As a real estate investor, you will be sticking to the script, or business, plan that you developed.  You will have a very good idea of your budget and of the criteria that will compose a workable short sale for your inventory. 

If you are working with one or more short sale agents, you must be careful that they do not waste your time.  Many agents just subscribe to the theory that you throw everything against the wall and maybe something will stick.  These agents can cost you time and money.

Being able to clearly describe the characteristics of a property that might interest you is essential as well as a good exercise for you.  When you converse with an agent about a property, these are some of the guidelines you may set:

·                     You are only interested in properties with one or two liens.

·                     You are not interested in properties that are in the midst of a divorce.

·                     You are not interested in properties that have Fannie Mae or Freddie Mac backed loans

·                     If there is a homeowners association, you want to make sure the property you are considering does not have outstanding liabilities.

·                     If there is a homeowners association you will want the name and contact instructions for the bookkeeper or accountant

·                     If there is a homeowners association, you will want to see a copy of the by-laws or prospectus.

·                     Is the potential property in the geographic area or neighborhood that you want?

·                     What repairs will definitely be needed to make the house livable?  You will have a contractor inspect the house but you most likely are not interested in a property that requires more than 20% improvement costs.

·                     What are the asking price and the amount of the mortgage?

If the agent can answer these questions to your satisfaction, you have a serious short sale agent working for you.  If you reject this property, make sure to explain why, so that the agent is not discouraged and knows what to concentrate on in the future.

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The unemployment crises in the United States has hit every economic level.  A new report form Trulia.com, a comprehensive real estate website, suggests that homeowners with jumbo mortgages, once the most credit worthy buyers in the country, are now failing at unprecedented levels.Borrowers with prime conforming loans are now experiencing the highest rate of foreclosure in history.  Since January 2008, foreclosure on prime conforming jumbo loans has increased by 420 percent.  Foreclosures on non-conforming loans have increased by a staggering 600 percent.

Jumbo loans are any mortgage loan that exceeds $729,750.  Conforming loans are eligible for purchase by Freddie Mac or Fannie Mae.  The original limit on comforming loans was $417,000 in the U.S.  In February 2008, President Bush increased the limit to $729,750.

Fannie Mae and Freddie Mac are not liable for any amount of a mortgage that exceeds the limit.  When the economy was running on all cylinders, Americans were qualified for large mortgages and with the high prices commanded by the market, jumbo loans were a way of life for high income families.

Trulia.com suggests that many of the foreclosures in this price range are strategic defaults.  Homeowners now realize that the home they spent $1 million to acquire has been discounted by as much as 30 percent.  Many high income homeowners are stunned that the amount of their jumbo mortgage now exceeds their property value.  These homeowners have determined not to put more good money into a bad situation and are allowing their mortgage to default.

Ironically foreclosures in some of the areas hit hardest by the recession are showing signs that they have peaked.  However, foreclosure in many of the nation’s metropolitan areas have continued to rise.

RealtyTrac confirms that in 154 or 206 metropolitan areas with populations of 200,000 or more, foreclosure filings continue to post year-over-year gains.  The Fort Lauderdale-Miami-Pompano Beach area leads the country with 94,466 foreclosure filings in the first half of 2010.  Investors have been hesitant to attempt short sales on jumbo mortgages but Fannie and Freddie have enacted legislation to halt strategic defaults.

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The media has focused on the housing sector of the troubled real estate market because it is up close and personal.  While the decline of the commercial real estate market is not as personal as the decline in housing, it is just as devastating and likely to be around for a long time.

When you visit an office complex, or drive by a local strip mall or shop at a retail mall, you cannot help but wonder where all the tenants have gone.  These malls and empty offices are by-products of the tragic employment situation.

The commercial real estate market is dismal and not getting any better.  Investors had hoped for assistance in the financial reform package but instead feel betrayed.  For the commercial sector to gain any momentum, the residential crisis needs to improve.  The new reform package is well intended but very short sighted as the new credit scrutiny will make it even less appealing for lenders to open the credit doors and more difficult for borrowers to qualify.

Commercial property is driven by occupancy rates.  As big corporations and retailers have cut back, vacant space has erupted everywhere.  According to the National Association of Realtors (NAR):

·                     Property development has a 38% vacancy rate.

·                     Hotels are running at a 26% vacancy rate.

