Many landlords are finding it difficult to finance or refinance their properties thanks to high interest rates and high debt-to-income ratios. Debt Service Coverage Ratio (DSCR) loans are an option that prioritizes cash flow on the property over the landlord’s personal credit. While DSCR loans appear to be the solution to many investors’ prayers, there are many downsides to DSCR loans. I have looked into the loans many times but have never personally pulled the trigger on one.
What is a DSCR Loan?
Unlike traditional loans that rely heavily on your personal income and credit score, DSCR loans focus on the income-generating potential of the property itself. These loans are particularly ideal for investors with:
Limited traditional income: Self-employed individuals, business owners, or those with irregular earnings can qualify based on the property’s projected rental income.
Multiple mortgaged properties: If you already have several investment properties, traditional lenders might not give any additional loans. There could be portfolio lenders who will lend to investors, usually small banks and DSCR lenders who do not care how many properties you have.
How Does a DSCR Loan Work?
Instead of scrutinizing your tax returns and credit score, DSCR loans use a simple formula:
DSCR = Net Operating Income (NOI) / Total Debt Service (TDS)
NOI: Rental income minus operating expenses like property taxes, insurance, and maintenance.
TDS: Monthly principal and interest payments on the loan.
A minimum DSCR ratio, typically between 1.25 and 1.5, is required for loan approval (some lenders may go down to 1.0 with a large down payment). This ensures the property generates enough income to comfortably cover its debt obligations.
Some DSCR lenders will also lend on potential cash flow which means the property does not have to be fully stabilized before they will consider it. It is also important to know what the lender’s definition of cash flow is because my definition is much different than theirs!
Pros and cons of DSCR loans
Advantages of DSCR Loans:
Access to financing: Even with imperfect credit or limited income, you can secure funding for promising investment opportunities.
Focus on cash flow: The emphasis on property income encourages responsible investment choices based on sustainable potential.
Faster closing times: DSCR loan applications can be less complex and quicker to process compared to traditional loans.
Risks and Considerations:
Higher interest rates: DSCR loans often come with higher interest rates than traditional loans due to the perceived increased risk.
Stricter property requirements: Lenders might have specific criteria for property type, location, and rental income potential.
Limited loan-to-value (LTV) ratios: The amount you can borrow might be lower compared to traditional loans, requiring a larger down payment.
Pre-payment penalties: Most DSCR loans come with large pre-payment penalties which means you will need to hold that loan for the long term or pay hefty penalties.
Is a DSCR Loan Right for You?
While DSCR loans offer enticing possibilities, careful evaluation is crucial. Consider these factors:
Your financial goals: Is the higher potential return worth the increased interest costs and risk?
Property selection: Can you find a property with strong enough rental income to meet the DSCR requirements?
Exit strategy: Are you prepared to hold the property long enough to avoid the pre-payment penalties or are you willing to pay them if you need to sell or refinance?
Why Have I not used a DSCR loan?
I have looked into using DSCR loans on some of my properties but there are a few reasons I have never pulled the trigger.
The pre-payment penalty is a huge downside right now when interest rates are dropping and I may want to refinance in a year or two.
The interest rates always seem to be quite a bit higher when I get my official quote than what is originally advertised.
There are quite a bit of origination fees and points when using a broker.
Many DSCR lenders will not lend on mixed-use or commercial properties which I have a lot of!
If you can get local bank financing it is usually much better than a DSCR lender. The rates are lower with no pre-payment penalties but the banks may have shorter terms on their loans as well. I may look into DSCR loans again and you can find some lending options on my resources page if you are looking for a lender.
Below is the property I may be looking to refinance soon.
Wells Fargo fourth-quarter profits fell thanks to higher loan losses and charge-offs tied to the ongoing mortgage crisis that’s been dampening earnings industry-wide.
Wells Fargo said it earned $1.36 billion, or 41 cents per share, compared to $2.18 billion, or 64 cents per share, during the same period in 2006.
The results largely matched analyst expectations, but marked the banks’ poorest showing in seven years, when it earned just $1.18 billion.
“While we were not immune to the unexpectedly sharp and rapid downturn in housing, and our earnings were reduced in the fourth quarter by the $1.4 billion credit reserve build, primarily for home equity losses, we largely avoided the problems and costly asset write-downs many large financial institutions incurred,” said Chief Financial Officer Howard Atkins, in a statement.
Despite that, the San Francisco-based bank and mortgage lender saw record revenue growth of 8 percent to $10.21 billion from $9.41 billion a year ago.
Wells Fargo set aside $2.6 billion for home equity loan and other loan losses, including charge-offs of $1.21 billion, or 1.28 percent of average total loans, compared with $726 million (0.92 percent) in the fourth quarter of 2006.
“We largely avoided many higher-risk wholesale and consumer loan products and practices that are problematic to the industry,” said Chief Credit Officer Mike Loughlin.
“However, we did not fully appreciate the severity of the residential real estate downturn and its impact on our home equity portfolio, particularly our third party-originated, higher loan-to-value second mortgages.”
