The State Foreclosure Prevention Working Group says loans modified in 2009 are 40 to 50% less likely to be seriously delinquent six months after modification than loans modified at the same time in 2008. “This improvement in loan modification performance suggests that dire predictions of high redefault rates may not come true,” the group said in a paper released Tuesday. “This positive trend suggests that increased use of modifications resulting in significant payment reduction has succeeded in creating more sustainable loan modifications.”

The consortium of state regulators and chief attorneys also found that recent modifications that significantly reduce the principal balance of the loan have a lower rate of redefault compared to loan modifications overall, suggesting that servicers should strategically increase their use of principal reduction modifications to maximize prospects for success. Principal writedowns, though, have been slow in finding their way into the mod equation. The group’s study shows that only one in five modifications reduce the loan principal, and in fact, some 70% actually increase the loan amount by adding servicing charges and late payments to the loan balance.
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Matt’s Commentary: This article is just more proof that investors add a tremendous amount of value to the marketplace, and banks continue to do themselves a disservice by trying to drive “flippers” out of business. The large lending institutions and servicers continue to incorrectly believe that investors are reducing their bottom line by playing “middle man” and taking a higher offer on a property that should have gone directly to them. That may be partially true if the property was already listed on the market by a seller who was actively trying to sell the property (though the investor could still add value by negotiating numerous junior liens, etc). However, I have never made a short sale offer an a property that is already listed on the MLS.

My focus, as is the case with most other active short sale investors, is on that 60% this article refers to. This 60% is doing absolutely nothing, or worse, continuing to live in the property and not maintaining it because they no longer consider it their home. This 60% is hiding their collective head in the proverbial sand, sucking as much free rent out of the house as possible before they get evicted. Many are paralyzed by fear or lack of knowledge, and simply don’t understand or don’t trust what the bill collector is telling them on the other end of the phone. This 60% is not listing their property on the MLS, they’re not doing a loan modification, and they’re not returning the bank’s calls. That is…until I arrive on the scene.

When this 60% gets a letter from me, someone not associated with the bank, offering to help them out of their situation, negotiate their debt, and salvage some of their dignity and credit score, they are MORE THAN HAPPY to work with me. We investors are bringing these people out of the shadows of embarrassment that are often times associated with foreclosure, and showing them a better way. We are not “stealing” a higher offer from the bank, but rather preventing one more unnecessary foreclosure. The neighbors get someone to move in and take care of the yard and property, the bank gets an average of 17% more for the home vs. foreclosure, the homeowner gets a new peace of mind and a fresh start, and yes (heaven forbid) the investor gets a paycheck for his expertise and 6 month commitment to negotiate the file, market the property, and handle both homeowner and bank objections.

When will these banks get a clue? What are your thoughts?

Next Tuesday the Administration will be holding a “conference on the future of housing finance”, which, “will help provide critical public input as the Administration continues its work developing a comprehensive housing finance reform proposal for delivery to Congress by January 2011.”  I have been told over and over by Administration officials that there will be no big news announcement at the summit. No mandate that the government will suddenly infuse every troubled borrower’s home with palatable equity. Now I’m not saying something new couldn’t happen, but as HUD and Treasury now launch the new principal writedown phase of the housing bailout, I’m just not sure it makes sense, politically or otherwise, to turn all that on its head.”

That pace of improvement should be just strong enough to permit new households to form, but not robust enough for the members of those households to afford to own homes. In addition, lax lending standards, fraud and predatory lending practices— key factors in the unrealistic bubble in home ownership in the mid-2000s and the subsequent debacle—appear to have become rarer, at least temporarily.  Demographics also will deal home sellers and builders a clear blow. Not surprisingly, the home-ownership rate tends to rise with age. For example, while the overall U.S. rate is 67.2%, the rate for households headed by someone under 35 is just 38.9%.  Thus, whenever the age distribution of households tilts in favor of younger adults, the overall home-ownership rate declines.

