Real Estate Insight

Courthouse-step auctions offer 1,336 properties in foreclosure — 17 are sold

On Friday, O’Toole said, a foreclosed five-bedroom Modesto home on Hemstead Avenue went up for auction with a starting bid of $301,500, even though the lender was owed $537,000 from a delinquent mortgage.

But that $235,500 discount apparently wasn’t enough. O’Toole said no one bid, so the lender now owns the house.

Lenders get more desperate

O’Toole said the size of these discounts continues to grow as lenders get more and more desperate to unload properties.

Early in 2007, O’Toole said, discounts were offered on about one-third of the homes in foreclosure auctions statewide, and those discounts averaged about $9,000. By November, he said, two-thirds of the state’s homes in foreclosure auctions were discounted, with discounts averaging $48,000.

Many of the foreclosed houses in Stanislaus, San Joaquin and Merced counties, however, are being discounted by $100,000 or more, O’Toole said.

Dave Rhodes of Oakdale recently took advantage of one such deal. Two weeks ago, he bid $1 over the starting price for a 1,356-square-foot home on Poppy Patch Drive in Modesto. He was the only bidder and bought the house for $163,181, even though the lender had been owed about $264,000.

"I’m not a big spender. I’m a bottom feeder," said Rhodes, who has been a regular at Modesto’s foreclosure auctions for more than a year. He researches many of the homes being foreclosed, but rarely bids at auctions. His last purchase was in January, when he bought a fixer-upper in Empire.

Hundreds receive no bids

Discounted starting bids "have become more and more prevalent the last three months" in Modesto, Rhodes said. That’s why he comes prepared to bid on great deals.

Before potential buyers are allowed to bid, they must show the auctioneer a cashier’s check for the full amount they’re willing to bid. Rhodes said he had a cashier’s check for $185,000 with him the day he bought the Poppy Patch home, so he could have gone higher had someone bid against him and he wanted to keep bidding.

Competitive bidding is rare, however, even with discounted starting prices.

Example: An Oakdale home on Ranger Street sold new in 2006 for $610,000. It went into default with an outstanding loan balance of $530,892. Last month at the foreclosure auction, the starting price was $395,000. No one bid.

Also last month, a Manteca home on South Sonora Avenue that had an outstanding loan balance of $487,956 was offered for a starting bid of $331,500. No one bid.

And in Merced, a home on West 22nd Street with an outstanding mortgage of $279,785 was offered at $153,000. No one bid.

"There are literally hundreds of examples in these counties," O’Toole said about discounted properties going unpurchased. "They … represent good opportunities for folks to buy properties directly from the bank at a deep discount."

Lenders don’t want the houses

In San Joaquin County last month, for instance, 664 foreclosed homes went to auction, but only eight were sold to bidders. Lenders took back 656 houses with unpaid debts of more than $245 million.

In Merced County last month, 253 homes went to auction, with only one receiving bids and being sold. Lenders took back the rest with unpaid debts of nearly $88.4 million.

Statewide, 12,282 properties went to foreclosure auctions, but only 321 were sold to bidders. Lenders took back the rest, which had unpaid debts of nearly $4.8 billion.

Those lender-owned foreclosed houses then typically are listed for sale with real estate agents or are privately auctioned off. Either way, lenders end up paying assorted commissions and fees to sell the property. While waiting for deals to close, the lenders must maintain the homes and pay taxes, insurance and assorted other ownership costs.

"They don’t want to hang onto those homes, mow those laws and pay those Realtor fees," said Rhodes, explaining why lenders are willing to give foreclosure auction bidders such good deals.

Article at http://www.modbee.com/local/story/152921.html

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Orange County Market Strengthening?

An indicator that is tried and tested is the months of remaining inventory.  You can read up on it in this article ‘How do I know if we’re in a buyer’s market.’

