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The plummeting housing prices and soaring foreclosure create opportunities for first time house owners, according to a reputed auction house in Florida. In the yester years foreclosure properties were shunned as distressed properties that needed total over hauling before it became habitable and that was expensive. In recent times however foreclosure properties in the housing market draw agents and investors who understand foreclosure as good investment opportunities. Intelligent people purchasing a house for the first time dive into the market during such recession periods to retrieve property at bargain prices. The staggering real estate market, flooded with bank-owned foreclosure auctions allow purchasers heavy discounts on these properties, as the lenders, eager to dispose off these mortgages within the shortest period possible become very flexible.
Florida continued to be battered with foreclosure during the second quarter of 2008. RealtyTrac, the nation’s most trusted name in the real estate market and tracking foreclosure records in the nation, reported that Florida ranked as running the country’s fourth highest foreclosure rate during the past three months. One in every 78 households received a foreclosure filing which was twice as much as the nation’s average in foreclosure filings.
Dave Webb, Principal of Hudson and Marshall, the country’s most experienced foreclosure auction firm declared that 700 bank-owned homes in cities throughout Florida were to be auctioned in mid-August. Detailing the programme, Dave said, over 100 houses would be auctioned in Orlando, almost 100 houses in Tampa and more than 200 houses would be auctioned in Miami/Ft. Lauderdale area. The sellers paid for the title insurance of all the properties. The foreclosure properties were to be auctioned at ‘as-is-where-is’ basis, Hudson and Marshall confirmed. The buyers were allowed to carry out a thorough inspection of the house they wanted to bid for. After the sale, the successful bidder was required to deposit in cash or certified funds an amount of $2500 for each of the properties he had successfully purchased.
Hudson and Marshall, based in Texas, was America’s premier auction authority with forty years of auction history in the US. Maximizing sales, the company was able to sell 70,000 houses in the past eight years by means of an accelerated sales process, which efficiently sold innumerable properties that minimized expenses and maximized returns to the lenders. Last year, H&M total sales amounted to $1.2 billion and the company’s anticipated sales were stated to auction another 30,000 houses through 2009.

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The US Senate had introduced a Bill to back borrower-initiated plan to save foreclosure from taking hold of the property and it was binding on the lenders as well. The Bill had been introduced in the House (H.R.3609) and the Senate (S. 26360) was prepared to provide workouts that would be initiated by the suffering house-owners and mandatory on the lenders. It would allow bankruptcy judges to reframe the loan contracts by either lowering the interest rate or by reducing the principal amount of the mortgage loan. The policy intended to make loan repayments more affordable to borrowers.
According to legal experts, the bankruptcy law of 1993 prohibits modification of mortgage contracts of primary residences by bankruptcy judges and so the law needed an amendment to enforce the plan modified by the bankruptcy judges. Besides, the greatest advantage of the plan was that there would be no extra burden on tax-payers.

Dean Baker of the Center for Economic and Policy Research had proposed another plan for house owners in trouble. The plan termed as ‘own-to-rent’ required house owners facing foreclosure to live in their houses as tenants and pay rent at the existing market rate and not pay the mortgage amount as owners, which was higher than the rentals they would have to pay. Borrowers qualified under the plan would be identified at the median house price in a metropolitan area and was unlikely to benefit house owners belonging to the high-income group. The plan would not burden taxpayers either. A bill to the same effect was recently put up at the House (H.R.6116).

The present foreclosure crisis had taken a back seat in political circles that had decidedly little to comment on foreclosure crisis and anti-foreclosure policies, although it was evident that the foreclosure crisis would intensify in the months to follow. Consequently more house owners would join the bandwagon and demand for more suitable policies to address their problem. The house-owner initiated policies were preferred over the lender-initiated policies in that they gave maximum protection to the house owners against foreclosure. It was desired however that both the options be available to all, especially to low- and moderate-income borrowers.

