In an historic development the willingness of the United States government to fulfill financial obligations has been called into question by a major ratings agency due to “political risks” and a “rising debt burden.”

“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed,” said the S&P in a statement. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options.”

A lower credit rating could impact mortgage loans, auto financing, and the cost and ability of the federal government to borrow money.

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“Six Italian seismologists and one government official will be tried for the manslaughter of those who died in the earthquake that struck the city of L’Aquila on 6 April 2009,” reports Nicola Nosengo with Nature News

“The seven were on a committee that had been tasked with assessing the risk associated with recent increases in seismic activity in the area. Following a committee meeting just a week before the quake, some members of the group assured the public that they were in no danger.”

The prosecutor, according to the story, “acknowledged that the committee members had no way of predicting the earthquake, but he accused them of translating their scientific uncertainty into an overly optimistic message.”

I can’t imagine any circumstances under which scientists should be answerable for something as now unpredictable as earthquakes, but the concept of holding people in authority responsible for being “overly optimistic” in the face of uncertainty has a lot of appeal, especially in the realm of mortgages, loans and finance.

Maybe something less drastic than jail. How about a $3 fine for every overly optimistic prediction or commentary? We could even establish a federal office to search for potential offenders, the Bureau of Unbelievable Narratives and Commentary, or BUNC.

Do you agree? Consider these examples:

1. “Most of the negatives in housing are probably behind us,” said former Federal Reserve Chairman Alan Greenspan in 2006, as quoted by Reuters. “The fourth quarter should be reasonably good, certainly better than the third quarter.”
2. “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.” Ben S. Bernanke, chairman of the Federal Reserve, March 28, 2007.
3. “On the one hand, we have a pent-up demand from the four million jobs added to our economy over the past two years of sales decline,” said Lawrence Yun, chief economist with the National Association of Realtors, in 2008. “On the other, consumers continue to wait for additional signs of market stabilization. There are more people with financial capacity now than in 2005, but many are trying to market-time their purchase. As a result, the exact timing and the strength of a home sales recovery is a bit uncertain. A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008.”
4. “Since reaching a cyclical bottom last June, pending home sales have posted an overall gain of 24 percent and demonstrate the market is recovering on its own. The index means modest near-term gains in existing-home sales are likely, which would be even stronger if tight mortgage lending criteria returned to normal, safe standards.” Lawrence Yun, chief economist, National Association of Realtors, April, 2011.
5. “Existing-home sales continued to recover in the first quarter with gains recorded in 49 states and the District of Columbia, while 22 percent of the available metropolitan areas saw prices rise from a year ago, according to the National Association of Realtors, May 2011.

Maybe, also, there should be a bonus for candor:

“I worked for an association promoting housing, and it was my job to represent their interests,” David Lereah, a former chief economist with the National Association of Realtors, told Money magazine in 2009. “If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.”

As to those Italian scientists, I suspect their best defense will come from a former chairman of the Federal Reserve.

“I guess I should warn you,” said Alan Greenspan, “if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

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In terms of financing, real estate is real estate. The fact that it’s a foreclosure, distressed property or home for sale under normal conditions makes no difference. The important point is that the economic sins of the last owner do not transfer to the new one. What matters is that at the time of financing the property has good, marketable and insurable title and that it also has a given market value.

Once the value of a foreclosed property has been determined through a sale agreement or appraisal, whichever is less, the real estate can then be financed in the same way as any other property.

There is, however, one difference with foreclosed properties which should be of interest to would-be buyers: In some cases lenders will finance the sale of the properties they’re selling.

Leverage

This is both good news and not-so-good news. The good news is that the lender is one more source of financing in addition to all the other mortgage sources that are out there. The not-so-good news is that the willingness of the lender to finance the sale may bring in other bidders and it may stiffen the lender’s negotiation stance.

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Reverse mortgages are often in the news, an unusual loan program intended for home owners age 62 and above. In essence, a reverse mortgage is a huge, negatively amortizing loan secured with property and not the borrower’s credit. It requires no monthly payment for principal or interest but the owner still needs to pay for taxes, insurance and repairs.