Orange County real estate statistics are out for April and the months of remaining inventory has dropped by 14.2% holding at 9.6.  Last year during the same period it held at 9.3 just 0.03% off from 2008.

So is this market strengthening?

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Top 10 Tips To Get Good Deals in Short Sales and Bank Owned Property

Current real estate markets nationwide have created countless opportunities for buyers looking to purchase real estate priced well under market value. Many buyers have turned to short sales, foreclosures and bank owned (REO) properties hoping to be able to purchase real estate for pennies on the dollar. The buzz in distressed real estate has been perpetuated by urban legends; someone’s brother’s, friend’s, uncle’s, co-worker’s dog who bought a home at 10 cents on the dollar. This buzz is further fueled by late night infomercials filled with testimonials of people who "bought a $500,000 home for $12" and then try to sell you the secret program that teaches you to do the same. This article is intended to give you the straight scoop and also tips that will help get you a good deal.

How Low Will They Go?

People have a major misunderstanding of what they expect to accomplish when trying to purchase distressed or bank owned property. I emphasize trying because those same people end up never buying anything.

So how low will the bank go on a short sale or REO? If you’re hoping for a number, you can stop reading. If you’re hoping to steal the property, you can stop reading. If you’re hoping to buy property for 50% of market value, you can stop reading. If you’re hoping to wait and buy the property for less by dealing directly with the bank, you can stop reading.

There are four things you need to understand: 1) The bank only accepts short sales when they believe it’s in their best interest! 2) Banks do not voluntarily accept losses. 3) Banks will always try to limit their losses. 4) Banks know the fair market value of the property.

These four are in no particular order. If they were, number four would probably be number one. I talk to people on a daily basis who want to make offers so low, I can only assume they think the bank has no idea what the property is worth. Don’t be so naive. The bank has a legal obligation to get the highest amount possible for any property. The bank can even be held liable for the difference if they are negligent in approving a sale that is too far under fair market value with no justification. Stories of someone picking up a property at 50% of market value are either urban legend or missing critical factors that played a part in the purchase.

You Can Get Good Deals In Distressed Real Estate

Yes you can. Just be realistic. If you think you can purchase real estate at a 50% discount, you’re not realistic. There isn’t one single situation, no matter how desperate, that would cause an owner to sell their home for 50% under market value when an experienced Realtor can sell that same house for 30% under market value in the same amount of time under the same conditions.  Anyone who tells you they did is leaving out part of the story.  However, it is very possible to buy distressed homes at a 25% discount. Anyone who tells you a 25% discount isn’t a good deal, doesn’t know real estate or investing in it and you’d be better off steering clear of the real estate advice they have to offer. As a matter of fact, a 25% discount on anything you buy, whether it be gasoline, groceries or a car, is a great deal.

I see so many people that won’t buy unless they can get it for no more than 60 cents on the dollar. They pass on property that’s 25% under market value. Big mistake, here’s why:

Let’s assume there are 10 properties with market values of $100,000 each. 9 of these homes can be purchased for $75,000 each (25% discount) and one at $50,000 (50% discount). This is a fair ratio for illustration purposes. In the real world, it could easily take you more than a year to wait it out for the 50% discount. It’s very possible that you never find something discounted that much.

Investor A buys the 9 homes for $75,000 each

Investor B buys the 1 home for $50,000

Assuming a 5% annual appreciation for each property, this is what each investors real estate portfolio would look like 5 years later:

Investor A’s Equity = $473,653 ($100,000 original FMV x 5% annual appreciation x 5years - $75,000 purchase price x 9 properties)

Investor B’s Equity = $77,628 ($100,000 original FMV x 5% annual appreciation x 5years - $50,000 purchase price x 1 property)

Investor B’s strategy to wait for the great deal cost him nearly $400,000. He made the mistake most amateur investors make; focusing on only one thing - discounted value. Investor A created wealth through leverage. Professional real estate investors know that leverage trumps discounted value every day of the year. Leverage is so powerful, had Investor A bought all 9 properties at full market value ($100,000), he still would have equity of $248,653 or triple Investor B’s investment with a 50% discount. In this market, you can buy real estate at a 25% discount all day long and maybe never find the 50% discount.