The bill had the support of AFL-CIO, SEIU, NAACP, ACORN, the Center for Responsible Lending and other consumer protection groups.

The only snag in the bill was that the borrower would have to declare bankruptcy and the Mortgage Bankers Association was vehemently opposing the bill from coming into force.

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Foreclosure have lain seize on Orange County, especially where sub-prime lending had concentrated, and was intensifying. During the second quarter of the year, four Santa Anna ZIP Codes were the epicenter of foreclosure in the county. The overall ratio between foreclosure and the total number of condominiums and houses more than doubled over that in the first quarter in some ZIPS, according to DataQuick, which analyses foreclosure trends in the country.
Statistics show that 75% of the people in Santa Ana had borrowed money to buy houses under sub-prime lending in 2005 when the real estate market was booming, and it was they that were the worst hit in the nationwide foreclosure crisis. Santa Ana, with 92701 properties filing a foreclosure was the forerunner and 23 out of every 1000 households received a foreclosure filing during the second quarter compared to 10 out of every 1000 ratio in the first quarter, as projected by DataQuick which detailed foreclosure in each ZIP for the quarter ending June 2008.
The tentacles of foreclosure had spread to the neighbouring county cities, including Anaheim, Orange, Garden Grove and Stanton and even beyond to places that have not been the target of sub-prime lenders. Market watchers stress that people enjoying good credit back-up had ventured to buy houses in areas such as parts of Lake Forest, Ladera Ranch, Rancho Santa Margarita and Aliso Viejo, as investments or to live in, in the near future. Unfortunately, these buyers are suffocated under their mortgage loans.
These South county ZIPs rank third for having the maximum concentration of foreclosure among counties. Experts blame foreclosure for pulling down the prices of houses in the country. In Santa Ana’s six ZIP codes the median prices of houses sold dropped 50% compared to a 13% drop in June last year.
US Representative, Loretta Sanchez, covering Santa Ana, Garden Grove, parts of Anaheim and Fullerton, promised that the housing bill passed at the Congress intended to help areas like central Orange County. The housing bill would enable borrowers entrapped in the foreclosure dilemma to interchange the existing loan mortgages for loans at more affordable rates and conditions. The borrowers in default would be backed by refinance mortgages by the Federal Housing Administration to the tune of $3oo billion. Apparently, though the bill looks good, it is obvious that lenders would be unwilling to suffer losses on loans backed by the FHA, snapping out the efficacy of the much-publicized housing bill.

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The long tentacles of foreclosures in USA are now reaching out to affect the global economy. It is spreading with no signs of retreat according to the International Monetary Fund. Reporting on the global financial situation as in April IMF states that that the international financial markets continued to be brittle with indications of risks being high on the agenda.

It is a year now since the foreclosure crisis has made its presence felt in USA.. The financial institutions have bared their losses but the story has not ended there – the infection is spreading to other types of credit.

The International Monetary Fund is an institution consisting of 185 nations. It stated, “Credit quality across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.”

Till about a year ago the foreclosure crisis was mainly thrashing the borrowers. Slowly foreclosures began to strangle the lenders in the country. They had eaten too much and the huge number of foreclosures led to their suffering from indigestion. But America is a big brother to all countries across the globe. There is a saying that when USA sneezes the others catch a cold. All those who had eaten at the same foreclosure table of woes are now showing symptoms of discomfort and economic ill health. Banks are being pressurized to raise extra capital despite the depletion of huge bank stocks. This has “increased the likelihood of a negative interaction between banking system adjustment and the real economy” according to the latest report from Global Financial Stability.

At a news conference Jaime Caruana of IMF said, “the downside risks outlined in the April GFSR appear to be materializing, leading to a negative feedback loop between the financial system and the broader economy.”

According to IMF calculations the banks and other financial bodies have written off $400 billion in mortgage investments. There is no sign of improvement with innumerable foreclosures waiting to be auctioned and signs that millions more will become delinquent. The call of the hour is to stem the tide of foreclosures in USA. The stumbling of Fannie Mae and Freddie Mac has further eroded confidence.

