The CEO of Chase disclosed that the federal probe into the robosigning scandal reached a settlement. Image from Wikimedia Commons.

A settlement is soon to be announced regarding the robosigning foreclosure controversy. Some of the nation’s largest mortgage lenders rubber-stamped foreclosure documents without looking at them and may have foreclosed on some people who didn’t deserve it. A legal probe into foreclosure practices has reportedly reached a settlement with those lenders.

JPMorgan exec discloses deal with some federal agencies

Chief Executive Officer of JPMorgan Chase Jamie Dimon recently disclosed that the government probe into the robosigning controversy had come to an agreement with the mortgage lenders being investigated, according to Reuters. Dimon confirmed that no fines had been levied yet, but they are likely to come. The nation’s largest mortgage lenders and servicers were the subject of a sweeping investigation by nearly a dozen federal agencies and the attorney general of every state in the union. The agreement is not complete; it is only the settlement between the financial institutions involved and the Federal Reserve, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. A settlement with all 50 state attorneys general has not been reached.

State settlements to come

The controversy stemmed from the discovery that a lot of foreclosure proceedings started when paperwork to begin foreclosures was approved in a robotic fashion, or “robo-signed,” without proper review. The resolution of the robosigning foreclosure debacle is important, as foreclosure practices may change. JPMorgan, for instance, expects to hire at least 3,000 more employees to ensure compliance with the settlement agreement, according to Bloomberg. In other words, there will be an increased amount of regulation in the mortgage industry when it comes to foreclosures, which means it will cost the lenders in the mortgage industry more to lend and service a loan. Those costs will be passed on to the consumer at some point, likely in the form of requiring more money up front to get a loan. There is also a backlog of foreclosures on the books at these banks, as they have become more skittish about foreclosing on borrowers who are delinquent in paying their mortgage.

Mortgage modification failed participants

One failure of the Obama administration and the various stimulus programs was the various mortgage modification programs that were made available through the federal government. People who were behind on their mortgages or facing foreclosure could apply for a modification. The distressed homeowner’s lender would receive an incentive payment from the government if it modified the borrowers’ mortgage on a trial basis. However, according to USA Today, not many people were helped. The goal was to keep 3 million to 4 million people in their homes; instead only about 630,000 people had their mortgages permanently modified.

Sources

Reuters

Bloomberg

USA Today

It might be getting easier for some to pay the mortgage, but more foreclosures are on the way. Photo Credit: Brendel/Wikimedia Commons.

Fewer people are struggling to pay the mortgage, but the housing market is still in trouble. Recent improvements in the employment outlook bode well for struggling homeowners who have been hoping to get jobs, but the housing market is still in dire straits.

Number of underwater homes thought to be receding

A recent Harris Interactive poll, according to Daily Finance, revealed that, compared to last year, fewer survey subjects believed that their homes were underwater. Approximately 21 percent of the more than 3,000 respondents believed their homes were worth less than what was still owed on the home, compared to 24 percent in the same poll conducted at the same time last year. Additionally, 22 percent of respondents in the Harris poll were struggling to make mortgage payments, compared to 29 percent last year. However, 3 percent fewer people in the poll said they had a mortgage. The unemployment rate recently began to recede, which means fewer people will have to take out installment loans to cover the mortgage.

Distressed homes flooding the market

According to USA Today, analysts have been concerned with the number of distressed properties, which can keep prices down. It was estimated that, as of January, there were 1.8 million distressed houses or homes for which owners have gone 90 days or more without making payments. The price of a distressed home always is at least 20 percent lower, which makes them attractive to bargain hunters and real estate investors. Unfortunately, a large supply keeps home prices lower nationally. To make matters worse, the number of foreclosures is sure to begin rising in coming months as major mortgage lenders who had put a moratorium on foreclosures will resume foreclosing on homeowners, according to Reuters. Many of the nation’s largest mortgage lenders, including Bank of America and Wells Fargo, had to suspend foreclosures as questionable foreclosure practices at those institutions were being investigated by the government.

