If you didn’t know yet, Scott Carson does a live stream of himself once a month at CallingBanks.com, where he spends four to five hours calling bank asset managers. On this episode of the Note Closers Show, Scott discusses some of the lessons learned from the different sessions that he has held over the past couple of months. He also shares some of the a-ha moments that students have shared with him when it comes to calling banks to find note deals. Haven’t been a part of these live streams yet? Check out CallingBanks.com and sign up for the next one.
Listen to the podcast here:
Calling Banks To Find Note Deals: Top Takeaways 2020
We are living in some strange times with Corona and COVID. People are working from home or people are still trying to figure things out there. There’s no other group out there that’s probably struggling more than bankers. You’re like, “Why are they struggling?” I’m talking more on the lending side, the special asset managers and secondary marketing professionals. You’ve known that we’ve been making phone calls to asset managers. Once a month, we are spending at least 4 to 5 hours on the phone dialing for dollars, calling asset managers and you have been a part of that.
If you have not, you might as well go to CallingBanks.com to get signed up for the next one. It’s become something that we used to do a lot of years ago. It’s what I got started doing was dialing 1,500 phone calls in a day, starting at 10:00 AM and working all the way to 5:00 to 6:00 PM. That was in the West Coast, starting early from the east and printing off a list off of Lane Guide and getting rock and rolling. We’ve had some interesting conversations with these asset managers at different banks. We’ve used a variety of resources, Lane Guide, the BauerFinancial list. I’ve used my email lists as I blast out emails to asset managers from there and calling from those that have opened.
We used a variety of sources and a variety of lead gen when it comes down to it. We use LinkedIn to connect with a lot of asset managers still. We’ve done a variety of email blasts, phone calls and LinkedIn throughout these banking blitzes. What we have found is we had a good high success rate on the phone calls we’ve made about getting into and either getting the right person’s name and email address to who handles it for the lending institution to the bank that we’re calling on along with getting a lot of conversations. We’re getting quite a few callbacks from people providing information to us of either, “I’m not the right person, but this is the right person. We don’t have anything currently, but please call back.”
That has been the number one overwhelming thing that we have heard from asset managers who called like, “I don’t have anything now. I can’t move anything until we get to beyond December 15, 2020.” We’re still roughly a couple of months before that executive order expires that the president put in place for evictions and foreclosures. As we get close to seeing what the new numbers come out as far as defaults here in October 2020 for last month for September 2020 and August 2020, I expect those numbers to increase. Bankers are like, “I can’t do much until we get closer to the end of 2020.” That’s why it’s important. If you’re an avid reader of this show, thank you.
I love the comments and I love to hear from you. Hopefully, you’ve been putting some seeds in the ground. Hopefully, you’ve been planting some relationships, doing some work to market your business as you’ve been at home and maybe not been able to travel and do the things that you normally do. That’s the number one thing. Bankers are open to phone calls. They may not have something now, but they know they’re going to have something. I had an interesting conversation with a gentleman with a bank that we called in Florida. He’s like, “It’s not going to be quite as bad as 2008, 2009 and 2010, but we’re expecting to see a lot of stuff.” His institution is financing a lot of smaller commercial loans of sub $5 million category that we’ve talked about at Note Nation, all the webinars we did, regarding the different cities out there. That’s the number one overlooked asset class by Wall Street, but it’s what a lot of the banks to finance.
What falls into $5 million asset or below? That could be a hotel, an apartment complex. I’m not going to say too many apartment complexes, but I would say more like student housing. You may also see strip malls, big box stores, self-storage. You’ll see some of that in there below $5 million, then you’ll have office space, medical office will fall in that smaller stuff. You have a lot of great assets that fall in that sub $5 million category that Wall Street is not going to look at because it’s too small for them. It’s hard to believe $5 million is a small number for them, but it is. Conversation has been like, “I don’t have anything now, but I’m expecting something. Please follow back up with me.”
I had a great conversation with an asset manager that called back. He said the same thing, “We’ve got a lot of the government insurance stuff.” Here’s the thing between the residential and commercial side. There is a lot of bearings with nonperforming Fannie, Freddie, Ginnie, FHA stuff that’s been insured by the government that they haven’t got payments on for six months. The banks will sell stuff off and the question is, “Do you need to be government-insured to buy from us?” What does that mean? If something is not government-insured, that means they finance it on their portfolio. I’m glad to buy those all day long. That’s the easier thing.
