Since its launch in August 2020, FinLedger has kept its pulse on the explosive and expansive sector of financial technology for thousands of readers. And now we’re ready for the next stage of FinLedger’s growth.

As part of HW Media’s vision to cover All Things Housing, FinLedger will narrow its focus to proptech coverage, doubling down on a category of fintech that attracted $32 billion in investment in 2021 and yet is oft-overlooked by newsrooms.

It is a sector, however, we won’t (and can’t) ignore for our audience of housing professionals. As a result of our renewed focus on proptech, FinLedger will now be supported by our best-in-class housing newsroom — spanning real estate, mortgage, and reverse mortgage — led by Editor in Chief Sarah Wheeler.

And to double down on our investment to cover proptech, FinLedger has partnered with Nate Smoyer in re-launching Tech Nest, a weekly podcast conversing with the movers, shakers, and innovators in PropTech. You can subscribe to it here and listen to the first relaunched episode here.

Smoyer is the director of marketing at Avail, where he leverages tech, leadership, and team building as he works with early-stage proptech companies to scale growth.

We’re excited to continue this journey with you. And to keep up with where PropTech is at and where it is going, subscribe to the FinLedger Daily newsletter.

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Mortgage delinquency rates hit pre-pandemic levels in October due to labor market improvements and home equity increases, according to the most recent CoreLogic Loan Performance Report. The expectation is that rates will continue to decline during 2022.

In October, 3.8% of mortgages were delinquent by at least 30 days, including foreclosure, close to the 3.7% rate registered in the same period of 2019. In October of 2020, the delinquency rate was at 6.1%.

“Improving economic security and the benefits of disciplined underwriting practices over the past decade are helping reduce or avoid mortgage delinquencies,” said Frank Martell, president and CEO of CoreLogic, in a statement.

The report found that 82% of the jobs lost in March and April 2020 were recovered by October, accounting for 18.2 million Americans back at work, according to the Bureau of Labor Statistics.

According to Martell, the expectation is that delinquency will trend down as the economy continues to rebound from the pandemic, employment grows, and high levels of fiscal and monetary stimulus continue.

In October, the transition rate – mortgages transitioning from current to 30 days past due – dropped one basis point in one year to 0.7%.

The serious mortgage delinquency rate (90 days or more past due, including loans in forbearance) dipped 19 basis points year over year to 2.2% in October.

Frank Nothaft, CoreLogic’s chief economist, mentioned that loan modifications have helped reduce loans in serious delinquency.

However, some borrowers are still facing severe financial challenges. “Nonetheless, there were about one-half million more loans in serious delinquency in October than at the start of the pandemic in March 2020.”

The report, published on Tuesday, accounts for only first liens against a property, and rates are measured only against homes with an outstanding mortgage. CoreLogic has approximately 75% coverage of U.S. foreclosure data.

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Death and finances can arguably be called the two things that people hate talking about most. Unfortunately, these are two topics that cannot be kept in the dark, as we all must deal with loss, both emotionally and financially over our lifetime. What can the average person do when they’ve just received the heartbreaking news that a loved one has died. Even worse, what if it’s their partner?

This almost unimaginable shock came to Allison Nichol Longtin when her husband passed away six years into their marriage. Not only did Allison have to carry the emotional burden of losing her partner, but she also had to deal with the financial fallout of his death. She spent over a year carrying around a portfolio of papers, proving to numerous different entities that she indeed was the new owner of her husband’s accounts.

Allison admittedly made some mistakes in not preparing for the unexpected, but she’s since then made a strong case that every couple should do what she overlooked. Today, Mindy and Allison go through the top steps that every couple (married or unmarried) should take in order to keep their financial burden as minimal as possible during an unexpected death.

This was a very difficult episode to record (due to the subject matter at hand). We wholeheartedly thank Allison for coming on and giving advice that will benefit every couple listening to this episode. 

Mindy:
Hi there. Before we get into today’s show, I wanted to give a trigger warning. Today, I’m talking to a woman who lost her spouse unexpectedly at a young age, and how she dealt with the aftermath of this sudden event. We are also talking about how you can prepare now in case this happens to you. Welcome to the BiggerPockets Money podcast show number 265, where I talk to Allison Nichol Longtin about handling the unexpected death of your spouse.

Allison:
It’s avoidant. And it’s a lot of what many of us go through. We don’t want to think those thoughts. We don’t want to follow those thoughts through, so we don’t do it. We put it off, we put it off, we put it off. And I think that that’s a very human response. And I think it’s sort of a byproduct of the many things in life that we don’t like to talk about. And you’ve got two of them there. People don’t like to talk about death and people don’t like to talk about money.

Mindy:
Hello, hello, hello. My name is Mindy Jensen, and I’m here to make financial independence less scary. Less just for somebody else, to introduce you to every money story, because I truly believe financial freedom is attainable for everyone, no matter when or where you’re starting. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Allison Nichol Longtin was married for six years, and her husband handled all of their finances. Until his early unexpected death left her with a broken heart, a mountain of paperwork, and forced her to deal not only with her past money issues, but also figure out her current financial situation. Something that could have been made much easier if they had only talked about it while he had still been alive. Allison has learned a lot since his passing, which is why she’s here today. I read Allison’s first article for Business Insider, which was published right after a friend of mine passed away suddenly in a freak accident. He and his wife had an eerily similar situation to Allison and her husband where he handled all their finances. Not only that, but it’s confession time.
While I sit here every day talking about money, in my own life., my husband has traditionally handled all of our finances. We talk about them. We have discussions about where we should invest our money. I know approximately where the money is, and I have a pretty good idea of the amount of our net worth. But if he were to pass suddenly, I too would be left with a broken heart and a mountain of paperwork to wade through. So I reached out to Allison and asked her if she’d take the lessons she learned as she waded through her paperwork mountains and share them with us to help our listeners through their own financial walkthroughs so if an unexpected death happens, you’ll be more prepared.
Also, I’m using us to make sure that I’ve thought of everything as I’m starting through the process of learning where all of my own personal money actually is. Allison, welcome to the BiggerPockets Money podcast.

Allison:
Thanks so much Mindy. It’s great to be here. Thank you for inviting me. I’ve long been an advocate for financial literacy and lifelong learning. So it’s really an honor to be here today to share my experience with you and with listeners.

Mindy:
I really appreciate that you have been sharing your experiences online in a series of articles for Business Insider. Listeners, you’re going to want to, is it our show notes today. That’s biggerpockets.com/moneyshow265. We have a lot of links to mention. Allison has articles that she’s written. There’s books that have been really helpful to her along her journey. And I’m sure there’s going to be a lot of other links that come up. So Allison, I’m sure after your husband passed away, there was an initial state of shock, and going through the motions of life. How long after he passed did you have to start figuring things out?

Allison:
Yeah. I mean really when I think back, it feels like almost immediately. And I think part of that is because I’ve always had this anxiety around money and finances. And what felt really top of mind while in that state of shock was I need to feel safe. And safeguarding my finances in any way that I could was a big part of that.
So I think really within the first week, I was contacting my bank, meeting with my financial plan there, and contacting CRA or Canada Revenue Agency, which is essentially the taxation body to sort of notify them of that death and make sure that any sort of automatic payments that were linked to any credit cards or to any accounts, that all of those were either stopped or transferred. I think honestly part of that was a little bit of compartmentalizing as well in that initial state of shock was okay, what can I do in this feeling of total lack of control and total lack of agency? As much as it was impossible to think that I could do those administrative tasks, they gave me something to do. They gave me something tangible to do.

Mindy:
So your first step, you said you contacted the financial planner and you contacted the Canadian agency. I’m assuming that’s similar to on the American side, getting the certification of death. The death certificate to start the process, the official process.

Allison:
So really, this was the first person that was close to me that I’d ever lost. And in any other kind of loss I’d had, I really didn’t have a lot of responsibility. And in this case, it was all on me to take care of everything. So to learn it by doing. So the death certificate really came from once sort of plans were in place for his cremation, the death certificate was taken care of by essentially the funeral home that took care of that cremation process.
And that death certificate was needed for essentially everything that followed, especially because we didn’t have a will. So my husband died without a will. And that was in part because he was 37 and apparently healthy. And I at the time was 31. We didn’t think we needed to think about that just yet. So I really had to rely on all of the other pieces of evidence that we were married and so on. So in terms of reaching out to Canada’s taxation body, that was something that I learned needed to be done right away. So that was one of the top things on my list.

Mindy:
Okay. So it sounds like step number one for anybody who’s listening like me, who hasn’t really done anything is creating a will. This can seem at age 31 where you’re young and healthy and your husband is young and healthy, this can seem kind of morbid.

Allison:
Yeah, absolutely. And I hear that. I do get that. And four and a half years ago before my husband died, that’s exactly what I would’ve thought as well is A, we don’t need to talk about that. And B, I don’t want to even think about that. So in all the many ways that we were excellent planners, we were excellent partners to each other. We were a really great team. We really let each other down in that sense by not wanting to sort of think about that or go there, and assuming that we had all the time in the world to do things like create a will.
So as much as most of the accounts were in both of our names and I had access to most of the passwords that I needed to, we didn’t have a will, which made everything that much more difficult and made it that much more painful to have to sit in an office or be on hold on a phone. And time and time again, have to prove that we were married.

Mindy:
Okay. You just said something else that I thought was very interesting. “Most of the accounts were in both of our names.”

Allison:
Yeah.

Mindy:
That sounds like a real treat to try and deal with when you’re trying to connect with somebody about an account that’s not in your name. So that sounds like a good step number two, which I’m getting ahead of myself because I still want to talk about step number one. But step number two is put all accounts in both names. So hold on, let me write that down. Because I’m going to create a step-by-step for this and I’m going to put that in the show notes as well. But to create a will, have you since created a will?

Allison:
You know what, it is on my list. Every year I do intention setting. It’s not so much New Year’s resolutions, but I take stock of the previous year and then I decide where I want to go in the following year. And that is on my list from 2021. So I’ve got a couple more weeks to get a will together. So I’m a little behind there. But no, I do not currently have one, which honestly I would hope that I would’ve learned from past mistakes. But I also will say it feels less pressure filled in the sense that nobody else is relying on me to have a will. Nobody else’s life will be made that much more difficult by my not having a will. Whereas that was the situation with my husband.

Mindy:
Okay. So I can hear people listening saying, “I can’t believe she hasn’t made a will.” You know what? I haven’t made a will. I have two daughters and a husband, and I have no will. And that is kind of embarrassing to say right now as I sit here in a position. I don’t have two infants. I didn’t just find two daughters yesterday. I have a 14 year old and a 12 year old. I’ve had plenty of time to do this. And it’s so easy to just not. “I’ll do it next week. I’ll do it next month.” I mean, you have to make some sort of plan with your will.
But then even thinking about it … it’s going to be a tough episode. But even thinking about it makes me think what happens. When I create a will, I’m planning on my death. I will die anyway. We all will.

Allison:
Well, I think it’s avoidant and it’s a lot of what many of us go through. We don’t want to think those thoughts. We don’t want to follow those thoughts through, so we don’t do it. We put it off, we put it off, we put it off. And I think that that’s a very human response. And I think it’s sort of a byproduct of the many things in life that we don’t like to talk about. And you’ve got two of them there. People don’t like to talk about death, and people don’t like to talk about money. And we’re on a money podcast, but people don’t like to talk … a lot of people, they’ll talk about money, but maybe not their money.

Mindy:
Yeah. I’ll talk about money all day long, but I don’t want to talk about death because death is scary and it shouldn’t be. It’s a fact of life. I am going to die. At some point between now and the next 100 years, I will pass away. I will make that bold prediction right now. And not having a will isn’t going to make that not happen. So I knew that I was going to record this episode, and I knew that we were going to talk about this. And I reached out to a sponsor of our show called trustandwill.com. And I asked them if they could give us any sort of, if they wanted to do any sort of sponsorship for this show. And they have offered a discount on their services to create their will services. The website is trustandwill.com/biggerpockets. You have absolutely no excuse. I mean, you can make lots of excuses for not doing it. But right here right now, sit down, put it in your calendar, make a plan. In January of 2022, make a plan to create your will. As detailed, as loose as you want it. But somebody is going to direct where your money goes, it might as well be you.
That’s a good advertisement. Get a will. Okay. That’s on my list of things to do. And I’m not excited about it clearly. But just, you don’t have to be excited about it. You just have to do it. My aunt’s a swimming teacher, and some of the kids are like, “I don’t want to do it.” She’s like, “You don’t have to want to do it. You just have to do it.” So okay. Step one, create a will because that will help your surviving partner walk through all of this stuff. And step two is to put all accounts in both names. For the accounts that didn’t have your name on them, what was the process of accessing them?

Allison:
Yeah, it’s a good question. A long and painful one. So the one account that we had that wasn’t in both of our names was my husband’s primary checking account. And the reason that that one wasn’t in both of our names is it was his original account from when he first opened a bank account when he was maybe 15 or 16. So that was a real oversight on our part. Otherwise, all other accounts were in both of our names. So there was no beneficiary named for that checking account quite in contrast to the rest.
So the process for that again was, is there a will? No, there’s not a will. In lack of that or in lieu, they had asked me, so the bank essentially had said, “Okay, well you need to go to a lawyer. You need to get this, this, and this.” And I said, “Well, I’m not going to pay money to get access to our money.” So I had to say this to several people and had to present many different pieces of evidence, but I was adamant. I wasn’t going to lose anything to get access to what is ours. And I felt a huge sense of responsibility to manage our funds, and his estate, and our estate well.
So essentially, they froze the account for a period of 12 months. And after that point, I had access to the funds within that account and was able to transfer them. But it was a full year before I had access to that account. And now in the grand scheme of things, that actually wasn’t so terrible because we both had a practice of maintaining only a finite sum in our checking accounts. And once we crossed a threshold of about 3,000, that money came out of there and went into either investments or savings. So there wasn’t a ton in that account to begin with. So it could have been a lot worse, but really every single roadblock was, “Okay, is there a will. Are you the executor of the estate?” “Okay. I’m his wife.” And then again with the marriage certificate, again with the death certificate and all the other … I literally walked around with a horrible portfolio for about seven months because I was going from meeting to meeting, and just had to pull out all sorts of pieces of ID, all sorts of proof for about seven months. And it did continue after that. I just didn’t carry around this terrible portfolio after that point.

Mindy:
So imagine if you weren’t married.

Allison:
Yeah. I think about this often. We’d been together for five years before the time we got married. So we had a solid foundation, and we weren’t a hugely romantic couple. It really was a conversation of we were living abroad at the time, and really everything was going to be made easier and more stable for us if we decided to get married and we were happy together. So we did decide to get married. And I honestly can’t imagine if we hadn’t been married, what this process would’ve been like. I know we likely would’ve applied for common law status. But yeah, to your point, if we hadn’t been married, this could have been a lot more difficult for sure.

Mindy:
And this isn’t a, “Everybody should get married,” comment. This is just another thing to consider. If you are combining finances together with someone and you’re not married, there are more things to think about than just who’s paying for the mortgage and who’s paying for other things.

Allison:
And I think it’s about educating yourself, regardless of what status you have with your partner, with your person, educating yourself about, “Okay, what are my legal rights? What happens if and when?” And I think that if we had been let’s say common law and we had a will that clearly laid everything out, it probably wouldn’t have been as difficult as it was. But I think that again, asking the questions or having those hard conversations that really, nobody wants to think about these things. But we have to. Mindy, did you want to talk about the other account that wasn’t in both of our names?

Mindy:
I do, but I want to make one more point. Because your name wasn’t on his account, but you also had your own account. I just want to highlight that you didn’t have all your money in one account that was only in his name. And that was really a good plan on your part. And I want to applaud you on that. If you have all of your money in one account, both of your names should be on the account for sure. Because then you can at least access it. But if all of your money is in one account and your name’s not on it, that’s a sign that something needs to change.

