Necessity is a Mother (and other interesting midweek tidbits)

2008 has been incredibly interesting, challenging, and down right frustrating in many rhelms. We are on the verge of a historical presidential election. The 8 year sentence is almost up. And, well, the economy, is…well sputtering along even if you didn’t use your stimulus check to go buy a big flat screen TV. 

But all of these challenges, might actually be a blessing in disguise for those in real estate–especially for those in affordable housing development, advocacy, or policy. It’s requires a moment of pause, reflection, and an evaluation of the direction the real estate boom/bust has taken all of us–market rate or not. 

And it seems between scrambling to save face, averting another financial “crisis”, or trying to figure out how to get deals done in one of the most challenging environments ever–well the actions have been interesting to save the least. 

Let’s take a looksee, shall we? 

 

• The DC Metro area had one of the highest appreciation rates in the country–and now has one of the highest depreciation area. That goes for the rapidly expanding (to the point of massive congestion) and rapidly unaffordable Prince William County, VA. In response? The county government has enacted a loan program to address the rate of foreclosure as well as to address homeownership affordability–at least for one group. 

           They get an A for effort–but its not that original. Many places have been there, done that, and failed to accomplish the end goal. Let’s hope they look at other programs to identify successes and failures…then again this is government.

• Regardless of whether you agree with some sort of assistance for homeowners who have been “caught out there” with the sub-prime/Alt-A mortgage mess, I would hope we all agree that there is a significant procedural issue in identifying who actually holds the note–especially if you are a homeowner who wishes to contact you lender to negotiate some sort of repayment option if you are behind. That’s why I think, on face value, this works. And could be a model for other states. 

Now, if only this Governor guy could get it.

• While not innovative, its about time. Baltimore gets it together to create a land bank for all those vacants they talked about on The Wire. 

Guess the new mayor has the political will to do something about it–rather than use B’more as a stepping stone to the Governor’s mansion (watch the last season of the wire–uncannily true about a former mayor I will not mention.) Of course, the proof will be in the figgy pudding. 

• And lastly, as homebuilders scramble to get rid of inventory, keep building, and keep their stock from taking that long walk off the short pier to bankruptcy, the incentives just keep a coming

1. Bozzutto Homes has a “make us an offer” sale
2. Get a free mortgage payment in Florida.    

Isn’t this how some of them got into trouble in the first place??

What responses to the “real estate” decline have you read about or implemented that is interesting, innovative, or just down right dumb? Please share.                                         

How to make a Big Splash that doesn’t Mean as Much as you let on(and other interesting mid-week tidbits)

• Remember, that sort of good news I announced about Fannie Mae’s change to the declining market policy? Well, here is the real deal.

                        Now you see, why I said sort of.

 

• But Senate approval of the expansion of government-insured mortgages is actually very good news.

 

• Market, Market, Market that’s all that anyone in real estate has been discussing these days. Well, The Reinvestment Fund has just launched a new tool to help non-profits access market and demographic data. 

 

• Poor Brokers–it turns out the golden cow was just a gold foiled chocolate bunny.

              I’m fortunate to know some great ones. But for the shady ones, buh-bye. I hear workout specialists are in season.

 

 

Fannie Mae Caves…

Great news coming out of the housing policy world. It seems housing policy advocates have one a victory regarding Fannie Mae’s changes to the declining market policy.

And this is fabulous news for low and moderate income home buyers and others who might be looking to buy a home in markets that might have been percieved as declining…

Sort of.

Upside Down Does Not= Walking Away (Necessarily)

I have argued this point professionally, in my own research, and sitting around the dinner table.

Owner-Occupants are not necessarily walking away from their homes because they are upside down, i.e negative equity ( Thanks Tom). Just like they have not in the past.

If they have the means, they are staying put.

After all, before the bubble, most folks who were purchasing homes to live in them saw them as long term investments.

Or places to raise families, have children, and do never ending yard work.

