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November 30th, 2009 10:32 AM by David W. Welch
There is an article in the Orlando Sentinel today about just how bad our condo market is here. Economics is about supply and demand of course, but sometimes consumers demand something that they do not have the cash to purchase. In these situations, consumers turn to financing options. The real estate market thrives on the availability of mortgage funds. When those funds are not available the market (buyers) shrinks. Sellers who must sell have a couple of options: reduce their price to a point that there are buyers who can pay cash, or offer seller financing. In the case of the Orlando condo market, these sellers are mostly the banks at this point. They won't offer financing, so the only option they have left for themselves is reducing the price. The article mentions the option of FHA financing for some complexes. Unfortunately, even FHA has tightened up their guidelines (recently loosened slightly). Even FHA approved condominiums are scrutinized for the number of investor owned and second home units. Hello - this is Orlando - it is very hard to find a condo community that does not have a majority of the units owned as either investments or second homes. While this does not prohibit financing it does require higher down payments limiting the number of buyers who qualify.
I suggest the banks come up with at least some form of financing for condos without huge down payment requirments. Take a page from their own commercial lending operations, and put in 10 year balloons. This could open up the pool of potential buyers, and get these condos turned around in a hurry. The other thing that could help turn the condo market around quickly is the approval of short sales. A Bank of America executive actually told our office that they make more money on a foreclosure than they do a short sale. I thought how can that be? For the most part the banks don't own these loans; they just service them. Apparently, they get paid more to handle a foreclosure than they do to negotiate a short sale. If you are one of these investors holding mortgage backed securities listen up. Short sales that are closing in Orlando are averaging about $40,000 higher sales prices than the foreclosures. Since The Fed is buying up these bad securities, you might want to consider making the negotiation of short sales a priority. Better yet, take it away from the banks altogether. Bank of America is exceptionally incompetent at handling the short sale process as are most other large banks. However, I did just close on a Wachovia short sale that was approved in four days (it was the second contract). My understanding is that they have put an incentive in place to get these deals approved. Amazing how quickly the process works with the right incentives.
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