Summary: BUYERS MARKET

Last Wk=Change in Months Of Inventory From Last Week's Report. Last Mn= Change in Months Of Inventory From 4 Weeks Ago Report. Red #s mean the supply is rising, which is bad for Sellers and Green #s mean that the supply is falling which is good for Sellers.

UC=Number Homes Under Contract in Last 30 days Avg MT=Average Market Time of UC Homes Median=Median List Price For UC Homes Listed=Number of Homes Listed in MLS Avg MT=Average Market Time of Listed Homes Mon Inv=Months To Sell Entire Inventory of Homes, the AR Rate

For an explanation of the AR Rate, please read this post.

Now it's also waging battle with the "shadow market" of investors and other homeowners who can't sell their properties, so they're renting them out. Watch out, the council warns, in case that landlord gets into financial trouble and you find yourself residing in a foreclosure.

The trade group has produced a brochure that its members can offer would-be tenants, warning that nearly 40 percent of all foreclosures involve houses or condos that have been rented out by their owners, a statistic from RealtyTrac, a foreclosure-data firm. The landlords' group warns that a tenant's security deposit might be at risk in the tumult, not to mention the possibility of being forced to move on short notice.

I witness this alot when I'm out visiting distressed homeowners in Will, Kendall, & Grundy County, IL on behalf of my foreclosure relief service, Stop Foreclosure Illinois. I will knock on a door, and instead of meeting a homeowner, I'll run into an angry tenant. Most of them will already be aware of the process, as a Sheriff will have attempted to serve the homeowner at that address.

These tenants do have some recourse, but unfortunately as the article points out "it's not a tremendous help".

If the full board votes for this change in the budget, the average taxpayer should see a $40 to $50 decrease in the county's portion of next year's tax bill.

"We're giving back some money, and I think that's what (county residents) are looking for right now," said board member Chuck Maher, R-Naperville.

Read the entire article here in the Naperville Sun.

It's always an honor when you are recognized by an industry peer. I would like to express my appreciation to Matt DiChiara of MyNewPlace Blog for selecting my article about Bankruptcy Protection for residential mortgages as a winner of the Carnival of Real Estate.

You can check out the other 5 winning articles at MyNewPlace Blog, Carnival of Real Estate #110.

Summary: BUYERS MARKET

Last Wk=Change in Months Of Inventory From Last Week's Report. Last Mn= Change in Months Of Inventory From 4 Weeks Ago Report. Red #s mean the supply is rising, which is bad for Sellers and Green #s mean that the supply is falling which is good for Sellers.

UC=Number Homes Under Contract in Last 30 days Avg MT=Average Market Time of UC Homes Median=Median List Price For UC Homes Listed=Number of Homes Listed in MLS Avg MT=Average Market Time of Listed Homes Mon Inv=Months To Sell Entire Inventory of Homes, the AR Rate

For an explanation of the AR Rate, please read this post.

1. Will the Fed's ability to reset loan balances, in effect, reset property values?: The bill calls for the Secretary of Treasury to have the ability to modify mortgages, in the name of stopping or PREVENTING foreclosure, by "principal write downs" or lowering the mortgage balance owed. How is this going to be implemented. If the mortgage balance is $300,000 and the property value is $250,000, but you the home owner can only afford a mortgage of $200,000, is the new mortgage principal going to be $250K, $200K, or somewhere in between? Common sense would dictate that the mortgage would reflect the current property value of $250K. But the Feds goal is to preserve homeownership, not to preserve property value.Might there be pressure to create a property value in line with the homeowner's ability to pay. A perverse opposite world where as appraisers were once pressured to make appraisals meet loan requests, are they now pressured to lower appraisals to meet what homeowners can afford? I would like to say no, but I have no faith in the government's ability as property/loan manager.
2. What is the motivation to make your mortgage payment if your home value is under water?Most people will continue to honor there debt on a home, car, or other asset even if that asset is now worth less than what they owe. Most anyone who has ever bought and financed a new car has had that sinking feeling driving off the lot that their new car was worth 20% or 30% less than what it was an hour before when they signed the deal. I know that I certainly have had that feeling. Do we not think that someone who owns a $300,000 mortgage but a $200,000 house, is not going to be very tempted to ask for relief. Just look at the amount of "walk away" foreclosures that have sprung up across the country. As a Realtor, I cannot advise someone to not honor a valid debt they have, but I certainly will expect people to "drive their home back on the lot" and ask for a renegotiation.

Now that the bill has been defeated in the House, I'll wait to see how it is remade and represented. I'll keep you informed.

Please make no mistake, I think that we need some type of bailout. I just think that the devil is in the details.

Lets take a look at this rough draft and see how it may play out:

Overview:
The goal of the Emergency Economic Stabilization Act of 2008 is for the Federal Government to step in and purchase troubled assets, mainly residential mortgage securities, from financial institutions in order to prevent disruption and provide stability to the U.S. and global economy.

Essentially, Uncle Sam is going to own (or insure) many of the failing mortgages in this country. And that is going to mean some changes in the way those failing mortgages are dealt with.

Sec. 109. Foreclosure Mitigation Efforts
The general premise behind the mitigation effort is to allow financially distressed homeowners to keep their homes:

the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

I interpret this paragraph as: We (the govt) now own your mortgage, Mr. Distressed Homeowner. We bought it for pennies on the dollar, and considering that, we intend to let you keep your home by modifying your loan. That is pretty confirmed on the next page:

the Secretary shall consent, where appropriate, and considering net present value to the taxpayer, to reasonable requests for loss mitigation measures, including term extensions, rate reductions, principal write downs, increases in the proportion of loans within a trust or other structure allowed to be modified, or removal of other limitation on modifications.