·                     21% of office space is vacant.

·                     21% of retail space is vacant.

·                     Industrial vacancy is 19%

·                     Multi-family properties have a 12% vacancy rate.

The NAR projects that peak vacancy rates will occur in the spring of 2011.  Moody’s reported that commercial real estate values rose 3.6 percent in May but the market is down 38 percent since its peak in 2007. 

Defaults on commercial apartment loans are at 4.6% despite the fact that tenants are plentiful because of the number of residential foreclosures.  Real Capital Analytics reports that commercial defaults will continue to rise until employment gains momentum.

Investors in commercial short sales are on the rise. Commercial short sale buyers must be prepared to carry vacant space for a minimum of two to three years.  Buyers need to understand the cost of all necessary repairs and fully understand the existing lease arrangements with tenants.  Usually the buyer can obtain permission to speak with the tenants prior to making an offer.  Investors who find tenants first are ahead of the game

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The end of the homebuyer tax credit incentive program contributed to an unexpectedly deep decline in May home sales.  The Commerce Department’s May home sales report showed that only 300,000 homes were sold in the month.  It was the first monthly decline in three months. 

Additionally, April sales were revised to 446,000 units and March sales were trimmed to 389,000 units.  To qualify for the Federal tax credit, first time homebuyers and qualified existing homebuyers had to enter into a purchase contract prior to April 30, 2010. 

Analysts had expected May sales to be in the 400,000 range.  When the Commerce Department’s report was released on June 23^rd, U.S. equity markets fell sharply.  The S&P homebuilders ETF fell 1.6 percent. The news preceded the Federal Reserve’s announcement that lending rates would remain near zero through 2011.

The median selling price of a home in May fell one percent below April selling prices.  Prices have fallen 9.6 percent in the 12 months prior to May.

The absence of the tax credit will cause many first-time buyers to be creative.  However, buyers that have saved and are able to generate the required cash for down payments are in a position to be aggressive and make great acquisitions.

The impact on the low-end housing market may be the most severe, but qualified buyers are in position to realize significant savings in the middle to high-end purchases.

The Mortgage Bankers Association (MBA) announced that its seasonally adjusted index of mortgage applications decreased 5.9 percent. The index includes both purchase and refinance applications.

The MBA’s purchase index fell for the sixth time in seven weeks.  The 1.2 percent drop left the index near the 13-year low.  The foreclosure rate continues to stay at unprecedented levels.  With 9.7 percent unemployment, the housing market will remain a buyer’s market for years to come. 

In addition to the slumping new mortgage application rate, the MBA reported that applications for refinancing had fallen 7.3 percent.  A new trend to simply walk away from the mortgage obligation is leaving lenders with large inventories of REO’s.  Buyers who are positioned properly stand to make significant profits in the REO marketplace. 

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In 2009, the United States Treasury Department launched a new initiative designed to assist Home Affordable Modification Program (HAMP) qualified borrowers avoid foreclosure.  Under HAMP, qualified applicants must first prove themselves able to sustain the modified payment schedule through a trial program.  Unfortunately, a high percentage of these qualified applicants are unemployed and unable to maintain timely payments.  The next step for these homeowners is to enroll in the HAFA program.

In order to protect these homeowners from the long-lasting credit damage caused by foreclosure, the Treasury came up with a new program called Home Affordable Foreclosure Alternative Program (HAFA).  This program has many advantages for the failing borrower and for the investor seeking a motivated short sale seller.

HAFA provides borrowers who are qualified for HAMP a viable alternative to foreclosure.  Under the terms of HAFA, the borrower who finalizes the transaction is fully released from the future liability for the first mortgage debt.  This important provision protects the borrower and minimizes the damage to future credit reports.

Borrowers must agree to all of the Treasury’s short sale terms before listing the property.  This includes an agreeable short sale price and an agreeable occupancy and closing arrangement. 

To the borrower’s distinct advantage are a $3,000 allowance for the borrower’s relocation assistance and a $1500 allowance to cover administrative and processing fees.  Investors receive $2,000 for allowing $6,000 to be distributed to subordinate lien holders.  The Treasury Department has developed a formula for distribution of these funds.

