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Mortgages In Real Time

Monday, January 7th, 2013

walmartA  study focused on consumer attitudes about home ownership was released last month.   The focus was centered on the mortgage application process.  The big headline from the study was that 1 in 3 consumers stated they would consider obtaining a mortgage from Walmart.  The headlines seem to blare that this was quite the revelation…33% of people would consider a Walmart mortgage!  My thought was…why so low?

Later in the study, the focus turned to consumer frustration with the mortgage process.  Beyond the usual complaints about interest rates, taxes and escrow…the main issue is execution of the process.   Slow execution.  I agree totally.  Why does it take 4-6 weeks to obtain a mortgage?  In the 1980′s I would not have questioned that it takes so long for the paper to flow through the process.  Today, I can’t figure out why the mortgage industry has not trimmed this time line.  I have been involved in the world of real estate finance since the 1980′s, and I venture to say it takes as long today to close on a mortgage as it did in 1984 when I purchased my first home!

Lets contrast this with the second biggest purchase most people make.  Over the holidays, my daughter was home from college and we needed to address her driving situation.  After she did her shopping, she selected a nice used vehicle from a local dealer.   I negotiated with the dealership by email until a deal was struck.  About two hours later we went to the dealership, completed some paperwork, and within an hour, drove away with the car and a car loan.  I can make a case that this car loan is much more risky than a mortgage.  Yet, all the underwriting and documentation can be completed in one hour!

Any wonder the mortgage industry has a problem with consumer satisfaction?

When you think of Walmart you think of low prices first.  Convenience..maybe second.   Much of Walmart’s success is based on speed though.  Quick inventory turns are a part of how you keep prices really low.  Does anybody not think Walmart (or any non-bank) mortgage provider could not speed up the approval and funding process?  I can hear the banks now…they believe we are willing to take a longer journey for that mortgage due to the professional, personal service we receive.  Stop me from laughing please!  This study says 56% of its participants are laughing with me.

The final conclusion of the study is that consumers want price, service and trust.   Service means not waiting 3-4 weeks to find out if you are approved.  I can name several non-mortgage companies that can offer all three of these benefits if they chose to commit to offering mortgages.  The question left is who will challenge the banks model first?

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Posted in Buyers, Financing, mortgage, Private Lenders, Underwriting | No Comments »

Crucial Steps To Buying A Foreclosure

Tuesday, December 4th, 2012

Seems like when the conversation gets around to what I do for a living, just the smallest mention of being involved with foreclosures sparks people’s attention.  Many people are intrigued by the prospects of purchasing a foreclosure as an investment.  Others are trying to find a home to live in a foreclosure leaves them with more questions than answers.  With most Realtor associations reporting default sales making up 25% to 30% of all sales, it is easy to see why so many potential buyers are interested.

I always try and keep these conversations simple because each case has its own unique circumstances.  Nevertheless, the basics that I explain to buyers they need to consider when they are considering a foreclosure consists of the following.

Disposition:  By this I ask the buyer to self-assess.  Foreclosure sales can be tricky and involve more time than many buyers have the ability, or patience, to work through.  The time involved is on both the buyer and seller’s ends.  For a buyer to assess a foreclosure properly, there is some legwork.  Famously, the seller’s are also not known for timeliness.  This causes frustration if one is accustomed to traditional sales methods.

Value : Most buyers have this one figured out..or at least they think they do.  The main reason people want to buy a foreclosure is “to get a good deal”.  But what exactly does that mean?  We are in the business of determining value and most properties come with a range of them!  The reality that most buyers should understand is when a foreclosure is priced within that range, it will frequently get multiple offers.   Seller’s know this to be true.  An offer of 50% of list price is not going to get you far and likely will end up with the buyer watching the home go under contract while they are asking what happened to their offer.  Do the homework of identifying that range.  This is an important function of using a buyers agent.

