The Future of Living in the Tech Age, & Pandemic Shortfalls in Mortgages
We stand at an unprecedented time of government support for nonpayment in mortgages and rent. Morality outweighs finance but does the morality cost your livelihood?
Mario Salerono of Brooklyn New York is one of many landlords cancelling rent for tenants as COVID-19 begins to build momentum. In addition to landlord pauses FHA mortgage payments were initially ordered a temporary stay for ninety (90) days with a pending directive for up to six (6) months.
Forgone payments are not forgiven under this guideline. Under the program the forgone payments are added on to the balance of a mortgage. The addition of this balance extends the term of the mortgage for those that utilize it.
How this indicator applied to a previous crisis and what it says about the current market is what this article seeks to address. How long you stay reading this article and what you do about it might just be why you survive in a new environment created by COVID-19.
UNDERSTANDING THE MORTGAGE CRISIS
The financial crisis of 2008 was caused by massive defaults on mortgages. The mortgages were triggered by risky loan products destined to fail. Those mortgages were put together and sold as Collateralized Mortgage Obligations (CMOs). These CMOs garnished investment grade ratings and were sold as “safe” bets. Many investors, financial institutions, and retirement portfolios purchased these CMOs in masse. As a result, many were wiped out when people failed to pay over valued mortgages.
With the collapse of the market reforms were enacted, promises made and responsible mortgages (Full Documented Mortgages) championed by the Federal Housing Administration (FHA) / Veterans Affairs (VA) emerged to dominate the market.
Over the past ten years the mortgage industry has relied upon FHA and VA mortgages. Per the USA Today, in 2018 the FHA insured 12.1% of all mortgages and in 2017 insured 13.5% of all mortgages. The year after the financial collapse (2009) the FHA insured 17.9% mortgages. As an overall picture the FHA I estimate holds somewhere between 13–16% of all mortgages in America.
The Veterans Affairs (VA) processed 624,000 loans in 2019, with nearly half of all purchasers going to Millennial and Generation Z Veterans.
VA Loan programs require no money down and are the most susceptible loans over valued in a market correction. Therefore, millions of VA loans issued by banks currently have exposure to become “upside” down mortgages.
Given the VA is a government program banks will be ordered to restructure loans. Restructuring loans will result in writing off negative mortgage balances. These writes offs will result in massive losses.
THE CURRENT MORTGAGE CRISIS 12 YEARS LATER
Just like in 2008 the financial crisis for mortgages has arrived. Banks are accepting massive defaults in payments through government intervention. The government is calling missed payments “deferrals”.
Effective April 1st 2020 HUD issued a new Cares Act Mortgage Relief for FHA single family owners. Effectively Mortgage Servicers in the United States were instructed to offer deferred and reduced payment options. These options are to include options allowing some owners to not pay for up to six (6) months.
Non-payment and unemployment are combining for another 2008 Financial Markets Crisis. The New York Times reported unemployment is most likely at 13.0%. Unemployment is reported to be at the highest level since the Great Depression.
Long term permanent unemployment, which I argue in my last article, will take hold on jobs lost today.
In 2008 the market dealt with massive defaults, unemployment and permanent job losses. Remember Donald Trump campaigned on bringing “American Jobs Home”.
In 2020 the market is confronting job losses which will become long-term elimination. Job losses are being caused by home grown tech companies not bad trade deals. Technology exists today to remove human interaction. In a desperate gasp to remain operational companies are turning to automation to keep America running. When the dust settles, and treatment is available for COVID-19 the robots installed to run our stores will not be removed. The robots will be there to stay.
EXAMPLE OF A PERMANENT JOB LOSS SECTOR
The most impacted employment industry I believe is transportation. Truck Drivers must now contend with a reality. Current self-driving technology is being rolled out in masse to replace human truck drivers. It was forecasted pre-corona by scientist to have truck drivers replaced by 2027.
With the possible threat of human drivers spreading COVID-19 across the country, Corona Virus has become the necessary reason to eliminate nearly 1mm jobs out of “caution”.
Many may plunge into poverty as a result of truck driving automation. Many banks who qualified borrowers for mortgages with truck driving jobs will experience massive default (assuming truck drivers fail to adapt).