Top 10 Tips For Purchasing Short Sales and Bank Owned Property

1. Be realistic. Reread the tale of two investors above if you still don’t understand how being unrealistic can and will cost you dearly.

2. Get off the fence and get in the game. If you’re waiting for the market to drop, reread the tale of two investors above to remind you of how much waiting can cost. Learn more about timing real estate markets here: Secrets for Timing The Real Estate Market

3. Know the true market value of your target property.

4. When making an offer, be able to support the amount of the offer. Pulling a low ball number out of thin air isn’t going to work. If you don’t understand why, reread the four things you need to understand in bold type above.

5. In a short sale, the bank will only accept your offer if it’s a better alternative to foreclosure. This means that the bank will take the fair market value of the property in its current condition, subtract the costs of foreclosure and selling it as an REO, and the "fudge factor". The "fudge factor" covers the costs that will accrue if the bank has to take the property back at foreclosure and includes lost opportunity, risk of vandalism of the vacant property after foreclosure, declining market risks and time to sell as an REO. The "fudge factor" will be the only area the bank will be willing to negotiate. This is the supporting amount mentioned in tip #4.

6. In REOs, the bank can be more "motivated" during certain times of the year. They will generally be more likely to entertain low offers at the end of the month, quarter and year. The banks want to get real estate off their books and these calendar targets can create motivation. But remember, be realistic. Just because it’s nearing the end of the year, doesn’t mean the bank is going to jump at an offer that’s ridiculous.

7. Having access to REOs before they are listed can give you a big advantage. How do you get this information? Here’s one way: Hawaii REO Bargains

8. Don’t get emotional or stuck on any property. Real estate investing should be run like a business. Keeping emotions out of it allows you to make rational decisions.

9. Understand and accept the risks involved with these types of properties. To get the good deals, you will have to accept risks involved with them.

10. Retain the help of an expert Realtor with experience in these types of properties to help you. Don’t think you can do it yourself. That mindset can cost you thousands. Besides, as the buyer, you don’t pay for their services.

Hope this helps. Until next time, happy house hunting!

Elliot Lau

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Hawaii REO Bargains

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Hawaii Real Estate Market Update

During April, sales of 256 single-family homes and 384 condominiums were reported through the Board’s MLS, decreases of 25.1 percent for single-family homes and 27.1 percent for condominiums, compared to the same month last year. This brings total single family home sales on Oahu to 929 for the first four months of 2008, a decrease of 23.0 percent over the same time period one year ago. Total condominium sales through April were 1,421, a 24.7 percent decrease from last year. The median prices paid for Oahu properties in the first four months of 2008 were $625,000 and $329,000, respectively, a decrease of 0.8 percent for single-family homes from the same time period in 2007 and an increase of 2.2 percent for condominiums. The total dollar sales volume generated in the housing market for the first four months of this year was $1.311 billion, a decrease of 21.2 percent, or $352 million, compared to the $1.663 billion produced one year ago.

There is 3.9% decrease in Single Family Homes Median Sales Price from last year, while a 0.6% increase in
Condominium Median Sales Price in April 2008 compared to the same month last year.

There is a 25.1% decrease in Single Family Homes Sales Volume from last year; and, a 27.1% decrease in Condominium Sales Volume in April 2008 compared to the same month last year.

“Median prices are holding pretty firm in the current Oahu housing market, at $639,000 and $327,000, in April,” sad Dana Chandler, President of the Honolulu Board of REALTORS®. “This contrasts with the significant losses of home values in Mainland cities tied mostly to the continuing credit crunch. We continue to be fortunate that this is still a stable environment for both buyers and sellers.”