The usual idea is that a homeowner gets a reverse mortgage and can then stay in place in their home. Once the borrower moves or passes on the loan is repaid by the heirs (perhaps by refinancing the property), sold to pay off the debt or simply turned over to the lender. Since a reverse mortgage is non-recourse financing there’s no claim against the borrower or the estate beyond the property.

The FHA comes into the picture because it insures most reverse loans, or what it calls home equity conversion mortgages (HECMs). If the lender has a loss on the transaction it can turn to the FHA for compensation.

Because of the financial risks such loans represent, most reverse mortgages are only available with FHA insurance. For this reason it’s big news when the FHA changes its reverse mortgage program, and now we have a whopper.

HECM Saver

To this point there has been what can be called the HECM Standard loan. This is an FHA-insured reverse mortgage which often has been criticized because of the up-front costs.

Initially, HECM fees could be and often were equal to 2 percent of the home’s value. Since the home’s value was always more than the actual loan amount, the effective fee could be substantially larger than 2 percent. Moreover, the size of the origination fee was unlimited

In 2008, the rules changed for FHA-backed reverse mortgages. The loan origination could be no more than 2 percent of the first $200,000 of the mortgage, 1% for any higher amount but not more than $6,000.

In addition to the origination fee, HECM loans also had a big up-front cost for FHA mortgage insurance, 2 percent of the loan amount in most cases. This is a huge number because in many cases borrowers elected to get their HECM in the form of a line of credit, meaning that not all of the money was received at closing.

New Fee, Almost No Fee

Under the HECM Saver program the new up-front fee is virtually nothing. Here’s an example:

Smith gets a $250,000 reverse mortgage. Under the old program — the HECM Standard — the up-front insurance fee is equal to 2 percent or $5,000.

Under the HECM Saver program the new fee is equal to .01 percent — or $25.

That’s an up-front saving of $4,975.

The HECM Saver reduces HUD’s risk because it lowers the amount available to borrowers. The annual insurance premium remains the same under both the Standard and Saver programs.

The question is whether the reduced loan amounts and lower up-front insurance premiums are sufficient to offset the inherent risk associated with HECMs. HUD asked Congress for $800 million to subsidize the reverse mortgage program in fiscal 2010 and $250 million for fiscal 2011. In contrast, HUD says its forward mortgage program will earn as much as $6 billion in profits during fiscal 2011.

The HECM Saver program is an attempt to right the risks associated with FHA-insured reverse mortgages. It will take several years to see if the new program works, or if reverse mortgages will slowly become rare and exotic loans, if not entirely extinct.

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But there’s one charge that military borrowers can’t escape — the VA Funding Fee.

The VA Funding Fee is a set fee applied to every purchase loan or refinance. The proceeds go directly to the VA and help cover losses on the few loans that go into default. In essence, the Funding Fee helps keep the VA Loan Guaranty program afloat. The fee changes slightly depending on the down payment amount, whether the borrower has a prior VA loan and the nature of the borrower’s service. There are exemptions for borrowers with service-connected disabilities and for qualifying surviving spouses. This is a closing cost that’s unavoidable for almost every VA borrower. You can’t negotiate or sweet talk your way out of paying it.

Fee Schedules

For home purchases, regular military members pay slightly lower Funding Fees than Reservists and National Guard members. Here’s a look at the fees on purchase loans for regular military:

The percentages shift slightly for members of the Reserves and the National Guard:

Funding Fee Sources

Veterans aren’t required to come up with the Funding Fee from their own pocket. Borrowers can roll the cost into their loan amount, which adds a few dollars onto their monthly mortgage payment. For example, the 2.5 percent funding fee on a $200,000 mortgage comes out to $5,000. On a fixed-rate loan at 30 years and 6 percent, rolling in the funding fee adds an additional $30 per month.

Veterans refinancing their loans must also pay a Funding Fee. The VA has two major refinancing programs, the Interest Rate Reduction Refinancing Loan, better known as the VA Streamline, and a VA cash-out refinancing. For the no-frills Streamline, veterans are required to pay a 0.5 percent Funding Fee (that’s one-half of 1 percent). Veterans who want a cash-out refinance pay a little more than their Streamline counterparts. The current fee for a first refinance is 2.15 percent of the loan amount for regular military and 2.4 percent for Reserves and National Guard members. The fee jumps to 3.3 percent for both demographics for each subsequent refinance.

