What is happening?

There is so much going on in the real estate world today, it's hard to know what to blog about. It seems most of the articles I read each day focus on the negative aspect of this business. . . .most notably the fast nosedive of the lending business, and how that seems to be affecting consumer confidence and spending.

Yesterday one of our local lenders forwarded us a web site that's keeping tabs on what's going on in the lending industry. http://www.thetruthaboutmortgages.com/ gives daily information on who's going under, who's staying afloat and offers a list of each and every lender that has experienced hard times as of these last few months. If you click on the list, it's overwhelming to see how many lenders have closed their doors for good. In fact this article even states that recent statistics show that 2.33% of all US mortgages are currently delinquent. That's incredible. No wonder so many lenders are closing their doors.

With "the world of money" spinning in a seemingly out of control downward spiral, we're seeing some of the effects in the real estate market. With each lender that closes their doors goes another batch of buyers who were trying to obtain a loan. Some of them will go on to be successful in their endeavors, others will be told continuing to rent is their best option.

The scary thing is, not all of these lenders going under cater to the "monetarily challenged". There are a number of lenders who deal with "A" buyers as well. . . .buyers with good or great credit, buyers WITHOUT credit issues.

Perhaps this is just the mortgage world balancing itself out. . . . .just like when we hit "hard times" and all the ineffective real estate agents fall by the wayside. Perhaps what we'll be left with when this is all said and done is good, quality lenders, and good, quality real estate agents. . . . . .instead of everybody and their brother doing what they THINK is an "easy" job. We can only hope.

Foreclosure Basics: Foreclosures, Short Sales and REOs

Reprinted from Realty Times written by Diane Kennedy

On the face of it, foreclosures, short sales and REOs look like the same thing: someone can't pay their mortgage and is losing the property to the lender. They are attractive for investors looking to pick up a property for less than market value, and may well represent the next "it" thing in real estate investing.

However, it's not quite as easy as it seems. If you walk into the investor market wanting to "do foreclosures," without understanding the entire process, you could wind up in trouble. For example, while all short sales are foreclosures, not all foreclosures are short sales, and while REOs are not short sales, some short sales can wind up as REOs.

Let's start at the beginning, then, with three basic definitions:

1. What is a Foreclosure?

When a property is in foreclosure, the owner has stopped making payments, and the lender has given the borrower a written Notice of Default that the payments must be brought up to date or the property will be sold off. The notice is a public document (which is why so many websites offer foreclosure lists). It normally takes about two missed payments for a lender to issue a Notice of Default, but not always.

If the owner doesn't respond to the Notice of Default or make the payments needed to reinstate the mortgage, the lender can apply to the courts to take back the title the property so it can then be auctioned off or otherwise disposed of. This doesn't happen right away, though. Each state has a different time period during which the former owners can still rescue the property.
Foreclosure auctions are usually public -- in fact in Reno, NV, foreclosure auctions are still done on the front steps of the Courthouse once a week.

2. What is a Short Sale?

A short sale happens once a home is in foreclosure, but before the property goes to public auction. Short sales are attractive to investors, because lenders often agree to take less than what is owed on the property. The idea here is that you are saving the lender time and money by stopping the legal foreclosure process and taking the property off the lender's hands.

But there are pitfalls to short sales. For example, if multiple mortgages are involved an investor must strike a deal with all lenders. That may leave little, if any, profit margin, depending on how heavily the property is mortgaged. And, even if a lender does agree to an offer up front, they can still change their mind. A real estate agent I spoke with recently told me that in her area, one lender was refusing to close on short sales at the last minute -- wasting time and money for everyone involved.

3. What are REOs (or Real Estate Owned)?

If no-one bids high enough to meet the lender's price at auction, the foreclosure completes and title transfers to the lender. Real Estate Owned means the property is owned by the lender.
Some investors see REO homes as the best way to buy property because there are no emotions involved: it's strictly business between the investor, their agent, the lender, and its agent. And because most lenders aren't landlords (nor do they want to be), investors can often get a very reduced price.

But not always. Sometimes there are hidden fees, like unpaid taxes, penalties, etc., to contend with. Other times lenders aren't willing to negotiate the price down from market, or close to market. This is especially true in areas where home values have fallen further than lenders want to acknowledge.

As with any other kind of investing, education and experience will be crucial. Where foreclosure investing is involved, you may be wise to keep them in that order.

The Lending Industry

As you know from some of my previous posts, the foreclosure market is on the rise. Some figures indicate it's risen as much as 56% over last year, in some areas.

Many of these sellers are being hit by rising interest rates - those that took the low interest adjustable rate mortgages are seeing HUGE jumps in rates right now, and when you're strapped to make your monthly payment, ANY increase in that payment is tough.