You don’t need to have a special servicer who can take down the government-backed, government-insured stuff. That’s the thing with Fannie and Freddie. There are a lot of the servicers out there that work with investors like you and me, smaller investors. Onesie, twosies that a lot of you aren’t starting off with. Your sourcing of a servicer is going to be different than who you’re used to using. It’s not going to be the FCIs. Unfortunately, Madison Management that we love and recommend, they’re not capable of servicing Fannie and Freddie loans. They haven’t gone through the hoops to be able to do that with government. You’ve got to find somebody. We’ve got a source that we reached back out to that are capable of servicing those government-backed loans.
We have our servicing in place to get that set up when we do buy as we get to the fourth quarter of 2020. That’s what I’m trying to get to you guys out there as I’m wandering a little bit. This episode is, hopefully you’re planting seeds and making contacts because the banks are open to it. Even if they don’t have anything now, even if they don’t have anything that they can move this quarter, they’re still taking phone calls. I’ve had more phone callbacks than I’ve had beforehand as people are like yes or they’re responding to the emails or responding on LinkedIn and go from there.
I know a lot of you are reading this as you’re getting back to some normality, going back to the gym or starting to go back to work. First and foremost, stay safe. Secondly, if you’re falling that category, we don’t have a lot of time. The easiest thing for you to be reaching out to asset managers is jumping on LinkedIn, doing a search for secondary marketing manager or special asset managers and going down the list that pops up of bank’s lending institutions. The ones that we have seen the most engagement from have been those that have a profile photo.
A lot of people have a profile on LinkedIn, but they’re not on it. They’re not spending time on it. As we’re searching, here’s what you would need to do. I still make note of who those individuals are. I’ll send them a LinkedIn invite, knowing that they’re probably not going to respond to it, but knowing that I have a name and somebody I can name drop if I do have time to call banks. That’s come in handy as I am reaching out.
One of the things we did is we went on and pulled the BauerFinancial list. We said, “Let’s target banks over 100 branches.” We went up from there. Fifty banks are what we pulled for the list. Start dialing for dollars and that was one of the things while we’re looking, we jump on Lane Guide and see if they have a special assets department on Lane Guide for a specific bank by doing the name search on Lane Guide. We also jumped over onto LinkedIn and we’ll do the same thing, bank names, special assets. We’ll often pull up a list of people that work for the company or we’ll do a search for company and then click on LinkedIn where we’ll list the number of employee or the employees who are on LinkedIn who said they’ve worked for that bank or lending institution.
That helps us find some names, find the right person that we need to reach out to besides the president’s name or the CEO of that bank, which is what BauerFinancial provides. They can provide you their normal customer service number, which is not what you want to call unless it’s your last hope to find a contact. You always want to call the main corporate office. I highly recommend that you call them before 4:00 of their time. A lot of those people aren’t going to be around after 4:00. They’re often taken off or doing other things.
Behind The Scenes
As we roll into the fourth quarter of 2020, here’s what’s going on with the banks behind the scenes. They’re looking at their portfolios. They’re trying to determine who’s naughty and who’s nice on their portfolios. They are evaluating those lending relationships with those that have established relationships with the bank, they’ve got their mortgage with them. Do they have their car? Do they have credit cards with them? Do they have lines of credit? This is what you’re going to see if a borrower has a loan with a bank but doesn’t have checking accounts, savings accounts. We’re talking banks, we’re not talking about lenders.
There are two things. You have lenders out there that are originating loans, they don’t have a checking account. That’s a different relationship. What I’m talking about is physical banks that have the big book. If an individual has a mortgage or a business loan, business mortgage and they don’t have that linear relationship, they’re going to push hard to get those other lending relationships. It’s like personal cards, credit cards because that’s one of the things that banks will do. They’ll look at those and say, “We want to try to control everything in a bank.” I say this because this is what we were sold on and trained when I was working for Bank One, JP and Chase. They want you to develop those other relationships as best you can.
“Does this person have a business? Let’s try to get their business banking. Do they have a merchant account?” The relationships with those borrowers that have more than a loan with them, they’re going to hold on. Especially, if they’re the naughty borrowers that don’t have a relationship with them, they’re probably going to be looking to move those off their books if they can especially if they’re in forbearance agreements. They are not paid anything if they’ve been dragging things out. The thing about banks, and we’ve talked with our buddy Merrill Chandler from Credit Sense, is that banks can pull credit. If you’ve got a loan with them, they can do a credit soft pull to see how you’re doing with other things. I encourage you to go back and read the episode with Merrill Chandler.