Here are some of the mortgage-related highlights from the quarterly report:
• Mortgage originations of $272 billion in 2007, off 7 percent from a year ago • Record $1.53 trillion mortgage servicing portfolio, up 12 percent from a year earlier • 10 million servicing customers • Mortgage application pipeline of $43 billion, down from $48 billion at December 31, 2006
Shares of Wells Fargo ended the trading session up 88 cents, or 3.32%, to $27.37 as investors seemed to applaud their conservative ways.
Do you want to learn how to make money in one hour? Whether it’s for an unexpected bill or you’re saving for a special purchase, the good news is that there are many real ways you can make money within an hour or less. These can be ways to make extra income or even possibly…
Do you want to learn how to make money in one hour?
Whether it’s for an unexpected bill or you’re saving for a special purchase, the good news is that there are many real ways you can make money within an hour or less.
These can be ways to make extra income or even possibly be turned into a full-time job.
Back when I had student loans, I found many different ways to make money in an hour. I did this because I wanted to squeeze in quick side hustles around my full-time job – such as before and after work and during my lunch break. There were also times when I needed money quickly, such as in less than an hour, and I had to find ways to make that happen to have cash on hand.
There may be other reasons for why you need to make money in an hour or less. If this is you, continue reading below to learn how to make money in 60 minutes or less!
Key Takeaways
If you have unwanted items (like clothes you don’t wear anymore), sell them. You can use apps or go to a thrift store, and they might give you cash right on the spot.
You could sell helpful services like tutoring or dog walking. These jobs pay you right away for the time you spend doing them.
You can make money fast by taking online surveys. Websites like Survey Junkie or Swagbucks pay you for sharing your opinions.
Recommended reading: How To Make $100 A Day
Best Ways to Make Money in One Hour
Whether you only have one hour to spare each day or if you need to make money in literally one hour from now, you do have some options.
Make money in one hour by selling items you don’t need
Got stuff at home you don’t use anymore? You can turn those things into cash, often in just an hour!
Here are some easy ways you can do this.
Clothes and jewelry – Look in your closet. Are there clothes that are no longer worn? Take them to a thrift store or a consignment store like Once Upon A Child. They buy your gently-used clothes and you leave with cash in your hand!
Toys and games – If you have toys or video games that just sit around, you can sell these too. Kids outgrow these fast, and you can find a new home for them where they’ll be loved again.
Unused gift cards – If you have gift cards that you haven’t used, you can sell them!
Other stuff – Electronics, books, or maybe some old furniture could also be sold.
You can sell items on platforms like Decluttr, Facebook Marketplace, Craigslist, and eBay. I have sold on all these (plus a lot more!), and they are all easy to use.
You could even have a garage sale if you have lots of items to get rid of.
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This free workshop will teach you how to get into the flipping business. It will teach you how to resell furniture, electronics, appliances, and anything else you can find.
Mow lawns or shovel snow
Making money in one hour can be done if you mow lawns or shovel snow. These jobs can be done quickly, and you get paid right after you finish the work.
You’ll need a lawn mower, shovel, and/or snow blower to get started, and you can typically charge around $50+ for a yard.
Doing a good job increases the chances of people asking you to return or recommending you to their friends. Take your time to do things well. Before starting any work, make sure to ask how much they’re willing to spend because this way, both of you agree on the price!
Return a recent purchase
If you bought something you don’t need or haven’t used yet, returning it is a quick way to get cash.
Surprisingly, many people have items lying around that they’ve purchased but may have not used yet. If you really need the cash, then this can be a great option to start with.
First, find your receipt. This shows you paid for the item and when you bought it. No receipt? Look in your email or bags. Sometimes, stores send receipts to your email or put them in your shopping bag.
Next, check the store’s return policy. Some stores let you return items within a certain time, like 30 or 60 days. Be quick – if you wait too long, you can’t return it!
Before you go to the store, make sure the item is in good shape. It should look like when you bought it. Return it in its original packaging if you can. Here’s a list of what you’ll need to return a purchase:
Your receipt (or email proof)
The item (unused and not broken)
Packaging (the box or bag it came in)
At the store, go to the customer service desk and tell them you want to return the item. Be polite – it makes things smoother. If you don’t want to go to the store, some stores might let you mail the item back.
Remember, some items can’t be returned. Things like opened DVDs or personal use items like earbuds usually can’t go back to the store. It’s always a good idea to know the return rules before you buy things.
Deliver food to make money in one hour
If you want to make money fast and take advantage of the gig economy, you can deliver food, such as groceries or restaurant meals. Companies like Instacart, Uber Eats, and DoorDash let you sign up to be a delivery driver.
To get started, you’ll need a car, bike, or scooter and sign up for the company that you want to work with. You’ll then get orders on your phone through an app, go to the restaurant or grocery store, pick up the food, and drive it to the customer’s place (this may be their home or where they work).
You’ll get paid for each person or food delivery, plus get tips as well.
You get to choose the hours that you want to work, and you can work for just one hour or as much as you want.
Related to this, you can even deliver packages for retailers with Amazon Flex!
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Instacart is a popular website for people looking to earn extra money shopping for and delivering groceries. Instacart gives you the option to turn your free time into a chance to make some extra money.
Drive for rideshare companies
If you want to make money quickly, you might start driving for companies like Uber or Lyft.
You get paid for giving people rides in your car, and the more you drive, the more money you can make.