Cheap homes for those who can take advantage

It has been a buyer’s market for some time in real estate, and it is likely to stay that way. Home prices are anticipated to keep falling for at least the next few months, according to MSNBC. Mortgage rates are still coming off record lows several months ago, and people who can get the financing may never have to run out for same day loans to cover the mortgage payment if a low rate can be locked in. However, lenders have been fairly skittish in an uncertain climate.

Sources

Daily Finance

USA Today

Reuters

MSNBC

Mortgage rates are rising, despite demand for and sales of houses still at rock bottom. Image from Wikimedia Commons.

Nationwide mortgage rates are creeping up despite dismal sales and demand. Interest rates on major mortgage products have been rising steadily for the past few months, though the rates are still near record lows. The real estate industry is still embroiled in a quagmire involving foreclosures, and demand is nearing an all time low.

Cheap housing cannot stimulate much demand

Even some of the cheapest real estate on record cannot seem to boost sales. Recent housing data revealed new home sales and existing home sales fell during February. Interest rates on mortgage rates are climbing since hitting near-record lows in the fall of 2010, according to USA Today. The nationwide average rate on 30-year, fixed-rate mortgages reached 4.81 percent on Thursday, March 24, an increase of 0.05 percent in a week. The average 15-year, fixed mortgage hit 4.04 percent. In November of 2010, the 30-year fixed was at 4.17 percent, and the 15-year fixed reached 3.97 percent, the lowest rates in decades.

Legal quagmire still ongoing concerning foreclosures

The legal dilemma regarding possibly fraudulent foreclosures initiated by rubber stamped paperwork, or “robo-signing,” is still far from a resolution. Major mortgage lenders practically handed out same day loans, rushing foreclosure paperwork without doing the due diligence. A major investigation was launched into the matter that involves all 50 state attorneys general and various federal agencies. Banks and mortgage lenders involved in the scandal are still struggling to secure a settlement with the states and the federal government, and some government agencies are looking to create their own settlement to bypass the process, according to Reuters.

Lousy outlook for real estate

Once the matter is settled, a flood of foreclosures will begin; thousands of pending foreclosures have been stalled because of the crisis. Evicting thousands of people will likely boost the payday loans industry as former homeowners scramble for cash to cover moving expenses. The foreclosure crisis is expected to cost the banking industry tens of billions, according to Fortune, regardless of any government settlements or fines. Anyone who can get access to the credit to purchase a home will benefit from doing so sooner rather than later. Demand and sales are very low, and fewer new homes are being built. The foreclosure mess has only made things worse, and the housing industry isn’t going to recover until prospective buyers are able to purchase homes again.

Sources

USA Today

Reuters

Fortune

Congressional Republicans are looking to cut mortgage modification programs that don't work. Photo Credit: respres/Flickr.com/CC-BY

The federal mortgage modification program is fast becoming a target for criticism as a failed program. Congressional Republicans have announced intentions on scrapping federal mortgage relief programs, which have been dismal failures. Foreclosures on failing mortgages  have slowed, but procedural issues are hampering the foreclosure processes nationwide.

Failed mortgage relief programs prime target for spending cuts

Congressional Republicans are taking aim at failing programs that throw money down the drain, and mortgage modification programs are prime targets, according to CNN. Republican members of the House of Representatives have announced intentions to put federal programs aimed at saving failing mortgages on the chopping block in order to cut about $38 billion in instant cash from the budget. The Home Affordable Modification Program is a prime target, as Inspector General for the Troubled Asset Relief Program Neil Barofsky described the program as a failure.

On the chopping block

Other programs slated for demolition include the Neighborhood Stabilization Program, refinance programs under the Federal Housing Administration and the Emergency Homeowner Relief Fund, all of which lend emergency loans to aid troubled mortgages. However, these programs haven’t been smashing successes, either. Spencer Bacchus, a Representative from Mississippi and chair of the House Financial Services Committee, said that “it’s time to pull the plug” and end programs that don’t work. Only about 500,000 permanent mortgage modifications have been performed on troubled mortgages through these programs, which is a success rate of less than 50 percent. Foreclosures are also taking far longer to process.

