Obama Administration Plan to Wind Down Fannie Mae and Freddie Mac

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The Obama Administration has released their report on the future of housing financing.  While there are many parts to the report, some of the key points are as follows:

• Reduce the presence of Fannie and Freddie in the market place (9 out of 10 loans today go through them)
• Increase pricing at Fannie and Freddie
• Reduce the maximum loan cap that Fannie and Freddie can guarantee
• Greater down payments from borrowers (at least 10 percent)
• Increase annula mortgage insurance premium 25 basis points

The report also talks about working to fix flaws in the mortgage market and on better targeting affordable housing plans.

Some will applaud the goal of shifting the primary source for credit and responsibility for loses to the private sector.  Others will scream at the though of costs and requirements going up at a time when it is already so difficult to obtain mortgage financing.

Their is also a potential that the mere threat of mortgage financing becoming even more difficult to obtain will spur buyers to buy while they still are able to qualify.

Where are you on this issue?  Do you support the goal of reducing the governments presence in the mortgage market place even if the costs and requirements to obtain mortgage financing goes up?

Contract for Deeds: Has Their Time Come?

Interest in contract for deeds has clearly risen in the last year.  We have seen a rise in the number of contract for deed inquiries rise from potential clients, real estate professionals (I will be speaking on Contract for Deeds at the Conference of Women in Real Estate meeting on March 9th)  and media (keep a look out for an article on Contract for Deeds that I wrote for the National Association of Realtors). 

Why the sudden interest in Contract for Deeds?  Simple.  When buyers want to buy and sellers want to sell but both are hindered by a lack of financing, they naturally look for alternatives.  It happened in the 80's and early 90's when we faced double digit interest rates, recession's and the S& L real estate scandal.  As a result, we saw the use of contract for deeds skyrocket.

While the underlying factors are not all the same, the main factor is - conventional financing is not available to a get number of middle class buyers which has shrunk the market for sellers.  It is only time before both will look to alternatives and the time may be now.

Of course, the use of contract for deeds is not a cure-all.  While there are advantages, there are also disadvantages that have to be taken into account.  Quite simply, contract for deeds are not for everyone or for every situation so buyers and sellers must seek proper guidance from real estate lawyers and real estate professionals before proceeding. It is also important that they rely on professionals that have the knowledge and experience to properly advise them concerning contract for deeds.

Once you decide to either buy or sell with a contract for deed it is important that you do everything possible to reduce the risks associated with the use of contract for deeds.  The following are a few of the measures that should be taken to reduce risk:

You must have a properly drafted purchase agreement.  The standard Minnesota of Realtor Contract for Deed addendum is not sufficient.  I recommend that a copy of the actual contract for deed be attached and made a part of the purchase agreement to avoid later disputes.

The buyer must obtain proper title insurance coverage before closing.  Like all insurance, not all coverages are the same.

The contract for deed must be carefully drafted and must be comprehensive and clear to reduce risk and avoid future disputes.  You do not want a "generic" contract for deed, you want a custom contract for deed drafted to protect you and your interests.  Only an experienced real estate can do this for you.    

While I drafted many contract for deeds in the 80's and 90's, I also had a healthy business in cleaning up messes created by people who didn't understand the proper use of contract for deeds, used poorly drafted contract for deeds or relied on the wrong people for advice.

The problems experienced in the 80's and 90's resulting from contract for deeds can be avoided by not cutting corners and making sure buyers and sellers protect themselves when using contract for deeds.

Contract for deeds

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Commercial & Residential Real Estate Troubles Deepen

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The following is an interview by Steven Forbes of Forbes Magazine with Nouriel Roubini, a Professor of Economy, NYU Stern.  Basically, Mr. Roubini believes the commercial real estate situation is worse than residential since the values have fallen 40% versus 30% for residential real estate.  The only reason that they have not been as many foreclosures is that the banks have been pushing the problem down the road hoping for a recovery of prices but in the mean time, they still are booking the value at its high and not at its current value.  A recipe for disaster.

On the residential side of things, Mr. Roubini predicts that 40 percent of all homes with mortgages will be underwater and that only a radical plan can rescue the real estate market.  He gave one example, a proposal that I talked to friends about 2 years ago, to lower everyones mortgage down to the value of the property and the lender retains a piece of the future equity in the property.  This would stop the foreclosure crisis, stabilize prices and allow the market to function again.  Whether this or any other radical plan is adopted seems highly likely given the politics involved but the alternative is bleak.

In any case, click on the video and listen to an interesting interview.

2010 Twin City Housing Market Hits New Low

The Minneapolis Area Association of Realtors reported on Thursday, the number of homes sold was down 17 percent from 2009.  This is the lowest number of sale for the Twin Cities since MAAR started tracking sales.  

On the bright side, the median sale prices rose 2.3 percent from 2009.  This figure is deceiving since more higher priced homes were sold which will naturally bring the median price up.  As the foreclosure crisis continues to spread to more expensive homes, the median price will continue to rise even though the value of individual homes keeps slipping. 

Real Estate Outlook For 2011

The more I read the more I get confused. If you want to find positive predictions, they are there. If you want to find pessemistic predictions, they are also there. So who to believe? It is hard for me to bank on the positive outlooks when unemployment is still incredibly high and foreclosures are at record rates. On top of that, it is very clear that numerous cities and states are facing potential bankruptcy. It is unlikely that the new Congress will authorize a bailout for the cites or states given the wave of discontent that they were elected on. If we see any cites or states go through bankruptcy, will that further shake our economy? How can it not? On the other hand, if cities and states make drastic cuts to avoid bankruptcy, won't that also negatively impact the economy? It seems to me, that unless we don't have too make drastic cuts at all levels of government, we have a potential huge impact on the economy no matter what is done. Why anyone would want to be a politician's facing these impossible choices is beyond me. The bottom line for me, is that I won't believe we have really turned around the economy or the real estate market until I actually see sustained growth. In other words, expect the worse, hope for the best. That doesn't mean that you should avoid real estate investments but you can't assume that things can't get worse. We have already made the mistake. We made it during the boom and many have many the same mistake during the fall. I see many people who have bought real estate in the last three years thinking they made a deal of the lifetime only to find themselves in trouble because they never thought the fall would continue.