Drivers can earn about $20 per hour on average. In some cities, drivers can make more than $30 an hour.
You can increase your earnings further by concentrating on busy areas (such as before and after a concert) and driving during the busiest times (such as on a Saturday night). This way, you can make more money for each hour of your time!
Recommended reading: How To Make $1,000 In 24 Hours
Answer online surveys
If you want to make money quickly, you can try taking paid online surveys. Market research companies need your opinions to make their products better, so they pay you for your time.
Some paid survey sites where you can take surveys include:
American Consumer Opinion
Survey Junkie
Swagbucks
InboxDollars
Branded Surveys
Here’s what to do:
Sign up: Make a free account on the survey site.
Pick a survey: Choose one that looks interesting to you.
Give honest answers: Share what you really think about the questions you’re asked.
Earn rewards: After you finish, the site will give you points or money.
Earning money from answering surveys is not always fast, and it won’t make you rich. But if you have an hour, it’s a simple way to earn a little extra cash.
For me, I have answered a lot of surveys over the years. I like how I can answer surveys in little breaks I have during the day, such as before and after work, during a lunch break, while being a passenger in a car, and so on. They are easy to answer, and usually only take a few minutes.
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Branded Surveys is one of the most popular survey sites that rewards you in cash and gift cards for sharing your opinion. You can get paid anywhere from $0.50 to $5.00 per survey.
Perform odd jobs found on Craigslist
Craigslist has a jobs section on their site where you can find tasks that people need done right away. These are typically one-time gigs, but there are also part-time and full-time jobs listed here as well.
When you do a job on Craigslist, you usually get paid right after you complete the short task. That means you’ll receive your money on the same day.
To find Craigslist gigs in your town, just go to Craigslist and look for the “gigs” section.
Here are some gigs and tasks I found through a quick search on Craigslist:
House cleaner
Mover
Focus groups
Help with launching a boat
Gardening help
Help with painting a home
Lawn mowing
Participate in focus groups
Are you looking for a quick way to make money? Joining focus groups can be a fun way for you to earn extra cash and many times they take an hour or less.
A focus group is a small group of people who talk about products or services. Companies use your opinions to make their stuff better by learning more about their customers, such as you.
User Interviews is a popular site to find focus groups to take part in.
I have done a user interview in the past and got paid $400 for just one hour of work. It was simple, and everything happened online through a video call to see my opinion on a new feature for a well-known company (one of the largest companies in the world, in fact – so even large companies use these to help them improve!).
You can make $50 to $100 per hour, or even more, by sharing your thoughts and feedback.
Recommended reading: 19 Best Places To Find Paid Research Studies
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User Interviews pays very well for market research studies and these are some of the highest paying online surveys, with each paying $50 to $100 or more. The average pays over $60.
Mystery shopping
If you want to earn money quickly, like in just an hour, you can try becoming a mystery shopper. Mystery shoppers are people just like you and me who get paid to shop and give their opinion.
I’ve done a lot of mystery shopping over the years to make some extra money and to get free stuff. It’s easy work that can be done either on the phone (such as by rating their customer service when they answer the phone) or in person at a store. Most mystery shops take less than an hour too! I’ve done many that even take less than 5 minutes to complete.
The way mystery shopping works is that you’ll typically buy products or try services, pay attention to the details like how clean the store is or if the staff is nice, and then answer questions that the mystery shopping company gives you after you are done.
Donate plasma
If you’re looking for ways to make money in one hour, you can donate plasma and get paid for it.
When you go to donate, the center will check your blood to make sure you’re healthy and that your plasma can be used to help others.
Here’s what you might earn for your plasma donation:
$20 to $50 for each time you donate
Up to $300 a month if you donate regularly
Some centers might pay more money for your first time donating, like a bonus to persuade you to start. The amount you get can change depending on where you live, so make sure to confirm before you commit.
Tutor students online
If you want to learn how to make money in one hour online, then online tutoring jobs can be a good option to look into.
If you’re good at a subject, you can make money fast by tutoring students online. Lots of students need help with their schoolwork and are willing to pay for your knowledge.
As a tutor, you might spend 30 minutes to an hour giving a lesson, answering questions online, or working one-on-one with a student through a video lesson.
Tutors can earn different amounts depending on what they teach (the subject) and the duration of the session (whether it’s a quick question or a full-hour session). For example, tutoring in advanced subjects like calculus usually pays more than simpler ones like first-grade math. Some tutors may earn around $20 per hour, while others can make well over $100 per hour.
Sell scrap metal
Selling scrap metal or precious metals is a quick way to make some money in just one hour.
To get started, you’ll want to find metal items from around your home. This can be old appliances, wires, and even soda cans.
Then, you’ll want to find a scrap yard nearby to take your metals. You’ll want to make sure it’s clean and to keep your metals separated and organized.
Once you get to the scrap yard, you’ll weigh your metal on their scales, and then they’ll give you a price. If it’s your first time, ask how the process works just so that you are not confused by anything.
Prices change often, so what you earn depends on the type and weight of the metal you sell.
Play online games for rewards
Have you ever thought you could make money by playing games on your phone or computer? Yes, you can! Some apps and websites let you earn rewards, like gift cards or even cash, just for playing online games in your spare time.
