Make Millions with Foreclosures and Short Sales

5 Reasons US Property Values Will Fall In 2010

2010-09-06T17:18:00.000-07:00

Hey everyone i found this interesting article from Global Property Guide at this link:

http://www.nuwireinvestor.com/articles/5-reasons-us-property-values-will-fall-in-2010-55049.aspx

Take a look:

US housing market – not looking so hot

The optimism of early-2009 has proved premature. US house prices fell by between 1% to 11% in 2009, and even more in inflation-adjusted terms, according to the various estimates based on asking prices, selling prices, and mortgage applications.

The number of new single family houses sold in January 2010 was 309,000 units, 6% down on January 2009, and the lowest monthly sales since data was first collected in 1993.

More bad news:

Only 4,458,00 new single family houses were sold in 2009, down by 23% from 2008 - a big drop from the average of 11.5 million new single family homes sold annually from 1996 to 2007, which includes around 15 million new homes sold annually in 2004 and 2005. The number of new housing units authorized, constructed and completed in 2009 was the lowest for decades.
Mortgage delinquencies surged 60% from last year, to 229,139 in Q4 2009, a historic high. The delinquency rate rose to an unprecedented 10.14% in Q4 2009, up 7.05% on the same period in 2008. From 2003 to mid-2006, the delinquency rate was below 2%.

So much for the uptick in the housing market in early 2009, which was propelled by the government stimulus, and by an expectation that the recession would end in 2009.

Why the bad news? Although the U.S. officially exited recession in July 2009:

Unemployment has remained high.
The mortgage and loan markets have remained frozen, despite the key interest rate at a historic low of 0.13% since December 2008.

The good news? This could be the bottom – or perhaps not.

Year-on-year figures, good ‘trend’ signals (much used by Case-Schiller) suggest that though prices are still falling, each quarter’s bad news is less bad than the previous quarter’s bad news (i.e., the rate of price-falls is slowing rapidly). This is very clear from the chart:

There are dark clouds, however, down the road:

Fed MBS are being phased out. The Fed’s mortgage-backed securities (MBS) purchase program expired in March, and is not expected to be extended.
Fed stimuli will be slashed. Fiscal stimuli implemented in 2008 and 2009 are expected to be drastically reduced or entirely scrapped in 2010.
Interest rates are rising. With global commodity and fuel prices inching up, interest rates could be hiked to contain inflationary pressures.

Any of these measures could delay the housing market’s recovery.

HOUSE PRICE CHANGES, Q4 2009
	ANNUAL		QUARTERLY
	Nominal	Real	Nominal	Real
US Census Bureau
Median asking price – US$143,600	-11.41	-12.67	-7.47	-7.66
Median sales price – US$214,700	-3.51	-4.88	0.19	-0.01
Average sales price – US$270,500	-2.21	-3.60	-1.31	-1.51
NAR: Median price – US$172,500	-4.05	-5.42	-2.97	-3.17
FHFA: All transactions index	-4.66	-5.42	-2.97	-3.17
FHFA: Purchase only index	-1.20	-2.61	-0.11	-0.31
S&P/Case-Shiller®: 10 main cities	-2.48	-3.87	0.34	0.14
Source: US Census, NAR, FHFA, S&P

Is US housing now undervalued?

By 2009, average prices had fallen by around 13% from their 2007 peak, using US Census Bureau data. Federal Housing Finance Agency (FHFA) figures using mortgage data show slightly lower price falls from 2007 to 2009: 6.8% for the all-transactions index and 10.2% for the purchase-only index.

The S&P/Case-Shiller® house price indices (SPCS-10) shows the biggest price falls, with 25.4% within the same period. Adjusting for inflation adds 2 to 3 percentage points.

Some say prices are now so low that US houses are now actually undervalued. By the end of 2009, the US was 8.9% undervalued when weighted by market value, and 10.3% undervalued when weighted by housing units, according to IHS Global Insight, an international financial analysis and consultancy firm.

A 9% undervaluation implies that on the average a buyer will pay US$455,000 for a property worth US$500, based on housing fundamentals. The analysis was based on a study of actual house prices in 300 metropolitan areas from 1985 to 2009. The fundamental house price was based on the area’s population density, average household income, accessibility, and other factors. The undervaluation was in sharp contrast to the 16.6% overvaluation in Q4 2005 near the peak of the house price boom.