Foreclosures take longer

Because of new procedural rules for foreclosure and increased scrutiny of foreclosure practices, loan lenders are taking far longer to foreclose on a home, according to USA Today. A distressed homeowner will spend about 19 to 20 months living in a foreclosed home at current rates, which may increase to 22 to 23 months. The average person in a foreclosed home would normally have gone 250 days without making a payment prior to the mortgage crisis, but that stretched from 410 days in January 2010 to 507 days in December 2010. Increased scrutiny due to the “robo-signing” controversy has led to foreclosures taking far longer, which causes loan lenders to lose considerable amounts of money.

Sources

CNN

USA Today

Foreclosures rose during the past few months, but the number of mortgage delinquencies declined. Image: Brendel/Wikimedia Commons/CC-BY

The number of mortgage delinquencies has declined, but the number of foreclosures has risen. Though loan lenders can rejoice over more borrowers making payments, the inventory of foreclosed properties is at a record high. However, this may be a sign that foreclosures will slow in the future.

Foreclosure inventory nears all time high

The number of foreclosed properties loan lenders retain has hit an all time high, according to Bloomberg. A report was recently released by the Mortgage Bankers Association detailing the economic trends in real estate, and the number of foreclosed homes had risen to 4.63 percent of all mortgages at the end of the fourth quarter of 2010, which ended Sept. 30, 2010. The number of foreclosed properties is nearly the highest on record.  That figure had risen from 4.36 percent at the end of the third quarter of 2010. At that time, nearly 14 percent of all mortgage loans, or one in seven, were in foreclosure or homeowners were behind on payments to their loan company.

Delinquencies decline

Though the number of foreclosed properties has risen, the number of delinquencies has fallen. From July to December, 2010, the number of bank loans that were one payment behind dropped from 9.13 percent to 8.22 percent, according to CNN. Mortgage delinquencies have therefore dropped to the December 2007 rate, which marked the beginning of the recession. Seriously delinquent loans, or mortgage payments at least 90 days past due, declined from 5.02 percent in March of 2010 to 3.63 percent in December, 2010. This means more people are getting payday cash, and able to make payments.

Foreclosures stalled for now

The controversy over improper foreclosure procedures, or the “robo signing” affair, has led to a temporary slowing of foreclosures, but that may reverse itself as those issues are resolved. Florida is still the state most affected by foreclosure, with more than 14 percent of all homes in foreclosure. Mississippi had the highest delinquency rate, with 13.3 percent of homes behind at least one payment.

Sources

Bloomberg

CNN

Up to 27 percent of homeowners could be under water on their mortgages. Image from Wikimedia Commons.

It is estimated that a record number of people are now under water on their mortgages because of falling home values. The value of houses nationwide has been steadily sliding downward as foreclosures, unemployment and tight credit take a toll on real estate. Values could continue to fall.

Nearly a third of all mortgages could be under water

Home prices have been falling for the past few years during the recession. Because of continuing foreclosures, high unemployment and fewer homes being sold, the value of houses has continued to trend downward. It is estimated that 27 percent of American homeowners could be under water on their mortgages, meaning payments to the loan company cost more than the home is worth, according to Bloomberg. Real estate information company Zillow released a report stating that more than 15 million home loans were under water. Home prices are estimated to have fallen by almost 6 percent in the last year and almost 3 percent since September, 2010. Values are expected to decline 5 percent more in 2011.

Deceptive decline in foreclosures

Foreclosure activity has been closely watched over the past year in the hopes that a slowing rate of foreclosure would mean a real estate market close to recovering. A decrease in foreclosures occurred in January, but that doesn’t mean that the crisis is over, according to CNN. Because of the “robo-signing” scandal, where foreclosures were initiated by banks without reviewing the paperwork, the foreclosure process has been held up. The number of homes and installment loans foreclosed on will likely increase once the backlog of foreclosure cases in courts and at loan lenders is reduced.

