Boomer’s Blog

Amid the U.S. foreclosure epidemic, Habitat for Humanity has been capitalizing on the low prices of real estate owned properties (REO), and foreclosed properties to advance its mission to provide affordable housing in communities throughout the nation. Sound ironic? Maybe so, but it’s also a practical strategy for foreclosure-blighted areas to get their homes occupied as soon as possible.

By rehabbing these low-income properties, the non-profit is helping build stronger communities and property values in many of the real estate markets that need it most. They’re also helping to stave off some of the dangers that come with properties that seem to be abandoned in the long term.

When Builders and REO Lenders Walk Away
The Associated Press reports that an increasing number of Habitat for Humanity chapters have buying REO and foreclosed properties at bargain basement prices, organizing legions of volunteers for massive rehabbing projects and then selling the homes at affordable prices to families in need.

When rehabbing isn’t a practical option (and many of us know that sometimes it isn’t) the houses are torn down to make way for new dwellings. In some real estate markets, Habitat for Humanity is even buying large subdivision tracts left over from the real estate bubble burst. Many developers are simply walking away from developments they can’t afford to complete, Habitat officials say.

Although the circumstances that have enabled Habitat for Humanity to acquire massive amounts of U.S. real estate are lamentable, placing low-income families into affordable housing is a better use of existing resources than allowing properties to remain vacant or go to real estate investors. Habitat officials warn that vacant homes can drive up crime and reduce nearby property values.

REO, Foreclosed Homes and Neighborhood Blight
Not only are vacant properties an invitation for crime, In many U.S. housing markets, the untended, vacant properties have led to health hazards and neighborhood blight. Unkempt swimming pools have provided prime breeding grounds for the West Nile Virus. Properties left dirty or unsecure also are vulnerable to vermin that spread disease such as: rats, mice, roaches and others.

The extent to which Habitat for Humanity affiliates participate in local foreclosure and REO investing depends to some extent on how much money they have to spend. Here are some project highlights:

Habitat for Humanity Projects in Four Metro Markets:

1. In Fort Worth, Texas, the local Habitat chapter is negotiating to buy part of a 160-lot subdivision
   that a developer seems to have abandoned. If their negotiations go according to plan, they’ll develop 50 of the remaining 100 vacant lots in the area. Fort Worth Habitat officials say that prices for comparable lots has dropped 30 percent to 40 percent since the height of the real estate boom.
2. In Dallas,Texas, another Habitat affiliate has picked up about 150 lots for half of the original price. Developers in the city’s south end are abandoning inexpensive lots and costly construction projects in favor of greener looking pastures in the city’s north end leaving many real estate investment opportunities wide open, officials say.
3. The Habitat affiliate in Phoenix, Ariz., is wrapping up negotiations to complete a 20-home development abandoned by a company that went bankrupt and couldn’t complete its development. In addition, Habitat officials say they’re working deals on 14 metro-area unfinished lots for less than half of their original list price.
4. In Milwaukee, Wisc., the city is taking action against the ill effects of foreclosure in its metro communities. The city is buying multiple condo units in one large complex with a high concentration of foreclosures, and then selling them to Habitat for about $5,000 each. When Habitat for Humanity volunteer rehabs on the units are complete, they’ll be sold to clients for about $25,000.

As a real estate investor, what do you think of the city intervening with foreclosed and REO properties and working with a third party such as the non-profit Habitat for Humanity? Do you see advantages or disadvantages from yor position as a real estate investor?

Countrywide Financial offers Internet visitors a free database search of its real estate-owned (REO) properties throughout the United States. Addresses and property types are provided, but users have to request more information from Countrywide for details or photos.

RealtyTrac offers a similar service with broader search capacity. Users can instantly search their massive database for REO, Government Owned, Foreclosure Auction, Pre-foreclosure, For Sale by Owner (FSBO), Resale MLS and New properties across the United States. Here, you can access photos and property details. Although a subscription is required for some of the enhanced search features, basic searches are free and a free trial offer is currently available.

These can be an indispensable tools for finding great leads distressed and other types of properties. Enjoy!

CNNMoney: Home Prices in a Downward Spiral
While existing home sales recently have seen modest market boosts, analysts say that residential real estate prices have posted record drops in the past year. The S&P Case/Shiller Home Price index of 20 key markets finds that home prices plunged 11 percent in a 12-month period that ended in January. These findings mark the lowest levels ever reported for the index, which debuted in 2000.

Marketwatch: Emerging Bargains in REO New Construction
With falling home prices and changing lending practices, a growing number of foreclosures are now available in up-scale areas at at lower price points. In one new Sacramento, Calif. suburb, changing markets mean changing demographics in once-hot sellers’ markets. The greatest deals often are found in new-construction areas that were hot in 2005-2006 when they were priced well above the median price for the greater area.

Associated Press: Fed Auctions $50 Billion in Short Term Loans
Hoping to ease the economic turmoil for credit-crunched banks, the Fed has so far offered a total of $260 billion in short-term loans via eight auctions since December. The central bank has posted results of its latest such auction where commercial banks bid for their share of $50 billion in short-term loans. Reports say this is a continuing effort to minimize the impact of the recession on the vulnerable economy.

Forbes.com: Wall Street Chaos Ups Ante on Countrywide Buy-out Rumors
Rumors about Bank of America’s latest plan to acquire Countrywide Financial hit today, indicating that Countrywide might get a better takeover deal than the $4 billion offered by the bank in January. Even then, the deal was lauded by the Fed and other regulators hoping it would stop a liquidity-constrained Countrywide from causing more trouble in markets already cramping from the credit squeeze.  Speculators today may be counting on the Fed continue bailing out financial firms who are heavily vested in subprime markets.

Forbes.com: PennyMac to Profit from Contrywide’s Blunders
As the largest mortgage lender in the United States, many believe that Countrywide Financial helped to trigger the subprime mortgage disaster with its uninhibited lending practices. Countrywide currently is under FBI scrutiny for possible securities fraud and regulatory violations. Now, a group of former Countrywide executives are looking to capitalize on their wealth of experience by purchasing distressed mortgages at low prices and re-selling them for profit. Led by former Countrywide talent, the newly formed Private National Mortgage, or PennyMac, will use private capital to invest in and service residential mortgages; it also will acquire loans from institutions seeking to reduce mortgage exposure risks. Critics claim that Countrywide executives should not be empowered to profit from the mortgage crisis they may have helped to create.

Los Angeles Times: Equity Strippers to Bear All in Court
Federal prosecutors have so far charged 19 people, mostly from Southern California, with defrauding cash-strapped homeowners using “foreclosure rescue pitches” and an equity-draining technique called “equity stripping.” Two indictments have so far been issued in relation to the $12.6 million scam. Prosecutors say that defendants could get more than 20 years in prison, if convicted.