Inspect:  So many offers are made by buyers who have not thoroughly inspected the property.  Many buyers believe they just get the winning bid, then inspect and determine if they still want the home.  Many will pursue requesting repairs prior to closing.  This might be an option with some sellers…but the majority of the time it is not.  Many foreclosures are sold “as-is” and the seller accepts your offer on that condition.  For a buyer that means getting your earnest money returned may be challenged.  Do your homework upfront by using professionals to help you determine the condition of the home.

Financing: There are some tremendous options available for buyers of foreclosures!  Some programs provide financing for repairs and allow a buyer to make some personal selections for things like carpets and paint.   Owner-occupants and investors both have possible low down payment options.  One of the best seller financing program for a foreclosure is HomePath from Fannie Mae, offering many closing related costs waived, low down payments and many other attractive terms.  The presence of a great financing package can be a huge deal when considering a foreclosure.

Ready:  All foreclosure sellers require proof of funds prior to considering an offer.  If you want to make an offer on a foreclosure, traditional financing contingencies do not apply.  You need to have a bank approval letter dated in the last thirty days or proof of cash.  If you do not have one of these, then you are not ready to be looking at foreclosures.

One final thought.  Buyers are often confused about short sales and foreclosures.  They are NOT the same thing.  Short sales are still owned by a seller who has not acquired the property through a default..ie foreclosure.  They are people just like you and me.  They do not have the ability to sell their home without their mortgage company blessing the sale because it will not provide enough cash to pay off the mortgage and provide a release.  It is a complicated process and a topic for another day.

 

 

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Posted in Buyers, Buyers Agents, FHA, Financing, HomePath, Offers | No Comments »

Immigrants As FHA Buyers

Tuesday, September 4th, 2012

Wrongly, at one of my trainings,  I had an agent ask me how to finance a resident, non-US citizen “since they can’t use FHA”.  Several other agents at the session were under the same impression.   Not something you may run into every day but still worth the effort to know that in fact, certain  non-US citizens (immigrants) can use FHA financing to purchase a home!

Some of the confusion may derive from the fact FHA does have criteria the borrower needs to meet.   These guidelines are in place so that the lender can establish the type of residency status of the borrower.  The key to approval is for the borrower to have an approved residency called a “permanent resident alien” status.  Any borrower who has “permanent resident alien” status will also have a social security number.   They also should have a social security card.  If they don’t, the lender will need to validate that the borrower has a social security number.  This can be done by obtaining a letter from social security, or a copy of a tax return, W-2, or 1099.

As I discussed this further with the agents, I learned the confusion on this topic revolves around residency.  “Permanent resident aliens” actually live in the United States and with their social security number may buy a home using an FHA loan.  Non-residents may not utilize FHA for financing.  It is important to understand this distinction prior to beginning to work with any buyer.

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Posted in Buyers, FHA, FHA, Financing, HUD, mortgage, Underwriting | No Comments »

Don’t Do This Before Applying For A Home Loan

Tuesday, May 15th, 2012

When we work with first time buyers, we do everything possible to counsel them as to what to expect in the home loan process.   Getting approved for a loan is one of the scariest, and most exciting, parts of the process to a first time buyer.  Yet, in their haste to purchase a new home, many home buyers (not just the first timers) will open themselves up for scrutiny that will make the lender seem like Satan’s brother.

One of the most basic pieces of advise…no new credit cards!  Yes it is tempting to be offered six months same as cash when you are purchasing that new sofa, but it involves applying for credit and a new obligation.  Most home buyers hate the idea of waiting to start shopping for furnishings but they really need to execute their mortgage before messing up their credit scores and debt load.  In fact, first timers should probably take as many hand-me-downs as possible until they get comfortable with their new monthly payment.  It is still rather easy to finance major purchases and before you know it, you will have so many payments that you will lose sleep at night!

If somebody is going to gift to you the down payment funds, get a gift letter from the lender to use and document the receipt of the funds correctly.  Lenders will request 3-6 months of bank statements and when they see that large deposit of cash, they will want you to provide documentation.  Make sure if you have a recent large one time deposit, you will apply toward a down payment, that you can document it.   If it is not possible to explain (you found the money, you have gambling winnings, you stole the money) you will find this issue to be a big sticking point for your mortgage.

