Not so Fast…

Many new home buyers and investors think right now is the perfect time to buy bargain priced foreclosures. But is it really?

Why it May be Too Soon

For nearly a year, banks have been intentionally withholding foreclosures from the marketplace. This allows them to command top dollar for every house they sell because it limits the true available supply of houses. One top REO Agent reported to us that he is currently being assigned just 25% of the amount of homes he would normally see in a month from banks and loan servicing companies in possession of foreclosed home inventory. This agent also reported seeing certain homes fetch as many as 20+ offers from prospective buyers – just hours after hitting the market. Several other top foreclosure agents we’ve spoken to are reporting similar activity in the marketplace. This means that people looking to buy right now are competing for a scarcity of homes and will pay too much in the end. Look for banks to start releasing homes in April 2010. One internationally recognized foreclosure agent reported to our staff in January that a top bank insider told him to triple the size of his support staff this March – to prepare for the influx of homes to hit the market in April.

The Song and Dance Continues

Do you remember what banks were told when they received TARP money? They were told to start lending money – especially in the real estate sector. But what did they really do? Instead of lending money to spur economic recovery, banks were caught (using our tax dollars) investing in government bonds and buying smaller banks already in possession of their own foreclosed home inventory. Banks obviously feel that ancillary investments are safer than creating mortgages right now. This behavior exhibited by banks shortly after the TARP Bill was passed, perplexed many individuals – even top industry experts. Hardly anyone saw the sensibility in banks shying away from the mortgage market.

The underlying message to be gathered from the ongoing reluctance of banks to create new mortgage paper is that it is simply not a wise placement of capital for them at this point in time. It’s very important to note that bank loan guidelines to would-be homeowners actually got much tougher after the TARP Bill was passed – despite pressure placed on them to create new home loans. Simply put: Banks know that new mortgages will be under-collateralized for quite a while and do not want to create new mortgages until the real estate market begins to appreciate again.

Banks are acknowledging upcoming market stagnation and even continued home value depreciation and aren’t going to loosen the lending noose until real estate becomes a safe bet for them. Think about it: wouldyou want to lend your money on something that wasn’t going to appreciate in value or worse yet, depreciatein value? Neither do the banks; they know that creating new mortgages for even good buyers right before a period of stagnation or another round of price drops may cause eventual short selling or walk away foreclosures. Also noteworthy is that many banks and loan servicers are currently facing tens of thousands of ongoing mortgage delinquencies; most of which will become foreclosures to be passed through the system. In fact, foreclosure activity hit an all time high in the third quarter of 2009 and only about 10 percent of homeowners who are behind in mortgage payments are receiving loan modifications. The banks are speaking to us loud and clear folks: right now isn’t the best possible time to buy a home.