's it's just full of narrative so anyway so we were we led the charge in total chaos we were number one on the list for most likely to go B bankrupt uh from a mortgage uh what was that thing called can't remember but it it tracked that every day because mortgage companies were just imploding yeah um we did not for a very long time we got saved by tarp and and so part of what I did for Cerberus was teach them the business because we were this Mass company I had to go out all around the company getting management reports and tell them okay this is how this works this is how that works and so I got a crazy education and a very short amount of time that I don't think I mean it's a Once a-lifetime opportunity to really get that kind of education that quickly and plus we were laying everybody off so you're there you're the only one left right you're keeping the lights on and so so from there I I kind of went and I helped uh manage our consent orders in ag settlement when we got into trouble in 2011 for basically what happened is we had too many defaults uh and we were the organization was kind of being starved this was so we got tarte money we got saved we became a miraculous Bank holding company overnight even though we only had this tiny little Regional Bank in Utah but it was you know it was it was a lot of engineering to save us and GM and then from there we got into a little bit of trouble with the consent orders on Robo signing affidavits for default and all the big five did and so we had to pay our regulatory dues and from there really we knew that the operation would not make it and so ultimately we uh we filed bankruptcy and I helped to manage that it was one of the largest most complicated bankr bankruptcies at the time and it's still going on anyway so from there uh I I they said okay well thank you for what you did with the consent orders AG settlement thank you for helping us with the bankruptcy could you please go fix default because uh you know all that trouble we got into and now Fanny and Freddy are saying hey guys uh we understand we're not going to let you modify these loans so you need to push these seriously delinquent loans are pulling all your servicing which would have tanked the auction and meant tens of thousands of people would have lost their jobs and so I went out on the road all across the country with my document execution teams into attorney firms because that's what you use local Council to to you know work with foreclosures and I got a real education in default and and not one of one state just all across the country and there's not a lot of people that get that opportunity either and and so basically with a lot of elbow grease because we were in bankruptcy Bank of America was paying these firms like you know thousands of dollars to move theirs faster so they wouldn't get in trouble with the agencies we just had elbow grease and so I lost a lot of my life on the road uh those couple years and then from there after that was over my Fanny May rep won an award because we did increase our pull through rate so she won the award that's how that works yep um I went off to a whole bunch of non-bank Originators and servicers uh trying I thought I thought what I was doing was actually helping them to kind of get up to speed with the new regulations but what I ultimately have realized is that what all that was all those regulations do Frank I mean it was just lipstick on a pig it was to make everybody think that everything had changed meanwhile in the back end of the automated underwriting systems you know they quietly removed in 2021 the DTI threshold or Deb to income threshold wow so I think a lot of that was what I call it credit quality gospel singing there was a lot of singing about how much how strict everything was and I think if you talk to anybody at the end of the crisis you know 2012 to maybe 2016 17 things were very like lock down strict crazy but then like Loosely as always you know no one went to jail so or very few did uh things just started you know opening back up again and I was experiencing this and just thought it was my personal problem I thought something was wrong with me or it's the company I'm at you know they they just they're they don't want to comply but no it was industrywide and in 2019 I went on a project I was building uh technology the last several years what I was doing was Building Technology for the industry and I went into an originator and you know the front row of the car of I'm sorry the the front of the building was just all you know Lamborghinis Porche and I walk in and I'm like you have like you have to be kidding me this is happening again like so anyway all that we get to I mean the co boom which was just pure Insanity I was working on an Imaging project for PNC overnight after you know Co lockdowns are announced we just get this flood of refinance applications so we're processing images we're processing over a million of them a day in 20 I mean it was absolutely insane and it wasn't I don't none of us slept none of us ate like from 2020 to IID say middle to end of 21 I don't think anybody in mortgage slipped and and and guys that's that's a problem right that's when so many mistakes Y and things like that happen and I really got out of their I I had this crazy little team that was doing loan processing even though I was building technology we were like this small fintech business process Outsourcing company so you wore a lot of hats but I could see some of the financials that were coming in um and if I got called in to look at an issue I mean you had crazy stuff like people all in Tesla I mean there's so much risk out there right now I can't even explain but then my my president said can you please just tell me when rates going to rise because when is this party going to be over and I that's all I could think about when is this craziness and anytime I would talk to anybody about what was going on with home price appreciation they would just dance and I'm like you do realize what happens with home price