Boomer’s Blog

Hoping to stabilize free-falling home prices in foreclosure-plagued neighborhoods and stimulate sluggish housing markets, the White House has announced that for one year only, the Federal Housing Administration will suspend its anti-flipping policy which requires a 90-day waiting period for foreclosure sales. At the same time, it’s extending government-backed mortgage insurance to a larger group of foreclosure buyers.

Rehab this Foreclosure Flip
Though a positive step towards resuscitating stagnant real estate markets, these homes still have to be sold to owner-occupants, and many flippers may find that this policy change is of little help to their businesses. To meet FHA guidelines requiring that homes be “safe, secure and sound,” many of these real estate owned (REO) homes likely will require more extensive rehabbing than they would probably receive if the FHA were not involved.

Homeowners who can’t afford their mortgage payments probably don’t keep up with maintenance. And there is an increasing prevalence of disgruntled and distressed homeowners vandalizing their homes when they’re forced out by foreclosure. Though real estate investors with a knack for rehabbing may see some benefits through this change, it seems unlikely that it’ll have the far-reaching impact on high-foreclosure real estate markets that the Fed is hoping for.

REI to the Rescue
What irks me is that this waiting period foolishness was implemented five years ago specifically to curtail opportunities for working real estate investors to make money in real estate by flipping houses for a living. Now that the economy is a wreck and the current selling season is not stopping the bleeding, who does the government call upon to get the markets moving again? Real estate investors, do you hear your phones ringing? Here is how the FHA rationalizes its flip flop on this issue:

” . . . FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property ‘flipping,’ a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.”

Will the Real Equity Strippers Please Stand Up?
What exactly did the lenders accomplish with their business practices? The Mortgage Bankers Association’s (MBA’s) Q1 report highlights the sixth straight record-shattering quarter of home loans entering foreclosure. The MBA’s seasonally adjusted total delinquency rate is the highest recorded by the association since 1979: Nearly 3 million home loans, or 6.4 percent, are missing at least one payment, while approximately 737,000 are three months or more past due on their payments. These numbers all but promise that foreclosure rates will continue to rise.

According to the MBA, 1.1 million homes, or 2.5 percent of all loans serviced by the association’s members currently are in foreclosure. That’s up from the 2 percent of loans, or about 938,000 homes, that were in foreclosure at the end of 2007. The report also shows that 448,000 homes, or about 1 percent of loans members serviced, entered foreclosure during Q1. In Q4 2007, 382,000 homes reportedly entered foreclosure.

Foreclosure Epidemic Spreads Beyond Subprime Loans
These aren’t just the subprime adjustable rate mortgages (ARMs) we’ve heard so much about. Foreclosure among all loan types is on the rise. Here is a quick breakdown, according to Jay Brinkmann, MBA’s Vice President for Research and Economics:

• While subprime ARMs represent 6 percent of the loans outstanding, they represented 39 percent of the foreclosures started during Q1.
• Prime ARMs represent 15 percent of the loans outstanding, but 23 percent of the foreclosures started.
• Among the 516,000 foreclosures started during the Q1, subprime ARM loans made up 195,000 and prime ARM loans made for 117,000.
• The hike in prime ARM foreclosures exceeded subprime ARM foreclosures with increases of 29,000 and 20,000 respectively over the previous quarter.

Who Takes the Prize?
Though our industry will see some benefits from the FHA’s temporary suspension of the 90-day waiting period for foreclosure sales, is it really going to put a dent in markets where REO inventories are growing while prices hit the pavement? We may never know for sure because REO sales are rarely tracked.

In a recent press release, Brian Montgomery, assistant secretary for the FHA commissioner says, “A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery. The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

Too Little, too Late?
So while Federal officials have finally noticed that the effects of the foreclosure epidemic aren’t limited to Wall Street — and the buyers — who really should have known better, some loaded questions remain on the table:

• How far is this temporary FHA policy shift really going to go to get troubled real estate markets moving?
• Will the capital FHA offers buyers raise the bottom for declining markets?
• Will this policy have any impact in getting REO lenders to speed up their response times?
• If the fed needs real estate investors to come in and clean up after the lenders and help them move their REO, equity-free, dead weight, are we still engaging in a “predatory practice” ?

How will this temporary change in FHA policy make a difference in the way you invest in real estate? Please drop me a line and let me know what you think. Also, if you’re interested in learning more about the REI news and developments that affect your business, don’t forget to sign up for my “What’s Working & What’s New” monthly report on GaryBoomershine.com.

A highly motivated seller, Escondido, Calif.-based Michael Crews Development, has extended its already unbelievable luxury housing “Buy One, Get One Free” offer. Although the deal originally was slated for expiration on May 31, CNBC reports that Michael Crews has extended it through the end of June.

In case you’re wondering what kind of entrepreneur would make such an outrageous offer, developer and self-styled real estate mogul Crews got his start in the business selling real estate at age 19. He has even written an independently-published book on his career’s success ethos: “HARD WORK: Success Made Easy.” Its first sentence muses: “I recently ran into someone I haven’t seen in a long time, and got a surprisingly enthusiastic reaction.”