Undervaluation thesis - contradicted by still-high P/Rs

However the house price-to-rent ratio, the simple measure of house prices fundamentals which the Global Property Guide favours does not suggest that house prices are undervalued. In fact house prices are still above their long-term trend, as is clearly visible from the graphs:

The government has pushed new money at housing

The US has the world largest mortgage market, one of the few countries with a mortgage-to-GDP ratio over 100%. Mortgage debt rose from 61% of GDP in 1994 to 1997, to 103% of GDP in 2007, before falling slightly to 101% of GDP in 2008. Only 4% of new houses are bought for cash.

To replace the vacuum created by the mortgage crunch, government agencies have pumping out more housing loans.

In 2006 and 2007, home financing from government agencies, the Federal Housing Administration (FHA) and Veteran Affairs (VA), had risen to 24% and 9% of loans, respectively. In 2006 and 2007, they were used for only 4% and 3% of new houses sold, while conventional mortgages were used for 90%.

But the stimulus is trailing off

In 2008 and 2009, the housing market received a significant boost. First-time homebuyer credit was provided by the government under the Housing and Economic Recovery Act of 2008. Key features included:

Credit applied to houses purchased after April 8, 2008, and before December 1, 2008, used as the taxpayer's principal residence.
The credit amount (up to US$7,500) was an interest-free loan, repayable over 15 years.

In early 2009 several extra measures were credited for the “improved” housing market conditions, but their effects quickly fizzled as these programs started running out. Under the American Recovery and Reinvestment Act of 2009, the first-time homebuyer credit was extended until December 1, 2009 and the amount increased to US$8,000. Under the new scheme, the credit only needed to be repaid if the home ceased to be the owner’s principal residence within a three-year period following the purchase – i.e., the credit become a gift, though the term “credit” was still used.

However, this scheme expired at end-2009. In March 2010, a US Fed programme keeping mortgage rates low by buying MBS also expired. The Fed purchased a total of US$6.074 agency MBS during the last week of the programme to exhaust its US$1.25 trillion allocation.

Another government programme aiming to prevent foreclosures has been largely ineffective. Out of the 1.1 million homeowners participating last year, only

170,000 had completed the loan modification process by February 2010.

The US is still stuck in a liquidity trap

After the Fed slashed its key rate to just 0.13% in December 2008, it remained unchanged for the rest of 2009 and Q1 2010. The rate can hardly fall further.

Despite the decline, effective mortgage rates remain stubbornly high. As of February 2010, the average interest rate for 30-year Fixed Rate Mortgages (FRMs) was 4.99%, while the average rate for 15year FRMs was 4.37%. Average lending rate for one-year adjustable rate mortgages (ARMs) stood at 4.23%.

In 2009 and early-2010, interest margins ranged from 4 to 5 percentage points, up from 0.2 – 1.5 percentage points from June 2006 to August 2007. So despite the drop from the key rate of 5.25% in August 2007, actual mortgage lending rates have changed little.

Delinquencies and foreclosures are rising

Delinquency rates are rising, and this is likely to further weaken the housing market. Most delinquencies end up in forfeiture, so the supply of housing is expected to increase, further dampening property prices.

After staying at 3% or below from 1994 to 2007, seasonally adjusted delinquency rate rose quickly in 2008, and reached 6.58% by end-2008 and 10.14% by end-2009. Loans are considered delinquent when they are past due for thirty past days or more.

Foreclosures filings reached 308,524 in February 2010, up by 6% from a year earlier. February saw the lowest y-o-y increase since January 2006, but still marked the 50th consecutive month of annual foreclosure activity increases, according to RealtyTrac.

“This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure,” says James Saccacio of RealtyTrack,“but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity — albeit at a historically high level that will likely continue for an extended period.”

Construction is falling

In response to falling demand, construction of residential properties has fallen to historic lows. In 2004 and 2005, the number of housing units authorized for construction based on building permits exceeded 2 million. Since then, dwellings authorized declined. It was down to 572,000 units in 2009, far from the average of 1.5 million units dwellings authorized from 1990 to2007.

A mere 554,000 dwellings were started in 2009, down from an average of 2 million dwellings in 2004 and 2005. Completions likewise dropped to 794,000 units in 2009 from an average of 1.9 million from 2004 to 2006.

Weak construction activity will likely drag the economy further. The National Association of Home Builders estimates that each new home built creates 3 jobs for a year and US$90,000 in local and federal taxes.

The rental market is weak

Some observers hoped that the rise in foreclosures might boost demand for rental housing. But higher vacancy rates and lower rents show that this is not happening.

