Fairfax Living Real Estate Blog: January 2010

A recent article in the Washington Post titled "Investors with Cash Frustrate Other Area Home Buyers" talked about investors bidding on short sales and foreclosed homes and shutting out would be owner occupier home buyers. The problem in the article specifically talked about the banks saw cash in many cases and took it now versus waiting to see if the sale made it to settlement through the normal mortgage process. In other instances, buyers bid above the asking price and still lost homes to investors with cash. You dont need to be an investor to pay with cash but I suspect most people that can afford to pay with cash are likely investors.

There are some pluses and minuses to this. First the pluses. Many of these homes would not qualify for an FHA loan as they have mold and other big issues that need to be taken care of before the house can be sold to a typical home buyer. In these cases, the investors actually make the repairs and "flip" the houses so that they do qualify, and of course, the investor generally makes a nice profit for the risk taken. Many times there are problems even a savvy investor does not anticipate.

On the other hand, The home buyer who is bidding on a home that needs only paint and carpet is being shut out by those in search of rental properties or they are anticipating that we are at the bottom of a future upward trend (uncertain due to the expected increase in foreclosures in 2010).

Fannie Mae has recently issued a new rule that states that it would not accept offers on homes from investors until 15 days after the listing of the property. I think this is a fair rule. Mainly because most of the properties that investors should be looking at are the ones that dont qualify for an FHA loan and by doing so, they are helping people buy homes by bringing them up to the standard at which they can qualify. In this case, investors are actually doing a service to home buyers by improving what are many times neglected and vandalized properties.

The Washington Post Article

Today's Washington Post  had an article on "Shedding the Light on Hidden Risks of Reverse Mortgages."

The main point was to ask friends and relatives considering a reverse mortgage to check out the new federal guidelines concerning reverse mortgages. The guidelines are designed mostly for banks and credit unions but point out some of the issues that persons considering a reverse mortgage should consider.

The article does say that when seniors have been properly informed and understand the reverse mortgages, they can be beneficial in providing income in retirement. It mentions that regulators say that often senior citizens are poorly informed and do not really understand the details of the mortgage. Often the direct mail marketing and sales brochures promise one thing and deliver another in the fine print including, in some instances, claiming to be a "government benefit" which they are not.

Other problems of concern were add on products with high profit margins that were inappropriate or unnecessary. In many instances the banks and credit unions had failed to point out the "cons" of reverse mortgages including borrowers responsibilities which may include paying property taxes and insurance directly .

 Here is the article from the Jan 02, 2010 Washington Post.