If you haven’t a chance to get about how and what shows up on a borrower’s credit, if they stop paying and if they’re going through the different strategies of being forbearance or behind or short sales or defaults, it affects your credit scores. It also affects relationship across with the platforms. We all know that credit card companies can automatically drop your available balance, reduce your lines of credits, it depends on what’s going on in society. We’ve seen that happen. How did that happen? Before, in our vacation and everything’s hunky-dory, suddenly I got $10,000 less in my credit card than I had to begin with because something happened in society or other things. Credit card companies will do that to protect themselves because they don’t want people going up and running up their lines of credit in a rough time who don’t have the ability to repay it back.
Banks will evaluate the borrower’s portfolio that they have as far as products with the banks and look to establish. Those that don’t have a lot of relationships. If they go in forbearance, they’d probably be willing to move to get off their books because they have fewer other ulterior ways of helping trying to offset those losses. We do coordinate with Merrill, a lot of banks been reaching out and approving lines of credit for their A tier, top of the line borrowers out there because they’re like, “You’ve got this, let’s encourage you to spend some money so we can offset some of the losses from the other side of the bank.” I almost want to say it’s like the bank robbing its own Peter to pay its own Paul.
They’re like, “We’re having trouble up here. Let’s go over here and offer up these great terms, great lines of credit to these responsible borrowers. Hope they get to use so we can use some of these fees off of that to offset some of our losses out there.” As we get into the later part of October 2020, first part of November 2020, as we start getting new FDIC reports filed from the different banks out there, it’s going to be interesting to see what percentages of there from the previous reports, previous filings that they’re 30 to 89-day late. How many of those have moved into the 90-plus default rates, 90-plus default of loans? We predicted that we’ll see a lot of these banks that have a percentage, a large chunk of 30 to 89 default or late moving into that stuff and compounding the issue. Are they going to get the stuff off their books in the fourth quarter?
Are they still sitting there and waiting to see what happens? Are they hoping that government bailout is going to happen? With everything being pushed on a stimulus package, after the election, that doesn’t breed well for banks for the most part. The election is first part of November 2020, the executive order ends December 15, 2020. Do I think that’ll get pushed out to 2021? I do think it’s going to get pushed out because banks I don’t think are filing foreclosures on December 15, 2020 for holidays. A lot of the counties and judges aren’t there. You’re going to have some evictions happen out there as people don’t follow through on what they need to be following through on.
It’s a tough time. I think you’re going to see more people coming together. You’re going to see some families tightening the belt, multiple families living in the same household. We’ve seen that happen before many years ago. The things that you’re going to see here opportunity-wise as a note investor is the ability to follow-up. We’ve talked about this before and we’ve got to follow up with the banks. Start education, target to them. We’ve had some great conversations before, “What’s going on? How are you doing? I know that we can see on your reports that your bank filed. You’ve got some nonperformance stuff.” I had one bank that said, “We don’t have anything.” I’m like, “No offense. I know you have stuff on your books. You may not have on the commercial side. I know you’ve got stuff on the residential side. Who do I need to talk to about that?”
That’s the thing you need to keep in mind. A lot of times, if you’re reaching out to bankers, they may handle the resi side. They may not handle the commercial side or vice versa. If they handle the commercial, they may not be dealing with anything on the residential side. Each bank, if they’re doing residential or commercial loans, both, you’ve got to keep in mind you’re going to have at least two, if not more contacts when it comes to being in the person in charge or special assets. You’re talking about making transition and lending institutions, not banks, but your loan originators out there, your mortgage bankers are lending and looking to sell off. They’re originating a heavy pace and selling stuff off.
With FHA defaults being ridiculously high, barely south of 17%. I’d expect that to be over 20% to 25% of when the numbers come out. Twenty-five percent defaults on FHA loans that originated in the last twelve months. That’s not a good thing and that’s the thing that I think drives more. Some people are like, “We’re not going to see a downturn.” You can’t help but see a downturn in specific segments. In some cities, you’re not going to see a big downturn because there’s a lack of inventory. Even something comes on the market that was originated in 2020 where you have a distressed borrower, I believe the banks will be willing to approve short sales or because of the lack of inventory, maybe able to sell that property still, even with an increased appreciation going up a little bit in six months.