No kidding.

The $1.6 Million Catch
To get the free house, buyers must first buy one of the Michael Crews Development’s Royal View luxury homes, in a gated San Pasqual Valley community of Escondido, Calif. Starting at $1.6 million, many of these homes feature swimming pools and RV parking.

The free home described in the offer is in the builder’s Escondido Cityscape development. The 2,000 square-foot row-homes, now valued at around $400,000 were reportedly selling for $529,000 last year. Home value depreciation in the Escondido area sometimes appears to be ruled by the Flying Fickle Finger of Fate, but for many it is no Laugh-in.

San Diego Real Estate Shows Widespread Depreciation
Median home prices among San Diego County neighborhoods varied wildly in the Q1, reports the San Diego Union Tribune. In one Escondido zip code, median home prices are reportedly down nearly 43 percent. Even in the traditionally affluent west end of Escondido, high foreclosure rates have taken their toll. According to DataQuick, Q1 foreclosure resales in that area accounted for about half of the 24 homes sold.

Lots of Buzz but Buyers Aren’t Taking the BOGO Bait
So far, no one has taken advantage of this highly unusual offer that has many saying is is an ominous sign of even harder times to come in SoCal’s battered real estate markets. Michael Crews staff told CNBC that this BOGO offer is the firm’s way of coping with the down market and generating traffic. No doubt the latter was a complete success, garnering far more free advertising than the current value of the quaint Escondido row house Crews is looking to unload.

As housing values plunge and mortgage rates reach for the sky, the stars are among the droves of motivated sellers seeking to cut their losses and downsize. Here are some of the most interesting tales of celebrity home depreciation scraped from the annals of the World Wide Web to help us distort our comprehension of the term “distressed homeowner.”

• Trump Real Estate Investing 101.1
  Self-professed real estate tycoon Donald Trump has ended his two-year quest to sell to sell his Palm Beach, Fla. home. The property, known as Maison de L’Amitie, lingered on the market with its $125 million price tag. So, the Don slashed the price by $25 million in March to get the property off his books. Forbes characterized the transaction as “the largest discount ever made for a single residence not involved in a bankruptcy proceedings.”
• Avril Lavigne’s Home Price: Too Much to Ask?
  Twenty-something Canadian pop singer Avril Lavigne recently took a million dollar dip in home’s price rather than her pool. She recently reduced her Beverly Hills, Calif. area home listing price from $6.9 to $5.8 million.
• Bad Real Estate Deal Wrecks Rock Star’s Nervous System
  Guns N’ Roses and Velvet Revolver ax man Slash bought a San Fernando Valley, Calif. home a couple of years ago for $6.2 million and later sold it for $5.7 million. Last year, he sued the Sotheby’s real estate agent he used to buy the home. Shash claims that the agent said the home was on a private street (it’s not) and the square footage in the listing turned out to be inaccurate. According to the $1 million suit filed last year, the house deal caused the rocker and his family “grief, shame, humiliation, embarrassment, anger, worry, disappointment, nervousness, stomach disorders, backaches, loss of appetite and inability to concentrate on work.” No word yet on how that one played in court.
• No Toast to Honor Cheers Star’s Malibu Colony Real Estate Investment
  After a year on the market with no buyers, Ted Danson and his wife, actress Mary Steenburgen recently sold their remodeled Cape Cod style Malibu, Calif. home. Though it was originally listed for $18 million, the home’s last listing price before it sold was $16.75 million.
• Stone’s Basic Instincts Don’t Include Savvy Real Estate Investing
  Actress Sharon Stone reportedly bought her prestigious California estate on Beverly Drive in 2006 for $11 million. Soon after buying the house she’s never lived in, she slapped it with a $12.5 million list price. The home, once occupied by architect Joseph Ambrose, has languished on and off the market, taking substantial price hits ever since. Stone recently dropped the listing price to $10 million and rumor has it that she’s also extended an invitation to renters who can swallow the $58,000 per month lease price.
• From Best Seller to Motivated Seller
  After several months on the market and some division tweaks, Alexandra Sheldon, widow of best-selling author, creator and screenwriter Sidney Sheldon, has finally sold one of the properties that comprise her massive Palm Springs, Calif. estate. Sheldon cut the price of three other homes on the property by 30 percent hoping to woo buyers. It appears that Sheldon also divided the estate’s several homes and guest houses into separate properties to maximize her profits and make the real estate investment more accessible to buyers. Perhaps she was the inspiration behind her husband’s 1960s TV smash hit “I Dream of Jeannie.” Sheldon’s listing agent calls her a “motivated seller.”
• PCH Prize Patrol, Buyers Pass on McMahon Mansion
  Johnny Carson’s former side-kick and Star Search host Ed McMahon, first listed his expansive Beverly Hills estate in 2006 for $7.7 million. As if living in a house that’s been on the market for two years weren’t adequate torture, McMahon also is recovering from a broken neck he suffered there last year. Since his estate has been on the market, McMahon, also known for his remarkable Publisher’s Clearinghouse Sweepstakes TV ads, has dropped the price three times to $5.7 million. Maybe some lucky winner will buy him out.