Areas with inflated value still reeling

Areas where real estate values are the highest are still plagued by high foreclosure and rates of negative equity. Nevada, Arizona and California still lead the nation in foreclosure-affected states. Florida, though, has started to improve, falling to ninth place nationally in foreclosure rates.

Sources

Bloomberg

CNN

Foreclosures in Nevada have been halted by a restraining order. Image: Flickr / kbcool / CC-BY-SA

In Nevada, a judge has issued an order halting foreclosures by a Bank of America subsidiary. Approximately 8,900 foreclosures have been halted by this order. The bank is arguing against this order by citing “harm caused to the public interest.”

Problems with Nevada foreclosures

Recon Trust is a Bank of America subsidiary that operates in Nevada. In Nye County, Nevada, a judge has placed an injunction on all foreclosures through Recon Trust. On Jan. 11, a homeowner sued the bank for fraudulently trying to foreclose on her. The judge not only found merit in her case, which is currently proceeding, but issued a temporary restraining order that prevents Recon Trust from carrying out any of the 8,900 pending non-judicial foreclosures it has pending.

Why the foreclosure injunction was issued

Since the restraining order has been issued, Bank of America has filed suit to have it removed. Recon Trust has been acting as an agent for Bank of America, carrying out foreclosures on B of A’s behalf. At issue with the lawsuit and foreclosure injunction is that Recon Trust is filing foreclosure notice as a trustee, but it is actually an agent. Either way, the company cannot foreclose on any home until the issue is resolved. The order also halts all foreclosure meditations currently in progress.

Effect of the foreclosure injunction

Bank of America has filed to have the restraining order removed. The bank is claiming that “The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration.” In effect, the homeowners who are being wrongly foreclosed upon have recourse — but the homeowners who are being rightly foreclosed on are getting a bad credit loan of time and money to stay in their houses longer.

Source

Las Vegas Sun

Fannie Mae, which owns or guarantees more than half the mortgages in the U.S., wants to crack down on surging trend of strategic default. Flickr photo.

Fannie Mae upped the ante on strategic default of home mortgages Wednesday, saying that borrowers who default despite having ability to pay or do not seek alternatives in good faith won’t be eligible for a new Fannie Mae-backed mortgage for seven years from the date of foreclosure. Strategic defaults are increasing along with home foreclosures. Numerous offers are proliferating online to assist in strategic defaults. Last week the House passed the FHA Reform Act with a provision for penalizing strategic defaulters in the bill.

Strategic default consequences

Fannie Mae, which owns or guarantees more than 50 percent of mortgages in the U.S., wants more severe strategic default consequences. It is now refusing to back new loans for walk-away borrowers for seven years after they abandon their homes. In a press release, Terence Edwards, executive vice president for credit portfolio management at Fannie Mae, said “Walking away from a mortgage is bad for borrowers and bad for communities, and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

Fannie Mae to sue strategic defaulters

In the press release, Fannie Mae,  said it will also sue to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and make recommendations for strategic default cases that warrant the pursuit of deficiency judgments.

Defining strategic default

The strategic default issue is a thorny one because of the challenge to define what makes a default strategic. The Washington Independent reports that strategic defaulters aren’t really breaching their contracts. Every mortgage contract defines exactly what happens if the borrowers don’t pay: the bank evicts them and takes the home. It’s doubtful that the government could stipulate that homeowners have to hand over the last of their savings to the bank before they can walk away, or that they have to be hand over a certain percentage of their annual income before they walk away. The money people have left could be used to move to an apartment, pay medical bills or to buy shoes for their kids.

Fannie Mae Headquarters. Image from Wikimedia Commons.

Mortgage giant Fannie Mae just announced record losses, and the company is asking for another $8.4 billion from the government to stay afloat. Fannie Mae has been in conservatorship — or possessed by the federal government — for some time.  Its losses have grown almost exponentially, and have posted the 12th consecutive quarterly loss.  Clearly, any fast cash from the taxpayers to prop up the mortgage house has not been put to good use, and this ship is sinking fast.

