Well, it appears that the results of California State Senate Bill 1137 accomplished what we thought it would, prolong a bad situation.
Bill 1137, what I call the “pull-the-bandaid-off-really-slowly” bill definitely did succeed in delaying foreclosures for a few months. However, it is turning out that the vast majority of the foreclosures are still coming home to roost, just in a delayed manner.
If you were following us toward the last quarter of 2008, we spoke a lot with REO brokers how listings were crawling almost to a halt. We knew it was mostly because of this legislation, but we didn’t know what the end result would be. Now that the moratorium is ending, we have some figures for you – check out this chart of California foreclosures from our friends at ForeclosureRadar.com.
Remember, Notice of Default is the first step in the CA foreclosure process. Lenders must wait 4 months after this is filed to actually foreclose, so there is a big lag time.
Now, if you look at the number of Notice of Defaults (NODs), the number plummeted to under 15,000 in September. By the end of December (following the end of the moratorium) this number was right back up to a new record, 43,000.
So it would appear as though we will be seeing another resurgent wave of foreclosures in 4 to 6 months following these defaults.
Now, there is a difference in what we are going to see in the next round. Also, if we analyze the types of loans that went bad in the first tsunami, it seems the subprime paper, the “warheads”, that led the tip of the missile, are actually “contained” and have mostly worked their way through the system, according to Mark Hanson of the professional Real Estate & Finance research group.
The new wave is actually alt A, higher grade loans that were a result of property values falling below the loan balance of the homes so even people with good credit had no way out but to rent and hang on or walk…NOT subprime loans…to me that alone is a good sign that we are at least working our way through the oceans of foreclosures.
Also, pending sales (properties are in escrow) continually increase. So we are seeing volume increasing and inventory decreasing. If you read my past blogs you know that I feel these are much more important indicators than median home prices.
In summary, we will undoubtedly experience a large resurgence in foreclosures over the remainder of 2009, but the price levels we have dropped to have attracted a lot of buying activity and inventory levels are no longer exploding, possibly even decreasing. We may not have hit bottom, but I personally think that the free fall we have experienced in the past has subdued. We have historically low prices, low rates, you can cash flow properties in your sleep, and the government is taking pretty extreme measures to make sure that mortgage lending continues…it does not look at this time that home lending will “collapse” any time soon.
Bottom Line:
If you are a passive income investor and you are looking to build wealth, take advantage of these historic low prices, historic low interest rates, and now loosening investor policies (FNMA now allows 5 to 10 investor loans as opposed to 4 as of February 6th FNMA New Investor Loan Guidelines DO NOT wait to start accumulating properties..in the words of Warren Buffet, “…if you wait for the robins, spring has already come”. If you haven’t signed up to receive FarBelowMarket.com steals, sign up now on our homepage here.
If you are an active investor looking to generate a living doing real estate, build a business wholesaling investment properties to the passive buyers we just spoke to, do a few retail flips if you have the cash availability (to do retail flips you will need a money partner or SOME cash, hard money is very conservative these days). Definitely go sign up right away at http://www.FlipForeclosuresForProfit.com for lots of free video on how to flip and wholesale houses.
And both camps should start learning how to use existing financing to build a portfolio of rentals over the next two years, if you don’t I can just about guarantee you will kicking yourself.
Join us for a free webinar on owner financing this March 2nd at 7PM Pacific by registering here:
