I came across the note posted below and wanted to highlight a few things. Firstly, it is good to keep your eyes out for different offerings like this by different companies. In general, it’s just good to know what is going on in the market and what different people are doing. Secondly, there may be good opportunities that arise from these types of offerings. Thirdly, it’s always good to be around and associate with other investors. There is much to be learned from meeting and talking with other investors and learning about their business. How are they finding deals? How are they funding deals? What types of strategies are they using? Also, there is always the opportunity of partnering with these investors, doing deals together, having them as wholesale buyers, etc.

Novel Home Sale Strategies Drive Bargains

In California, Florida, Las Vegas, and other housing markets hit hard by the downturn, real estate brokerages are renting buses and taking interested buyers and investors on tours of foreclosed properties.

Those taking the $20 tour offered by the Keenan Carter Group in Pismo Beach, Calif., partake in refreshments while receiving information on mortgage financing and how much a particular home could generate in rental income. Meanwhile, the Santa Clara County Association of REALTORS® is holding “The Biggest Open House Day of the Year” in California’s Silicon Valley on April 13, with incentives given to buyers willing to make on-the-spot offers.

Besides bus tours, association President-elect Quincy Virgilio also expects the housing downturn to make such renew the popularity of financing options such as equity sharing — in which an investor covers the down payment for the party planning to occupy the home.

Source: Realty Times, Broderick Perkins (02/27/08)

Posted by Carter Brown

The singular key to real estate investing is making lots of offers to motivated sellers. In order to make offers to motivated sellers investors first have to find them. An area of intense focus by investors is targeting people that have fallen behind on their mortgage payments. This period of time is often referred to as pre-foreclosure. It is not uncommon for people that go into default to start hiding from the bank by not returning phones calls, ignoring mail correspondence, etc. This is a big mistake. It is important to understand that banks do not want to foreclose on property. Let me repeat that, banks do not want to foreclose on property.

In an article published in the Washington Post dated 2/17/2008, Renae Merie says “The bottom line is the average foreclosure costs more than $50,000. It is cheaper and easier to lower the borrower’s interest rate and put them on a repayment plan or sell the home at less than is owed�

She further states that “Mortgage lenders are going door-to-door in some parts of the country to track down borrowers who are behind on their payments to help them work out a solution�

This is great news for investors, banks and lenders are motivated and willing to work out the mortgage or better yet, sell the home at less that what is owed. This is called a short sale. As you talk with people in default on their mortgage you want to communicate this to them and help facilitate this communication with the lenders. There are significant profits to be had when you can get the bank to accept a purchase price less that what is owed and less than the market value.

Posted by Carter Brown

January existing home statistics were released with some interesting and revealing trends. The best part about the numbers is they reveal promising trends for investors. The inventory of unsold homes increased 5.5% from December 2007 to January 2008. Inventory levels from January 2007 to January 2008 were up 18.4%. That means there are a lot more houses available for sale now then there were a year ago. What does that mean for investors? More motivated sellers. It is more difficult to sell a house now, so when someone has to sell, for whatever reason, they have to be more willing to negotiate and reduce the price in order to get the property sold.

Mark Lieberman, a Senior Economist for Fox Business Network said “With inventories of unsold increasing—and likely to go up further with higher foreclosure rates-sellers will be under increasing pressure to lower prices…..�

Further, Joel Naroff, chief economist at Naroff Economic Advisors said “With sales weak and inventories at extraordinarily high levels……Eventually, sellers will end their denial and realize that if they want to unload their homes, they will have to cut prices even more.”

As investors, we want to make sure we are not the ones getting stuck with property. With it being more difficult to sell properties, we need to make sure we are buying our properties right so that we are able to get them back on the market at a price where they will sell.

Also, those of you in the Northeast received good news on existing home prices. The median price of a home in the Northeast increased 6.2% from December 2007 to January 2008 and 3.1% from January 2007 to January 2008. I’ve included the raw sales and pricing data for your review below.

Regional sales (Seasonally adjusted annual rate):
• Northeast: 810,000 down 3.6% from December, down 25.7% from January 2006;
• Midwest: 1,200,000 up 3.4% from December, down 20.0% from January 2006;
• South: 1.950,000 down 0.5% from December, down 22.0% from January 2006;
• West: 930,000 down 2.1% from December, down 28.5% from January 2006.

Regional median prices:
• Northeast: $270,800, up 6.2% from December, up 3.1% from January 2006;
• Midwest: $154,200, down 3.0% from December, down 4.0% from January 2006;
• South: $164,300, down 4.6% from December, down 5.9% from January 2006;
• West: $300,100, down 3.5% from December, down 6.7% from January 2006.

Posted by Carter Brown

When is the best time to buy real estate? I personally believe anytime is the best time to buy real estate. I hear frequently these days that it is a terrible time to be buying real estate. There is a lot of negative sentiment in the market, prices are falling, sales are slowing, foreclosures are sky rocking, etc. These are NOT things that should scare investors but should encourage and motivate investors.