Allison:
Absolutely. I would never recommend that anyone have just one account in any case. And we can talk about that a little bit later. It’s one of the things that I’ve learned in this journey of really educating myself on money management. But yes, luckily both of us had a few different accounts. So again luckily, it was only that one account where we weren’t both named.

Mindy:
I want to talk about this other account that your name wasn’t on. What is this fun account?

Allison:
Yeah, so this was probably the most challenging part of dealing with the administrative side of our finances related to [Remy’s 00:19:00] death, which was that he was learning how to actively invest. So we had one investment that was essentially a fairly high risk investment. So my husband had been a scientist and was just really brilliant with any kind of numbers and any kind of experiments. So he had decided to put a portion of his investments, so we’d sort of divided up our investments in placed them in different places. And I have a very low tolerance to risk when it comes to my money. And he wanted to play around with some of these funds. And we talked about it, and he decided to actively manage those investments. So they were on the stock markets. He was checking them a couple of different times a day. He was doing all sorts of research into what funds he could be putting that money into, and was actively moving stuff around on a daily basis. Because it was such a risky fund.
So the idea was high risk, high reward. And he was looking at it every day. And I knew that there was this investment, and I knew that there was a sizable portion of our money in there. So when he died, that was near the top of my list. After notifying the bank, after notifying taxation bodies, governmental bodies, was I needed to get these funds off the market. Because I didn’t have access to managing them actively. So they were essentially left on the market to do whatever the market was going to do. And we lost thousands in a very short period of time.
And thousands to some listeners may not sound like a lot. But to me, that felt huge and it felt like I’d failed him, because I didn’t have access to those funds. So we didn’t have the foresight to think what do we do about that if something happens, if you can’t … and maybe even if he’d just gotten sick and couldn’t manage them for a couple of days. A couple of days is the difference between 20,000 and potentially 10,000. So that was one of the first things on my list. And unfortunately, because we didn’t have a will, we were caught up in lots of red tape for several weeks. And it sounded like there was nothing I could do about that. That’s what I was told.
So by the time we finally pulled those funds from the market, because I didn’t have the know how, I didn’t have the capacity. And I honestly didn’t have the interest to actively manage some risky funds. So we pulled those, by we I mean my bank and I, we finally pulled those funds from the market. But we lost thousands. And like I said, I felt like I’d failed him. And it was just a very anxiety, high anxiety situation knowing that I didn’t even see what those funds were doing. I couldn’t see how much we were losing.
So A, I would really caution people to consider what are the rules around those funds? If you decide to actively monitor your investments, who then can have access to those if something happens to you or if you can’t monitor them actively? And then B, is that something you should be doing in a partnership? If one person in the partnership just would not be able to manage those funds. So I just felt at a total loss for what to do about these funds.

Mindy:
Yeah. I think this is a really good point. Just in general, if one of you is managing the investments, the other one, you should set up an investment money date. And I say this you like I’m doing this now. I’m not. I don’t know how to log into our accounts right now. And this is something that we have in the books. We are sitting down and he’s going to show me how to log into all of these accounts. Because it is his passion. He loves to look at all of this stuff. He goes online every morning and looks at it. Literally every morning, he looks at all this stuff. I am a set it and forget it kind of person. I like to know that it’s there. I don’t want to look at it every day. I have other things to do.
But I need to know how to log in. And as we were talking about this, because your first article spawned a huge conversation with us. And he said, “Well, some of these accounts are real easy. You just go online and log in, and it’s just a username and password.” Which seems rather insecure. And some of them are two factor authentication, meaning it pings a little code on your phone. And some of them, one of them, he’s got some code on his phone that’s constantly changing every 30 seconds. So it’s some hypersensitive thing. That’s great if he’s, I don’t know how to say this without being super, super morbid.
But if he passes away locally, then maybe I still have access to his phone. But if he’s in a plane accident, I might not ever have access to his phone, how do I get that? I need to have that on my own phone too. And I don’t know how to say that without being awful, so apologies for really screwing that up. But you need to have these things on your phone and you need to be able to … or however you are supposed to access all of these accounts. And your name has to be on it. You need to log in. That’s going to be step three is learn how to log into each account.

Allison:
Yeah, I think access is important there. Whether it’s logging into an account or understanding how you then gain access to those accounts or to those funds, I think that’s key.

Mindy:
Understand how each account works. How do I pull those funds out of the market? How do I transfer them? He wants to invest in Tesla. Great. That’s my husband’s darling little account, but maybe I don’t want to invest in Tesla, or maybe I want to continue. I need to know how that account works. And each one’s different. Of course, there’s no one-size-fits-all to all of these. So learning how to log in.
And this is not going to be a five minute project. This is not something that you’re just going to sit down and, “Hey, here’s all of my information.” Now you have it too. This is process you’re going to need to bookmark every Friday for a month, or this is going to be a long discussion. And it should be a long discussion. This is your financial future, and you need to do this right. Okay. Back to that comment, never only have one account.

Allison:
Yeah. So this is something that, we’d already had this in place, my husband and I. We had a couple of different accounts. But for me at least, there wasn’t sort of any real strategy behind having those different accounts. It really was about five months after my husband’s death that I started seeing an independent financial advisor. So this is someone that’s not associated with any of the big banks. And the reason behind that was I really was looking for unbiased advice. So I was looking for someone to not necessarily sell me on any product at my bank or at another bank, but really to look holistically at what we already had in place, and really figure out a strategy that worked for this new life. This new life I never really asked for, where I needed to figure out on my now single salary how much of the life I was living before was still feasible, and where I needed to make real change.
So one of the sort of key takeaways from this strategy that was developed in partnership with my financial advisor was having multiple different accounts for very different purposes. So really clearly earmarked.
So essentially, the basic structure is having one checking account where the funds, whatever income you make comes into that checking account. And also from that checking account is where all of my bills, or almost all of my bills are paid. So those are things that are, something that is monthly. Usually predictable amounts, not always. But really having a clear sense of how much my life costs, so that that amount remains always in that checking account to pay my bills, to pay for my life.
And then, I have a couple of different savings accounts that earn the tiniest little amount, but they’re really intended to save for short-term savings, and then others that are more longer term savings. So a short-term savings for example could be home repairs. So I bought my first home a little over a year ago. So I have auto transfers out of that checking account in amounts that I know are feasible and that won’t put a dent in or effect any of my bills that need to get paid. So there’s that savings account. And then there’s more longer term savings accounts.
Then finally there’s a fund fund, which essentially is money that I get to spend. So now that I have my own business and I work freelance, that money does fluctuate from month to month. Whereas when I made these changes at that five month mark after my husband died, I was salaried. So I had the same amount coming in every month. So I knew how much that fund fund held.
And really what this does is it takes a lot of the guesswork out of managing my money. And it means that I will always have enough money to pay my bills. And I don’t have to wonder, “Can I go out for dinner with friends tonight? Or can I afford to,” I don’t know, “Buy that Christmas present for that person that’s maybe a little more extravagant.” So taking that guesswork out is directly related to my levels of anxiety around managing my money. So if I don’t have to think or worry about it, I see those numbers there. I see those dollar figures. I know how much I can spend.
So whereas previously, there wasn’t a clear strategy to having those multiple accounts, although it was positive that I had them. Now I have a very clear strategy in place for those different accounts. And it has reduced my anxiety around managing money by just so much.

Mindy:
I love that. Anything you can do to reduce your anxiety is the key. And I say this all the time. Personal finance is personal. The only person that this has to work for is you. And there are some people who are like, “I could do it all in one account.” Great. That’s good for you. There are other people like Tony Robinson, the host of the Real Estate Rookie podcast has something like, I think he has 24 bank accounts. I don’t know that I would be able to keep up with 24 bank accounts. But it doesn’t have to work for me. It only has to work for Tony and his wife. And it does. So you just have to figure out what works for you. I like this. You’ve got it looks like what, four? The main bank account, the short term, the long term, the fund fund. Those seem manageable. I’m assuming that all of your accounts are in the same bank.

Allison:
So they in fact are not. Most of them are. Most of them are. But I do keep my home renovations savings fund with a different bank. And that is, can I name them Mindy?

Mindy:
Sure, if you want to.

Allison:
So I keep some of investments and I keep that particular home renovations fund with Wealthsimple. And that’s not a brick and mortar bank. It’s not one of the bigger banks in Canada. But they make banking really simple. Wealth simple. And what that facilitates as well is that I don’t have to see those accounts every time I log into my online banking. So sort of out of sight, out of mind, but taken care of. And that for me is another huge takeaway because when I was seeing all of my accounts, all of my investments on the same dashboard, when I just would go in to send an e-transfer for example, that was super stressful for me. To see my long-term investments fluctuating on the market was not healthy for me, especially since those are ones that are meant to be left there in the market or on the market so that they can fluctuate and recover. Moving those longer term investments over to Wealthsimple, where I’d have to separately log, which I do about once a quarter or if I’m going to make changes to them. Out of sight, out of mind, but safe.
So I do get monthly emails where I can see my statements if I want to. But for the most part for me, it’s healthier for me to not see those. I know that the money is being auto transferred into them. So I have a bit of a sense of where I’m at, how much money is in them. But I don’t have to look at them. I don’t need to keep an eye on them. It won’t help anything for me to be constantly checking them.
So I do really like the structure where I have my main bank. It’s a brick and mortar bank. It’s a real thing that exists. And I can go talk to the branch manager if I want and need to. But then I have this online Wealthsimple, where I have a few different investments there. They’re mainly the longer term ones. And then I have my home renovations where I don’t want to touch it. I just want to put money in it. And than when I need it, I can access it. But that feels very hands off and really healthy for me.

Mindy:
And that’s perfect. Like I said, you’re the only one that has to work for. And that works for you. And this is why we have this show, to highlight what other people are doing with their money. Because I know somebody’s listening and saying, “Allison’s system makes so much sense to me. I’m going to do that too.” And that’s why you’re here. That’s not the only reason why you’re here. So you said that for about seven months, you carried along this portfolio of information to kind of prove your relationship with Remy.

Allison:
Yes.

Mindy:
How long did it take to finally sort everything out? And how long do you think it would have taken had you had a will and access to all of the accounts and everything?

Allison:
Yeah. No, it’s a good question. It took a little over a year. It took a little over a year, and that’s without having a will. So one of the final pieces was that checking account that was frozen for a year. So that took a full 12 months to sort out. So it was about a year. Had we had a will, it probably would’ve been handled in about six months, give or take. Things that sort of had to go through governmental bodies like taxes, that took longer. And of course, the first tax filing season which was about the 10 month mark after his death, that was a very big tax season for me. And unfortunately, I’ve learned that widows and widowers are essentially flagged by tax bodies, because the situation is complex. So I’m very grateful that my husband and I had already been working with an accountant that we trusted. So I was able to work with them. They understood the situation. They were very capable. It was a complex tax filing, and it continues to be. But I wouldn’t have tried doing that myself.
So really, it was about a year. That first tax season was a big one. But one thing that I’ll mention as well is Remy and I lived abroad for six years. So we lived in Switzerland. So a lot of our financial situation was made a lot more complicated by having lived abroad. So things like pension that the government pays to survive, they call it the survivor’s benefit essentially here in Canada. There was a period of time that I wasn’t eligible for that because we’d lived abroad. However, I was eligible for that in Switzerland. And most unfortunately because Remy died before I turned 35, which I now am 35, I do not have access to those essentially survivor’s benefits that he had paid into through his work. Because that’s just the law in Switzerland. So that, I only received confirmation of about six months ago. So really, the administration of his death continued until about six months ago. And I tried to fight the decision, but in the end, I will never have access to those funds.
And it’s been really painful to continually have to bring this up in that sort of administrative context, and then to ultimately not have access to what is rightfully ours. So that’s been particularly difficult. But I about six months ago was able to sort of administratively at least close the file, which feels very bittersweet. I think there was a time where it felt like a thing I could still do for him and for our couple, for our partnership. Whereas now, that’s mostly settled at least on an administrative side.

Mindy:
Yeah. I just don’t even know what to say about that. It just seems like there’s all this … at some point there’s nothing you can plan for. You can plan for so much. And then at the end, there’s just this random stuff that’s going to happen. So take the time now to plan for the things that you can handle, because there’s always going to be this opportunity to have this, “Hey, what’s going to happen?” Stuff to figure out at the end. And that’s really disappointing that the government doesn’t allow you these benefits until age 35.

Allison:
Yeah. I’ve been penalized. As if it wasn’t a nightmare enough, I’ve been penalized for my husband dying at such a young age. Not only his young age, but mine.

Mindy:
And would it have made any difference if there were children involved?

Allison:
Yes.

Mindy:
Okay. So you’re penalized-

Allison:
And again, further being penalized for never having had children with my husband.

Mindy:
Yeah. That just seems like boy, kick you when you down.

Allison:
It’s extremely cruel and it’s something that I’ve petitioned. And I am letting go actively. It’s a process.

Mindy:
Well, I’m sorry. That stinks. Okay. So the original article that I discovered you was talking about money anxiety. You had money anxiety in the past, which led to your hands-off approach to money. What were these money anxieties and how did this experience exacerbate those fears?

Allison:
Yeah. I think really, I had sort of adopted or developed these really avoidant behaviors when it came to money. So I didn’t want to think about it. I resented the fact of money. I’ve always been a person that works really hard. But I’ve often worked in fields where I’m not let’s say fairly compensated, and that’s just the nature of the fields. I worked in the arts and then I worked in the nonprofit sector. Which you can be very fairly compensated in the nonprofit sector, but not always. So I’ve always worked really hard.
And I think sort of resenting money and the fact of having to deal with it and handle it made me just further avoidant. But being avoidant just increased my anxiety, because I wasn’t actually taking control of what I did have or creating a plan for, “Okay. Well no, I can empower myself to decide how much do I need to or want to make? How can I go about making that happen for myself?” Instead, I just said, “Nope, don’t want to think about it.” And just stressed, and stressed, and stressed internally, and didn’t do anything about it.
And especially because Remy was so good at managing his money and our money, I trusted him fully. And I don’t regret having trusted him. He was excellent at managing our money. But I didn’t learn. I didn’t learn by saying, “Okay, you like doing this? You’re good at this? Go ahead and do that.” And I think really I for a lot of reasons came from a place of real lack as opposed to a place of abundance. And that’s really where I’m trying to shift toward now is that just because I don’t have what this person has or I have less or more than this other person, doesn’t mean I have to come from a place of lack. So I think that anxiety really came from this place of lack combined with this avoidant behavior that I had.

Mindy:
So you’ve moved from money avoidance to queen of your own domain. You wrote an article called I used to dread managing my money, but 3 simple habits helped me go from overwhelmed to owning a home and running a business. And your first habit is I have regular money dates with myself. Long-term listeners will recognize this term money date, because we push that all the time. We think that having conversations about money, being conscious about your money is the best way to be aware of your money and get on the same page as your spouse. I’m sorry, partner. It’s very difficult to know what’s going on with your finances, if you’re not thinking about them all the time. And it’s really easy to let them run away as I am showing in my own personal life if you’re not thinking about them. So what does your money date look like?