In the fourth quarter of 2009, the median rent was US$680; down by 3% on a year earlier and down 5% on the previous quarter.

Vacancy rate are high, too. Nationwide rental vacancy rates were 10.7% in 4th quarter of 2009. Although down from 11.1% in Q3, this is higher than the average 2005 to 2007 rate of 9.7%. From 1990 to 1997, the average rental vacancy rate was only 7.5%.

Unemployment is high

The Obama administration’s massive stimulus programmes, coordinated with the actions of the US Fed, prevented the recession from escalating into a depression. From peak to trough, GDP contracted by 3.9%, the highest decline since the Great Depression – yet a relatively happy outcome, a tribute to the salutary effect of Keynesian policies.

Yet despite the resumption of growth, unemployment is expected to remain high, at around 9.6% by end-2010 and 9.1% in 2011. Unemployment in February 2010 was 9.7%, slightly down from the 10.1% in October 2009.

From 2006 to 2007, unemployment was 5% or lower.

A few housing market forecasts:

Capital Economics expects house prices to fall by 5% this year, unless the government extends homebuyer credit.
Barclays Capital predicts house prices will drop by 4% or 5% before finally stabilizing. They note, however, recovery and stabilization are two different things. They do not see house price increases anytime soon.

The Decline: The Geography of a Recession

2010-09-06T17:05:00.000-07:00

A good video on unemployment rates in the united states by county.

check it out!

http://www.youtube.com/watch?v=J28tLOpzfpA&feature=player_embedded

What is the difference between a good or bad short sale candidate?

2009-10-30T10:35:00.001-07:00

What is the difference between a good or bad short sale candidate?

I’m excited to talk with you about the lesson today to determine a good and bad short sale candidate.

I am going to do my best to send you a new step every day or every other day.

Some of the lessons are longer than others. The important thing to remember is getting the understanding on how the process will work and then taking massive action to implement them inside your business.

Alright… let’s get to the first lesson

Lesson 1: What is the difference between a good or bad short sale candidate?

Did you know that not all short sale candidates are created equal? They are not. In fact, you can waste a lot of time on dead beat sellers that care less whether or not you can help them. You want to stay as far away from those people as possible. If they don’t recognize you throwing the life saver for them to grab on and work with the solutions you provide, move on. There are too many others out there that are SCREAMING for your help. They are in need of your specialized knowledge to help quickly liquidate their property. They either do not have time or knowledge on how to successfully get a bank/lender to accept a short sale on their property. Most of the time they are approaching or in foreclosure so the clock is ticking and they need to work quickly before the property is sold at the sheriff auction. This is where your knowledge is applied.

When distressed homeowners work with you they get peace of mind that someone is taking the ball and running with it to help them sell their house and avoid a completed foreclosure. This can have big benefits for the homeowner. A completed foreclosure compared to a short sale appearing as a “paid as agreed” on the homeowner’s credit can save them 2-3 years from reestablishing good credit. That’s a LONG time. Not to mention that you are buying them more time to find a place to move because you will be postponing the sheriff sale while the short sale is being reviewed for approval.

Does it make better sense now?

Why doesn’t the homeowner just list the property with a Realtor? There are many reasons but the two that stick out the most are..

1. Many Realtors are not experienced in successfully completing a short sale

2. Realtors want to get paid a commission and short sales home have ZERO equity. That means Realtor has to get the LENDER to pay their commissions. They don’t like risking that, so they usually shy away from homeowners without suffice equity to pay their commissions.

Which Deals Should You Pursue?

It is important that you do not waste your time with unwilling or unmotivated homeowners/sellers. They must be ready to leave the house for you to assist them with a short sale strategy. You cannot help all homeowner’s in or approaching foreclosure. You can only help those that will be in complete compliance to your requests. You did not cause the homeowner to be in a hardship. If the short sale does not get accepted the homeowner is in no worse of a situation than before they met you.

The homeowner must have a legitimate hardship. The lender will not agree to a short sale if they believe the homeowner is just avoiding making the payments because they don’t like the house anymore, upset at a spouse, want to move quickly or some other cop-out type excuse. Don’t waste time trying to assist homeowners that are not good short sale candidates. You are robbing the other people that are in desperate need of your help. Willing homeowners with legitimate hardships NEED a solution. Be a WISE servant and not a GULLIBLE fool.

The following is a bullet point list for what my team considers ACCEPTABLE AND NOT ACCEPTABLE short sale candidates.