Apps that pay you for playing games usually make their money through ads, things you buy in the app, and paid gaming competitions. They share a bit of what they earn with you to get you to keep playing their games and spend more time on their platform.
Here’s a quick list of the top game platforms that pay real cash:
KashKick
Swagbucks
InboxDollars
Recommended reading: 23 Best Game Apps To Win Real Money
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Swagbucks is a site where you can earn points for answering surveys, shopping online, watching videos, using coupons, and more. You can use your points for gift cards and cash.
Walk dogs
If you like being around pets and want to make money fast, dog walking is a great choice. Many dog walking gigs are one hour or less per visit, so this can be a great way to make money in an hour.
To start, you just need a love for dogs and a good pair of walking shoes.
You can set your rates, usually between $10 to $20 for a 30-minute walk.
One hour of walking dogs could mean walking one dog for 60 minutes or doing two 30-minute walks for two different dogs.
Rover is a website that connects pet owners with pet sitters and dog walkers. Starting on Rover is simple. You create a profile where you talk about your experience with pets and the services you can offer, such as dog walking, pet sitting, and house sitting. After setting up your profile, you’ll get requests from customers and discuss pricing. Rover handles payment processing, and you’ll receive the payments directly into your account.
I know many people who are dog walkers, and they all really love the job. I have also used dog sitters in the past – it is a wonderful and super helpful service.
Freelance online on your own schedule
As a freelancer, you get to choose your own hours. So, you may decide to work an hour here and an hour there.
Back when I had a full-time job, this is what I loved about being able to freelance online – I could work in my spare time, even if it was just small pockets of time that I had. For example, I would complete short tasks an hour before I went to work, during my hour lunch break, and later once I got home from work.
And, there are many different types of freelance gigs that you can do, such as managing social media as a virtual assistant, data entry, proofreading, graphic design, email management, and more.
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This free 76-minute workshop answers all of the most common questions about how to become a proofreader, and even talks about the 5 signs that proofreading could be a perfect fit for you.
Sign up for a high yield savings account
A high-yield bank account is a low-risk method to make extra money, and it typically takes less than an hour of your time to set up.
These savings accounts earn more interest than a regular one, so your money grows faster.
You will want to make sure that you pick a trustworthy bank and check the interest rates regularly because they can go up or down. Some people move their money into high-yield savings accounts often so that they can get the highest interest rates.
I personally use Marcus by Goldman Sachs as they have a very high rate. You can get up to 5.50% (at the time of this writing through a referral link bonus). According to this high-yield savings account calculator, if you have $10,000 saved, you could earn $550 with a high-yield savings account in a year. Whereas with normal banks, your earnings would only be $46.
This is an easy way to make passive income!
Frequently Asked Questions
These answers help you find quick ways to make money when you need it fast.
How can I make money ASAP?
If you need cash right away, you can sell things you don’t use anymore, like toys or clothes. Another fast way is to do small jobs for neighbors, like walking their dogs or helping in the garden.
How can I make $100 a day?
To make $100 a day, you could do jobs like cleaning houses, pet sitting, or babysitting. You could also combine a few things like doing surveys online, delivering food, or driving people places.
How to get money in one day without a job?
Without a job, you can still make money by selling stuff online, like clothes, games, or even sports equipment. You can also collect cans or bottles to recycle, or ask friends or family if they need help with anything for some quick cash.
How to make money in one hour as a kid?
As a kid, you can make money fast by setting up a lemonade stand, doing a car wash, or even making and selling crafts to friends and family (such as bracelets or custom T-shirts!). Of course, please check with your parents and stay safe.
How can I make money in one hour at home?
To make money in an hour at home, you can do things like sell items that you already own, such as your old clothing or a cell phone. You could also walk dogs, freelance online, or even tutor.
How to Make Money in One Hour – Summary
I hope you enjoyed this article on how to make money in one hour.
As you can see, there are many things that you can do to make money – whether you’re looking for a full-time job or just want to complete short tasks that take less than an hour.
Hour or shorter gigs helped me a ton to pay off my student loans as quickly as I could. Being able to work in short amounts of time helps me to work on my own schedule and fit more side hustles in.
Why are you looking to make money in an hour? Let me know in the comments below!
An arbitrator conclusion issued last week caps a four-year legal battle over allegations of trade secret theft involving two of the biggest companies in the housing industry, Black Knight Servicing Technologies and PennyMac Financial Services.
In a 2019 lawsuit, Black Knight accused Pennymac of copying its mortgage servicing platform, MSP, to create its Servicing Systems Environment (SSE) platform.
On Nov. 28, an arbitrator awarded Black Knight $155.2 million in damages related to a breach of contract claim (plus interest and attorney’s fees), representing six years of avoided license fees.
Meanwhile, according to the arbitrator’s conclusion, Pennymac will keep all its intellectual property and software, including SSE, “free and clear of any restrictions on use.” Pennymac said SSE has allowed it to reduce its servicing costs per loan by over 30% since its implementation.
The arbitrator issued an interim award, which means the companies can still move to correct, modify or vacate it before a state court confirms it.