That happened in the early 1980s, when young (and numerous) baby boomers began to form households. And, says demographer Peter Francese, former president of American Demographics magazine, a similar tilt is likely over the next half-decade.  Francese projects substantial growth in households formed by people under 35, who mainly rent rather than own. Worsening the shift will be a decline in the number of households led by people 35 to 49 years old—the very ages when there is normally a huge jump in ownership. Francese does expect a rise in households led by people 50 and older, but the boost to ownership from this won’t be great. Home-ownership rates tend to level off when Americans reach their late 40s and early 50s.

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Matt’s Commentary:

For every news story or current event, there is always a positive side and a negative side.  The main stream news media always tends to lean towards the negative because it plays on people’s fears and causes them to pay attention.  I don’t fault them for that necessarily.  They’re in the business of getting ratings and generating ad revenues, and the more people “can’t turn away” from the TV, the better off those stations are.

However, as an entrepreneur, I am an eternal optimist, and this story is just a perfect example of that.  While homeownership is certainly dropping in this country, and could negatively impact those who re-sell or “flip” property for a living, it’s a huge boom for those who rent out their properties for short term cash-flow and long term wealth. 

In any business (especially real estate investing) you have to be able to re-invent yourself and your business, and take advantage of the opportunities in front of you.  5 years ago it was all about fix & flip, with a few lease options and subject-to’s sprinkled in.  Today it’s about foreclosures, short sales, and building cash flow through rental property.

Have you changed with the times, or are you still trying to jam a square peg in a round hole?  If your investing business needs a kick-start, be sure to join us at our next Navigator meeting, the 2nd Tuesday of every month, 6 PM at the Pensacola Museum of Art.

“The Trouble with the Rat Race is that Even if You Win, You’re Still a Rat.” ~Lily Tomlin

I absolutely love this quote from Lily Tomlin, because it couldn’t be more true. How many people do you know that have spent their lives climbing the corporate ladder, only to find out it’s leaning up against the wrong wall, one that really doesn’t satisfy their inner desires and personal passions?

Who do we consider the “winners” of the rat race? Doctors, lawyers, and maybe a handful of other professions come to mind. But when you really take a close look at their lives, the 9 to 5….erhhh, more like 9 to 9 grind that they go through every day, is it really all that glamorous? They’re really just a more successful version of a wage slave, with a little bit nicer car.

As creative small business people and savvy entrepreneurs, we need to commit to creating multiple streams of income in our lives. In today’s tough economic times, it’s very risky to have all of your proverbial “eggs” in one basket, relying on just one revenue stream. Creating multiple sources of income helps creates a safety net, especially when they are diversified across different types of products or services.

One example of this would be to have an investment in small grocery store or farmers market, while at the same being heavily active in real estate of the stock market. While the latter may suffer in the midst of a recession, the former is considered a “staple” and is less likely to be affected by the rise and fall of financial markets. By implementing business strategies that produce multiple revenue streams, you can rely on one source of income if another one is diminished for a period of time due to unforeseen circumstances.

After you have developed numerous income streams, it’s time to turn your focus towards making those streams as passive as possible. You should examine every aspect of your business and find out which tasks or activities can be delegated and/or outsourced. The more time you are able to free up in your day, the more time you have for creating additional revenue streams. The goals is to eventually have all of your income streams completely passive, so that your money comes in whether you’re at work or on some island in the Caribbean. That’s when you have officially graduated out of the rate race and are back in the game of truly enjoying life.

For a great way to visualize yourself getting out of the dreaded rate race, play the game Cash Flow 101 by Robert Kiyosaki. He also makes a great kid’s version to start your children off early thinking the right way about money. I would also highly recommend Timothy Ferris’ book entitled, “The 4-Hour Work Week”. It’s the entrepreneur’s outsourcing handbook, and an absolute must read for small business owners.

