Coronavirus Could Trigger Mortgage Market Crash as First FDIC-Insured Bank Falls, Crypto Coins News
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Mortgage holders could be in trouble as the first FDIC-insured bank falls in West Virginia.
High-risk mortgage notes are vulnerable to being called, which would make mortgages due in full immediately.
Mortgage holders are under pressure as the coronavirus pandemic sweeps America.
West Virginia’s First State Bank became the first bank to fall after the coronavirus pandemic rapidly swept across the United States. The potential closure of more regional banks in the near-term poses an unexpected threat to mortgage holders in the near-term.
Mortgage note calls may happen, which may leave many bankrupt
when a bank’s assets get transferred to another institution following a bankruptcy or forced closure by state regulators, mortgages are turned over to another bank or investor.
When a mortgage note gets called in, a process that is also described as mortgage acceleration, it makes the loan due in full immediately. It forces the borrower to pay the full amount of the mortgage in a notice of days, typically leading to financial wreckage.
Several high-profile investors including Dave Ramsey, best-selling author of “The Total Money Makeover.” Detailed their experiences with mortgage note calls in the past.
September (nd,) , I remember that the banks got sold. The main bank that we’re dealing with, we had $ 1.2 million with them and – day notes because we’re buying property and flipping it. And that bank got sold to another bank, and the guys in another state looked down and said … let’s limit the relationship, which is banker talk for call his notes to screw his life and they called our notes, giving 310 days to come up with $ 1.2 million. It started a crash I couldn’t start.
A similar process could occur to mortgage holders in the upcoming months if new lenders perceive them to be high risk. This would force borrowers to come up with a significant amount of money in a very short period of time.
Declining mortgage interest rates led more individuals to purchase homes. | Source: The Street
Will Large -scale bank failures happen?
So far, with the Federal Reserve’s efforts to maintain liquidity in the markets , large-scale bank failures as seen in are not expected to happen.
In the short-term, at least, the closure of small banks is unlikely to affect the common individual purchasing a home with a long-term fixed rate mortgage.
Real estate investors who deal with large sums of capital and high-risk mortgage notes could face similar problems as Ramsey in the 2008 s, especially if the coronavirus pandemic applies additional pressure on the financial sector .
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