Nowhere to go but Up? (and other titilating mid-week tidbits)

• If you are a developer of tax credit projects, so far, the news has not been good. But the worst might be over (Tax Credit 101 coming soon)

 

• Confidence in Fannie and Freddie is up….even though their stocks are down.

 

           Let’s see how much walking out of this is done on the backs of the folks they  are supposed  to  help access the markets.

 

•  And even when many say that the housing picture is going to get worse—

 

• Others believe, there’s nowhere to go but up .

And what do you think?  Is the sun getting ready to rise on the housing market?

Leasing to Own a Home: A Viable Option

I have watched and even taken part in the push to help more  folks of every income strata become homeowners.  One thing I have learned is that no matter how much counseling you give folks, they sometimes get “too big for their britches” as my grandmother would say, and choose to pursue mortgage products that may not be in their best interest. Using interest-only and ARMs they have been able to get bigger homes in slightly better neighborhoods that need ALOT of work. Some of them have gotten sucked into homes in the panic of searching that may not appreciate or neighborhoods that may not change anytime soon and paid too much with no way out. 

You would surprised to know that the folks who have been most wanton in pursuing “exotic mortgages” are not the low and moderate income folks, but the folks who are mid-career professionals living in markets where the cost of housing is not their friend. Interest Only, ARM’s, and the ilk tend to be used by folks who think they have a more sophisticated understanding of mortgages. As of late, they are house poor, and unable to upgrade, and unable to do the renovations that are needed to be done to fully realize the investment potential. 

Yet, in some cases, there was another option - a much simpler solution they did not consider–Lease to Purchase.

Lease to purchase could be a good option for anyone–from a young professional to a low to moderate income family. Lease to purchase gives the lessee the option to purchase the home within a specified time period–in most cases three years (with the exception of low -income housing tax credit developments which have a 15 year term). The lessee (the borrower) then pays an option fee (1%-5%) and a rent premium which are credited to the purchase price.  Or the borrower can enter into a “right of first refusal”

I know. Lease to purchase seems scary. After all, on the surface it might seem like such an option would benefit the seller much more significantly than the buyer. After all,  if the borrower choses not to excercise the option, the rent premium and option fee are usually not refundable. But in my opinion, they are a great option and both the seller and borrower can benefit if both parties go in with their eyes wide open.

Not so Great Credit–Not so much a problem

Buying a house with good terms is all about your credit score and credit history. If you have had credit issues in the past or need to clean up your credit,  Leasing to purchase gives an opportunity to fix it without having to pursue a more costly sub-prime or other high cost loan product. This option can put you on the road to homeownership a little more quickly while you fix your credit so that you can acquire the most favorable mortgage terms possible when it is time to excercise the option.   Though, you may be paying a little more than if you were just renting without the  a buy option you are also reducing the eventual purchase price or creating a nice little deposit toward the home purchase depending on what you negotiate.

Be an Urban Pioneer–with committment issues

So, perhaps just as I currently am, you are looking at living on a block in a neighborhood or in a city where a great deal of revitalization is occuring in significant pockets– but certain areas are leaning closer to “wait and see” rather than “buy! buy! buy!”–though the latter could easily be on the horizon. Lease to purchase gives you a chance to sample the milk without buying the cow. While you are deciding whether or not the block, the neighborhood, the amenities, and even the house is for you, you are still moving toward homeownership without having to be fully vested until you are absolutely sure.

Getting in Before the Water gets Hot

Lastly, a lease purchase, if negotiated appropriately might put you in a position where you are able to purchase a home with less premium than if you were on the free market. If you as the borrower negotiate a deal in which a specific offering price will be reserved for you should you excercise the option in a certain time period, you might find yourself with a bit of an equity cushion.

In the end, this option is especially attractive if you are planning to live in a transitioning city. It give you time to put yourself on the best foot toward homeownership and is particularly a good option if you have credit problems or are unsure of the market.  Its all about how you negotiate. If the negotiations are done properly it can be a win-win for the buyer and the seller.