Lending Cafe

The Florida House of Representatives overwhelmingly voted in favor of a bill that would accelerate the foreclosure process in the state, which is in dire need of relief for its foreclosure inventory.

Although the state senate has yet to approve the measure, its bipartisan support on the House side bodes well for final passage. The bill would shorten the foreclosure process by compelling homeowners to respond sooner to foreclosure filings and reduces the time lenders can lodge complaints against homeowners.

Pharmacist Roshell Schenck, a 28-year-old graduate of Lake Erie College of Osteopathic Medicine, earns $125,000 annually, yet she still cannot get lenders to approve her mortgage applications.

"I'd love to buy and can afford to buy," Schenck, who owes $110,000 in student loans, told Business Insider. "My debt is crushing my chances of purchasing a home."

Prospective property owners who are on the fence about applying for real estate investor loans should consider the story of Minnesota investor Dan Grohs, who claims to have made at least $100,000 annually for the last 30 years by purchasing foreclosed homes for cash, renovating them and then reselling them.  

Grohs told NPR that he purchased about 500 homes during that time period, following the same routine for each of them. Investment property loans have become quite popular for property owners like Grohs, many of whom have realized that lenders are trying to clear their inventories and may be willing to accept offers that come in below what they had anticipated.

When home inventories increase, the prices of properties drops, which is a phenomenon that has been observed in recent years following the housing crisis of the late 2000s. This year, home inventory figures, which usually rise in the spring, have decreased substantially from where they were just one year ago.

According to the most recent statistics from the National Association of Realtors (NAR), home inventories have dropped in the last year in all but one of the 146 markets tracked by the organization. Since January of last year, home inventories have declined by 21 percent to 2.31 million.

Even though the plunge in home prices has been advantageous for buyers and individuals who acquire real estate investor loans, new and more established owners alike are not finding homeownership to be cheaper. In fact, for many middle class families, the costs of owning and renting have both spiked to a sizable portion of their monthly incomes.

The Center for Housing Policy released a study this week titled "An Annual Look at the Housing Affordability Challenges of America's Working Households" which found that 23.6 percent of middle class households spend more than half of their combined income on housing expenses in 2010, up from 22.8 in 2009 and 21.8 in 2008.

Even though the economic downturn has marred the values of many homes and left owners apprehensive about their future living situations, a perfect storm of factors has lead to a favorable financing environment for investment property mortgage borrowers. Real estate investors who finance properties now may be making the optimal long-term investment, according to a recent survey.

The study, conducted by real estate training provider OwnAmerica, found that 84 percent of respondents consider real estate, not savings accounts, stocks or bonds, to be the ideal long-term investment. Furthermore, four out of five holders of investment property loans expect values to increase in the next decade, while the same number have already made money through their property investments.

The two government-sponsored enterprises (GSEs) that back about $100 billion in American mortgages - Fannie Mae and Freddie Mac - may slowly be replaced by private entities if some lawmakers get their way.

Following the passage of the 2008 Housing and Economic Recovery Act, the government bailout of the two bodies led many to criticize the Bush administration's handling of the housing crisis. Now, the Federal Housing Financing Agency (FHFA), the regulatory body that was formed to manage the two GSEs since 2008, is seeking a resolution that is more long-term in nature and will relieve the burden of taxpayers.

When a mortgage refinance may not be adequate to save underwater borrowers, some lenders offer short sales to offer relief. This process, which can take quite some time, has compelled lawmakers to address the issue directly.

Senators Lisa Murkowski of Alaska, the bill's chief sponsor, along with Scott Brown of Massachusetts and Sherrod Brown of Ohio, have co-sponsored a bill that would force lenders to respond to homeowner requests for short sales in a timely manner. The goal of the law would be to encourage movement in the housing market, which many indicators point toward still being stuck in neutral.

In 2006, Jason and Brooke Huerkamp funneled $400,000 into four rental homes and a duplex in Mankato, Minnesota - home to four colleges and universities. After finding real estate investor loans and repairing the properties, the Huerkamps began renting them out, shortly before home prices plummeted. The investment has since paid off, as they now collect more than $7,000 in rent each month.

According to USA Today, the Huerkamps are not alone in discovering this new-found revenue stream. These "buy-and-hold" investors envision property ownership as a long-term investment, unlike "flippers," who quickly spin off a home after conducting repairs and upgrades.

Even as the glut of REO and foreclosed properties begins to diminish, the Federal Housing Administration (FHA) is continuing to be flooded by defaults on properties with FHA loans, as defaults increased for the ninth consecutive month in December 2011. To help alleviate this backup, some borrowers with the means to do so may explore applying for real estate investor loans to purchase these properties at a low rate.

The FHA insures about one-third of mortgages, according to HousingWire. As of December 2011, the amount of defaults on homes with FHA loans was 19 percent higher than it had been one year prior - 711,000 properties. While the government has tried to expedite foreclosure processes so that the homes can be spun off to new borrowers, there are simply too many homes for the process to move along swiftly.