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The 700 Billion Dollar Solution, U.S taxpayers request help
Preface:
Special thanks to Gabe Houston for his proposed “SOLUTIONS” document on the subject. After months of encouragement, Mr. Houston has memorialized our collaborative thoughts and conversations to paper. The proposed SOLUTION is a response to a letter sent from Leo W. Gerard of the United Steel Workers Union to Treasury Secretary Paulsen, dated October 28, 2008. In this letter Mr. Gerard clearly outlines the short comings of the actions taken by the Congress with the $700 billion dollar bail out.
This document provides an economically responsible and realistic solution that was ignored in the frenzy of the last actions of an exiting administration.
Mr. Houston and I have first hand knowledge of the banking sectors’ unwillingness to take losses and liquidate their non-performing assets. There have been an innumerable amount of investors standing in line offering to buy billions of non-performing REO assets from the banks holding the properties. These investors are simply seeking to assume the risk and gain any potential profit in converting non-performing assets into fully performing investments.
The greed of the banking sector prevailed as banks were unwilling to liquidate their REO holdings for relatively small realized losses. The banks refused offers by fund managers, portfolio managers and individual investors to purchase both individual properties as well as bulk REO portfolios at 50-75 cents on the dollar. The banks to date have refused to liquidate their losses at any amount below 80-95 cents on the dollar. Thus plunging the credit market into what the banks conveniently and erroneously label “liquidity problems”. Lack of liquidity implies there are no willing buyers for a willing seller. The current “lack of liquidity” in the housing market is simply a result of the banks unwillingness to sell their REO holdings to the market at current market prices. Today’s prices are deemed “too low” by the banks. Selling at the current bid price requires the banks to take a loss on their investment as a result of their poor and irresponsible investment underwriting. Instead of realizing these losses, the banks sought and received a governmental bailout on the backs of the U.S. taxpayer.
Online Real Estate Auctions
After 14 years of working in the computer industry, I was naturally drawn to the concept of online auctions when I got involved in real estate. I’ve spent the last 3 years using online real estate auctions and have learned a lot.
I’ve found there is a lot of confusion on how they work or how to make them work. I will share answers to the most common questions I’ve been asked during the past 3 years.
Q) Will an Online Real Estate Auction force me to sell too low?
A) No, not if you structure it correctly. There are 3 main types of online auctions. If you use a Reserve Auction, you can set a hidden reserve price on the system and the auction will not be considered successful unless the reserve is met. If you use a Minimum Bid Auction, you don’t set a system reserve but you can state in your terms that the winning bid is subject to seller approval. The third type is an Absolute Auction, and this is the only type that could force you to sell it too low. Using this type of auction is not suggested, unless you are prepared to sell at a loss.
Q) Are online bids legally binding?
A) Yes, if the terms indicate they are and the online auction system has a trail to show the bid was made by the person. There are pages of legal information I can point you to on this, but I want to keep it short.
Q) What if the high bidder backs out?
A) There is no difference than having a signed sales contract on a property. You decide how much of an effort you want to take to pursue the person legally.
Q) How many properties have been sold through online auctions?
A) No one really knows. I know of many that I’ve sold personally, I’ve also know of many others that have been successful as well. The main thing to realize is the auction method of selling works well. The success, whether live or online all depends on how well the method is executed.
Q) What’s the secret to being successful with an online real estate auction?
A) Good information and Advertising. The online listing needs to contain thorough information about the property, terms that are easy to understand, pictures and a virtual tour, if possible. If the listing is put together well, the other key is to get the word out so people know about it. There are several good Internet advertising sites Free and paid that help along with yard signs, fliers, ads in local publications, etc.
Q) Aren’t auctions just for distressed properties that need a lot of work?
A) No, not anymore. I’m starting to see auctions for brand new properties from builders and banks that just need to get rid of them. Owners of any type of property, who are motivated, are turning to auctions for a solution.
Q) How long does an online real estate auction last?
A) Typically about 3 weeks. It depends on your marketing campaign and how many open houses you plan to do.
Q) Do I need a special license to do an online auction?
A) In every state, you need to be a licensed real estate agent. However, there is no requirement that I’ve come across that requires a special license.
Q) Aren’t online auctions just a fad that will go away when the market gets better?