“April’s data shows that there is enough demand, albeit lower than last year, to maintain our residential price levels,” added Harvey Shapiro, Research Economist at the Board of REALTORS®. “The U.S. Federal Reserve cut overnight interest rates this week by only 25 basis points, but this is seen as a positive move for the housing industry.”

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Another Sign Lenders are Tightening Standards

Government sponsored provider of home loans, Fannie Mae, has just tightened the standards for home mortgages it guarantees or buys. 

Fannie Mae has informed lenders that it will require a minimum credit score of 580 for most loans it buys on an individual basis.  Previously Fannie Mae had no minimum score.

Credit scores or more commonly known as FICO scores provide the best guide to future risk based solely on credit report data. The higher the credit score, the lower the risk.  Credit scores range anywhere from 300 to 850.

Reestablishing credit after a foreclosure has also been changed.  Previously someone who has gone through a foreclosure had to wait four years before they could get a Fannie Mae mortgage.  That is now up to five years.

In other news, Fannie Mae informed loan services that it could exend forbearance periods on delinquent loans as long as six months so that the borrowers could find an alternative to foreclosure.

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Rent or Own? If You Have The Down Payment, Buy…Here’s Why

After looking at all the costs involved in buying house, you may have begun to have second thoughts: Perhaps, it is better to rent a home.

Real estate in most areas today is not a top investment compared with investment securities. You’re not going to get a 30 percent return on your home today; but so what? The Mortgage Bankers Association of America advises people to think of a home as shelter, not an investment. Wealth accumulation is secondary. You need a place to live. If it happens to appreciate, great. If the value doesn’t go up or worse, goes down, you still need shelter and as you’ll see here, you’re better off owning in a declining market than renting.

As shelter, most experts say if you can afford the down payment, it makes sense to buy your home rather than rent it. That’s because you can deduct mortgage interest on income tax and build equity in your property. This is especially true when mortgage interest rates are low. Mortgage interest rates are deductible up to a $100,000 annual limit.

Example:

1 bedroom condo – market value is $250,000

Rental for this condo – $1400/mo.

A buyer of this condo has a gross annual income of $40,000. The monthly mortgage payment is $1,349 on a 30-year mortgage at 6% interest with 10% down. In the first few years, 80 percent of that payment goes to interest and is therefore tax deductible. In the 35 percent tax bracket, this homeowner will save about $454 more a month in taxes with the home provision versus with only a standard deduction.

What this means is if you were a tenant renting this unit, you would pay $1400 a month. As a tenant, you receive nothing in tax benefits and zero in equity growth.

As an owner, your monthly mortgage payment is $1349. There are other costs associated with owning this condo. Maintenance/Association fees, property taxes, mortgage insurance if less than 20% down payment. Let’s say the Association fees are $300/mo., property taxes are $75/mo., and mortgage insurance is $98/mo., your total monthly expenses associated with owning would be $1821. As an owner, your tax deductions would total about $454 resulting in an effective monthly payment of about $1367 – less than the cost of renting.

If this condo appreciated at 5% a year, you will have gained $12,500 just from the increase in value in the first year of owning it. If the market declines, so what? Again, if you treat your home as shelter, you still paid less each month owning it versus renting it. Any gain is just a bonus.

Additionally, your mortgage payments will never increase for the next 30 years. Think about this: If you could lock the monthly rent you currently pay for the next 30 years, would you? Of course you would. Well buying your home with a 30 year mortgage is exactly the same as locking in your rent for the next 30 years.

The following chart shows average rents of respective size rentals by year:

On average, the rent for a one bedroom condo increased 51% in Honolulu, Hawaii and 21% in Orange County, California. Rental increases are not isolated to these areas either. Recent reports indicate rents have increased 40% during the past two years in New Orleans and 30% on average nationwide.

Hope this helps anyone sitting on the fence wondering what to do. Until next time, happy house hunting!

