Consumer confidence is one of the key indicators that investors always track.  For the past two years, consumer confidence has risen to surprising highs and fallen to desperate lows.  Every time there is a shift there is a reason why.

That’s the scary part.  Consumers are human.  They react to headlines, media and world events that really have very little affect on the overall marketplace.  Savvy investors not only watch consumer confidence but they analyze it.  In fact, the consumer confidence index published by the Department of Commerce affects every market from equities to currencies to commodities to real estate.  If you fancy yourself a real estate investor stay on top of this important index.  You will make many smart moves by staying on top of consumer confidence.

In July, the Certified Financial Planning Board of Standards released a survey through June 30^th, 2010.  The study revealed that consumers are worried about equity markets and currency markets.  The survey, which included more than 1,000 residences from all areas of the country and from all economic levels, indicated that 83 percent of those polled believed their finances would improve over the next six months.

These consumers believe that many sectors of the economy, including residential and commercial real estate, will also improve in the next twelve months.  Progress will be slow and delayed, but progress will be made.

Certain aspects of the June real estate market activity are surprising.  In Southern California’s six biggest counties, real estate sales increased by 7.2 percent in June compared to May.  In fact, activity in these counties was the highest since June 2006.

California trails Arizona and Florida in short sales and foreclosure activity.  Facts are facts.  More money was invested in Southern California last month than in the pat two years.  Additionally, more mortgages were written than in the last two years.

While this is not a complete endorsement, it certainly marks a trend worth watching.  Pick your investment area and follow the consumer confidence trail to short sale success. 

Fannie Mae, which is controlled by the government, is set to give homeowners facing foreclosure a new line of hope. Homeowners on the verge of foreclosure can now rent their homes for a year and beyond. This is a special initiative called the ‘Deed on Lease’ program, which will help the delinquent homeowners stay in their home.

It involves the owners transferring ownership to the company and signing a one-year lease, with a month on month extension after that. This will help owners repay, since many of these delinquent owners don’t qualify for the loan modification program. Through the rent, some part of the repayment can be done. This should not hit the credit rating of the borrowers as hard as the foreclosures would have.

The argument is simple. By foreclosing the property, nobody wins. The bank looses the loan amount, the property price reduces and the owner looses the property. In this new arrangement no one has to move. However, in order to avail this benefit the homeowner should have been staying in the home and it should be their primary residence. They are also required to prove that they would be able to pay the rent decided by the management, as per the existing market price for rent in that locality. This also ensures that there is someone in the home and taking care of the property.

The plan is supposed to be very effective in areas where the homeowners are paying huge amount of monthly payments for homes whose values have reduced considerably. In addition, in such areas the rent rates have been falling as well. Thus, it would be suitable for the homeowners to pay the rent, which should more affordable to them than the actual mortgage repayment amount.

Fannie Mae was forced to develop this option because, otherwise, it would have to use the option of taking over the home ownership. Taking over the home wouldn’t get any money in unless the property sold. By renting the properties, the company definitely stands to earn a regular income.

Foreclosure is intimidating, embarrassing and stressful.  Foreclosure can be avoided by either completing a short sale, or loan modification or forbearance program.  Unfortunately banks have been burned by all these options.  43% of loan modifications have become delinquent within six months.  To complete a short sale, the lender inevitably ends up taking a loss and forbearance programs only work if the homeowner can find work.  If the employment opportunity is elsewhere, the lender is likely to takeover the house anyway.

Homeowners are frustrated.  Most homeowners want to make their payments but simply do not know where to turn.  Lenders do not really want to foreclose.  Owning and maintaining property is expensive and lenders are not geared for this process.

Recently, Sheila Bair the Chairman of the FDIC ordered 53 of the banks under the agency’s control to consider forbearance programs for unemployed homeowners.  The Department of Treasury and the Obama Administration have enacted incentive-based legislation to urge borrowers and lenders to come together before foreclosure takes place.

Lenders are obligated to pursue foreclosure when homeowners do not communicate and attempt resolutions.  Very often, the lender is willing to work with the borrower to attempt a better alternative. 

