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hey everyone meet Kevin here coming to you on April 21st with a breaking news update from the Federal Reserve and the Federal Housing Finance Agency on what's going on with the crazy and evolving mortgage crisis and possible housing market crisis to follow let's get into that on today's you money as of last week almost 6% of individuals 5.9 5% of mortgage holders have entered into forbearance agreements agreeing not to make payments for the next three to six months we've also seen that a lot of those folks entering into mortgage forbearance agreements are seeing their credit scores plummet by ranges from 30 points to 50 points to 75 points as credit bureaus are picking up on notes that say sorry your account is in forbearance and the credit bureaus don't like that all of these things are combining to start making a lot of us feel a little bit worried about real estate after all when we look at new construction housing starts we see they've plummeted to record new lows we see sales volumes declining 20 to 30 percent in the first two weeks of April across various different parts of the country however prices are tentatively remaining stable at least when we compare pricing today to pricing in January in many markets across the country we see pricing relatively flat which is a good sign so far but what does it mean for the market to come and what is the Federal Reserve and the Federal Housing Finance Agency and doing to minimize the damage well in order to get a glimpse of what the Federal Reserve is a thinking which remember the Federal Reserve puts data together and they give that data to the government so the government can decide what do they want to do to help people like us and what's it gonna mean for housing prices well the Federal Reserve Bank of Richmond yesterday published a briefing that said all right let's run some projections let's say that unemployment stays at 20% throughout 2020 and into 2021 if that happens the Federal Reserve Bank of Richmond thinks real estate prices without intervention will fall by 15% through 2025 and will then rebound this is one of the most dark and dire projections we've seen yet well so far we've seen that Freddie Mac thinks prices will actually be relatively flat positive 0.4 percent and point 7 percent in 2020 and 2021 but the Federal Reserve Bank of Richmond is looking out at the long-term consequences of what this Rhona crisis and high unemployment might actually cause going into 2020 2 3 4 and 5 and look 15 percent isn't as bad as the 25 to 35 percent declines we saw during the Great Recession or the 45 percent declines we saw in commercial 15 percent is still bad and using 15 percent as a price decline the Federal Reserve Bank of Virginia found that all right we might in a favorable case see losses in excess of four hundred twenty billion dollars if prices declined 15 percent after these mortgage forbearance periods that's a lot of losses in fact I'm gonna compare these losses to chase to kind of make us be able to picture these a little bit better their base case scenario was 580 billion in losses and the severe case showed 1.1 trillion dollars in losses if prices decline 15% which just to compare these losses so we can kind of predict how bad the mortgage crisis would be it's helpful to compare these losses to Chase and their share of the mortgage market which don't worry I ran all those numbers for you I looked up their annual reports their net income and consumer banking all that bottom line is if these losses happen Chase Bank would basically be working for free for consumers between six months in the favorable case and up to 24 months in the severe case working completely for free that's like no revenue didn't go down 10% that's working for nothing for the next 6 to 24 months so this is bad and that's only referencing chases share of the mortgage market if Chase lost somewhere between eight to thirty billion dollars in mortgage losses yeah they'd be working for free and consumer banking for six to twenty-four months that's really bad but think about this over 60 percent of mortgages are actually originated by companies like quicken and mr.
