Barry Owens and Mike Harris in Rick’s Room

In this episode of Rick’s Room, Barry Owens and Michael Harris, two mortgage industry veterans, join Rick to talk about the industry. High interest rates, limited inventory and housing costs continue to discourage prospective buyers. At the same time, mortgage performance is showing some areas of concern. Harris notes increasing delinquencies, particularly in FHA loans.

Stresses in auto lending, including increasingly long loan terms, as well as high credit-card balances and very high interest rates, are all possible leading indicators of future weakness in housing. Meanwhile, consumers are carrying high credit-card debt while maintaining historically low savings levels. As a result, bankruptcy cases have increased for eight consecutive quarters. The increases are gradual, but the trend is noteworthy.

A new offering from Asset Bridge could be an answer to this problem.

Transcript Highlights

Rick Grant: Hi, and welcome back to Rick’s Room. Today, I want to look at the real estate market. That’s where I started my career 30-some years ago, and it’s always been of great interest to me.

To help me make sense of it, I’ve invited back two of my favorite guests, Michael Harris and Barry Owens. Gentlemen, thank you for joining me today.

Michael Harris: Absolutely. Thanks for having us, Rick.

Rick: I need some level-setting here. I need somebody to tell me what I’m seeing because I’m not exactly sure I’m seeing a market that’s improving.

Barry Owens: I think it’s a multifaceted question. If you look regionally, the Northeast has really rebounded over the last few years. Post-COVID, everybody fled the Northeast and was going south, particularly to Florida. That shift has started to go back, and the Northeast market is very strong again.

But then you have outliers that are not doing so well. Austin, Texas, is the one people keep talking about, with valuations reportedly falling about 30%.

Then you look at Dallas. That market has been strong and stable. It’s not escalating like crazy as it was a few years ago, but it has remained very strong.

Phoenix, Las Vegas, and a lot of the bigger markets that really boomed during COVID have stabilized. You see listings staying on the market longer, but prices haven’t really adjusted yet. People are making some concessions, but it’s taking a little longer to get the price they want.

Rick: That makes sense. Mike, is that what you’re seeing too?

Michael: Absolutely. I agree with Barry wholeheartedly. Not to be noncommittal, but it’s kind of like we’re all sitting on the fence waiting to see what’s going to happen.

We still have apprehension among buyers because of high interest rates, low inventory, and housing costs. I don’t see those primary drivers changing right now.

Barry is also right that we’re seeing some delinquencies go up, particularly in the FHA market. For the most part, the conventional side is staying pretty stable as far as delinquencies and defaults. But it’s something we have to keep an eye on.

We have to figure out how to get buyers interested in the market again and comfortable with buying. I also don’t see overall median home prices across the United States moving significantly right now.

Rick: So, it’s going to be hard for the old fundamentals that used to drive volume in our industry to move the lever. The market seems kind of stuck in the mud. But what’s not stuck is the increasing pressure on American consumers. We’re seeing signs in the news of increasing credit-card debt and increasing delinquencies. Are you guys seeing the same thing, and does that concern you?

Barry: I think those are leading indicators of what potentially could hit the housing market.

There have been big stories over the last few years involving subprime lenders, particularly on the auto side. Look at the length of the loans. A four-year auto loan used to be normal. Then it became five years and crept up to six. Now you see extremely long-term products out there.

That does not bode well for consumers. If you’re four years into a loan and still significantly underwater because depreciation has outpaced your payments, that becomes a problem.

Then you have rising credit-card debt—record levels of credit-card debt—and the interest rates that go along with it. In mortgages, we talk about today’s rates as high even though historically they’re not extraordinarily high. They’re high compared to a few years ago.

But then you look at credit-card rates of 26% or 28%, even with prime credit. I think those conditions could become leading indicators and potential soft points for the housing market.

Michael: Barry mentioned high credit-card debt per capita, but we also have historically low savings per capita. That’s a recipe for trouble in terms of consumers having the ability to make big investments in real estate. You have to look at what kind of financial leverage people have available to make these transactions.

Barry also mentioned to me a solution he has built around bankruptcy, and I thought it was very interesting. Barry, can you share a little bit about it?

Barry: Absolutely. When we built Asset Bridge, one of the premises was to ask what solutions we could bring to the market.