Fannie Mae posts 12th consecutive loss

For the 12th consecutive quarter, Fannie Mae has posted a loss. Not only that, but the mortgage financing giant has seen about $148 billion go down the drain over that time. That’s almost the entire GDP of Chile. Though it may seem the effects of the housing recession and bailouts are already forgotten by Wall Street, Fannie Mae and Freddie Mac are still troubled. The losses posted by Fannie Mae for this quarter, according to the Wall Street Journal, are only $11.5 billion, contrasted to first quarter 2009 losses of $23.5 billion.

Fannie Mae under conservatorship

In 2008, as the housing recession threatened to collapse the entire U.S. financial system, Fannie Mae and Freddie Mac were both placed in conservatorship. Essentially, they were seized by the Federal government because they couldn’t stop losing money.  Because Fannie Mae had assumed the risk for so many mortgages, as the numbers of defaults rose, so did the company’s losses. A recent article on CNN Money reports that the rate of foreclosure has slowed in some areas, but still managed to rise by 16  percent.

The impact

Fannie Mae and main rival Freddie Mac are huge mortgage lenders in the U.S., and they hold trillions in mortgage assets.  Portions of those assets have become toxic.  Mortgage loan modification will only do so much good, and if a mortgage becomes underwater, the homeowner and the bank lose money. If the trend of real estate losing value and massive foreclosures doesn’t reverse course, getting a mortgage loan will be difficult for anyone.

The silver lining

According to the same piece in the Journal, Fannie reported that 5.47 percent of its loans were 90 days past due in March. In February, it had been 5.59 percent. This means some modest improvements are beginning to happen. However, the question becomes how long before small improvements add up to a positive direction for the real estate market overall.

The problem of negative equity

In fact, economists are predicting that many homeowners will be in worse shape within the next two years than they have been in previous. Studies are showing that almost half of the US’s 52 million borrowers will have negative equity by the beginning of 2011. According to the report done by Deutsche Bank, the number of borrowers with negative equity is telling of a huge pool of owners who will either default or go into foreclosure.

Down payments valued at zero dollars

Negative equity happens due to various factors, but the most common is the decline of home values. Since the recession, that has been a chronic problem within the housing market. According to real estate website Zillow.com, home values throughout the country have declined by 22.3% since mid-2006. To the average home owner who put down 20% of their mortgage, that means their down payments have lost their complete dollar value. Karen Weaver, research analyst at Deutsche Bank, said, “The continued decline of US home prices will contribute to rapidly rising rates of negative equity. The most obvious implication is for mortgage defaults.”

Watch for the signs

When it comes to the housing market, all homeowners should be watching the market. There are clear signs when a home is at risk of declining in value. More and more homes are proving that falling behind or going into foreclosure have more to do with home value drop based on the economy, than on job, credit, or income. Here are some signs to watch out for:

1. Foreclosures in your area. The biggest danger sign to watch for is when neighboring homes start falling into foreclosure. Mark Zandi, chief economist at Economy.com, said “When one home on the block goes into foreclosure, every home’s value drops by 1%… if two homes on the block go into foreclosure, every home’s value drops by 3%.” Once homes start dropping considerably due to distressed properties in the neighborhood, it’s difficult to overcome. While small personal loans or savings can rescue homeowners in minor trouble, adding a difficult neighborhood market can mean disaster.
2. Homes not selling. Another sign to watch for is the number of homes in a neighborhood that are not selling. The underlying message is that buyers and sellers have not been able to come to an agreement on the transaction. Zandi believes that “the time on the market is always a good barometer of demand for homes and for the price homes are transacting at. The longer it appears that neighbors are taking to sell their home, the more likely it is that they are not getting the price they want and that prices are falling.”
3. Rising unemployment rates. Generally speaking, cities with the highest unemployment rates suffer from the highest home value loss. For example, Merced, California’s unemployment rate is one of the highest in the country at 17.6% and home values have declined by over 40%. Homeowners in areas with high unemployment rates are cautioned that if primary industry in their cities were hurt due to the recession, their home values may fall even quicker.
4. Distressed homes. Neighborhoods with a notably high number of distressed properties are at a higher risk of homes losing value. Zandi confirmed, “Normally dented siding, peeling paint and broken porches are signs that neighbors are having trouble making ends meet and can’t pay for the care of their homes. The mere fact that they are not investing in their homes will affect you, too.”