Elliot Lau

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California REO List

New list of Southern California distressed sales.  This post will focus more on bank owned properties (REOs).

Orange County

NOD List

NTS List

Banked Owned

Los Angeles

Banked Owned

Riverside

Banked Owned

San Bernardino

Banked Owned

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Top 6 Incentives for Home Sellers

To frustrated home owners trying to sell their homes in this market, it seems like the market continues to worsen daily as they are subjected to an endless media barrage of gloom and doom. These owners already know there’s a glut of properties on the market this spring. As if it wasn’t hard enough competing with highly motivated sellers for the shrinking universe of buyers, they now find themselves competing with banks and large lending institutions that are both willing and able to drastically slash prices to unload the record number of homes they’re getting back from foreclosure.

As of March 2008, there were nearly 4 million homes for sale in the U.S., up one-third from just two years ago. Parts of California have more than two years of remaining inventory now on the market.

Just because sellers have shifted into survival mode doesn’t mean they need to push the panic button as well. However, it does mean sellers have to get creative to make their home stand out from the others. Sometimes desperate times call for desperate or even bizarre measures and incentives. Stories surfacing include a seller who threw in his classic 1967 Pontiac GTO, others buying $10 St. Joseph Statue Home Sales Kits, featuring a small plastic statue of the saint that owners are supposed to bury under for-sale signs. (If you’re into that sort of thing, the company’s phone number is 1-888-bury-joe), and even a woman in California who offered to bake cookies for a would-be buyer every week for a year.

But before they even get to that point, many sellers have considered offering a variety of incentives to sweeten the pot in this buyer’s market. Two distinct sets of guidelines seem to be emerging for sellers: one for those who need to sell almost immediately and another for slightly less-pressured sellers. The following is to help the first group of desperate sellers.

Top 6 Incentives for the Must-Sell Seller

For owners who absolutely, positively must sell, here are the top incentives and strategies currently in use:

1. Paying the buyer’s down payment: With the elimination of nearly all 100% financing loans came the elimination of a large pool of buyers with no cash for the now required down payment. While most loans don’t allow the seller to furnish the down payment for the buyer, a seller is allowed to do it in conjunction with certain types of loans. Sellers who need to sell are putting their homes onto a list of homes that are participating with DPA programs. While most people know about FHA loans, few have heard of “down-payment assistance” (DPA) programs. Buyers needing 100% financing can purchase a home using this method, and since FHA limits were raised, it’s now possible to get 100% financing on a rather large purchase. To participate, sellers must agree to contribute 1%-6% of the selling price to the DPA who in turn gifts the down payment to the buyer. The normal amount is about 3%; a drop in the bucket compared to the price reductions many sellers are making in this market. As a bonus, the contribution amount is tax deductible. Go to The Nehemiah Program to learn more about the largest DPA.

2. Cash-back offers: These include offering to pay a year’s worth of property taxes or even a year’s worth of mortgage payments. How much attention do you think a seller offering to pay the buyer’s first year of mortgage payments would attract? Sounds like a lot? It amounts to about 5%-7% of the purchase price. Again, depending on the urgency, that’s not much compared to the alternative of not selling. Also increasingly common are "cash-back" offers that can be credited towards repairs, landscaping, closing costs or mortgage points.

3. Glamour and glitz: Exotic vacations, timeshares, cars, season tickets for professional sports or even the opera, art, high-definition TVs, thousand-dollar gift cards for gasoline, and more. The more exotic, the better your chances of luring that dwindling number of buyers.

4. Lease-to-own options: This can be a motivator for tentative buyers who fear the market will drop further or for buyers who are short on down payments or who can’t get traditional financing in tightening credit markets. Option structures differ greatly. A rent-to-own agreement, also called "lease-to-own" or "lease-purchase," is generally a binding agreement to buy a home at a set price at the end of a set period. It offers a little better security for the seller. A lease-option arrangement gives the renter a legal buy-option after a given period, but isn’t an obligation.

