The real estate industry, or more appropriately, the mortgage industry is facing daily changes. As you probably know by now if you’ve read the newspaper or watched television in the last three months, the sub-prime mortgage market has made some huge changes… Second mortgages are quickly going by the wayside in exchange for loans with mortgage insurance, which is now tax deductible*.
But… the changes affect the new loans, not the existing mortgages with which sellers are facing foreclosure in record numbers. And this is the major reason the real estate market has flat-lined, depreciated, or ____________ (fill in the blank with your market). Let’s face it… homeowners got bad loans and the mortgage industry was getting wealthy. So, let’s not feel too bad for the lenders :-). They not only did it to themselves, but to homeowners and investors. Have you ever heard the saying, “Pigs get fat… hogs get slaughtered…
Sure… you may be thinking, but we’ve had record appreciation… it hasn’t been all bad. OK. But, in many real estate markets that had the record appreciation, they are now experiencing record DEPRECIATION as the market corrects. So, with the exception of the people that got lucky and made some quick cash, many are paying a dear price.
Now… having said that, this is quite possibly the best time in history to be a real estate investor! Yet, people are getting out of real estate in droves. It’s not the “sexy” opportunity anymore, which means it’s not for the opportunity seekers. It’s for the people that are committed and ready to make some money in real estate.
Sellers are motivated. And the media’s telling a story of doom and gloom in real estate virtually everywhere.
In addition, banks are starting to respond to the rapid rise in defaulting paper. Banks are motivated and several players are starting to come together in order to try and agree on some principles when dealing with homeowners that are stuck in loans they can’t afford and possibly facing foreclosure.
Mortgage lenders have been urged to come to a voluntary resolution to the mortgage crisis rather than seek government assistance. There are some major players (like Citigroup, HSBC, and Chase to name a few) that are in agreement and some of the things they are looking at are being proactive by:
- Contacting distressed borrowers in order to try and work out payment arrangements;
- Reducing rates to make loans more affordable;
- Changing terms of the loan; and
- Refinancing
This not only helps distressed homeowners, but helps the real estate market in general. There are fewer foreclosures and short sales which will help keep home prices from falling further.
I do take one issue with the above solutions in that it’s unfair for homeowners that could qualify for better terms and better rates that are not facing foreclosure. Mortgage rate reductions, waiving prepayment penalties, and renegotiating less than favorable terms should be options available to all homeowners. Otherwise, it could backfire and homeowners that could afford their loans may choose to go 30-60-even 90 days late in order to get their terms renegotiated.
Despite the logic from the solutions above, some lenders like Countrywide and Wells Fargo are not in favor of such ideas. However, Countrywide is making efforts to contact homeowners before they get into serious trouble (See the previous posting which had an example of an email we received regarding our own Countrywide mortgage on one of our investment properties)
With the increase in foreclosures in the past few months due to adjusting mortgage and negative amortization loans that are recasting, financial markets are becoming more concerned, and the effects could be far reaching. According to some statistics, over 2 million adjustable rate mortgages are going to increase in the next two years. We’ve not even begun to scratch the surface of what’s to come with regard to foreclosures.
Many lenders are still holding strong with their short sale policies and policies for working out solutions with home owners, but that can only change as the number of foreclosures increase.
With all of this said, this is the single best time to get started investing in real estate – specifically the foreclosure market. You are getting in at the prime time because you’ve got a short window to learn the business, build relationships and learn to find the deals that can make you six – even seven – figures in real estate in the next few years.
To be successful, you must…
… Learn to find distressed homeowners facing foreclosure.
… Learn to negotiate forbearance agreements with lenders on the homeowners behalf (You can earn an extra 5 figures for your real estate business each and every month by learning how to negotiate with the banks on behalf of your distressed sellers)
… Learn to work with banks and effectively negotiate short sales. (There are even some lenders that have set policies to accept all offers at 80% of the appraised value, with no approval needed)
Ultimately, the real estate market is undergoing some major changes. As an investor who stayed away from foreclosures in previous markets, I can tell you from personal experience that there couldn’t be a better time to get into real estate investing. You have the opportunity to really help homeowners on so many levels AND make money in real estate at the same time.
*check with your accountant for all tax advice.