Real Estate Investing with John Alexander

My 3 Point Summation of the effects of the New Bill HR 1424

1. Nothing really changes for the homeowner facing foreclosure. They continue to lose their homes at the current rate. My Inverse Purchase techniques continue be the most effective and only way to flip homes using no credit and no money.
   
2. Banks don't have to sell to the public anymore at pennies on the dollar.
   
1. Short sales prices adjust to the market rate of what the Government "run" banks will purchase them at. 
2. Current REO's are transferred to the Fed directly or indirectly through other lenders connected to the Fed Program.
3. Home prices will stabilize in the next 4 months, but the low home prices will continue for the next 2 years, minimum. Sellers will continue to have problems finding buyers over the next 5-7 years thus, giving us plenty of opportunity to earn larger than normal profits by using my creative strategies to flip homes.
   

Here's my interpretation of how the Bill will Play out. This is my interpretation and opinion of how the bill plays out, and NOT what the Bill describes in detail.

First, not all lending institutions will want to get in bed with the Government on this Bill and others will not be accepted by the Fed to participate in the bailout. But bad loans from these non participating institutions would be able to sell them to institutions that are Fed participants. The Fed will set the price they will pay for bad loans and/or bad pools of loans. Once this pricing is set, then non participating lenders/banks will know the value of their bad loans on a per loan basis. These loans could then be valued within a few points of what they could be sold to the participating bank. This means that lenders nationwide would no longer need to sell homes at pennies on the dollar nor short sale at deep discounts as they do now.  While this appears to stop short sales at the current deep discounts we see now, (assuming the government pays more that 60 - 70 cents on the dollar for bad loans), it will set up a new flip environment that will grow rapidly for those who have the keys understanding how to work under the new rules.

Since homes sold at deep discounts will start to disappear from neighborhoods, this will have a positive impact on the current downward home pricing trend. Home prices will stabilize at the current pricing for homes in any given area.  However, I don't see home prices rising anytime soon due to the current glut of homes on the market. It may take up to 2 years to reduce the numbers down enough to see growth in pricing again. 


The following is what the Bill actually details...

The Fed will buy and hold either the note and mortgage instrument itself or buy and hold derivatives backed by notes and mortgages. In either case, the Fed will keep the Loan Servicing Company (the company in charge of collections and foreclosures for lenders) in tact on the loans.  The Servicer will continue to attempt to collect and loss mitigate including completions of workouts and short sale transactions. The Fed will encourage the use of HOPE for Homeowners losing their homes to foreclosure. If the homeowner is unable to make payments under a workout program, then the Servicer will process the foreclosure. The Fed then ends up with the title to the home and will then pool these homes and sell them at the highest price available on the open market at some time in the future or when home prices rise enough for substantial profit to tax payers. (This will most likely be done on a sliding scale. They will sell some now at lower prices and as time goes by, raise the price depending on how much of the fund they use up. They can only use 250 billion at any one time).

The nonprofit government backed organization named "HOPE" will work between the homeowner and the Servicing Company so the Servicer can determine if the homeowner can make a modified loan arrangement, this includes the same factors that they currently use. Reduce the rate, reduce the principal etc. But most homeowners losing their homes can't make even that kind of reduced payment therefore, the numbers losing their homes to foreclosure will continue at about the same rate as if this plan was not enacted.

The Rescue Plan was created to help the Banks/Lenders, and NOT for people who can't make their house payment.  This fact means that we investors will continue to operate the same as we have been.


Below are the parts of the New Senate Rescue Bill that pertains to Real Estate Investors.

STANDARDS.—To the extent that the Secretary acquires
 mortgages, mortgage backed securities, and other assets
 secured by residential real estate, including multifamily
 housing, the Secretary shall implement a plan that seeks
 to maximize assistance for homeowners and use the
authority of the Secretary to encourage the servicers of the
underlying mortgages, considering net present value to the
taxpayer, to take advantage of the HOPE for Home
owners Program under section 257 of the National
Housing Act or other available programs to minimize
 foreclosures.

CONSENT TO REASONABLE LOAN MODIFICATION
REQUESTS.—Upon any request arising under existing
investment contracts, the Secretary shall consent, where
appropriate, and considering net present value to the
taxpayer, to reasonable requests for loss mitigation measures,
including term extensions, rate reductions, principal write
downs, increases in the proportion of loans within a trust
or other structure allowed to be modified, or removal of
other limitation on modifications.


ACTIONS WITH RESPECT TO SERVICERS.—In any
case in which a Federal property manager is not the owner
of a residential mortgage loan, but holds an interest in
obligations or pools of obligations secured by residential
mortgage loans, the Federal property manager shall—
(1) encourage implementation by the loan
     servicers of loan modifications developed under
     subsection (b); and
 (2) assist in facilitating any such modifications,
     to the extent possible.

Text of the Bill:  www.notebiz.com/bailouttext.pdf

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