5. Increase, not decrease the commission: Not all incentives have to be for the buyer. During the last real estate frenzy in which sellers enjoyed multiple offers before the home was even listed and buyers lining up to offer more than the list price for their homes, it started to seem like all you had to do to sell your home was put it on the MLS. The commissions could hardly be justified which led to sellers expecting discounted commissions. That same mindset doesn’t work in this market. With a glut of homes offering full commissions, agents aren’t having to show homes that aren’t offering full commissions anymore. Sellers that need to sell should think about offering bonuses or higher percentages, not less.

6. "Mr. Big" of incentives — proper pricing: It’s pretty simple, a home is going to have to be priced correctly in relation to comparable sales as they exist today, not the 2004-2005 pricing that your neighbors got. Incentives and everything else take a back seat to a home priced correctly.

The Value of Staging

Many developers are offering big incentive packages. While many of those can add up to tens of thousands of dollars in the form of price breaks, throw-ins, credits and add-ons, buyers should be aware that the biggest home-value drops also occur in those same areas where there’s an abundance of new construction. Incentives offered by owners in more established, mature markets carry more relative weight.

Too many concessions and incentives on the other hand can backfire by making buyers suspicious. It can lead to some buyers thinking the seller must really be desperate. And then begin to wonder, ‘What’s wrong with this house?’" Bottom line is, two things really sell a house, pricing and staging.

Don’t under-estimate staging. A home that’s priced correctly but sits on the market is typically cluttered, dirty and poorly presented and have been branded as tough sells by agents. Agents don’t show these because they are embarrassing and a waste of people’s time.

The average cost of staging a home is about $2000 — far less than a price reduction on the average home. Staging focuses on the "three C’s": cleaning, clutter removal and colors - mostly neutral colors with bright accents thrown in for balance. Staging reveals the benefits of the home and helps the buyer "imagine themselves living there."

A 2007 survey encompassing all regions of the U.S. indicated that staging a for-sale home nets a 343 percent return on investment . Another survey of 400 homes in the U.S and Canada revealed that homes prepped for sale by an accredited staging professional sold in an average 31.8 days compared with 161 days for non-staged homes.

Hope this helps. Until next time, happy house hunting!

Elliot Lau

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Blacklisting Hits Homesellers

In the nation’s worst-hit real-estate markets, home sellers are suffering a new blow: They are being blacklisted by lenders. As property values decline and credit markets contract, home lenders nationwide are growing ever more unwilling to finance home purchases in sharply declining housing markets, driving prices down further. In some cases, lenders have ruled out entire geographic regions and property types altogether, most notably high-rise condominiums in South Florida and Las Vegas.

Lenders including BankUnited, a unit of BankUnited Financial Corp., and Vertice, a wholesale lending unit of Wachovia Corp., have elected not to lend to some areas or properties because of declining prices. Countrywide Financial Corp., the nation’s largest mortgage lender, considered a similar move last week before reversing course, and other lenders have tightened underwriting guidelines for slumping markets so as to make financing nearly unattainable.

There are "lists circulating" from banks, says Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are pushing down prices when news of the black-marked properties spreads.

Moreover, the blacklisting isn’t always obvious. "We don’t call it blacklisting," said an official at a large bank. "We just don’t write the loan."

The banks are acting to protect themselves in a steep downturn. But the drying up of loans threatens to create a self-perpetuating cycle.

"If mortgage credit dries up, then prices are going to fall more," says Morris Davis, a professor of real estate and urban land economics at the University of Wisconsin-Madison’s School of Business and a former economist at the Federal Reserve Board.

Countrywide sent shudders through the ranks of mortgage brokers when it sent brokers an email recently under the heading "Urgent Product Elimination." The message announced the company would stop approving its Fast and Easy and Alt-A mortgages for all high-rise condominiums nationwide, effective almost immediately.

