A Wall Street Journal article from 2/18/2011 by Nick Timiraos has the title: “Mortgage Delinquencies Decline”.
In the Article, Mr. Timiraos cites the Mortgage Bankers’ association survey released last week.The survey shows delinquencies are down to a level not seen since the end of 2008. Early (1-month) delinquencies are down to the level of the end of 2007. The reason given in the article is an improved labor market conditions.

Interestingly, the article goes on to say that the total number of loans in foreclosure remains at its highest level since the mortgage crisis began. This is due to lenders not processing foreclosures as fast as before and leaving many foreclosed loans in the systems. Reasons for this could include the “Robo-Signing” issue and other difficulties banks may have in selling off properties and/or delinquent loans. It may also partly be a strategic wait until prices improve, but this is my own speculation.

This data may signal that the “new supply” of delinquent loans is on the wane. This bolsters our opinion that there is a window of opportunity for investors before this whole “bargain” situation disappears. On the other hand, due to the slow processing of delinquent loans, the window is likely not a short one.

Once again we see that we are operating during a near-optimal time for purchasing houses, especially in hard-hit states like Florida, Arizona and Nevada. We also realize that there is no element of haste since inventories are still high.

While interest rates are still low, those investors who can get financing are in a doubly advantageous position. However cash investors are also in a “sweet spot” due to the low prices asked by the banks. Refinances could potentially come later for those interested in leverage.

As population growth and organic demand creates a push that will finally dislodge home builders and begin the creation of new homes. Home builders are very anxious to get started, as many are sitting on loan-laden plots of land and would love to get their business untracked again. This creates an “exit strategy” for current investors, since when builders are back in the game, home prices will, by necessity, be substantially higher (due to the realities of labor and construction costs).

Link to the article.

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I was leafing through a financial magazine recently, when I caught an article about real estate.
The article was about US real estate investors needing to look to buy real estate in other countries at this time.
The reason they gave? Real estate in the US is very low now and possibly might go down more or at least is close to the bottom. There are many other countries, however, where
real estate is not only going up, but is downright booming. Thus it was suggested that the “savvy” American real estate investor look to buy in those countries now.

The sheer idiocy of the notion left me stunned. Going to another country to buy real estate for the simple reason that it is high? That it is going up? That it is in a boom? Isn’t that the time to sell rather than buy?
Don’t they call such a market a “Seller market?”. How profitable is it for a buyer to purchase in a Seller’s Market?
It occurred to me that I see this all around me all the time: It is now one of the best times in history to purchase foreclosed properties in the United States, yet investors’ ranks are as thin as I have ever seen them.
Granted I have seen this happen in every downturn. However this downturn is special. It is rare that property values in excellent demographic urban centers plummet to a fraction of their bare construction costs. It is rare that banks get compensated by the government for losses they take on selling foreclosed properties so they tend to sell them at an almost “I don’t care” prices.
I sometimes visit and speak to investors groups and clubs. Everywhere the number of attendees has plummeted greatly since a few years ago. This is not my first downturn, so I also know that when things rev up and prices are on an upswing, real estate is likely to gain favor yet again. Then investors’ ranks will swell again, attendance in real estate meetings and clubs will rise, and there may even be competition to buy properties at far more expensive prices than today’s prices.
I am not saying this doesn’t happen in other arenas – stocks or otherwise. It is just that the notion of “buying low and selling high” is so easily forgotten that even articles in an investment magazine such as the one I have seen, encourage exactly the opposite thinking.
There are convenient names for market cycles: it is best to be a buyer in a “buyers’ market” (where sellers are numerous, buyers are few, supply is high and demand is low). Buyers are the kings and queens of buyers’ markets. They get great prices to buy and hold until the market turns and becomes a “sellers’ market” where the exact opposite supply-demand scenario is experienced: numerous buyers clamoring for properties, possibly due to a frenzy created by elevating prices.
I strongly suggest that real estate investors look at the insane opportunities available today, at or close to the bottom of one of the most vicious downturns in history, rather than waiting for higher prices later on or going to other “booming” countries instead.
If you want to get a taste of the kind of deals that are available today, feel free to email me at info@icgre.com and ask to get on my list of investors to whom I send fresh deals as I get them. I fondly call it my “QUICK-SEND-LIST”. Just put “Send me Properties” in the subject line.

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In a Wall Street Journal Article by Dawn Wotapka published on 2/1/2011, it is reported that homeownership in the US was down to 66.5% in the 4^th quarter of 2010, down from 67.2% a year earlier and from 69.2% at the end of 2004.

66.5% is the lowest home ownership rate since the end of 1998.

In the article it is mentioned that industry watchers expect the rate to slip below 65%! That means that over 35% of the 310,000,000 people in the United States are renters.

That is a gigantic rental pool of over 108,000,000 nationwide.

The article goes on to mention that rental vacancies are off nationwide from to 9.4% from 10.7% the year before. This includes apartment units. I believe that for single family homes the number would be even lower.

In the article it is said that housing experts say that each 1% decline in the homeownership rate “represents the movement of ONE MILLION households to rentals” (emphasis is mine).

For buyers of foreclosed single family homes and condos there is always the question of how they will rent. We see them renting well across all the markets we observe.

Savvy buyers of foreclosed homes realize that there is a trifecta of positive conditions for the buyer: Prices that are low to an almost absurd degree, interest rates that are as low as we have seen in many decades, and robust rental pools. Even for buyers who cannot get a loan, the combination of buying extremely low from the banks, and the ever-growing rental pool is irresistible.

Needless to say, it stands to reason that as home ownership declines, the rental pool will increase. A typical case would be a family who may have lost their foreclosed home, but would like to remain in the same neighborhood and rent, so their kids continue to go to the same schools.