Allison:
Yeah. I mean, it definitely looks different than it used to. So what it looks like now is about once a month, usually during the first week of the next month, I will set aside a couple of hours where I’ll take essentially screenshots of the activity in my accounts. And then I have a Google Sheet that I’ve developed that tracks each account. And I will plug the numbers in to say my mortgage. When did it come out of my checking account? What was the amount? Those are sort of the more predictable expenses. And then there’ll be some where I sort of group them, like groceries and so on. So fairly simple. But I make a big pot of green tea. I get cozy. I set up a nice little space, and then I plug those numbers in.
And this has become especially important now that I work freelance, now that I have my own business. Because those numbers are fluctuating. And not only do I need to know what money is going where and how much is coming in, but I also need to project forward and see, “Okay, well where do I need to do better?” So not just sort of, can I spend less on going out, let’s say? But do I need to seek out more business to up my income?
So essentially, those money dates are a time for me to get really familiar with my financial situation in that sort of snapshot of a month, and to look back over the past few months. How’s it going? How do I want to pivot? Where am I doing well? And then I will treat myself somehow.
So it might be something really small, like cooking a nice dinner. If I had a really great month, I might go out for dinner. And that’s sort of a bit of a throwback to when I had these money dates with Remy. So we had them less often because we were both salaried individuals. So we didn’t need to track so closely how much was coming in, how much was going out. But essentially, we would about once a quarter, so once every three months, we would have a money date where I would sit there hating every minute of it. And he would sit in front of the computer. I was right beside him, and he would plug things in into the spreadsheet that he’d created. And then we would either cook a nice meal together or go out for dinner. And usually, we’d pour a glass of wine to help this go a little bit more smoothly.
But I’m a big believer in these money dates. And I shared in that article that for a long time, I didn’t do these. I stopped that practice because it was like many other things, just too painful to think a about doing on my own after so long of having had this tradition or ritual with Remy. But it’s something that now, I know is really important. I do not dread doing it. And frankly sometimes, I actually look forward to it. In part, because I make a very nice Google Sheet. So yeah, I firmly believe in these money dates and that rewarding yourself.
It doesn’t have to be extravagant, but it’s work. It’s work to sit down and make sure that you know what’s going on. And I think we should be rewarded for that. It’s the very grown up, very responsible, empowering thing to do.

Mindy:
I love that. I believe in rewarding yourself. What is the point of living this life if you never, ever, ever, ever, ever have fun?

Allison:
Well, and you know that honestly, this may sound irresponsible. But that was one of the biggest lessons that I learned in terms of finances from Remy’s death. He was very smart about managing our finances. We had mutual accounts, but we also had separate ones. And he really didn’t spend a lot of the money that he worked so hard to earn. And I get to benefit to this day from how good he was at saving and how frugal he was. But I really wish that he had treated himself a little more. I really wish we’d taken more vacations. It doesn’t have to be extravagant. But not only in terms of I wish we’d taken more time together, but I also wish he’d enjoyed his money more, enjoyed our money more. Because we really were planning, and planning, and planning, and planning for this. Having kids, buying a house, getting a car, all of those things that were in the future for us that we thought those were givens.
And I’m not saying that he should have bought a bunch of luxury cars. But if he wanted something, I wish he would’ve just bought it, you know? So I still am careful about managing money. I’m not reckless with it, but I do spend the money that I have sometimes. I make sure that my bills are paid, I invest. But I also know that this could end any minute now. So if I want to go out and have dinner with friends because that will be enjoyable, I go do that thing.

Mindy:
Good. Good. We had an episode with Ramit Sethi a few months ago, and he is a big proponent of spending your money when you’re in a secure place. And I am trying to open up with the spending on the small things. It’s the enjoyable life experience spending, not the frivolous it doesn’t matter, mindless, stupid spending. Which I’ve also gotten really good at too and I’m trying to curb.
But the experience is I want to spend time with people. And if I’m spending time with someone, I live in a town that has a lot of little breweries. So if we go to a brewery and we sit down and have a beer, what’s the big deal buying the whole round for everybody? That’s no big deal. We’re having a nice conversation. Or you have another beer because you’re going to be there for another hour if you do. And you’re having more conversation. That’s great as opposed to, “I can’t do this. I’m not going to go out today.” I’m not going to spend the money.

Allison:
Well, and that’s it. That’s that coming from a place of lack versus coming from a place of abundance. And I think that that point you make is that if you are in a secure position and you can do that, is that extra $100 let’s say that you’re going to spend on buying the round or the next two rounds for you and your friend, the degree to which that’s going to make you feel good versus, “I’m going to put that 100 savings,” which one is going to feel better? So that’s sort of how I look at it in that we do work so hard for our money. We should get to enjoy it.

Mindy:
Yes. Yes, yes, yes, yes. I’m trying. Okay. You’ve mentioned freelance income and self-employment, which can be infrequent or less steady than a traditional W-2 job, which is what we call it in America. I’m not sure what you call it in Canada. How do you save for retirement and the future on irregular income?

Allison:
Yeah, that’s a really good question. And I feel like if we do this again in a year Mindy, I might have a good answer for you. So I don’t have a great one right now. And again, I’m maybe not the best person to ask this retirement question of, because I’m still working on shaping my mind around … and this might sound morbid. But if I don’t get there, what is that savings for? If I don’t make it to retirement, what did I put that money aside for?
So for me, I’m really trying to balance, “Okay, I’m going to put some money into that savings. And then I’m going to spend some, because I’m here now. I’m here living now, and I’m working hard for my money, and I want to spend some of it.” So, what I’ve been doing is contributing … so when I was salaried or I guess that’s that W-2 job that you were talking about, a certain portion of my income went to that retirement investment. And that was based on how much I made. That amount now is much less because I’m still in this first seven months of figuring out how much I’m actually making. So I have my date with my financial advisor in January 10th, which is when we’re going to figure this new life out. And I meet with her at least once a year, sometimes more. Like last year I bought a house. So we met a couple of times because that took a few different appointments. But really, I believe anytime you’re making a big change in your life, look back at your strategy. Does it still suit you? Does it still suit your life? And does it still suit your goals?
So my very long-winded answer to your question about saving for retirement is in part, I try to take a balanced view of thinking about, “Okay, I do need to contribute to that. But I don’t need to make that my priority. I’m 31.” Oh, sorry. I’m 35 now. Don’t forget your age. I’m 35 now. Who knows? That feels very far off. And one sort of piece of that strategy that I developed with my financial advisor is I currently live in my biggest investment.
So my house, my home that has allowed me to reduce what was my rent and now is my mortgage, I cut it in half by buying a house. So I live, yes, I live in my biggest investment. So I’m coming around to getting comfortable with the fact that this house is partially my retirement fund. So every time I pay down my mortgage, I’m contributing to that future. So even though I’m contributing a little less than I used to to that retirement fund, I live in my biggest investment.

Mindy:
So we have a strategy at BiggerPockets called house hacking, where either you have a larger house than you need and you rent out individual rooms, or you have a small multi-family property, like a duplex, or a tripex, and you rent out the other units and live in one. Your house could turn into a cash generation machine if you chose to rent out one of the bedrooms, one of the extra bedrooms, or rent out the garage to somebody who needs parking. Rent out on Airbnb. Do they have Airbnb in Canada?

Allison:
Yes. That’s my favorite way to travel.

Mindy:
So rent out that way. You could generate some or even all of your mortgage payment by renting out. And it doesn’t have to be a full-time thing. It can be like, “I’m gone this weekend. I’ll rent my house on Airbnb and pay half my mortgage.” So there are lots of ways to generate income with your home. So just something to think about.

Allison:
Absolutely. And that was one of the motivating factors behind buying my house was, “Okay, well then I have a lot of control.” And because when I travel, I do stay in Airbnbs, I’m coming around to the idea of being a host. And learned a couple tricks of the trade of having stayed in so many myself, what works, what doesn’t work. So yeah.

Mindy:
There are lots of opportunities to learn. And you can jump in and try it out. If you decide that you don’t love it, you can skip it, or only have it when you’re not there.
Allison, this has been a really, really great episode. And I feel energized and empowered to go and actually get my financial stuff in order that I should have done 20 years ago, and 14 years ago when my daughter was born, and 12 years ago when the other one was born. And actually almost 15 years ago, the first one was born. So I’ve got a date set with my husband, and we’re going to sit down and we’re going to walk through all of this. And every Friday in January, we’re going to sit down and go through this until we are done. And I thank you for writing that initial article and for your time today. Is there anything else you want to share before we move on to our famous four?

Allison:
I mean, I’m grateful for this platform Mindy. Thank you for inviting me to speak today. I just really believe in having difficult conversations. I think that we’re combining two things that many people get a little uncomfortable talking about or a lot. So one is death, and the other one is money, and managing our money.
So I think it’s sort of a double whammy in terms of people not wanting to address it or deal with it. And I really just feel strongly that we can avoid extra pain. A lot of extra pain and a lot of extra suffering by having these conversations. Because it’s not just making sure you have a will and making sure that your accounts are in both names, but it’s having a plan that you made together. Instead, I was left to sort of guess, and figure it out, and constantly prove and prove again that I’m the one that should be managing these funds.
So if we’d had that conversation, we would’ve been empowered in having made that plan together. And it would’ve been me executing that plan and knowing that that’s what he wanted and what we wanted together. So I just really advocate for those difficult conversations, and you will just feel so much better. Do it. Just do it.

Mindy:
I could not agree more. Because it doesn’t stop the inevitable from happening. The lack of a plan doesn’t prevent the inevitable from happening. It just prevents you from having the plan. Then you have to figure it out. And like you said, that’s not going to be fun. So yeah, I appreciate the advice. And I appreciate the, “I did it.” This is somebody who did it. And the voice of experience is very, very helpful. And it was your article, your original article that really was the kick in the pants that I needed to get myself moving in the right direction. Because like I just said, not having a plan isn’t going to change the inevitable.
Okay. Now we move on to our famous four. A bit of a lighter note. These are the same four questions we ask of all of our guests. Allison, what is your favorite finance book?

Allison:
My favorite finance book is Worry-Free Money by Shannon Lee Simmons. And this book, so it’s essentially, she’s the founder of the New School of Finance which is based here in Toronto, in Canada. And it really looks at the psychological aspect of money and those avoidant kinds of behaviors I mentioned earlier, and the anxiety that a lot of us hold around money and different behaviors that we have. And it breaks them down. It makes them very human, brings them down to a human level. And it provides tangible tools and strategies for how to work with … some things we can’t avoid. We have the patterns that we do, we’re going to work toward changing those. But let’s have some clear tools so that we can start to learn, start to improve.

Mindy:
That is not a book that we’ve mentioned on this show before. I’m excited to check it out.

Allison:
Great.

Mindy:
What was your biggest money mistake?

Allison:
My own biggest money mistake was I set aside, I guess this was shortly before I bought my house. I set aside about 20% of my total savings and investments. I put that into a long term, I essentially locked it away in a long term government subsidized investment that I knew wasn’t going to earn a lot of money. But I did this out of a knee-jerk fear of wanting to make sure that my money was safe. But I also knew that I was going to be buying a house. So if I could go back and do it again, I would not have locked that money away. Because honestly, I could use some of that right now with wanting to do home repairs and such. I could use that little bit of extra.
So in the grand scheme of things, it’s not a ton of money. But if you know that you’ve got big life changes that you’re planning, and that sort of sets aside those that just happen to us. But if you’re planning big life changes like buying a home or having your first child, don’t lock away money in investments where you can’t access it. So for me, these funds are inaccessible to me for another three years. And I let myself be sort of not even strong-armed, but sort of nudged into by my bank this government subsidized fund. And really the money’s safe. Great. But I could use some of that right now. And I don’t have access to it. So that is sort of really my biggest money mistake.

Mindy:
And is it a higher interest rate, or do you get some sort of benefit for having it locked away?

Allison:
There’s a tax benefit somehow in there. And it’s safe. It’s a conservative fund, or portfolio. But I just really shouldn’t have done it. There were so many other options available to me. But I really acted out of fear, and I’m paying for it now.

Mindy:
Okay. What is your best piece of advice for people who are just starting out?

Allison:
Yeah. I think if you’re just starting out, if you have the budget to find and hire a financial advisor that’s not associated with a bank, that’s the biggest recommendation that I have. For me, and that’s not to say you shouldn’t work with a financial planner or advisor that you have at your bank. If you have a strong relationship with them and you trust them, great. But I think having someone that is somehow external to your financial situation who can look at the overall arc of what it is. Not only your current situation, but of also where you want to go, the kinds of things you want to achieve. And help you strategize, create a clear strategy that you can then put things into place. That’s my biggest recommendation. I budget for it every year. And I really, greatly trust and appreciate my financial advisor at the New School of Finance. And she’s just really given me the confidence to manage my funds and has just totally empowered me to make tons of really big life changes that I think otherwise would’ve felt really daunting to me. Including buying my first house and quitting my salaried full-time permanent job, and starting my own business.

Mindy:
That’s awesome advice. And in America, you can find a fee only financial planner at the xyplanningnetwork.com. We are big fans of them here at the show. Allison, where can people find out more about you?

Allison:
Currently, the best place is through LinkedIn. So if you look for me in LinkedIn, I’m Allison Nichol Longtin. I believe I’m the only one on there. So you can find me there on LinkedIn. There’s lots of ways to message me through LinkedIn or to request to connect. Currently that’s the best way. I am working on a website. In the loveliest way possible, the last five to six months of building my own business have been so busy, that creating a website has been knocked down the list as I work on projects with clients. So hoping for that very soon.

Mindy:
Awesome. And we will include a link to all of that in our show notes, which can be found at biggerpockets.com/moneyshow265. And of course when your website is up and running, we will include a link in the show notes there as well. Allison, thank you so much for your time today. This has been a really great, really helpful show to me. And I know it’s been really helpful to a lot of our listeners. I really, really, really appreciate your time today.

Allison:
Thanks so much, Mindy. It’s been a pleasure.

Mindy:
Okay. And we’ll talk to you soon.
That was quite the episode, and it was kind of difficult for me to record. And I’ve been having a hard time coming to terms with why I was so hesitant to create a will. And what it boils down to is I don’t really want to think about not being there for my girls. And that’s the part that’s really, really scary. But not having a will doesn’t change the fact that something could happen. And my husband and I have spent all this time preparing for our financial future. And not having a will just really derails our plans should something happen to both of us at the same time. So we have sat down and made our plans to formalize our will. And we hope by the end of January, it is completed, and finished, and on its way to being part of our wishes, our package should something happen.
Another thing that is difficult is right now, we’re in this weird space where we don’t really have someone to watch our girls if something should happen to us. Our parents are both older. Our sisters are not in the position that they would really want to be suddenly a family. And it is a lot to ask somebody to take care of your children. Our kids are 14 and 12. [Claire’s 01:05:02] almost 15. So in three years, she’ll be 18. Then she has a whole lot. There’s a lot less responsibility for her, but [Daphne’s 01:05:10] only 12. So she still has six years that she would be living with somebody else. So going through our list of friends, and our list of family, and trying to figure out who we would ask to take custody of our children, it can be a fluid process. Just because you choose somebody at one point in your life, doesn’t mean that that’s the right person to go forward forever. But it’s making us have some difficult conversations.
So that’s where we’re at right now. I’m hoping to be all finalized by the end of January. And of course, I will keep you updated in our Facebook group, which can be found at facebook.com/groups/bpmoney. I would love to talk to you about this. If you have any questions, if you have anything that you would like to talk about, you want to post anonymously in the Facebook group, this is a kind of a difficult conversation to have. And I don’t have all the answers. But if you have any advice or if you have any questions, I would love to talk to you.
So feel free to email me [email protected] or chat in the Facebook group. Okay? Thank you for listening. Like I said, this was a difficult show. But just because it’s difficult, doesn’t mean that we shouldn’t talk about it. From episode 265 of the BiggerPockets Money podcast, this is Mindy Jensen saying thank you very much for joining us today.

 

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If you aren’t familiar with the idea of co-living, it’s a residential living model that provides shared housing for people. Co-living is hardly a new idea, though—it’s been around as long as people have.

Co-living exists in various forms, such as student housing and house hacking. However, some notable companies have begun implementing this lifestyle at an institutional level with a modern twist. This allows the residents to live in a community setting at an affordable price, which is why it’s more popular in gateway markets like New York, San Francisco, and Los Angeles. 

Understanding this living model is important because it can attract more tenants and ultimately improve your property’s bottom line. Here’s what you should know.

What is co-living and how does it work?