Banks are tightening credit and selling assets. In the first quarter of this year the private sector borrowing of US dropped by 5.2%. This level has not been recorded since the year of the last recession – 2001.

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The foreclosure mess mires as $25 billion might be required to save Freddie Mac and Fannie Mae. The Congress is putting its best foot forward to stabilize these two mortgage giants. The federal rescue efforts will ultimately come out of the pockets of the taxpayers. The lawmakers argue that by saving them, the foreclosure victims under threat from eviction will also be saved.

The costly rescue operations have not been inked as yet – it is just a point of worry at this juncture. Peter Orzag of the Budget Office of the Congress said in a written letter to the lawmakers that there are chances that the government will not have to intervene directly to prop up the duo by lending dollars or by buying up stock.

But the Congress has to vote early to allow the treasury authority to temporarily haul the duo on to a lifeboat. It will enable thousands of house owners cowering under the foreclosure cloud to refinance into more easy loans that will be backed by the government. It will halt evictions and put a hold on neighbourhoods being dotted with dangerous empty houses.

Against the wishes of President Bush the bill will pump in $4 billion in to those regions that have been worst hit by the foreclosure crisis. It is this that has made Bush threaten to veto the bill.

The Democrats are scenting blood in this election year when economic blues are uppermost in the minds of the voters. The leaders of the party are planning to include an independent measure that will increase the compulsory limit on the national debt grants from $800 billion to $10.6 trillion.

By setting up a new regulator, new restrictions will be imposed upon Fannie Mae and Freddie Mac. These two own and or guarantee $5 trillion mortgages in USA –nearly half the total mortgages of the country.

An affordable housing fund will be created from the profits of the firm. It will cover losses incurred because of the foreclosure rescue plan. Henry Paulson, the treasury secretary has been anxious for the government to get temporary powers to offer huge sums to prop up Freddie and Fannie so as to calm the investors and thus bring about stability in the financial market. Rumours about their financial instability led to the falling of their stocks.

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All the indications are there of the worsening of economic gloom as foreclosures continue to increase unabated. The crisis gripping Fannie Mae and Freddie Mac, the two pillars of the mortgage industry, spells disaster. It means that getting a loan to buy a house is going to be more difficult than what it already is. There is bound to be a rise in mortgage rates. This is a warning to those thinking of buying a house or refinancing a property loan.

Those whose mortgages are already backed by Freddie Mac and Fannie Mae need not worry provided they are not in a pressing need to refinance.

Further increase in rates will cause a further rush of foreclosures. Already thousands are grappling with reset mortgage rates from this summer. The lending crisis will also affect those looking for other types of financial assistance in the form of car or student loans.

Michael Kitces of Pinnacle Advisory Group, Columbia, aptly opines that a bank that loses out million on mortgage loans can hardly afford to advance money for more loans. The dollars are just not there.

The latest panic has been caused by the loss of confidence in the government supported loan giants – Fannie Mae and Freddie Mac. The timing has been disastrous. The jumbo mortgage giants badly need funds to stay on the rails. Keith Gumbinger of HSH Associates said that although it is difficult to predict the forthcoming maze of events, one thing is clear – capital will have to be raised somehow. To attract buyers to buy bonds for a shaken company, higher yields will have to be offered. The higher cost will then have to be passed on to those seeking loans. If the government fails to send out a lifeboat to Fannie Mae and Freddie Mac then mortgage rates will have to be pushed up above 7% for the first time since the last six years. This will considerably delay the recovery of the real estate market of the county. Even if the government gives a helping hand, increase of interest rate by at least half a percent is unavoidable because of the rising cost of selling mortgage-supported securities.