It’s hard to say that, but I think you’re going to see that the bigger impact isn’t going to be in your top big cities like here in Austin or Houston or New York. New York might be a little different because people want to get out of Gotham. Some of these bigger cities, you’re still having people fill in like looking for housing. People that can afford higher-end stuff. It’s the low-end stuff, the outskirts, your rural communities. I think you’re going to see another wave in the Midwest as people don’t have. Factories and industrial jobs have slowed down a little bit. People aren’t working as much in those areas of manufacturing for sure. You’re going to see a big downturn because there’s no other place for these people to go for jobs, especially around the university areas in Indiana, Ohio, Illinois, Michigan.
I am talking about major universities because you have to look at what’s going on with the major universities. Are they doing all online classes or are they allowing for students to come in person? If you have in-person classes, you’ve also had this secondary wave of people catching COVID and then they’re shutting down. We’re going to be dealing with this for another 6 to 12 months through most of 2021. I hate to say that, but when everybody hunkers down and then you go back out, you catch it and then you have to hunker down again and delays the inevitable stuff. These lending institutions that have originated loans in and around college campuses. This is where I think your college campus or your student housing, you’re going to see the biggest default with that.
It also makes sense where you’re seeing hotels struggle around universities because they don’t have the ability to have kids and people and fans in the stands. Like Pittsburgh, even with the NFL teams, they’re only allowed about a quarter percent of what the stadium is holding to be there. It’s better than none, but that still leaves a lot of people that aren’t coming in. They’re not traveling, not booking hotels, not renting rental cars, not doing those things, eating out at restaurants or at bars depending on the area if they’re open or closed or take out. You’d have some of that stuff opening, but it’s still not the same amount as it used to be. It’s going to be those secondary markets outside of your major cities that are going to struggle the most.
There’s opportunity there if you can buy right. You’ve got to know your numbers, know what the rent rates are. If that’s something you’re looking at to do and buying, that may be your strategy. Our goal is to always modify the loan first, but it all does come down to, “What is the borrower doing? What can they do for work? Are they going back to work?” Those jobs that are in our service industry, the sub-$25 an hour employees, those are the ones that are getting hit the hardest because there’s such a flux of waiters, bartenders, service industry staff, hotel staff, housekeeping, kitchen, the amusement parks of a lot of people. Disney is talking about permanent laying off more people, that’s going to be primarily in California, but I also think a lot is going to happen in Florida.
Along as these individuals, the $25 an hour or less are the ones that are your first time home buyers and taking out the FHA loans to get into their first time home. In an area like Florida is going to be hit extremely hard. I don’t think you’re going to have the haves and the have nots. More than anything else, the haves in the major cities are going to still keep rock and rolling and they’re fine. They get their haves. They have their online businesses or they’ll be able to work remotely. High-end stuff, San Francisco, San Diego, they’ve embraced the technology. It’s those that don’t have embraced it as much more one-on-one or service industry. That’s what’s going to struggle the most. Taking a look at those industries, lenders, properties especially new build areas where it’s that higher foreclosure rates.
It’s one of the trends that we tracked through Note Nation. The Note Nation Top 40 Tour was that when we looked at RealtyTrac and then the foreclosure trends, the peaks were all in that $200,000 or less price point range. First time home buyers, $200,000 or less all across the country, all 40 markets. I’ll take that back. Except Miami beach which was $1 million-plus. They didn’t have anything below $200,000 on Miami beach. That’s the one exception I’ll throw out there for you. That leads to an opportunity as well. In condos on the opposite side and tourists are also being hit hard as people are not paying their rent, they’re not paying their mortgages, hence they’re not paying the HOA. You’re going to see an influx of that. It will be interesting to see how Vegas responds, Orlando, Miami, a lot of those tourist spots responding.
Some people are like, “My Airbnbs are doing well.” If they’re in a major spot, that’s a non-major market like that, you’re going to see some. The New Yorker people have said, “I want to get out of living in the major cities. I’m moving to somewhere I have a house instead of a condo I can work out over a yard or something like that.” If I were you out there, I would be targeting banks and lending institutions around the university area. If you see something that’s growth-wise and growing, I would be tracking foreclosures. I would be tracking if you can go to the county clerk’s office and looking for your lis pendens, which will not happen until later on in this quarter of 2020 of the appointment of substitute trustees, you’ll see a big rash of those that’s coming in Texas here.