____________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

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Ten states accounted for more than 70 percent of the 322,920 filings last month. California alone accounted for more than 22 percent of that total. In all, foreclosure filings nationwide fell 3 percent compared to April and were up just less than 1 percent from May 2009.

Foreclosure rates have vacillated in previous months. Amid the economic uncertainty, there’s been a lone constant — the continuing safety of VA loans.

These flexible, powerful loans have weathered the subprime collapse and its devastating wake, outperforming all other major loan types, according to the Mortgage Bankers Association. Here’s the MBA breakdown of foreclosure rates for the four major loan types as of Q4 2009:

• Subprime loan foreclosures: 15.58%
• FHA loan foreclosures: 3.57%
• Prime loan foreclosures: 3.31%
• VA loan foreclosures: 2.46%

The Department of Veterans Affairs has long utilized a strict yet realistic underwriting process that puts a premium on the health, safety and financial security of the veteran. VA loans are typically easier for veterans to obtain than conventional loans. In fact, about 80 percent of VA borrowers could not have obtained a loan with conventional financing, according to agency studies.

That isn’t to say that the wave of home foreclosures has skipped VA loans entirely. But the VA has taken steps to minimize the impact and help veterans who are facing foreclosure. Veterans whose VA loans are in jeopardy have access to supplemental servicing to help stave off default. VA borrowers can connect with a loan specialist by calling 877-827-3702.

The VA has no legal authority to intervene on behalf of veterans without an agency-approved loan. But the VA has urged veterans facing default to immediately contact their lenders to discuss potential solutions, which can include loan forbearance, loan modification and new payment regimens.

There are also cases where veterans may be able to seek protection under provisions of the Servicemembers Civil Relief Act, or SCRA. This legislation provides qualified veterans with the ability to get a lower interest rate for a period of 12 months. Recently discharged service members can also use SCRA provisions to push back evictions or foreclosures for up to nine months.

The VA has also pointed veterans to a national nonprofit group that’s working to help underwater homeowners. The group, called the HOPE NOW Alliance, offers counseling and assistance to homeowners in need. Veterans can contact the agency by calling 1-888-995-4673 or by visiting www.hopenow.com.

____________________________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

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That’s a big jump for a seven-day period, but let’s have some context here: Last year at this time the same loan was priced at 6.09 percent.

“Thirty-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high,” said Frank Nothaft, Freddie Mac vice president and chief economist.

“Yet, there are signs that the housing market may be moderating. Housing affordability rose in April to the second highest reading since January 1971 when records began, according the National Association of Realtors?,?? (NAR). As a result, pending existing home sales rose for the third consecutive month by 6.7 percent in April and represented the largest monthly increase since October 2001. Three of the four regions experienced increases, led by a 33 percent jump in the Northeast, the NAR reported.”

Affordability

Of course affordability is up. If the price of corn goes from $10 for five ears to $5 for five ears you can buy more corn — but do you really want to buy more?

As to sales, a huge percentage of sales are not everyday transactions between buyers and sellers, they are now transactions which involve the purchase of lender-owned properties, typically at discount.

Negative Interest Rates

Despite the big increase this week, the point remains that mortgage rates are ridiculously low. A year ago no one would have thought they could get 5 percent financing, now you can and such rates are characterized as “high” in some quarters.

You’re kidding. These are the rates of a lifetime. it’s possible that rates may again go into the 4 percent range and in theory it’s possible that they could go even lower — during the Great Depression U.S. securities were actually priced with negative interest levels. As Forbes magazine has reported, “T-bills got so popular that for brief periods between 1938 and 1941 they carried negative interest rates.” (See: “A Brief History of Stock Fads,” September 14, 1992)

In other words, you gave the government $100 and a year later maybe you got back $99. Why would people make such an investment? Because the banks were so iffy at the time that it was safer to lose a little with the government than with banks that paid interest — but might close.