appreciation or HPA in you know property taxes go up home insurance goes up cost of repairs go up all of a sudden you have a consumer that is getting stretched and stretched and stretched y but nobody wanted to hear it they wanted the balloons to come down from the ceiling again they wanted to create another Lego house and so I started diving into macro that's David when I got on to Twitter even though I had no desire I don't even go on Facebook I'm like antisocial media but that's when I really started create like connecting with other kind of financial media commentators macro people economy and I really just did a deep dive into really a lot of things I studied back when I was in grad school but I just I kind of picked it back up and studied it and then I I got on the road because people people were saying housing's just fine you know they were talking about no inventory I was like are you insane have you seen the permits like have you heard them talking about all this multif family but nope everybody said we're short inventory so I got on the road my first trip I hit Nashville Austin Charlotte uh several cities in Florida and I said guys we don't have inventory issues and believe me at that time everybody thought I was crazy um but and what time when was this what year that was in February of 23 that I did that first trip I wrote an article for housing wire in January of 2023 say it was called debunking the inventory myth and then because I got so much crap because people are like data data data and I'm a data geek I love data but they wanted you know it's just so hard um when the entire narrative is out there around shortage and so I went on the road because I was like I I'm going to bring back footage and and I do that now with p or drones or things like that people still didn't believe me but that's I think I got us all the way to here now uh so I'll stop I know that was a lot that's okay that's fascinating I think your history and knowledge is something very unique R you know that beginning because not a lot of people had the opportunity you did I want to see from your point of view because Nathan and I talk privately before meeting you about some woman who wants to learn about the secondary space what was your understanding before you met the secondary space and then after I had no idea that even existed like what do you I mean I remember when I first started people would be like secondary I'm like secondary to what like what are you talking about what is what is a secondary Market I mean and I I worked at the Wall Street Journal I read Financial press all the time but it still was and then but what would that have to do with housing and then I think it took me all these years been in it it was until very recently that I really codified in my own head how much government had gotten involved in origination and how you know I knew they'd squeezed out private but I don't think i' thought through those implications I just knew it had happened right um and I think often we think that it if it's going into the government's hands it's going to a safer space no no no that that is not we are now at a much less safe space than we were actually in my opinion in 2008 we'll get into that in a minute I think that that part is really interesting to me because I I watched some of your YouTube videos um and it was scary what you're were saying and it made a lot of sense right yeah I probably on LinkedIn but you you came to DME right I did what your re yeah we had talked a little bit before that um and you're were trying to get a sense of like how big the secondary space is and yeah that's really hard so I don't know if you were there on the Saturday morning when we talked about seller finance and uh Fred put up his slides and showing just I think oh dang I'm gonna get it wrong but I think it was just last year 2023 it was something like 23 billion 23 billion yeah I saw his slides I actually featured him Nate in a yeah in a substack yeah I saw those and I think I think that's actually much smaller because I think they're just using what they captured in the MLS yes so we know that this is happening outside the MLS and so I think that's just seller financing right that that's not even counting one little component exactly all the loans that Dave and I bought from Banks over the last 10 15 years yeah so you got the DME and you realized the secondary Market what was your takeaway from that well I think the biggest learning and this is where again sometimes we can just be such useful idiots right um when we assume things I my biggest learning was that the hedge funds that had participated in those single family loan sales that I had worked my entire ever since they started in 2015 worked on S side letter exceptions I mean I worked those things all the time and I saw okay you can't for close you can't do this you can't do that but what I didn't even think would they would even make possible is that they those could be sold and that was just like a whoo moment for me and and I was just like holy cow that's because I had always worked with the big guys like Goldman and Morgan and all these people that were playing in that space I had no idea they were selling them like I had no idea and and then you know I I think too when I went back to go look at all the single failing loan sales reports the fact that they've stopped reporting I I felt that was kind you can't get a lot of reporting on successful exits I mean it it feels like you know I I think they understand how bad their programs are the gsc's the agencies the administration and so I think they probably don't even want it to be known how more effective that that kind that could actually be you know resolved in a private market and so I think that that might be why they don't talk about it very much but they certainly understand it sure and I have a very interesting theory about what's actually going on right now in the uh treasury markets and what they're trying to affect uh which is something very similar to harp uh but