A) I don’t think so. I think there are more auctions today than ever before because of the current market. However, I also think they provide a solution that is needed in any market, and sellers will find they are an excellent option for a property in high demand too. There are lots of examples on EBay of a unique item selling for some crazy amount. What owner or real estate agent wouldn’t want to watch hungry buyers fight it out online?
Q) How do auctions give you 3 opportunities to sell?
A) By holding an auction it’s not uncommon for someone to bring a written offer when the auction is announced to try and get it without competing with others. The second opportunity is when the auction ends with a winning bidder. The third opportunity is from follow-up with all interested buyers if it doesn’t bring a winning bid.
Q) What about non-U.S. buyers?
A) An online auction makes a property open to a worldwide audience. I was surprised the first time I saw a buyer from France win an auction. It demonstrated to me that online bidding is an effective way to get a property in front of a worldwide audience.
Q) Will an online auction work in my market?
A) It depends. If you are in an area where most people have high speed Internet access, than it will work. If you’re in an rural area where most people use dial-up and therefore aren’t on the Internet much, it will be much harder.
Q) Do I need a special contract or process to sell through an online auction?
A) No. An auction is simply getting you to agreement on price and terms with a buyer. The standard contract takes over from there, just like any other purchase agreement.
Thanks for Reading! I hope you learned something.
Tom Wood
Real Estate Auction Systems
Real Estate Auctions vs. Traditional Real Estate Sales - Which Is Right For You? | Part 1
This is a great topic for home sellers as they do not really understand the auction method of sale as it pertains to real estate. So, is selling your home at auction a better way to go rather then listing it with a traditional real estate agent?
The answer is an emphatic yes.
The auction method of sale gives consumers many more options when it comes to selling their home. But before I speak to the advantages let’s clear up some of the misconceptions. The word auction does not always mean foreclosure or short-sale. The auction method of sale is absolutely not always for distressed situations. This method of sale and the psychology behind it generates a tremendous amount of curiosity and interest for home buyers. Just seeing the word Auction on a real estate sign or in the MLS get buyer’s energized. If the auction is marketed correctly and administered ethically by an Auctioneer, the community will recognize this means of sale as a positive and not a negative. Buyers will always want to preview auction properties before traditional real estate listings.
The auction buzz
So now you have the energy and a buzz around your property that is being sold at auction. What are the advantages? The first advantage is flexibility. If you list your home with an auction firm, make sure they are also licensed to carry out traditional real estate sales, too. If the home does not sell at auction then it can immediately come on the market in the traditional sense. This will give you a competitive advantage with respect to a sales strategy. Yes a sales strategy, more tools that can bring an actual signed sales contract in less than 30 days. By coupling the auction method to traditional real estate sales you have created the perfect situation to sell your home.
Google Aids Mortgage and Insurance Underwriters in Secrecy
Here is a bit of information I think that will be valuable to consumers who are looking for mortgage financing or are applying for new homeowners insurance. I bet you didn’t know that Google Maps “street view” may be playing a part in whether you are approved and or may increase your insurance premium.
This issue is similar to those applying for new jobs as well. The top HR departments and underwriters are Googling you. So don’t be surprised if you are declined for a job, mortgage financing, or insurance based on your internet search engine audit trail.
In real estate and finance this is becoming more and more apparent with the credit crunch. Underwriters are taking a deeper and deeper look at you and you collateral (your home) based on the images from Google Maps “street view.” If your appraiser misstates the quality or uniqueness of your home or you embellish the truth on an insurance application you may find difficulties getting financing or higher insurance premiums.
Savvy underwriters are seeing your home in high definition right from the front curb. They are not just seeing the overhead view. They even have the opportunity to drive up and down your streets and check out the neighborhood with stunning clarity via cyberspace.
It is becoming easier and easier to scrutinize new customers in secrecy. Keep that in mind if and when you decide to embellish the truth on a mortgage or insurance application.
Minneapolis Condo Hype. What Are the Facts.
“Over Built. Building like crazy. Who is going to buy them all? Too much inventory. Prices going down.” This is what I hear all the time from people I run across and I tell them that I’m a Realtor that focuses just in the Minneapolis condo and loft market.
I would like to address all the “So called Minneapolis Condo Hype” with the facts about the market. Now lets take these facts below and see if all the noise in the market is opportunity is knocking!
