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Real Estate Foreclosure Market Discussion

Discussion in 'Real Estate Investing' started by randallg99, Sep 8, 2007.

  1. randallg99
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    randallg99 Bronze Contributor

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    it was big news on Sept 6 (bloomberg and WSJ article below) ... I bolded the most striking points, like this- I personally believe this is only the beginning whats to come.

    it should be known that subprime mortgages are only a part of the foreclosure market... this alone speaks volumes about the health of the debt market...

    So the 64 thousand dollar question is- how do we make a killing in this market? Its here for the taking... and I see the bidding prices listed in newspapers are higher than what the market values of the properties are... entirely unrealistic... the banks have got to get rid of them...

    Ideas? bring them on!





    By Kathleen M. Howley
    Sept. 6 (Bloomberg) -- The number of Americans who may lose
    their homes to foreclosure rose to a record in the second quarter
    and late payments by subprime borrowers surged to one out of every
    seven loans.
    The share of all U.S. mortgages entering foreclosure rose to
    0.65 percent in the second quarter, an all-time high, from 0.58
    percent in 2007's first three months
    , the Mortgage Bankers
    Association said in a report today. The number of subprime
    borrowers making late payments rose to 14.82 percent from 13.77
    percent.
    In the quarter, 2.73 percent of prime borrowers made their
    mortgage payments at least 30 days late, up from 2.58 percent in
    the first quarter, the report said.
    The Mortgage Bankers report is based on a survey of 44.2
    million loans by mortgage companies, commercial banks, thrifts,
    credit unions and other financial institutions.



    Record Number of Homes Entered
    Foreclosure in Second Quarter

    By DAMIAN PALETTA
    September 6, 2007 10:12 a.m.

    WASHINGTON -- A record number of homes entered the foreclosure process in the second quarter, and housing market problems have put mounting strain on prime loans, according to data released by the Mortgage Bankers Association.

    This marked the third straight quarter of a record number of homes entering foreclosure. Pressure remained the most severe on subprime adjustable-rate mortgages, as 18 states reported at least 19% of these loans were delinquent. More than 26% of the borrowers with subprime ARMs in Mississippi and West Virginia were delinquent, MBA said.

    On a seasonally adjusted basis, 0.65% of homes entered the foreclosure process in the second quarter, shattering the 0.58% record set in the first quarter. The second quarter foreclosure starts were 44% higher than in the second quarter of 2006.

    The rise in foreclosure starts comes despite intensified efforts by regulators, lawmakers and lenders to stem the time of delinquencies, with close to 2 million adjustable-rate mortgages resetting by the end of next year into higher monthly payments.

    Of the 44 million loans included in the MBA's National Delinquency Survey, 5.12% of all loans were past due, or delinquent, on a seasonally adjusted basis, compared with 4.84% that were past due at the end of the first quarter. The MBA's delinquency statistics do not include loans that are already in the foreclosure process.

    The worst performing sector was subprime adjustable-rate mortgages, as 16.95% were past due, up from 15.75% in the first quarter and 12.24% in the second quarter of 2006. Of the subprime ARMs, 12.40% were considered "seriously delinquent," an early indication that they could be headed for foreclosure.

    The performance of prime loans worsened in the second quarter as well. Total loans past due rose to 2.73% in the second quarter, up from 2.58% in the first quarter and 2.29% in the second quarter of 2006.

    For prime adjustable-rate mortgages, 4.15% were past due, up 54% from the second quarter of 2006. Also, the number of prime ARMs entering the foreclosure process rose to 0.62%, a 296% increase from the second quarter of 2006.

    The rare bright spot in the survey was that the inventory of subprime fixed-rate loans in foreclosure actually fell in the second quarter. Just 2.85% of subprime fixed-rate loans were in foreclosure in the second quarter, compared with 3.29% in the first quarter and 3.05% in the second quarter of 2006. This trend could change, however, as 10.99% of subprime fixed rate loans are now past due, up from 10.25% in the first quarter.

    Mortgage markets are performing much different across the country, MBA data showed. For example, 9.33% of all loans in Mississippi were delinquent, though 21.5% of subprime loans were delinquent. In California, just 3.57% of all loans were delinquent, while 12.56% of subprime loans were past due.

    The poor mortgage market performance comes as the mortgage industry is under stress, with liquidity problems for jumbo and subprime mortgages prompting a credit crunch that has made it difficult for some borrowers to obtain financing.

    The MBA's new data are also expected to fuel efforts from Democrats to overhaul supervision of the lending industry. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) unveiled his plans on Wednesday, and House Financial Services Committee Chairman Barney Frank (D., Mass.) is expected to release a different proposal in the coming weeks.
    [​IMG]
     
  2. tbsells
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    tbsells Contributor

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    I agree completely with your assessment on prices...totally unrealistic in most cases. I've seen alot priced at retail or higher and no where close to retail condition.