we'll I'm sure we'll get there if we have time yeah so let's learn about the data right now that you're seeing in the housing market we've all heard the fact that the housing Market's still a shortage and and I think people use the idea that they're able to sell a house very quickly because it's not a lot available what is your information telling you days on market for the 80 plus cities I track right now are at 50 like the housing market is Frozen and and anytime they talk about bidding wars again you know poke holes ask questions what exactly are there because it's they're just trying to create fomo like for instance couple months ago you know when we saw those rates drop at the end of last year a couple months oh Dallas it's hot again I was like calm down everybody I was just in Dallas like it is not hot maybe you have one neighborhood where everybody thinks they want there and there's only one house for sale but I guarantee go back in a couple months there's going to be three or four sure enough year-over-year price declines in Dallas I mean this we are seeing so much narrative right now because everybody that is currently in positions of power believe that the wealth effect drives consumption drives GDP and so we want everyone to feel much much more wealthy or wealthier than they are now and so if you have any concerns about your equity in your house you are not going to feel wealthy and so there is a lot of effort out there keeping this machine running and a lot of it happened on the back of new homes last year um you know they could affect those rate buy Downs they could then do you know price cuts and uh all kinds they'll give you you know they'll give you your washing machine your refrigerator all that kind of good they'll pay your HOA fees for a first year and so the builders really carried the market market last year but they're not in a position that now they have so much inventory over nine months that they have to get they have to get it through the system because they're production oriented they're not like a single family seller that's like H can wait a couple months or I'll go rent or do something you know it's not the same thing and so that we saw an historic flip in June we'd actually seen it in May where new home prices were actually less yeah existing home prices when they revised the data it flipped again but in June it happened again and so what we're about to see and that's only happened two other times in the last 25 years June 2006 and June of 2021 wow anybody remember what was going on back then so you know we are in and uh you know we have just we just broke the our pierce the veil of seasonality here if you're looking at combined sales from an existing and new home home sale perspective meaning we at on an absolute basis this is not adjusted for population on an absolute basis this June and the last was the lowest sales in the last 25 years of data in a June and the housing market has a very specific season and it always peaks in June this is the first time in those 25 years that sales did not increase from made at youe now something else could also be happening though and that's things in your space and they're not being being captured yes in those official numbers but I think directionally we know that like the markets are frozen pretty much right now and because because buyers are just like um yeah I I know what you tried before and I'm just not having it and I think even if they do get there they get down at the closing table and they see that insurance bill and they're like w no whoa no no no like we had the highest redin said um we had the highest cancellations they've ever seen last month and and that's existing home sales you often have y cancellations in new homes about runs about you know 12 to 16% historically but cancellations an existing home that to see a record there so I think the consumers got real excited in the spring with the stock market and they looked at that and said we must all be getting those that could transact those in the top 20% because our consumer is dead on the bottom 80% % and then but then as things started to wobble at the end of June with the political events that have occurred I and you know and suddenly we're all like wait are we being lied to you know are we being and I don't want to discuss politics but I think everybody kind of woke up and said wait what what yeah and I think in June you could see that in mortgage delinquency we had a 133% increase month over a month I we have not we don't see moves like that we don't and 30 plus guys and I and I'm screaming like a crazy lady but you're from this business so you understand what I'm saying when I say it to other people they don't yeah a 19 over 19% increase month over month and 30 plus and and they tried to say black knight tried to say it was calendar driven because the month ended on a Sunday well hold on guys the month ended on a Sunday in March yeah and delinquency went down also I've worked at mortgage servicers you effective date those payments and if you have habitual late pay they absolutely know if a holiday is coming up or whatever reason theyve got to get that payment in so it doesn't ding their credit they know this we live in a country that is obsessed by credit scores and so that's that's kind of like a lot again but where home sales are in the you know down the drain and delinquency is increasing and you're seeing Oh go ahead no I was just going to ask if you if you're seeing any of these in like specific markets is this I mean Nationwide obviously but but specific markets oh you know it's always the South and as a southerner it is just you know when I was doing the tour of Austin and Nashville and Charlotte and I was just like this is like reconstruction all over again you know the carpet baggers coming in just whatever they can get um but it's the South it's you know it's Louisiana Mississippi Alabama but it's increasing in in all of these places um and you know so two I think think we don't often like for instance you can