ACCEPTABLE “GOOD” CANDIDATES

• A continuing hardship that is preventing any more payments being made to the lender

• The homeowner completely willing to work with you with no friction

• Already behind on mortgage payments

• Lis Pendens or Notice of Default (NOD) has been filed lender has started the foreclosure process

• No equity and property is overleveraged having owed more on it than it is worth

• Property needs repairs

• More than one mortgage is owed

• One or multiple judgments or Liens owed

• Property is listed for sheriff sale with MORE than 10 days left to auction sale date

UNACCEPTABLE “BAD” CANDIDATES

• NOT in compliance to requests for documents, showing their property, signing a listing agreement etc.

• Does not have a legitimate hardship (using some excuse to NOT pay the lender when they have the money available)

• The property has a lot of equity and the lender would be better off foreclosing to get paid in full

• The sheriff sale is LESS than 10 days away

• Homeowner requests to STAY in the property

So there you have it. If you have a homeowner who makes plenty of money to pay bills, is a pain to work with, will not respond to your requests for paperwork or wishes to stay in their house … move on. This is what our team considers an UNACCEPTABLE short sale candidate. The better candidates are homeowners that have legitimate hardships, having missed three or more payments, in pre-foreclosure, the property needs some repairs and they are looking at a sheriff sale more than 10 days away from the auction date.

The following are some questions you would ask to determine if you have short sale candidate. This is assuming you have the full contact information for your client/prospect.

1. What is the address of the property including city, state and zip?
2. Do you have a foreclosure date pending? If yes, when?
3. Can you make anymore payments to save the house?
4. Do you want to SELL or KEEP the house?
5. What do you owe on the house? Mo. Payments and balance?
6. Do you have any other mortgages? If yes, who are they with and what do you owe?
7. Do you have any other liens? If yes, who are they with and what do you owe?
8. Does the house need any repairs? If yes, briefly explain
9. Are you behind in payments? If yes, how many?
10. Are you the owner? Is anyone else on the deed or the mortgage?
11. Is the house vacant? If not is it rented or owner occupied … when could you move?
12. What type of loan do you have? FHA, VA, CONVENTIONAL?
13. Has anyone else tried to contact the lender on your behalf?
14. Ever filed a BK? If yes, when? Was it discharged or dismissed?
15. What is your goal by working with us?
16. Additional Info?

Get the most out of auctions

2009-07-14T10:22:00.000-07:00

The first and most important part of buying at auction is the property’s as-is condition. Houses on the auction block are sold without guarantees as to their quality. Often, this can spell disaster for the investor who doesn’t do their homework and hasn’t yet looked into the property’s structure, landscaping, or tax lien status. Remember that no one is going to fix your property for you, so you are responsible for all the possible problems.

Next, you’ll want to do as much research into the property that you can. You’ll want to find out the current status of the title and if there are additional liens against the property, all of which can be found out in a title report delivered by a title company. You’ll want to find out about any possible structural problems with the property. Auctioned properties are notorious for containing a myriad of structural problems. At the very least, walk up to the property and inspect from the outside. If there are current occupants, they might or might not let you inside to look around, which is one of the hazards of the business.

Now you have to crunch the numbers. The starting bid for a property at auction is generally equal to the remaining balance on the mortgage. If you know the starting bid for the property, you can use that as a starting point. First, is the house worth buying at this price? After all, you can’t negotiate with the auctioneer for a lower price at this point, so you’ll have to work with the numbers given to you. Some of these properties won’t be purchased for the starting bid and will become bank-owned properties.

Consider the price of possible repairs, tax liens, closing costs, and other expenses you will incur by purchasing the property. Can you make a reasonable bid on this property and still make a profit?

First, in order to find properties up for auction, you’ll need to do a little legwork. You can go to your local county courthouse where they post auction notices.

Now that you know all the important details about the property, you can begin the purchasing process. As we’ve already mentioned, the auction process goes by very quickly, so you’ll need to secure financing before you place your bid. If you don’t, you can lose your deposit, an unfortunate lesson for anyone.

Immediately after the auction, the county will require you to place a deposit on the property. This amount varies depending on the county, and you can find out how much you’ll need to pay by making a few phone calls to county government offices.

Some of these auctions are silent, meaning that each of the prospective buyers will list their highest bid on a piece of paper, and the highest bidder gets the property. Some are more traditional with an auctioneer yelling out bids. If you’re interested in purchasing at auction in the future, you should probably go visit a few of these auctions first to see what they’re like.