Time is the key to overcoming negative equity

Although the issue of negative equity is a serious one, it isn’t an inevitable repercussion of the recession. Homeowners who plan on keeping their homes for the next five to seven years most likely will recoup any lost value of their properties. For homeowners who are finding it hard to make ends meet, small personal loans should be used for the shortfall, rather than borrowing against the mortgage. Then taking a wait-and-see attitude may be the best option in coming months.

Start your personal loan application HERE!

Photo from Picasa

Foreclosures on the rise

Despite credit cards, borrowing money and government aid, many homeowners lost their homes to foreclosure. A recent survey done by the Mortgage Bankers Association showed that one in every seven home loans in the US were either past due or in foreclosure. That is the highest delinquency rate since 1972, when the survey first began. Jay Brinkman, the MBA’s chief economist said, “Despite the recession ending in midsummer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage-point increases in GDP.”

Signs of the times

It may seem contradictory to an improving market that foreclosure numbers are up, but a closer look at what is happening shows that it is appropriate. Here are some reasons why:

1) A deeper look at the economy. The MBA did research on what really started the economic downturn in terms of housing and its beginning was the subprime mortgage loan crisis. Almost everyone was able to get a loan back in 2006 and 2007. When the unemployment rate began to climb, the labor market pushed hard against housing industry. Brinkman said, “A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage.” Subprime mortgage holders started the problem, but when consumers with good credit started losing jobs, foreclosures began rising even quicker.

2) Geographic locales. It’s startling to see how certain areas more than others, have been affected by foreclosure saturation. For example, Nevada, Arizona, California and Florida are the hardest hit states when it comes to depressed properties. Studies have shown that Florida for example, has a delinquency rate of 25%, which means one in every four homes is either past due or in foreclosure.

3) Huge inventories of depressed homes. Although there are signs of stability on the horizon, the National Association of Realtors still notes a huge inventory of available properties. Michelle Meyer, economist for Barclays Capital, said, “We continue to believe that nearly 6 million foreclosed homes will enter the market over the next three years, which will keep inventory of existing homes elevated. Foreclosures remain the biggest hurdle to the housing recovery.” Consumers who are borrowing money to purchase homes may be surprised at how vast their home options are for years to come.

4) The unemployment rate. The bottom line of the foreclosure crisis is that mortgage delinquencies are not expected to level off until the labor market is cured. Experts are predicting that 2010 will still be a time for high unemployment, in particular at the beginning of the year. Meyer added, “The delinquency rate is going to stay up there for a while because the job market is going to be really weak for a while.” It may take until mid- to late-2010 before true signs of a drop in foreclosures are evident.

Despite the signs

Despite signs of stabilization, experts warn that the foreclosure crisis is far from over. When it comes to true economic recovery, consumers have to be concerned with the big picture. That includes everything from the number of homes on the market, new methods for borrowing money, the unemployment rate and geographic recovery of the hardest hit economies. It will take time for all of these to show true signs of economic turnaround.

The real estate foreclosure industry remains a fertile place to invest money. In a wounded American economy, banks and other lenders specializing in real estate finance have accumulated a surplus of foreclosed properties. However, this misfortune has created a unique environment for those in a position to invest money in the market. In fact, this damaged economy has ushered in a highly profitable investment niche, commonly referred to as bulk REO investing.

What Does REO Mean?

REO is an acronym for Real Estate Owned and is popularly used in real estate finance communities. More specifically, it most commonly refers to real estate owned by a bank or other real estate finance company as a result of the property’s former owner defaulting on mortgage payments. Although bulk REO investing sounds like a new real estate finance term, it is actually founded upon the age-old concept of purchasing multiple foreclosed properties in a single transaction. To better understand how this particular investing niche functions, it is helpful to first gain a basic understanding about how the foreclosure market works and why this is such a lucrative opportunity for those who can afford to invest money in bulk REO purchases.