Black Knight filed a complaint against PennyMac in November 2019 for breaching contracts and misappropriating trade secrets. According to the plaintiff, Pennymac stole its mortgage-processing system and created one of its own.
The lawsuit, filed in the Fourth Judicial Circuit Court in and for Duval County, Florida, sought $340 million in damages and injunctive relief under the Florida Uniform Trade Secrets Act and declaratory judgment of ownership of all intellectual property and software developed by or on behalf of Pennymac.
In March 2020, the companies entered arbitration.
More than three years later, the arbitrator awarded, in part, Black Knight‘s breach of contract claim and denied the claims of trade secrets misappropriation and injunctive and declaratory relief.
“The arbitrator concluded (wrongfully in our view) that Pennymac’s access to MSP allowed it to increase the speed of developing SSE and awarded Black Knight lost profits in the form of licensing fees it would have otherwise received from Pennymac over a longer development period,” Pennymac said in an 8-K filing with the Securities and Exchange Commission (SEC).
ICE, the new owner of Black Knight, said in a statement that it “will continue to seek the robust protections afforded to trade secrets and confidential information under federal and state law, including in products developed using its confidential information.”
According to Pennymac, the accrual related to the interim award will be recorded in the fourth-quarter earnings, with an impact of $2.85 per share. The company states it had $1.2 billion cash on its balance sheet as of Sept. 30 to fulfill the interim payment.
Analysts who cover Pennymac at Jefferies wrote in a report that they “would expect a modestly negative reaction to the charge, which equates to roughly 4% of book value.”
Both Bank of America and Wachovia Bancorp barely chalked fourth-quarter profits as a result of hefty mortgage-related writedowns and increased loan-loss provisions.
Bank of AmericaProfit Dives
Bank of America saw its fourth-quarter profit slip 95 percent to just $268 million, or 5 cents per share, compared to $5.26 billion, or $1.16 per share, during the same period last year.
Its earnings were severely impacted by a $5.28 billion writedown related to the flagging value of its CDOs, and $3.3 billion set aside for bad loans.
The bank’s fourth-quarter revenue fell a staggering 31 percent to $12.67 billion, from $18.49 billion last year.
The company saw home equity loan losses triple since the end of the third quarter, while charge-offs rose to 0.91% of the total portfolio from 0.82% and non-performing assets more than doubled to 0.68% of total assets from 0.26%.
On a positive note, first mortgage originations rose 22 percent to more than $104 billion from $86 billion a year ago, helped in part by the success of its No Fee Mortgage PLUS, which accounted for 16 percent of the company’s first mortgage production in the fourth quarter.
Bank of America plans to shore up more than $2 billion in capital to better position itself for the pending acquisition of Countrywide Financial, but said it doesn’t plan to cut its dividend.
For the full year, the banking giant reported earnings of $14.98 billion, or $3.30 per share, compared with $21.13 billion, or $4.59 cents per share, a year earlier.
Wachovia Barely Turns a Profit
Wachovia faired even worse, with profit dwindling 98 percent to just $51 million, or 3 cents per share, compared to $2.3 billion, or $1.20, a year ago.
Its fourth-quarter results included a $1.7 billion writedown tied to mortgage-related investments and $1.5 billion set aside for loan losses.
Fourth-quarter revenue at the bank and mortgage lender dipped to $7.2 billion from $8.62 billion in the same period a year ago.
Net charge-offs rose to $461 million, or an annualized 0.41 percent of average net loans, while non-performing assets climbed to $5.2 billion, or 1.08 percent of its loans, foreclosed properties and loans held for sale.
Despite capital concerns, chief executive Ken Thompson told investors during a conference call that the bank would not cut its dividend.
For all of 2007, Wachovia earned $6.31 billion, or $3.31 per share, compared to $7.79 billion, or $4.72 per share, reported in 2006.
Analysts surveyed by Thomson Financial, on average, forecast earnings of 18 cents per share for Bank of America and 33 cents per share for Wachovia.
Shares of Bank of America climbed $1.87, or 5.20%, to $37.84, while Wachovia gained 62 cents, or 2.01%, to $31.42.
National City Reports a Fourth Quarter Loss
In related news, National City reported a fourth-quarter loss of $333 million, or 53 cents a share, compared with year-earlier net income of $842 million, or $1.36 a share.
The results include $181 million, or 26 cents a share, in mortgage-related charges and a loan-loss provision of $691 million tied to the liquidation of portfolios containing non-conforming mortgages and home equity loans.
Net charge-offs for the quarter were $275 million, or 0.96% of average portfolio loans, compared with $128 million a year earlier, while nonperforming assets more than doubled to $1.5 billion, or 1.31% of loans, mostly linked to a larger number of delinquent residential mortgage loans.
JPMorgan Chase said today that fourth-quarter profit fell 34 percent largely due to subprime exposure and higher delinquencies tied to home equity loans.
Fourth-quarter earnings fell to $2.97 billion, or 86 cents a share, compared to $4.53 billion, or $1.26 a share, in the same period a year ago.
Despite falling short of the analyst-anticipated 93 cents a share, revenue climbed to $17.38 billion from $16.19 billion the year prior, beating analyst expectations of $17.05 billion.
For the entire year, net income rose to a record $15.4 billion, or $4.38 a share, on record revenue of $71.4 billion.
