Dave's Right Now Blog (this is an entry from Dave Liniger from his blog)
Foreclosure Facts and the Fed Reacts
March 14, 2008:
A few weeks ago, I was invited to appear on a local Denver TV interview program and on Sunday I went to the studios for the live broadcast. I was asked about the real estate market in Denver, and some general questions about the RE/MAX organization. Then came the topic of the day - foreclosures.
In a question submitted by email from a viewer, I was asked, "Who was most responsible for the sub-prime mess and all these foreclosures?" Of course, I have strong feelings about the current situation and didn't try to avoid the question.
I responded that Wall Street investors, who bought and sold questionable securitized mortgages were probably mostly at fault. Well, the next thing I knew my response ended up in a story on CNN the next day. It's a complicated issue, but I stand by my belief.
Now, I'd like to take this opportunity to discuss the foreclosure situation. Even though it can be a tragedy for those affected, the most important thing to understand is that the vast majority of home loans are being paid on time and will never enter foreclosure.
The Mortgage Bankers Association tells us that in the 4th quarter of 2007 only 2.04% of all mortgages were in the foreclosure process. That means that 98% of all home mortgages remain solid investments. And keep in mind that sub-prime loans represent 14% of all mortgages.
Today, there are numerous governmental and private organizations that stand ready to assist those who are facing foreclosure. However, an unfortunate truth is that over 50% of those entering foreclosure never have a single conversation with their lender.
Of course, foreclosures have an impact on inventories and eventually home prices, but they can offer a tremendous opportunity to other home buyers and to real estate agents.
Recently, when I was speaking in Las Vegas, I learned about the "Foreclosure Bus Tour" created by RE/MAX Central to escort groups of prospective buyers to several properties in a single afternoon. The bus tour was generating a lot of local interest and was featured on local television and CNN. I'm also aware that some of you are now very active with home auctions.
The simple truth is that foreclosures are a fact of life and they're a significant aspect of this market that can't be ignored.
So, what can the government do to help? Ideally, we don't like to have the government get involved in the marketplace. However, given the pressure on politicians in an election year and the severe lack of investor confidence, the Fed is trying several different strategies to support the market.
The Fed has lowered interest rates, Congress has passed a stimulus package and mortgage lenders have instituted innovative assistance programs. But the sub-prime loans keep adjusting, foreclosures keep increasing and investors are still shying away from mortgages.
This week, the Fed promised to lend Wall Street up to $200 billion, while accepting otherwise unpopular mortgage backed securities as collateral. Wall Street reacted with the sharpest rise on the stock market in several years. But how will it impact our real estate market?
If this stimulus is what it takes to restore confidence in the big investors, then mortgage lenders would be able to lower rates, and have more flexibility to deal with defaults. It could have a very positive impact on the market. However, this situation will not turn around tomorrow. As real estate professionals, we must have strategies in place to make the best of the situation and I will be talking about such strategies in my next posting.
Also, I will choose a name for my blog and announce the winner of an iPhone in the next few days. There's still time to submit your entry. That's all for my "right now blog." - Dave Liniger co-founder of RE/MAX.
Foreclosure Facts and the Fed Reacts
March 14, 2008:
A few weeks ago, I was invited to appear on a local Denver TV interview program and on Sunday I went to the studios for the live broadcast. I was asked about the real estate market in Denver, and some general questions about the RE/MAX organization. Then came the topic of the day - foreclosures.
In a question submitted by email from a viewer, I was asked, "Who was most responsible for the sub-prime mess and all these foreclosures?" Of course, I have strong feelings about the current situation and didn't try to avoid the question.
I responded that Wall Street investors, who bought and sold questionable securitized mortgages were probably mostly at fault. Well, the next thing I knew my response ended up in a story on CNN the next day. It's a complicated issue, but I stand by my belief.
Now, I'd like to take this opportunity to discuss the foreclosure situation. Even though it can be a tragedy for those affected, the most important thing to understand is that the vast majority of home loans are being paid on time and will never enter foreclosure.
The Mortgage Bankers Association tells us that in the 4th quarter of 2007 only 2.04% of all mortgages were in the foreclosure process. That means that 98% of all home mortgages remain solid investments. And keep in mind that sub-prime loans represent 14% of all mortgages.
Today, there are numerous governmental and private organizations that stand ready to assist those who are facing foreclosure. However, an unfortunate truth is that over 50% of those entering foreclosure never have a single conversation with their lender.
Of course, foreclosures have an impact on inventories and eventually home prices, but they can offer a tremendous opportunity to other home buyers and to real estate agents.
Recently, when I was speaking in Las Vegas, I learned about the "Foreclosure Bus Tour" created by RE/MAX Central to escort groups of prospective buyers to several properties in a single afternoon. The bus tour was generating a lot of local interest and was featured on local television and CNN. I'm also aware that some of you are now very active with home auctions.
The simple truth is that foreclosures are a fact of life and they're a significant aspect of this market that can't be ignored.
So, what can the government do to help? Ideally, we don't like to have the government get involved in the marketplace. However, given the pressure on politicians in an election year and the severe lack of investor confidence, the Fed is trying several different strategies to support the market.
The Fed has lowered interest rates, Congress has passed a stimulus package and mortgage lenders have instituted innovative assistance programs. But the sub-prime loans keep adjusting, foreclosures keep increasing and investors are still shying away from mortgages.
This week, the Fed promised to lend Wall Street up to $200 billion, while accepting otherwise unpopular mortgage backed securities as collateral. Wall Street reacted with the sharpest rise on the stock market in several years. But how will it impact our real estate market?
If this stimulus is what it takes to restore confidence in the big investors, then mortgage lenders would be able to lower rates, and have more flexibility to deal with defaults. It could have a very positive impact on the market. However, this situation will not turn around tomorrow. As real estate professionals, we must have strategies in place to make the best of the situation and I will be talking about such strategies in my next posting.
Also, I will choose a name for my blog and announce the winner of an iPhone in the next few days. There's still time to submit your entry. That's all for my "right now blog." - Dave Liniger co-founder of RE/MAX.
We are thrilled to access to Mr. Liniger's thoughts! If you are looking in the Phoenix, Peoria or Glendale area in AZ, please give RE/MAX Desert Showcase at call at 623-979-8888
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