Why Do Banks and Real Estate Finance Companies Sell Properties So Cheap?

Banks and other real estate finance lenders prefer to loan money and are not in the business of stockpiling real estate. In fact, having too many foreclosed properties on their books quickly turns into an accounting nightmare, as what was once deemed an asset when it was in the form of a healthy loan quickly turns into a liability when the real property is actually returned. In an attempt to protect their own credit and financial interests, banks routinely auction or outright sell their real estate surpluses at much less than their original cost or even their current retail value. Real estate finance companies far prefer to take a loss than to be burdened with the responsibilities of real estate ownership. Banks are not interested in trying to rent the property, lease it or even sell it on a retail market, as this would mean having to do things like invest money to make necessary repairs to the property and protecting it from vandalism during periods of vacancy. Instead, they far prefer to give others who are willing to invest money and time in these efforts, an opportunity to buy the property for less than its retail value as an incentive for a fast sale.

Why Are Banks Willing to Sell REO Properties in Bulk Quantities?

Even in this turbulent economy, those able to invest money in real estate are buying foreclosed properties in order to sell them for profit. These are mostly individuals who can afford to not only buy the property, but make any necessary repairs and improvements before listing it on the retail market. However, because banks own so many foreclosed properties in this market, they are eager to sell more of them than they normally would. Therefore, in an effort to avoid the liabilities discussed earlier, real estate finance professionals have created bulk REO investing packages.

Are Properties Included in a Bulk REO Sale Worth the Investment?

It is not uncommon for bulk REO packages to include properties that are in need of extensive repairs. However, those looking to invest money in real estate, and who are often buying such properties for a mere fraction of their retail price, are eager to do so regardless of their condition and sometimes are even willing to purchase them sight unseen, as they realize the profit potential involved.

As bulk REO offerings become more common, those looking to invest money in the foreclosure market are discovering an enormous opportunity to create substantial real estate wealth. Though the original owner unfortunately lost their property, smart investors who realize the opportunities being handed to them by real estate finance companies have been able use a downtrodden real estate market to their utmost benefit.

A restaurant in New Orleans suggests "Foreclose on the Banks." Image from Flickr.

The media and Uncle Sam want us to believe that times are getting better and that we are crawling out of the recession. In fact, there are some economic indicators that the economy is starting to come around.

The last few weeks have provided an increase in consumer spending, a slight decline in the unemployment rate, and the Dow Jones even broke 10,000. However, this may not be enough of a change to get excited yet. There are major economic indicators that are not providing such positive results.

The high rate of foreclosure

The 3rd quarter of 2009 has seen a record number of homes in some stage of foreclosure. The total number of foreclosures for this period was 938,000 compared to 890,000 for the previous three months. It is estimated by RealtyTrac Inc. that the total number of foreclosures for 2009 will exceed the 3.5 million mark. This is up from 2.3 million for 2008.

Gradual increase in total foreclosures

The pattern for all of 2009 has pointed toward an ever increasing number of foreclosures. Each quarter this year has provided even more staggering numbers than the quarter before it. The first quarter ended with 803,489 which was an increase of 9 percent over the last quarter of 2008. This was followed by an increase of 10.5 percent in the summer months and a 5 percent increase the past quarter.

Total foreclosure filings

The indicated foreclosure rates include default papers, auction sale notices and repossessions. These numbers are being partly blamed on the unemployment rate that is at a 26-year high.

Another major factor of this rate is that housing prices have plummeted, and some homeowners are severely under water – meaning they owe more than their homes are worth. These combined factors can remove the incentive for homeowners to keep up with mortgage payments.

The Government’s solution

The Obama administration has implemented steps to try to curtail home foreclosures from plummeting even further out of control. These steps have been aimed at encouraging financial institutions to offer mortgage modifications to those homeowners that are distressed. One of these programs is Hope Now, an organization set up to assist with mortgage modification negotiations.

