Prepare for the Massive Mortgage Defaults Heading Your Way! Defaults!

Street Smart Real Estate Investing With Lou Brown

As of March 2021, about two-thirds of homeowners who signed up for some type of mortgage forbearance during the Covid-19 pandemic have exited the programs, according to new research from the New York Federal Reserve.

Only 35% of borrowers, or about 2.2 million homeowners, who signed up for forbearance remain in these programs, the New York Fed found. But those who remain in forbearance typically have lower credit scores and live in lower-income neighborhoods, making them more susceptible to losing their homes when these programs end later this year.

Join Lou Brown as he talks about the latest figures and how they can impact your real estate investments.


0:01 – Introduction – “Mortgage Defaults Are Running Rampant”

0:52 – Lou’s wins of the week

3:17 – Ask Lou anything about the real estate business

4:01 – Trends on today’s real estate market

6:15 – Mortgage delinquency rates in the U.S. from 2000 to 4th quarter 2020

7:31 – Mortgage Delinquency rates and Unemployment rates

8:53 – FHA Mortgage Delinquency Rates

11:25 – 10 Metros Most Threatened by FHA Mortgage Delinquency Rates

13:08 – No reason not to buy a property now

14:29 – Now is the time to get ready for the upcoming market

14:38 – Aug 27th, 28th & 29th in Pittsburgh, Pennsylvania – – Learn the best entity in the market

21:01 – Should I be saving money for this fall (in prices) to happen?

23:17 – Cost to Sell Worksheet

24:28 – Flattening the Real Estate curve

25:55 – Millionaire Jumpstart success stories

30:10 – Lou’s words of wisdom: Get out there and take advantage of this great market that we are in right now

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Listen to our Podcast:

Prepare for the Massive Mortgage Defaults Heading Your Way! Defaults!

Lou Brown


Another installment of our Tuesday tips, tricks, and techniques. And we have some great stuff to tell you about mortgage defaults. They are running rampant.

I hope you’re having a fantastic Tuesday and a fantastic weekend. I’ll tell you what, it is really exciting to be in this business at this time. Whenever there’s turmoil, whenever there’s upset, whenever there’s breakdown, whenever there’s concern, you can look for opportunity and there’s a big opportunity coming our way. Well, we like to start with the wins of the week, and there’s definitely been some wins over this past week since I’ve met with you last and we had our series on Real Estate Being the I.D.E.A.L. Investment then. Well our wins of the week –  we’ve had 2 properties go under contract and they’re pretty, pretty good contracts. One on a duplex and one on a single-family home with a developer who wants to come in and do some interesting things to that property. So, that’s coming up and as with anything in life during this due diligence period, things happen.

So the one thing that happened was they had the termite inspection and they found termites. Oh, well, there’s a surprise, right? I think they actually bring it with them, but it’s a joke. Of course, termite inspectors don’t bring termites with them, but it’s just fun. And so they did find some termites. We’re going to have to deal with that. And then the other is that the appraisal came in a little bit lower than the contract price, but the people who are buying are putting a very sizeable down payment and they said, “We’re not worried about the appraisal because we’ve got enough down payment coming in that it’s going to cover it.” And the lender’s not going to be concerned about the loan that they’re making. So we’re excited about that and we’re resolved the other issues and keep moving on and looking for opportunities right now.

There’s lots and lots of opportunity coming. One of the things that happened over the last week was just a wholesaler, which by the way, when you own property, the wholesalers are after you like nobody’s business, trying to get you to sell property. And sure enough, they did exactly that. They came after me and I sent a wholesaler to look at the property. So it’s just fun that when you have properties that you can send people to, you can always see what kind of offer they’re making because right now, there are some crazy offers being made, I’m just saying, and it might be to your best benefit to let some of them go right now and let some cash come in the door to be ready for the downturn, which is coming. And that was my second part of the training today. Of course, we’re always open for questions.

So we encourage you to put in the questions box any questions you might have on real estate, on buying, on holding real estate, property management, lease options, owner financing, the Path To Home Ownership, Certified Affordable Housing Provider, renovations, trusts, land trusts, personal property trusts. These are things that I’ve been doing for over 40 years of being in this business of buying, holding, and selling property. So you have an opportunity to ask me anything you want, to ask me today while we’re together, but I thought it would be fun for you to look at some of the trends that are occurring in today’s market and know that these are some earmarks for what’s coming up. So I’m going to show you some slides on some current statistics and let you be the judge on whether you think that’s an opportunity or not. All right. So I’m going to share that screen.

