Mortgage Lenders Stand Aside -Seller Finance is the New Bank!

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There is little doubt the U.S. economy is faltering and taking residential real estate with it. Almost daily news headlines announce more doom and gloom for the nations housing woes. And it is not  just troubles in housing but mortgage lenders are taking a hit. Mortgage approvals are way off as the banking industry cautiously wades in unchartered waters all the while homebuilders are left suffering from the fallout. Builders such as Centex Corp., Pulte Homes Inc. and Hovnanian Enterprises Inc. are walking on eggshells with acres of unsold properties - not for lack of consumer demand but from lenders restrictions on loan aprovals.

The real estate liquidity problem is further exacerbated by the bank failures in the mortgage sector. In 2008 alone there were 25 F.D.I.C-insured banks in receivership, including mortgage giant Washington Mutual. The number of bank failures is 8x greater than in 2007 (3) and 25x greater than 2006 and 2005 (zero).  THe failures weigh on the collective psyche of borroweres and lenders as caution is the word of the day. Mortgage lending is by no means completely dead in the water, but the loan approval
rocess has tightened considerably, expecilly compared to the glory days of the past.

For home sellers and home buyers it is quite clear for the time being traditional sources of mortgage loans are limited and cannot be relied upon. Despite this challenge the demand for home ownership is strong. One of the answers to closing sales is seller financing - the lender of last resort is the homeowner himself.  The home owner has the opportunity to sell his real estate with seller financing, also known as rent to own home ownership.

When it comes to seller financing the terms used in the industry are rent-to-own, lease-to-buy, rent with option, lease with option, seller carry back, wrap around mortgage, land contract, and a basic rent credit used towards a down payment.

No doubt these are difficulkt times but with rent to own homes and seller financing real estate sales may soon begin to recover.

Comments (2)

Steve, Joel & Steve A. Chain
Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Marilyn, Historically seller finance has had a part to play in tight money markets along with wrap-a-round loans or land contracts, etc. There are loans being made but as you say the bounce rate is way too high.

Dec 01, 2009 04:29 PM

RTO is but a tool and not necessarily a means to an end. As long as a tenant/buyer has hope as his ally then we, the sellers and comission-earners in the RE industry are beneficiaries, as well of course the option buyer. The hope offered is RTO, an option available for anyone whose financial circumstances have been compromised for whatever reason. As a tool it is effective in attracting fresh prospects who may have otherwise relinquished any thoughts of home ownership.


Dec 02, 2009 01:50 AM