We've seen a number of lenders go out of business in the past 6 months, while many others crack down on various programs. It's nearly impossible to get a 100% loan now, unless you've got sparkling credit. Six months ago, you needed only to "fog up a mirror". Many lenders have turned away clients who would have qualified without a problem 6 months ago, because the secondary market (the place they go to sell the loans) won't work with their credit scores.

Today we found out the lending industry will no longer be offering 80/20 mortgages. That's where the lender sets you up with 2 separate mortgages, one with a higher rate, in order to finance 100% of your transaction. Most of the time these mortgages are refinanced in a year or two back into one loan, once the buyer has gained equity in the property. I'm told there are still ways to obtain 100% financing. . . . .but apparently the 80/20 mortgage is no longer one of those options.

It will be interesting to see what other changes we see in the lending industry while the real estate industry is seeing it's "correction".

"Counselors Seek Ideas to Slow Foreclosures"

This article popped up this morning in some of the morning articles I read with regards to real estate. I found it interesting. With the number of foreclosures on the rise, I think education is an excellent idea.

Wisconsin Dells Events (08/01/07) Krejci, Anna

A recent Wisconsin Collaborative for Affordable Housing conference featured a brainstorming session in which financial counselors, representatives of various state government organizations and other professionals discussed ways to prevent foreclosures. According to ForeclosuresWI.com, the number of foreclosures in the state has risen 23 percent since the first of the year. In Columbia County alone, there have been 124 foreclosures filed so far in 2007. Dialogue at the conference centered on offering post-purchase programs for new homeowners, along with recognizing and developing future funding sources to help in preventing foreclosures. Some even suggested rewards or coupons for Home Depot and other home improvement retailers as incentives for new buyers to attend post-purchase programs. Among those in attendance at the conference were Morris Reece, director of Fair Housing for the city of Racine; Noel Halvorsen, executive director of NeighborWorks Green Bay; and Diane Schobert of the Wisconsin Housing and Economic Development Authority. Reece blamed the recent rash of foreclosures in Wisconsin on first-time buyers being rushed into making a purchase. Halvorsen, meanwhile, supported the idea of ad campaigns designed to educate the public on the demands of homeownership.

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I think there are a lot of home buyers who don't realize what they're getting themselves in to when they purchase a home. Unfortunately, there are also a lot of home OWNERS who don't understand how to effectively manage their money either. . . . .which is a factor contributing to the growing number of foreclosures as well.

People take second mortgages, home equity loans, lines of credit & the like from the equity in their house with the feeling that it's "free money". What they fail to understand is that there is no such thing as FREE money. Suddenly they can't pay that money back and the bank comes looking to collect on the loan. . . . .to take their house.

In this article the director of fair housing for Racine blames the up rise in foreclosures in Wisconsin on first time home buyers being "rushed" into a purchase. Again, education is needed. The first time home buyers I've worked with lately tend to take what the bank has to say they can afford at full value. They don't factor in the costs of owning a home. . . . they just see the dollar amount they're told they can afford, what that price point of a house looks like, and they go for it. After all, it's an "investment" right? "Rushing" has nothing to do with it. . . . . . .they're simply not educated on the bottome line, what it's going to cost down the line.

I think education starting with the lending industry is a must. Again, not all these foreclosures we're seeing are "first time home buyers", but most of them are "uneducated" from the standpoint that they don't understand the mistakes they made in order to get where they are. Perhaps it's time we do something to help solve that problem before we're ALL paying.

"Biggest Urban Growth Is in South and West"

New York Times (06/28/07) P. A14; Roberts, Sam


New Census Bureau data reveals that the U.S. population is growing fastest in urban centers across the country's southern and western landscapes, particularly in the metropolitan suburbs of those areas.


In cities with 100,000 or more residents, North Las Vegas registered the fastest rate of growth from 2005 to 2006, at 11.9 percent; while Phoenix welcomed 43,000 newcomers to its territory--more than any other city.


Western and southern locales dominated the Top 10 lists for both population growth rate and biggest numerical gainers. Included in the former category were destinations such as Denton, Grand Prairie and McKinney in the Dallas area; two cities in Florida; two cities in metro Phoenix; one city in California; and one North Carolina locale.


Among those adding the most new denizens, meanwhile, were the Texas cities of Austin, Dallas, Fort Worth, Houston and San Antonio.


Storm-battered New Orleans, meanwhile, hemorrhaged more than half of its population over the 12 months stretching from July 2005 to the same month of 2006.


New York, while still the most populous city, saw virtually no gains over that time frame.


The latest Census figures underscore a shift in the nation's population over the past century. New York, Chicago and Philadelphia are the only cities included on the list of the top 10 most populous cities in 1910 that still hold a spot today. Meanwhile, Phoenix, San Jose and San Diego--all counted among the most recent top 10--were not even in the top 100 most populous in 1910.