Yale Professor Robert Shiller recently said “There’s nothing troubling about a gradual correction of home prices. If we keep our incomes at the current level and home prices go down we are richer, we can buy more housing,â€?

This should be an investor’s mindset right now. Investors should be cheering the slowdown because now we can buy more and by it cheaper.

The California Association of REALTORS ® recently released a study saying in the fourth quarter of 2007 a third of California households would be able to contribute a 10-percent down payment and be approved to purchase a home. This is almost a 10-percent increase over the same period in 2006. They cite the downturn in California’s housing market as the main contributing factor.

Now is a fantastic time to be a real estate investor. Don’t run for the exits like many investors but rather seize the opportunities that now exist. Don’t let your fears get in the way of this tremendous buying opportunity.

Posted by Carter Brown

It seems every time we turn on the TV or read the news we are being bombarded with real estate news, information and statistics. Many times the headlines are misleading and give us a false sense of what is really happening in the real estate market. It is important to first understand exactly what the article means before drawing any conclusions. The following is an example headline I’d like to look at closely:

“Real Estate Sales Down 20%�

What does this mean? What sales are down 20%? New home construction or existing homes?

Sales are down from what? If sales are down from an all-time high they still may be strong historically speaking.

What time period are they down 20%? Last month? Last quarter? Last year? If sales are down for the year but have ticked up the last month or the last quarter, things may be turning positive.

Where are “Real Estate Sales Down 20%�? In your local market? Nationally?

Does this mean the sky is falling and the real estate market is in complete disarray? Does this have anything to do with the value of real estate or what properties are selling for? Many markets experienced a dramatic real estate boom the past 5 – 8 years. Homes were being snatched up with multiple offers far above asking price, builders couldn’t build homes fast enough to keep up with buyer demand. In many markets homes weren’t selling because there were no homes for sale. So real estate sales could’ve been down 20% not because it was a bad market but because there was no available inventory to buy. A quick look at the price appreciation would have shown this. If you have “Real Estate Sales Down 20%� over the last year but prices are up 40% that tells a completely different story. To me that would be very good news and tell me there is great demand for homes and prices are on the rise.

Most of the time a thorough reading of the article will answer all of these questions, but if we don’t read the entire article, we will just assume bad things are happening and that is not always the case. We need to make sure we understand these headlines and these articles so we don’t get a false sense of what is really happening in the market.

Posted by Carter Brown

February 18, 2008

The Place We Never Suspected the Credit Crisis to Spread

Posted by Erin Brereton on July 15, 2007

When homeowner-related credit issues began, they involved subprime borrowers–people with less than perfect credit–prompting criticism when the government stepped in with its Hope Now program to help those homeowners avoid foreclosure.

Some asked, why should we help homebuyers who over extended themselves? Isn’t that their problem?

Well, according to a recent New York Times article, it’s now everybody’s problem.

Decreased home prices and stricter lending standards have pushed some homeowners with good credit backgrounds behind on their payments–less than the 24 percent of subprime borrowers which are delinquent or in foreclosure, the Times says, but in some areas, still a staggering amount.

For example, Arizona: The Mortgage Bankers Association found that between the third quarters of 2006 and 2007, ARM-related prime homeowner foreclosures rose 902 percent in Arizona, according to BusinessWeek.

And, all the while, subprime loans continue to do their damage. The MBA says that while subprime ARMs represent just 6.8 percent of the current loans, they comprised 43 percent of the foreclosures initiated during the third quarter of 2007.

(Interestingly enough, a ripple effect is occurring in the U.K.; more than half of the foreclosure orders are subprime borrower-owned homes, despite the fact that–as in the U.S.–they’re just 6 percent of all U.K. mortgages, according to a BBC News report.)

Mortgage payments aren’t the only trouble prime borrowers have stumbled into lately. If they aren’t defaulting on their home loans, the Times says, the prime borrowers are falling behind on their auto loans and credit card payments–at an increasing pace.

And that’s about the last thing that the housing market needs.

“This collapse in housing value is sucking in all borrowers,� Mark Zandi, chief economist at Moody’s Economy.com, told the Times.

Why is it happening? Many subprime and prime borrowers took out the same kind of loans–adjustable rate mortgages (ARMs) that reset to a higher rate after several years of lower payments–so prime borrowers are just as susceptible to sudden higher post-reset payments as subprime borrowers.

When home prices were rising, both groups had more leeway to refinance or sell; now they are both facing high resets. The bottom line? Too many loan programs allowed too many homeowners to buy homes out of their comfort level with little to no money down on the hopes the market would keep rising–and it didn’t.

Why is it a problem? Because prime borrowers carried the weight of the subprime borrowers–for awhile, they were thought to be balancing out some of the subprime defaults, according to the Times.

Where is it happening? The states with the highest increase in prime ARM foreclosure starts in the third quarter of 2007–Florida, Nevada, California and Arizona (which would help explain that horrific rise in prime homeowner foreclosure starts)–have a large amount of investment properties that were purchased to flip and make a profit, according to BusinessWeek.

Arizona had the eighth highest foreclosure rate in 2007; Nevada and Florida ranked No. 1 and 2, according to RealtyTrac.

