Homes By Parks – Blog

    Fannie Mae and Freddie Mac are enforcing more buy back provisions, requiring Bank of America, JP Morgan Chase, and others to reacquire loans whose underwriting was poorly managed, leading to  higher home owner defaults.  Over $300 billion in late paying mortgages is a wake up call as auditors search files for loans approved where denial was in fact indicated.

    The Wall Street Journal further shows ”Fannie reported  5.29% of loans it guarantees, or 2.9 trillion were at least 90 days late in payments, as of  November, up  from 2.13% a year earlier.  At Freddie, such delinquincies reached 3.87%  at the end of December, up from 1.72% a year earlier.”     That’s a headline in itself: Default Rates More than Double in Last Year….. a clear contra trend to the blue sky uptalk that we’re in real estate recovery.

   “While growth in subprime defaults, only 10% of the market, is slowing, defaults on prime mortages, is accelerating.” Surely the portion of sub prime defaults is greater, although by sheer volume,  prime mortage defaults could have some impact, another surprise delay for the market’s return to normalcy. For example, as one graphs the rate of foreclosures along the vertical axis and time along the horizontal, we may see an  upside down “hockey stick trend”,  a sharp rise, followed by an incredibly long extended recovery.  As job losses begin to affect the total market, not just the less stable employment sectors, recovery will be delayed and more sporadic, certainly regionally specific as well.

    Lenders are now more careful on approvals, so that the average  credit scores of Fannie and Freddie approved loans jumped from 720 a year ago to 760 today.  With a weakened market in conventional loans,  and the appeal of  3% down payments,  government backed loans have also taken their market share from 40% to 70%.  That combined with first time home buyers incentives of $8,000 while offering $6,500 to most other buyers, the federal subsidies are significant and will eventually create yet another ripple effect with their expiration due April 30, 2010.

     Denver real estate alongside Dallas, leading the country in recovery with a marginal appreciation in the .1% range is fortunate to generate a terrific adaptation to these market events. And why not? After all, we led the country in foreclosures just 3 years ago, now having fallen gracefully to 37th place, a very positive development in itself. If that’s any indication, the national market in general could easily take 3 years, to right the ship. 

      In my own real estate practice, there has been a continued demand for homes that back to parks, greenbelts, and open spaces, rarely among vacant listings as tough to sell.  A recent property backing to  a park actually had 4 contracts, despite its average condition, all during the first week on market. Amenities make the difference, so invest wisely.