We are now into the traditional home buying season. Whether you want to buy or refinance, now is a very good time to speak with lenders and brokers. Look into fixed-rate loans, forget about adjustables. If rates do go down again, and if they go down enough, then consider refinancing with a “no cost” closing — there’s a cost in the form of a rate somewhat above market level but not in the sense of a lot of cash (or maybe any cash) needed at closing.

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So you might think: Foreclosure. That will never happen to me. No way. But lurking in millions of mailboxes each month is a financial time bomb, a threat to homeownership never before seen in this country.

For the past few years the nation has been flooded with forms of financing which allow buyers to purchase homes that were once unaffordable. The essential deal is this: You buy now, pay less than you should each month and then within five years sell at a big profit or refinance.

Truth is, it’s been a great ride. Many people have followed the formula and made a ton of money. But like musical chairs, you just know that a bunch of people will be caught in the wrong place at the wrong time.

In a growing number of metropolitan areas, the wrong time is now. Just look at what’s happened to home prices during the past few years.

Okay, so why are falling metro prices a problem? If you’re not selling and you’re not refinancing, who cares?

Falling prices are not an instant problem for those with fixed-rate loans. But for millions of borrowers with the latest forms of low-ball financing, falling prices can be financially lethal.

Imagine that you bought a property a few years ago. Since values were going up it made sense to buy the biggest home you could afford and to buy that big house you got a $400,000 interest-only loan at 5.6 percent, a mortgage amount that covered 100% of the purchase price.

For the first years the loan was wonderful: Monthly payments were $1,867 plus taxes and insurance. But after five years the loan automatically converted to a one-year ARM. The 1-year rate that was originally at 3.60 percent rose to 5.45 percent. Combine the index with a 2.0 percent “margin” and your new rate for the loan would be 7.45 percent.

After five years not only does the rate go up, the mortgage bill now includes the expense of monthly principal payments to reduce the loan balance. The monthly cost for principal and interest? It’s now $2,943. Taxes and insurance are again extra. < !- http://www.fanniemae.com/tools/libor/2006.jhtml __ http://www.fanniemae.com/tools/libor/2001.jhtml-->

“Those low-payment loans that looked so good a few years ago are going into their second phase,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com. “Each day more and more borrowers are finding that the low ‘start’ payment is gone and that steeper, fully-amortizing payments have now kicked in. At the same time, homes that were once easy to sell are now tough to market. It’s a brutal combination and what we’re seeing is likely to get worse.”

The instant solution to high monthly costs is to sell the property. During the past five years many areas have seen huge price increases. The odds are good in most markets that a seller with several years of ownership at this can readily sell, often with a significant profit.

But as the market evolves the odds may become less attractive. Not all markets have seen double-digit growth. In such areas price stagnation or actual declines can lead to huge inventory increases. To sell in down markets homes owners will be forced to offer not only price discounts but other incentives such as “seller contributions” to help buyers at closing, new carpets, new kitchens, moving allowances, etc.

But selling also may not be an option. Not only can a sale in a down market produce a bankrupting loss, but losses on the sale of a personal residence are not tax deductible.

What can you do to avoid being a foreclosure statistic, to not get caught in the impossible position of loan costs that are too high and market values that are too low?

“Act now,” says RealtyTrac’s Saccacio. “Don’t wait for the hammer to fall. If you see a mortgage problem looming in the next year or so, refinance to a long-term, fixed-rate loan before your credit report shows any late or missed payments. Take a careful look at traditional loans with liberal qualification standards such as FHA or VA financing. Speak with your lender about a loan modification and see if your adjustable-rate mortgage has a conversion feature, a right to switch to a fixed-rate within the first few years of the loan term. Because a conversion is a loan modification and not new financing, conversion can be quick and cheap.”

If you find a situation where the property cannot be reasonably refinanced, if unaffordable monthly costs are certain, then it makes sense to sell now and move to a less-expensive home with reduced debt, lower monthly costs and fixed-rate financing. Moving is a way to avoid foreclosure and dodge bankruptcy — two events no property owner should experience.

————————

Published originally by RealtyTrac.com during September 2006 and posted with permission.

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Markets are always in flux so there’s no way to determine when absolute bottom has been hit. This means that buyers looking to make a purchase in today’s marketplace need to act with special care. It’s not enough just to get a lower price, buyers must also look for long-term value.

