I’ve taken a cursory look at the possibility of investing in real estate near where I live, with the intent of buying a property for rental. The numbers don’t work well in my favor. I’ve confirmed this with friends experienced with renting their properties in the area; most would not do it again if given the choice. The small potential profit is not worth the extra effort and stress.

To make the numbers work more in the investor’s favor, there’s the possibility of purchasing foreclosed or pre-foreclosed homes. If you can get a significant discount on the price and minimize the out-of-pocket costs required to make the dwelling attractive, there’s a better chance of making a profit. Buying a house in a distressed situation, whether from the buyer in a pre-foreclosed status or from the lender or bank once foreclosed, is not very simple. Auctions are attended by professionals, and the best deals are monopolized by the most experienced investors. It can be difficult, expensive, and time-consuming to break into the elite group of foreclosure investors.

Zillow is making this process a little easier or less expensive for the amateur investor. I’ve been a fan of Zillow for a while. The website, and particularly the iPad application, helps me easily find public information about any property. While driving around neighborhoods in which I might like to buy a house, either for myself or as an investment, I can get an idea about the cost of the home.

The application uses a map and GPS to locate the house of interest, and provides details such as a history of sales prices and Zillow’s own market value estimate of the property. The application also identifies which homes are currently for sale and offers homeowners a chance to advertise their homes to potential buyers without officially putting them on the market. Of course, I don’t actually use the iPad while driving.

Now, the website also indicates when a home is in a pre-foreclosure or pre-market status. This means that the bank has initiated proceedings to foreclose upon the property, but the home is not listed for sale yet. Previously, this information had been difficult to aggregate or has been kept away from the general public by services that require membership fees. Zillow’s new feature brings a wider inventory of potentially better deals to more investors for free.

That doesn’t mean, however, that it’s going to be any easier for amateur investors — those without connections in the foreclosure real estate market in their location — to get better deals. Professional investors find pre-foreclosure deals within a day or two of the public filing, and with cash in hand and experience making deals, are often able to make the most out of the information they have. If Zillow’s information is as slow as two days, the best deals might no longer be available. That doesn’t mean it’s not worth pursuing, because the deals one might find with Zillow might still be better than the deals one might find if you wait for a foreclosure auction.

Zillow’s new development is bad news for companies who profit by charging membership fees to access an aggregation of public information. When a competitor comes in and offers customers the same information for free, the company that charges its customers must come up with a new business model fast or explain how their paid service is worth the price compared to the free service.

To feature foreclosure and pre-foreclosure listings, Zillow has introduced a foreclosure center, making it simple to search just for these deals without other listings cluttering the screen. A search in my ZIP code reveals a surprising number of pre-foreclosure properties within a mile. I don’t have to walk very far to see fifteen homes Zillow has marked as pre-foreclosure.

Without walking around to see these homes, the pricing looks favorable. The estimated foreclosure prices seem to be 15 to 20 percent below Zillow’s estimated market value for these homes, putting these properties in the “good investment” range based on that information alone. Of course, if these properties need a significant amount of work, the value as a potential investment decreases.

I’d be interested to hear what seasoned real estate investors think about this new development.

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I never liked the term “hustle” when used to discuss making money on the side. The word has the slight connotation of fraud or taking advantage of someone, and moving quickly to do so. Now, the word “hustle” is going to be linked to something more specific and decidedly negative. This was the name of the program Countrywide Financial and its acquirer Bank of America created for allegedly defrauding the government and taxpayers.

This is from the press release from the United States Attorney’s Office in the Southern District of New York:

Specifically, the Complaint alleges that from at least 2007 through 2009, COUNTRYWIDE, and later BANK OF AMERICA after acquiring COUNTRYWIDE in 2008, implemented a new loan origination process called the “Hustle,” which was intentionally designed to process loans at high speed and without quality checkpoints, and which generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, causing over $1 billion dollars in losses and countless foreclosures.

The name “Hustle” is derived from the program’s official title, “High-Speed Swim Lane,” whose acronym is HSSL. The name of the program is a description of how loans move quickly from application to approval to origination to sales, without the friction and resistance of risk analysis or quality control.