Many bank owned properties today are for sale to only owner occupants for a period of 15-30 days after first coming on the market.   Unfortunately, we are seeing prospective buyers who are thinking they can sneak around these rules based on some technicality.  Unfortunately, many are guided by uninformed, inexperienced agents.   If you own another home, you will need to document that the one you are bidding for will be your home.  Not that the other home you own is going to turn into a rental and you are now going to drive an extra 50 miles to work.  Lenders are not that stupid.  I have even seen cash buyers get caught up on this one based on the location of their employment.  Better really be able to prove that you work remote and do not be surprised if the lender asks for a letter from your supervisor!

Not so long ago, lending standards were more lax and a lot of borrowers could say just about anything and not have to provide proof.  We all have seen how that worked out and nobody is going to allow us to get back to those standards anytime soon.  Be prepared for your lender, and don’t give them any reason to doubt you!

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Posted in Buyers, Financing, mortgage, Underwriting | No Comments »

What You Should Know About HomePath

Tuesday, April 10th, 2012

I get calls all the time from potential buyers who will ask if a bank will finance a home they hold in title due to foreclosure.  It seems to be one of the great urban legends that give people the impression that a bank will turnaround and provide more than generous terms on their foreclosures in order to get a new buyer for the home.

In one case I am able to suggest that such generous terms are not legend but reality.  The terms available on FannieMae foreclosures include:

3% downpayment for owner occupants, 10% for investors

No private mortgage insurance (PMI) keeping total payments lower

No appraisal

15 day preference for owner occupant bidders

Investor deed restriction that they will not resell for more than 120% of the purchase price within first 90 days of ownership (discourages flipping).

Some properties offer renovation financing.

In 2009 Fannie Mae launched a new branding program for their foreclosure (REO) properties.  Known as HomePath, the program initially identified the financing program that Fannie supports through multiples of lenders.  As the years have passed, the brand “HomePath” has come to identify all Fannie Mae REO properties, their marketing, where to find complete lists on the web, and the favorable finacing program.  Now, when you see one of our homes “for sale” sign, you will also see a HomePath rider that tells you this is a Fannie Mae owned home.  Most importantly, it tells buyers that this home is available with the best financing program available in the USA for foreclosure properties.

Why should you care about Fannie Mae?  They have one of the largest inventories of REO properties in the country.  Not inferring this is a good thing..but the sheer nature of who they are places them in this unenviable position.  Fannie Mae is a government-sponsored entity, chartered by Congress and overseen by the Department of Treasury.   Simply, Fannie has been the largest investor in mortgages for many years.  Their mission has been to provide liquidity to the market so that banks and mortgage entities could continue to make mortgage loans.   This means that a significant portion of the mortgages in the country end up Fannie Mae’s responsibility and as we know, in the last decade this has created problems due to the volume of owners who could not make payments on their mortgages.  It is estimated that Fannie Mae has an interest in one-third of all mortgages currently outstanding in the country.

The unfortunate end result is that Fannie holds a very large foreclosure inventory.  This fact is why any buyer or agent better be familiar with HomePath and be ready to utilize the program if the opportunity presents itself.   Start with a lender who is approved for HomePath and express your interest in using the program.   Make sure they respond enthusiastically.  Unfortunately, reports do come in to us that some lenders on the list provided at the HomePath site, often are not great advocates of the program.  This is their mistake and for you a sign to move on.

All FannieMae HomePath properties are available for review, and bidding by a real estate agent only, at www.HomePath.com.

 

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Posted in Buyers Agents, Financing, HomePath, HomePath Sales Procedures | 2 Comments »

More Reasons To Sell Freddie Mac Homes

Tuesday, November 22nd, 2011

Last week, Freddie Mac started a sales promotion to possibly increase the sales of their foreclosed home inventory.  Calling it the Winter Sales Promotion, and limiting the availability to owner-occupant purchasers, the benefits include:

  • 3% of the final sales price for closing costs.  Offers must be received by January 31, 2012 and close by March 15, 2012.
  • $1000 selling agent bonus for those same offers available in 28 states (Indiana-yes, Florida-no)
  • Two year home warranty covering major mechanical items and appliances plus a 30% discount on the purchase of appliances.

