Foreclosures Continue to Climb

This week there has been a lot of coverage in the media about the housing market and mortgage values. Now there are about 4.5 million homeowners who live in a home with a value that is below 75 percent of the mortgage balance. By June that number will climb to approximately 10% of all mortgages in the US. Foreclosures across the country are on the rise. Overall, roughly 11 million homeowners owe more than their home is worth. Forbes magazine recently released their list of the top five cities where home prices are falling, and it's happening everywhere. High unemployment and underemployment, coupled with subprime mortgages has resulted in homeowners who just can't afford to stay in their houses. California is leading the way with the largest number of default filings in 2009 - accounting for over 26% of all foreclosure filings nationwide.

Frustrated Homeowners Consider Abandonment

The threat of foreclosure is happening all around the country , and has homeowners worried. This is causing many to consider just walking away from their homes and mortgages, ready to accept any consequences that come with such a drastic measure. Homeowners feel strapped, and turn to "strategic defaults" as their way out. In fact, the number of strategic defaults across the country nearly doubled from 2007 to 2008 to almost 600,000. Even if they have the money to pay their mortgage, they don't think it makes sense to keep paying, so they walk away, sometimes literally sending the keys to their house to their lender. They realize that they could instead rent the same size or bigger house for less money than they currently pay. Some are willing to take the hit to their credit for the next seven years just to get out from under their devalued house. But is this the right thing to do? Some say that it's not completely wrong and the idea has some merit, while others emphasize the moral obligation to make good on the debt owed the bank.

How the Stuyvesant Town "Walk Away" Will Impact Commercial Real Estate

Last week, Tishman Speyer LP, the owners of this $5.4 billion, 80 acre Stuyvesant Town housing development in Manhattan turned over the keys to their banking creditors, defaulting on $3 billion in loans in one of the biggest and now most infamous examples of walking away from a mortgage . It was valued at a mere $1.8 billion in October. But what does this mean for commercial real estate? Is the bottom dropping out on it, too? Stuyvesant Town is a prime example of the "suffering from fallout in values, undercut by the terrible over-leveraging of many properties" that has been prevalent in commercial real estate. Many feel the commercial real estate industry has already bottomed out, and will begin to show a slow recovery mid-year. However, the threat to commercial real estate still looms as about $500 billion in commercial debt comes due in 2010 (Commercial loans are generally have 5-7 year terms). By mid-November 2009, $150 billion worth of commercial property were in distress.

Fannie May Offering Discount on REO Purchases

According to a company notice, Fannie Mae will give a 3.5% discount on REO purchases listed as part of its HomePath division. The offer applies to REO closings completed before May 1, 2010 by the owner-occupant, and can be used towards closing costs or new appliances. Company executives see this as a way of "attracting qualified buyers to the market and reducing the inventory of vacant homes, [which is] critical to stabilizing neighborhoods and helping the market recover." Eligible homes can be found on HomePath.com. This announcement comes weeks after the announcement of the National REO Rental Program , which allows qualified renters in Fannie Mae-owned foreclosed properties to stay in their homes. Renters occupying any type of single-family property will be eligible, and will be offered either a new month-to-month lease with Fannie Mae or financial assistance for their transition to new housing, should they choose to vacate the property.

Buyers Negotiating Power Rises

Home buyers are gaining more negotiating power for the first time in nearly a year. According to December Zillow Real Estate Market Reports, buyers paid 2.7% percent below the listing price on homes bought in December, up from 2.6% in November. This is still below the January 2009 peak of 4.5%. More buyer negotiations results in downward pressure on home prices and potential underwater mortgages. It's these buyers with negative equity that are more prone to defaulting on their mortgages, and ultimately, foreclosures. Take a look at the negotiating power buyers in some of the top Metropolitan Statistical Areas:

Mortgage Rates Hold Steady This Week

According to Zillow, 30-year fixed mortgage rates held steady again this week, with the current rate at 4.87%. Rates have held at 4.80% - 4.90% throughout the week.

Marketing Your Real Estate Investment Business

Let's take a quick look at some of the different marketing approaches you should use for your business. Remember, a combined approach is going to result in the most leads:

• Postcards - a great way to reach a broad audience. Make sure your message is brief and direct, and includes a call to action.
• Direct Mail - another effective way to reach a targeted audience. Buy or build your own list of people going into foreclosure in your sweet spot, and focus on reaching them with your mailing. Start with the county courthouse for a reliable and comprehensive list of foreclosures. Direct mail campaigns will bring in a wide assortment of leads each month. Remember, however, they generally have a 1-2% response rate, so don't rely solely on this method for your marketing. Direct mail will require some sort of follow up. 
• Letters to Homeowners - Sending letters directly to homeowners threatened by foreclosure can help fill the pipeline. The trick is to make your letter appear to be handwritten (this includes the envelope!) and personal.
• Door Knocking - yes, walking right up to someone's front door and knocking. It can be scary and you need to brace yourself for some amount of resistance, but this method can give you that "foot in the door" to build a rapport with the homeowner, identify with their pain and offer them a way out of their financial burden.
• Cold Calling - is a tried and true marketing method. With today's technology, the challenge is greater thanks to Caller ID, but if you have a strong message, distressed homeowners will want to listen. If you make 40 cold calls, you can expect 1-2 leads to result.
• Referrals - using your centers of influence to identify leads for you can be your smartest marketing technique. Reach out to area realtors, mortgage brokers, attorneys, people in the construction business, and even family and friends. While it can be expensive in the form of commission or referral fees, it is a very reliable source of leads. You can't afford not to use referrals. Your goal should be to obtain 50% of your leads through referrals.

The list above is not exhaustive, but should give you a starting point of things to include when setting up your own marketing plan.

Hope your week is filled with real estate investing success.