How can you do this? Here are 10 steps to protect your interests as a buyer in a down market.

1. Look at the relationship between prices and inventory. Even if prices have been declining they may have further to go if the inventory of homes on the market is increasing or is far larger than usual.

2. Be aware that recorded sale prices do not tell the whole story during slow times. To figure out what’s really happening you need to know how local transactions are constructed. This means if two homes are each sold for $600,000, the real cost to buyers may actually be different. This is possible because one buyer may have gotten concessions worth $5,000 while a second may have negotiated better and gotten an even bigger discount. The only way to really know about local pricing is to work with a local buyer broker who does a large number of transactions.

3. What are the long-term prospects for the local community? You need to look at such markers as population growth, job base expansion and new home construction. A growing population suggests more demand for housing. A growing job base indicates a larger pool of qualified potential buyers. If home construction is not sufficient to meet marketplace demand then supply is likely to tighten and home prices will be pressured to rise.

4. In previous down markets owners who could not sell simply hung on to their homes until times improved. In today’s market, new forms of toxic financing mean that many sellers no longer have this luxury because they can face rapidly rising monthly mortgage costs. The result is not only higher rates of foreclosure, but foreclosure auctions which are not successful. Lenders then wind-up with a growing inventory of “REOs” — real estate owned. An expanding REO inventory is one sign that the bottom of the market has not been reached.

5. When negotiating with sellers in a down market it’s smart to have a compassionate attitude. A buyer who swaggers and flaunts his position may find that sellers will harden their attitudes, making negotiation more difficult than necessary. A better approach is not to be critical of either the seller or the property, but instead to explain that marketplace conditions limit your ability as a buyer to pay more money. In other words, it’s nothing personal and I respect you and your situation.

6. Before looking at homes, make sure you have reliable financing in place. Down markets are the very times when lenders tighten underwriting standards and pull risky loan products from the marketplace. If your idea is to buy with nothing down and a stated-income loan application, you may find that most lenders no longer have much stomach for such arrangements. Be sure to have a loan officer review your credit standing with care so that you understand how much you can borrow and what programs are available in your situation. Get a pre-approval letter from a lender to show sellers that you have the financial capacity to buy.

7. Don’t buy the first bargain property you find. In a down market there’s typically a huge array of properties from which to choose. Take your time, have a checklist of the features you want most. Time is on your side because each day that passes sellers have additional carrying costs.

8. Think about where the local market is headed. Where is future growth for your community? Maybe it’s along a corridor of newly-developing suburbs or perhaps an inner-city area is being revitalized. Whatever the case one should not forget investing basics merely because you’re buying in a soft marketplace.

9. Be conservative in a down market. It’s true that you may be able to buy a bigger home than in the past, but do you really need a bigger home or a larger mortgage?

10. Be aware that no one knows what the future will bring. As they say on Wall Street, past performance does not guarantee future results. Whether the market is up or down we have no certain way of knowing where prices will be in the future. Because of this uncertainty it makes sense to buy with caution and care, to look not only for low prices but also for properties which have the best chance of lasting value and marketplace desirability. After all, at some point today’s buyer is likely to become tomorrow’s seller.

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Published originally by Realty Times on September 25, 2007 and posted with permission.

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Varan is the president of GoIn Realty, a brokerage based in Woodridge, IL, just outside Chicago which deals in bulk sales and foreclosed properties.

Varan is a bulk real estate purchaser and what’s known as a “third party buyer.” As a wholesale real estate purchaser he buys homes by the bunch from lenders who want to get rid of REOs — real estate owned by lenders, insurers and investors which did not sell at foreclosure auctions. Varan is also believed to be the largest “third party buyer” in Chicago, meaning that Varan bids at foreclosure auctions, looking for discounts and bargains.

Varan started in real estate as an agent in 1982 and within a year made his first REO purchase — a HUD foreclosure property. By 1986 he had his first successful auction bid.

Varan explains that before 2002 he rarely was in the market to buy, however since then he has purchased more than 1,500 properties, typically 250 to 300 units per year.