JPMorgan upped its provisions for loan losses by $2.54 billion during the quarter, and wrote down $1.3 billion on subprime positions, including subprime CDO’s.
The company saw an increase of $395 million for losses tied to home equity loans and an $124 million increase for subprime mortgage loan losses.
Home equity net charge-offs were $248 million (1.05% net charge-off rate), compared to $51 million (0.24% net charge-off rate) a year ago.
Subprime mortgage net charge-offs were $71 million (2.08% net charge-off rate), compared to $17 million (0.65% net charge-off rate) a year ago.
Total mortgage loan originations were $40 billion in the fourth quarter, up two percent from the third quarter and 34 percent from the prior year, while total third-party mortgage loans serviced increased 17% from the prior year to $614.7 billion.
In regard to a possible acquisition, Dimon seemed to hint that a purchase could be on the horizon.
“I think in terms of either buying assets or buying companies, we’re very open minded and we figure we can do the right kind of due diligence and understand the values and that we’re giving the value that we’re getting, we would be very happy to do it,” Dimon said during the conference call. “This environment doesn’t change that at all. It just may make it more likely.”
Shares of Chase rose $2.88, or 7.35%, to $42.05 in afternoon trading on Wall Street.
According to Credit Suisse analysts, mortgage financiers Fannie Mae and Freddie Mac could write down a collective $16 billion in the fourth quarter related to deteriorating subprime and Alt-A mortgage investments.
The analysts wrote in a note today that Freddie stands to write down between $8 to $11 billion when it announces fourth-quarter earnings, while sister Fannie faces losses between $2.25 and $4 billion.
“For the past several months, we have become increasingly concerned about the potential capital impact on the GSEs’ capital positions from ‘other than temporary impairments’ on subprime and Alt-A-backed securities within their investment portfolios that were originally rated ‘AAA’,” the analysts said in a statement.
Higher delinquencies associated with subprime and Alt-A mortgages have led to a slew of credit rating downgrades recently, creating more capital pressures for the strained government-sponsored entities, analysts said.
The firm’s analysts, who currently rate both companies “underperform”, said the companies have recorded “minimal” unrealized losses thus far, and noted that significant writedowns at banking giants such as Merrill Lynch and Citi could force similar actions among the GSEs.
Late last week, Morgan Stanley analyst Kenneth Posner downgraded Fannie Mae to “underweight” from “equal-weight” and cut his price target on the nation’s largest mortgage financier to $25 from $39.
He also cut his target on Freddie Mac to $30 from $47, maintaining his “equal-weight” rating on the stock.
Shares of Fannie Mae ended the day down 8 cents, or 0.25%, to $32.07, while Freddie Mac climbed $1.02, or 3.69%, to $28.68.
Fannie and Freddie own or guarantee roughly 40% of the $10.9 trillion U.S. residential mortgage market, but severe losses could jeopardize their ability to capture more market share.
[Editor’s Note: This is the introduction to our 275th Weekly Transmission, originally delivered direct to the inbox of the GEM Crystal on December 22nd, 2023. Below, myself and others from the GEM Diamond community look back on year with high interest rates, tighter VC wallets, lawsuits, and increased short term rental legislation. Many links included are to members-only articles, so won’t be accessible without an account already setup. You can read the full full article on our Crystal Platform.]
What a year, what a year. It’s all about the interest rates.
The 2023 macro was challenging, at best. It was a damn hard year all the way around. ❇️Reali ended in flames ❇️, as did Veev. WeWork lost its mojo, again. Opendoor’s missionary force stepped away. Those that survived are here to stay…for now. There’s no doubt 2024 will usher in another year of sleep-deprived founders.
Here’s a snapshot of the most notable industry dynamics that played out:
Mounting Lawsuits: There are $1.8 billion reasons that the Sitzer/Burnett trial in the U.S. District Court in Missouri has dominated the year’s news cycle. And, many more when you factor in the growing selection of follow-on lawsuits. Re-read that Sam Westelman essay thoroughly. Big changes are afoot, both for individual practitioners and MLSs—all of which will impact technology innovation and adoption.
AI-izing Everything: We don’t need to beat this drum since it’s beyond obvious, but you can’t go a day without hearing about the impacts of AI. That said, it’s still focused on the low-hanging fruit—largely still being used for data efficiencies, automating processes, and of course creating content.
Drying Up VC Funding: Fundraising was hard. Really hard. I heard that sentiment over and over from founders far and wide. BISNOW reports proptech funding was down 42%. Finding a VC actually putting money to work makes me think, “Where’s Waldo?” As Fast Company says, 2023 was a bloodbath for venture capital. Sure, AI is bucking the trend, but I’m not optimistic that will hold as AI becomes table stakes, like social media. “Overall IPO proceeds in 2023 lag[ged] 2022’s,” and the existing public stocks experienced steep declines since their pandemic highs—that needs to change to turnaround VC fuel. We’ll continue monitoring the public side via our Quarterly Earnings Radar and weekly ❇️Proptech Index updates❇️.