HAFA is a sensible approach to a sensitive and negative situation.  Sellers involved in the HAFA process are ready, willing and able, unlike independent short sale sellers.  There are just too many advantages for investors in HAFA.  This program may be the best initiative put forth by the Treasury to date.  Serious residential investors should know everything about HAFA. 

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Short sales and foreclosure transactions are in the news.  The National Association of Realtors (NAR) says that when buyers had the availability of an $8,000 tax credit, short sales were accounting for at least 30 percent of all real estate activity.

Now that the federal tax credit has expired, short sales will play an even larger part in the overall real estate market. Investors are taking residential short sales more seriously than ever before. Unlike typical residential buyers who intend to reside in the home, today’s investors view the short sale opportunity differently.

Residential short sales present outstanding long-term value.  As investment guru, the Oracle of Omaha, Warren Buffett, has said the key to the economic recovery is the reduction of existing inventory in the housing market.  The abundance of short sales has created a buyer’s market.

For investors, this is not just an opportunity to acquire distressed housing, rent the housing until demand outweighs supply and then make a profit. This market has far greater potential than that.

The opportunity to acquire distressed upscale housing in a down market is rare indeed.  Well-situated residences in highly desirable areas with excellent school systems and today’s new structural amenities are still good investments.

These homes may well have cost $300-$400 per square foot to construct.  Now, these homes can be on the short sale market for as little as $200-$250 per square foot or less.  Investors who believe the market will stage a comeback in the future like those numbers.

What these investors also know is that the rental market is strong.  High-end homes in good school districts have strong rental appeal.  The formula is simple; buy low, rent high and sell high down the line. 

Of course the investor must find a good tenant, be willing to perform necessary maintenance and be sure the area will be in high demand in five to six years.  If investors do their research, they know which areas will be winners.

Just as equity investors know Apple, Goldman Sachs and General Electric will win in the long run, real estate investors know that great locations, excellent school districts and value packed per square foot housing will be in demand when the market stabilizes.  Be patient but be sure to be in the right place at the right time!

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When many homeowners signed on for those variable rate mortgages, their goals were to get in the house with the lowest possible interest rate and then refinance before the higher payments took over.  These borrowers often had very low down payments.  In today’s falling market, those homeowners with adjustable rate mortgages are treading dangerous waters.

Surprisingly, 60% of homeowners who are delinquent on their mortgage payments now wish they knew more about their loan.  These borrowers do not fully understand the terms of their loans and the remedies that lenders may be willing to discuss. 

With a wave of adjustable rate mortgages ready to increase interest rates at the end of 2009 and more in 2010, more homeowners will come under pressure.  When the owners assess their situation, they may not like what they see.  In most cases, fair market value is below the mortgage level and refinancing is not an option.  Homeowners who see a potential problem should go to the lender prior to the delinquency.

Many adjustable rate mortgages were packaged together and sold as parts of various funds.  These funds retain service companies to collect and disburse payments.  These service companies are not he owner of the mortgage and usually offer little assistance in attempts to modify loans.

If the homeowner cannot locate the true mortgage owner, HUD can help.  HUD counselors are committed to helping homeowners attempt modifications.  Frustrated owners should call the local HUD office and ask for assistance.

Nearly 1 million residential mortgages will be foreclosed in 2009.  This astounding figure is filled with heartache and tragedy.  In many cases, the best bet is to approach the mortgage holder, explain the dilemma and determine what options are out there.  Banks and borrowers have at least one common interest; neither wants foreclosure.  That is a good place to start working through problems that will arise with adjustable rate mortgages.  

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The sellers these days aren’t a happy lot. The rapid decline of job opportunities coupled with the job cuts going around hasn’t helped the buyer population. The number of buyers has reduced both for the new homes or resale homes, due to the fear of financial commitments and how the future holds.

There has been a slight improvement in buying trends for the past few months, however. Add to this the fact that many properties have been put under the foreclosure bracket of the banks, which has pulled down the prices of the resale properties, since the banks would sell these properties in an auction. Though the resale numbers have picked up considerably, the value is not coming in.

The buyer still remains cautious owing to the spate of foreclosures – some of the highest numbers in the history. The unemployment rates, which touched 11 percent, is a further set back to many who were thinking about buying a home. Now with a depleting financial situation they would definitely be thinking of a job more than a home. It would also mean that many are moving out of their ownership homes and taking up rented places where the commitment is lower.

