If you were expecting the $700 Billion bailout plan to mean that the government might purchase some home loans and in so doing stabilize the real estate market, think again.
This has some significant ramifications for investors and best strategies – please pay close attention!
Treasury Secretary Hank Paulson held a press conference last week during which he stated that the bailout fund – originally designed to fund a “troubled asset relief program” (TARP) – would no longer be used to buy bad mortgages from troubled lenders. Instead, he’s going to use the money to bail out all manner of businesses including insurance companies, credit card companies and automakers.
It’s difficult to refuse to point out how incredibly right I was to oppose the bailout plan, but just because an opinion is right doesn’t make it the popular one. (!!!)
Nevertheless, a practical ramification of this policy change is that lenders will become more aggressive about directly avoiding foreclosures. This will happen in at least two ways:
- Lenders will continue to announce new mortgage modification programs designed to keep home owners in their homes. (Several major lenders have already announced such programs.)
- I suspect short sales will become more commonplace, and ultimately easier to perform
(More on short sales in a moment…)
While it’s deplorable that the government completely lied to us about the purpose of the $700 Billion bailout bill, I do think that this is ultimately a good thing for the real estate market and for real estate investors. The best solution to the real estate crisis is to let real estate values find their true levels, after which buying will resume…
…which is exactly why I suspect short sales to increase significantly in frequency and importance.
(For our new readers, a “short sale” is an agreement by a mortgage lender to accept less money than is owed on a property due to changing market conditions and the inability of the borrower to pay the loan. Essentially, it’s a last-ditch effort by the lender to avoid foreclosing the property.)
My friend, do yourself a favor. Take every opportunity you can to learn about short sales, because I expect they will be a huge part of our business in the next year. And when you know how to do short sales well, very large profits on each deal becomes distinctly possible.
What do you think – how will the change of purpose for the $700 Billion bailout fund effect the real estate market generally and real estate investors specifically?
As always, thank you for reading RealEstate.BryanEllis.com.