Minnesota Real Estate Investors Association, Inc.

Real estate is changing at an ever increasing pace.  A few years ago, you were hard pressed to find an abundant supply of Bank REO’s on the market.  Short sales were the rave and houses were still selling so most potential foreclosures were either going through a short sale or were sold before the banks got possession through foreclosure.

Then last year the banks all but stopped accepting short sales and the number of new foreclosure filings started to increase at record paces.  This caused a flood of foreclosures reaching the banks REO department and our focus shifted to finding good, no great deals by searching the MLS for bank REO’s.  We were able to acquire great deals on foreclosures and rehab them for resale.

Then last fall there were so many foreclosures that we were no longer able to resell the properties retail so the new focus became acquiring these bank REO’s for rentals.  This was a good strategy for many because we could buy the properties cheap and rents remained high.  This gave investors good cash flow.  And that is something we haven’t seen in many years.

Recently though we have been experiencing something quite different.  With all the foreclosures on the market, everyone wants in on the good deals.  That includes first time home buyers who have a huge advantage over investors.  Their 1st advantage is that they can get an FHA loan which only requires a 3% down payment compared to the 30% investors must put down. Their 2nd advantage is that they get an $8,000 tax credit just for buying.  Their 3rd advantage is that they qualify for the numerous first time home buyer rehab loans available through most cities and charitable organizations.
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In the news lately the headlines are all about the higher than expected home sales. June saw an 11% increase in the number of homes sold compared to this time last year. However, if you listen to the reports or read the articles, buried somewhere in the story will be the caveat that while the number of home sales is up and that prices in some areas are stabilizing or in some places actually decreasing, is that the available homes for sale is at the lowest levels in a decade.

So why have home sales increased? There are a few reasons to explain the home sales increase as of late and the increase in sales prices as well.

• The $8,000 first time home buyers tax credit expires on December 1, 2009. So anyone who can take advantage of this has to do so now, because no one knows for sure whether or not congress will extend the tax credit.
   
• Because of all the foreclosures, many investors are buying up REO’s as quickly as they can.
   
• Fannie Mae and Freddie Mac had a moratorium on foreclosures from November thru March. They started filing foreclosures again in April, so those properties will not start hitting the market until later this year.
   
• A lot of homeowners who normally would be selling simply can’t sell their houses right now because they owe more than the properties would sell for, so they are staying put for now.
   
• Some homeowners, who could actually sell right now, know that they couldn’t qualify for a new mortgage.
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One question I get all the time from investors is why aren’t the lenders lending, especially if they got all that TARP bailout money? The answer is quite simple if you understand the complications of the issue. So let’s break it down.

First of all back in the good old days last year, financial institutions were required to maintain 10% liquidity compared to the bank’s assets in order to borrow from the feds to create new loans. Today the fed rate for banks to borrow money for the purpose of lending to consumers is around 0.00% (Zero). So if the lenders can lend at 5-10% and their cost of the money is nothing, they would be able to make a huge profit on the interest spread. It is a banker’s dream come true.

However, after TARP and the financial crisis that started last fall, the federal regulators increased the banks 10% reserves regulation to 12% so that the banks would be healthier incase of default. At the same time, everyone’s credit has been capped or closed all together. And the hardest hit segment was the small business sector. This includes a sole proprietor all the way up to a small company with less than 50 employees. Small business represents the largest source of jobs in the country.

With some many people being laid off and credit being shut off, we have been forced to live off of our cash reserves and now many of us are living off our cash as it is earned so our bank savings accounts, money market accounts and checking a
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Apparently So. Recently President Obama signed the Fraud Enforcement and Recovery Act. It also expands the justice department’s authority to prosecute mortgage fraud. See report from CNBC available at . Mortgage Daily News

With the current housing and financing situation in the US, it is not surprising that some have resorted to fraud. It is things like this that give the industry as a whole a bad name and I do not pity those who are involved. The need to be dealt with and I hope they get what is coming to them. The quicker we can take the trash out, the quicker the markets will start stabilize.

All the experts are saying that we are seeing signs of a recovering in the housing market and the declining in the number of lender mitigated sales (foreclosures and short sales). However, what they are not talking about is why?