And so getting into the mindset of this new market that we’re going into, take a look at some of these statistics that will harken back to the days of old, the last downturn. And if you’ll see here over in 2010, this is mortgage delinquency rates in the United States from 2000 to the fourth quarter of 2020. Now I look over here at 2000, that was 4.4%. Now we go to 2010, it went to 9.3% mortgage delinquency. And then as you can see, 2012, 2013, 2014, 2015, 2016 around 4.4% in 2018 and pretty much stabilized here till it starts going up again. And that’s where we are right now. So look over here, it was 9.3% in 2010 when the big bulk of the crash occurred.

And sure enough, we have been hovering around 8% right now. So as we look at the crystal ball of what’s happening and we look at them kicking the can down the road as they do, we see things like this. Sure enough, here’s mortgage delinquency rate and unemployment rates, seasonally adjusted. And look at this, you’re looking at way back here in 1979, comparing unemployment to the mortgage delinquency rate. Here’s what you see. You see that there’s kind of a big distinction of difference in the earlier years in the ’80s, but then it started to align around 2000 where unemployment and delinquency were very much related. And as you can see here in 2020,  2021, here we are at 6.38% of unemployment, and look at here, we’re at 6.17% of delinquency. So there’s a very big correlation on unemployment. There’s not a real good reason for people to be unemployed right now because there’s so many jobs available.

However, the government is competing with the employers out there in the world that need employees because the government has been subsidizing people’s income. So as a result, they are really motivated to go out there and go to work, but it could be causing some of this mortgage delinquency that’s going on. Now let’s take a look at this FHA mortgage delinquency, and this is the percent of FHA mortgages, 30 days or more delinquent. And as you can see, this is month over month, back in July 2019 before the COVID and all that, we were below 11% and after COVID hit, we’re remaining consistent now, between 17% and 18% delinquency in FHA. Let me tell you why that’s a big deal because I’ve been teaching my students for years to buy a property off of the HUD home store. And that means that HUD has recaptured those properties from the lenders. They kicked in the insurance.

That’s what the FHA is for, is for insuring the mortgages, the difference between the 80% and the 97% that HUD allows. So that 17% differential is an insurance policy provided by the government to the lenders that are lending on these various houses and to these people. Sure enough, people, when they go delinquent, the lenders go back to the government and say, “Here’s your collateral. Give us our money. We’re kicking in the insurance.” So, the government takes those properties back. Now, here’s what is big – since the eviction moratorium, since the foreclosure moratorium, what’s been happening is people are hanging out in these houses and they are not making payments. And you can see between 17% and 18% right now are in delinquency. What does that mean? That means that a whole lot of people are way far behind.

And that means a huge, incredible backlog of FHA homes. So what we’ll see is when FHA does go ahead and foreclose on these properties and they do go ahead and evict these folks, which could be a year down the road. It could be significantly down the road. However, it’s important to note this because that means there’s a lot of inventory coming. And whenever there’s a dearth or a huge drop of inventory onto the marketplace, what does that do? That drives prices down. That gives us a huge opportunity coming our way. And here’s another one. Take a look at the 10 metros most threatened by FHA delinquency rates. And what do we see right here in Atlanta where I’m located, over 50,000 delinquent loans, over 20% of the loans in the marketplace that are FHA-backed loans are delinquent. 14.5% are serious delinquents. And the share of the overall FHA is 21% of the market.

So as you see here in the Houston area, 15.9% are serious delinquents. Chicago, 14.9%. Dallas, 12.9%. Washington-Arlington DC, the DMV area, 15.7%. We’ve got Riverside, San Bernardino, California, 11.9% delinquency.  And then we got in the adjoining area of the DMV in Maryland, 14.1%. You’ve got San Antonio, Texas. Now this is three Texas cities now, large Metro areas, 13% delinquency up. And then here comes Florida, Orlando 13.8%, Tampa St. Petersburg, 11.9%. So that means some inventory coming in certain markets in the country. And it’s something that you definitely want to watch as we look forward to the new market coming now. So people ask me, “Does that mean, Lou, that you’re not buying property?” No, that means, listen, go back to what I teach you about the House Monster.

The House Monster helps you find your buyer before you buy. If you’ve got a buyer, they’ve got a down payment, they can afford the monthly, you’ve got no reason not to buy a property for them that you can buy, right? So we’ve got that coming for you and know that we’ve got some opportunity coming and this is the market. This is the opportunity that’s coming your way. So I teach you about the target market and all the other good stuff. In fact, I’m going to be doing some of this at the upcoming Millionaire Jumpstart. So we’re going to be looking forward to definitely helping you in your overall strategy in your real estate business, coming up with the new opportunity that we’ve got. And I want to remind you that you can ask questions. So that’s what we’re here for, to give you the opportunity to advance your real estate business while we’re together.

Hopefully that was some eye-openers for you about the numbers that are happening out there right now. Now is the time to get educated. Now is the time to get inspired. Now is the time to get ready for the upcoming market.  