Here are some, but not all, forms of co-living that exist today:

Table A. Main Types of Co-Living

  Class A Co-Living  Class B Co-Living  Pods Co-Living  Student Co-Living     
Furniture  Included  Varies  Included  Included 
Utilities  Included  Varies  Included  Included 
Short Term  Varies  Varies  Yes  No 
Cleaning  Included  Varies  Included  Varies 
Price Range  High  Medium  Low  Low 
Amenities  Yoga room, community kitchen, BBQ grill, lounges, co-working space   Varies  Varies  Varies 
Private Bedroom  Yes. With digital lock  Yes  No  Varies 
Private Bathroom  Yes  Varies  No  Varies 
# of Bedrooms  3 to 6  5 to 8  2 to 8 pods per room  6 to 18 

Class A co-living is the premium option primarily geared toward young working professionals who enjoy living in a community but also want some privacy. Some large apartment complexes with 100+ units are incorporating these types of co-living units into the unit mix as means to improve the average $/sf and attract more tenants. In Los Angeles, this type of unit typically costs between $1,200 to $1,600 per month with utilities and cleaning fees included. 

Class B co-living has limited amenities and is geared toward people with tighter budgets. The units are smaller than Class A units and may have shared bathrooms. In Los Angeles, this type of unit will cost between $900 to $1,200 per month with utilities and cleaning fees included. Some cheaper co-living apartments may not include furniture, utilities, and cleaning. 

Pods co-living comes with the least privacy out of all the co-living options, but it’s also the most cost-effective. This type of co-living is essentially like renting a bunk bed, but in modern pods that include electrical outlets, storage space, night lamp, and shades. In other words, they can be quite comfortable. Depending on the design, you can have many residents or pods in one room. 

Student co-living is an upgrade from your usual student housing. For example, this type of co-living space typically comes with a large common kitchen with multiple refrigerators, washer/dryers, and kitchen sinks to accommodate the higher occupancy. Some units may have additional study room space with computers and printers inside the suite, and private bathrooms. These are all features that you normally wouldn’t see inside standard student housing.  

There are also co-living buildings designed for certain professionals, such as software engineers or musicians who need specific features for work. 

In the last couple of years, some larger apartment developments have started to incorporate class A co-living into the unit mix. For example, a 100-unit development might include (35) studios, (15) 1-bedroom units, (15) 2-bedroom units, and (35) 3-bedroom to 6-bedroom class A co-living suites.  

Pros and cons of co-living units in developments

There are many good reasons for developers to incorporate co-living units into their developments, so let’s discuss the pros and cons of co-living for the tenants and how this strategy ultimately affects the property’s bottom line. 

Pros for the tenants  

  1. Convenience – Since utilities and furniture like mattresses, couches, basic kitchenware, and toiletry are already included, the tenants just need to bring their belongings to their co-living units. It’s similar to checking into a hotel room. Additionally, some co-living places allow short term rentals, so you can hop from city to city without spending a lot of money on hotel fees or Airbnb. Another great feature is weekly or bi-weekly cleaning. You don’t have to worry about spending that additional money or time on cleaning anymore!
  2. Price – Co-living units are generally 30% to 50% cheaper than traditional studios, if you factor in utilities, trash fees, electricity, toiletries, etc. Furthermore, you don’t need to spend thousands of dollars on decorating your home or going through the trouble of moving large furniture.
  3. Liability – Similar to traditional apartments, the landlords are responsible for all repairs and maintenance. However, you’ve even less responsible for issues with a co-living unit because you only need to worry about your portion of the rent and security deposit. No need to worry about whether your roommates are paying the bills. And, you don’t need to worry about the utilities because it’s the landlord’s responsibility.
  4. Social interactions – If you’re a social butterfly, then this arrangement may be perfect for you. Imagine moving to a new city and not knowing anyone. Co-living will assign you roommates who could potentially become friends. Some communities also host community events like yoga class, weekly cooking nights, and movie nights. The larger complexes can offer great amenities like clubhouses, yoga rooms, game/theater rooms, roof terraces with BBQ grills, and a large common kitchens. There are endless opportunities for social interactions and making friends organically.
  5. Location – One of the main attractions of co-living is the location. Many properties are located in expensive urban areas, such as Hollywood and Venice in Los Angeles, Brooklyn and Manhattan in New York, or LoDo in Denver, and co-living is relatively affordable in price compared to adjacent properties. As such, you get a great location without the exorbitant price tag.
  6. Privacy – Compared to a traditional two-bed apartment, a class A co-living unit actually gives you better privacy because of the private bathrooms—and most bedrooms are equipped with digital locks, too.
  7. Design – Class A co-living apartments are often designed by professional interior designers, so you can expect quality design and furniture selection. The furniture is usually quite nice and better than what comes with your average Craigslist or Airbnb apartments. 

Cons for the tenants 

Now that we’ve got most of the pros out of the way, let’s discuss some issues that might discourage tenants from choosing co-living.  

  1. Privacy – Common spaces, such as the living room and kitchen, are shared among the tenants. Some co-living units also require you to share bathrooms with other tenants.  
  2. Property management – Managing a property for a traditional apartment building is already hard enough, but managing co-living units is even more difficult. There are more tenants to manage and roommate conflicts could become an issue that the managers need to address. If one of the tenants is really messy, loud, or inconsiderate, the other roommates might complain and ask to be relocated. Because co-living managers have to undertake more responsibility, it can be hard for the tenants to get the attention they need.
  3. Design – Although a furnished apartment is convenient for the tenants, some potential tenants might get discouraged because of personal preference or design taste. That’s why it’s very important for the developer to research the target audience and understand what they want. If you’re a tenant looking for a place that’s simple and meets your basic needs, then you shouldn’t have any issues with the design.
  4. Selection – Co-living is not a new idea, but despite its rapid growth in the recent years, it’s still a very small market. According to a 2020 study published by CBRE and streetsense, there were roughly 5,000 beds in 150 modern co-living communities in the U.S. as of 2019. This number was projected to grow to more than 55,000 beds over the next few years. Out of the 32.6 million multifamily residences that exist today, co-living takes up less than 1% of the market share. This means that there currently isn’t much selection on the market, making it difficult for potential tenants to find the right location. 

How co-living affects the property’s bottom line 

Higher rental income 

On average, apartment units that utilize the co-living strategy can achieve 25% to 35% higher rental income. It can be a win-win scenario because the owner collects more rent and the tenants save money by having roommates.

For example, a 4bd/4ba class A co-living unit can achieve the same rental income per square footage ($/sf) or higher as a studio unit, which typically has the highest $/sf among all unit types. Generally speaking, the $/sf for traditional apartment units decreases as the number of bedrooms increase, but this trend is reversed for co-living apartments.

Here’s a potential scenario in Los Angeles for the rental income per square footage for a class A traditional apartment and a class A co-living apartment.

Table B. Estimated Rental Income for Traditional and Co-Living Apartment

    Traditional Apartment  Class A Co-Living 
Unit Type  Unit Size (SF)
Trad. / Co-Li 
Monthly Rent  $/SF  Monthly Rent  $/SF 
Studio  500  $2,000  $4.00  N/A  N/A 
1bd/1ba  650  $2,400  $3.69  N/A  N/A 
2bd/2ba  900  $3,200  $3.56  N/A  N/A 
3bd/3ba  1150 / 1000  $4,200  $3.65  $4,500  $4.50 
4bd/4ba  2350 / 1200  $5,800  $2.47  $5,600  $4.67 
5bd/5ba  1425  N/A  N/A  $6,700  $4.70 
BP coliving chart

There are not many two-bedroom co-living units, so this option is noted as not available. The four-bedroom unit for the traditional apartment is actually a house, which explains the low $/sf. You won’t be able to find many four-bedroom apartments unless it’s co-living.  

The traditional studio is generally crowned as the king of all unit types because of its high $/sf ($4.00/sf in this case). Studio is also by far the most compact, easiest to design, and most flexible unit to fit in a floor plan. However, co-living is changing the game completely. A 1,425 square feet 5bd/5ba unit is able to rent out at $6,700, or $1,340 per room, at $4.70/sf. This is about 18% higher compared to the studio’s $/sf and 32% higher to a 2bd/2ba unit. Essentially, your building is now generating 20% to 30% more income while the total costs and building area stay about the same.  

Think about the value that co-living can generate! 

Higher operating expenses 

Of course, co-living units will have higher operating expenses. The rent includes cleaning, electricity, and basic essentials like toilet paper and kitchen towels, so you should expect about $250-$300 higher operating expense per month per unit. In case you’re wondering how this affects your net operating income (NOI), here’s another table for you. 

Table C. Additional Income Earned From a 5bd/5ba Co-Living Unit

Additional Net Income Generated Using the Co-Living Operating Model 
Studio ($/SF)  $4.00 
5bd/5ba ($/SF)  $4.70 
Difference  $0.70 
5bd/5ba Unit Size  1425 sf 
   
Additional Rent Income (Monthly)  $998 
   
Electrical Fee (Monthly)  ($150) 
Cleaning Fee (Monthly)  ($100) 
Basic Essentials (Monthly)  ($50) 
Additional Operating Expense  ($300) 
   
Additional Net Operating Income  $698 

This is the additional net operating income you are generating by adding a 5bd/5ba co-living unit into your apartment. Of course, this number would be significantly higher if compared to a 2bd/2ba unit because the $/sf for a 2bd/2ba unit is lower than that for a studio. 

The electrical fees are significant, but if you add solar panels to your building, you can cut down on or eliminate most of the electrical costs. You can even generate additional income from the other traditional tenants, increasing your NOI further. But, most importantly, it’s better for the environment.

The initial upfront cost for co-living units is slightly higher as well because you’ve to furnish the units. Expect to spend about $4,000 to furnish the living room and kitchen and about $2,000 for each bedroom. 

Higher bottom line 

Based on the metrics just mentioned, let’s do a quick calculation for the percentage change in NOI, your bottom line. 

Table D. Additional NOI Generated (%) From a 5bd/5ba Co-Living Unit

Additional NOI Generated (in %) 

Using the Co-Living Operating Model 

Studio ($/SF)  $4.00 
Studio Unit Size  500 sf 
5bd/5ba Unit Size  1425 sf 
Multiplier (Unit Size)  2.85x 
   
Studio Monthly Rent  $2,000 
NOI (65% of Gross Income)  $1,300 
Multiply by 2.85x  $3,705 
   
Add’t NOI (From Previous Chart)  $698 
Increase in NOI (%)  18.8% 

Co-living units can increase your NOI by approximately 18.8% based on these assumptions. This is based on the theoretical difference between a studio and a 5bd/5ba unit, so the actual number depends on your unit mix and design.

If you’re building a 50-unit apartment, it’s probably not wise to build (50) 5bd/5ba units. You will probably exceed the floor-to-area ratio (FAR) with that many 5bd/5ba units—and you won’t be able to lease out all the rooms. That’s is why it’s crucial to optimize the unit mix and floor plan based on market demand in order to maximize the occupancy rate and rental income. 

You should also expect higher maintenance and repair costs for co-living units, but this won’t affect your NOI significantly because you have more tenants to collect security deposits from. That’s another reason why having a great property manager can make or break this business model. 

Property management 

Managing a co-living complex is very different from managing other types of properties and it requires experience. Some co-living managers simply list the units on websites like apartments.com, but it’s more effective if the property management company you hire already has a website, social media presence, and audience. I’ll cover some notable co-living management companies in a separate blog.  

Financing and sale 

Looking back a few years, it was once much harder to finance a co-living project because they were an unusual property type. It’s easier to do now if you find the right lender, and it’ll get even easier as co-living becomes more popular. 

Co-living is also considered a riskier project by most developers and lenders, so its cap rate is higher. For example, the cap rate for a class A traditional apartment complex in Santa Monica might be 4.0%, but increased to 5.0% for a class A co-living complex in the same neighborhood, even though its vacancy is low and has great debt coverage. 

Be conservative when doing your underwriting for the refinancing and exit price. Otherwise, you might be disappointed when the valuation is not as rosy as you thought. 

Development and cost 

Co-living is harder to design because of its size and complexity. However, the cost per room is significantly lower.

For example, let’s assume that the total cost of building a studio is $300,000 and the total cost of a 5bd/5ba unit is $800,000. The difference is almost three times the cost, and a 5bd/5ba unit only costs $160,000 per room. However, this doesn’t necessarily mean that the cost per square footage (psf) is also lower. Because co-living units are more compact, the cost per square foot could be similar to that of a studio.  

That said, development and design can become very complex. As such, it’s important to study what your target audience wants and analyze your plans and pro forma accordingly. 

Another huge benefit for developing co-living units is the code constraints. Most development projects are constrained by the maximum allowable dwelling units, so if you can only build 10 units, then building co-living units rather than compact studio units may be a wise choice. 

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Final thoughts on co-living spaces

Co-living is a great multifamily strategy and is bound to explode in the next decade as the sharing economy continues to thrive. And, as rents become more unaffordable, more people will inevitably start looking for more cost-effective lifestyles like co-living. 

When studying a new real estate market to enter, one of the main metrics that developers and syndicators look for is the income to rent ratio. Typically, they’re looking for markets with at least three times the income to rent (ITR) ratio.

For example, if the median market rent is $2,000 a month, then the median household income in that market must be at least $6,000 a month or more. However, this is simply not the case right now at the major gateway markets like New York and Los Angeles. The ITR ratio for Miami, for example, is currently around 1.8x.  

On the other hand, co-living operators look at the ITR ratio through a different lens. They want to enter markets that are unaffordable—areas where some real estate investors stay away from. These are the places where value can be created, and there’s a huge untapped market. Furthermore, as land, material, and labor cost continue to rise, developers have to look for more creative ways to increase the property value in order to maintain profits.  

It’s also important to touch on the topic of mental health. Covid has impacted our lives more than we could ever imagine, including making us more distant from one another. Comparatively, we’re now more aware of the importance of social interactions and meaningful connections. Co-living is a great strategy to bring us all together. It shouldn’t be seen as less desirable or compared to crowded college dorm rooms, which, for the record, I very much enjoyed when I was studying at UCLA.

In fact, co-living creates so many organic opportunities for each of us to connect with one another. We don’t have to feel so alone anymore. Let’s join the movement and make this world better in a different way. 



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Today, the Bureau of Labor Statistics reported that 199,000 jobs were created in December — a miss from estimates. They also reported we had 141,000 in positive revisions to the previous jobs report. The unemployment rate is currently at 3.9% and we had another big print from the household survey which showed 651,000 jobs gained. For men and women age 20 and over, the unemployment rate is currently at 3.6%.

Unlike the previous expansion, where the jobs recovery was slow, we have a much different dynamic this time around. Job openings are still over 10 million and I am still smiling here as I was the one person on Twitter finance that had been tweeting out #JOLTS 10,000,000 well before the job opening data took off. I have always believed that no country has a Dorian Gray labor market. People forget that job openings were above 7 million in the previous expansion before COVID-19 hit us. Nature, aging, and deaths are powerful economic forces, and robots never took all the jobs.

Jobless claims data recently hit levels last seen in 1969.

With that said, the household survey jobs data is much stronger, showing an average three-month gain of 723,000 versus the BLS data running at 365,000. We do have enough labor to get back to pre-COVID-19 levels and I do expect over time to see significant positive revisions to jobs data this year. I have been counting the months to see if my forecast would be correct.

With nine months left until the end of September 2022 (the milestone in my forecast), let’s see how much progress we need:

  • Feb 2020: 152,553,000 jobs
  • Today: 148,951,000 jobs
  • That leaves 3,602,000  jobs left to gain in the next 9 months, which is 400,222 jobs per month. With a 3.9% unemployment rate!

Here is a look at the job gains and losses reported today. Construction jobs came in positive but we still have a fairly high level of construction job openings currently. The lack of construction productivity over the decades has been one reason why I have never believed in a housing construction boom in America. The other reason is that the builders don’t ever oversupply a housing market, so when demand fades, so will construction.

The builders have been complaining about labor for many years. However, the builders confidence index has picked up because they believe they can sell their product and make money since they have pricing power. This also means housing starts are rising. Don’t make it more complicated than it needs to be. 


Remember that when looking at jobs data, it’s always about prime-age employment data for ages 25-54. The employment-to-population percentage for the prime-age labor force is 1.5% away from being back to February 2020 levels. The jobs recovery in this new expansion has been much better than we saw during the recovery phase after the great financial crisis.