Mainstreaming ESG: With New York’s Local Law 97 requiring buildings over 25,000 square feet “to meet new energy efficiency and greenhouse gas emissions limits as of 2024” (with even stricter limits coming by 2030), and Washington approving legislation that makes it “cumbersome and expensive for [residential] builders to meet energy efficiency targets without installing heat pumps,” sustainability has moved front and center. This is only the beginning of governmental mandates that will further drive adoption of sustainability technologies previously seen as optional.
Boiling Over of CRE: The office sector is even worse than everyone says. Vacancies are up, transactions are down. With the cycle on commercial longer, fatigue in the market is real, and with tenants fighting to lower or abandon rents, the adoption challenges startups have always experienced are more of a reality than ever before.
Regulating Short-term Rentals: New York’s Local Law 18 took effect in September, which we touched on ❇️earlier this year❇️. The overlap of long/short-term rentals and Airbnb and all of that mushy gray area where new living arrangements are popping up for people. All of which bodes well for ❇️those facilitating home sharing, swaps, and exchanges❇️.
And, with that, let’s get to it…
Image created by: Dall-E-3 Prompt: “I’m writing a post about the real estate market titled Looking back at 2023, but am looking for a graphic for the top of the article. please make one and include either 2023 or 23”
How did we fare? Let’s take the time to reflect on, and score, the predictions and trends published a year ago.
Freddie Mac, the smaller of the two government-sponsored entities, said the principal balance of its retained portfolio increased to $718.1 billion at the end of 2007, up from $701 billion in November, to the highest level since August.
The company’s portfolio increased at an annualized rate of 28.6 percent in December, the fastest rate in two years, and the first increase in four months.
The McLean, Virginia-based mortgage financier said its portfolio rose at a 2.4 percent annual rate in 2007, limited by constraints set forth by its regulator and recent capital concerns.
Much of the increase was related to purchases in Freddie’s own mortgage securities, known as participation certificates, while holdings of non-agency securities were reduced.
Its total mortgage portfolio increased at an annualized rate of 15.1 percent to $2.10 trillion in 2007, up from $1.8 trillion in 2006, while nearly doubling its growth rate.
The rate of delinquencies on single-family loans guaranteed by Freddie Mac increased to 0.6 percent in November, up from 0.42 percent in December 2006, the highest rate since February 2006.
Freddie Mac said its mortgage bond guaranty business grew at a 23.1 percent rate in 2007, compared with 15.2 percent in 2006, as more lenders turned to the GSEs to sell loans.
But the company warned that “the fair value of our net assets attributable to common stockholders has declined significantly due to the wider spreads on mortgage products.”
In a recent research note, Credit Suisse analysts warned that Freddie Mac could write down as much as $8 to $11 billion when it announces fourth-quarter earnings.
Shares of Freddie Mac ended the day down 52 cents, or 1.60%, to $32, significantly lower than their 52-week high of $68.12.
Kyle Joseph, a specialty finance equity research analyst at Jefferies, believes that the worst of the current mortgage cycle may be behind us, a sentiment shared by most analysts covering this industry.
“Barring any sort of unforeseen consequences, I’d like to think so,” Joseph said in an interview. “Obviously, this cycle was fast and furious – for lack of a better term – in terms of how quickly rates went up, and volumes basically got cut into a third of what they were two-plus years ago. It really sent shockwaves through the industry.”
Joseph anticipates potential growth in originations next year, both in purchase and refis.
“If anything, every day seems to be a higher likelihood that rates are not going higher next year,” he said.
Warren Kornfeld, senior vice president of the financial institutions group at Moody’s, provided a detailed forecast, stating, “We will see three to four decreases in the Federal Reserve funds rate next year, starting sometime in the second quarter. Mortgage rates will moderate down to about 6% to 6.25%.”
Kornfeld expects mortgage originations to range from $1.8 trillion to $2 trillion in 2024. On the refinance side, he predicts a moderate increase in cash-out activity as rates decline, with customers using the resources to consolidate debt and extract some home equity build-up.
Kornfeld said that for companies under his coverage, including major U.S. lenders, “The horrible period was the last half of 2022 and Q1 of this year. In Q2 and Q3, they’re okay. Q4 will be down. But once again, not a horrible year for 2023, and with the Fed pivot we’ll see further improvement next year.”
Bose George, managing director at Keefe, Bruyette & Woods (KBW), has adopted a more cautious stance for the coming year. He estimates the 10-year Treasury yields may average 4% for the full year, mortgage spreads should tighten “a little bit more,” and mortgage rates will average around 6.75% for the year.
Regarding origination volumes, George said, “Even the MBA numbers, to be honest, look a little bit high.” The Mortgage Bankers Association (MBA) on Dec. 18 released a $2 trillion forecast for one-to-four family loan originations in 2024.
According to George, there will be “a small amount” of cash-out refinances, and the purchase market might see “a little bit of an improvement,” but overall, 2024 “doesn’t look better.” Additionally, predicting the market recovery’s timing is challenging. “We’re not saying 2025. But it’s possible. It might really be 2026,” George said.
Given these distinct macro forecasts for 2024, what should originators keep in their playbook for next year? HousingWire spoke to analysts covering mortgage companies to gain insights into the challenges ahead.
The macro challenge: Still not much inventory
Analysts unanimously agree that inventory will continue to be a significant issue entering 2024. There are also lingering questions about where home prices will settle, a crucial factor in the current affordability challenges.