The national housing loan totals to $12 trillion. Freddie Mac and Fannie Mae own or back half the loans. In the past week all these loans have lost half their market value following doubts about the companies not having sufficient funds to meet the foreclosure crisis.

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Although clouds of foreclosure continue to gather many see a silver lining peeping behind it in Florida. It is impacting however on the real estate market causing prices to slump. This trend will continue throughout this year and perhaps spill on to 2009.

According to RealtyTrac 40,351 residential units in Florida were foreclosed in June this year. This makes Florida rank second in the national foreclosure race coming behind California. In California in June there were 67,000 foreclosure postings.

Florida foreclosure numbers showed a double jump from 2007. Its foreclosure rate calculated to 1:211 – this being the fourth worst in the nation and 2.4 times higher than the national median.

Among the 230 metropolitan regions, Orlando ranked 22nd. The weakest Florida real estate market was Fort Myers. Fort Lauderdale region stood 9th. However sale of single-family units and condos are slowly picking up. Those with schools nearby are attracting customers. There are more cash offers. The locality around Central Florida University is getting warm. Anee-Maire Wurzel of Coldwell Bank said that she had three offers on a house in the university area within a month. One offer came within five days of the property entering the market. Offer for another town house came within two weeks of its entry.

The increase in gas prices is showing an effect in the sense that people want to buy houses in areas from where they do not have to commute far to their places of work. Thus the preference is being given to downtown Orlando remarked Lloyd Page. Page is a senior vice president of Coldwell Banker Residential Real Estate of Central Florida.

Steve Kodsi is a condo developer based in Orlando. He said that with his father he has been in the real estate business right across Central Florida. Other members of the family like the cousins and uncles develop real estate in South Florida. Kodsi’s projects in South Eola region of Orlando are the hottest in his list. Steve commented, “In fact, if we only had the Sanctuary and Star Tower (condominiums), we’d be having a profitable 2008.”

It is too early to comment but perhaps the various measures being taken by the government, lenders and community welfare agencies are having an effect. Or perhaps economics is following its own course of turning around after a plunge. Whatever it may be –many are getting the chance to own affordable houses.

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The forthcoming presidential elections will have no effect on the present crisis – foreclosures will gallop along indifferent to the results of the elections in November. Presidents do not have the power to wave a magic remedial wand. Despite this Democrat Obama and Republican McCain continue to make loud noises and promises about tackling the foreclosure crisis.

Obama wants the government to play a more leading role than McCain. Both are for the FHA coming forth with more affordable new mortgages for the foreclosure victims. This is the only way the house owners will be able to refinance and shift on to a safer mortgage that will be insured by the government. The monthly payments would also be lowered.

The problem in executing this plan is that the lenders would have to agree to sizeable losses by waiving a chunk of the principal loan. On the positive side by allowing this they will save money by avoiding the costly, time consuming, judicial process of foreclosure. They would avoid the hassle of selling innumerable properties in the buyer’s market of today.

Obama is following the plan laid out by Senator Dodd (D- Conn) and hopes that it will benefit 400,000 foreclosure victims. It will not be required of borrowers to have impeccable credit history to avail of these loans. Obama’s point of argument is that “If the government can bail out investment banks on Wall Street, we extend a hand to folks who are struggling on Main Street.”

If McCain’s plan is executed a minimum of 200,000 to a maximum of 40,000 foreclosure victims will be benefited – they will be able to save their houses. But the help will be available only to those who had credit credibility at the time of taking the original mortgage. McCain comments that this will give every American straddled with a burdensome mortgage to trade it “for a manageable loan that reflects the market value of their home.”

Obama’s plan that is linked with that of Dodd and the FHA will cost about $1 billion. The money would come from the profits made by Fannie Mae and Freddie Mac during the housing boom. McCain’s plan, also linked with the FHA, will need minimum $3 billion to a maximum of $10 billion. This money will be got by diverting spending meant for other heads. Also the government would resort to borrowing.

Neither of the plans speaks of a long-term solution.

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