Will The Rental Boom Cause Spike In Foreclosures?

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Mortgage and Lending with SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) NMLS 223495
https://activerain.com/droplet/xkv

USDA loan alternative to rental: Mike in Tucson, AZ mortgage lenderWill the rental boom cause a spike in foreclosures by the banks who hold the paper?

There's a storm clould on the horizon for homeowners who are hoping to work out a loan modification with the banks who hold their paper. 

It's the rental market.

Three things are driving rental prices higher, and the banks who hold non-performing mortgages are taking notice.

1.  Available Credit Contraction for low-FICO buyers.  As the recession has continued, I've seen a decline in FICO scores among loan applicants for a variety of reasons, including late payment on mortgages and Home Equity loans.

2.  Tightening Guidelines for USDA and FHA Loans.  At the same time, guidelines for government-guaranteed programs such as USDA loans and FHA loans have established FICO score floors.  These programs were not credit driven previously.  The result is that many more people are forced out of the purchase market and into the rental market.

2.  Demand for 3 and 4 bedroom rentals.  The success of the housing market during the boom years resulted in little growth in the traditional rental market for multi-family properties.  The biggest share of apartments in multi-family properties have only two bedrooms.  This won't work for families who need three and four bedroom housing.

From Mom & Pop to High Tech

Single family rentals used to belong to Mom & Pop ventures.  No more.  Private equity ventures such as Waypoint Real Estate Group llc and Landsmith LP are using cloud computing and Apple iPads to bring efficiencies to play in the acquisition and disposition of foreclosed properties.

Rent vs. Own analysis shows that the cost of renting has reached an all-time high when compared with the cost of buying a home currently.  (That's good news only if you can get a mortgage.)

Banks who have been faced with the protracted loan modification process are looking at current events with an eye toward the balance-sheet benefits of foreclosure.

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Rainmaker
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Russell Lewis
Realty Austin, Austin Texas Real Estate - Austin, TX
Broker,CLHMS,GRI

Good qusetion, though...it is kind of like the chicken and the egg. Hiopefully it is just temporary as we slowly get back on or feet!. BTW thanks for your vm, sorry you cannit make to Texas this year!

Mar 15, 2012 11:00 PM #1
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Harry F. D'Elia
RentVest - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

The demand for 3 and 4 bedroom homes is high. Only time will tell.

Mar 15, 2012 11:13 PM #2
Rainmaker
517,919
Morris Massre
Pembroke Pines, FL
Real Estate Instructor Broward County Florida

It's sort of a double edged sword.  But I think we are headed for trouble with this whole rental gouging thing.

Mar 16, 2012 01:04 AM #3
Rainmaker
820,770
Juli Vosmik
Dominion Fine Properties - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

Mike, we're sure seeing some strange things out there.  Hopefully, the rentals will help keep some people from having to foreclose by providing them some income to help offset the payments.  

Mar 16, 2012 01:12 AM #4
Rainmaker
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Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Mike

Your post nailed the condition of the rental market.

Good luck and success.

Lou Ludwig

Mar 16, 2012 01:21 AM #5
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Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Lou,

That's the way I see it; thanks for stopping by to comment.

Juli,

That's a different part of the rental market--homeowners who have to move out and rent in order to hang on to the property.  I wonder what % of the market falls in this category?

Morris,

Supply and Demand.  I'd like to buy the new Apple iPad with all the bells and whistles for less than $799 too...

Harry,

We live in interesting times.

Russell,

We'll see, won't we?  Thanks for being the first to comment, and I hope to work the cows again next year.

Mike in Tucson

Mar 16, 2012 01:32 AM #6
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Suzanne McLaughlin
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor

I have believed this for a long time.  And, it is very scary.  Good post to wake people up.  Thanks, Mike.

Mar 19, 2012 03:43 AM #7
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1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Mike, Does the rental boom cause foreclosures or foreclosures cause more people to be looking for rentals.  We do not have banks renting out their REOs here.. does that happen in other locations?

Mar 19, 2012 12:42 PM #8
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Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Judi,

  :)  Click the link.  The bank is foreclosing and selling to ventures such as Waypoint.  They are doing this INSTEAD of working out loan mods with the homeowners.

Suzanne,

The sooner we get this all flushed out of the system, the sooner the economy will start chugging along again.

Mike in Tucson

Mar 20, 2012 05:53 AM #9
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Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Yes, I think most of us in the business have seen this one coming down the road for a while. Great post!

Mar 22, 2012 11:55 PM #10
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Karen Kruschka
RE/MAX Executives - Woodbridge, VA
- "My Experience Isn't Expensive - It's PRICELESS"

Mike  Banks as landlords - hope they do better than they do as banks

Mar 24, 2012 01:31 AM #11
Rainmaker
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Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Mike, I know the rental market is booming here in Denver, and luckily rates are increasing!

May 24, 2012 07:31 AM #12
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