**Make sure you come back for part 2 of this series, as I will be examining Warren Buffet’s money rules, as well as the resurgence of the Entrepreneur. To your success!**

In total, 10,506 foreclosures were cancelled in California last month before reaching the auction sale phase, according to ForeclosureRadar’s market data. The figure represents a 27 percent increase from May and is 153 percent higher than in June 2009. ForeclosureRadar explained that the increase was primarily driven by just one lender, JP Morgan Chase and its acquisition of Washington Mutual loans.  Notices of Default filed against delinquent homeowners – the first step in the foreclosure process – edged up nearly 7 percent from May to June, ForeclosureRadar reported, but were down more than 45 percent compared to June 2009.  Notice of Trustee Sale filings, which serve as the homeowner’s final notice before the home is auctioned, increased on both a monthly and annual basis in June. Compared to the previous month, filings were up nearly 22 percent, and were nearly 12 percent above year-ago levels.  During the month of June, ForeclosureRadar tracked a total of 25,790 new Notices of Default and 34,261 Notices of Trustee Sale.

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Matt’s Commentary:  The cancellation of foreclosure sales is happening throughout the United States, including right here in Pensacola, as banks are doing everything they can to try and modify mortgages, renegotiate terms, and keep individuals in their homes.  Banks have never been in the real estate business, and have no interest in owning properties, so this stepped up intensity should come as no surprise.

As real estate investors, this should simply be further proof that we are providing a great service, not just to distressed homeowners, but to the banks as well.  By encouraging those in foreclosure to get their homes on the open market, negotiating the terms of a short sale, and finding an end buyer, we continue to create win/win/win situations for ALL parties involved.  I just completed another short sale this week that put $15k in my pocket, forgave a homeowner of nearly $140k in debt (with no deficiency judgment), and kept the bank from adding one more foreclosure to their books.  Not a bad ending if you ask me…

Bank and credit union failures have both doubled when compared to the first six months of last year, with the number of banks to go under tallying 86 over the last two quarters and credit union collapses at 11. Non-bank closings, on the other hand, fell by more than two-thirds during the same period to 12.  An analysis by MortgageDaily.com of bank failures and regulatory orders suggests this year’s bank failures will end up between 175 and 200. FDIC Chairman Sheila Barr has indicated that bank closings will likely pick up pace and peak during the latter half of this year.

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Matt’s Commentary: As we talked about at the meeting on Tuesday night, the increase in mortgage firm closings will leave a gap in mortgage financing for those with slightly lower credit scores.  Combined with the report that now 25%+ of all borrowers now have a sub-600 credit score, there will be a tremendous need in the future for some type of alternative financing for those who want to purchase a home.  This is exactly where a seller financing system like Eddie Speed’s can come in handy, as investors will need to become savvy on how to find and/or create financing for those who are not being served by the current lending industry.

The national noncurrent loan rate, which reflects both foreclosures and delinquencies, came in at 12.38 percent. Not including REO properties, nearly 6.3 million loans were noncurrent in May. When REO properties were included, the total jumped to nearly 7.4 million.  On a state-by-state basis, Florida and Nevada continued to hold the most noncurrent loans in May, with rates of 22.4 percent and 21.8 percent respectively. On the other end of the spectrum, the lowest noncurrent loan rates were seen in North Dakota, at 4.1 percent and South Dakota, at 5 percent.

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Matt’s Commentary: The lowest hanging fruit for investors continues to be working with homeowners that are delinquent on their mortgages, and that’s especially the case here in Florida.  A very minimal marketing effort will reap huge returns in the form of motivated seller leads and short sale deals. 

My investment company currently has dozens of short sale deals in the pipeline and we continue to add 3-5 more each and every week.  What are you doing to take advantage of the best buying opportunity in the history of our great country?  The fruit is ripe, plentiful, and now more than ever…hanging low.

The pendulum needs to shift back, not all the way, but more toward the traditional use of home: A place to live, not an A.T.M. “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments,” notes the press release. I’m wondering why they haven’t been doing that all along? My guess is they simply don’t have the legal resources available to handle such a huge job…which brings me to my final thought: If the mortgage walk-away issue is big enough for Fannie Mae to get this tough, then why have Administration officials been telling me over and over that “it’s just not that big an issue.” Seriously, I’ve done several interviews over the past year, bringing it up over and over, and they just seem to want to sweep it under the rug. I guess the rug is getting a bit too bumpy.”

