from Local Attorney, Michael H. Wasserman

Monday, January 26, 2009

Prospects for a Buyer's Market Coming Soon

I cannot imagine that this is going to be good news for anyone who is hoping to sell a home in 2009, but Matt Carter from Inman News reports today that the number of houses and condos on the market are about to swell dramatically as banks begin releasing foreclosed properties from their portfolios, at fire sale /clearance prices.

As banks have been foreclosing on delinquent mortgages, the numbers of properties they are holding as "REO" (Real Estate Owned) assets is swelling. According to Carter,

The value of REO property on the books of FDIC-insured banks at the end of the third quarter surged 21 percent from the previous quarter, to $23 billion. That total -- which includes single-family to four-family homes valued at $11.5 billion and another $1.5 billion in property purchased with FHA-backed loans securitized by Ginnie Mae -- represents a 134 percent increase from a year ago, according to the latest quarterly report from the Federal Deposit Insurance Corp.

Repossessions by Fannie Mae and Freddie Mac grew by nearly 25 percent from the second quarter to the third quarter of 2008, hitting 15,196 homes, according to a recent foreclosure prevention report by the Federal Housing Finance Agency (FHFA). With Fannie and Freddie repossessing homes faster than they could sell them, the companies were left with 95,553 REO properties to dispose of at the end of September -- a 25.5 percent increase in just three months.

The article goes on to suggest that 75% of all distressed properties have yet to hit the market.

We are cautioned that banks are going to start offering these properties for sale in large numbers. The author describes this as a coming "flood." Another pundit calls it a "tsunami." Whatever spectacular term you care to use, certainly a rapid influx of new properties on the market is going depress market prices even further, much to the dismay of homeowners and holders of existing mortgage paper. On the other hand, when coupled with cheap mortgage money, this should create remarkable opportunities for well qualified buyers.

Buyers and sellers are faced with additional challenges when dealing with REO and short sale / pre-foreclosure transactions. As the market roils, it is going to become increasingly important for buyers and sellers to work with highly trained and knowledgeable real estate agents, mortgage brokers and related professionals. I hope to explore some of the reasons why in the coming weeks.

Chicago Area Homes Sales Declined 26% in 2008

The Illinois Association of Realtors reported today that 2008 home sales in the Chicago PMSA were just 68,676, nearly 26% fewer sales than 2007. For those lucky enough to find a buyer, the median sale prices last year was 17.3% lower than 2007.

The PMSA includes Chicago, suburban Cook, and the eight surrounding counties.

There were 20,589 Chicago home sales in 2008, 25% fewer than in 2007.

Well. on the bright side, however gloomy the current market conditions might seem, there are still buyers buying and sellers selling. Also, I am pleased to note that my "market share" of Chicago house and condo closings last year increased over 2007. Here's to doing even better in this new year.

Friday, January 16, 2009

FHA Loans and Condo Sales - Is Relief on the Way?

By all outward appearances, state government in Illinois has ground to a complete halt, with all eyes focused on the Governor's "problem" and all the related fal-der-rah. Its hardly business as usual in Springfield, but not everything has ground to a halt. Several new bills have been introduced this week. That is not to say that they will be of benefit to we the people. Nonetheless, the cogs and gears are turning, and we are hoping for the best.

One such proposal comes from Rep. LaShawn Ford of Chicago's west side, who is himself a real estate broker and entrepreneur. He is the author of House Bill 155, introduced & referred to the Rules Committee Wednesday. It seeks to address one of the most common problems I am seeing in condominium resale transactions these days; the tension between many Declarations of Condominium and FHA loan guidelines.

Many Condo Declarations provide Associations with a "right of first refusal," which basically allows the association to thwart a proposed unit sale if the association is willing to purchase the unit from its owner on the same terms that an otherwise eligible buyer offered. Such rights are seldom, if ever, exercised but many associations view them as important safeguards to prevent below market value sales, or to exclude unqualified or otherwise undesirable people from buying into their communities. In my own experience over the last twenty three years, I have only known three associations to have ever exercised this right. It hardly ever happens.

That reality notwithstanding, FHA does not like this type of restriction. The US Department of Housing and Urban Development considers all rights of first refusal to be bad for owners; They somehow create an unreasonable restriction on owners and thereby diminish marketability of condo units. In HUD's view, this is such an unreasonable risk for buyers and lenders alike, they REFUSE to guaranty loans for condo units that are protected by these safeguards.

As a result, many buyers and sellers have seen their deals scuttled. FHA mortgage applications are denied wherever associations have that right of first refusal.

Lots of unhappy buyers and sellers. Lots of Associations have already, or are seriously considering spending exorbitant amounts of time and money to remove these restrictions.

Rep. Ford's proposes to amends the Illinois Condominium Property Act to PROHIBIT any association from being able to exercise the right of first refusal on the basis of the type of financing that a buyer seeks to use.

Lets look that one over again; HUD says it wont give loans on condo units that have a restriction. Rep. Ford says Associations shouldn't be allowed to use that restriction to prevent buyers from using HUD loans.

And that helps us how? Its not like associations will ever have opportunity to approve or disapprove these contracts if HUD financing is unavailable. The real solution is to either (a) convince HUD to change its guidelines; (b) legislate that HUD's guidelines cannot be enforced in Illinois (fat chance that); or to (c) legislate the elimination of all rights of first refusal.

Here's to the good gentleman for taking my call to discuss the bill today and for at least trying to address the problem.

Monday, January 12, 2009

Shopping for Mortgages in the New Year

The Inman News Wire is almost always good for an interesting read or two (assuming of course you find the business of real estate news even remotely interesting) but I was particularly taken by Jack Guttenberg's column today. The self-proclaimed "Mortgage Professor" has a very particular and analytical approach to mortgage financing. His web site is a GREAT jumping off point for anyone who wants to begin the process of understanding what, and where, to shop for a loan.

The good doctor surveyed the current landscape for fixed rate, adjustable, and interest only loans, both jumbo and conventional in mid December. Specifically, he checked in with seven (un-named) internet based lenders and the four major "depository" lenders (i.e. chase, citi, boa and wells fargo).

Read the whole article here for the details.

Bottom line #1: Borrowers can save a ton of money by shopping loan providers.
Bottom line #2: Buying down the interest rate is a very good investment.