Varan is the king of foreclosures in the Chicago area, and at first it might seem as though he fits the mold of no-money-down buyers hawked in get-rich-quick seminars. But Varan has been in the real estate business for a quarter of a century, has more than 50 employees, evaluates thousands of properties every month and requires substantial amounts of investor capital to underwrite his purchases. Why does Varan need large amounts of financing? One reason is to buy properties for cash, but Varan also has other costs such as property protection, insurance, property taxes and losses — that’s right, not every property is a winner and most produce only marginal profits. If you’re a real estate investor with insufficient capital then a single weak purchase can doom your entire enterprise.

This year Varan expects to make fewer bids.

“Although I’m always buying, this year I am holding back on purchasing marginal deals to see what happens to the market,” says Varan. “We are still buying, but on track for about 175-200 units for the year. I always need to adjust my pricing based on what the market is doing. I purchase on a scavenger basis and 90 percent of my inventory is sold to investors on an as-is basis who then repair the property and market it on a retail basis.”

As RealtyTrac.com has reported, foreclosures for the second quarter of 2008 were up 121 percent over the same period a year ago . These numbers are central to understanding turmoil in the mortgage marketplace — and change in the new world of loan servicing.

Varan was one of more than 2,000 attendees at the 2007 Five Star Default Servicing Conference, an event attracting a growing number of people and with good reason: Loan servicers have a key role to play in the foreclosure marketplace.

Loan servicers typically collect mortgage payments and pay out property tax and insurance payments. In effect, they manage the practical side of mortgage debt for investors who own such paper.

However, loan servicing becomes enormously important when borrowers have financial problems. Should the servicer work out a loan modification with the borrower or foreclose? If the property is foreclosed and does not sell at auction, then what? Should the servicer sell the property “as is” or fix-it-up to get a better price? Meantime, who protects the property, takes care of utilities, orders title work, etc?

The Five Star conference attracts loan servicers as well as an array of people who work various part of the business — big property owners, specializing brokers, lenders, lawyers, title experts, foreclosure services and wholesale buyers such as Varan. Given the growth of the foreclosure marketplace during the past few years, the Five Star is the epicenter of the loan servicing world.

Sale prices in the Chicago area as of the second quarter were actually up, says the National Association of Realtors. Its figures show that the typical home in Chicago/Naperville/Joliet was priced at $283,200, 1.7 percent above a year earlier.

More recently, however, real estate activity in the Chicago area has begun to turn.

“The market has dramatically slowed down,” says Varan. “In fact, the total number of sales for the last six months is down about 20 percent. The numbers for the most recent month have been dropping down to as low as 23 percent. Additionally, the inventory supply is now at 10 months.”

People usually lose their homes because of illness, accidents, divorce or the death of a spouse. But for Varan, there are now new factors in the marketplace: Fraud and get-rich-quick investors. “Most homes that I purchase are already vacant, and I often do not know the reason for foreclosure,” he says. “It appears, however, that many of these properties were involved in some type of fraud. The reason for this conclusion is that the previous sales prices of the properties are substantially above the area’s market price. Furthermore, the loan(s) have usually been taken out in the last year or so. The other type of property that I frequently buy at foreclosure is one that has tenants; namely, homes that were bought for investment purposes and end up having negative cash flow. While some foreclosures are caused by illness, accidents or death, in my experience, those loans do not have a great impact on the foreclosure rate of the homes that I purchase.”

Varan’s marketplace strategy is dictated by investor requirements, investors who allow him to purchase properties for cash. Most want to re-sell a property within six months.

As to Varan’s buyers, they could be people who just want a residence, but typically they’re investors who buy homes in “as is” condition, fix ‘em up and then rent or re-sell them. A look at properties for sale by Varan as of this writing shows prices that range from those requiring an initial bid of $10,000 to a commercial property priced at $3.5 million.

Looking toward the future, Varan says “buyers will continue to exercise the ‘wait and see’ approach. Consequently, values and sales will continue to decline. It will take some time for the economy to absorb the consequences of the mortgage industry overly extending itself. With the Fed’s assistance, however, including lowering rates, the mortgage market will have more liquidity, and therefore, money available to loan out.”

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Published originally by Realty Times on September 18, 2007 and posted with permission.

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