look at Austin and delinquency is not that bad there however most the people that bought homes in Austin don't live in Austin they don't I mean there was just so much speculation they live somewhere else and they bought the site on scene and I mean I cannot the amount of vacancy out there guys is just so shocking it's it's you're overwhelmed and so there might not be for sale signs up today but just on my road a Alan where like where I live when I first like 6 months ago there was one by the way it's still for sale you know six weeks ago another one showed up um and you could tell it was like a work from home office I looked it up and then a week after that a for sale by owner showed up and then two boats lawnmowers I mean the consumer is they're at the end of their rope the top 20% have been doing just fine but they're getting a little offended they don't want to go and spend $20 for a martini that tastes like crap and takes an hour to get there so they're going to start pulling back for different reasons additionally these political events and what happened in the markets are also going to make them more skittish and so you're seeing pressure at the top of the K and the bottom of the K too but what we saw in the University of Michigan consumer sentiment survey is that historically your low your lower tier and your mid tier don't have the same sentiment those have now aligned and so really all that's left is that top 10% and they're offended they're they're they're they're going to start backing away so isn't isn't that what the FED is trying to do though they're they're trying to raise interest rates to create hurt to create some of this delinquency and and things and have they overdone it well so I think that's what so I I don't believe they have the power they think they do just you know studying the bond markets but sure I think that's that's what they think is happening yeah and I think though you have on the other side of it yelling in treasury you know increasing shorter duration uh you know t- bills and selling that and it's create this is what's creating that quantitative easing effect and that's why you're seeing the 10-year treasury rate which is what mortgage follows closely come down and that's also why you're seeing really bad auctions in the 10 year and 30-year um are part of the reason the other part of the reason are the Japanese you're you're getting lower foreign investment as both I think China and Japan are struggling and so there's a lot going on but there's a battle right now there's a battle it seems between the treasury and the fed and that is and that is why you're what's fascinating actually is to watch the tenure over the past three days just kind of it's just battling right with the Yen and so there's a lot going on in the macro picture and I think that people look at the FED as they're the ones driving everything but in reality it's those external forces that are going to dictate the direction or the decisions that they make in my opinion yeah interesting so I definitely want to get into your second's conversation because I thought it was a fascinating video I saw you're talking about the helocs and seconds are going out there what are you seeing right now in the the linqu tocy in the market for mortgages right we're seeing in this secondary market for the last three to four years anyone who been in the not space since 2019 has seen performing levels that we've never saw right for the last five years I've never had a portfolio to perform as well as it is in The Last 5 Years it seems like everything you touch right now stays performing however we knew for the first 10 years nothing performed right we're waiting for it to fall and we're starting to see cracks at our level which is nowhere near the Goldman levels right where are you seeing the data on the 90day Plus delinquencies or 60-day Plus delinquencies in the data that's such a great question David and it shouldn't matter right you would think we should be able to just track this easily like why wouldn't the FED have it so problem with what happened after the GFC is you had so much of the lending move from the big Banks to the non the big non-banks like rocket udub Etc PennyMac well the FED only tracks commercial Banks and their delinquency and their overall that's sitting where we were 1.71 Q3 2006 cannot wait for it to update for Q2 it's only released quarterly then you have Black Knight um they have about 36 million mortgages based because people use their system and they but they claim to have 80% but after going to your conference I started asking a lot more questions and I can see now that's that's not accurate No at all especially when I met servicers I had never met never heard of and guys I've been in there aren't the space is pretty small it's like so to not have heard of those people like holy I know people don't know about them and so Black Knight had been looking just so stellar and it just I'm like what is this doesn't even make sense because you could look at somewhere like inside mortgage Finance look at FCI lender Services which is more geared to servicing in your space they had a 30% delinquency and I was like oh and and you could look at someone like specialized Loan Servicing where I used to work they had about a 7% and so in the Black Knight data it's looks super great until very recently until that May June move but then you could go to the census household poll survey which is a is a newer sorry I almost dropped something is a newer um series and it you saw over five million borrowers saying that they were they weren't current on their mortgage and it was like what wait what I mean because no one was talking about that and now I've heard things about people maybe not reporting you know who knows there's a lot of seller finance notes out there that this they're self-servicing they're not reporting anyone exactly exactly and so I think that we have big black holes black holes from black big black holes in the data and I think that everybody's about to get real