Minnesota Real Estate Investors Association, Inc.

As reported on MarketWatch, foreclosures and/or delinquent mortgages reach 14.41% in the third quarter. Does that surprise you? It does a lot of other people, but not the people who are out in the trenches like me.

I have been telling people for months now that we haven’t even seen the worst of it yet. What we have seen so far is that responsible Americans have been struggling to hold on to their homes and other assets and retirement accounts. Most people have been able to do so for a while, but not anymore. We have reached the breaking point, and while Congress and the White House keep telling us that the recession is over, I don’t think the average person sees it that way or even feels it.

Most sellers that I talk to these days have all been telling me pretty much the same story. They have either lost their jobs or taken severe pay cuts over the last year. Many have attempted loan modifications, but most have not been successful. Most of these people bought or refinanced their houses during the peak of the market, and since then, their incomes have been severely cut or totally lost over the last year.

These are just a few of the reasons that I believe we will keep seeing record foreclosure levels for the near future. The more people struggle to keep their homes, the more likely they will run out of resources and will be forced to lose their properties.

I could go on for a long time about why I believe this situation is happening, but I would rather spend my time focusing on how to help home owners while at the same time take advantage of all the good investment deals that will be coming down the pike over the next year.

Sales increased 9.4% from August 2009. Increases ranged from 4.4% to 13% around the country. This is a good sign, but prices are still declining at 8.5% decline from the same time last year. However, this is the smallest decline in the past 13 months. (Information provided by the National Association of Realtors® )

We still have a long way to go, but as Lawrence Yun states “As long as home values continue to decline, I do not see how the economy can recover on a firm foundation”, the decline in housing prices is a clear indication that Americans are cutting back on spending and trying to budget for the future. So for many homeowners, they will either continue to owe more than their properties are worth, will have to do a mortgage modification or even lose their house to foreclosure.

The tax credit has helped a lot of first time home buyers get into a new house with little or nothing down. This has spurred a lot sales that would not have otherwise occurred if there was no first time homebuyers tax credit. This has also helped the economy and the housing market stabilize.

So why wouldn’t congress extend the $8,000 First Time Homebuyers Tax Credit? There are many reasons for and against it. I don’t really care which way they go, I just need to know, so that I know how to plan ahead. And today they just announced that
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As an investor who has been making a lot of offers on REO’s I know the challenges that everyone is facing today getting their offers accepted. The next hurdle has become getting to the closing table. I have heard and tried a lot of different techniques lately and here are a few of my observations.

First of all, there is a lack of inventory right now in many places. For example, here in Minnesota we have a 6 month redemption period. So all those properties that didn’t get foreclosed on back in November 2008 thru March 2009 are not on the market yet. Expect a flood of REO properties hitting the market late this year or early next year.

Secondly, the $8,000 tax credit is due to expire on November 30, 2009. This has caused a lot of buyers who qualify for the first time home buyers tax credit to buy now.

Third thing I have noticed is that the lenders have loosened up their financing guidelines somewhat as of late, which has allowed a lot of investors who can qualify for mortgages to pick up these REO’s for long term rentals. Which is a good strategy right now if you can get the financing. Even non-owner occupied interest rates are relatively low right now which has allowed for good cash flows from rental properties that were picked up as REO’s.
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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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This winter and spring saw a major decline on the number of foreclosure actions due to moratoriums on foreclosures and the fact that many lenders wanted to wait and see what the Obama Housing plan would do. February had the lowest level of NOD (Notice of Default) filings since 2007, but March saw a huge increase of NOD filings.

Here is a short clip from CNBC provided by Mortgage News Daily about the record number of NOD’s in California.

Foreclosures by major banks are surging once again even as the Obama mortgage rescue plan kicks into gear, reports CNBC's Diana Olick.

Some might blame the banks for the prices of houses declining, and I would agree to a point. While the banks are not the only problem, or even the major problem, they are a contributing factor in today’s market. The entire problem is too complicated to explain in a single article or blog post, but I will do my best to spell out the banks part in this mess.

Last week I was contacted by Rick Kupchella from Kare 11 News about the relationship between short sales and foreclosures and how this is affecting the market. Here is the video that aired on Kare 11 Extra on 3/29/2009.