You have to read this, I took it from Diana Olick’s blog on CNBC. Times are already becoming desperate!

It seems local New York City reporter Lou Young, of WCBS, came upon a story about two mortgage brokers in New Rochelle, NY, who lost money on an investment property and so, in order to keep afloat, turned the home into a brothel. They tried to sell, then tried to rent, but none of it really panned out. One can only assume the mortgage business wasn’t helping this couple either. The couple, and their four employees, were arrested, after police raided the home last Friday night. The officers were tipped to the brothel from a posing on Craig’s List offering dominatrix services, not to mention a grand opening special.

This couple of mortgage brokers were just trying to find some cash to float their loans, much like Countrywide I guess. It kind of makes you think. Thanks to Keith at Housingpanic for the tip.

Here is the time when the career jumpers are all leaving the industry. Countrywide has decided to lay off over 25% of their work force and others are soon to follow. This means on a local level too. If you just got into this industry and you are in it for the long haul then this is a great time to be in the business. As people in your office take new careers and “stay active” you can expand your business and “stay profitable”. Explore new areas and visit old customers who may have been stubborn to sell or list before all the news.

Realtors!

This is an awesome opportunity to get in to the short sale business. When a short sale is accepted by a bank, they will ALLOW a Realtor to get their commission paid even if they accept an offer lower than the property value. In the 80’s, when the market crashed, it was common practice for Realtors to do short sales. You DO NOT need to be a lawyer to work this transaction and DO NOT let a lawyer tell you that you need them. This is a normal practice, but only used a lot when the markets are down, so it seems complicated and foreign. Learn how it’s done and get your edge!

Have we not been talking about this for weeks, even months. The data lag is finally catching up with the news in the industry, or is it. Think of it as a ripple effect, first the industry people working the streets start to feel and see whats going on. Most of the time this feeling is kept quiet, being that bad news directly effects their pockets. Then it’s rumored but never confirmed until some report with actual statistics is shown, which is actually from data 3 months ago.

So what does this mean to the investor. It means that you can stay ahead of the trend by playing the market just like the stock brokers do. Don’t buy or sell the news! Figure it out for yourself with local real estate professionals. If this news is 3 months behind, don’t you think they will be at least 3 months behind the news when it starts to go up?

BY ANDREW KITCHENMAN

Sunday, September 02, 2007Mercer County has been swept up in the mortgage meltdown affecting the nation, as foreclosures increase and residents face the re sults of taking out subprime mort gages with higher interest payments.

Foreclosure filings have risen from 728 through Aug. 20, 2006 to 928 for the same period this year, a 27.5-percent increase, according to the Mercer County Clerk’s office.

Some of those who can’t make their mortgage payments should never have received approval for the loans, according to Phyllis Sa lowe-Kaye, executive director of New Jersey Citizen Action, which provides mortgage counseling.

“They target low- and moderate-income minorities in urban areas,” Salowe-Kaye said of subprime lenders. She recalled one New Jersey resident with a $40,000 income who took out a $400,000 mortgage by claiming that renters would cover much of the mortgage cost.

New Jersey Citizen Action has provided counseling to hundreds of residents at its loan counseling center in Trenton.

The problem isn’t limited to cities like Trenton. While County Clerk Paula Sollami-Covello said the number of foreclosures in Tren ton traditionally has led the count, the past year has seen foreclosures increase in suburban municipalities such as Hamilton.

While mortgages that are listed under foreclosure in public notices often are resolved before an actual sheriff’s sale, the increase in foreclosure notices in some Mercer municipalities has been stark.

Trenton had 166 foreclosure no tices in the first seven months of this year, an increase of 29 over last year; Hamilton increased from 40 to 50; and Lawrence increased from 13 to 23, according to Jeff Posner, owner of SheriffSalesOnline.com, a Web site that tracks both initial filings and notices.

The root cause of many recent foreclosures is the wave of subprime mortgages, according to mortgage experts. Subprime mort gages are given to people with low credit scores due to missing payments or having limited credit histories. Subprime mortgages have higher interest rates and fees than conventional mortgages.

In recent years, mortgage brokers offered more and more subprime loans. This trend peaked in 2005 — when 21 percent of Mercer County mortgages were subprime — and continued through 2006.

The foreclosure increase “is a direct result, essentially, of borrow ers buying homes that they could not afford,” according to real estate appraiser Jeffrey Otteau.

The percentage of Mercer County mortgages that were subprime in 2005 ranged from as much as 42.3 percent in Trenton to as little as 3.3 percent in Pennington. Countywide, 21 percent of the 8,085 mortgages were subprime in 2005, the most recent year for which sta tistics are available.

The percentage of subprime mortgages in 2005 for other Mercer County towns were East Windsor, 15.6 percent; Ewing, 24.2 percent; Hamilton, 18.1 percent; Hightstown, 25 percent; Hopewell (township and borough), 6.2 percent; Lawrence, 12.2 percent; Princeton (township and borough), 3.5 percent; Washington Township, 5.5 percent; and West Windsor, 4.7 percent.

These mortgages frequently included low initial payments followed by adjustable-rate increases after two or three years. Beginning last year, some bor rowers had difficulty paying mortgages when the rates and monthly payments increased.

Delinquent payments by overburdened borrowers have made loans that are packaged as secu rities less attractive to investors, which in return makes it harder for mortgage brokers to break even.

“The most significant thing that has changed is that you now have a pretty serious liquidity cri sis in the industry,” according to E. Robert Levy, executive direc tor of the Mortgage Bankers Association of New Jersey. He esti mated the effect of the subprime mortgage problems will last for another year or two.