surprised because every schedule you saw out there showed Auto going delinquency credit delinquency going up we're here because buy now pay later doesn't report to credit it was over 40% delinquency but mortgage just looked just fine not anymore guys the trajectory it's up now default and I don't have to tell you guys but maybe the listeners it's a push and pull it's never just a straight line down because people are trying yes they gave up their credit but nobody wants to lose their home and they're just trying to do everything they can to stay in that home they're going to get into a modification program a repayment program and they're going to do their best but all of us here who were who have managed a fault know that it's very sad but you can stand back and just know that a certain percentage is not going to cure and so what we've seen is delinquency has gotten a lot more sticky and you're seeing Fallout more and more Fallout they're not performing in the modifications they're not performing with the forbearance I mean they're not able to cure after the forbearance and so it's a push and pull but we are now we now have sticky delinquency and I believe in the official numbers we won't nobody's gonna have any questions by June of 2025 that is my opinion that by the time we get there you know barring an exogenous event or the UFOs coming to give us high paying jobs because we AI is our biggest headwind is how how you know and if you really think Universal basic income is where you want to be then I don't it's a really bad idea so anyway yeah that's kind of what I'm seeing right now and the modifications and maybe I'm a little biased but I think we do it better 100% I think we're better at doing modifications than banks are uh we're just we're far more flexible we're more human we don't have you know the box that we have to work in we can do all kinds of cool things we can also make emotional decisions like no it doesn't work we're gonna have to foreclose because listen you just can't afford this I don't care DTI this is going on that's going on listen we're doing you a favor and we have that power yeah I totally agree right I think B the r still there guys I mean I see it every day it's like oh you need to take this 40-year mod well that's gonna reduce your payment by $100 and add so like that's gonna crush your future purchasing power yeah like it's so I agree we cannot Henry for credit we cannot Henry for credit and we have tried so and that is exactly what happened in the robo signing crisis they were trying to Henry Ford foreclosure you can't it's a legal process it's messy is it's just messy and humans are very very messy and credit is very messy and you know Edward chanler wrote this amazing book the price of time and it's all about the history of interest rates which goes back to when we were scribbling on stone walls and Cave I mean so this I think both of you would actually really enjoy that book it's such a great hours yeah yeah so i' love for us to dive into this and I talked Nathan about this um what do you things that to cause if anything our next7 2008 for those who are creating assets right now there's a lot of people they're creating notes they're doing wrap notes which they're wrapping around delinquent debt that's at 3% we I talked to someone just a couple days ago where they literally bought a property that the unpaid balance is 300 the value of the property is 300 and they wrapped it with a $35,000 WAP note simply because the underlying debts at 3% and the and they're going to now charge 10 so they need make it a 7% spread for those who are doing that what do you say and what do you feel yeah guys I understand that every schedule out there is talking about how much Equity everybody has here's the problem well here's one big one 1.8 million people had to take a workout from those forbearances and something called the payment deferral which was actually taking those 18 months of forborne P payments and putting it on the back of the loan to be paid off when that loan is paid off they did not record those these are silent seconds they are silent seconds and you may not have any idea they exist if you're only looking at public record if if they did the partial claim those were likely recorded that's because it was a different that's the FHA product but so I think the equity picture out there is is not what they're reporting because I also have worked at companies that report that stuff to Bank to the FED let me tell you it's a spreadsheet guys and if you don't understand like it's nothing fancy they're not they're not look and so if they're using Experian for instance to look at you know some of those servicers do report both balances some of them don't some of them don't because of their system limitations so I think the equity picture is not as great as it's everybody thinks and then also guys the market has been frozen for almost two years okay do you there has been no price Discovery there's been zero price Discovery we are building inventory over 30% year-over-year increases in inventory and way back in many locations at 2019 levels but and I can tell you why I don't even think that matters so this is happening the inventory is there it's sitting those that are in distress those that need to move those that have are are also scared they will start moving that product at the same time the builders are and we will have price Discovery and it can happen as we often say gradually and then suddenly and so they went up Suddenly they went over up over in an 18month period right they can also come down very quickly now that's not my base case I think the worst of it is going to be 2025 so before we get there though once question how can you find out about those silent seconds what is yeah those the only way is to talk to hopefully the borrower knows but I can tell you I've seen so many Reddit forums I've seen so many social media comments on Facebook that like I didn't realize I was underwater I had no idea because they're not recorded because a