Prognosis for the future.

Even the Federal Reserve has not issued their quarterly Summary of Economic Projections (SEP) report. This report is important because it helps us forecast growth, unemployment, inflation, etc. They have stated that “there’s no point in making economic forecasts right now.”

Well, that makes the following observations a bit incredulous.

Our market (Richmond MSA) has long been a stable market in good times and bad. We don’t experience the wide swing fluctuations like Northern Virginia or Tidewater. I’d much prefer stability vs occasional big profits and big losses in real estate. The turtle wins the race.

Richmond’s real estate market was relatively robust coming into this crisis, so there is no reason to think that the recovery will not be robust. Lower mortgage rates make homebuying more affordable, and that’s a certainty for buyers right now. However, what’s much less certain is how much the economy will be hurt by the coronavirus and how long the pain will last. When impacts to people’s incomes and employment become more clear, we may see more people become pessimistic about buying a home. It’s difficult to tell how much the housing market will be affected until we’ve seen the full economic impact and implications that come along with it in the coming months. I expect to see the economic disruptions peak in July with activity beginning to rise again after that. The fourth quarter will be my target for noticeable improvement. While I don’t think we will go into a full blown recession, we will come very close. Officially, a recession is a period of sustained long term decline in economic activity.

Despite there being a seller’s market, people are very leery of buying and making investments in homes and properties at the moment. With the stock market in flux, a possible—or probable—“mini recession” looming over the country, and a whole lot of uncertainty in the air, I believe most people don’t know how to proceed. While some of your homes on the market are getting multiple offers, others are still quietly sitting with no offers. This is an indication of not only the location, but the current sense of the elephant in the room—vis a vis, “Am I going to lose my job?”

Conversely, the rental market could be a gold mine. Fear of committing to long term debt with employment fears will lead many to rental options despite the favorable interest rates. Purchase loan application volume is very low. Those that own homes will most definitely resort to refinancing to improve their situation and enable them to “hunker down”. That is, IF they can find a lender to get the loan done in a reasonable time. High refinancing is a disaster for mortgage companies because of the velocity of early payoffs. Loans are booked with an assumed life. When they payoff early, the write-downs of those assumptions can implode the balance sheet and also collapse the value of mortgage backed securities on Wall Street. This could cause shrinking access to credit.

Where does Liquidity, LLC stand?

I’m committed to the business and to solid partnerships with my investors. You are fully aware that we’re service oriented and work to make you a repeat customer, not a transaction. In the spirit of maintaining a solid relationship, we are not withdrawing from the market and will continue to lend.

We focus on the following, but will do more so until we observe some relief:

· New opportunities. The decisions will need to be strong opportunities. We’ve been creative and able to work around some issues to date. As you know, our benchmark is 70% of ARV. This will not change, but the valuation of your ARV MUST be supported by comparable data that is truly comparable.

· Reserves. I will most likely need to have information regarding your reserves to sustain a prolonged period of the ability to repay or a plan thereof.

· Capacity. In the history of the company, we have never run short of funds. We currently have a significant portfolio and want to keep the availability flowing. Unless we have…

· Extensions. The funds available are predicated on timely payoffs. While we have never run short, we’re not printing money either. Your attention to the original terms of the loans is very important not only to our capacity, but also the return on the loans to the company.

· Updates. We will stress having updated information on your loans in process. If requested, please be as thorough as possible. The bottom line is to determine a realistic date for the loan payoff. We understand there are circumstances beyond your control, like weather.

· Inspections. Inspections are performed routinely. If anything is noticed (like no work being done), you can expect a request for explanation. Please be prompt. Again, you’re not under martial law, but we do deserve to know what you’re doing with the money we advanced.

We truly appreciate you and are thankful that you appreciate us (as many of you have stated). This is not a hobby; it’s a business and we treat it as such. That translates into a dedicated effort to earn your appreciation on every transaction.