Chasing the Market Down

The Role of the Minimum Bid in the Auction Marketing Process

A critical component of LFC’s Internet based, Freedom Realty Exchange auction marketing program for residential property, is the minimum bid. Rather than react after the fact in a downward trending market with evermore incentives and lower and lower pricing, a low minimum bid creates a sense of buyer urgency to become emotionally involved in the property and entices potential buyers to bid the pricing upward to the property’s current market value from an artificially low starting point. In effect, the minimum bid allows the seller to submarine under the market chaos to capture the sale at current market value. (The seller is protected from selling the property too cheaply by an unpublished reserve price.) To illustrate this very important aspect of the Freedom Realty Exchange auction marketing process the following article appeared in the Los Angeles Times on August 12.

“……GMAC took over ownership after the foreclosure. The lender asked Leo Nordine, a veteran foreclosure agent based in Hermosa Beach, to clean up the house and evaluate it for resale.

On March 15, Nordine filled out his first report on the property, a lengthy form requiring him to give GMAC comparable sales in the neighborhood and his recommendation for a suggested price. Under the entry “property values,” he checked the box for “declining.” Next to “number of competing listings in subject’s neighborhood,” he wrote: “Tons.” He recommended a low price to get out in front of the market. His suggestion: $425,000 for the house as it was. He emailed the report to the GMAC offices in Shelton, CT. The lender stuck a price of $445,000 on the house. No one wanted it.

On May 30, Nordine filed an updated report. Nordine advised reducing the price to $409,000. GMAC agreed to drop the price, but only to $419,500. Six weeks earlier, that might have done the trick. Not anymore.

A week later, Nordine filed another evaluation: “No problems, other than the cataclysmic market.” He recommended $399,000. The lender didn’t respond. On June 27, he suggested $390,000. Lower the price, he urged yet again: There are three times as many lender-owned homes on the market now as there were a few months ago.

On July 31: This is the worst market I’ve ever seen.” He proposed $385,000. There was no answer. To sell the house now, Nordine said late last week, would require a price of $379,000. Last Friday, the lender sent Nordine an e-mail authorizing him to drop the price to $395,000.

If this property would have been auction marketed in March utilizing the competitive process of the Freedom Realty Exchange program and a minimum bid of $295,000, it would have been sold and closed by June at its absolute highest value which most likely would have been something north of $410,000 assuming that Nordine’s May valuation was accurate. The Freedom Realty Exchange program doesn’t create a market but rather it focuses the attention of the existing market, whatever it may be, on our client’s property at the expense of its competition. Call (949-706-6121) or email (info@lfc.com) us today to find our more about the Freedom Realty Exchange auction marketing program for residential property. You will be impressed….I promise.

William Lange, President of LFC Group of Companies

AIG Reassures Investors About Subprime

American International Group on Thursday told investors the housing market would have to spiral to Depression-era levels before the insurer would be harmed by its exposure to the residential mortgage market.

The world’s largest insurer has exposure to subprime loans — those made to people with tainted credit — as a lender, investor in mortgage-backed securities and supplier of mortgage insurance. But AIG characterized its exposure as minimal and said it would take declines of 30 percent to 40 percent in home values to dent the market for mortgages with stronger ratings, where most of its holdings lie.AIG said delinquencies on first-lien mortgages were on the rise at its mortgage insurance group. But the company also reassured investors that it has ample cash and “doesn’t need to liquidate any of its investment securities in a chaotic market.”

Cliff Gallant, equity analyst with Keefe, Bruyette & Woods Inc., estimates that of AIG’s $1.034 trillion in assets at June 30, it has some $3 billion to $5 billion that could go bad in subprime defaults — a thin slice of the overall pool.

It amounts to about $1 per share in exposure, “a reasonable worst-case scenario,” he said.

Analysts, on average, expect AIG to earn $6.53 per share this year.

As conditions in the credit market have tightened, investors have been sensitive to any sign of a ripple effect, in which the fallout from defaults on subprime loans would spread to other parts of the lending market. Any news of subprime mortgage or credit problems has sent stock prices reeling; on Thursday, the Dow Jones industrials were down by triple digits on concerns about liquidity in the credit markets.