Most foreclosure actions take six to eight months.  During that time, the borrower can attempt forbearance plans, loan modifications, a sale or short sale or refinancing.  Many homes have decreased in value during the recession and loan values often exceed the fair market value.  This “under water” scenario is most common in the Sunbelt areas.

Foreclosure can sometimes be avoided if the borrower presents a strong case to the lender.  The request should including bank statements, debt balances, a statement of income, pay stubs and a letter of hardship.  Lenders are obligated to protect their investments but borrowers are sometimes surprised with the bank’s willingness to avoid foreclosure. 

RealtyTrac, an internet-based real estate data collection agency reported that August 2009 foreclosures reached 358,471, raising the four-year foreclosure total to more than 4 million homes.  In 2009, more than 1.9 million U.S. homes have entered some stage of the foreclosure process.

Debra Marsh, the executive director of the Lied Institute for Real Estate Studies at the University of Nevada Las Vegas suggested; “Whether you are an investor looking to purchase a rental property or a homeowner who is ready to retire and move someplace more affordable, the price of foreclosed properties right now is right.”

Experienced investors realize that the current climate for buyers is extremely favorable.  The inventory of Real Estate Owned properties has never been as supplied.  More than 1,000,000 homes will fall into the REO category by the end of January 2010.  Real Estate Owned provides qualified investors with serious profit potential as banks remain anxious to dispose of inventory.

As management fees, maintenance and insurance costs continue to mount, many lenders are approaching qualified investors with aggressive financing alternatives.  Qualified investors should convey a written letter of interest along with a pre-qualification letter, a balance sheet and investment history.  Better yet, locate bank employees who handle the REOs and arrange a meeting to discuss inventory and purchase procedures. 

One of the drawbacks to REO acquisitions is the amount of time these transactions can take.  However, investors can use this time to procure competitive bids for improvements, locate prospective tenants or buyers for a quick turnover.  By establishing a personal connection with the bank’s Real Estate Owned or foreclosure department, the investor can expect the relationship to expand.

While many investors envision the buy and flip option, the more likely option is buy and hold.  Analysts feel there are two to three years worth of shadow inventory that will need to sell before prices begin to climb back to 2006 levels.  At today’s prices, the wait should be worthwhile and the closing delay may well work to the buyer’s advantage.    

Early in 2009, the National Association of Realtors (NAR) saw the handwriting on the wall.  On March 1^st, the 1.2 million-member trade organization launched its Foreclosure Prevention and Response (FPR) Program as part of the association’s more comprehensive Right Tools, Right Now program.  The FPR program is designed to assist communities in facing the challenges of the current marketplace and specifically the continuing increase in foreclosures and short sales.  Specifically, the NAR has provided grants to help state and local real estate agencies develop coordinated plans of action to prevent foreclosures and respond to the adverse market conditions.

 

The NAR has also launched a web site featuring educational information and resources as well as listing government, state and private grant programs.  The NAR goes further in describing the best practices for foreclosure prevention and response.

 

The NAR’s funds have been allocated by state and are based upon membership levels in that state.  Local associations needing additional assistance can apply for more help through their state association. 

 

The NAR encourages persons facing foreclosure to enlist the help of real estate professionals who will help design action plans to address the many challenges of foreclosure.  The group does not recommend inaction.  Property owners who remain engaged in the process have an excellent chance of forestalling foreclosure proceedings.

 

Successful strategies often involve requesting grants from the government.  Many realtors are experienced in assisting the development of these grant requests.  Realtors can also assist with applications for private funding. 

 

As the NAR suggests, the dramatic increase in short sales has forced real estate agents to learn much about the procedures.  Property owners can benefit from short sales and should contact experienced agents to assist with the process.

 

The NAR has provided funding for training of real estate agents who wish to learn more about the foreclosure and short sale marketplace.  For the typical property owner, the most difficult step is often facing the le3nder.  Let a professional step in and help.  Often times an experienced third-party representative can more easily accomplish the desired outcome.  If you face foreclosure, do not wait.  Time is against you.  Call a trusted real estate agent today.