It appears the Wall Street Journal has sniffed out major issues in the sub prime lending market only two weeks after Brian Brady broke the news here first. They focused on one of the strongest lenders, New Century, who is now poised to take the biggest fall because of their lax lending practices and perhaps illegal accounting. So why do I bring this up? Simple, it’s a great time to talk about some great investment opportunities on the horizon.
Let me start by saying that this truly is a tragedy. Many unsuspecting people will lose their homes because of poor lending practices. Additionally, many mortgage companies will go under costing thousands more their jobs. While this does not appear to be the 1980’s S&L crisis reborn, it will have some serious repercussions on the mortgage and asset back securities industries.
So where is the opportunity for the investor? Essentially, the foreclosure market will be flush with properties in the coming years. As defaults continue to rise, foreclosures will soon follow. Worse yet, many of the banks that make these loans will be trying to get them off their books as soon as possible. This creates great investment opportunities in markets that might have been inaccessible before. Lots of these loan products were/are huge in markets like California and New York, where prices have sky rocketed. Additionally, with the influx of bank owned properties on the market, expect housing price increases to slow in these markets.
Furthermore, many mortgage companies are now tightening their belts. Countrywide, the nation’s largest mortgage lender, has completely stopped doing 100% financing. Since they are the industry leader, it is safe to assume many of their peers will follow. This practice will push more people to renting because essentially less people will be able to afford to buy.
This is one example of a way to makes lemonade from some pretty bitter lemons. The ripples of the sub prime fall out will be far and wide, but make no mistake, there will be people that do pretty well because of it. Regardless of your opinion on how or why this situation has happened, investors must be forward looking. If you own properties in these markets, now might be a good time to sell. If you own apartments or rental properties, now would be a great time to start getting cash together because opportunities will soon be on the rise.
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Chris says:
Well said.
I have been watching this for the past six months or so, forclosures are indeed picking up, and investors are seeing this. A year ago hearing about anyone wanting to to a short sale was pretty rare, these days it seems like everyone is either doing it or interested in doing it.
All the flippers who are wondering what they can do in a flat market will be short selling. Maybe they will have the last laugh on us cash flow people. Flip on the way up, then short sell on the way down, lol.
March 13, 2007 — 9:13 am
Spencer Hill says:
In Chaos, there is opportunity.
This is the first positive post I have seen on this topic. For investors the trouble in the sub-prime market is great. It provides a new cheaper buying situation and brings back the better tenant who can afford higher rent and doesn’t destroy your property.
As with any investments, real estate, stocks , art , etc – one makes their money when they buy!
Keep up the good work.
March 13, 2007 — 9:35 pm
Brian Foster says:
I agree with your post and it has some excellent info, but I just wanted to let you know that Countrywide has not stopped offering 100% financing.
March 15, 2007 — 1:25 pm
Michael Cook says:
Brian,
I read this information in the Wall Street Journal a day before I wrote this article. I assumed they were correct, but if you have additional information, thanks for the correction.
March 15, 2007 — 3:56 pm
Brian Foster says:
MIchael, the article stated Countrywide B& C which is Full Spectrum Lending. Countrywides conventional arm still does %100 financing
March 15, 2007 — 4:01 pm