Education and employment

Most people who want to work in our country are employed on a regular basis. I know that some people blame COVID-19 for not going back to work, but context is key: the majority of the country’s population is working today. The part of the labor force with the least educational attainment tends to have a higher unemployment rate. On Twitter, I started the hashtag A Tighter Labor Market Is A Good Thing to remind everyone that the economy runs hot when we have a tighter labor market.  We want to see the kind of unemployment rates that college-educated people have spread to everyone, because we have tons of jobs that don’t need a college education.

The unemployment rate for those that never finished high school has been falling sharply lately, which means the labor market is getting tighter and tighter every month. You want to have this problem rather than the other way around.

Here is a breakdown of the unemployment rate and educational attainment for those 25 years and older: —Less than a high school diploma: 5.2%.
—High school graduate and no college: 4.6%.
—Some college or associate degree: 3.6.
—Bachelor’s degree and higher: 2.1%.

As you can see above, life is great for those looking for a job. For companies that need labor, it’s not the best news, but again, it’s first-world American problems — the economy is hot! As I have stressed from April 7, 2020, the U.S. recovery was going too fast, which would shock many people because they had no faith in their economic models.

With near record-low unemployment and massive job openings, you would assume mortgage rates should be skyrocketing, but they’re not.

The 10-year yield and mortgage rates

My 2022 forecast said: For 2022, my range for the 10-year yield is 0.62%-1.94%, similar to 2021. Accordingly, my upper end range in mortgage rates is 3.375%-3.625% and the lower end range is 2.375%-2.50%. This is very similar to what I have done in the past, paying my respects to the downtrend in bond yields since 1981.

We had a few times in the previous cycle where the 10-year yield was below 1.60% and above 3%. Regarding 4% plus mortgage rates, I can make a case for higher yields, but this would require the world economies functioning all together in a world with no pandemic. For this scenario, Japan and Germany yields need to rise, which would push our 10-year yield toward 2.42% and get mortgage rates over 4%. Current conditions don’t support this.

Yes, it does seem strange, we have the hottest economy in decades and inflation is hot but the 10-year yield as I write this is at 1.75%. Don’t forget the trend is your friend on bond yields and mortgage rates for decades. We had a major fall in headline inflation that didn’t take bond yields lower in the same way in 2009-2010 and now you’re seeing the reverse with a short-term spike in the inflation rate of growth with yields not rising either.

Even though we haven’t tested 1.94% yet, we are getting to an exciting area where we might be able to see the first real test of 1.94% since 2019. Keep an eye on the close of the 10-year yield today and see if we get some bond market sell-off next week. If not, the bond market can rally and yields can fall short term as we are oversold on the bond report.

Economic cycle update

Now for an economic update. So far, so good, even with the Omicron cases exploding higher, we simply don’t see the economic and market reacting any more as we have learned to consume goods and services with an active virus infecting and killing us each day. This has been the case since the second surge in 2020, and even though sectors of the economy will not perform at total capacity with cases rising, it’s just not like what we saw in March of 2020.

The St. Louis Financial Stress Index, a crucial variable in the AB recovery model, is still acting bored out of its mind with a recent print of -0.9201%. This will rise when the markets react to stress, so don’t assume we will be at these low levels forever. We still haven’t had a stock market correction of 10% plus since the March lows in 2020. 

The leading economic index has been very solid lately, when this data line falls for 4-6 months straight, then the topic becomes different. However, this hasn’t been the case, it bottomed in April of 2020 and has had a sharp rebound. 

Retail sales are still off the charts, but I don’t believe we can have the type of growth we saw last year. Moderation is the key to retail sales data going out, but what a crazy ride in 2021. Expect less purchases on goods and more service spending going out, especially when we are finally done with COVID-19.

The personal savings rate and disposable income are very healthy to keep the expansion going! Even though the disaster relief has faded from the economic discussion, both these levels are good to go as employment has picked up a lot from the COVID-19 lows.

However, just like I had an America is Back recovery model on April 7, 2020, I have recession models and raise recession red flags as the expansion matures. In the previous month’s jobs report, I raised one of the flags as the unemployment rate got to 4% and the 2-year yield was above 0.56%, which means the Fed rate hike is on.

Once the Fed raises rates, the second recession red flag will be raised. My job is to show you the progress of the economic expansion, into the next recession, and out — over and over again. My models don’t sleep! Once more red flags are raised, I will go over each and every single one. At some point in the future, I will be on recession watch, when enough red flags are up. However, we are not in that time yet. Even though I no longer say we are early in the economic expansion, we are still on solid footing.

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This article is part of our HousingWire 2022 forecast series. After the series wraps early next year, join us on February 8 for the HW+ Virtual 2022 Forecast Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the predictions for next year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.

The supply-demand imbalance fueling the housing market shows no signs of abating in 2022, even as homebuilders attempt to bridge the gap. An under-supplied market has strong implications for house prices, particularly during a time when prices seemingly set new records every month. Any market characterized by rising demand against insufficient supply is Econ 101 for price growth. In November 2021, the supply of homes for sale nationwide as a percentage of occupied residential inventory remained near historic lows at 1.19% — meaning only 119 in every 10,000 homes were for sale — much lower than the historical average of 2.5%.

Homebuilders responded to the shortage of homes for sale, accelerating new home construction, even as they face severe supply-side challenges, including rising building material costs and supply-chain bottlenecks, a lack of affordable lots, and difficulty in finding skilled labor. Many of these supply-side challenges facing builders existed prior to the pandemic but have worsened considerably over the course of the pandemic. However, the underbuilding and resulting accumulation of housing stock “deficits” relative to growing housing demand preceded the pandemic by several years.

Measuring the housing deficit

One way to measure whether the housing market is under- or over-supplied is by comparing new household formation (rental and owned), which represents new demand for housing, with total new housing units completed and added to the housing stock, which represents new housing supply. In the analysis graphed below, the two-year moving average of new household formation is compared with the total new housing units completed, accounting for the replacement of a small fraction of the old stock for obsolescence.

Assuming that the housing market had a balanced supply of homes relative to demand in the year 2000 (no deficit or surplus), we can track the surplus or shortage of housing supply relative to demand cumulatively over time with the grey bars. While we overbuilt relative to demand in the housing boom as household formation was slowing, we have been underbuilding since 2008. Since 2018, the housing supply deficit has been growing.

The pandemic may have slowed household formation in 2020, but the pre-pandemic trend was rising household formation. And, if we project the amount of total homebuilding for 2021-2023 at the 2020 pace and use recent projections that the annual household formation will be about 850,000 (slower than pre-pandemic pace), then the housing shortage is here to stay. According to this analysis, while it’s true that there has been lower household formation in the last decade, there has been even less homebuilding.

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What about existing homes?

The majority of the supply of homes for sale come from existing homes, not new construction. Yet, many existing homeowners have withdrawn supply for fear of finding nothing to buy. The result has been that the average amount of time someone lives in their home has soared to a historic high of 10.7 years, which means there are fewer homes on the market as fewer homeowners sell their homes. Furthermore, while rising equity may prompt some existing homeowners to move out and up in 2022, many owners were able to refinance into rock-bottom mortgage rates over the course of the pandemic. As mortgage rates rise, it costs more to borrow the same amount of money, so an increase in mortgage rates can leave existing homeowners feeling ‘rate locked-in’, disincentivizing them from selling their homes.

You can’t buy what’s not for sale

It’s not all bad news, however. Homebuilders have a lot of homes in the backlog that they haven’t completed and brought to market due to the supply-chain disruptions. If supply chain issues ease, those new homes will come to market and add some modest supply relief, but today’s acute supply shortage will be hard to undo. It will take years of accelerated new-home construction to close the gap from a decade of underbuilding. Millennials will continue to age into their prime home-buying years in 2022, but they will be met with limited inventory, which will continue to put upward pressure on prices. While price acceleration may slow as some buyers pull back from the market due to declining affordability, the supply-demand imbalance means that house prices remain poised to rise further. In short, the housing supply shortage is here to stay, so we can expect house prices will remain elevated in 2022.

The post The big short in housing supply isn’t going away appeared first on HousingWire.



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Reverse Mortgage Funding, LLC (RMF) has acquired a portfolio of mortgage servicing rights (MSRs) and other assets from industry-leading lender American Advisors Group (AAG), which consists of more than 75,000 loans totaling $12.1 billion in unpaid principal balance (UPB). This is according to a communication alert the company sent to its partners which was obtained by RMD.

The acquisition is seen as a milestone for RMF, and now positions the company as the top private-sector reverse mortgage servicer in the United States according to the company. Celink will continue to sub-service reverse mortgages in which RMF is the primary servicer. When reached, representatives for RMF declined to comment on the portfolio acquisition. Terms for the deal have not been disclosed.

Representatives for AAG provided some additional insight into the transaction, as well as information for borrowers affected by a potential change.

“Servicing transfers are a common business transaction in the mortgage industry,” an AAG spokesperson told RMD. “The MSR transfer impacts most AAG reverse mortgage loans that funded through May 31, 2021. The transfer does not alter the terms of the loans or interrupt the servicing of those loans. Customers whose loans have been transferred were notified mid-November about the transfer and can call 1-833-801-0680 with any questions.”

Edward Robinson, eid V8953, USAA employee, formal portrait, on blue, FSB
Ed Robinson

Additionally, recently-appointed AAG President and COO Ed Robinson described the transaction as one which will allow the company to make greater investments in the customer experience.

“This transaction will facilitate AAG making disciplined investments into the core of our business, namely: technology, expansion of key initiatives, and the customer experience, as our customers are the heart and soul of what drives us at AAG,” he said.

RMF credits the relationship the company maintains with Starwood Investment Group as a key driver of the company’s investment activity in the reverse mortgage space. In December 2019, RMF parent company Reverse Mortgage Investment Trust (RMIT) announced that it agreed to be acquired by an affiliate of Starwood, a global private investment firm that is focused on real estate investments, and which maintains more than $60 billion of assets under management.

The Starwood affiliate completed the acquisition of RMIT/RMF in January 2021, and it was made clear that Starwood plans to position RMIT and RMF for greater levels of growth. Starwood was encouraged by the increasing prevalence of proprietary reverse mortgage products according to RMIT Chairman and CEO Craig Corn upon the original announcement of the acquisition.

“This is an exciting opportunity for RMIT/RMF, as Starwood can be the catalyst to help accelerate our growth,” Corn said at the time. “Over the last few years, Starwood has been an innovator in non-agency mortgages, helping grow the industry into the success it is today. Starwood believes the private reverse mortgage sector has a similar opportunity for growth and believes RMF is the perfect platform to help expand the market.”

RMF has made several notable reverse mortgage portfolio purchases in the past from other lenders. In late 2018, RMF acquired a $4 billion portfolio from now-defunct reverse mortgage lender Live Well Financial, an acquisition that placed RMF as the owner of the largest Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) issuance portfolio industry-wide at the time.

More than three years prior to the Live Well purchase, in May 2015, RMF acquired the reverse mortgage portfolio from Sun West Mortgage Company, which consisted of reverse mortgage servicing rights totaling $1.8 billion – the complete portfolio amount of Sun West’s previous holdings, as noted in Ginnie Mae data from earlier that year.

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It’s the new year, and that means it’s time for 2022 housing market predictions! Recently, Redfin compiled a list of their ten top 2022 housing market predictions ranging from things like interest rate bumps, to rent hikes, housing price cooldowns, and more. But, are these predictions realistic, and if so, how should investors prepare for them to come true?

David Greene and Dave Meyer are back again to take a look at five of these ten predictions and give their informed, battle-tested opinions on which have the potential to come true. Dave has spent probably every day of the past year looking at housing market data and investing himself. David on the other hand has been running multiple businesses in the real estate vertical, allowing him to see directly what is happening in the market.

With the Dave-duo back in the podcasting saddle, you’ll be able to make wiser investment decisions this year while following the “pendulum swing” of wealth-building in real estate!

David:
This is the BiggerPockets Podcast show 553. It’s going to swing back. So just be the savvy investor that pays attention, that doesn’t just follow the crowd and do what everyone else does. Find the area that’s prime for the pendulum to swing back in that direction, get in a little bit early and just weather that storm. And then you’re sitting in a great position when things turn around. You made an awesome point.
What’s going on everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast, where it’s our job to give you the tools that you need to reach financial freedom by investing in real estate. One of the ways we do that is by bringing you a monthly news episode, we call it BiggerNews. And that’s what we’re doing today, where we look at data and trends to help you make smart investing decisions. Here to help me out with this show is none other than the BiggerPockets VP of Data and Analytics, Dave Meyer himself. Dave, happy new year, first and foremost. What are we going to be talking about today?

Dave:
Well, thanks man. Happy new year to you. It is great to be back. Today, we are going to talk about our predictions for 2022. And Redfin actually came out with this really interesting article where they gave 10 predictions about 2022. They had their chief economist publish this. And we’re not going to go through all 10, but we picked four or five, I think five of them, and go through them and talk about if we agree with them, how we think it’s going to be different. And of course, we’ll relate it back to what this means to all of you real estate investors and how you should plan your strategies for the coming year accordingly. How’s that sound?

David:
I think that sounds amazing. I think that’s what everyone’s asking is what am I supposed to do? We’re in such a state of flux, maybe like I’ve never seen before. I think 2005, 2006, there was a bit of pressure on people to get in or get out, but I think at that time it was obvious to someone like me that if you looked at the fundamentals, it was an unhealthy market. It’s not as clear-cut in today’s world. So now more than ever, you have to pay attention to what’s going on with the law, with politics, with macroeconomics, with individual components of investing in real estate and all the different strategies that are available. There’s different ways to make money than what it was like 20, 30 years ago. And it was just buy a house, have a landlord form that your tenant filled out and manage it yourself. Would you agree?

Dave:
Yeah, absolutely. I think this is one of the most interesting, certainly as long as I’ve been a real estate investor the most interesting time, and I think it’s not clear-cut. And although we’re going to drill into some of the things that will happen this year, I think the main message that we talk about over and over again is how you can take this information and plan right now, but really what this means for the long term and how you really just need to keep focusing on the long term and plan your strategy accordingly, because that’s what you need to do when there’s short-term uncertainty.

David:
Beautiful. Well said. All right, before we get into today’s show, I want to take a brief moment to sort of bring a little bit of clarity into what’s going on with new year, new show. Obviously Brandon Turner, we’ve already explained he’s going to be stepping back from the podcast. So I want to let everyone understand what they can expect going into 2022 from the BiggerPockets Real Estate Podcast, the best real estate podcast on the planet.
First off, we’re obviously in a little bit of a period of transition here, but there’s a plan and it’s a great one. Many of you have said, we want to know what to expect. What days of the week can I expect what show to be airing? So I’m going to break that down here for you. On Thursday, we’re going to do the typical OG format, what people have been hearing for years. This is where we bring people on to interview investors that are doing really well. We have the Deal Deep Dive, the Fire Round, the Famous Four, that type of stuff. We’re not going to change. So at minimum, what you’re used to, you’re still going to get.
On Sunday, we’re going to be doing question and answer style episodes. So if you’ve seen Seeing Green, it’s going to be something like that. You can send your questions to biggerpockets.com/david, but I’ll also be doing Q&A shows with other investors on specific topics and some live Dave Ramsey style call-in shows. So I really enjoy when we bring people in from the BiggerPockets community and they get to ask me their questions live and I can dig in on what they are, ask some more clarifying questions, get a feel for what they want to do, and then give them advice.
I love when the listeners get to hear that, because every once in a while you come across someone and it really resonates with you that you’re doing the same thing as them and that advice is applicable. Or if you’re hearing people that are maybe a couple steps above you in their investing journey, you know what to prepare and what to expect. And at minimum you learn something. I usually try to do a good job of explaining the why behind the advice that I’m giving, the principles behind it, how the market works in general. So, that’s what you can expect on Sundays.
And then on Tuesdays is going to be our Wild Card. So every month we’re going to keep doing this state of the market show that we’re doing now, where we talk about relevant news and bring in sort of data-driven background support on what you can expect moving forward, and what’s happening in the market. We’re also going to show you some how-to style episodes on specific strategies, as well as investor coaching calls. We might even throw in a mindset episode every now and then. Eventually, we’re going to settle on one format for Tuesday and stick with it.
For now, we want to know what do you think? Can you leave us a review at Apple Podcasts or hit us up at [email protected] and tell us, what do you like the most? What shows are giving you the most value? And within those shows, what do you want to see more of? We are making huge efforts right now to listen to you and provide you the type of content you want. So please do me a favor, leave us some notes in the comments, email [email protected] and leave reviews on Apple and let us know. We would love to see more of this.
All right. And the last point, you’re probably thinking, well, what about co-hosts? Well, of course, Dave Meyer is here to join me today and Dave will continue to join me for these BiggerPockets news, but I’m also going to be joined by a few different co-hosts in the coming week. So you’ll be hearing some new voices on this show, which should be great. All right. With that, Dave, anything you want to add before we get into today’s show?

