The Good and Bad for Mortgage Note Holders as the Market Chills

Across the US the real estate market is cooling down. It’s not just that it’s harder to get a mortgage; people are worried about their savings and jobs and don’t want to be caught in transition. What does this mean for seller held mortgage notes and other real estate loans? The answer depends on the holder’s objectives. Depending on the goal and situation, the market slowdown can be good or bad.

Good: Possible Stability

If you’re managing a fixed-rate note that was negotiated over a year ago you might be in luck. Your income from payments isn’t at the mercy of the market and even though housing prices are falling, the borrower won’t necessarily be eager to move. He might not qualify for a mortgage under the new regime and may not be able to cover moving costs. If he wants to sell on a conditional offer, chances are he’ll be waiting a while.

Bad: Foreclosure Dangers

Unfortunately, your borrower’s fortunes are also tied to this economy. If he loses his job or his family runs into unexpected financial emergencies he might not be able to pay you. Unless you find a sensible remedy it could end in foreclosure. That’s a routine matter for banks, but for individuals, going through the process can be expensive and psychologically taxing.

Good: Competitive Interest

On the other hand, don’t assume that foreclosure is inevitable just because the market’s troubled. For one thing, a fixed-rate private note can often out-compete its bank-held counterpart. The fact that no third party institution grabs a cut can make payments more reasonable for the borrower even if they are based on the pre-slowdown market.

Bad: Uncertainty

The main issue in managing your note through the current situation is sheer uncertainty. Much depends on the loan’s terms, the borrower’s situation and the lender’s needs. For example, in cases with heavy payments combined with a balloon payment option, the borrower may wish to make a balloon payment to clear out the loan, possibly with the help of another loan from a third party. Would this be good or bad for you? Do you want a lump payment or not? What if this ends up kicking the property over to someone else?

There is a solution to this, however. Selling your mortgage note removed uncertainty by taking responsibility for the note out of your hands, allowing you to negotiate reliable payment terms that suit you. Get a mortgage note quote to see how this option would work for your note.