Wow! The government is leaving no stone unturned in this effort. Modifying terms of a mortgage (say adding missed payments on the back end of the loan) is fairly standard. Lowering a borrower's interest rate is becoming more generous. But the "creme de la creme" has to be principal write downs, allowing the loan amount to be reduced to reflect current market value.

Consider how someone might hit the trifecta:

Mr. Financially Distressed has a mortgage balance of $300,000 on an original loan of $310,000 at an 8% rate. He is in foreclosure and is 6 months behind on mortgage payments of $2175 (just P/I). And for good measure the home is currently worth only $260,000 now.

According to the proposed law, Mr. Homeowner may have those 6 missed payments forgiven ($13,050 benefit). He may receive a new loan with an interest rate of 6.25% with a new loan balance of…you guessed it…$260,000. So how is that going to impact his new monthly payment? Well that payment has been reduced from $2175 to $1600, a savings of $575 a month!

Also, included in this provision is protection for tenants who rent properties that are foreclosed on. Fair add on considering that tenants are unwitting victims and they raised a good deal of hell when the Housing Stimulus Bill was passed in July.

Sec. 110 Assistance To Homeowners
Now this provision confused me at first. It seemed like a repeat of Sec. 109. So I read it for a 2nd, 3rd, 4th time and then it hit me: those foreclosure prevention efforts that we discussed in Sec. 109, those are going to be the same rules for mortgages that the Feds don't own, but that they guarantee as the conservator for Fannie Mae and Freddie Mac. And they spell it out here:

In any case in which a Federal property manager is not the owner of a residential mortgage loan, but holds an interest in obligations or pools of obligations secured by residential mortgage loans, the Federal property manager shall— (1) encourageimplementation by the loan servicers of loan modifications developed under sub3 section (b); and (2) assist in facilitating any such modifications, to the extent possible.

Encourage? Like I encourage my 8 year old to go to school? I thought so.

Sec. 124 Hope For Homeowners Amendment
Hope for Homeowners was the part of the Housing Stimulus Bill in July that encouraged (there's that word again) lenders to allow loan balances to be reset to reflect current market value, and to refi that balance using an FHA loan. I was very skeptical of the program because it only encouraged and did not require lenders to work with distressed homeowners. My skeptisim has now disapeared. The changes include:

• Making the act proactive; anticipating income to debt ratio changes in the future due to loan resets: "or thereafter is likely to have, due to the terms of the mortgage being reset"
• Allowing the new loan to exceed 90% of appraised value: "or such higher percentage as the Board determines, in the discretion of the Board"
• Dealing with subordinate mortgages: Such actions may include making payments, which shall be accepted as payment in full of all indebtedness under the eligible mortgage, to any holder of an existing subordinate mortgage, in lieu of any future appreciation payments authorized under subparagraph". I'm not certain, but I think this eliminates future appreciation payments that were lynchpin of the HFH Act.

Sec. 303. Extension of exclusion of income from discharge of qualified principal
residence indebtedness.
This extends the moratorium on treating canceled debt as income and therefore taxable from Jan. 1, 2010 to Jan. 1, 2013.

As you can imagine from the tone of this post, I'm not thrilled with these proposed changes. The funny thing, though, is that they will probably benefit my business as a Realtor. I will layout my objections later today in another post, but I wanted to get you, my readers and clients, the gist of this proposed legislation PRIOR to it being passed.

One point in the article they discuss is purchasing properties during pre-foreclosure:

“You could probably get a bargain in preforeclosures,” said John T. Reed, the publisher of Real Estate Investor’s Monthly, a newsletter, “but you have to be ready to pound the pavement.”

By that he means persuading homeowners to sell and, quite possibly, competing with other investors with the same goal.

Buyers can find preforeclosure and foreclosed properties by poring over the delinquency notices that lenders file with county courthouses or publish in local newspapers. They can also contact lenders directly. And online services including RealtyTrac and ForeclosurePoint, a Seattle-area data company, also provide lists of properties.

An intrepid investor might trawl certain neighborhoods for prospects. “You can drive around and look for homes that aren’t taken care of,” often a sign of financial difficulties inside, Mr. Reed said. But, he added, “some people don’t have the personality or the stomach to go door to door and talk someone into selling.”

As Mr. Reed notes, getting out and knocking on doors is the most effective method of getting in front of these folks.

I can confirm this works, because I do the same thing on behalf of my foreclosure relief service, Stop Foreclosure Illinois. My conversion ratio runs about 2% to 3% of the homes I visit result in listings. I've also found that in my conversations with these folks that they ignore 95% of the mailings that they receive from investors, attorneys, and real estate agents.

The problem with "door knocking" is most investors don't have the time to visit 30 to 50 homes. Plus some of the homeowners that I do convert, their homes and financial situations may not the right fit for investors.

My suggestion (which is a shameless plug):

1. Sign up for the WGRE Email Newsletter & Foreclosure Hotsheet. Its FREE and you will receive the newest foreclosure filings for Will & Grundy County each week.
2. Let me know which properties you are interested in. I will move those homes to the top of the list that I will visit that week. Ideally they will be part of that 2% to 3% I list as Short Sales.
3. Let me and my team at Real Foreclosure Solutions negotiate the Short Sale on behalf of you and the homeowner. A win/win for all parties.

There has been no better time in the last 20 years to take advantage of financially distressed properties. What are you waiting for?