More details on the specific types of foreclosure:
Preforeclosure:
Today we discussed more details on these areas. In interacting with homeowners of properties that are behind on their payments, we as investors can teach them their options. This allows the homeowners to choose between repaying back the missed mortgage payments, refinancing, selling off the property for less than they owe as part of a short sale, giving back the title to the bank, or letting it go to the foreclosure auction. Many times after deciding on these choices they could choose a short sale which in turn can mean we as investors can make money when we facilitate assisting them in finalizing this type of sale. If they choose to allow it to go to the foreclosure auction, we normally will have the added benefit of seeing and estimating the rehab needed on the inside of the property beforehand.
Forclosure Auction:
If we can line up the financing, we could be buying foreclosure properties at the auction that have potential profit after rehab repair. This takes out the element of dealing with people’s emotions, but the risk is on estimating what repairs will really cost. Before most auctions, we are not allowed to inspect the inside of the home.
REO’s:
We can work at the area of REO’s which is real estate owned, by the bank. This is no different than making offers to individuals that have fixed up and have their homes for sale. But, if the market has many homes for sale, sometimes after the property has been on the market for several weeks the bank can decide to get the property off of their books and can sometimes sell it for a low investors offer.
FHA changes lending rules:
We also read an article from businessweek.com that sheds light on how the Federal Housing Administration is allowing homebuyers with just a 3 year old foreclosure get a new mortgage. But, they lowered the values on the loans they will provide and this is effecting real estate markets diversely.
Homebuilders Offer Goodies as Sales Slow
Joseph Beben wasn’t in the market for a new house until he heard about a year-old community in suburban Phoenix called the Bridges at Gilbert, where 10 homebuilders are offering buyers incentives such as swimming pools, built-in barbecues, and subsidized mortgages. Beben, a general manager at Best Buy, visited three sales offices before settling on a house built by Woodside Homes, which agreed to cover as much as $10,000 of his closing costs, plus another goody he wanted. “When I saw this deal, it looked like a good business decision,” says Beben, who will pay $332,000 for a 3,000-square-foot house scheduled to be completed by February. “And I wanted a pool.”
Builders in volatile housing markets such as Phoenix, Sacramento, Las Vegas, and Orlando are sweetening offers as sales slow. Large price increases in 2013, driven by investors purchasing homes to rent out, discouraged buyers. And the market is feeling the impact of cuts in the size of mortgages made by the Federal Housing Administration. “Phoenix is very slow; Sacramento is spotty,” says John Burns, a housing consultant based in Irvine, Calif. “The investors came in and pushed prices a little too high. And then FHA rocked the new-home market really hard.”
Borrowers can qualify for FHA loans, insured by the federal government, in just three years after going through a foreclosure. The waiting period can be as long as seven years for would-be Fannie Mae borrowers. That makes FHA loans crucial in Phoenix and other markets hit hardest by the housing bust, which are full of people who lost homes to foreclosure. FHA loans can require down payments as low as 3.5 percent of the purchase price, and their underwriting requirements, including credit scores, are more flexible than those associated with many other conventional mortgages.
In January, however, the federal government, which is reducing its role in the mortgage market to lure back private capital, cut maximum FHA loan sizes in 652 high-cost U.S. counties. In Phoenix the limit dropped to $271,050—about $24,000 below the median price of a new home—from the previous maximum of $346,250. The limit shrunk by 28 percent in the Las Vegas region and 18 percent in the Sacramento area. “We were having a nice robust recovery, and then that happened,” says Buddy Satterfield, president of the Arizona division for Shea Homes, which has two developments under way in the Bridges. “When you take the FHA limit down to $271,000, you hit us right in our sweet spot.”
While the number of new-home communities in Phoenix grew by a third in the past year to 457, sales per community plunged 45 percent last month from a year earlier, according to Jim Belfiore, president of Belfiore Real Estate Consulting in Phoenix. Prices, including incentives, fell 0.2 percent in September from a year earlier, following a 7.5 percent jump last year, he says. “Phoenix is a cautionary tale about raising prices too aggressively and opening up communities too aggressively,” says Alex Barron, senior research analyst at Housing Research Center in El Paso. “It’s a bad combination where affordability got out of control and the FHA limit went down.”
Builders in Nevada also experienced a sharp drop in sales this year, though they didn’t open as many communities as their Arizona counterparts because of limited land availability and approval delays, according to Dennis Smith, president of Home Builders Research, a Las Vegas-based consulting company. After jumping 32 percent in 2013, new-home sales in the Las Vegas area in the first eight months of this year fell 26 percent from the previous year, he says.
In Sacramento, where new-home sales last month dropped 16 percent from the previous year, builders are beginning to discount finished homes, says Greg Gross, director of the Northern California region for research firm Metrostudy. “There almost isn’t any new-construction home in Sacramento that would qualify for FHA under the new limits,” he says. “Last year, there were plenty.” In Orlando, where builders are advertising discounts and appliance packages and offering to cover closing costs, the number of new-home sales fell almost 19 percent from the previous year in June, the latest month for which figures are available from Metrostudy.
Despite the slowdown, Phoenix builders continue to open communities in anticipation of demand that RL Brown Housing Reports forecasts will double in the next five years thanks to employment growth and an influx of seniors. For now, it’s a buyer’s market. “I like the competition—it was good for us,” says Bob Berg, a retiree from Chicago who with his wife paid $240,000 in July for a house at a Shea Homes development in the Bridges. After looking at four homebuilders’ offerings in the area, the Bergs negotiated a reduction of almost $10,000 on the price of the house, which came with upgraded cabinets and granite countertops. “A couple of the builders said to me, ‘What will it take for you to buy this home?’ That’s kind of drastic when they say something like that. It tells me they want to move that home.”
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