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Will The Rental Boom Cause Spike In Foreclosures?

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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Comment balloon 12 commentsMike Jones • March 16 2012 05:49AM

Comments

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!

Posted by Russell Lewis, Broker,CLHMS,GRI (Realty Austin, Austin Texas Real Estate) over 7 years ago

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

Posted by Harry F. D'Elia, Investor , Mentor, GRI, Radio, CIPS, REOs, ABR (RentVest) over 7 years ago

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

Posted by Morris Massre, Real Estate Instructor Broward County Florida over 7 years ago

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.  

Posted by Juli Vosmik, Scottsdale/Cave Creek, AZ real estate 480-710-0739 (Dominion Fine Properties) over 7 years ago

Mike

Your post nailed the condition of the rental market.

Good luck and success.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) over 7 years ago

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

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) over 7 years ago

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

Posted by Suzanne McLaughlin, Sabinske & Associates, Realtor (Sabinske & Associates, Inc. (Albertville, St. Michael)) over 7 years ago

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?

Posted by 1~Judi Barrett, BS Ed, Integrity Real Estate Services -IDABEL OK (Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745) over 7 years ago

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

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) over 7 years ago

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

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 7 years ago

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

Posted by Karen Kruschka, - "My Experience Isn't Expensive - It's PRICELESS" (RE/MAX Executives) over 7 years ago

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

Posted by Joan Cox, Denver Real Estate - Selling One Home at a Time (House to Home, Inc. - Denver Real Estate - 720-231-6373) about 7 years ago

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