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Showing posts with label underwater mortgage. Show all posts
Showing posts with label underwater mortgage. Show all posts

July 29, 2012

Eminent Domain And The Real Estate Finance Market

Hi Folks,
   Welcome back and glad you are here with me, as well as about 2500 fellow readers of this Blog !

   "Eminent Domain" (called "Appropriation" in some U.S. States), which is the seizure of property by the Government for a variety of different reasons, has always been a hotly contested topic. This is particularly important to the Real Estate market, in light of all of the underwater mortgages (mortgage outstanding is higher than the actual value of the home).

   Once of the hardest hit states has been California.

   "California, once ground zero of the housing crisis, is and will continue working its way back to a stable real estate finance market.", writes David H. Stevens, in a recent article titled, "Property seizure is not the answer". Stevens, who is the President and CEO of the Mortgage Bankers Association, which is based in Washington, D.C.), uses the term, "radical", in referring to the use of eminent domain to take over underwater mortgages.

   Stevens cautions that the "property seizure program", which permits local governments to use their "eminent domain power to "condemn" underwater mortgages", presents a "spiraling effect of withdrawal of mortgage credit, declining home values and a threat to local economic recovery." What happens is that the actual lenders are paid the current market value, but then the mortgage is repackaged for investors to purchase at the lower value, explains Stevens.
 
   Some other fallout from the use of Eminent Domain, per Stevens, would be an increase in uncertainty, as well as a decrease in available credit and thus, a large impact on the real estate finance market, leading to decreasing home values, and ultimately, retirement savings. As Stevens writes, "many people, whether they know it or not, have retirement accounts that are invested in the same mortgage-backed securities. In other words, anyone with some form of retirement savings is likely invested in mortgage bonds that this proposal could devalue."

   The irony in all of this is summed up by Stevens, when he says that the "fear of government action will likely prevent homes from being purchased and halt any chance of economic recovery". He says that once the government begins "condemning and seizing mortgages", the investors, he says, who we depend on to buy mortgages, "Will likely believe that any mortgage can be interfered with and therefore the risk of loss to them will be too great to allow any loans to come from this affected market area."

   So what is the right way forward?

   The "policymakers should look to homebuyers of the future", says Stevens, who says that we need to do all that we can "to protect families wishing to stay in their homes during periods of economic uncertainty without harming the future of the same community to recover for the long term." He suggests that these policymakers "must consider any consequences to quick-fixes in the real estate market financial system".

   What will help us? Stevens lists a few items, such as eliminating uncertainty, reducing foreclosure backlogs, and in my opinion, one of his strongest proposals: "creating an environment for private capitol to reenter the market, and allowing access to credit for qualified homeowners", which is the fuel that is required in the tank to drive us to stability and further growth.

   Stevens aptly admits, "there is no silver bullet to recovery in the real estate finance markets". Do you agree with him? What other changes need to be implemented? What are your feelings on Eminent Domain. We'd like to know!


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Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com


TAGS: #RealEstateFinance EminentDomain #underwatermortgage #housingcrisis #propertyseizure #retirementsavings #foreclosurebacklog #homevalues #mortgagecredit #housingcrisis

February 3, 2012

Strategic Default To Stop The Bleeding

Happy Friday,
   Hope it's been a great week for you.

   The thought of picking up and leaving your home behind, while still owing money on it, might seem like an extreme option, but for some, it might be their only option.

   An Arizona couple with an "underwater mortgage" was recently profiled in a story on Yahoo Finance ("What Happens When You Walk Away From Your Home?" by Chris Taylor). The couple's home was appraised at nearly $400,000, but with the market downturn, they were told they'd be "lucky to get $200,000 for it", so with their $260,000 loan, they were substantially under water. The couple was faced with a tough decision; make the payments on their new home plus the payments on this older one, or stop paying the mortgage on the older one.

   Strategic Default.

   "I constantly get the saddest e-mails from people saying, 'I've exhausted all my life savings, my retirement is gone, and now I have to default,'" said Jon Maddux, CEO of YouWalkAway.com, in a comment included in Taylors' article. As applied to these particular Arizona couple, they had to "wrestle with it", with the reasoning that they work so hard and so long to build strong credit, with an element of pride as a factor, as well. Ultimately, they looked at the numbers and realized that just cannot continue paying both loans.

   With some numbers Taylor provided from CoreLogic, almost 11 million homes are underwater, with 1.5 million of them already in the foreclosure process (as per RealtyTrac). These numbers are due to spike, with a far-reaching impact on housing prices and the market in general. What's an underwater homeowner to do?