Dave:
Well, that’s all really interesting. I think there’s an awesome lineup for the show in the coming years and there’s just going to be so many interesting hosts and stories coming up. So I think you have an awesome plan for the show. I particularly like that. I think I qualify for the Tuesdays, right? Am I the Wild Card?

David:
You’ve always been a wild… I mean, you live in Amsterdam. What’s more wild than that?

Dave:
Well, I agree, but I just like the idea. Like, of course, normally you and I talk about data, the housing market, but does that mean we could just do whatever we want? Like one day we could be freestyling or having like a chicken wing eating contest or something. People have no idea what’s going to come on a Tuesday.

David:
Maybe we see like how many donuts we can eat in an hour or something like that. No, it won’t be that wild. We’re still going to have different show formats that we’re introducing. But Tuesdays will be the day that we kind of plug in different styles to give the BiggerPockets community, a chance to tell us which of those styles they like and which ones we should focus more on.

Dave:
All right. Great. Well, that’s great to hear. I love this new format and I’m happy to be a part of it whenever you invite me back, David. You say jump, I’ll say how high.

David:
Yeah, I think David and Dave, I think we make a pretty good duo. Do you think the same?

Dave:
I do, man. This is a lot of fun. I always look forward. This is a lot of dos. I really do like doing this show. It’s a lot of fun. I think they keep getting better. This show today is going to be awesome. We really go into some interesting stuff for 2022. So, if you are one of those many, many people out there who are thinking, what am I doing this year? Is it a good time to invest? What is going to happen? Make sure to stick this one out, because David and I have got you covered and look forward to spending more time with you guys over the coming year.

David:
All right. Without any further delay, let’s get down to it.

Dave:
All right. So for our first prediction brought by Redfin, we have mortgage interest rates will rise to 3.6%, bringing price growth down to earth. David, what’s your opinion on this prediction?

David:
First off, I’ll say, I think that that should happen. I would like to see that happen just for the health of our economy as a whole. I think when you hold interest rates low, that makes sense for short, temporary periods of time where you need a boost, but we’ve sort of become addicted to that boost. And so now the boost has become what we consider normal. And we often have applicants that are coming to my mortgage team to say, “It’s 3%. Why can’t I get 2.8 or 2.9?” And when that becomes normal, then it becomes why not 1.9 and it never stops.
So I will say, I think they should go up, but I don’t believe they will. I disagree with this prediction, although I hope I’m wrong. Basically mortgage rates are tied to the 10-year Treasury note and the 10-year Treasury note is affected by the decision to buy stocks or bonds. When the stock market is doing well, it’s harder to get people to invest in bonds. So they have to offer a higher interest rate to get people into that. And that higher interest rate drags up what mortgage lenders can charge on theirs because they compete with the bond market in the secondary market. I realized I just got kind of complicated with describing this whole… If you watched the movie The Big Short, it’ll make more sense. But as long as the stock market’s doing well, it sort of pulls everything else up with it. And so unless we see a significant impact in stock prices and the health of that aspect of our economic economy, I think interest rates are going to stay low.

Dave:
That’s an interesting perspective. I think the stock market point is interesting because obviously if people are putting most of their money into the stock market, bond yields are going to stay where they are or close to where they are now, which is low. But I do think that in recent weeks the Fed has signaled that they’re more likely to raise their target rate, which does have an impact on mortgage rates, but also has an impact on the 10-year note, which you were just talking about.
So I think that it could start to rise up. I think that 3.6, 3.5 is about right. I don’t think we’re going to get my much higher than that. And honestly, at that rate, I don’t think we’re going to see a huge decrease in demand. If mortgage rates stay in that three and a half-ish range, I don’t think people are all of a sudden going to start leaving the housing market. I think we’re going to still see pretty strong demand. But at the same time, I think housing price appreciation does have to start coming back down to earth because affordability is starting to decline. We’re not at some area where we were like before the Great Recession, but it is starting to come down. So I think it’s close. What do you think about the appreciation rates? Regardless of interest rates, honestly, do you think appreciation is going to stay where it at, double digits, or are we going to come back down to a more balanced market?

David:
I think your point compared to my point was the more important point is that irregardless of what interest rates do… Why do we say irregardless and regardless? I think they mean the same thing.

Dave:
I thought for most of my life that irregardless wasn’t a word. And I would argue with people all the time. I was like, “That’s not a word. You’re wrong.” And then I looked it up and it is a word and they mean the same thing. I’m pretty sure.

David:
And it means the same thing.

Dave:
I think they’re the exact same thing.

David:
That’s funny. All right. So I think regardless of what… And there it is. I just used them both synonymously. But there’s probably some grammar specialist that’s going to-

Dave:
We’re going to get corrected about this, for sure.

David:
Yes. [crosstalk 00:11:14].

Dave:
Tell us in the YouTube comments.

David:
Yeah.

Dave:
Oh, they will. We don’t need to invite them.

David:
I don’t think the interest rates are going to affect affordability. And this is one of the things that is worth noting because it often gets presented to our listeners, to real estate investors that interest rates and value are tied so closely that as rates go up, values go down, as rates go down, values go up. There is a relationship between the two, but it’s not interest rates. It’s just overall affordability. As homes become less affordable, ideally their price would come down. The problem is if rates go up, like they’re talking about in this article, they’re expecting $100 more per month in mortgage payments for the median home. It’s not like that’s nothing, but when you consider how much inflation is sort of tearing through our economy and the fact that wages should be growing at the same time, it doesn’t actually make it less affordable if it goes up by 100 bucks. If you make 100 bucks a month more at your job, that’s the first thing to look at.
The second is the supply side at this stage in the cycle is so constrained, there’s just not enough supply. Let’s say interest rates went up to 6%, that would make them much less affordable. I don’t think it would drop the price because guys like me would still buy them, because I’m not looking at, is it less or more affordable to making my decision should I buy real estate? I’m looking at, is real estate the best option compared to stocks and crypto and other asset classes? And as long as real estate is, wealthier people can still buy the assets.
So what happens when rates go up is it actually just hurts the person on the bottom of the totem pole, the one who doesn’t make as much wealth. So if I’m still willing to buy it, the price isn’t going to go down. When you work in the industry like I do and you’re constantly representing clients, I know if every house is getting 12 offers and we cut that in half and it only gets six offers, it’s still selling above asking price. It’s not going to drop the price. There’s such a limited amount of supply. So if you actually want affordability to go down, you have to make more houses. There’s no other way around it.

Dave:
Absolutely. And I think for the long term, the reason we talk about this stuff is because people want to know like, is now a good time to invest? And honestly, what you’re talking about bodes extremely well for the next five or even 10 years for the housing market because even if we increase our pace of construction, it’s going to take eight to 10 years to build out of this. And we all know that that pace of construction is volatile and might not continue on an upward trajectory. So, who really knows?
But I do want to just get back to something you said, that there is a relationship between interest rates and home prices, but it is not a perfect correlation. And if you look back in the seventies or eighties, when inflation was super high, interest rates were super high, home prices still went up during that time. And I think more relevant to investors right now is between 2011 and about 2018, interest rates were mostly rising and home prices went up. It’s really a question of, like you said, affordability. And if the Fed or the 10-year Treasury note went up so quickly, if it went up really fast that it was going to cause a shock to the entire system, then I think it could really hurt housing prices. But I think that’s extremely unlikely. If you look at what happened after the Great Recession, the Fed raised rates extremely slowly, they told you they were going to do it like six to 12 months ahead of time. So no one freaked out about it. And so I think that’s probably what’s going to happen again here.
So to me, when it comes down to next year is like, there’s all these variables in the housing market. A lot of things, like demand and, like you said, supply and inflation are all sort of pushing prices upward, right? That’s like upward pressure on pricing. Affordability, I think is the one thing that could impact it negatively, but I don’t think that means housing prices are going to go down. I think it’s instead of seeing 10, 15, even 22% year over year growth, like we saw last year, we’re probably going to get, I think somewhere into the five to 8% year-over-year growth next year. Redfin here seems to think it’s about three by the end of the year, but I think that’s actually a little low personally.

David:
Yeah, I would agree with you. And I don’t think that’s bad. I would like to see less growth in real estate, as crazy as that sounds as a person that owns it. Just because if I’m looking at the economy as a whole, it is not healthy how fast these assets are increasing in price, because it makes it very hard for the person listening who’s trying to figure out, should I buy a house or not, to make that decision when it’s ridiculous when prices are going up that much. I’ll cap off this point with this fact that you mentioned. In 1981, the interest rate was about 18.5%, 18.45% and prices were still going up. So for those that are like, I can’t pay over 3% interest, they were paying 18 and a half and people were still buying homes and the value of those assets were still going up, but not as quickly as they would have been. That’s why the Fed did that is they’re trying to slow down how fast these assets were appreciating.

Dave:
Yeah, absolutely. That’s a great point. So with that, because you wrapped that up so nicely, let’s move on to the second prediction. Number two, new listings will hit a 10-year high, which will hardly make a dent in the ongoing supply shortage. I’m really curious about, you must know a lot about this with just running your business, curious what you think about new listings hitting a 10-year high.

David:
A bit of wisdom I want to offer to the listener. Whenever you’re told something like, well, there’s a foreclosure crisis coming because of all the forbearance that happened during COVID-19, it’s typically presented in a clickbait style that is oversimplifying the truth. So what a lot of people were hearing for a long time is, I’m going to wait because foreclosures are coming. We’re going to have a crash and I’m going to have dry powder. And I was one of the few people that was saying, yeah, I don’t think that’s going to happen, buddy. I think that by the time that those loans are in default, that the price of the asset will have increased so much that they’ll just sell it. They’re not going to go into foreclosure. And the demand is so strong that a lot of those people could put their house on the market. It’s not going to even make a dent because there’s such a shortage in supply. And we still haven’t seen this foreclosure crisis, that many people were ringing the bell saying, hang on.
The only point I’m wanting to make is that when you hear information like this, you got to dig deeper. You cannot just look at the headline and say, oh, that’s the case. Yahoo Finance told me to wait. So I’m going to wait. And this is another example. The point I made earlier about when there’s 12 offers and half of the buyers leave the market or get priced out, there’s still six offers for every property. The impact that has on the overall price an asset sells for, it’s not a big difference if I can get six offers for my seller versus 12. I might be able to get a little bit more money if I have 12 buyers, as far as how much they’ll pay over the asking price, but it’s not like I can get twice as much money. There’s a lot of diminishing returns when it comes to these facts.
And so what people need to understand is though there is more inventory coming, which I do agree is happening, it does not mean that there is enough of it to make up for the shortage in supply. If you pour a cup of water on the beach in Hawaii, when you’re hanging out with Brandon Turner, the sand sucks that water up really quick. That’s what we should expect to see with the new housing supply coming in. Now, there could be a few specific one-offs where they built too many houses in one specific area. That could lead to that area’s prices dropping. Or a certain type of asset like, maybe they build too much A-class commercial multifamily real estate. And so there’s not enough demand for that. So prices drop as they have to, then go compete with B-class places to fill vacancy. The savvy investor will look for those types of opportunities, but over all, they can’t build houses fast enough for the amount that we need to sort of bring equilibrium into this dance.

Dave:
Yeah, that’s a really good point. I think, disclaimer to everyone listening to this, when we’re talking about this stuff, we are talking about national level. So if you’re thinking, oh, that’s different in my neighborhood, that could be true. What we’re talking about in these predictions today, we’re talking about on a national macro scale. And I think that’s a really good point. There are areas where people are overbuilding and there are also areas where maybe there will be a foreclosure problem or a specific asset class will hurt. But demand just is so strong right now.
Usually this time of year home sales start to go down, listings start to go down, but that’s not happening right now. And I think people are saying like, oh, it’s a bubble, but people know what the prices are right now and demand is remaining high. And so I think a lot more people are going to start becoming comfortable selling into this market. And I think a lot of the reason that we’ve seen low inventory so far is all the things that you just said, but also, if you were going to sell a house, there’s all this fear that you’re going to not be able to buy something to move, you might not have somewhere to go.
And so I think if what we were talking about earlier happens, and we start to see the appreciation rates come down to three, five, 7%, something like that, and the housing market becomes even a little bit less competitive, yes, we are still going to have a super competitive market. I’m talking about marginally less competitive, but then I think we will start to see people listing their homes more. But when they list a home, they also become a buyer. So it’s not like they’re just going to suck up demand and there’s going to be no demand. But I do think generally with this prediction, listings, I don’t know if it’s going to be a 10-year high, but I think listing will increase next year, but not to the point where all of a sudden it becomes a buyer’s market. I think we are in a seller’s market for at least the next year or so. I don’t know what happens past 2022, but I don’t see an end to the seller’s market next year.

David:
It’s a really good point. I think when we talk about interest rates possibly going up, they’re not going to affect home affordability as much as they’re going to affect the amount of homes that are available to buy. So let me break that down. If you own a house, Dave, and your interest rate is, let’s say, you refinance into a 3.1% interest rate and you bought your house for 500, it’s gone up to 800. So you’ve got, say, a quarter million in equity and you’re thinking about selling. Well, what you’re really looking at is, can I get a house or a property or an area that I like more than the one I have without it breaking the budget? I don’t want to have to become house poor in order to upgrade. And interest rates do affect how much you’re paying for the new property.
So you may move your equity of 250,000 into the new property. Your property taxes will probably go up a little bit, because if you’re selling your house for 800 and you’re buying one for 800 or 900, your previous tax base was at 500 K. So that’s going up, so you’re losing a little bit there. But imagine the interest rates have increased to 5% or even 4.5% from the time you refied. Now you’re getting out of a loan at 3.1% and you’re getting into one at four, four and a half, 5%. Even though overall affordability hasn’t changed compared to what you are currently paying, it’s not as attractive. And so there’s more people that will say, you know what? I don’t want to sell my house because then I just got to buy a new one. My taxes go up, my interest rate’s going to go up. It’s less affordable than what I have.
So when we tend to look at buying a house, we’re always looking at just should you get in or not, renting versus buying. And it makes way more sense to buy in most cases. But when it’s selling and then rebuying, interest rates do affect that a lot. So as rates go up or if they go up, I think you’ll see less people moving. There will be less people putting their house on the market to go buy new houses. Which means there will be less to pick from, which might actually make the prices go up even more, because inventory’s coming out. So, that’s what I look at when I’m looking at interest rates. When they go lower, people make the decision to move or to refinance. Business gets done more often. Just like with the 1031 exchange, if you have that option, you’re more likely to sell and buy something else. If they get rid of the 1031 exchange, it doesn’t mean they’re going to collect more in taxes. It means there’s going to be less transactions happening and overall less people making money in those transactions to pay as income.

Dave:
All right. Well said. So basically I think we’re both feeling like listings will probably go up next year. I don’t know if it’s going to hit new highs, but I do generally agree that even if they go up, it’s probably not going to really change the supply and demand dynamics.