    We make money by waiting them out and being ready to buy when the time comes. I think the time is coming soon. The real estate market in southern ohio is bad, the worst I've seen in my 15+ years in business. I think this winter is going to get really rough for sales. I also think this winter will bring unprecedented buying opportunities when these asset managers finally realize the severity of the situation.

    So get ready to buy. The sales are coming. Get as much cash together as you can. Get preapproved for as much financing as you can. Study the market so that you can recognize a deal when you see one. Always remember you make money in real esate when you buy, not when you sell. The day of sale is payday, but the money is really made on the buy.
     
  3. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Maybe I'm off base here, but, I credit some of their listing prices to get rich quick and flipping seminars. The bankers know that there are people out there so juiced up that when they here or see the word foreclosure that the buyer will foam at the mouth. I was one of them when I first got into RE. I never bought one because the numbers didn't make sense to me. However, someone always buys the ones I didn't. So, do the other buyers know something I don't or am I taking care of business with the correct thought process? I agree with ya'll that most REO's are overpriced and you do make your money on the buy. Good luck to all.:cheers:
     
  4. tbsells
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    The juiced up guys will be gone soon. They are already or will very soon be "former real estate investors." I like the phrase "juiced up." Its accurate. I've seen these guys as big as Barry Bonds in their heads paying to much and thinking they got a steal. They don't last long. Them leaving the market is one of the things that has to happen before it gets real good for the rest of us. Its sounds to me like your taking care of business with the correct thought process. Be patient and get ready!
     
  5. randallg99
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    randallg99 Bronze Contributor

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    I will mention again that my observation in local area regarding properties going into foreclosure process is that they are probably asking much higher than what they are realistically worht.

    My question is- once the foreclosure process goes to court, is there a way to work with the bank to get the property at a negotiated price?
     
  6. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    As I understand the process, in Texas, after it goes to court it can be listed or it can go to auction. That is the new owner's call. Very few of the listings are reasonable for me. Most are at retail. I have yet to try the auction thing so I can't give any insight there. Anyone else?:cheers:

    Greg
     
  7. EasyMoney_in_NC
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    EasyMoney_in_NC Contributor

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    Yes, but you have to wait until the bank actually "owns" the property not just owns the note. Once they own it and sit on it for a while, they'll want it gone and be ready to deal. The more properties lenders are sitting on, the more they'll want to deal. Just be patient.
     
  8. 8 SNAKE
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    I haven't been to any recent auctions, but in the past (maybe a year ago) deals were very hard to come by. Seems that everyone and his brother showed up to auctions thinking they were going to get the bargain of the century. This is in Missouri, where the market never experienced the huge spikes and valleys that much of the country had.

    I believe that we still have too much $$ chasing too many deals right now.
     
  9. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    You can negotiate directly with the bank in the pre-foreclosure stage, via the short sale process. After the foreclosure is complete, it has been our experience (north florida) that the bank either lists the property with a realtor or sends the house to auction. If you can find out who the REO real estate agents are in your area, I think it is smart to build a relationship with them. Let them know that you are a cash buyer, will close quickly, allow them have both sides of the realtor commission, etc. ..... something to make them remember you and know that you are a serious investor. At least in our area, these are very popular people, so you have to find a way to set yourself apart and get the first shot at the deals when they are brand new.

    I agree it is all about volume - as the banks find themselves with more and more property, the prices they are willing to accept are going to change. The listings we see are not always priced well (too high) but, as we all know, that doesn't mean much. Make an offer.....you might be surprised what the banks are willing to accept. :) Explain to the realtor how you came up with your price and ask that they present that information to the seller (bank). Again, make it an attractive offer.... cash, quick closing, etc. Banks just want their money back so they can get it back on the street.
     
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  10. tbsells
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    tbsells Contributor

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    :iagree: Excellent post regarding the importance of making the offer attractive to the bank. This is important with any seller but more important when dealing with a bank.
     
  11. Genxer
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    I only know of a couple methods to acquire property that is in pre-foreclosure and they all vary by your individual plan or strategy and/or the circumstance of the property. (buy/hold, short term, long term, lease option, etc.)

    1. Short Sale- You negotiate directly with the bank, with consent of the owner, advising the bank you will obtain financing or funds and purchase the property from the owner usually for what they owe. The bank, of course, has to agree to this and the owner pretty much agrees to walk away. Usually in these circumstances, the owner can't afford the payments any longer, can't wait out the "normal" sale process or has already fallen behind on payments. Sometimes these properties are listed in the MLS with agents and you'll notice the property listed substantially below market value which usually rules out negotiating directly with the bank since there is an agent. Pros- You can acquire some below market value property with built in equity. Cons- You have to obtain financing or cash to close. Exit Strategies: Hold & Rent for C/F, Flip for Cash, Rehab & Flip for Cash,

    2. Title Assumption- You contact the owner of the property and agree to "take over" with existing financing to remain in place. This will be tough since most of these loans are "subprime" and are probably resetting to higher rates and/or payments. If there's any equity, the owner will usually want some of it too unless he's really desperate. Pros- You don't need any money or at least very little money to make these deals. Cons- Most of these loans are junk due to interest rate resets or payment increases which can make cashflow difficult. Exit Strategies: Hold & Rent for C/F, Lease Option for C/F, Flip for Cash , Rehab & Flip for Cash,


    I would advise that you all check local laws regarding people in "pre-foreclosure". In California, people have a 5 day "cooling off" period after any paper work has been signed if they are in "pre-foreclosure" where they can back out of any agreement they may entered.