“We believe that it would take declines in housing values to reach Depression proportions — along with default frequencies never experienced — before our AAA and AA investments would be impaired,” said Chief Risk Officer Bob Lewis, in a conference call with analysts on Thursday. “AAA”- and “AA”-rated investments are considered to be those of highest credit quality.

Home prices would have to slide by more than a third, and defaults among borrowers with strong credit would have to balloon above 45 percent, to begin to affect the AAA and AA bundles of securities, the company said.

As an investor, AIG has about $94.6 billion in residential mortgage market holdings, equal to about 11 percent of its total invested assets. Of that, the company has $28.7 billion, or 30 percent, in subprime residential mortgage-backed securities.

AIG has said repeatedly that it is “very comfortable with the size and quality of its investment portfolios.”

AIG’s American General Finance, which originates mortgages, has about $6 billion of its $19.2 billion real estate portfolio invested in the subprime space.

United Guaranty, AIG’s mortgage insurance arm, said first-lien mortgage delinquencies had risen to 3.98 percent in June from 3.71 percent in May.

President and Chief Executive Martin Sullivan told investors that the company remains “well-positioned, even in the event of further deterioration in this market.”

AIG shares fell about 3 percent Thursday amid the broader downturn in the market.

On Wednesday, after the market close, AIG reported a 34 percent jump in second-quarter profit on growth in its general and life insurance businesses. Its mortgage guaranty unit posted an operating loss, but the business accounts for a relatively small part of the company’s overall earnings.

By Lauren Villagran, AP

Foreclosure’s now 10% of O.C. home transactions

The
chart above compares DataQuick’s monthly foreclosure counts back to 1992 vs. the
total number of homes that changed ownership in a month. (This divisor is the
sum of the actual sales reported each month plus the count of homes that bankers
took back through formal foreclosure.) This bit of research shows that
foreclosures are now 10 percent of the market — the first time that mark’s been
passed since 1998. Clearly, without a significant pick up in traditional sales
activity, troubled homeowners will soon become a major marketplace burden.

By Jon Lansner
Orange County Register

Technorati Tags: Orange County, mortgage, foreclosed homes, foreclosure auctions, REO

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Foreclosures Equal Big Business

Know all the facts before buying a foreclosed home

Foreclosures across the country are on the rise. According to RealtyTrac, more than 1.2 million foreclosures were filed nationwide in 2006. U.S. foreclosures in June 2007 jumped 87 percent compared to June 2006 with more than 164,000 foreclosures.

Ohio documented the nation’s third high state total in June 2007 with close to 12,000 foreclosure filings, up 100 percent from June 2006. Dayton ranked 26 out of 100 cities in the first quarter of 2007 with more than 2,300 foreclosures.

Losing a home is devastating, but it’s also a window of opportunity for someone in the market for a house. When you’re considering buying a foreclosure, know your options. These properties can be purchased through pre-foreclosure, at auctions where you bid against other interested buyers; or from a lender, known as real estate owned property.

You may want to hire a real estate agent to help guide you through the process. Make sure you find one with foreclosure experience.

If possible, schedule an appointment to view the property. This will help determine any structural damage, rodents, termites, plumbing and heating issues. Be aware if you purchase the house at an auction, you may not be able to look inside the home or conduct a home inspection before the sale.

Conduct a title search to find out whether the property has a second mortgage or lien against it. If it does, you may be responsible for paying off the initial mortgage and any second mortgage loans and liens on the property before you take ownership.

You may want to get pre-qualified. Securing your financing early in the process will help ensure eligibility to purchase the property and gives you bargaining power when it’s time to make an offer.

Have your agent check nearby or comparable homes to see if the asking price for a foreclosed home is a bargain. Don’t base your decision solely on price. Consider the property’s condition and neighborhood.

In Ohio, all foreclosures are handled through the courts. And, the sale price must be at least two-thirds of the appraised value and the property is sold to the highest bidder.

Buying a foreclosure can be a rewarding investment, but requires a lot of research, preparation, patience and persistence. The Better Business Bureau can give you a list of trustworthy real estate companies or reliability reports on more than 150 real estate companies

By Sheri Sword
Dayton Daily News

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