That’s our pre-foreclosure list as banks started filing a substitute trustees to start the foreclosure process. Foreclosures aren’t going to take place probably until January 2020. That’s the thing you’ve got to keep in mind, even the earliest fastest states, that’s what’s going to happen there. In other states, it’s going to be the trickledown effect depending on how long a foreclosure process is. In a lot of cases, if someone’s got an FHA foreclosure, that’s at least 12 to 18-month process once the filing takes place. One of the things you have to be careful of, I’ve seen this happen and some of the same idiotic people have a list of notes they’re trying to sell.
They’re trying to spruce up the fact that, “They’re going off of. There’s some equity there.” They buy equity. The value of the property is above what the unpaid balance is plus the legal balance, the back payments. They’re trying to sell the notes above the legal balance. That can make sense depending on what that percentage is and percentage to value. You have to be careful about this because I’m not seeing a lot of legal updates since May 2020 out there. You have to know your due diligence if you’re going to look at buying one of these notes. Now, from a fund and they’re talking about it’s a foreclosure, you need to talk to the attorneys. The legal counsel handles this. “I know we’re stuck until such and such date. How soon after December 15, 2020 can we proceed? Was this already started prior to COVID? Is it different in this county?”
If you’re buying notes, you should be contacting legal and talking to legal side, but still knowing where are they at? What is the county doing? What’s going on with the judges in that area? What’s the state doing? We always ignored but also, “When this expires, if this was started prior to COVID, are we able to continue this or we’ve got to wait to jump through some hoops?” That’s the important thing. The conversations I’m having with bankers, bring it back to that. They’ve got the stuff for their books. They’re kicking the can down each month, kicking it down the road to the end of 2020.
They know that there’s stuff that they’re going to have to move. They’re waiting to see what’s going on like all of us. You can be doing the most valuable things whether you have the time to put in a couple of hours a week or pull one day, a month to dial for dollars, or if you’re stuck and you only have online access, don’t have time to dial for dollars. Setting up your contacts, setting up an arrangement on LinkedIn to make connections with people and trying to engage in, “I’d love to talk to the person. If you got a chance, can you be able to pick up the phone and talk about what you guys may be looking to move this quarter?”
The more conversations you have, the more invites out on LinkedIn, the more messages you can send, it’s important to not just connect. The higher valued relationships that we have seen develop in the last 90 days have come always from the fact that we hit them. If we let them out, we get them on LinkedIn. If they had a photo, they were on there. If they only have a couple of hundred contacts or less, they’re probably not using LinkedIn. It’s still worth sending an invite to in a message.
Looking at who’s on LinkedIn, connecting with them, trying to reach out and use that hot name when you’re calling the main corporate office, the main switchboard operator or using Lane Guide or something else to try to contact them directly. Follow up with people. You have to have patience more than anything else, dial for dollars. Put a system in place and follow up. Send an email to them, follow up with an email, put a list in Mailchimp or something else that you can use. It’s easy enough for you to mail out to on a regular basis and drip market. “I want to want to follow up with you this month. The numbers are out.” It’s important.
We talked about that there was roughly thirteen weeks left in 2020 and you need to know what you can do on a weekly basis. A weekly touch base with your asset managers because we’ve got Halloween, Thanksgiving, Christmas, holiday season, Hanukkah and Kwanzaa, New Year. You’ve got a lot of stuff that can be prime contact to send out. Wishing people happy this, happy that. You want to touch base. There are deals out there and there are banks looking to move. We’ve got students that are getting tapes sent to them already from their marketing, which is a matter that they’re sticking to and doing exactly as we teach them how to do.
The big important thing, reaching out to banks, following up, engaging in conversations whether it’s via email or LinkedIn or the old fashioned on the phone dialing for dollars. You need some motivation? Plop on The Wolf of Wall Street, Boiler Room or The Pursuit of Happyness, all three great movies to watch to help you get a little motivated when you’re dialing for dollars. That’s what it all comes down to hearing anything in the note business. Everybody’s still building those relationships with sellers, get rocking and rolling for you in the new year. Go out and take some action.
If we can help you in any way, feel free. You can always schedule a phone call with me by going to TalkWithScottCarson.com. It will take you directly to my calendar. We’ve got a 30-minute time slot and we’re glad to visit with you, advise you on which structure. We love to talk about what your focus is, what your background is in real estate. If you’ve got some questions, schedule a call with me and you can pick my brain and we can go from there. I always love helping investors, students whether you’ve attended one of our workshops or you’re an avid reader of the show, I want to hear from you. We look forward to seeing you all at the top. Bye.
- Lane Guide
- Merrill Chandler – Past episode
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