    If anyone else knows of any other methods or systems, please tag this post. In my lame opinion, I agree with Randallg99 that this area of properties will be the "lowest hanging fruit" in the next couple of years.

    Genx-
     
  12. randallg99
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    randallg99 Bronze Contributor

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    Has anyone contacted banks directly during the forclosure process before it went to court?
     
  13. Adam
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    Adam New Contributor

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    Yes, we work with banks and CD holders to buy the note or buy the property on a short sale. I have a handfull of deals where we are working directly with the bank to negotiate a payoff. Once the payoff is negotiated, you are free to do as you please as long as the lien is satisified. We primarily do this on commercial deals because the negotiators on the residential side are so swampe that it is close to impossible to get anything done in a timely manner.
     
  14. jimculler
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    If you are going to work a short sale, you will need a contract signed and an authorization to release signed from the seller of the property.

    But other than that, yeah you can deal directly with the bank to make their offer. Make sure you make yourself the point of contact for the realtor (broker) to do the BPO. When you meet him, point out everything wrong with the house, and show him the lowest priced comps you can find. A lot of what the bank does depends on the BPO, and lookups that are done before they set what they are willing to take.

    If they dont discount it for you before the auction, but there is no equity; rest assured that the bank will own it after the auction. Then you can make the offer you want through the realtor who handles their REO's.

    Funny thing is a lot of times they will not sell to you at your price prior to the auction, but will take the same offer if not lower when its an REO. But we are seeing more banks willing to take shorts in this Florida market now. 2 years ago I thought that short sales were just an excuse for Gurus to sell books and seminars. Now its getting to be a real way to make cash in REI.
     
  15. Diane Kennedy
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    Diane Kennedy Bronze Contributor

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    I totally agree with you Easy Money. They are more likely to deal PLUS they'll often give you great financing to make it happen. Look for lower loan rates and small downs.

    Even better it takes much of the uncertainty about buying foreclosures out of it. My husband bought one property "on the courthouse steps" just for the experience and I was a nervous wreck. The owner was still in the property. Sure, the sheriff would boot him out, but what would he do the property meanwhile? And what about the period during which they can get the property back? (Varies by state, make sure you have this one down pat if you buy foreclosure property) You have none of those issues if you buy REO.
     
  16. randallg99
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    randallg99 Bronze Contributor

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    an online search defines a short sale as:
    ~A real estate short sale is negotiating a lower price for a home than what is owed to the bank.~

    apologies in advance for basic questions...

    1. as more foreclosures come to reality, are the banks more likely to sell at losses?
    2. why hasnt the bank discounted their low grade paper into cash before getting to the default stage?
    3. what is a BPO?
    4. how are you assured there arent any liens on the property when you go to bid? surely a new lien can pop up in the time between the search and the actual auction...


    I like some of jimcullers tactics... this is the same basic process I go through working with private owners.

    Diane surely hit the nail on the head... I avoided the forclosure market for years for the very reasons she mentioned... disgruntled ex-homeowners ripping out copper plumbing for cash is becoming an accepted fact of life.
     
  17. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    1. Strictly opinion but yes - banks will be more willing to sell properties, at a loss, as the volume increases. At some point, they have to write off the debt as uncollectible (bad debt expense), so often, they have already taken a percentage of the hit to their bottom line. The banks just want their money back so they can get it back on the street. They are in the business of lending money not managing real estate.

    2. Really not sure

    3. Brokers Price Opinion - it's the same as an appraisal, except you are hoping for the exact opposite result - you want the price to come in as low as possible (because this means you will, most likely, be able to negotiate a lower price). As jimculler said, you will want to meet the BPO agent and point out everything negative. Bring low end comps, crime reports, etc.

    4. Use a title company, just as you would with any other property you purchase. This is not like an auction, where you might not have an opportunity to check for clear title.


    Hope this helps.
     
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  18. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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  19. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Based on RealtyTrac's numbers, the banks now own 70,000 more properties. If we assume they lend only 100K for each (and probably it is way more than this), now they have $7,000,000,000 in bad loans (yes, that is 7 Billions), and they will have to go and try to get some money back. Probably they would take 70% of that money back from savvy buyers.
    Seems like the party is getting better. I don't see how any investor will buy a property off the MLS given the amount of REOs that will be available. For those of you that are realtors, are you already part of the short list of brokers that the banks will use to sell their properties? Do you know the agents that are in that list?

    phlgirl, thanks for the link.
     

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