   Taylor lists a few things to keep in mind, for example, "companies default on their obligations when it makes financial sense for them to do so, via the bankruptcy process", and that "It's not personal; it's business". As for penalties, your Credit Score will bear the brunt, and a few years will need to go by to start removing the bruises and the blemishes.

   What else should you keep in mind?

   Taylor suggests that a Strategic Default should be a "last resort", and you should consider refinancing, as well as government programs "designed to keep you in your home". Your location is key, since each State "has its own rules and regulations regarding foreclosures". You should also talk to a professional about the implications, including tax implications, before deciding.

   "Strategic default isn't a decision to be taken lightly, of course", Taylor says, and adds that it's not desirable, "but not the end of the world either".

   Has a Strategic Default been an option you have considered at some point?


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Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #Arizona #underwatermortgage #StrategicDefault #strongcredit #foreclosureprocess #housingprices #homeowner #bankruptcy #refinancing #governmentprograms

October 6, 2011

Real Estate Investing - Angles and Analysis

Good Morning,
   How is everyone doing this morning? Fine, I hope!

   Where do I even start in terms of this topic? It is such a broad topic, and if you ask 10 different people, you might wind up with 10 different answers and multiple opinions.

   Let's look at some of the angles of Real Estate Investing. Basically, the bottom line is that you purchase a property, hold on to it in hopes that the price will appreciate (possibly renting it out while you wait to recoup all or part of your monthly payments), or, you purchase a property and "flip" it, which means buying and selling a property quickly for a profit.

   Where can you find properties? Foreclosures have spiked, and the homes that are foreclosed upon are often sold on the steps of the local courthouse (depending on where you are). The problem here is that these are very risky investments. In a story written by Veronica Chufo on the DailyPress.com ("Real estate investing: Is now the time to buy?"), some investors and real estate agents weighed in on the process and the risks involved.

   In the article by Chufo, Greg Hatcher, an investor and real estate agent with EZ-Vest Realty, pointed to the fact that a majority of these homes are "underwater" (the value of the home is less than the outstanding mortgage). This means that it would not be a good investment, says Hatcher. There is also the potential for liens on the property, says Hatcher, which would need to examined via a Title Search. One other risk Hatcher mentions, which is probably one that we are all quite familiar with when discussing foreclosures; "an investor can't see inside the house, let alone have an inspection, as a traditional buyer could". In sum, Hatcher says that we would only recommend this to very experienced investors and those that "have cash that they can afford to chance".

   A Less-Risky ("safer?") route is to find sellers that must sell, but do have home equity. Hatcher says that real estate agents could be very helpful in your search.

   When you find an investment property and you're ready to purchase it, it's time to think about financing. Hatcher says that investors often must have a larger down payment (of about 20 percent), and that they also need money "in reserves and cash for upgrades and closing costs". He said that with lenders, "The theme would be cash is king", since they look for buyers who have liquid funds (lines of credit, cash in the bank, money available in 401(k)s or IRAs, per Hatcher).

   What you do with the property boils down to the local market, financing, and your own desires. The typical decision is "Flip or Rent", and this is analyzed by Chufo. Flipping was popular during the Real Estate boom, but has slowed down dramatically, because the "buyer pool has shrunk because lending requirements are stricter", writes Chufo.

   The other flavor is buying a home and renting it out (and sell them when the market rebounds). Other buyers, as Chufo refers to them, are "keep and hold" investors (they will act as landlords by renting the properties instead of reselling them). Patti Robertson, a HomeVestors franchisee in Norfolk and president of the Tidewater Real Estate Investors Group, adds that investors are getting "more rental income now than ever before", and she points to higher rental payments vs. lower housing costs. Specifically, she said, "Rents more than cover mortgage payments", and provides "instant cash flow". Of course, it would be a disservice not to mention Rent to Own, in which the home is rented out with an option to buy at a predetermined price during a specific term, i.e. 12-months, 24-months, etc. (Learn More on Rent to Own Homes Here).

   To determine rent/hold or flip, Hatcher says that a real estate agent would need to conduct a "market analysis on comparable properties", and a post-rehab value of 75-80% of market value would be favorable to a keep-and-hold investor, but he says that a "flipper" would need a property at a market value (post-rehab) of about 60%.

   Investors are still out there scouting for deals, says Chufo. Hatcher suggests that new investors should try to joint venture or partner with more seasoned investors, and can network with other investors via a Real Estate Investors Association (an REIA). One investor, Maryann Krzywicki, has done her homework, and found a business partner. She feels it's a good time to invest, "because it's a buyer's market". Chufo also quotes Patti Robertson (an investor for over 4 years), who is also positive on Real Estate Investing, and says that, "Most people have their money in the stock market right now earning zero, or in the bank earning half a percent. Real estate is on the bottom. It has to go up," she said.