As Nicholas Wyman, CEO of the Institute for Workplace Skills and Development and author of Job U: How to Find Wealth and Success by Developing the Skills Companies Actually Need says, “Truck drivers need to be open to adapting to the changing landscape of their field. “They need to embrace change — it’s happening so hoping it will go away is not an option,” Wyman said. “Truck drivers should look for opportunities to refresh and reboot their current skill sets.”
Truck drivers are not immune to this change. Walmart has had self-check out aisles for a very long time. Taco bell has touch screen cashier stations. Taxi drivers were under threat by Uber. Now Uber is ramping up its autonomous vehicles. Cleaning robots have been out for early 10 years. Janitors are going to become engineers or get out of a job.
Job loss is here, and permanence is its partner. These technology replacements existed in our lives every day before COVID-19. Politics prevented companies from scaling them to every corner of the store. Now politics must encourage the scale up to protect human lives. This is a scary time to live in for the average employee.
THE AFFECTS ON OUR ECONOMY WITH THE IMPENDING 2020 DEPRESSION
The last financial crisis did not prevent people from interacting with each other. People still had capability to interact with one another. COVID-19 is forcing us to interact with machines in lieu of people.
The average Vaccine takes at least eighteen (18) months to decide if it is safe to administer. I would like to remind my first-time readers that I was Chief Investment Officer (CIO) for a biotechnology company. I held my CIO position for four (4) years. I am not a scientist but my experience as CIO for a biotech gave me a lot of experience with how clinical trials work.
The first step after animal trials is called “Toxicology” or testing for “Toxicity”. Being overly simple, the first step for a possible COVID-19 treatment is to decide if something is safe or not. The purpose of Phase I is to see if the treatment will poison you, kill you or cause more damage than it does good. Phase I is focused on putting things into the body to see if it will hurt you. Phase I is suppose to last at least one year. Efficacy does not come into play until there is some responsible consensus people will not die or obtain other worse conditions as a result of taking treatment.
The point of bringing up a bit of science is we are in this for the long haul. Social distancing will not end next month. Social distancing will not end this year. 2020 will be the year that changed how Americans live their lives.
PREDICTION FOR THE MARKETS
People must contend with the fact our situation will get progressively worse. As conditions become more dangerous companies must design permanent solutions. This means converting every cash register to a self-checkout station. This means having every fast food station replace food cashiers with a touch screen ordering station. This means making every truck become self-driving.
I predict we will see the elimination of up to thirty (30) percent (%) of our workforce because of COVID-19. The fact mortgages are tied to old jobs means we will have another mortgage crisis on our hand. Many people will face foreclosure over the next five (5) years. One thing business embodies is opportunity. Businesses will seize the opportunity to cut costs. Cost cuts will target the largest expenditures for business…human resources (i.e. labor). These cost cuts will be justified in the interest of public health. Since COVID-19 will stay in our minds for a very long time the argument to protect against another pandemic is valid.
Widespread unemployment, in an economy still largely supported by real estate mortgages lent to people whose jobs were eliminated by technology, is a recipe for a Depression.
This is not a doom and gloom prophecy. This is a prediction for you (the reader) to understand market dynamics, apply yourself to the new environment and capitalizing off knowledge. As people we must embrace reality. We cannot live under the presumption, “everything will take care of itself”.
Part of taking care of ourselves is adapting to our environment. Humans survive in all environments. From the arctic to the desert we learned to thrive. We must learn to thrive in the technological environment. Our new environment for 2020's is cyberspace, robotics, coding, virtual reality and electronics. We must embrace virtual reality and its usage to our everyday life.
Follow me on Medium or subscribe to my newsletter to learn more insightful advice on how real life situations actually create opportunity. I don’t tell stories. This is not a story. This is a prediction based on observation. In some ways we are really going into the “future”. Be part of the future not the past. Wealth is value not money. Money is always attracted to wealth.
To your future knowledge success!
About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM), Master Financial Planner (MFP) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 7.5mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com.
Disclaimer: This information is not meant to be a form of investment advice or financial advice. Do not apply this situation to your own personal circumstance. Various risks include: business risk, investment risk, political risk, and other risks. This information is for informational and educational purposes only. Please do not reach out to the author for any investment strategies or philosophies. Please consult your own financial advisor or legal advisor for your own circumstance. Not a recommendation or endorsement of any kind.