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As many of you already know, the VA (Veterans’ Administration) sells foreclosed homes and offers investors (who do not need to be veterans), great VA loans called “VA-Vendee Loans”.

As of now, the terms of these investor loans are: 5%-down, 4.5% fixed-rate 30-years.

These are incredibly attractive loans for an investor, especially in the loan-stingy environment of 2011.

The interest rate is so low that most of these homes will be in the positive cash-flow vicinity or at least around break-even. For a property purchased for only 5% down that is remarkable. Of course the low prices help a great deal as well.

These low-interest fixed rate loans are also an excellent investment in and of themselves, as they will never change. Despite what future inflation might be, they will always have the same fixed-payment, ever-decreasing-balance loans. Any inflation at all will hasten the payoff, in real dollars, of these fixed rate loans. Strong inflation will pay them of that much faster.

VA foreclosures can come in many variants. I have seen 4,000 sqft. opulent homes and I have seen dumps. There are enough great ones for investors to be able to choose from. Needless to say, the safest and most effective way to buy VA homes is by using an experienced realtor who will sift through all the junk and find you the good ones.

Most likely there will be some repairs involved or at least some sprucing up, as is the case with most foreclosures.

If you want to get a steady supply of these, just send us an email at info@icgre.com and put “Send me properties” in the subject line. You will get both VA and non-VA foreclosure deals as they arrive at my desk.

The purchase of a VA property starts by making a bid. In order to make a bid you need to be pre-qualified. To get pre-qualified, I can connect you to the lender working with the VA and they will get you qualified, again just email me at info@icgre.com.

The VA is fairly generous with regards to whom it will lend. Not only do you not need to be a veteran, as we have already stated, but the VA does not care if you own over 10 properties. You do need a FICO score of 620 and above, and the rest depends on your debt to income ratio. As with all lenders, you will have an easier time qualifying if you get paid on a W-2.

Some misconceptions I hear regarding the VA foreclosures are: “Don’t I need to be veteran?”, “Isn’t it too good to be real?”, “Aren’t VA foreclosures junky properties?”   Well, we already know the answer to all these is a resounding “No!”  I see people closing on excellent VA properties all the time.

Of course, there are other great investment venues, especially in bank-owned foreclosed properties. Some are so low they can be bought for cash, others can be bought with conventional loans for those who can get them. However it is important to know about the great VA possibility, as their loans are unmatched.

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You might have heard about the Massachusetts High-Court case in which Wells Fargo and US Bancorp lost a foreclosure case. See Bloomberg story by Thom Weidlich dated 1/7/2011.

The ground for their loss was that they had transferred the mortgages to a securitized mortgage backed pool (as most banks do) but failed to do it properly and, in fact , failed to prove ownership of the mortgages.

This case is indeed pivotal because I believe it’s quite common. There may be many more such cases ruled against banks.

For people who have mortgages in foreclosure, this may provide an opening to stay the foreclosure or even reverse it. It may be quite useful to engage legal help in the case of a foreclosure and not to simply
“roll over” as is the common practice. Of course, legal help can be costly but it may prove worthwhile if the outcome benefits the borrower. There is even some talk about certain mortgages being forgiven or, more likely, discounted as part of a settlement.

The effect on the banks will reflect directly on their balance sheets. Banks have already put aside large sums for “buybacks” of mortgage backed securities. This ruling may create a need for more reserves. However bank profits have been so strong that the overall effect on banks may not be as severe.

As far as investors, the effect could be that the period of time in which foreclosures are processed and hit banks for sale is lengthened. This has both a positive and a negative aspect. The negative effect is that the supply of foreclosed properties may not be as plentiful (depending, of course, on whether this phenomenon becomes widespread), creating more competition for a smaller foreclosure pool which could mean rising prices. The positive is that the “window of opportunity” may become longer than we now think, thus enabling investors to stock up on bargains before this once-in-a-lifetime window closes.

Of course the effects will only be noticeable if this permeates massively. If this remains contained, the effects will be negligible.

It is quite important to note, though, that mortgage ownership validity and the right to foreclose are not automatic and can be challenged.

Link to the Bloomberg article

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A Bloomberg news article by By Dan Levy and Prashant Gopal published on January 13th, reports that Rick Shraga, RealtyTrac’s senior vice president, predicts that foreclosures in 2011 will number 20% higher than in 2010 (albeit realizing that foreclosures slowed down towards the end of 2010 due to the Robo-Signing fiasco).

Mr. Shraga also predicts a bottoming out of prices and, in fact predicts a slight national uptick in home values (although small at only 0.6%). This would mark the first time since 2006 that home prices will be up, signaling the bottom will have been reached.

If we take this information at face value, we can see that our “golden window” for buying from the banks at greatly reduced prices, may be under 2 years long. No doubt that even into 2012 we should be able to buy great bank-owned properties as inventories will be bolstered in 2011.

However if prices start inching up in 2011, the MOOD may shift on the part of all sellers including banks owning foreclosed properties. Once there is a mood change and an anticipation of higher prices to come all sellers, including banks, may be less willing to let properties go as quickly or as cheaply as they do now.

There is no doubt more and more signals for investors who have been sitting on the fence waiting for the elusive “bottom” that the time to buy is pretty much now. As long as the mood is still reflecting home prices before or at the bottom, sellers are much more likely to be pliable and buyers can be in greater control. I would not delay an investment plan for residential properties.

Given that many loan programs are available for various real estate investors, and that the prices are low enough in many markets to buy for cash for others, 2011 may be the peak buying opportunity for real estate investors.

HERE IS THE ARTICLE ‘S LINK:
http://www.bloomberg.com/news/2011-01-13/u-s-foreclosure-filings-may-jump-20-this-year-as-crisis-peaks.html

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