forbearance agreement it's not a second it's a forbearance agreement that's pushed to the end of the term modification really well well so you had the forbearance the workout was a payment deferral and when they first came out they talked about recording them and I was like absolutely of course we're going to record them are you crazy like we record the mods we always record the mods right yeah quickly that went away so so you don't know and most consumers don't even know they don't know they don't know I've seen so many like guys they were so under stress a lot of them like you just sign the dot line like wait you mean I don't have to pay this awesome I mean you guys know this more than I you live this you breath it yeah and so they don't know and so they might be working with your seller financing guys or you know those doing the too and they might say well yeah this is you know so then you need to tell them the way you're gonna find it is tell them go get a payoff quote right you need that payoff quote okay if you get that payoff quote it's going to be on there if there're a good servicer so that's the way but it's not going to be on title and and yeah go ahead Cindy asked a question uh can you define bezel ah yeah it's my favorite word of this cycle um so this is a word that just means the inherent sort of fraud in the system and so uh there the Philly fed did a great paper that said when mortgage investing in uh mortgage did not stop after the GFC and in fact it accelerated and they they said that basically 30% of all mortgage loans that are used for investment were fraud like and that could be non owner occupancy fraud that could be the fraud that you're hearing a lot about with straw buyers you know or or just make up whole portfolios but essentially you don't know so for instance let's take the situation where I think it was Chase's nickel or silver I can't remember they they thought they had you know millions of dollars worth of silver in a safe for two years they thought it was there it wasn't until they went and looked and saw it was sand that they realized they had that loss and so the entire time they were acting like they didn't have that loss this is the American Consumer right now because not only that we're seeing Fanny May came out with an appraisal letter that said they reviewed over 7even million comps and saw that in 55% of the cases seller concessions were not accurately um placed on the appraisal and didn't reduce the price leading to inflated appraisals so and then you're seeing things down in Texas like Central Appraisal District fraud where they're not actually doing a good comparable because they basically want a higher market value to get higher property taxes and so there are just so many different things happening all over the system that are making those prices seem inflated that the minute you go to turn around and sell that home that's just a whole different scenario and so 305,000 I mean I wouldn't touch that with a 10 or 10,000 foot pole so tell me about how seconds are going to become one of the biggest factors that play into the crisis moving forward you were saying on one of your shows that you think that seconds are going to be a disaster because of the equity being stolen out of people who have no money well if they do it yeah yeah I mean it's it's it's really it's extraction it's debt slavery and you know essentially you were just prol and what we don't realize in this country is we're actually we're actually crushing purchasing power by doing that it's just the same thing that happened last time but and this is what kills me about it is that we've already done that to some degree what I just kind of told you about people don't really understand and so to me this is just signing your life away you know um but the Freddy program got approved and but very limited and so I don't think it's going to have a huge impact just because the people that probably would need it or would be in that horrible position will probably not qualify and they will probably can't even afford the closing fees and so I think that yeah well right and I you know I don't ever like it when government tells us what to do but dear God that this is just such a because what'll happen is those uh those loans the reason why Fanny and Freddy want to do it is because the banks are being very cautious and and I I you know I mentioned how JB Morgan already has a 6% delinquency on his home equity banks are being cautious that the non-banks need the juice because they don't have deposits and they don't have liquidity and so they are absolutely dying on the vine but what happens is just what happens like with FHA you keep pushing people into products they cannot afford and they think they do right now because they have ton of equity right I got 100,000 Equity let me go grab a hold of it because I need to make medical payments and I'm going to go ahead and get that Phantom equity which in a year year or two is going to be down because you know I agree I think housing price right now is flat and that Equity is not going to build up and then now they have no money and more debt yeah and more debt and less you know less freedom in my opinion yeah it it throws right back to 2006 where it's like oh no zero down payment loan loan no problem because the house price is going to keep going up Equity is going to be built in as the house price date the rate dat the rate yeah yeah really mindboggling it's actually mindboggling instead of say instead of saying well I can always refi they said date the rate well they meant exactly the same thing like what I mean we have just it is actually a study in humanity that we have it it hasn't been that long since all of this happened and and but it's it's just kind of a study in how the generations turn how you lose lessons and and I mean here we are repeating all the same behavior and seller financing was big in the 80s right back when they had right before long-term Capital Management crisis and SNL crisis and so I mean I think that