Investment Properties Worsen Real Estate Downtown

[Weteam]

Saw this from today's The Wall Street Journal. Quite interesting, but not surprising.

Any thoughts?


As lenders pore over their defaulted mortgages, they are learning that the number of people who bought homes as investments is much greater than previously believed.

Such borrowers turn up frequently in analyses of loans that defaulted within months after origination. In many cases, these speculators lied on loan applications, saying they intended to live in the homes in order to obtain more favorable loan terms or failed to provide the requested information.

Roughly 20% of mortgage fraud involved "occupancy fraud," or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, Calif. Another study, by Fitch Ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in.

Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.

More here: http://online.wsj.com/article/SB120225852189145889.html

[thedeallocator]

Investors or property speculators tend to abandon the deal quickly if they start losing money. So these properties tend to go into foreclosure faster than owner-occupied homes.

[Greg]

I know they screwed up the real estate market here. I will not shed any tears watching them go down.

[steve111111]

An investor who abandons the loan when prices go down, both didn't do homework (be prepared for prices falling) and ruins his reputation. It's part of regular risks.

[nancyarora2020]

Just as the struggling real estate market seems to be stabilizing, a fresh problem is brewing far from real estate offices or home construction sites: a jump in defaults by higher-risk borrowers.News of rising default rates by buyers with less than stellar credit could put a crimp in financing for home purchases - and prices. That's because the rapid growth of new types of mortgages was one of the key factors behind the boom that sent home buying, and prices, to record highs for five straight years through 2005. The "subprime implosion" may be some overstated media hyperbole.A number of lenders have gone out of business in the past few months, namely because they have been forced to buy back loans with early payment defaults.Because of the high amount of recent defaults about 20 subprime lenders have been forced to close their doors or declare bankruptcy. A few publicly traded lenders with subprime exposure have seen their stocks drop in value and New Century was delisted a few weeks ago and declared bankruptcy last week.All is not subprime in the real estate financing world and FHA and other types of loans have filled the void.Closer to the truth is the fact the subprime market is fairly volatile. Lenders, especially those with shareholders or investors, get caught in a vicious circle where they must loosen standards to get more volume, while having to tighten standards to get more profit. Some lenders are just able to play this game better than others.