What is a short sale?

2009-07-14T09:34:00.000-07:00

What exactly are short sales? The truth is that short sales are usually not fully discussed in many books about real estate, but they should be. Short sales techniques allow the purchaser to make a great deal on a home, put no money down, and get properties at substantial discounts. So why aren’t short sales discussed very often? This is probably because short sales in the past have not been a very good option for real estate investors. Success in short sales is related closely with the market.Short sales deal a lot in equity, and you’ll want to learn about actual equity within a home.

Let’s say an owner has a home they can afford and are not in default. Their home has an appraised value of $120,000. Currently they owe about $96,000 in their mortgage, meaning their home has $24,000 in equity. Now let’s look at a home that’s in pre-foreclosure, or an owner who is about to go into default. Let’s say that the owner knows that foreclosure is approaching and would like to get out. The house they own is worth $178,000 based on an appraisal. However, the mortgage they owe is now more than that at about $200,000. In this case, the owners have negative equity, so even if they sold the house at full market value, they would still end up owing $22,000.

In this type of market, you’ll encounter quite a few people facing foreclosure but without the means to pull themselves out. Some might be facing economic hardship like job layoffs, personal hardship, or perhaps their adjustable rate mortgage has become too much for them to handle. In these cases, these people are stuck with a mortgage they can’t afford, often with more money owed than the house is worth and often in a home with no equity. They know that foreclosure would be devastating to their credit and would like to find a way to quickly sell the house in order to save their credit and get rid of a burdensome mortgage payment. Enter the short sale.

The way you do this is through negotiation. Banks don’t want to have a property in foreclosure if they can prevent one. This is bad for their bottom line and bad for business in general. If a home goes into foreclosure, the bank will be forced to auction off the property in order to recoup their expenses. In these instances, the bank could end up getting considerably less for the property or if the property is not sold, the bank is now the owner of a property that does the institution no good. Consider that the banks foreclosure legal proceeding costs and the expenses for carrying these properties and later on marketing and selling them are far more than what they would be receiving with a fast cash closing.

What is a foreclosure?

2009-07-14T09:30:00.000-07:00

In essence, foreclosure is the result of the owner of a property falling behind on payments. If the owner is behind on enough of their payments, the property will go into foreclosure. Foreclosure is a process, not a singular event or time in history. In this process, the lending institution—the bank or lender that gave the property owner their mortgage in the first place—will take steps to either gain payment from the owner or take back ownership of the property. This process is complicated and can vary in the amount of time needed to complete. Also, the foreclosure process is dependant greatly upon state and local laws. Some states will take shorter amounts of time and some will take longer.

There are plenty of reasons why a family would go into foreclosure, many of which you can probably imagine yourself. In a great many cases, medical debt is at fault. If a family has a catastrophic health crisis—a few examples would be cancer, heart attack, or traffic accident—and doesn’t have insurance or is underinsured, the family can quickly fall behind financially, leaving the mortgage payment unpaid. Other reasons include deaths in the family, layoffs, divorces, and an alternate property purchase, where an owner purchases another property and doesn’t or won’t continue paying on his or her first mortgage.

Foreclosure begins with a reason, perhaps one of the above, and the homeowner can no longer afford to make mortgage payments. Of course, the reason for missed payments doesn’t matter to the lender, only the fact that they aren’t receiving payment. Eventually the mortgage will go into default and the lender will, after a certain amount of time, begin foreclosure proceedings on the homeowner to reclaim and then auction off the property. Mortgages begin as legal agreements, entered into by both the lender and the borrower. The mortgager generally puts a lien on the title of the house so that, in the event that the borrower doesn’t pay or breaks the mortgage agreement, they can retake ownership of the property in order to recoup the balance on the mortgage.

Appraisal Tips

2009-07-14T09:11:00.000-07:00

Confirm the property exists & is in a livable location
Confirm the reported square footage. Measure the perimeter of the house. No interior measurements. Only exterior.
Check all rooms for damage that could affect value
Look for physical damages, stains etc.
Verify any upgrades
Note all built in up-grades
Check the furnace room. Is it gas, electric? Is there central air?
Check basement for updates and finishing. If its sub grade, its not included in the square footage
Verify there is a working furnace and air
Verify the number of bedrooms. If it does not have a closet, its not considered a bedroom
Check back & front of the house
What is the house made with... brick, aluminum etc.
Take street view, home exterior, backyard and interior pictures.