Let loose the investors and let the free market work its magic!
You guys know I am very big on the tremendous opportunities that the bank foreclosure (REO) market gives us. More millionaires will be minted during the next five years than anytime in history.
In the U.S., over two and a half million homes are in some sort of foreclosure process by some estimates. Some economists forecast another eight million foreclosures in the next four years. Historically, over half end up going to the bank. Then they become a bank foreclosure sale; they will be bought at a hefty discount when they get listed.
Guys and gals who own rental properties, who buy and sell for a living or for fun, and who just like playing with real estate and making money in the process, have the capital required to pull off an REO purchase and repair. They have the knowledge to see how the investment can pay off.
The current 850 million stimulus package did not offer incentives to the actual demographic that are willing to get their hands dirty and bail us out of this mess. If they want to get foreclosed on, let the process begin, and let's hurry it up so we don't string this recovery out any longer than necessary.
No amount of loan modifications or the numerous foreclosure moratoriums touted by Fannie Mae/Freddie Mac and other banks forced to play along because they are receiving TARP money will stem this flow of REOs, which I expect to triple in number by summer 2009 in Southern California.
Realty Trac sees only one in five foreclosures being actively marketed. Lenders are not even trying to sell them. If that is true, why are all these houses that are piling up sitting empty? Is the owner still there living for free? Whatever, the banks are sitting on top of all these non-performing assets and waiting to get bailed out. Where's our bailout?
AM I right? Are you guys seeing what I am seeing? Houses that seem to sit after the foreclosure sale with no marketing activity? Do you know anybody who is still in their house months after receiving a foreclosure notice?
The long term effects of bank bailouts are ominous; it sets a bad trend. Banks are in a lot worse shape than one knows; how will they deal with these 3,000,000 plus foreclosures? We know over one half of loan modifications go bad. When will the banks come back again begging for more?
This flood of REOs will last longer than what most people think and we need to stem the tide of foreclosures. More specifically, we need to get the foreclosed (bank-owned or REO) properties off the open market so prices will stabilize. The problem is with housing. We don't need to build roads and re-sod the National Mall. We need:
1. Federal matching down payments secured by a silent second. Make it easier for everyone to buy houses
2. Do away with the 4 house limitation rule for investors and capital reserve requirements.
3. Make the FHA (203K) loan eligible for investors.
4. Eliminate 3-6 month seller seasoning requirements
5. Authorize simple assumptions for all loans
6. Bring back expedited financing for bank REOs. Let the lenders finance their own REOs
7. $15,000 federal income tax credit to any buyer who purchases an REO or short-sale property
8. Make purchase free from capital gains tax for a period of seven years from the date of purchase
9. Take the capital gain problem one step further, and reduce the overall capital gains tax rate from 15 percent to 8 percent
10. Force the banks that have been receiving TARP funds (and will receive more) to lend 75 percent of the money they're receiving.
First-time home buyers generally lack the capital and desire needed to fix up the property, and are many times scared off by the process of an REO purchase.
The answer isn't in the first-time home buyer, as NAR and Washington would like us to believe -- which is why they offered that $7,500 first-time home buyer credit (loan) last year. The answer lies with the real estate investor.
Washington needs those that fix and flip for a living. They just don't know it yet.
Steve Dexter's latest book is "Buy and Hold Forever- How to Build Wealth for the 21st Century"
Steve is an invited expert commentator for CNN/Money, CBS Radio, Fox TV
He has been a distinguished speaker at the Harvard Business School, Harvard Law School and their Graduate School of Design
Member and speaker of NAREE (National Association of Real Estate Editors)
He writes articles for several national real estate journals
He teaches courses in investing and real estate finance at colleges across Southern California. He writes a free E-Newsletter, "Economic News You Can Use".
He coaches budding real estate agents and mortgage brokers.
He is an active real estate investor and owns 27 investment houses in Southern California and around the country. Steve Dexter continues to offer mentoring to hundreds of investors across the nation.
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