All the fine print for the Winter Sales Promotion is available at the Freddie Mac HomeSteps website.

 

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Posted in Default, Financing, Freddie Mac, HomeSteps, Uncategorized | No Comments »

More Help For Underwater Borrowers

Wednesday, November 2nd, 2011

The Home Affordable Refinance Program (HARP) offered by FHFA (Federal Housing Finance Authority), Fannie Mae and Freddie Mac was originally projected to help several million borrowers by allowing them to refinance into lower interest rate loans.  The two big qualifiers were that their existing loan to value ratio could not exceed 125% (so their home that is now valued at $100,000, could be refinanced if the loan balance was not in excess of $125,000) and they needed to be current on their existing payments.  Since the program was created in 2009, it has reached 894,000 borrowers, well short of its goals.

So, a new version is being introduced later this month that will eliminate the loan to value limitation.  The borrower will not be prevented from entering the program if their value has severely fallen as long as they are current, and their loan is owned by Fannie or Freddie.  It is projected that this will allow the original number of borrowers anticipated to be served to now be able to utilize this program.  With lower payments, or the possibility of making similar payments and paying their loan off sooner, it is hoped that more homeowners will ultimately save their homes.

The details and fact sheet make for some interesting reading.  If you are in a qualifying situation, it would make sense to contact your servicer (who you make payments to) in a few weeks.

 

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Posted in Default, Fannie Mae, Financing, Foreclosure Prevention, Freddie Mac, Help | No Comments »

HomePath Renovation Properties Offer One Of A Kind Opportunity

Monday, October 3rd, 2011

Since the demise long ago of the FHA 203k for investors, the ability to purchase a home with money for repairs has been much trickier.  The investor needs cash or a private lender loan.  The private lender loans came with huge price tags, which worked when homes were appreciating at 6% or more per year.   The end result means owner occupants and investors with cash who truly can absorb the risk of putting that cash to work, are the only buyers for many properties.

The need is great, considering the amount of foreclosure inventory, combined with the lengthy time period these homes sit vacant and the ensuing deterioration.  The retail local investor should be provided a chance to purchase and improve properties utilizing some type of all-in-one loan.  What does not seem as well known is that there is a way for the retail investor to purchase Fannie Mae foreclosures and participate in the renovation with the financing.

Called the HomePath Renovation mortgage, it is available on select Fannie Mae properties all listed at HomePath.com.  Properties listed at this site, with the above HomePath Renovation Mortgage logo qualify.  The borrower needs to work with an approved HomePath lender and they are listed by state on the site.

Here are the reasons why you should consider this option for your residential investments or investor buyers.

The following are some additional notes sent to me by a HomePath lender regarding the program in general.

  • Buyers are eligible to add up to 35% of the as renovated value or $35,000, whichever is less, to their loan for renovation expenses.
  • The buyer must choose one credible General Contractor to complete the renovation bid and project.  Do it yourself projects are not allowed.
  • The minimum credit score for a down payment less than 20% is 660.   For down payments of 20% or more the minimum credit score is 620.
  • An “As Completed” appraisal is required for HomePath Renovation Mortgages.
  • The current interest rate is less than 4.50%.
  • Closing costs vary depending on the loan to value, credit score, property type and down payment, but typically run an extra $2,000 over standard fees.
  • The minimum down payment is 3%,  however 5% is almost always the right option.
  • No mortgage insurance required. Compared to FHA the payment is always lower.
  • Seller can pay up to 6% of the sales price towards closing costs.
  • Investors and second home purchases are eligible.  Second Homes require 10% down.
    Investors require 15% down.