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Matt’s Commentary: Now that Fannie Mae is taking a harder stance against those who simply walk away from their mortgage obligations, the opportunity for short sale investors will be even more plentiful.  When word hits the streets that Fannie Mae is pursuing deficiency judgments in court, and coming after people if they just walk away, more and more homeowners will be looking for solutions to try and avoid foreclosure.

In just the past week I have received 2 short sale approvals in which the banks completely waived the rights to pursue a deficiency judgment on the borrower.  Do you think those distressed sellers were happy?  They were ecstatic….and couldn’t stop thanking me!  It’s time to take advantage of the opportunity that is before us, while at the same time helping homeowners save their future financial well-being. 

“The Opportunity of a Lifetime Must be Seized During the Lifetime of the Opportunity” ~Leonard Ravenhill, 20th Century Revivalist

FHFA reported that Fannie and Freddie’s cumulative refinance volume under the administration’s Home Affordable Refinance Program (HARP) increased 53 percent during the first quarter to nearly 291,584. Just as home retention efforts and short sales increased, the number of non-performing loans liquidated through foreclosure also grew. FHFA’s data shows that the GSEs’ foreclosure starts increased to 246,000 during the first three months of this year. That compares to 243,000 foreclosures initiated in the previous quarter. Completed foreclosure sales and third-party sales increased 26 percent to nearly 97,900

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Matt’s Commentary: Though the number of accounts that are 60 days past due has come down, it’s still an incredibly high number.  These figures may seem like doom and gloom for those in the “glass half empty” crowd, especially in light of high unemployment, but I’m one to always look for the silver lining. 

As an opportunistic real estate investor, I see tremendous profit potential in these numbers, as most owners will not be able to find a lasting solution to stay in the home.  By providing our short sale services, we can make a substantial income by negotiating with the banks on behalf of the homeowner, while at the same time helping these distressed sellers avoid “Credit Score Hiroshima” by allowing a foreclosure to land on their credit.

“We want to give homeowners every opportunity to weather this unprecedented disaster, including relief from their mortgage payment if that will help them get back on their feet and stay in their homes,” said Michael J. Williams, President and CEO. “Our policy is in place to support those who are experiencing a disaster-related hardship through no fault of their own and are acting in good faith to meet their mortgage obligation.”

This is part of the company’s (or should I say agency’s) “Special Relief Measures” policy. Borrowers can get up to 90 days of relief while the servicer “determines the nature and extent of the impact the disaster is having on the condition of the property or on the borrower’s financial condition.” And what then? “At the conclusion of that assessment, servicers have additional flexibilities to evaluate the appropriate loss mitigation alternative based on a case-by-case determination, including an additional three months of forbearance, a loan modification or other customized solution.”

Sounds great, if this were, like, 1997, and the housing market was otherwise fine and dandy. So many Floridians are already in the midst of trying to get loan modifications and forbearance plans, that I’m just not so sure how you separate it all around here. But then I think about the government, which has been trying to pull itself out of the housing market, and is now just dipping itself right back in. I wonder just how this announcement is going to affect underwater borrowers in Florida, even those who don’t live near water. The very process of deciding who is really a victim of oil and who is just a victim of the ongoing housing crisis? Just the mechanics of it! I’m sure far greater minds than mine in the upper levels of our government have already thought of that.”

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Matt’s Commentary: Though Fannie Mae’s waiver or deferment of payments won’t cure all of our real estate woes, it’s certainly a step in the right direction.  Condo owners are looking down a double barreled shot gun when faced with the reality that, not only can they not sell their condo because of the drop in value, but now thanks to the oil spill they can’t even rent it to offset the exorbitant expenses that come with owning beach property.

We may not know what the future holds in relation to the oil, but it’s good to know that Fannie Mae is stepping up to the plate to provide some relief in the face of this massive disaster.  Now,  has anyone heard from BP?