David:
No. And the last piece I’ll add before we move on, is that typically when you’re in an environment with not much supply available, new home construction is an attractive option because you can sort of avoid the multi offer, crazy bidding frenzy. But with the price of materials going up as much as they have, our supply chain issue is becoming a bigger deal and the shortage in labor with less people wanting to work, new homes are becoming much more expensive than they were compared to resale. So just temper your expectations now that you’re probably not going to get a bargain on a new home like you might have, if you avoided the bidding war. They’re going to be even more expensive than existing inventory.

Dave:
Yeah. That’s a really good point. Okay. Prediction number three. Rents will increase by 7%. What do you think about this one?

David:
Yeah, I think that’s a pretty healthy expectation to have. I see this in my own portfolio as 7% or more. Obviously this depends on market by market. So if you’re in an area with more rental options, they don’t go up as much as if there’s less. But you made a very good point before we started talking here that inflation may be at 7%. And so it could be a net zero, even though you think you’re making more money.

Dave:
At the time of this recording, the most recent CPI data shows that inflation’s at 6.8 or something like that. It’s nearly 7%. And so I honestly think that that could be a low prediction. I don’t think it’s going to be much higher than that, but if everything’s going up 7% at a time where, I don’t have the data in front of me, but I know that vacancy is at an all-time low right now in the US. So at a time where inflation’s going up and vacancy’s at an all-time low, that is probably driven by the fact that people aren’t in the housing market and don’t want it. There are people who don’t want to get into this housing market. And so there’s demand for rent and all of a sudden I could see rents going up another seven to 10%.

David:
Yeah. One thing that I would add on to this point that is good for homeowners and landlords at this state of the market is that as inflation goes up, even if inflation just keeps pace with rent growth, so both go up by the same amount, seven, eight, 9%, the one thing that benefits us is that our mortgage rate stays the same. If you have one of those fixed rate loans, you’re benefiting, even if inflation and rent are staying the same because your mortgage payment is low. And that’s one of the reasons why you want to buy real estate and wait, because time is the most important ingredient in this cake we’re trying to bake.

Dave:
Absolutely. That’s a really good point. One last thing I’ll say is that we’re talking a lot about housing prices and I think that even if housing prices do come down again, it doesn’t sound like either of us think that’s going to happen, I think rent could still go up. All these things are not necessarily tied together. Like things don’t all go up or all go down.

David:
Yes. Great point.

Dave:
And I think that the environment for rent to grow is pretty strong regardless of what happens with housing prices. So I think 7% is a good guess. And I think it might even be a little bit higher.

David:
That’s such a great point about the don’t oversimplify, right? Because like, as groceries go up, that doesn’t mean that bacon goes up the same amount as Top Ramen. They’re different depending on how they’re made and rent is independent of all these other things because the housing supply is different in different parts of the country.

Dave:
Has Top Ramen ever gotten more expensive in the history of Top Ramen? I think it’s like always a dollar, right?

David:
Yes.

Dave:
It’s just, it’s reliably the cheapest food you could possibly buy.

David:
It’s the one win we can count on. I love it.

Dave:
Yeah. Inflation can’t touch Top Ramen. It’s got nothing on Top Ramen. All right. Prediction number four. Home buyers will relocate to affordable cities like Columbus, Ohio, Indianapolis, and Harrisburg, Pennsylvania over the Sunbelt. And I’ll just say that Redfin does provide some data that shows that not necessarily demand is going down in the Sunbelt, but that it is his peak. Like the craziness peaked and people still are moving there like crazy, but not peak craziness is behind it. So what do you think about this?

David:
Okay. I don’t think the average American is willing to move from Miami to North Dakota to save on rent. That’s the first thing that I would say. So I think that we may see some of this in the future. In my humble opinion, it will be more tied to the metaverse than it will be to anything else. If your job requires you to be in an office somewhere, that’s where you’re going to live. It doesn’t matter what rents are. However, if you can make your money coding software and it doesn’t matter where you live, some people may move into these cheaper areas. And if you’re somebody who’s just, it’s like WALL-E and you’re just jacked into the metaverse like it’s the matrix all day long, maybe you move to an area like that because you’re not spending as much time in the real world, but I don’t anticipate that happening anytime soon.

Dave:
Yeah. I tend to agree. I do think that there is this longstanding trend towards smaller cities, but I don’t think small cities. We used to say that Denver and Austin were like the small secondary cities, because they weren’t Chicago or New York or LA, but those are big cities. At least in my mind, those are big cities. Are there going to be new up and coming smaller markets? Yeah, definitely. I don’t personally know enough about any of these three cities. I don’t know Harrisburg. I’ve been to Columbus. Columbus is cool, but I think some of them will emerge. But ultimately people live where there are good jobs. And so yes, like you said, there are people who can work anywhere now and they might choose smaller cities, but I think really what it comes down to is not necessarily small or big. A lot of this comes down to quality of life. And I think you see people move to Boise because it is a good climate generally.

David:
Yes.

Dave:
And people like living there. It’s not because they’re affordable. It’s because it’s a great place to live. And if that happens, they’re affordable now and then they’ll get more expensive. You see this… I invest in Colorado, you see this all over Colorado. Even these small places, they have high quality of life and they go up. So if I were trying to look for the next place, I’d look for places that have really high quality of life, a good economic growth. It’s pretty simple.

David:
And marry that with affordability.

Dave:
Yeah. Right. Yeah.

David:
Don’t just look at affordability and say, oh they’re cheap. That’s where I’m going to go buy.

Dave:
Yeah, exactly. Yeah. A lot of times they’re cheap for a reason. So just think about that. Some of them are diamonds in the rough for sure. But some are going to be cheap for a reason. All right. So, that was number four. So I think generally we think affordable cities are probably going to see some growth, like everywhere else, but I don’t think the total dynamics of where people are going to live have changed and high quality of life, affordability are definitely going to play a role here.
All right. So this is the last one. And I find this one pretty interesting, because I have a strong opinion about this. So I’m curious to what you think. Condo demand will take off. And I think the reason they’re saying this is because over the last year we’ve seen that suburbs have grown faster than they have since the Great Recession, big cities, metro areas are growing a little bit slower than they have relatively compared to the suburbs. So what do you think, do you think condos are going to take off?

David:
Yes, but I think that’s healthy. So like you said, before COVID-19 hit, condos were all the rage. If you were in a big city, if you were in Austin, Denver or San Francisco, Seattle, if you were driving around, all you saw were cranes everywhere, building up. They were all building condos. And it was very trendy because, especially millennials, they like to be within walking distance or biking distance. And so people would buy condos and not have to have a car. They wouldn’t have to cook. And what really stopped that was two things. When COVID-19 hit, people were afraid to be in close proximity to each other. And the whole benefit of living in a condo is you got a great location. Well, they weren’t great locations because entire cities were shutting down.
So we saw an exodus of people out of San Francisco condos into where I am, the East Bay, like suburb type areas where people would have space. It became incredibly hard to sell a condo and incredibly hard to buy like an estate or in the suburbs. Well, as that changes and things open up, people are going to flock back into condos because that’s the only thing that’s going to be affordable. It’s getting very hard to buy single-family homes, because there’s so much demand. And so if you want to buy anything, the new starter home is probably going to become the condo.

Dave:
That’s a really good point. I agree with this prediction that we’re going to see prices sky rock, because they’re cheaper. But I’m going to just alter this prediction because I really wanted to just ask you, would you invest in a condo?

David:
Yeah, I do invest in condos occasionally.

Dave:
You do? Okay.

David:
Like the two I bought in Hawaii where both condos and I’ve seen a couple town homes that I went after in the San Jose area. I wasn’t the winning bidder, but I was looking at a 1,600 square foot condo in San Jose for like $800,000 where a house of that same would be somewhere between 1.4 and 1.6 in a lot of those similar neighborhoods. And they were house hackable as well. Like you could rent the rooms out to different people. Now you have to look for things like, is there enough parking that you can put everyone in? Do the regulations allow more than one person to be living there if they’re not in the same family? But I think condos are a smart, if you’re in the right area, appreciation play. And especially if you’re a person who’s renting instead of buying, that’s almost a no-brainer, is you can get in a condo and lock your payment in place. And so it doesn’t go up like increasing rents are going to be driving your payments up.

Dave:
That’s a good point. Yeah. I think especially if it’s your first, if you’re investing, you pick a place that you think is going to appreciate and you want to live in it, a condo could be a great way to do it. I just have this irrational fear of HOAs. I just hear these stories about what happens with HOAs. And for some reason I’ve always been hesitant to even look at condos.

David:
It’s very tricky. I look at analyzing an HOA the same as I look at analyzing an area. So if I’m going to go buy somewhere, I’m going to look and see, what is this city like? What’s their employment like? What is the quality of life like? How well is their government managed? Are they growing? Are they thriving? Are they redeveloping? Or is everyone that lives there upset because all the money went to like one county hospital and their roads haven’t been fixed in 40 years or something like that? You kind of got to look at an HOA the same way. Do they have healthy money in reserves? Are they managed by a board of people that want to keep costs low? Or is it opposite of that? I mean, frankly, I think HOAs are one of the biggest rackets that’s out there. I’ve often said like, when I retire from investing in real estate, I’m just going to manage HOAs because it seems like the easiest way. And it’s so easy to win compared to everyone else because the effort that they put into running them is so low.

Dave:
Totally. I just feel like, this is just totally biased, but like my mom lives in a condo and she tells me these stories about these special assessments where she has to come out of pocket for all this money, and it just sounds like people who don’t know anything about real estate making decisions about your investment, which worries me. But you’re right. That’s a broad generalization based on very limited information on my part. So I was just curious what your thoughts are, because I’ve honestly just irrationally steered clear of them in my investing career.

David:
Yeah. I always thought like you too. I did not like… In fact, when you had the option of condo versus non-condo, I always steered people away from HOAs. It’s just, you’re not really having that option anymore. So now here’s the way that I tend to look at it. The people who are running the HOA are voted in by the members of the people that own the real estate. In general, if it’s a community of people that are, I don’t want to say ignorant in a negative way, but just without knowledge of how home values work and real estate works, maybe they’re not business mind, they tend to fall for the popularity contest and they vote for the nicest, cutest, friendliest person and say, I want them to be in there. And that person’s usually incompetent and that’s why prices go up.
If you’re in a more wealthy area where people earn more money and they have more business savvy and they all own those condos, they’re much more careful about who they vote into place, as well as the accountability that they put on the people running the HOA. And so they tend to be run much more efficient. I think the danger is you can’t lump it all together and say HOA or non. You have to analyze the individual HOA, just like we have to analyze every other aspect of owning real estate.

Dave:
That’s a great point. So anyone listening to this, if you’re thinking about a condo, you have one more step in the analysis.

David:
Yes.

Dave:
Doesn’t mean you can’t do it. It just means you got a little more due diligence to do when you’re going into it. That’s great advice. Actually, my short-term rental has an HOA, but it’s an optional HOA, which is just amazing, because it’s not a condo, it’s a homeowner’s association for a subdivision. And it’s just like, if you don’t want to be a part of it, you could just bow out and then you have to pay for your own trash somehow.

David:
That’s cool.

Dave:
But I did look at it because short-term rentals and HOAs don’t always mesh really well together. And so this HOA has a policy that they allow short-term rentals, but I don’t know if someone could come in and change that, and so I can just dip out of the HOA if I want to and then do my own thing basically.

David:
That’s a great example of looking into it deeper. My primary residence is in an HOA. It’s about $176 a month, which in California’s almost nothing. It’s a very big community. So there’s so many properties that are in there that they don’t need to raise the amounts on us every single year. There’s an attendant that has to check in anyone that wants to come in or go out. So it cuts down on security risks. They have people that drive around all night long. A lot of people in my community, as crazy as it sounds, leave their doors unlocked because the only people that can get in the community live in the community.
And then they are very strict about the condition that the properties are in. So if you’re worried about the neighbors that bring the value down, the HOA sort of plays the police for you and they enforce that. So I’m happy with the HOA service I get where I live, but there’s other ones that are nightmares, just $900 a month and they’re constantly bringing special assessments. It’s horrible. So I wouldn’t say, to recap that, don’t write it off, but also don’t assume that it’s good if it’s an HOA.

Dave:
Yeah. All right, cool. So sounds like we agree condo prices are probably going to come back. I think generally just to round this thing out, these trends of people moving to the suburbs, I think they’re going to keep going. We’re not going to see flight from the suburbs. Not everyone’s going to move back to the city, but I think the old ways are going to start coming back. People always bet against San Francisco or New York and it never happens. We’re going to start seeing the cities that have carried American real estate and the economy for decades, continue to do that, Houston, Boston. All these cities, they’re going to continue to keep growing.

David:
Yes. You have to look at the pendulum swinging, right? At one point New York, it was a terrible place to live in, it had tons of crime. And then the pendulum swung really far. And then the values of real estate went up as crime dropped and the amenities that were available increased the desirability. And then the pendulum swung back the other way. And now everyone’s complaining about New York and they don’t like the measures that happened when COVID hit. It’s going to swing back. Right? So just be the savvy investor that pays attention, that doesn’t just follow the crowd and do what everyone else does. Find the area that’s prime for the pendulum to swing back in that direction, get in a little bit early and just weather that storm. And then you’re sitting in a great position when things turn around. You made an awesome point, Dave.

Dave:
Awesome. Well, well said. Okay. So that’s the end of my Redfin predictions that I wanted to go over, but I thought it would be fun to end with some, I don’t know if they’re predictions, they’re just like sort of questions going into 2022. So I have one for you and if you have one for me, please feel free. And I honestly think we should probably do a whole show about this, maybe in the new year we will. But my question is, what do you think will happen with real estate in the metaverse in 2022? And I’m teeing you up here. So let’s keep this to five to 10 minutes because I think we should do a whole show about it, but just what are your high-level thoughts on this?

David:
I have an agent on my team that’s a specialist in this. He owns real estate in the metaverse, Decentraland and a couple others. We’re actually helping some people that come to us that want to learn more about it, teach them about this and then represent them buying real estate in the metaverse just like it would be elsewhere. Man, there’s a lot you could get into about it. Overall, I think if you look at buying real estate in the metaverse using the same principles that we do real estate in the real world, you’re okay. So the reason real estate’s valuable in the world we live in now is because it gives people a place to go in an area that they want to go to. So you want to live in a certain area, well, you need a place to sleep and to keep all your stuff, or you want to visit a certain area, you need a place to take a shower, park your car, sleep. It’s very practical.
So if you get into the metaverse, the first thing you have to know is you’re speculating on which area will be the one that everyone wants to go to. And that can change, just like there’s a super hot club in town that everyone goes to and a year later they’re going to a different club, or you’ll see this with restaurants over time. When you buy this type of real estate, it’s not the same as just buying a single-family home that’s likely going to be, unless you bought it in Detroit, it’s going to have consistent demand. It shifts a lot.
So it’s much more speculative than the real estate that we’re used to, where we encourage people just get in and buy it, and you’re more than likely going to be fine. The principles are different if you’re in a place like the metaverse. So I would say, I wouldn’t encourage people to get into that until they’re already sort of financially stable with normal real estate investing or how they’re running their finances. But I do think it will work very similar to how we see real estate working in the world we live in now.

