This was the headline news in the Orlando Sentinel last week. I must agree. Things seem to be moving a little faster and more contracts are being written. More homes have gone into the pending category and the available home inventory has gone from 30,400 to 29,840 homes. Based on 1,300 May sales, we still have 22 months of unsold inventory. The pending homes sales also have increased to 3,700 units and 32% are bank owned and pre-foreclosure sales, which is an unprecedented amount.

While some of the statistics show some forward movement, we are by no means out of the woods yet. Fundamentally nothing has really changed. We are going to be in this market for a long time to come. Home sales, compared to last May, were 39% below an already slow 2007, and the average sales price was $264,380 (with a $126.40 per square foot price). This is compared to $301,040 and $165.00 per sq ft in 2007.

This morning, I read in the Orlando Sentinel Real Estate Section that Freddie Mac and Fannie Mae have put an end to declining market penalties requiring higher down payments on homes. However, in the same article it says more PMI (mortgage insurance company, insuring lower down payment loans) insurers such as AIG will not insure properties in Florida on second homes, as well as not insuring any condos. Some others do not insure in Florida period. So, this doesn't make much sense and basically puts us back to square one here in Florida in terms of down payment requirements.

The question I get asked all the time is this: "How long will this go on?"

My short answer: It will go on for years. In fact, I believe we are just ramping up from the Sub Prime Crisis to the Alt-A mortgage challenge which will be even more severe than the sub-prime problem. The Alt-A is a mortgage product (also known as Pay Option Arm) which was peddled to "A-Quality" borrowers who could qualify for a normal mortgage but because of this mortgage product could buy homes which they normally could never afford.

The Teaser ads read as follows: "Buy a $1M home, pay only $500 per month (1% interest) ". As an example, a borrower who could qualify for a $1M mortgage would normally only qualify for $500,000 because the Pay Option Arm had 3 different options to pay: A low payment, interest only and a normal P&I payment. There was the option to pay $500 to keep the loan current, or you could pay the interest payment which may have been $1,500, or you could pay the 30 year amortization which would be $5,000. Most borrowers chose to pay the lowest payment of $500. However, the negative amortization is placed onto the principal payment.

As long as the value of the home was going up, this system really worked. However, as values are dropping, these loans are becoming very dangerous because a borrower now owes more than the home is worth and the recapture amount and payments (unlike sub-prime) can make significant jumps. Whereas a sub-prime mortgage may jump $100 to $200 per month, Pay-Option Arms may jump $3,000 to $10,000 or more per month because mortgage companies are now asking for the full amortization payments to be made.

Here is the Wall Street Journal article: The Looming Pick-A-Payment Option Problem. Also, this problem is much more difficult to fix compared to sub-prime because the adjustments are so severe. They will bankrupt the people who have them and banks will not just rework the mortgages because the values in these homes are just not there and need to be written off. Every month, as values go down and the negative payment amount is added to the principal, the underlying asset securing the mortgage loses more and more value.

Warren Buffet just was interviewed recently in one of the European newspapers and he blamed the banks for this disaster. Greed must have been the foundation for offering these very dangerous mortgage products to the public and now the banks are very poorly handling the short sale process to exacerbate the decline in values and sales. While Congress is holding hearings on what caused the problem and how we got into this, they need to hold hearings on the current problem of how banks are mishandling the short selling of homes, how the problem is reducing property values and how it is stifling sales. All-in-all, this combined effect is creating negative sales reports on monthly home sales.

Here is an example (not exaggerated). Think about this. After two months of mind-numbing negotiations, some banks/lenders/mortgage servicers/you-name-it, some banks/lenders, will not accept a short-sale contact from a buyer for $280,000 because they want $300,000. The buyer backs out and the home goes into foreclosure. Months later (it could be up to 12 months), with added legal fees, lost interest opportunities, huge cost to the bank and a seller having a foreclosure on his credit, the same property sells for $200,000 as a REO (real estate owned by the bank)!

