Banks cutting prices, paying “cash for keys”

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Seeking widsom from the front lines of the foreclosure crisis, we paid a visit today to the Big Kahuna himself -- big wave surfer and foreclosure sales specialist Leo Nordine. His take on the market: it’s bad. Really bad.

We began by asking his assessment of the current market in relation to the last big downturn. ‘Armageddon,’ he said. ‘This one’s worse, especially in the Inland Empire.’

What’s different? In some cases, he said, ‘Banks and institutional lenders are just giving up. They’re just renting out some houses (instead of trying to sell them). That didn’t happen before.’

Are foreclosed homes selling at all? ‘Any place where there were first-time buyers is dead. South LA is dead. Anywhere prices are under $400,000 is really, really hard to sell right now.’

He predicts prices will fall 65% in some areas of the Inland Empire, and sees the market hitting bottom in 2009. ‘There’s one buyer, maybe, for every 20 houses for sale in Riverside,’ he said.

‘We’re not gonna bottom out until 2009 -- because they were doing so many crappy loans in 2006 -- even until March of ’07. It’ll be a while before those loans start defaulting. I hope I’m wrong. But I’m not wrong.’

In a declining market, it makes sense to get a house on the market as soon as possible. For that reason, banks often speed the foreclosure process by paying defaulting homeowners cash to vacate the house -- ‘cash for keys.’ The going rate is $1,500, but in a sign of how quickly the market is deteriorating, some lenders are now paying up to $6,000, he said.

Banks and lenders are finally realizing how weak the market is, and slashing prices. ‘Just in the last month, they finally woke up -- we’re getting $50,000 price reductions all over the map.’

How bad will it get? ‘The banks will start selling houses in bulk -- very quietly, they’ll sell off, say $20 million worth of loans. That always happens at the bottom. I arranged a couple of those deals (in the last down cycle), and my clients made a ton of money.’

Thoughts? Comments? Email story tips to lalandblog@yahoo.com.
Photo Credit: Malibur Surfing Assn.