Countrywide and Bank of America, once the largest residential mortgage lender in the United States, sold loans to Freddie Mac and Fannie Mae, pseudo-government agencies designed to make purchasing a home more affordable and to boost the real estate market. The companies regularly purchase mortgages from companies like Countrywide, repackage the loans as investments, and sell them to major institutional investors for a profit. The agencies trust the companies like Countrywide to represent the true risk of the loans, but due to the way Countrywide and Bank of America were processing the loans, allegedly through this organized “Hustle” operation, the true risk was not identified.

In cases, where risk had been identified, Countrywide and Bank of America allegedly engaged in falsifying documents.

Bank of America’s response

Bank of America has not yet responded to these allegations. The company did, however, announce a $0.01 per share dividend this morning. I’ll update this article as more information becomes public.

This particular bank continues to attract a lot of ire. Over a thousand Consumerism Commentary readers have been discussing Bank of America’s various class-action lawsuits, specifically the overdraft fee settlement for which affected customers are still waiting for their piece of the settlement.

Justice Department

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The prevalence of junk mail and spam has certainly made weeding out noise more difficult over the last decade. With email, software does a great job of hiding the junk and making the legitimate messages obvious, but there are occasional mistakes. Spam might show up in my inbox a few times each week, while I need to remember to check several layers of junk mail filters for false positives — legitimate email marked as spam by an aggressive filter.

The same holds true for traditional mail, or “snail mail” as some of the technology-inclined would call it back when the use of email was first exploding. With the proliferation of computer-based communication, one might have thought that the amount of physical paper sent through the postal service would decline, but it seems to have increased, at least from my perspective. I haven’t looked for any studies or surveys to put some numbers behind this thought, but when my mailbox is stuffed full from just a few days away with unnecessary ads and marketing materials, the junk mail industry must still be going strong.

It’s easy to get into the habit of ignoring this, even to the point of discarding or destroying paper mail without review. Unfortunately, people who have developed this habit may be missing some important information, deals that might save money.

I’m not talking about coupons or invitations to save 15 percent on your car insurance. Banks are sending thousands of dollars invitations to modify homeowners’ mortgages without any strings attached as part of a settment, and a significant percentage of those receiving these invitations don’t send them back. We’re so accustomed to receiving pitches to save thousands on mortgages that seem too good to be true, that they end up discarded without any thought about whether it might be legitimate. The problem is that these offers are legitimate.

While many households are having difficulty refinancing their mortgages, Chase is sending letters to thousands of their customers with a mortgage modification ready to go. These customers did not necessarily request to refinance or modify their mortgages, so most were not expecting anything. The modifications are part of the results of a government settlement against Chase and four other banks.

At first, Chase mailed letters to its qualifying customers asking them to call the bank to discuss the modification. That approach didn’t work; I’m sure most customers assumed it was some kind of scam to get households to spend more money with the mortgage servicer. Chase eventually changed its approach, sending letters that described the modification in detail, but is still finding it difficult to get customers to respond.

Of the five loan servicers involved in the settlement, Chase, Bank of America, Wells Fargo, Citi, and Ally, Chase has claimed the most credit (they wouldn’t be offering such a benefit to borrowers without a strong incentive from the government in addition to the legal requirement as a result of the lawsuit) for mortgage modifications — automatic reductions of interest rates, principal, or both — as opposed to short sale opportunities, which are also allowed by the settlement terms.

Not everyone has received these letters, so if you have a home loan with Chase and haven’t received a mortgage modification, it may not be that you missed the mail. You have to qualify.

• The loan must be directly held by Chase (or the other four participating lenders), not packaged into a mortgage security and sold. Mortgage-backed securities were used in some cases to mask the risk of default inherent within sub-prime loans, and contributed to the real estate crash and recession.
• The mortgage must not be backed by Fannie Mae or Freddie Mac.
• Homeowners must be behind on their mortgage payments or the remaining mortgage balance must be significantly higher than the value of the house.

These restrictions significantly limit the intended audience of the modifications. I have a few friends who could really be helped — or even saved — by a modification of this type, but they likely don’t qualify because there’s an excellent chance that Fannie Mae or Freddie Mac backs their loan, like millions of other homeowners.

If you meet each of these conditions, it might be worthwhile to call your bank to make sure you didn’t miss an important document. The savings could amount to $500 a month or more without extending the term of the mortgage. Prevent any missed opportunities in the future by making sure you review the mail you receive, even if it doesn’t look like an important document when you glance at the envelope or even if bears resemblance to junk mail, advertisements, or even scams.

Photo: taberandrew
CNN Money, CNN Money

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