Eric Hagen, managing director and mortgage analyst at BTIG, said the “biggest anomaly in the whole episode of rising rates is that we would normally expect housing prices to have some sensitivity” – meaning, a tendency to decrease.
However, in the current market downturn, home prices “had almost the opposite sensitivity that you’d expect,” Hagen said. To exacerbate the situation, he expects the trend could persist in 2024 while “affordability is still tight for the marginal homebuyer.”
Kornfeld agrees that “the biggest wildcard” in 2024 will be related to home sales, with the current “lock-in effect” in place. Individuals with mortgages at 2-3-4% rates are less inclined to move and sell their homes in a higher-rate environment, further limiting the number of homes available for sale.
“The average time to sell is still 3.5 months. Homes don’t remain on the market for very long, which is just so surprising, given how horrible affordability is because of rates and prices. So, the big wildcard is when do homeowners start putting their homes on the market,” Kornfeld said.
Kornfeld added: “We’re talking about our scenario of a mortgage rate of about 6.0% to 6.25% by the end of the year. I think people are still gonna be pretty locked in. And it’s really going to take several years to start seeing more housing activity or existing home sale activity.”
George agrees that inventory will remain a problem. “Unfortunately, a big part of the housing supply issue seems to be related to the fact that all these borrowers are sitting on three-and-a-half percent mortgages, and they don’t want to give that up and move. If rates stay with our expectation here, whatever high six is, that piece doesn’t change.”
The KBW 2024-2025 housing forecast calls for home price growth of 2%, which is below wage inflation, but anticipates home sales growth of just 2%, marking a 41-year per capita low. Meanwhile, it expects a structural supply shortage of 1.5-2.5 million homes.
According to KBW analysts, affordability is 30% below the long run with payment-to-income of 27% compared to 20% between 2002 and 2004. Alongside lower mortgage rates and 3-4% annual wage growth, the estimate suggests it would “take two to three years to normalize affordability.”
The originations challenge: Addressing overcapacity
Reducing capacity may still be a feature of the mortgage lender playbook in 2024, but in a more nuanced approach, analysts said.
According to Kornfeld, “finding continued areas to cut costs without hurting franchise and quality of origination” will be a challenge.
“If you look at companies that we rate, the massive job cutbacks happened last year and into this year. But in the last several quarters, the headcount and compensation have been very flat. We’ll see some additional selective cost-cutting, but not a heck of a lot. For most large companies that we rate, the cost-cutting is over,” Kornfeld said.
Does this suggest these companies will experience stronger profits? It’s possible, but analysts believe that any rise in profit will be due to a slight growth in volume next year, not because there’s room for significant cost reductions.
According to the analysts, many top mortgage lenders retained a bit of excess capacity, anticipating numerous refi booms in the coming years.
“Capacity has come down quite a bit. And I think the best indication is that margins have been somewhat stable – gross margins for the last couple of quarters. In Q4 2023 and Q1 2024, the net margins will probably be lower just because of seasonality,” George said. “It seems like there’s probably more [capacity] that needs to come out. But there are large originators who want to keep some capacity as well.”
Hagen also believes that for the top nonbank originators, “a lot of the capacity has been pretty much right-sized for this rate environment.” Meanwhile, less-scaled companies have tried to “hang on to their stuff for as long as possible in the hopes the market comes back.”
According to Joseph, analysts’ conversations with mortgage executives have shifted from “How much more do you have to cut?” to “Are you going to be able to participate if the industry regrows?” or “Have you cut too much?”
“The outlook, at least from investors, is better, and I would also highlight that if you just look at gain-on-sale margins, they are really stabilized. To us, that implies that supply finally caught up with demand and that there’s an equilibrium in the market.”
The servicing challenge: Managing the MSR portfolio size
According to analysts, lenders facing liquidity issues may have opted to sell their mortgage servicing rights (MSRs) throughout 2023, putting them at a disadvantage when the next refi boom emerges.
Kornfeld anticipates an increase in MSR sales in 2024, driven by the ongoing financial challenges some lenders face. However, according to him, lenders are “getting a short-term gain in liquidity, but at the expense of a weaker franchise in the future.”
Jefferies’ Joseph said, “We’re taking a little bit of a contrarian [view] that if you have a high coupon mortgage that you’re servicing, it’s actually going to be beneficial next year to the origination segment and more than offset any potential negative impacts on the servicing side.”
Regarding these negative impacts, analysts at Fitch said in a report issued in late November that rate declines expected by the end of 2024 could pressure MSR valuations, which could drive modest increases in leverage, especially if earnings from originations remain weak.
According to the report, the balance sheet exposure to market risk is rising above historical levels for some companies, with MSRs as a share of equity up to 180% in some cases.
George adds that regulation will also weigh on the decision of selling MSRs, mainly the Basel III Endgame rules, which increase capital requirements for banks.
“The Basel III Endgame seems to be one catalyst for some of the MSR sales,” George said. “On the other hand, we’re still waiting to see what the final version is going to look like. It’s possible that they make some of that a little less onerous on the banks in terms of MSR holdings and the LTV on mortgages. So, we have to see how that plays out.”