Cooper and other online non-bank mortgage brokers so they would be suffering pretty substantially as well fortunately though the government is responding finally to the growing mortgage crisis but to understand how the government is responding let me give you this quick primer here this is you and me when we stop making our payments that is we do not send the bank our money and that does not happen the bank still has to send these rich bondholders money and they have to do that forever until they basically write this loan off the books which basically means taking a loss on this and writing it off they keep paying the rich dude well this is a lot of money that banks have to keep paying the rich dudes and that's why the banks are trying to screw people's credit for asking for forbearance they want less people asking for forbearance it kind of makes sense well finally we've had the government swoop in and go don't worry we're here to help and so they said no worries you're only going to be required to send money to the people who hold those mortgage-backed securities the rich dudes for four months after the four months we will pay the rich dudes this is really really good news for two reasons one it limits losses at banks which when banks have less losses it means they keep credit flowing it means they don't necessarily tighten their lending standards even though a lot of them already have they might relax those standards again and it also means they might freeze less credit lines and any time banks keep their lending guidelines looser it means we have more money to be able to borrow or build businesses with or finance investing activities or whatever with so that we can actually grow the economy so even though this kinda seems like a bailout I mean that's kind of exactly what you could call it a bailout it allows the banks to be looser and less restrictive with us hopefully it also means they're going to stop screwing our credit for asking for forbearance and we in turn since we make up 70% of the market as the consumer we're the ones making up 70% of the market not them then hopefully we can get the whole engine moving smoothly again so this is a really really good thing this is the government coming in saying we do not want to see 15% declines and real estate in other words it's not fair to say hey let's crash real estate because this unforeseen pandemic happened that made twenty percent of people lose their jobs like overnight and now banks have to tighten up and start freezing their money and increasing credit requirements they're trying to resolve that so this is good news but the good news actually doesn't end there because Fannie and Freddie and regulators are actually in talks to do something that hasn't been done for quite a long a time Fannie and Freddie are in talks to potentially buy homes directly from people in mortgage forbearance that is if you're under a mortgage forbearance plan and for some reason you're close to what you owe on the house or you know what you just need to get out Fannie or Freddie might come in and replace that typical buyer supply and make an offer on your property this has not happened yet this has not been approved yet but this is in talks because remember a big thing that a lot of us are worried about because we're thinking well Kevin buyers can't get loans because banks are tightening credit standards which this last thing we talked about helps that softens hopefully credit standards that's good but we still have this concern that well if people are not employed that means we have less buyers and so if we have let's say 40 percent less sellers because less discretionary sellers are selling but we have 56% less buyers that's bad that's a bunch of BS that means we have a net void of 16% less buyers in the market but if Fannie and Freddie come in and say don't worry we'll be that 16% for you will balance the market out to do what stabilize prices which is kind of the goal of the Federal Reserve anyway maximum price stability and maximum employment that's like their motto whatever mission statement whatever you want to call it this could actually work but the big point of all of this is to say that your prospects for building wealth through investing in real estate might stay strong through this crisis I know a lot of us are fearful right now we don't want to buy we're not sure if we want to go buy wedge deals below market value because what if the market free Falls these stops before prices start falling are really really good and they make me feel happy because again I look back at being 19 years old and having no net worth like I'd saved money working at Jamba Juice and I'd go buy a beach cruiser because I'm like oh I finally have some cash let me go blow it on something how am I ever supposed to build wealth thinking like that and it wasn't until I got involved in thinking about real estate and investing and investing in stocks that I actually started building wealth that's what I teach you by the way in my real estate program which I highly encourage you to join also got one on money we talk stocks and real estates every day the markets open at 9:00 a.m.
really encourage you to join me but the most important thing out of all of this is we know that the Fed and the government are keeping an eye on real estate as well right now we've got a lot of energy and focus going into stimulus checks a lot going into small businesses a lot going into Airlines and bailouts we haven't yet seen much in real estate other than a lot of banks tightening their standards and freezing credit lines this potentially reverses that course and while we don't yet have updates on what's going to happen with people asking for forbearance and the end results of their credit score and there are a lot of unanswered questions this is the optimism that I want to see in the market especially at a time when there's nothing but negativity and fear-mongering going around specifically around oil prices which I'm just gonna take a quick moment and say I don't care about oil I really don't now I'm not trying to say that to say I don't care about a lot of people who are going to lose their jobs because oil is now at a point to where it doesn't make sense to operate an oil refining or fracking or drilling business no I totally feel bad for the people who are going to lose their jobs with cheap oil I'm not saying cheap oil is a good thing at all it's traded in the petro dollar it causes a lot of issues this is just to say that of course a May contract for oil is going to be pretty dang worthless nobody needs oil right now there are so few people traveling there are so few people driving there are so few people using oil gas or kerosene right now that of course the may contract is going to look negative or 0 or whatever of course however the oil market to me is short-term thinking the real estate market is the long game and that's where I want to focus my attention is understanding what's happening in the real estate world and what are my expectations in terms of what's going to happen with pricing I'm personally thinking we're going to see real estate prices soften four to eight percent by August however this backstop could help us soften that blow even more let's see let's keep our fingers crossed let's learn how to buy wedge deals let's get educated while we're stuck at home join me in those course finally get some life insurance and protect yourself in case the unthinkable happens at least your family can be well off and folks we'll see you next time
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