   Are you a Real Estate Investor? Are you a potential Real Estate Investor? What is your experience with the Real Estate Market? Please pass along any tips to our friends that are reading this article.

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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #RealEstateInvesting #foreclosure #fliphomes #renttoown #underwatermortgage #financing #renting #lending #landlord #keepandhold

September 6, 2011

Share Your Home Equity Appreciation To Avoid Foreclosure

Hi Folks,

   Welcome back. We have a cool topic to discuss today, and I want to dive right in so we can get to your opinions, thoughts, comments.

   "Lenders could write down mortgages in exchange for claims on future appreciation – potentially making it a win not only for homeowners but also for lenders and investors". This comes from an article from Fortune/CNN titled, "A mortgage fix for lenders and homeowners: Shared equity" by Nin-Hai Tseng.

   Yes, perhaps this is something you toyed around with in your head before and said to yourself; "Wait...this can't be legal". News Flash - Harvard University's Kenneth Rogoff and Massachusetts Institute of Technology's Bill Wheaton have made this proposal, in which, as they suggest that "the government should facilitate mortgage write-downs in exchange for claims on a percentage of future appreciation – potentially making it a win not only for homeowners who owe more on their homes than their properties are worth, but also a win for lenders and investors who would eventually be repaid for giving borrowers a break."

   Taking a step back to look at the bigger picture, Real Estate correlates with the larger Economy and spending and growth. As Tseng writes, the Obama administration is studying a variety of options, and as reported by the New York Times, this includes the potential to allow "millions of homeowners with government-backed mortgages to refinance them at today's lowest interest rate of about 4%", and also includes the possibility of "tweaking existing refinancing programs so that more homeowners take part."

   And now...back to the Proposal.

   Tseng provides a hypothetical example of someone with a home that they purchased for $100,000, which is now worth $60,000, and which puts them on the ugly side by $40,000 ("underwater mortgage"). The proposal would be for the mortgage company to restructure the loan for the borrower at $60,000, which would keep the borrower in the home, and in exchange for the lower payments, there mortgage company would have a stake in the "future appreciation" of the home. So, for a 50% stake, if the price of the home appreciated to $90,000 and was sold, the appreciation would be $30,000, and 50% of the sales proceeds ($15,000) would go to the mortgage company.

   Taking this one step further, if that same property increases in value to $140,000, that would be an $80,000 appreciation, of which $40,000 would go to the mortgage company, thus, as Wheaton says, the lender would recover all its money.

   But there are some variables to take into account here. Tseng pointed out in the article that the speculation regarding the substantial rise in home value presented in the article above is a big "if". Also, it was mentioned that the lender could potentially, "put a clause into the loan that keeps the owner in the home until the value of the property recovers a designated amount", and says that this could "make the deal more complicated and potentially less attractive for the homeowner". Tseng also adds that home prices need to "actually appreciate" for this to work (Tseng provides the example of a high-volume of housing inventory that will keep prices down for a while), and that the lender could still see losses (perhaps not as much as in a foreclosure).

   Nevertheless, Tseng says, "the idea of shared equity between lender and borrower is worth a serious look", and points to previous programs that were not decisive in stemming foreclosures (i.e. Hope for Homeowners in 2008 and Making Home Affordable Plan, or HAMP, in 2009). Nothing has really had enough bite, so far.

   A very important point raised by Manuel Adelino, a real estate finance professor at Dartmouth University, as to why we are not seeing more loan modifications, was that the banks, "don't really know who to give them to", and he adds that if the banks decide to give them only to people who are delinquent on their mortgage payments, then it gives them and others "the incentive to be delinquent".

   So, who could this proposed plan benefit right now, given the current market and the excess housing inventory mentioned above? Borrowers and Lenders. Tseng said that it could lessen the impact of losses occurred from foreclosure to both borrowers and lenders.

   Tseng also said that it does not let borrowers "off the hook, at least not easily", and says that if Wall Street got its bailout ("even if unwillingly"), "shouldn't Main Street get a chance?".

   I think this is a great idea, if for no other reason than cutting foreclosure losses for both sides, eliminating the stigma of the foreclosure process, and putting the framework in place for when home prices do rebound.

   Never mind what I think...What do you think?

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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #sharedequity #foreclosure #refinancingprogram #underwatermortgage #HAMP #mortgagepayment #homeprices