Take a close read on this one. Not too long ago, one of my good friends and successful broker/investor who specializes in REO properties shared some insight with me.

I will not use his name because I would not “throw him under the bus.”

Let’s have fun with this and use a good old Kentucky stereotype name such as “Jethro.”

Jethro has been specializing in REOs for the last 8 years or so. He regularly attends national and regional conferences geared towards “asset managers” and folks involved in the bank owned, lender owned, and government owned real estate business.

Just like we attend conventions for real estate investing and landlording, Jethro gets exposed to all kinds of vendors, programs, updates and more in this arena.

Before our current President of U.S.A. took office, Jethro said his business was pretty good. (humble answer for a power house business Jethro shared since this new President, he is getting clobbered over the head every time he turns around.

Jethro says HUD Representatives always attend these conferences.

Before this new President, HUD Representatives shared a “let’s work together mindset” to efficiently work through this foreclosure mess.

After this new President took office, Jethro heard straight from the horse’s mouth… the New HUD Representatives made statements such as (I’m paraphrasing from our conversation) 

“We (HUD) believe it should be a crime to profit from housing in America. Our objective is to put investors and people just like you Jethro, out of business.”

Food for thought… here’s what came out of our nation’s capital yesterday.

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Federal Reserve Chairman Ben Bernanke believes that one aspect should be a government support program that allows renters to move into those houses.

The government should consider helping the nation’s vacant, unsold stock of foreclosed properties by supporting initiatives to occupy.

In a letter Wednesday to ranking members on the House Committee of Financial Services, Reps. Spencer Bachus, R-Ala., and Barney Frank, D-Mass., Bernanke said that inefficiencies in the foreclosure and mortgage origination processes are dragging on the economic recovery.

However, solutions are available, he added.

“Preliminary estimates suggest that about two-fifths of Fannie Mae’s REO inventory would have a cap rate above 8% — sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property,” Bernanke’s staff writes in a supporting white paper.

“Estimated cap rates on the Federal Housing Administration’s REO inventory are a bit higher — about half of the current inventory has a cap rate above 8% — because FHA properties tend to have somewhat lower values relative to area rents,” they said.

According to the white paper, Atlanta holds the largest amount of government-sponsored enterprises REO (5,000). Second place tieholders: Chicago, Detroit, Phoenix, L.A., are all below 3,000, by way of comparison.

In a scenario of declining house prices such as this, homeownership should be promoted, according to the white paper. Indeed, they argue that in many cases REO-to-rentals may be inappropriate. Yet unless mortgage origination requirements, with tighter underwriting standards, are loosened in the immediate future, borrowers may have little choice but to rent.

Furthermore, support for such a program will cost mortgage servicers, bond investors and even taxpayers. But it may be a sacrifice for the greater good.

“Some actions that cause greater losses to be sustained by the GSE in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery,” the white paper states.

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Stay Tuned Fellow Investors

Mike Butler

 

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