And–unfortunately–those aren’t the only places experiencing prime problems.

The causes are similar to the factors that pushed the subprime sector into rocky waters. And–even though considerably less troubled prime borrowers exist–the prime defaults are cause for concern.

What’s next?

Well, according to the Mortgage Bankers Association, the highest rate of prime mortgages since the MBA began tracking prime and subprime mortgages in 1998 were delinquent or in foreclosure at the end of September.

As the country tries to spur residential building and the housing market by unloading some of its housing supply, it’s not helping that we’re adding foreclosed properties to the number of homes on the market. Nearly half the home sales in some parts of California recently involved foreclosed houses, according to USA Today.

However, some help–along with measures to prevent the situation from happening again–is on the way, in the form of:
Reduced Rates. The Fed has cut short term interest rates, which should help ease reset rates.
More realistic home equity credit. Banks are also starting to cap home equity lines of credit–in Florida, one of the prime- and subprime-damaged states, some lenders have moved to making home equity loans based on 90 percent (or less) of a home’s value instead of 100 percent, the Florida Times-Union reported recently.
Increased consumer credit monitoring. In addition, credit card companies are reducing limits–and increasing penalties–for high-risk customers, which may help curb growing debt in the future (although it will undoubtedly cause problems at first).

USA Today reported in early February that Bank of America plans to periodically review consumers and raise rates on some they perceive to be a risk–not necessarily because of the current mortgage issues, but some analysts say is related to overall lender losses. Consumers are, after all, falling behind on all sorts of payments.

A plan to prevent foreclosure. And then there is Project Lifeline, the new plan announced by Bank of America, Citigroup, Countrywide, J.P. Morgan, Washington Mutual and Wells Fargo last Tuesday, which pledges to help foreclosure-facing borrowers work out a way to keep their home.

However, the plan is barely a week old and has already come under criticism from the Center for Responsible lending, which called it a “rope that is too short” due to its limitations, which exclude anyone who has missed more than three months of payments and has a foreclosure date less than 30 days away.

If more prime borrowers become entrenched in the subprime cycle, the blow to the economy could be unimaginable.
Have we seen the worst of the damage? It’s hard to say. After all, did we really predict the full extent of the subprime fallout when it started?

Interesting Data by David Bodamer February 5th, 2008

I’ve been at the MBA’s Commercial Real Estate Finance/Multifamily Housing Convention and Expo in Orlando. I intend to gather my thoughts and put a long post up in a day or so rounding up what I’ve seen and heard. For now, I thought I’d share a couple of charts that I found astounding, in terms of illustrating how small a piece of the residential market subprime loans represent. It’s amazing because that small piece has caused larger problems. It’s also amazing because that small piece still represents millions of mortgages and, therefore, millions of families.

Loan Type Percent of Loans Outstanding Percent of Foreclosures
Prime Fixed 63 18
Prime ARM 15 19
Subrime Fixed 6 13
Subprime ARM 7 43
FHA & VA 9 9

MORTGAGE BANKER’S CONFERENCE’S OPENING SESSION PLACES POSITIVE SPIN ON CREDIT TURMOIL

Published: February 05, 2008
By Keat Foong, Executive Editor

Orlando, Fla.–While uncertainty swirls over the credit crisis in the financial markets, the Mortgage Bankers Association’s (MBA) Commercial Real Estate Finance/Multifamily Housing Convention & Expo opened on a note of good spirits, evident in the general session address by Kieran Quinn, MBA chairman.

Quinn said the “golden age� of real estate finance, characterized by abundant capital and the lowest interest and cap rates in the memory of many players, came to an abrupt end on August 15th, 2007. “Golden ages are also defined by their endings,� he noted. And this financial golden age, he said, was no exception.

However, Quinn, who is also chairman of Column Financial Inc., suggested that commercial real estate finance may have merely returned so far to the financing conditions of a few years ago and that real estate fundamentals remain strong. “On the whole, the correction for us means going back to the 1990s and early 2000s,� he said. “We know that was not so bad.�

Quinn reported that capital remains inexpensive, but the underwriting is more careful. “We’re not seeing 90 percent loans, but loans that hover around 70 percent.� Underwriting, he said, “already looks a lot like it did in the 1990s.�

Meanwhile, Fannie Mae, in a press conference, underscored the strong fundamentals of the multifamily market that are underpinning the finance market. Phil Weber, senior vice president of Fannie Mae’s multifamily division, said some of the numbers for multifamily over the next few years are “phenomenal.�

The population of the U.S., he said, is set to grow by 14 million over the next five years, or by 1 percent per year. And job growth is projected to be 8.2 million over the next five years. Apartment vacancies, rent growth and absorption have declined, but all remain positive.

“We’re very optimistic. We think the next 20 years of DUS will be even greater than the past 20 years,� predicted Weber.

Quinn seemed to agree with this outlook, characterizing his own mood as “rational exuberance.� He said the mortgage finance industry should now be concerned about how to restore investor confidence in real estate and how to “bring back that liquidity� into the capital markets.