This question comes from Steve in Utah.
Two years ago I bought a subject to rental property that has a loan with it that has a 2.25% interest rate fixed for 30 years. A great deal for me!!! however back in November I noticed the loan servicer had changed. Today this loan would be under wrote at 6%, I did some quick calculations to determine the difference in value to the note holder with vastly different rates. The differences are massive as shown in the chart with the amount of difference in interest paid at at the 5year, 10 year and 30 year points. The value of a loan written at 2.25% has to be a massive discount from face value, Also a factor with this historically low rate is the unlikelihood it’s paid off with a refi. My Question is who is dealing with this loss on paper? Who is bearing the consequences of holding a note that pays this low of interest in this climate? Did the original servicer have to massively discount this loan to off load it to the new servicer? What is happening with these notes that are not sellable without massive discounts to face value? Is this the banking crisis in a nut shell? weather its the bank holding treasuries it bought at very low rates, or note they made at very low rates, isn't the outcome the same? is it all marked to market now?
Host: Victor Menasce