Back in November, Fannie Mae and Freddie Mac had a moratorium on foreclosures through the first part of January in hopes that the TARP bailout funds would relieve homeowners in default and lenders with all those toxic assets. When everyone realized that the TARP funds were never intended to help out homeowners, the incoming president, Barack Obama stated that the first thing on his agenda was his stimulus package and that was going to save America. So Fannie Mae and Freddie Mac re-instituted the foreclosure moratorium to see what affect the stimulus package was going to have on homeowners in default and the lenders with all those toxic assets.

It soon became obvious that the stimulus package was not intended to stimulate the economy or save America. So Fannie Mae and Freddie Mac removed the foreclosure moratorium in March. That was roughly 4-5 months with virtually no new foreclosure filings from the two mortgage giants. That is why we are seeing a decrease in foreclosure sales right now and why the experts are saying that we have reached the bottom.

There are other reasons why we are seeing what looks like a bottom right now as well.

• Real Estate Values have plummeted in the last 6-9 month
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For months I have been hearing all the experts predicting that we are finally seeing the bottom of the market, and every month they keep saying the same thing. I have even said the same thing, because in small areas, prices have stabilized or even increased slightly. But it seems like the majority of area’s are still falling, just not as fast as other areas.

So when will we see the recover. At this point, your guess is as good as mine. I am positive that if the president’s administration (that includes the current administration as well as the previous one) and congress would have just let the market correct itself, we would already be on our way to recovery and we would have seen prices bottom and very possible start to slightly increase before leveling off.

Now it looks like the current president and congress want to prolong the recovery for political gain. This infuriates me and it should you as well. The housing market is the basis of the American economy and the politicians are doing eveythoin they can to keep driving housing prices down.

You disagree with me, then let’s take a look at a few things congress have either passed or are working on passing as we speak.

• TARP program: This program was sold to the American public as the only way to prevent the housing crisis and they were going to use the $700 Billion dollars to buy up bad loans. However, they never bought up bad loans, but they did buy stocks in the
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I ran across this interview on Mortgage Daily News from Bloomberg with Whitney Tilson Author of "More Mortgage Meltdown" and I think he has hit the nail on the head with regards to the housing market and his predictions on the coming wave of foreclosures.

The interview is about 15 minutes long and it might take a while for the video to download, but it is worth a watch.

As part of President Obama’s American Recovery and Reinvestment Act the $8,000 First-Time Home Buyer Tax Credit gives first time buyers incentive to buy in an effort to increase demand and get a handle on the falling home prices. This provides investors with another means of getting buyers to buy, which is something we all should take advantage of. The details and requirements are fairly straight forward:

• The buyer must not have owned a home in the past three years
• The new house must become the buyer’s primary residence for 3 years, if not, then you must pay back the $8,000
• This credit will only apply if the buyer buys between January 1, 2009 and November 30, 2009.

The 2009 Credit is a true, money in the pocket deal. Those that bought a home under the 2008 version, which was basically an interest free loan to be paid back over the course of 15 years) cannot claim the 2009 credit.

The income qualifications hinge on the Modified Adjusted Gross Income (MAGI)

Adjusted Gross Income is your total annual gross income less your standard deductions or if you itemize, then the deduction would be your total itemized deductions. Example, if you make $50,000 a year and you have $10,000 in itemized deduction then your AGI would be $40,000.

For single tax payers the breakdown is as followed in terms of MAGI:

• Full Credit - x < $75,000
• Partial Credit - $75,000 < x < $95,000 – Partial Credit<
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According to the Star Tribune the Twin Cities area and rural Minnesota will be capitalized with twin $5 million loans from the McKnight Foundation for Foreclosure areas.

These are the type of stimulus incentives that the economy needs to recover and it couldn’t have come at a better time. All indications in the Twin Cities are that we are seeing the bottom of the market in many area’s for. We have been making many offers on bank REO’s at full price in multiple offer situations and we have not been winning. The cost of poker is going up…

It’s that time of year again, when we get the itch to put out Bandit/Street Signs. Why do we get the itch, because of the rush we get from a higher that usually volume of calls from motivated sellers. For many investors, including myself, Bandit/Street signs are the best source of leads and one of the primary forms of marketing that we use to get motivated sellers to call us.

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