Levy encouraged those who are unable to make their monthly payments to contact their lender’s loss mitigation department and seek a solution that would delay or reduce payments.

Liquidity problems have affected a range of home loans, from subprime mortgages to those in wealthier areas of the county such as West Windsor and the Princetons, including mort gages that exceed the conventional limits covered by government-sponsored corporations.

“There’s been a problem with what we call jumbo loans,” which exceed $417,000, Levy said.

Those looking to take out mortgages for more than that amount now must pay higher interest rates. This especially stings those in the market for houses that cost $500,000 or more, according to Pete LaBriola, general manager of the Princeton office of real estate firm Keller Williams.

Instead of taking out a jumbo loan, buyers in that price range may take a small second loan on top of their first mortgage, he said.

LaBriola said sellers must lower their expectations, particularly if their home’s location has any drawbacks, but he still sees the market reaching equilibrium soon.

The crunch in mortgage money also has affected conventional mortgage companies that never specialized in subprime loans, forcing changes in the types of mortgages they offer. For instance, Gateway Funding now requires higher down payments or credit scores for customers interested in loans in which they state their assets or income rather than document them, Mercer County branch manager Frank Mancino said.

Mancino said anyone watching the news recently should be aware that it may be difficult to buy a house.

He noted that on Aug. 22 and 23, Delta Financial laid off 300 employees; Lehman Brothers closed its BNC Mortgage unit and laid off 1,200; Impac Mort gage laid off 350 employees; and HSBC eliminated 600 jobs and closed a U.S. mortgage office.

“If you didn’t already own a house and had seen the ups and downs” of the housing market, Mancino said, then it would be difficult to take out a mortgage. “It’s a tough call.”

Homeowners unable to pay their mortgages aren’t the only ones affected. With more houses on the market and fewer interested or able to buy them, New Jersey homes have typically lost 8 to 10 percent of their value, according to Otteau, president of Otteau Valuation Group of East Brunswick.

Otteau cautioned that the initial foreclosure filings usually do not lead to actual sheriff sales. For instance, the Web site Realty Trac listed 4,157 foreclosure filings statewide in July, but the actual number of foreclosures was only 215. Even at that level, there were more foreclosures in recent months than in any period since the 1990-91 recession.

“What is so alarming about that is that we’re close to reces sion-high foreclosures and we’re not in a recession,” Otteau said.

Otteau predicts anywhere from 175 to 300 actual foreclo sures in Mercer County between late 2006 and early 2009.

However, if a recession was to start, Otteau estimates that the number of homeowners who would be delinquent in mortgage payments or face foreclosures would double.

“That would be more than the housing market could bear,” prompting significant declines in home values, Otteau said.

Contact Andrew Kitchenman at akitchenman@njtimes.com or (609) 989-5706.

The report from Case-Shiller is a primarily based on single family homes in the top 20 markets, mostly in suburban areas. The nationwide number is down 3.2% which is the biggest decline year over year since the fund had been started! We are beginning to see a wave effect in the market. Things that professionals were talking about six months ago are becoming reality, in another six months the homeowners will begin to realize they are feeling it too. This is why there are so many houses on the market and owners are not budging with prices. The housing market does not change direction as fast as the stock market, it took 3 years to boom like this and we are not going to see a correction over a few month span.

30% increase in credit defaults

In another article, the street reports that credit card defaults have increased up from 30% compared to this time last year. With all this recent buying of homes that now have no equity and an increased credit default rate, how could we not be headed for a recession?

What this means for you, the investor?

If you are thinking of getting into the market as a real estate investor, this is probably the best time to get started. This decline is likely to last at most 3 years, then headed for a nice increase. Traditional methods will come into play, maybe some buy and hold techniques or rent to own. With mortgage guidelines become ever tighter you may be able to convince owners with equity to give mortgages to you (owner financing). I feel techniques that worked during the downturn in the 80’s will become more viable again. Times like these are when like you can make a nice purchase.

An extreme example of this is a sale that just went down in New Orleans. A 40 story skyscraper was sold for a little over $500,000 at auction. Now the building was rampant with problems, but 40 stories for half a million! In fact, Donald Trump and other developers have already committed to huge luxury developments in the downtown area.

“The pullback in the U.S. residential real estate market is showing no signs of slowing down,”

Robert Shiller, creator of the index and chief economist at MacroMarkets in Madison, New Jersey

The day after the market reports that housing starts are up, we see a slide in home sales. Nothing surprising since in my previous post I mentioned how the data is always a little behind the market, but who cares… What does this really mean? I don’t think anyone knows. Countless Grey haired professionals are being brought onto the news shows and questioned for their “experienced opinion”. Yet most of them seem to quote something like “follow the basics” or “fundamentals”, not really giving you a straight answer. How could they? No one has ever seen a market quite like this, and no one really knows what is going to happen. We have a credit problem which has never been this bad not to mention some of the most aloof consumers ever. Here is a great video from CNBC below.. or you can read the full story here.

The NAR talks..According to the latest home sales data from the Realtors association, median home prices fell 0.6 percent from a year ago to $228,900. Lawrence Yun (National Association of Realtors economist) stated, “In the aggregate, we don’t see the subprime market damaging the economy”. Yeah, I agree, it’s the credit crunch and tightening of lending guidelines, that’s what’s going to kill the market. Simple supply and demand…lot’s of homes for sale, very few people with good credit and 20% to put down. With the crazy loans that were in the market we made real estate a much more liquid asset than it really is, shifting back is going to be a little painful in my opinion. But remember, a lot of wealth can change hands when the market shifts, just make sure you don’t get shifted on.