Real Estate Investment: Return on Investment and Cash Flow Calculation

With mortgage companies facing an overwhelming number of non-performing loans, they may be strategically holding back foreclosures to make their balance sheets look better than they actually are. However, this practice could be hazardous to the economy if the dam breaks on the growing number of foreclosures. For more see the following article on the subject from Housing Predictor.

Bankers and mortgage companies are waging a financial war against the epidemic of foreclosures. Bankers have slowed down the foreclosure process in efforts to keep their losses in check and paint the face of an improving economy on banks’ balance sheets in an effort to show the real estate market is starting to heal, hoping consumer confidence will result.

The actions formulated by bankers directing the mortgage servicing companies are an attempt to manipulate the U.S. economy. At best the efforts are keeping another flood of foreclosures off the market for the time being as foreclosure filing notices hit new record highs, giving the Obama Administration time to strengthen its housing rescue plan. At worst a tsunami of foreclosures is being held back from the marketplace that will send housing prices lower for an extended period of time.

Mortgage servicing companies handling foreclosures in the hardest hit states, including California, Nevada, Arizona and Florida have filed initial foreclosure notices against tens of thousands of properties, according to attorneys handling the foreclosures only to be ordered to halt the process. The attorneys have been instructed to wait to receive final instructions from bankers to proceed with foreclosures.

The backlog of homes waiting to be foreclosed ranges into the millions, attorneys who are handling the foreclosures say. But the attorneys are resistant to provide exact figures since they obtain their foreclosure business from the bankers. The delay also gives bankers more time to work with mortgage borrowers on loan modifications, which will probably have to be ordered by Congress to make any meaningful impact.

The manipulation is at least showing signs of working to a degree as Freddie Mac announced its first quarterly profit in two years. Net income accounted for $768 million, but still failed to cover a $1.1-billion dividend to the government. As one of the two largest insurers of home mortgages, Freddie Mac has been riddled by the foreclosure epidemic. The still publicly traded company, which was taken over by the government as insolvent with an all-time record home mortgage failure rate, reported a $10-billion loss in the first quarter.

A new accounting rule approved by the Security and Exchange Commission (SEC) relaxes transparency of losses. The adoption of “mark to market” allows accountants to shield non-performing assets such as mortgages that aren’t being paid from public view. However, as defaults and delinquencies rise the losses will eventually be reported. Freddie is expected to report losses in the billions of dollars next quarter.

The federal government’s first time home buyers tax credit of $8,000 and lower home prices have produced more sales, despite the continued decline in the majority of the country of home values. The credit is intended to aid the housing market in recovering from the worst downturn since the Great Depression.

Markets from New Jersey to Florida and as far west as California are feeling the impact. The inventory of foreclosed homes in Riverside, California one of the epicenters of the foreclosure epidemic in the Inland Empire has dropped to levels not seen since the housing bubble burst.

Foreclosures have also been slowed by bankers in Florida, where courthouse notices on initial defaults are soaring. Florida State University researchers report the state has lost population (58,000 from April, 2008-April, 2009) for the first time in 63 years after the Great Depression.

This article has been republished from Housing Predictor. You can also view this article at Housing Predictor, a real estate forecasting site.