Dave:
Totally. I think someone is going to make a ton of money on the metaverse. How they do it and where they do it, I’m not a hundred percent sure. I mean, I think this idea that there is going to be a metaverse, like basically this social network… And for those people who don’t know, basically the metaverse is like a virtual world where people can create avatars and they have their own economies where you can buy things and you can showcase your NFTs and you can even attend a concert. Actually, Justin Bieber just hosted a concert in the metaverse the other week.
So I think that this idea, if you are familiar with games like Minecraft or people, our age are probably familiar with Second Life, stuff like that, then I think it’s a natural extension that something like this is going to succeed. Is it Decentraland or the Sandbox, I’m not a hundred percent sure. Like you said, there’s a lot of different platforms. It’s kind of like crypto, where there’s a lot of money flowing into it. Which one is going to win out in the end, still unclear. Crypto has a much longer track record. This, I think is really the wild west.
And it’s really, like you said, if you have money to spare and you are willing to, if you want to take a shot where you can basically say like, this might 100 X and I might lose it all, go for it. But recognize that it is not based on any fundamentals, it’s a hundred percent speculative. And if you go into it knowing that, that’s okay, but don’t go into it thinking it has the same fundamentals as the housing market, because people need houses. You don’t need to live in the metaverse. You don’t need to do anything in the metaverse. It is something that could be cool in the future, but right now that’s all it is, is something that might be interesting in the future, in my opinion.

David:
Such a great point. And we’re highlighting this because we call both of them real estate. So we don’t want to confuse people that they’re the same thing. I think from an example of what the real estate looks like in the real world, investing in the metaverse now is much more like having a development of new condo construction going into South Florida, and this is 2005 and you don’t know which one of those developments are going to make it and which ones are going to fail. It is like you said, highly speculative.
We do help people with buying real estate in the metaverse. And I’m happy to talk with more people about that and get them connected. But I’m very, very clear, this is not the same as what we’re talking about on BiggerPockets. BiggerPockets, what we portray here with how to achieve financial freedom is a much more steady, reliable, consistent, and you are much more likely to win using this scenario than what we’re talking about with the metaverse, which is very speculative. And like you said, you might hit a home run, you might strike out, but it’s very tough to make it anything in between.

Dave:
Yeah, exactly. I think it would be cool if we brought on an expert, maybe sometime in the new year to learn more about it, because it is something I am personally going to keep an eye on. I’m very curious about it. I think there is going to be money to be made there. It’s going to be a brand new frontier in technology, but it’s so early that you just don’t know exactly. I don’t know if you remember this, you remember laser discs back in the day?

David:
No.

Dave:
It was like a predecessor to DVDs.

David:
Okay.

Dave:
There was like DVD and then there was Blu-ray and then there was HD DVR, and all these things were competing. And people would buy the laser disc player for thousands of dollars and hundreds of movies. And then all of a sudden DVDs came out and it was completely obsolete and people were left with nothing. Like that’s what I think could happen here. You could invest in a platform and then Facebook might come up with a brand new platform that’s way cooler. And then all the users leave the previous metaverse and you’re left with nothing or may be the one you invest and catch on and you were an early adopter. So we’ll keep an eye on it and keep y’all posted as we go into 2022 with that.

David:
Very well said, my man.

Dave:
You have anything else you’re thinking about for 2022?

David:
Yeah. I don’t think we’re going to see it much different in 2022 than what we saw in 2021, other than the inflation that I’ve been talking about for probably two, three years now is just going to ramp up. It’s weird. I would just telling someone, this is the opposite of the advice I always gave for so long, which was don’t take out debt, pay for everything with cash, save your money, avoid buying things. And if this continues, like buying a car now makes more sense than buying a car in a year or two if the price of cars has gone up 80%.
So if you can come by a purchase you know is coming and you’re able to actually borrow the money to buy it, it may be cheaper to be spending money. Now this is the problem with having inflation is that it constantly encourages you to spend your money and you don’t save. So now the game became more complicated. We have to be thinking about that and at the same time, making sure that we don’t overextend ourselves. You also have to make sure that you’re keeping money in reserves so that you’re playing more aggressive, but you have defensive options that you’re sitting back on and waiting.
I wish it was as simple as telling people, just buy a house and wait. Now there’s just more pressure. You have to figure out, am I going to get into the condo market or am I going to wait for the single-family home? And what are the laws going to be like regarding what I’m allowed to do with this property and how I’m taxed? Are some of the ways that real estate investors save in taxes going to be taken away in three, four or five years, or are they going to get better? There’s more uncertainty going on. So I think that now more than ever, people should be educating themselves on what’s happening in the market right now, shows like this one, reading the news, paying attention, because you might be out of the game for six months and come back and it’s a completely different game.

Dave:
That’s really well said. I think part of the reason we’re doing this show is exactly because of that. Things are changing. And as an investor, you need to be constantly adapting your strategy. And I don’t mean like your longterm strategy. You don’t need to be switching from rentals to flipping or totally changing markets all the time, but you need to think about those things. Whether you buy now or maybe you do look for a new market are things that you should be thinking about in these uncertain times. And so what David and I are going to try and do is keep you informed on everything that’s going on. And hopefully you guys like shows like this. And as always, if you have ideas or there’s anything in the news or economics that you’d like us to cover, you can always hit us up either on Instagram or on BiggerPockets because we’d love to know what’s on the top of all your minds.

David:
Very well said. All right, Dave, I will get us out of here. Great job today. Thank you for joining me. I like when we get to tag team these issues. Where can people follow you? Is it The Data Deli?

Dave:
That’s right. It is The Data Deli at Instagram. Or you could find me on BiggerPockets.

David:
Wonderful. I’m David Greene 24. Follow me. Follow David, The Data Deli, because he loves sandwiches, which I think is hilarious that he made his social media handle off of that. And has always, follow BiggerPockets to stay in the loop. This is David Greene for Dave “the man from Amsterdam” Meyer signing off.

 

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For well over a decade, the industry has made steady progress in digitizing mortgage closings. As a result, closings today fall on a spectrum of digitization, with benefits that increase with each component that is digitized and each document that is electronically signed (eSigned).

On one end are traditional wet-ink signed closings, where all documents are signed in ink. At the other are fully digital closings, where all closing documents are eSigned and documents requiring notarization leverage some form of electronic notarization (eNotarization).

In the middle of this spectrum are hybrid digital closings, where some closing documents are eSigned and others are wet-ink signed. The term “eMortgage” refers to a hybrid or full digital closing where the promissory note is electronically signed (eNote). 

With eMortgages, when the most critical component of the loan file – the note – is digitized, it allows lenders to expedite the delivery of loan collateral to their investors or warehouse lenders.

And when lenders’ trading partners receive an eNote in lieu of a wet-ink signed paper note, they can readily automate the certification of collateral. This creates both operational and capital efficiencies, and ultimately accelerates the secondary market execution of these loans.

“Digitizing any component of the closing process creates value for lenders, but eMortgages are where lenders stand to see the most return on their digital closings investment,” said Camelia Martin, Head of Industry and Regulatory Affairs at Snapdocs.

While the benefits of eMortgages are apparent, adoption of the technology is just beginning to take off in a significant way. According to Martin, although eMortgages currently represent less than 10% of loans, adoption has nearly tripled over the past few years.

eMortgage challenges

According to Martin, eMortgages require lenders to have the ability to generate SMART Doc eNotes and have an eVault to store, manage and help them transfer copies of eNotes. These components are not typically native to most lenders’ core technology platforms. Or, if they are, they aren’t agnostic to lenders’ loan origination systems, point of sale systems, document prep providers and other components that may already be working well for a lender.

While technology is an obvious and critical component of eMortgages, that’s not necessarily what’s holding the industry back from broad scale adoption.

One of the biggest challenges lenders face is that eNotes require a great deal of change management.

“eNotes impact processes both upstream and downstream from the closing itself,” Martin said. “They impact the delivery processes to warehouse lenders and investors. In addition, there are differences in servicing and default processes too. These changes need to be understood and fully incorporated in change management plans to give lenders the confidence that they can scale eMortgages efficiently without compromising compliance.”

Lenders also have to go through individual eMortgage approval and onboarding processes with certain counterparties, such as investors and warehouse lenders. These processes can be taxing on a lender’s internal resources, as they require significant coordination to facilitate the execution of approval forms, agreements and testing required to obtain approvals. 

Lastly, lenders will still experience some variation across their counterparties’ eMortgage acceptance criteria and policies.

Martin added, “Through e-Eligibility tools and other processes, lenders need the ability to account for these differences early in the loan production process to better inform LOs and optimize how digital each closing can be, while also ensuring that a loan isn’t closed in a way that restricts its ability to be sold or transferred to a particular counterparty.”

Snapdocs eMortgage Quick Start Program

Snapdocs recently launched a new program to specifically address each of the challenges lenders face when implementing eMortgages.

The Snapdocs eMortgage Quick Start Program helps lenders in three ways. First, by providing access to technology needed to support eMortgages. Second, by offering change management and implementation support to streamline lender’s operations and quickly scale eMortgages. Third, by providing eEligibility tools to determine precisely how digital each closing can be, early in the loan production process.

The program leverages the expertise Snapdocs developed by helping hundreds of lenders implement digital closings to provide the lenders with what Martin called an “unparallelled, white-glove eMortgage implementation framework.”

What makes the program unique from other implementation offerings is that it expands far beyond standard technical implementation support and leverages the power of collaboration and eMortgage expertise from an ecosystem of investors, warehouse lenders, servicers and other lenders’ counterparties.

The first investor to participate and offer its expertise to the program is Freddie Mac, one of the leading eMortgage investors in the U.S. Snapdocs and Freddie Mac will also begin co-facilitating a forum as part of the program, providing a venue for lenders and their counterparties to discuss the latest eMortgage developments and share best practices with other program participants and partners.

Lenders participating in the program benefit from streamlined implementation processes between counterparties, and access to tools, resources, and best practices to recognize and effectively address common challenges with eMortgage adoption.

“Digital closings and eMortgages are an evolving space, and every participant has unique and valuable experience and perspective to offer,” Martin said. “This program is anchored around the collaboration and innovation necessary for us to move eMortgage adoption forward together, as an industry.”

For more information on the Snapdocs eMortgage Quick Start Program, click here.

The post What’s holding the industry back from broad-scale digital closing adoption? appeared first on HousingWire.



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Pontiac, Michigan-based United Wholesale Mortgage (UWM) capitalized on a booming private-label market in 2021 by sponsoring its inaugural securities transaction this past May, a prime jumbo deal involving 508 mortgages with an aggregate principal balance of $351.9 million.

That was the start for the nonbank lender, which dominates the nation’s wholesale mortgage lending sector with an estimated 33.5% share of the market as of 2020, according to Kroll Bond Rating Agency (KBRA), which reviewed all the lender’s private-label transactions in 2021. In total, UWM, through its conduit UWM Mortgage Trust, sponsored seven securitization deals last year involving nearly 9,500 loans valued in total at $3.9 billion. That’s a strong start for a new issuer.

“A robust market in the [private-label] world is a big deal for a strong mortgage market,” said UWM President and CEO Mat Ishbia in a Facebook video posted this past summer as his company was revving up its private-label deal-making machinery. “… We see that really good in 2021, and it [the private-label market] is going to get even bigger, we think, in 2022.”

KBRA seems to think so as well. The bond-rating agency projects the residential mortgage-backed securities (RMBS) market, defined as all post-financial crisis prime, non-prime and credit-risk transfer transactions, will exceed $115 billion in volume for 2021 when the final tally comes in. That’s more than twice the mark recorded in 2020 and nearly double the $60 billion in private-label volume recorded in 2019, prior to the pandemic.

For the year ahead, KBRA’s market-projection report forecasts $132 billion in RMBS deal volume, which is a nearly 15% year-over-year increase from 2021. UWM is riding that wave.

In 2021, two of its seven private-label issuances involved jumbo loans with a combined value of $1.2 billion, while the other five involved agency-eligible investment-property loans with an aggregate value of $2.7 billion. Across all seven deals, between 47% to 54% of the mortgages were originated in California, and between 17% to 22% of all the mortgages in the securitized loan pools were originated in the Los Angeles metro area, according to KBRA bond-rating reports.

“Non-conforming and agency high-balance conforming prime mortgages are frequently originated in regions of the country with high home prices,” KBRA states in its review of UWM’s most recent private-label offering, a deal unveiled in December 2021 backed by jumbo loans. “As a result, the geographic concentration of pools of jumbo loans tends to be more meaningful, with significant exposure to assets located in the state of California as well as a number of other major metropolitan areas.”

The KBRA presale report also noted that concentrations of mortgages at the metro-area level, such as Los Angeles, “can expose a transaction to larger impact from regional economic effects or natural disasters relative to more nationally diverse pools.”

That reality led KBRA to adjust its expected-loss (EL) model in the range of 18 to 57 basis points for three of UWM’s deals — each of the lender’s jumbo private-label transactions and one securitization backed by investment properties. Still, even in those transactions, the underlying collateral appears solid, with the average credit scores of the borrowers above 760 and the average debt-to-income ratio ranging from 64.4% to 72% across the three deals in a market with fast-rising home prices.

With respect to the high number of jumbo loans originated in California, Rick Sharga, executive vice president of marketing for real-estate research firm RealtyTrac, points out that “the perceived risk of that kind of concentration is offset a little bit by the nature of the borrowers and probably the loans themselves.”

“Most of the buyers are move-up buyers, and if you’re moving up to buy the property, you’re tapping into the equity from the property you’re selling, which is also going up in value 20% [year-over-year],” he added. “I don’t think we’re seeing a lot of 3%- or 5%-down mortgages on those higher-priced homes. … If you if you look at home sales in California, virtually nothing is being sold at the low end of the market.”

UWM officials did not reply to a request for comment for this story.

The road ahead for UWM and other issuers in the nation’s evolving private-label market will not be free of some sharp turns and obstacles, however, even if that road does lead upward. Much of the private-label deal activity in 2021 was driven by jumbo-loan and investment-property mortgages that did not go the route of agency securitizations through Fannie Mae and Freddie Mac.

Rising interest rates, coupled with increased agency loan limits and the Federal Housing Finance Agency’s decision to suspend a temporary agency cap on the purchase of investment-property mortgages are expected to be a drag on the growth of the private-label market in the year ahead. All three factors will reduce the number of jumbo loans and investment property mortgages that can be securitized through the private-label market.

The Federal Reserve is increasing the pace of its bond tapering in the months ahead, including reducing its purchases of mortgage-backed securities. It also is planning up to three bumps in the benchmark interest rate in the year ahead. That upward pressure on rates is also expected to put upward pressure on 30-year fixed rates, depressing the housing-refinance market.

“It is still expected that [jumbo] RMBS issuance will start to slow in the coming months as rates rise and supply wanes,” states a December market report by digital-mortgage exchange MAXEX. “…We continue to think that issuance [of RMBS backed by investment properties also] will subside in 2022 as originators sell many of these loans back to the agencies.” 

Non-QM sector poised for explosive growth

The one pocket of the mortgage market that is expected to see explosive growth over the next few years, however, is the so-called non-QM sector. Non-QM mortgages include loans that cannot command a government, or “agency,” stamp through Fannie Mae or Freddie Mac. 

Non-QM loans typically make use of alternative-income documentation — and loan terms, such as interest-only options — because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines. The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies.

Dane Smith, president of Verus Mortgage Capital, said private-label deals backed by non-QM loans will register at some $25 billion in total value for 2021. He projects such transactions to swell to $40 billion in 2022 as rising interest rates shift the housing industry toward a purchase market.

“In the third quarter [of 2021], we continue to deliver private label securitizations and work toward aggregating potential additional offerings for the fourth quarter, diversifying our means of disposition,” said UWM Chief Financial Officer Tim Forrester during the publicly traded lender’s third-quarter 2021 earnings call. “While our collateral is primarily agency eligible, we continue to evaluate improved execution as well as alternative sources for putting our loans in investors’ portfolios.”

Toward that “alternative” end, industry publication Inside Mortgage Finance reported last month that UWM has introduced a non-QM loan product — a jumbo mortgage with an interest-only option.

“There’s more private label security deals going on now than there has been a long time,” UWM’s Ishbia said in the video posted on Facebook this past July. “The market has opened [and] that means lenders like UWM and other lenders can go direct to the market rather than going through Fannie Mae and Freddie Mac.

“And this opens up a new channel of business now, so you can sell investment properties, you can do jumbo loans, but also there’s new products coming out.” 

The post UWM is bullish on the resurgent private-label market appeared first on HousingWire.



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