that's that's a yeah it's coming back it's coming back one of the reasons Texas didn't get hit as bad in the GFC was because of legislation that came out of the SNL crisis around wraparound seller financing but not now they're the biggest in seller financing right they were number one on that guy's uh presentation I I saw a DM it yep yeah and my kids are wearing my high school jacket and my wife's high school jackets it's the same thing it was in fashion back then it's coming back in fashion now yeah but it's not good news it's it's not something to yeah it's AIT wild so fascinating let's let's focus on the fact of us as not creators and note buyers what advice would you give these note careers are doing it now to do it correctly if you were to give them advice and for note buyers what would you tell them the best suggestion right now to do follow you guys I mean because no I'm serious because you take it seriously you're not in it to get famous you're not trying to be one of these gurus on you're legitimately just trying to educate people for success and in a space where you have been successful because I don't live your space every day I felt I mean you guys did a great job at the conference educating people providing Network opportunities so I that is what I would say then you know have a good attorney I also say but and and that's just hard these days too because I don't know it just feels like you can't trust people to follow through anymore but you need a good attorney and you need to understand title and you also need to understand that legal standing whether you think you were a armchair lawyer and can read a statute that does not matter in the courts often legal standing has really been dictated at a national level through that consumer uh Finance Protection Bureau of national servicing standards and that is possession of the note and if you don't have it you don't have it you are going to be in a world of hurt and so that that is what I would I would say is that default doesn't work how you think it's supposed to and it doesn't work how it says it in the statutes and it is and and if you are you know kind of relying on your understanding of the law by reading it off of Google you're going to be in trouble every single time and you need experts like you guys to really tell you the tricks of the trade and I'm going tell you we're not the only ones right we've been through a lot but there's certain things we've never been through and we have to be honest with ourselves and say listen that's why we conector with other people because every Situation's different it's just you got to be networked in we always talk about networking because the fact that there's so many possibilities out there that just sharing your experience is key for everything and being part of groups and part of communications and being part of conferences where you get together with people regularly and just hear from both sides buying as well as creating of fears concerns worries and understand from this side because we're seeing a lot of note creators who create notes and a note buyer is buying it at par to go get a 12% loan and with no care in the world of a defaulting because that hasn't a note creators continue to create notes on Leverage because they Hey listen it's been working for four or five years now I'm gonna keep doing it it's making me money I know doing onepage notes and and like oh my goodness really I've seen them I've people have sent them to me I'm just like you are out of your minds yeah but David you said what I should have said but the leverage guys The Leverage it you do not own that thing with all that leverage like and so I think of course you're going to use it use it smart but that is really the key don't over leverage yourself yeah yeah I think people only plan one track like it's performing for 12 months it's going to continue performer that bar has the ability to repay doesn't mean they're gonna pay that's right right things happen yes and it could be no blame to the borrower it could be no blame at all but you have to make sure you're smart with buying that note that if things happen you're still coverage and that the investment of value or LTV is decently low so that when things do happen you have some equity in that deal I'm sure all those people at Intel over 10,000 didn't think they were going to be be losing their jobs or stantis or I mean we're you're just the layoffs are coming Fast and Furious now macro Edge does a great layoff tracker I encourage people to look at that but they're coming every single day closures bankruptcies we we have entered the default cycle whether mainstream media wants to admit it or not oh boy and by the time they report it it's too late yeah it's way too late yeah and we do a private call um on a weekly and bi-weekly basis with verly season people and if you are listening you're curious let us know we'll get you more into it but we're trying to take the temperature of everybody that's the point of networking is get the idea of what's happening out there outside your little bubble because you're going to learn different rules laws as well as what the population of notes are right now because your notes are doing one thing doesn't mean the whole Market is and there's rules changing constantly Texas passed a law that doesn't allow second leans to be you know servicing fees to be tached to the borrower it's over 10% things like this we didn't know a year ago but by networking with the right people is crucial right um I'm a big believer don't over leverage don't don't kill yourself make sure you have the r Day grandma fund I'm a huge belief in that and other people say you know what take the equity of your house and go buy properties don't use your credit card to buy Investments get your house in order first and then start doing it same thing with borrowers right make sure you have some equity in the house because you never know when you're need it it's scary out there um it really is I'm Amazed by the housing things because