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72 a portfolio manager's perspective, a lack of transparency of how COVID-19 will play out over the next 24 months is very concerning. Portfolio managers base their models and expectations on assumptions generally agreed upon by their peers to forecast cash flow and performance. ere is very little consensus on what the next 24 months will look like, causing forecast models to vary widely. As we head into Q4 2020, portfolio managers of large, mortgage-related, asset-backed investments will have to pick a track and execute a risk mitigation effort to gain certainty on 2021 performance. Because of this, we should see a good amount of NPL and REO come to market as risk managers look to reduce their exposure on a subset of high-risk assets and start fresh in the new year. e biggest question that industry professionals must ask themselves is how the market will look further into the year. e first point to that discussion is that COVID-19 and its consequences will stay for at least 24 months. e latest long-term mortgage default projections from many analysts is now hovering around the 7% range along with an unemployment rate of anywhere from 9–12%. Mortgage defaults will most likely hit FHA the hardest along with formerly modified mortgage loans. However, the long-term numbers will depend on 1) the expiration of the supplemental unemployment benefits that occurs at the end of July, 2) a further increase in the unemployment rates, continuing jobless claims, and 3) potential decline in home values. Luckily for the economy, the unemployment rate estimations of 14% in April and 20% in May never came to fruition. In June, U.S. employers added 4.8 million new jobs, and the unemployment rate dropped to 11.1%. Still, the Federal Reserve experts expect the unemployment rate to stay in the 9–12% range for at least 24 to 36 months. e second straight monthly increase in retail sales reported by the Commerce Department on July 16 is mostly attributed to the government's additional weekly $600 checks for the unemployed, a benefit that ended on July 31. e program expiration will leave millions of gig workers and the self-employed, who do not qualify for regular state unemployment insurance, without an income. e growing amount of NPL and REO trend will be developing towards the third and fourth quarters of this year. I believe the HECM auctions will continue unimpacted by the COVID-19 issue, and I anticipate increased delinquency on FHA portfolios due to the lower underwriting criteria as this product is designed to increase homeownership in underserved communities. Unfortunately, these types of borrowers may be more susceptible to job loss during the COVID-19 crisis. FHA loans are now about 20% of the origination space, compared to about 2% of origination in pre-2008. AFTER THE BIG CRASH—NPL MARKET HEALTH CHECK e distressed assets environment in 2020 looks stronger compared to 2008. We'll see a consistent flow of NPL and distressed debt over the next 18 to 24 months. at means a steady flow and lots of opportunities to deploy capital. e 2008 distressed market was caused by the financial crisis, poorly underwritten loans, and slow government reaction. It resulted in a big and fast crash with very steep value declines. e 2020 financial markets are strong despite seeing an increase in distressed assets. e stock market continues to do well, bouncing back after COVID-19. e sharp rebound in June was followed by new records in July, with the S&P 500 coming back to the pre- pandemic levels and the Nasdaq 100 jumping to the most since April. Home values remain strong, and there is no indication of sharp value declines in the coming months. Some housing bubbles may appear due to the immediate shut down of the economy in March and the increase of home buyers scrambling take advantage of the low interest rates in May and June. It will be interesting to see the results of the rush to buy homes in May and June in combination with forbearances expiring in July. e result of increased home purchases with increased defaults may cause The biggest question that industry professionals must ask themselves is how the market will look further into the year. Feature By: Louis Amaya