In the Downtown Journal which is the local Minneapolis newspaper that publishes a section called the “Condo Watch” in every issue. This pipeline has 44 projects in the pipeline which may to some seem like a lot and to some might not but the BUZZ in Minneapolis Real Estate is that this market is over built, to many condo project, etc…. The True reality is that out of the 44 listed projects 17 of them aren’t even built or there is fabulously no momentum in being built. 21 out of the 44 are projects that I can bring a buyer in and they can move in with in 120 or sooner. But the big message that I want to get across is that out of the 21 in the pipeline there are 9 projects that have less than 10 units remaining. So in roughly the 3rd quarter of 2008 all of them should be closed out. Which that will leave roughly 12 projects left for buyers to choose from! Yes new projects will pop up here and there but this is also great for the re-sale market that has been hurt that last few years!
Downtown Minneapolis has still been a very active market compared to the rest of Minneapolis.
- Closed sales are up 105% YTD form 07 to 08
- Percent of Original List Received: YTD for 01 96.2% / 99.1% +3.0%
- Condo Inventory: Feb 07 543 units and Feb 08 502 -7.6%
- Average Days on Market: 210 days
- Average sales Price: $293,440 4th highest in the city
New Conforming Loan Limit Increase Has Too Many Strings
After reviewing Fannie Mae’s and Freddie Mac’s Jumbo Conforming loan guides, it appears that they have come up with an extremely cautious plan to administer the new Jumbo Conforming limit increase. Let’s be clear, this is not what Americans thought it was going to be. (Fannie Mae Guides & Freddie Mac Guides)
The GSE’s have created a new hybrid program for consumers. It is not a Conforming loan. This new program is purely and simply all but a symbolic gesture of help. It is tailored to dissuade refinances through ultra-tight underwriting guidelines while being some-what attractive to new home buyers, assuming you have perfect credit and a 10-25 percent down payment.
Unfortunately, many of the loan origination calls coming into lenders for this new loan product are for refinances. These consumers just cannot qualify. Of course you would assume they do not qualify because of income or debt ratios, but loan originators do not even need to get that far into the loan application process to decline these borrowers. In most cases their first mortgage exceeds 75% of the value of the home. The deal is immediately dead.
As far as rates are concerned, the rates follow closely to the normal conforming products. So a relative thumbs up with respect to rates. The new Jumbo Conforming product is about .125%-.375% higher in rate compared to the old standard conforming loan across different lenders. Below is a quick rate comparison based on today’s rates.
Conforming 30YR Fixed
5.75% / 0 points
Jumbo Conforming 30YR Fixed
6% / 0 points
So if you were applauding this portion of the stimulus package, I would not applaud quite yet. This new hybrid, conforming product may not have the impact on the economy lawmakers may have suggested. Not surprising as we have seen this occur on some of the initial consumer foreclosure bailout policies rolled out early in the credit crunch.
One quick side note: I do want to applaud Freddie Mac for at least offering a refinance cash-out option as Fannie Mae did not. Although the guidelines are tight, they did put it in the guides.
Please feel free to put your loan scenarios in the comments so we can illustrate some of the challenges loan originators face with the new Jumbo Conforming product.
Calculate your new mortgage loan limit by Zip Code. Click Here
New Conforming Loan Limit Calculator by Zip Code.
We are now getting a glimpse of how investors(mortgage providers) will be treating the new Fannie Mae/Freddie Mac conforming loan limits which were part of the national stimulus package. The first of many investors are coming out with general underwriting guidelines. It appears they are moving cautiously. This may speak volumes on their attitudes on the subject of increased loan amounts. Moreover it appears that they will be categorizing these loans in a different conforming product bucket. (Conforming Jumbo Loans)Below is a conforming loan limit calculator as well as some highlights of the guidelines.
Calculate your new mortgage loan limit by Zip Code. Click Here
Get the Return On Investment from your Website
Facts
• 83% of businesses use the Internet to research and find potential vendors
• 75% of users admit to making judgments about the a company’s credibility based on their website’s design
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As requested. Here are the Phone Numbers.. Let me know how they work out.
30+ days late:
800-799-9250
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I'm looking for the lost Mitigation for GMAC Mortgage, I can only get to the collection department. They will not ...
So true!! Great article. Any stuff you can post on Google pagerank. 
Thanks....that link rocks! 
Great site!! Thanks for the online auction info.