Foreclosures, Short Sales, Walk A ways, and Opportunities.

It would be almost impossible to be out of the reach of media in 2008, although it might actually be healthier. But via television, video, web, texting, tweetering, pda, cell, phone and what my grandmother used to call gossip, information and misinformation surrounds us like air. Sometimes the information is difficult to understand due to its volume and its inconsistency. The sub prime mortgage mess is a great example of this problem. What is true and what is real?

Approximately 46,000,000 people have mortgages in the United States. Incidentally, more than one third of Americans own their homes outright, that is without any mortgage. Sub prime mortgages typically are adjustable rate mortgages. Many people took out this type of mortgage to ‘get into’ a home without documenting any income. Most of the mortgages had a low ‘teaser’ initial rate and payment. Many of these loans will adjust after 2 years. The adjustment would increase the interest rate and the payment. A good number of these mortgage holders cannot afford the new payment. In each quarter of 2008, 450,000 mortgages are likely to ‘reset’ to a new rate and payment. Many buyers can not afford the pre-reset payments. Therefore, it is a major problem. The Federal Reserve and the Government are trying to help minimize the impact of ‘non performing’ mortgages by helping the borrowers, lenders, and investors. The economic stimulus package addresses some of the problem. Increases in conventional mortgage ceilings, from 417k to 475, and the increase in FHA mortgage ceilings from 316k to 475K will help. Even with all of these efforts, there are a significant number of foreclosures, short sales, and ‘walk a ways.’ Walk a ways are when the homeowner simply moves out and leaves. Short sales are a protracted process of selling the house for less than the mortgage value.

There are some great opportunities with foreclosures and short sales. The March 24th National Association of Realtors monthly numbers showed an increase in sales and a price reduction due in part to the impact of ‘REOs,’ Real Estate Owned, by the lender.
The real challenge in the market is that the lenders are not equipped to handle to volume of REOs. Any real estate broker dealing with REOs will tell you it is very difficult. It is not usual to wait 2 or 3 months for a response to an offer. It is obviously very difficult to keep a buyer interested. The result of that delay is a further deterioration of the value of the property and sometimes a deterioration of the condition of the property. Some foreclosed properties have suffered water damage, vandalism, etc. Foreclosed properties also hurt the value of the neighborhood. We must recognize that the lenders do not want instructions on how to run their businesses, but this is a perfect storm of hurricane proportions. The lenders would ‘recover’ more of the value of the property if they sold the properties more quickly. The non producing mortgage becomes recovered cash when the house is sold. This would be true even if the lender sold the property at a low price.
It should not take 3 months to get an answer after a house is in short sale mode or has been foreclosed.

As a potential buyer, there are great opportunities with short sales and foreclosures if you are patient and persistent. You must be prudent and you need to know what you are purchasing. Many of the properties have issues that nothing short of a comprehensive inspection would uncover. Some have been trashed. Sometimes the lenders are generous. Last summer there was supposed to be a sale on a property in the 470’s. The lender was owed almost 500k so they refused to close. That same house came on the market last week at 329k. At last count there were over 20 offers. Someone is going to do very well. Often short sale and foreclosed properties are sold between 10 and 20% below market value. It is important to have representation and inspection to ‘protect’ your position. But there are buyers out there and there are opportunities as well. If you have been trying to time the bottom, the clocks of some of the short sales and of foreclosures have struck midnight. It is a time of great opportunity.

New Rhode Island Conventional and FHA Mortgage Limits

Real Estate News: Major Changes in Real Estate Financing;

The last few weeks have seen major changes in the mortgage market. The crisis in the sub-prime market has produced a major contraction in mortgage money. As with most things in life, every action tends to cause a predictable reaction. Pendulums swing both directions. The balance to the sub prime mess is difficulty for credit worthy people to obtain mortgages. It is true that mortgage money is in fact available for qualified homeowners.