Scott Paton


Helga had an interesting question: Should you be saving your money for the fall in the prices or should we be going full steam ahead right now? 

Lou Brown


Helga, that’s a great question, and definitely the idea is not to stop and wait. The idea is to use your House Monster to bring in customers. They come in nonstop. It’s one of the reasons I created the House Monster because back in the last downturn when everything crashed and burned, I was left with a dozen properties that I had bought, right? I bought it cheap. I had fixed them up beautifully. We had them on the market. People were raising their hands, they were putting contracts in. They said, “I want to buy. I want to buy. I want to buy.” And the bank said, “No, no, no, we’re closed today. We’re not giving any money today. We’re not approving any mortgages now.” So, all of a sudden I got stuck with those properties. Well, I flipped the script and started offering those on my Path To Home Ownership program.

And that was the game changer for us. So definitely the game changer is to find your buyer before you buy. So as a result of already having a customer, you already know they have down payment money, that you know what they can afford on a monthly basis. You know what their credit looks like. You know what kind of program you can offer to them. Now we can go about finding and buying a property for that person. Literally as a principal, we purchased the property and we put our customer into the property. Now we have the best of both worlds, right? They don’t care how much money you’re making on the deal. They care if they can all afford it. So your job is to get that customer. Your job is then to go buy a house for them and we don’t have to wait for the downturn in the market because there’s deals out there all the time.

And that’s one of the things that I teach you at Millionaire Jumpstart is we literally have a presentation process that we do with our customers. And one of the things that I teach you at Jumpstart is that we have this magical thing called a cost-to-sell worksheet. This is what we do with our customer so our customer sees exactly, and in fact, participates in coming up with the bottom line offer price on the property. So when we come up with a bottom line offer, the seller sees exactly how we got there. If that number works for them, great, we buy the property. And if that number does not work for them, great, we have another offer we can make. And so as a result of what we do and how we do it, we’re able to justify a price. And we’re also able to justify an increase in our offer with the seller being a participant in the deal. Great question. Thank you.

 Scott Paton


We’ve had a few people ask that if they get started now, then what you’re saying is when all these foreclosures and everything starts happening, they’re going to be prepared?

 Lou Brown


Yeah, exactly. Right. We’re going to, I called it “flattening the real estate curve” for a while there because they were talking about, ‘We’re going to shut the whole country down and flatten the curve on all these people coming into the hospital and they just never woke back up,’ but our approach to the business is flattening the real estate curve. So I really don’t care when or if the market crashes, that’s really not a concern to me. Why? Because I do things differently. Instead of having an inventory of houses, I have an inventory of customers. That’s the key, an inventory of customers that we serve. And while we’re serving those folks, we’re finding a property that fits with exactly their situation. And there’s a profit there and their safety there. So regardless of what the market does, we’ve already got a safe way that we can earn money and not have to worry about when or if the market crashes.

 Scott Paton


All right. So time to wrap it up, Lou, any last words of wisdom? 

Lou Brown


Well, I’ll tell you now is such a great time to be in this business. You might’ve heard me say that before, but it’s just so true. Everywhere I look, I see opportunity. Janice was telling me that one of the properties that we have on our Path To Home Ownership program, it was originally for one of our Path to Home Ownership members but it fell through and that particular member wasn’t able to take that property. So Janice put it out on Facebook marketplace with our program. Oh my gosh, she got 41 leads within hours of putting it out there. So it’s just amazing how much is available out there now and how hot the market is, how much people are predisposed to our transactions. I’ve told you before that we are not doing any rentals right now.

We’re only doing rent-to-own, owner-finance or cash sale. And sure enough, there’s plenty of customers out there with significant down payments. Much better customers, right, when they’ve got more skin in the game? So it’s something I encourage all of you to take a look at in your own portfolios, that there’s an opportunity that exists, that you may not be taking advantage of. So definitely, I would get brushed up on those techniques like my  Volume 9 on Lease Options, my Volume 10 on Owner-financing, which are just parts of the overall strategy that we do on our Path To Home Ownership. Definitely, get brushed up on those things and start offering your properties that way. But don’t wait, go ahead and get customers in the pipeline now even if you don’t have any vacancies, because those customers can cause you to go out there and find some more properties. When you’ve got a nice customer with a nice down payment, we’re working with one right now with $20,000 down, another one with $30,000 down, another one with, believe it or not, $200,000 down. So, there’s lots of people out there that do have down payment money that cannot qualify for loans at a traditional lender. They do have money. They do have income, but the traditional lenders will not serve them. So that’s a huge opportunity for each and every one of you to take advantage of. So that would be my advice of the week, to get out there and take on this great market that we’re in right now.