Friends of mine had accumulated all of this data and local market intelligence. When I took a deeper look at it, I noticed that bankruptcy cases were trending upward. They’ve increased for eight straight quarters. It’s nothing dramatic. It’s not a hockey-stick type of increase, but cases have been rising.

What makes that interesting is that we have a relatively stable housing market, and foreclosures are usually a significant driver of bankruptcy cases. Yet this increase is happening on its own.

When I looked at that trend, the products available to us and the data available to us, we were able to develop a solution designed to expedite the bankruptcy process in a way that can have a real impact for investors.

Traditionally, servicing has been very much about checking the box and moving on. I grew up in servicing and spent many years there, so that isn’t meant as criticism. It’s simply the way the process has traditionally worked.

Bankruptcies were largely hands-off. You sat and waited until something required action. It was very reactive rather than proactive.

We’ve flipped that model and become much more assertive about protecting creditors’ rights and moving the process forward.

For example, there is a 341 meeting where the borrower and creditors meet, and significant information is collected. You have financial information and the borrower’s stated intent. We look at that data and compare it with what the borrower is saying.

We do this immediately. We get the bankruptcy filing and analyze the information on day one or day two. If the borrower says the intent is to keep the property, the traditional process might mean receiving a modification package 90 to 120 days later.

We’re getting that package in front of the borrower almost immediately—perhaps day three or four—and allowing them to submit the paperwork for a modification If they don’t, we can go to the trustee, ask for a motion for relief from stay, and get things moving.

Historically, people have simply waited during bankruptcy. That’s not negligence. It’s just the way things have always been done. We’ve taken that hands-off approach and turned it around.

We’ve been very excited about the response because it’s unique and it’s something that hasn’t really been approached this way on our side of the business.

Rick: Barry, that’s really interesting because people in that situation often don’t know what to do. It sounds like if they want to keep their home, this could put them on a better track much sooner.

Barry: Yes. There are two sides to it.

If their finances indicate they can maintain the property, that’s great. Get the modification package to them, get the loan moving in the right direction, and get the payments started again.

If they cannot maintain the property, which happens frequently, then we can get the motion for relief filed and begin the foreclosure action.

So it can help both sides. It can help the borrower in certain circumstances, and it can help the investor in others.

For the investor, one of the biggest benefits is speeding up the timeline. Many of these properties may be in negative-equity situations, so delays simply increase the loss.

If you wait 90 or 120 days—or sometimes a couple of years while the process plays out—that’s money being burned. Taxes still have to be paid. Interest costs continue accumulating.

On the other hand, if you can provide relief to the borrower and get them into a modification that works for them, fantastic. They get back on their feet sooner, and everybody can come out of that pretty happy. When that isn’t possible, the investor can stop the bleeding sooner and reduce the loss.

Michael: That’s what spoke to me about it, Barry. My background is in loss mitigation and default servicing, and one of the biggest obstacles has always been borrower contact.

The ability to get in front of the borrower, provide the options, determine where they stand, understand their motivation, and understand their strategy is imperative.

As you mentioned, this can work for both the borrower and investor. Getting that information upfront and figuring out the best course of action has always been one of the biggest obstacles.

Prolonged activity often happens because of a lack of communication and an inability to connect with the borrower and figure out where their head is.

The ability to do that upfront and begin the appropriate process is beneficial for both sides.

Barry: Mike used the important word: communication.

That’s actually one positive aspect of bankruptcy. It opens communication, and there’s no running from it because now the process is going through trustees and established information channels.

The borrower is either going to respond, or the trustee is going to move the process forward. If someone was simply trying to buy time, that can become apparent relatively quickly.

That’s one of the positive aspects of the process: it opens the communication line.

Rick: Anyone who lived through those years on the servicing side knows why this sounds like a great solution. Barry, I’d love to hear more about it, but we’re bumping up against time. Is the best way for people to find out more to go to the Asset Bridge Solutions website?

Barry: Yes, it’s Asset Bridge. Our contact information is there, along with a general overview. We also have more detailed presentations we can send people that provide specific examples, and we’re always open to a conversation.

Michael: That’s very true. Barry and I could sit here, as we have many times ourselves, and go back and forth on these issues. I think it’s informative, and I think listeners can glean some good ideas from it.

I also think this is a great solution, which is why I asked Barry to explain it in more detail.

Rick: Thank you, Michael Harris and Barry Owens. We’ll see them again, and hopefully we’ll see you next time.