Obama announced the beginning of October that 500,000 homeowners have been assisted by the government’s mortgage relief effort. While this is certainly a milestone that should be recognized, this help has been provided to 500,000 distressed homeowners out of the over 2.5 million homeowners that have faced foreclosure so far in 2009. The problem is that the rate of new foreclosures exceeds the rate of those that have been assisted. “The sheer scale of the problem is preventing the loan modification programs from having the kind of impact we’d all like” said Rick Sharga, RealtyTrac’s senior vice-president for marketing.

Some areas have seen improvement

While the National numbers are up the rate of foreclosures for some states are actually on a decline. New York has reported a drop in the amount of foreclosures for the third quarter of 2009. The overall numbers of foreclosures for the third quarter in New York were up 19 percent over the same period of the year before, but they are actually down 10 percent from the rate of the previous quarter.

Other states have seen signs of improvement as well. The first quarter of the year, California and Florida had the highest number of foreclosures. As of the third quarter they are ranked third and fourth with Nevada topping off the list.

September’s foreclosure rates are lower

RealtyTrac reported that the number of foreclosures nationwide for September were 344,000 down 4 percent from a month earlier. However, this number is still the third-highest month since the report started in early 2005. It was also the seventh straight month in which more than 300,000 properties filed foreclosure. These numbers may imply that the peak has been reached and the turn-around is slowly beginning. Only the rest of the year will indicate if this trend continues.

Car buyers and sellers are ready to make a deal.

Consumers are once again turning to installment loans as they move back into car-buying mode. Throughout the recession, many people have put off purchases of big-ticket items such as cars and homes. Dealers all over were feeling the crunch of the economy as many people fell into the unemployment lines and struggled financially to get by. The car-buying industry as a whole saw a decline of 40 percent in purchases, down to 10 million vehicles a year. The buying drought is part of what caused GM and Chrysler to file for bankruptcy this year.

Fortunately, data is showing that the car market is on the upswing. This week Ford Motor Company reported a 24 percent drop in sales for last month, but a 20 percent increase in sales this month. And GM sales are up 11 percent from last month. Auto industry analyst Ken Elias confirmed, “We’re off the bottom. … People will want new cars because they have deferred purchasing a car since last fall. We think it’s a positive sign for U.S. automakers.”

Despite the good news

The country is still regrouping from the recession. There is still a rise in unemployment and a rise in foreclosures. Add to that the banking and lending industries still being tight-fisted about lending and there is a lot more for the economy to sort out before it returns to normal.

Experts insist that despite the bad news still lingering, there are good things to keep in mind:

• Consumers seem to have confidence in the small signs of economic growth
• There are signs the economy is bottoming out
• Stocks are on the upswing
• Demands for cars was put on hold, making people eager to buy
• Applications for installment loans are on the rise

Karl Bauer, editor of Edmunds.com, stated, “There are more people looking at and seriously researching new car purchases. … There’s a sense among a lot of people that we’ve hit bottom and the economy will be coming back.” Bauer cites Edmunds.com increased traffic as proof that the car-buying public is eager to buy. Data has shown that increased traffic to the web site normally signals an increase in actual sales within 30-90 days.

Analysts hopeful

Analysts are hopeful that there will be a rush in car-buying activity due to the long hiatus. Bauer confirmed, “You could see a pretty strong surge back into the showroom because sales have been so low and people haven’t been buying for so long.”

However, VP for JD Power and Associates Gary Dilts added, “Credit is key to any sales recovery, and there’s only been a slight improvement in credit availability so far.”

Credit and car buying

Many impatient buyers are looking to installment loans as a way to help fund the down payments of their car purchases. Installment loans can be quick and simple for qualified buyers and their structures are easy to manage. With this type of lending available, there may be hope for the car- buying industry sooner.

Without big banks returning to normal lending policies, consumers may have to rely on alternative options for funding. Despite the credit issues, eager buyers may very well be the ones who pull the car-buying industry back to its normal selling rate.

Apply for Installment Loans here