everything out there told us things are selling within a week within 24 hours but just like probably going to the casino hey I won money you didn't learn about all the other losses that we had right yeah very interesting Melody it's been great having you on here any other questions Dave before we wrap up or we good you go with your final question man so I mean you've you've you've seen a lot you've been through a lot and we're we're trying to always kind of predict the future here what do you see coming like it it sure sounds like we're we're looking at another wave of of defaults is that what you see or what do you got yeah we are but I also think we we shouldn't be looking at all the old places like they're not going to be on the bank's balance sheets yeah uh we'll see it at the non-banks but you know I'm more curious about your world and and so I think that they're happening um and and so just and and where it started so the servicers I I talked to them I still have clients where they first started seeing it back in October is they were get bankruptcies and because we were seeing bankruptcies increase not yet foreclosures because all the programs but they would run title for bankruptcy and they'd be like holy cow they'd have to go back to the investor and say hey you're in third position you're in fourth position and the investors's like what what like what and so I think that uh where people are expecting foreclosures that's not going to happen because of all the government intervention or if it happens it's going to happen so slowly but there's a lot of properties out there that I've seen that are already vant that the counties are soon going to be waking up and saying wait what's happening over here they haven't mowed their grass you know and it it's more and more and more because investors walk away so yes we've entered the default cycle um there will be push and pull and it won't show up you know as it it'll look a lot better than it is I think that what we have just seen sales crater um we're hearing that the builders also uh are seeing even more reduced traffic this month so that'll be interesting we might get a little bit higher in existing from the rate issue or rates going down a little bit but I think we will see uh you know by this time year-over-year declines from this year you know K Shiller takes forever uh so it'll take some time but we'll see around a 5% reduction in prices this year in my opinion by at by the end of it and then then essentially I think 2025 is where you're going to see double digit drops you know right now I think about a 12% but if we have any kind of credit event if we have massive job loss all of that just goes on steroids and it just happens faster and people shouldn't be surprised if it happens as f fast as it did in the runup to home prices in the first place and so I think that you know we've got a fiveyear correction in front of us if not longer um but we don't know how is the government going to respond yeah and and that is truly I think looking at that will help us understand but I think that the horses out of the barn because of the private node space and because of so much financing that happened outside the mortgage Banks through personal loans and things like that yeah I think the zombie foreclosures are probably to be coming back but absolutely I agree with you not at the on the bank balance sheets it's G to be investors who just went Bly up who were saying crap I just bought a bunch created a bunch of notes I could not afford what do I do now I think the rap notes are G to be hit too because these people are rapping with no equity and then the saying I'm done I think it's somoma out in California there was one big guy that came out you guys saw that story where he basically bought the whole town and now it's all in foreclosure I think you're going to and then you like you mentioned immigration Nathan I went down to Colony Ridge they had a 47% foreclosure rate down there I mean these are 30,000 homes they it was Insanity because it was more seller financing versus a bank and they they could get away with that for closure rate so anyway it the story is out there it's just not being told in mainstream media it's a yeah how can we follow you I those who are curious I I'll put the link in you're going to see all the links for for Melody her email as well as her social media whole bio uh if you need that please go back to chat box or send me an email there's a holeless information Melody has been on YouTube and and we're talking beforehand about Twitter and stuff like that the idea is just to listen right you may not have to ask the questions just follow and listen and some things you may not understand right there's things that I don't understand Nathan understand but just start becoming knowledgeable right and just listen to stuff and just start picking up to he and near things because being in the know will be the actual place where you're going to be right we have someone comment on LinkedIn saying that you know your facts they follow you on YouTube that's awesome right just understanding what the market looks like is key and what's coming six months down the line possibility and what we're seeing what we're not hearing at all which is great more scary because your leading industry analysts are not going to tell you mark xandy for instance you know six days ago was talking about S soft Landing gets unemployment calling for rate Cuts this is an industry analyst in the housing and he led my Executives right off a cliff as well back here in the GFC they aren't looking forward they're Looking Backward and so things may look okay on the surface right now if you're not paying attention to what's happening underneath the Sur service you will always be surprised just like you were during the GFC if you were old enough yeah awesome well Mel we're going to disconnect from the live feed hold on for after hours and thank you very much for joining us on this Friday afternoon take care everybody we'll see you guys soon thank you.