If this is not criminal, I don't know what is! It is killing property values and adding huge losses to the lender. Someone needs to wake up! We have lenders who are in 2nd, 3rd and 4th mortgage positions dictating terms and preventing contracts to close, forcing properties into foreclosure. If they would have not been so reckless and greedy and extended these mortgages in the first place, this would not have happened.

Why do lenders do this?

It is very simple. They are pushing the problems under the rug because they do not have the liquidity or assets and hope things will turn around.

While the mortgage problem is all around us, compared to any other area in Florida and the US, we in the Orlando area are doing much better. We are looking forward to the big bio-medical developments and buildings going on in the Lake Nona area to pick up the pace. Medical facilities moving to our area in the long term means we will have a lot going for us.

In the meantime, we are dealing with an onslaught of short sales, pre-foreclosures and REO's that are dominating the marketplace. We have just been certified in foreclosures and I now have the designation as a Certified Foreclosure Specialist. So please call my office if you or your neighbor are having problems with mortgage payments, so we can give you free advice! Plus, if you know of someone in need of assistance with housing problems, please pass on our contact information to them. Always start talking to your bank first and try securing mortgage mortification before anything else. While this is sometime very tough to get, it is the first step in this process.

The new buzz words in real estate is "short sales" and "REO's" (real estate owned). Somehow, the word has gotten around that banks will sell these homes at any price, no matter how ridiculous the offer might be. I have seen predictions of home prices still going down in the Orlando area another 20 to 30% over the next two years, but looking at some of the offers buyers make on homes today, which are in pre-foreclosure or even not in foreclosure, it seems like the bottom is dropping right out of the market and prices may drop 50% or more. Buyers need to become more realistic too. This is not a bottom feeding market.

Of course headlines like this (Foreclosures Jumped 65% in April According to Realty Track) fuels the low offer craze and causes a further downward spiral much like it caused with the upward movement during the market bubble. Of course, we are our own worst enemies when Toll Brother CEO, a luxury home builder, announces Customer Traffic 'Worst We've Ever Seen' - Click here for more information.

We have had more closings in May compared to any other month in recent history, which is good news. Let's hope June will be an even better month and your home will sell as well.

Thank you,

Gitta

Top Ten Reasons to Sell Your Home with Gitta's Team!

• Excellent Google rankings on the 1st page for the cities surrounding the Orlando area.
• Keyword: "Orlando real estate agent" - ranked #1!
• Keyword: "Lake Mary real estate" - ranked #1!
• Weekly open houses!
• Our luxury website www.orlandoLuxuryHomes4Sale.com, our luxury auction site www.luxuryauctionsinternational.com, and our short sale site www.shortsalemegastore.com .
• Your home on Realtor.com® with multiple pictures and a beautiful visual tour!
• Website performance! Over 500 hits daily from buyers looking for your quality real estate.
• Agent incentives to win $10,000 through www.agentdrawing.com, and soon our first $10,000 drawing!
• Buyer incentives for cash rewards up to $10,000!
• We talk to hundreds of prospects every week about our homes we have for sale, with hundreds of weekly inquires which we receive.
• Open 7 days a week, we are here to take care of our clients and provide access to your home for prospective buyers.
• Full exposure of your home through uploads to several search engines and websites!

We provide live service from 7 AM to 10 PM 7 days per week.

Also, my www.Gitta.com website,

one of the sites where your home is advertised,

had 389,000 hits during June,

which I consider an outstanding performance! 

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"The significant problems we face cannot be solved at the same level of thinking we were at when we created them."

-Albert Einstein 

Disclosure

This information is provided free for Gitta's team members and/or affiliates or current and future clients of Gitta's Real Estate Team with Keller Williams Heritage Realty. It is for informational purposes only and data from 2nd party providers is used and should be personally verified. Before using any of this information it should be verified with Gitta Urbainczyk, P.A., as it may apply to your specific situation. This information is for the person addressed to and should not be dissimilated to people not intended for. If you received this information and you are presently listed with another real estate company please disregard it.