There is some help to the buyers in terms of the very attractive mortgage interest rates and tax incentives by the federal government for the first time homeowners. However, significant growth will only happen when the job market improves, leading to stability and more faith from the population at large.

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The Mortgage Bankers Association is a national association that represents persons and corporate entities in the real estate finance industry.  With 280,000 persons spread throughout every community in the U.S. the association provides reputable information about national and regional trends, rates and activity across numerous real estate finance markets.

On September 16, 2009, the organization released its Weekly Mortgage Applications Survey for the week ending September 11, 2009.  Adjustments were made to reflect the Labor Day holiday.  The news continued a recent downward trend. 

The Market Composite Index, which measures mortgage loan application volume, fell 8.6% from the previous week on a seasonally adjusted rate.  On an unadjusted scale, the weekly volume dropped 18.3% and was down 18.7% in year-over-year comparisons.

One aspect of the real estate funding activity that remains strong is the refinance component.  The Refinance Index decreased 7.4% from the previous week but the four-week moving average for refinance applications is up 5.2%.  Borrowers are seeking to renegotiate lower interest rate loans and to capitalize on the federally backed modification loans.

Refinance applications accounted for 61% of all real estate funding activity during the week and marked a 1.2% increase over the previous week.  With real estate values appearing to stabilize and with government initiatives showing strong support for refinancing, refinance activity is significantly busier than last year.

Applications for Adjustable Rate Mortgages (ARM) were also on the rise.  The number of ARM applicants rose from 5.8% to 6.0% of total finance applications processed last week. 

The interest on 30-year fixed rate mortgages with an 80 percent loan to value ratio rose slightly to 5.08%.  Points related to these loans fell to 0.98% from 1.23%.

15-year term loans for fixed rate mortgages decreased to 4.41% from 4.45% the week before.  Points on 15-year fixed rates loans fell to 1.12% from 1.13& previously.  These points include the origination fee.

The weekly survey covers 50 percent of all U.S. retail residential mortgage applications.  The survey has been conducted since 1990.  Participants include mortgage bankers, commercial banks and thrifts.  The base period for all indexes is March 16, 1990.   

The Mortgage Bankers Association (MBA) maintains headquarters in Washington, D.C.  The group is charged with ensuring the continued strength of the nation’s residential and commercial real estate markets.  As such, reports and surveys distributed by the MBA have influence on various markets throughout the financial sector.

One goal of the NMBA is to extend the opportunity of affordable homeownership throughout the nation.  The MBA promotes fair and ethical lending practices.  The association sponsors numerous ongoing educational programs for members and affiliates.  Membership in the MBA includes more than 2,400 companies from all aspects of the real estate finance including mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits and life insurance companies.

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In New York State, homebuyers and realtors are applauding Governor Patterson’s approval of the State of New York Mortgage Agency (SONYMA) plan to facilitate the use of the homebuyer tax credit as a down payment for the purchase of new and existing housing.  New legislation has expanded the tax credit to buyers who once owned a home as well as to first time homebuyers.  New York is already experiencing an upturn in housing sales.

Under the SONYMA Tax Credit Advance Loans (TCAL), funds are provided to eligible homebuyers and can be used towards either the purchase price or toward the home’s closing costs.  SONYMA structures the advance as a second mortgage.  Funds will be available as of January 1, 2010.

The maximum advance is equal to 10% of the purchase price but not to exceed $8,000 for first time homebuyers or $6,500 for non-first time homebuyers and eligible military veterans.  Recipients must be purchasing in state approved SONYMA Targeted Areas.

Interest on the advances is deferred until July 1, 2011 at which point SONYMA will charge interest at a rate of 1% interest above the current mortgage rate.  If the loan is not paid in full, payments will commence on August 1, 2011.

To qualify, contracts must be entered into prior to May 1, 2010 and the transactions must close prior to Jun 30, 2010.  SONYMA hopes the program will fire up sales in distressed housing markets.

This program is an expanded version of SONYMA’s Down Payment Assistance Loan (DPAL).  The new bill includes previously omitted previous homeowners and military personnel.  Again, purchases must be in the agency’s Target Areas.  The minimum TCAL amount is $1,000. 

Eligible purchases must be the owner’s primary residence.  If the advance is not repaid, the loan becomes a second mortgage payable over ten years.

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