2021 is going to be a big year for mortgage notes. Here are just some of the reasons we expect a lot of traction, and why savvy investors are going to boost their portfolios…
Banks have already been divesting themselves of tens of billions of dollars in defaulting mortgage loans. It may be true that defaults slowed down a little after the summer, but mortgage delinquencies are still 2x to 5x higher than at the beginning of 2020. There appears to be far more units in distress at the peak of 2020 than in the peak of the 2008 crisis. There are many things that could be changed to avoid an even greater depression than we’ve already experienced. Yet, given the track records of new cabinet members, we can assume that there will be plenty of non-performing loans and foreclosures coming down the pipe for the next four years. Large amounts of supply mean volume for investors and discounts for those with the best access.
Of course, it is basic investing 101 that supply means little without demand. For a variety of reasons we can expect demand for mortgage notes to rise in 2021 as well. There is much more awareness of the ability to invest in these assets than ever before. New tech tools are making it easier to do remotely, and accurately.
We are already pretty much at negative rates on bank savings accounts and other conservative savings and investment vehicles. Financial institutions are finding new ways to extract money from their customers to cover their own lean yields.
In contrast, existing mortgage loan notes which may carry mid to high single digit and even double digit interest rates offer far above average returns, well above the money to be made on new mortgage originations at today’s low rates.
4. Access to REOs
Mortgage notes also provide backdoor access to physical real estate assets, with less competition and cost. With carefully hidden and throttled foreclosures, and lots of amateurs desperately bidding on properties in hot markets, there can be a lot more value found through this channel, whether that is through foreclosure or cash for keys deals.
5. Downside Protection
Mortgage notes are asset backed, as are note funds too. This is a level of security not found on the wild IPO scene and the frothy public stock market which is floating new companies for tens of billions of dollars that really don’t own anything.
6. You Want to Help
This is also a top choice for investors who want to do more good with their money. It is the chance to participate in helping millions of homeowners and families. And it is a far more sustainable way of helping than just pure charity. Investors are compensated well for providing solutions at the same time.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund