Congress Introduces Bill That Would Reinstate Downpayment Assistance: Nehemiah Responds

By realestateinvesting

Source: U.S. Newswire
Publication date: January 19, 2009

RealtyTrac Reports Foreclosure Activity Increases 81% in2008

By realestateinvesting

IRVINE, Calif. – Jan. 15, 2009 – From RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its 2008 U.S. Foreclosure Market Report™, which shows a total of 3,157,806 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 2,330,483 U.S. properties during the year, an 81 percent increase in total properties from 2007 and a 225 percent increase in total properties from 2006. The report also shows that 1.84 percent of all U.S. housing units (one in 54) received at least one foreclosure filing during the year, up from 1.03 percent in 2007.

Foreclosure filings were reported on 303,410 U.S. properties in December, up 17 percent from the previous month and up nearly 41 percent from December 2007. Despite the spike in December, foreclosure activity for the fourth quarter was down nearly 4 percent from the previous quarter but still up nearly 40 percent from the fourth quarter of 2007.

RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1.5 million properties from over 2,200 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.

“State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December,” said James J. Saccacio, chief executive officer of RealtyTrac. “The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners.

“Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami. And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”

The California law (SB1137), which required lenders to provide written notice of their intent to initiate foreclosure proceedings 30 days prior to issuing a notice of default (NOD), resulted in a reduction of NODs from 44,278 in August to 21,665 in September. Notice of Default filings then surged by 122 percent, to over 42,000, in December. Similar patterns have occurred in other states, such as Massachusetts and Maryland, where similar types of foreclosure prevention legislation has been enacted.

Real Estate Investors Will Soon be Competing with Cities when Buying Properties

By realestateinvesting

Real estate investors in major cities across the country will be finding they will have a deep pocket competitor the likes of whom they have never seen before, Local Governments.  What few people realize is that part of the Housing and Economic Recovery Act of 2008 calls for funds to be given to local government in order for them to buy houses in distressed neighborhoods, Neighborhood Stabilization.

Below is an article that summarizes many of the the challenges and opportunities investors will face  from this act.

REQUIRED READING: HUD Program Presents Opportunities And Challenges
Under the new Neighborhood Stabilization Program (NSP), the U.S. Department of Housing & Urban Development (HUD) has allocated a total of $3.92 billion to all of the states and particularly hard-hit areas in an effort to help stabilize towns, cities and neighborhoods.

The NSP appropriation comes under the Housing and Economic Recovery Act of 2008, which was enacted in an effort to ameliorate the foreclosure crisis and revitalize the depressed housing market. The program’s funds are allocated to state and local governmental units under a formula created by HUD and based upon various factors, including foreclosure rates, prevalence of subprime loans and default rates.

These funds will be distributed in early 2009 in accordance with HUD’s formula, and they must be obligated by local governmental entities within 18 months after receipt of the funds. The various local governments will then use the funds to acquire, rehab or demolish foreclosed or abandoned properties.

Given the scope of the problem nationwide, $3.92 billion is not very much money. The vehicle by which the program funds will be utilized is a strategic plan developed at the local governmental level, either directly or in partnership with local community development corporations (CDCs) or other nonprofit organizations.

The stakes
It cannot be overemphasized that the utilization of the NSP funds by local government must be strategic and not transactional, given the limited resources available under the program. This mind-set may be new for many of the local players. Demolition or acquisition and rehabilitation of one vacant real estate owned (REO) property may have the effect of stabilizing an entire block or neighborhood.

This could result in stabilization and, ultimately, a rebound in housing prices. Successful, strategic use of the money can put a local community on the road to recovery and increase the potential opportunity for further grants in the future to build on initial successes.

If successful, revitalization of troubled communities will occur, increasing housing values in key areas nationwide, which will be good for both homeowners and our industry by stabilizing the value of the family home and the assets collateralizing the mortgage loans that underpin our financial system.

For the industry, the NSP represents the opportunity to dispose of many of its more problematic REO properties, which would otherwise be difficult to sell and are probably the subject of various code violations and housing court proceedings. The administrative cost of dealing with these more problematic assets (or liabilities, depending on how one looks at them) can and should be factored into the analysis of any purchase offers.

If stabilization of local real estate values results from participation in NSP transactions, the positive effects on value could benefit REO assets more broadly, not to mention stimulate and accelerate the overall recovery.

The challenges
The challenges faced by both local stakeholders and the mortgage banking industry in fulfilling the goals of the NSP are significant, both individually and collectively.

At the local level, engineering the best strategic use of the NSP funds will be difficult. Some specific areas that will challenge local government, CDCs and nonprofits include:

• fundamentally poor strategic decisions;

• politicization of the process and allocation of funds based upon non-strategic reasons;

• lack of experience relative to the activities for which the funds will be used (e.g., managing projects on scattered sites);

• limited infrastructure to execute the local strategic plan, reflected primarily in construction and property management functions;

• absence of a holistic approach in leveraging debt and philanthropic, Community Development Block Grant or other available funds to enhance the efficacy of the program;

• inability to effectively communicate and interface with the mortgage banking industry;

• duty under the NSP to purchase assets at a discount below value; and

• disagreement with the mortgage banking industry on valuation methodology.

Why Are So Many Mortgages In Foreclosure?

By realestateinvesting

How the Lending Industry Created the Current Foreclosure Wave

There are many contributing factors to today’s current mortgage lending climate and the all-time highest incidence of mortgage foreclosures in American history. Lending the most weight to the market crash was fraud. Please note that this section isn’t meant to be accusatory to any specific profession. There were honest professionals at every level striving to remain above-board and conduct legitimate business. However, the fact remains: fraud was systemic in the industry.

This was, undeniably, the main cause of the abrupt and devastating demise of the subprime market (which is rapidly spreading throughout the entire mortgage lending industry). Some point to the economy or principles of supply and demand to explain the crash. The fraud that was perpetuated from many different angles and on many different levels was far more significant. We will touch on a few methods of deception—some blatant, some covert.

Over the course of roughly five years, housing prices in Southern California virtually doubled. In an even shorter time span, homeowners and real estate investors were able to sell real estate at significantly higher prices than they paid. Some who didn’t wish to sell, but wanted to take advantage of the newfound equity in their property, took on second mortgages, applied for Home Equity Lines of Credit (HELOCs), or refinanced their existing mortgages with a “cash-out refinance” that paid them hundreds of thousands of dollars in equity—equity that supposedly accrued over a span of just a few years. How is this possible?

Exaggerated Appraised Values

Appraisers are typically paid by the mortgage broker or lender, who relies on the appraiser’s expertise to provide a true and accurate summary of the fair market value of the property. Appraisers are required to use several factors to determine property value—among them, comparable values of currently listed and recently sold properties in the vicinity.

A dishonest broker or lender, whose motivation may be to fund a larger loan (thus earning a higher commission/premium), may pressure an appraiser to value a property several thousands of dollars above its actual worth. In time, property in the area will be appraised for hundreds of thousands of dollars over the market value of just a few years prior—either through new houses being appraised dishonestly, or through sellers using the inflated values of the area to dictate the pricing of their home.

So, what’s an appraiser’s motivation to participate in an inflation of property values? It could be as simple as mere survival. If a broker or lender who provides an appraiser with a good amount of business suddenly asks for (or demands) these padded appraisals, the appraiser’s very livelihood could depend on whether or not he/she will appraise at those values. Sometimes there’s the added incentive of more clients or bigger kickbacks. Appraisers could potentially double their income if they “played the game.”

Property Flipping

Once these exaggerated appraisals were accepted as bona fide valuation documents, the buying and selling frenzy really began. Houses were purchased and sold at exaggerated values, making the market in any given area appear to be “hot” (which is where others attempt, incorrectly, to argue that straightforward supply and demand was responsible). A real estate investor could purchase a property, actively participate in the value inflation for properties in the area, end then sell the property in just a few months, adding another comparable high value to the area.
Over time, the sheer bulk of exaggerated values gave the impression of a legitimate real estate boom. Even honest investors, who did not actively participate in the widespread valuation fraud, passively caused values to rise as they bought and sold at artificially inflated prices.

Straw Buyers

These buyers never had any intention of occupying the properties or even making a single payment on the loan; on the contrary, they were fake buyers. They took out mortgage loans with all proceeds going to the sellers. A seller would split the profits with the straw buyer, who subsequently disappeared. The lender was left holding the mortgage, which inevitably went into default, then foreclosure, and finally, became their next REO.

Leveraging Into Deals — Dealing with Home Owners in Preforeclosure

By realestateinvesting

Investing In A Foreclosure — Pre-Foreclosure

This is any time after the Notice of Default has been filed, but before the Trustee’s Auction date. The goal before the Trustee’s Auction is to make a deal with the current homeowner that will get you the deed to the property. Your plan should be as follows:

Step 1: Understanding the psyche of your client

In this industry, there have traditionally been 3 reasons why properties go into foreclosure: divorce, job loss, and death of a major household contributor. However, with the introduction of the ARM, the most common reason for defaulted loans in today’s climate is that borrowers simply can’t afford their new payments after their mortgage adjusts. Using the law of averages, bank on the fact that your client will be dealing with one or more of these issues.

Many skip-tracing resources are available online, where for a small fee you can access all information that’s open to the public through the freedom of information act. Through these documents, you can easily tell whether a homeowner has filed for bankruptcy, if a divorce is pending, if the homeowner is paying child support, etc. All of these things allow you to paint a picture of the homeowner and deduce why he/she is in financial trouble.

Worth noting is that skip-tracing also reveals the homeowner’s neighbors and their contact information. Often times, neighbors can be surprisingly chatty—might a local homeowner have something interesting to say about their neighbor’s condition? You’ll never know unless you call them. No information is bad information if it allows you insight into the mind of your (potential) client.

Step 2: Create a bond

Homeowners don’t intend for their properties to go into foreclosure. Understanding a homeowner’s problems and concerns is the first step in building trust. From your research and diligence, you should know a few different angles from which you can approach the homeowner.
Remember this: the investor that gets caught taking pictures of the back of a homeowner’s house in their moment of grief is the one that will never get an opportunity to negotiate. You don’t want to come off as a creep, and you don’t want to lead with the fact that you’ve researched them and know their property is in foreclosure. Subtlety is your friend, and a sympathetic ear can offer enormous leverage.

A great opener is, “Is your home for sale?” This will make the homeowner feel more in control and respected than if you say, “I’ve researched properties in the area and I know that you’re in foreclosure.”

Step 3: Underscore that there is a problem

Sometimes, homeowners will do this for themselves. Other times, they need to be lead to this conclusion. If they couldn’t meet their monthly payments in the past, why do they expect that to change in the future? Bankruptcy can wreak havoc on a homeowner’s credit profile. Most likely, their credit is already affected, thus refinancing is not an option; if it is an option, will they be able to permanently keep the property?

The key to negotiating successfully is to convince the homeowner that you are going to do them a favor — which indeed you are. Your purchase of their home will get them out of a no-win situation and into a position of control.

Step 4: Offer a solution

If there’s equity in the house, you want to offer them a deal that will put some cash in their pocket and allow them the chance to save their credit profile by avoiding foreclosure proceedings or bankruptcy.

Most likely the homeowner has now exhausted all options that they believe will let them keep their home. If so, they may be willing to entertain a deal that gives them a good exit strategy. Remind them: If the mortgage forecloses, any equity in the property is lost.

Step 5: Educate the homeowner

Don’t paint the foreclosure process as complicated or mysterious. Give them the benefit of your knowledge so that they, too, can make an informed decision. They will discuss your encounters with trusted friends and relatives. Give them enough information to give convincing arguments to anyone that may try to dissuade them from selling.

Step 6: Put a little pressure on

Tell the homeowner that because of the way the market is fluctuating, you can’t guarantee the offer for more than a few days. They have to make a decision soon. Let too much time elapse, and you run the risk of letting them talk themselves out of a deal.

Example: Let them know that with over 10,000 homes foreclosing in Orange County California alone, there will be many other opportunities for you to pursue as real estate investments—while they’re thinking about selling, remind them that you’re going door-to-door trying to find someone who will. There’s only so much money you have to invest, after all.

If you are pursuing a homeowner in this manner, don’t let 24 hours go by without contact. You want to make sure that your offer is on their mind.

Notice of Trustee Sale Buying Tips

By realestateinvesting

Below is some start-up information on how to find a property going to sale at the auctions and assess its value to purchase the property for a profit. Please follow these strategies when you are going to try to purchase a property at an auction.

1. Identify the properties you are interested in off of the Trustee List.
2. Run comps in the area either from property profile or a similar program that can give accurate property sales. This will help you in knowing how much you want to bid.
3. Check on the property and owner’s name to get all of the liens and deeds of trust of record to evaluate if there is any equity in the house/property. Make sure that you take into consideration and repairs/work that is needed because this will affect your profit.
4. If there is equity in the property and it is something that you would like to purchase check the recorded Notice of Trustee Sale to find out where, when and how much the starting bid will be.
5. You must be ready to present to the auctioneer a cashiers check of cash for the opening bid amount. You also need to show to the auctioneer the cash or cashier checks for the amount of money that you are going to bid too, your maximum bid. A good idea is to bring several cashiers checks in different amounts from $ioo.00 to $10,000.00 equaling the amount of your maximum bid. If you do not show that you have more money then the opening bid, you will only be allowed to make the first bid.
6. If you are fortunate to purchase the property, the auctioneer will take all your information and send you a Trustees Deed upon sale putting you on title. You will be responsible to get this deed recorded.

S&P Case-Shiller Study says US House prices declined 18%, or did they?

By realestateinvesting

On December 30th, CNNMoney posted that US Home prices declined 18% in one year (see below).  They have in some places, but did they drop this much across the whole country?

The answer is, No!

One of the biggest problems with home price statistics is how they are measured.  Anytime you have statistics that measure median homes sales in an environment of dislocated jumbo financing, the median home sales numbers will be much lower than normal.  What this means is the price the home  that was sold was 1/2 of the total number of home sold was down 18% from a year ago.  But when you have conforming loan rates at 6%, Jumbo Conforming Rates at 6 3/4%, and Jumbo rates at 8% plus and strict income documentation requirements, it is no surprize that more lower priced homes sold than higher priced homes.

So this is the main factor driving median home prices down 18% nationally.  Financing rates, not actual price declines.

Home prices post record 18% drop

NEW YORK (CNNMoney.com) — Home prices posted another record decline in October, falling 18% compared with a year earlier, according to a closely watched report released Tuesday.

The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.

“The bear market continues; home prices are back to their March 2004 levels,” says David Blitzer, Chairman of the Index Committee at Standard & Poor’s.

Sunbelt cities suffered the most, but most of the country is watching home values fall. Home prices in Phoenix, Las Vegas and San Francisco all fell more than 30% on a year-over-year basis. Miami, Los Angeles and San Diego recorded year-over-year declines of 29%, 28% and 27%, respectively.

“As of October 2008, the 20-City Composite is down 23.4%,” said Blitzer. “In October, we also saw three new markets enter the ‘double-digit’ club.”

The Long Term Advantages of Real Estate Investing

By realestateinvesting

In today’s troubled financial environment there are countless reasons why one should invest in real estate, especially when you consider the long-term tenuousness of many pensions, 401Ks, and social security. Imagine investing in volatile market such as stocks, mutual funds, currencies, treasuries yielding near zero percent, or bonds. Real estate is a tangible asset that you can renters to make the monthly payments if buy right. And the government of gives real estate investors multiple tax benefits.

The first and one of the easiest ways to make money is from the cash flow from rental properties. If you have individual homes or in apartment houses, you can rent those properties to make a steady flow of income for many years. This is a safe way to earn money for retirement. And each a couple of years you can increase the rents to boost your cashflow and keep pace with inflation.

However the size and location of your property plays a role in making money! When it comes to renting, inflation is your best friend as this will increase the cost of construction price and the growth of population causes a demand for housing which will be increasing the value of the rented properties. So buying in desireable areas that have taken a price hit the past year or so, can be a great long term strategy as thus areas will become more desirable once the market turns around. More demand means an increase in value of properties. Real estate has an outstanding source of profit over a time, and a great inflation hedge.

Zero Percent Interest Rates & 100 Year Mortgages Coming Soon

By realestateinvesting

We thought we should add a life is stranger than fiction story we found on another real estate blog.  Oddly enough there were some big players actually calling for a 100 year mortgage.

It goes to show, impractically financial shenanigans can come at you from the real estate community as well as Wall Street.  If you focus on the fundamentals, you will be much further ahead in the long run.

• Acquisition Costs
• Terms
• Management/Holding Strategies
• Rental/Exist Strategies
• Team Building
• Buyer Acquisition System
• Deal Acquisition Systems

In the long run imagineering, just doesn’t work!  Read below.

Zero Interest Rates And 100 Year Mortgages Coming Soon

If you thought Greenspan was a maniac for temporarily dropping interest rates to 1% in the years after 9/11, just wait until you seen what Uncle Ben Bernanke has in store.  Since taking on his position, Bernanke has so far ratcheted the federal fund rate down to Greenspan’s low of 1%.  But the two day fed meeting that started today is expected to commence tomorrow with an announcement that interest rates are going lower, and quite possibly to zero percent!

The United States bubble based economy is in trouble.  Instead of focusing on innovating and exporting our way to a stronger economy, we instead choose to borrow more, cut taxes, inflate, and spend.  Our government insists on short sighted solutions to keep asset prices artificially high.

In 1981, the federal fund interest rates topped out at over 19% and mortgage borrowing costs were expensive.  Borrowers were responsible, 20% was the customary home down payment, and the economy was humming along.  But with the first sign of economic trouble, the targeted strategy was to inflate asset prices at any cost, and the preferred solution was lowering interest rates.  Since that time, every new sign of trouble brings lower and lower interest rates, and those rates are now widely expected to hit zero percent in 2009, if not sooner.

. . .

The sellsius real estate blog ( <– link to original story!) called for 100 year mortages recently.  Sellsius attempted to justify 100 year mortgages with seven ridiculous and unfounded benefit claims to the 100 year mortgage.  Unfortunately, every indication is that the United States will follow on with every policy mistake Japan has already made, including the 100 year mortgage.  Consumers will initially resist 100 year mortgages, but later embrace them.  Stupid Creative financing wins over most unsophisticated borrowers in the end as they consider only the monthly payments with no regard for longer term considerations.   But a few savvy consumers will make better choices.  And in most parts of the country, the wiser choice is still building equity through renting.  The equity comes from investing and compounding all the additional disposable income you keep from not buying inflated assets!