Countrywide’s Fast and Easy loans don’t require verification of income, brokers said. Alt-A loans are generally provided to buyers with good credit who lack full documentation.

Countrywide reversed its policy a day later without explanation, but the episode demonstrated lenders’ reluctance to underwrite mortgages in the country’s most uncertain real-estate markets. Countrywide didn’t respond to multiple requests for comment.

Florida’s largest bank, BankUnited Financial Corp.’s BankUnited FSB, drew up a "nonpermissible condominium project list" that identified addresses of 191 condominium developments in Florida and Las Vegas for which the bank won’t provide financing. The list was reported by the South Florida Business Journal.

For more than half the properties listed in the memo, the bank cited "declining market value" as the reason it wouldn’t provide financing. Melissa Gracey, a spokeswoman for BankUnited, confirmed that the list is still in force and said the bank’s "very conservative" lending guidelines rule out mortgages for such properties.

In some cases, lenders have blacklisted not specific properties, but entire geographical areas.

In December, Wachovia’s Vertice unit stopped writing mortgages for all condominiums in South Florida, says Kasey Emmel, a company spokeswoman.

Wachovia’s main lending operation "continues to offer condo products in all markets, including Florida markets," says spokesman Don Vecchiarello.

Blacklisting isn’t redlining — the illegal practice of restricting lending on a socioeconomic basis — so it doesn’t run afoul of fair-lending laws, says Alexander Bono, a partner at Schnader Harrison Segal & Lewis, a law firm in Philadelphia. Banks are allowed "to identify a county when it’s based upon something other than socioeconomic conditions" and then change its stipulations for lending there, Mr. Bono says.

Even when banks haven’t officially ruled out entire markets, the stipulations they use before lending in such areas are becoming very stringent, and can leave mortgage credit all but off-limits.

"Companies won’t lend" money for purchases in developments that aren’t at least 60% filled, says Paul Miller, an analyst at Friedman Billings Ramsey & Co., a unit of FBR Capital Markets Corp. When vacancy rates in a development are higher than 40%, Mr. Miller says, "your condo fees go through the roof," since a development’s minimum maintenance costs remain static, regardless of the number of residents. And if condo fees remain high — as underwriting logic follows — then homeowners may have a harder time making mortgage payments.

"We’re very cognizant of the risks involved" with "condominium developments in particular," says Terry Francisco, a spokesman for Bank of America Corp.

Other larger lenders have also tightened standards for mortgages they write in declining regions.

In December, Fannie Mae, the nation’s government-sponsored mortgage-lending behemoth, issued an announcement titled "Maximum Financing in Declining Markets."

"When a property is located in an area identified as declining," the announcement says, the lender originating the loan must reduce the maximum amount it could otherwise lend to that buyer by 5%.

In healthy markets, New York’s J.P. Morgan Chase & Co. will currently lend borrowers a mortgage equal to as much as 90% of a property’s value. For borrowers in states that have declining markets, however, the bank reduces that maximum, says Tom Kelly, a spokesman for the bank. J.P. Morgan then reduces that level even further for borrowers in the worst declining markets, Mr. Kelly says, though he declined to provide specifics.

CitiMortgage, a wholesale lending operation of another large Wall Street bank, Citigroup Inc., maintains a list of "declining market areas" that red-flags dozens of counties in more than 10 states. Citi reduces the amount it will lend for properties in those counties "by at least 5%," the document says.

"We routinely review our credit parameters, including maximum loan-to-value ratios, in declining markets," says Mark Rogers, a CitiMortgage spokesman.

One silver lining: For "all-cash buyers," Mr. Zalewski says, the lists are "heaven sent."

Buyers who have cash "can use that to negotiate," he says: "If you don’t sell to us, who are you going to sell to?"

Source:

Dawn Wotapka and Marshall Eckblad
From The Wall Street Journal Online
March 06, 2008

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