The first part of March saw some major changes. One of the challenges has been
the rate difference between conventional rates and jumbo rates, mortgages above 417k.
The jumbo rates had grown to almost a full point, one percent above conventional rates. For example, if you were borrowing 415k your rate might be 5.5% in a 30 year mortgage. If however, you needed to borrow 430k, the fixed rate would be closer to 6.5%. The difference in mortgage rates, historically would have between .25% and .33% higher, not 1.0%. This impacts the month cost of a mortgage.
Conventional Mortgage limits are regulated by the GSEs, Freddie Mac and Fanny Mae.
As part of the economic stimulus package that Congress just approved, there was a provision to increase the GSE mortgage ceilings. Fortunately, all of Rhode Island was increased from $417,000 to $475,000. This means you can borrow up to 475k at the lower rates. This will help to stabilize prices. It will have significant impact in East Greenwich where the average sales price is just over 500K.

What was even more encouraging was the change in the FHA limits. FHA has historically been the source of funding for people with limited cash and who would not fit conforming underwriting criteria. FHA was super ceded by sub prime financing. Sub prime is essentially gone now. FHA will be the alternative. The limits for mortgage have been increased from 316k to 475k for single family, $608,100 for two families, $735,050 for three families, and $913,450. for a four family. The higher limits do come with a change in the amount down. Prior to 5 March 2008 you could finance a property with 3% down, now you will need 5% down. You may need more or may need to re negotiate the purchase price if the appraisal does not come in at the agreed upon price. Appraisals are critical now. The FHA program will have most value beyond East Greenwich. FHA is also a great tool for people who need to get out of sub prime mortgages and need a ‘flexible’ alternative.

If you are looking to finance a new purchase or re finance a house get some professional advice from someone who know the new financing choices. It is much better now than it was a week ago, but get expert advice, it will make a huge difference.

Realtors are really encouraged by these changes. It will help move us back into a normal market. A normal market can be either a buyers market or a sellers market. But is a normal market, credit worthy buyers can obtain fairly priced mortgage money. It is a good time to buy a house and obtain a mortgage. Just get professional advice: Call a Realtor!

TMI: To Much Information

Rhode Island State Law requires that all real estate licensees take 18 hours of continuing education every two years. The current renewal period ends April 30, 2008. Anyone who does not have the continuing education hours will not be able to continue working in real estate. While the approved courses are required of all licensees, Realtors are required to take additional courses including Ethics. The best agents take more courses to be at the top of their game. The challenging market demands continuing training.
Some of the course help to teach the average Realtor, typically a 50 something female, how to work with x and y generation sellers and buyers. In one of the courses offered recently it was suggested that one of the things we should do is join one of the ‘social utilities:’ facebook or myspace. As a baby boomer, we tend to pride ourselves in our use of programs like: www.pandora.com. www.goodreads.com , and www.linkedin.com
Each of these communities engages a specific community. Furthermore, the amount of information exchanged tends to be professional in nature and is by choice and by situation limited. That is not the case with facebook. After joining several days ago, I have 12 friends. Several of them are my friends, but a good number are friends of my adult children. It is very kind of them to share their ‘faces’ with me, but there is by any definition a degree of awkwardness. The nature of social utilities is to be forth coming, but it makes me a bit uncomfortable to know all of the personal details about my friends much less my children. It is also very apparent that this is a great tool for background checks for employment. Yes, it is also true that you can place a privacy setting to limit the viewers of your face to just that your face and your name.
Maybe it is my age that is the problem, not the vehicle. How old is too old to be on facebook? Is the entry of baby boomers some form of generational voyeurism or is it some sort of generational envy? Truth be told, I am too much of a newbie to make any real conclusions, but the questions require response. What is really amazing is the breath of information on the site. Not merely friends, but pictures of friends of friends. Relationship status, orientation, religion, travel experience, steams of consciousness, video, thoughts, statements, gifts, pokes, et al. If you can dream, it can be experienced, at least vicariously through www.facebook.com.
One obviously conclusion, facebook has simply too much information. Not yet sure, how accurate all of it is, but one absolute truth is there is simply too much information TMI. If you are on facebook and find there are lots of new older Realtors joining it, do not be surprised. A lot of us took the same course. Not yet sure, how to ‘use’ this new social utility, but a least we are entering the area. If on the other hand you are a long time facebook devotee, and you want to have a laugh, check out some the new continuing education Realtors who are trying to engage a totally new curriculum. Lol.