The Real Estate Investor*

Feb. 2010, vol.#6, issue #1

*Title of the newsletter has changed for The Foreclosure Investor to The Real Estate Investor

Is Credit Loosening Up?

    The jury is still out on this one, but there are some favorable omens beginning to appear. Here are some good signs:

    1.  Homeowners (owner-occupant) loans are readily available at very low interest rates.

    2.  Lenders are offering re-fi loans at extremely low rates.

    3.  Although investment loans are still tight, they are becoming available again.

     4.  Lenders backed by Freddie Mac and Fannie Mae are still limiting investors to a total of 4 properties with loans on them.  However, there are a number of lenders not backed by these agencies who are stepping up and do not have a limit on the number of loans.

    5.  The "No flipping for 6 months" rule is gone. 

* Snippet from the Real Estate Investor, Feb. 2010*

Buying a Foreclosure

It's the same, just different:

You're Not dealing with a Person:

    First and foremost, the foreclosed property is owned by a bank or corporation.  When you make an offer, it must be written up the Buyer's Agent (that's us) who in turn carries the offer to the Listing Agent, who emails or faxes it to the banks who refers it to a committee, who makes a decision on your offer and turn it over to an individual, who send the answer back down the line.  This long line of communication has several consequences:

    1.  It's not fast.

    2.  It's very impersonal.

    3. Although there are exceptions, the bank will normally not finance the purchase.

    4.  If you financing the purchases you must have your finance the purchase.

    5.  If you are paying cash without financing you must sent "proof of funds".

    6.  It's all about the numbers.

    7.  The bank will normally not make repairs to the property or furnish a warranty.

    8.  The bank will normally not counter-offer.

    9.  Once your offer is accepted the bank will send twn to thirty pages of addendums.

Low Property Values

    The current housing market appears to have stabilized but is not headed back up.  Why not?  A big reason is appraisals.  Lenders depend on the appraised value of a property to determine how much they will lend on it.  Appraisers depend on sales of comparable houses in the last six months to arrive at an appraised value.  The problem now is that virtually everything that has been sold in the last six months was a short sale, foreclosure, or a distress sale.  These depressed sales prices are what the appraisers are using to arrive at property value.

    Another problem is two "phantom inventories" of available housing.  As of last word, Fannie Mae was holding over 800,000 foreclosures in the "pipeline" and not releasing them to keep from depressing property values further.  These have to be eventually accounted or.

    The second "phantom inventory" is coming from current property owners.  How many times have we recently hear someone say. "When the market comes back, I'm going to sell this house!"?  No one knows how many houses are in this category, but it is substantially more than in Fannie Mae's "pipeline".

    The market must assimilate both of these phantom inventories before appraised values can rise and prices will approach the 2006-2007 levels again.

* Snippet from the Real Estate Investor, Feb. 2010*