Understanding how flippers affected the market.
One major factor in the current foreclosure trend are those people who flipped properties from 2003 to 2006. Many people believe that speculative buying was the biggest cause of the foreclosure boom we are experiencing today.
Many of us heard about people who made tons of money in just weeks by flipping real estate. Flipping is when a person buys property and then sells it for a profit a short time later without ever living in the house or condo in question.
Those tales lured more people into flipping, and in turn drove up real estate prices even higher. An examination of federal mortgage data says speculative buying in the country ran rampant between 2003 and 2006, peaking in 2005.
Now we are experiencing unprecedented foreclosure rates. In Jacksonville, Fla., alone, there are more than 8,700 homes for sale, 4,700 of which are under pre-foreclosure and more than 2,000 of which are bank-owned.
According to the Mortgage Bankers Association (MBA), one out of every 200 homes in America will be foreclosed upon. The MBA also says that every three months, 250,000 new families enter into foreclosure.
These foreclosures are rippling through the economy, and banks have stopped lending money. Even with the government bailout, it may be some time before we see a slowing in foreclosures. We need to instruct our clients to make sure they have the best credit score possible in case they are forced to refinance. Remind your clients of the following tips to help prepare them for refinancing so that they don’t lose their homes.
1. Make extra mortgage payments to pay down the principal
2. Reduce unnecessary spending
3. Review your credit report every six months to ensure that the information is accurate and up-to-date
4. Limit your credit to mortgages, auto loans and only a few major credit cards
5. Pay credit cards and mortgages on time
6. Develop a plan to pay down your debt to less than 40 percent of available credit
7. Stay at your job for longer than one year
8. Systematically pay off your loans starting with the highest interest rate loans
9. Keep telephone and utilities in your name
10. Don’t needlessly open new accounts
Douglas Muir, CEO