 

 

 

 

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Posted in Buyers, Financing, HomePath, Investors, mortgage, Remodeling, Return | No Comments »

How Long Before I Can Get Another Mortgage?

Thursday, July 28th, 2011

A commonly asked question from buyers inquiring about one of our listed properties often comes around to time.  After spending a few minutes talking about a property the conversation turns to the buyer and why they are looking.  Anymore, it is not unusual to hear “I have recently gone through a (multiple choice) bankruptcy, foreclosure, short sale.  Do you know if the owner will finance my purchase or how long it will be before I can get financed?”

Well, in general the owners do not offer financing so that is out of the question.  There is a wait after any of these events and it is not simple to identify.  Credit worthiness begins and ends with a borrower’s credit score.  The single event with their home loss will affect their score…but it is only one part of the calculation.  Other debts will also play into the score..and how fast it can be improved to a level where a mortgage can be obtained.  This is particularly true with short sales.  With a foreclosure about the fastest one can hope to get back into the game is three years.  More likely four to five.

I found an interesting article that verifies these time lines in the New York Times.  The volumes of people making these decisions regarding their mortgages and homes often seem to be mis-informed on these time lines.  We often are the bearer of bad news as to how long the wait will be.  It is also why we see more and more renters and rent to own requests.  Over the next few years I believe we will see home ownership rates hit 20 year lows, and renter percentages hit similar highs.  Far too many people are making these significant decisions lacking a full understanding of how long they will wait to own another home.

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Posted in Buyers, Credit, Default, Financing, Foreclosure, mortgage, Short Sales, Short sales | No Comments »

What Buyers And Agents Need To Know About The New Fannie Mae Second Qtr 2011 Incentives

Thursday, April 14th, 2011

Got a buyer looking at Home Path properties from Fannie Mae?  Right now is the time to act as the second quarter incentive can add an extra 3.5% of benefits for your buyers.  Here are the main points you need to know:

Owner occupant homebuyers are eligible for an incentive of up to 3.5% of the final sales price to be used for closing cost assistance when purchasing a HomePath property. Buyers must request the closing cost assistance incentive when submitting their initial offer on or after April 11, 2011 and they must close by June 30, 2011.

Frequently Asked Questions:　

Q: If a property is scheduled to close before June 30, 2011 but is delayed, will the buyer still receive the incentive?

A: No. The incentive will only be applied to sales that close on or before June 30, 2011. Listing Brokers must ensure that all proper documentation and paperwork are filed prior to June 30. Initial offers submitted after May 15 may be difficult to close by the incentive deadline of June 30, 2011.
Q. Are multifamily homes (2 to 4 units) eligible for an incentive?

A. Yes, as long as the homebuyer is an owner occupant who intends to occupy one of the units as their primary residence and meets the incentive eligibility criteria.
Q. The incentive guidelines on HomePath.com indicate that the buyer/selling agent must request the incentive at the time of initial offer. Do buyer/selling agents have to complete a form or submit a request letter?

A. Yes, the Listing Agent must note the incentive request in Section 38 of the Fannie Mae Purchase Addendum (see below) when the initial offer is submitted.
Q: Should Brokers document the closing cost assistance at offer?

A: Yes.  Listing Brokers should ensure that Selling Agents (agent representing the buyer) document the buyer’s closing cost assistance percentage in Section 38 of the Fannie Mae Purchase Addendum at the time of initial offer submission and document the language on the addendum as follows:

“Seller will pay an amount not to exceed $______ toward buyer’s closing costs provided closing occurs by the settlement date in 2(b) or a mutually agreed upon amended date, but not later than June 30, 2011.”
Q: Are offers submitted or accepted before April 11th eligible for the incentive?

A: No. Only initial offers that are submitted on or after April 11 are eligible for the closing cost incentive.
Q. The buyers are a mother and son and only the son is going to occupy. Does the buyer qualify for the incentive?

A. Yes. The buyer who will occupy the home must sign the Owner Occupant Certification form and include it in his/her initial offer package submission. All Buyers must be on the contract, mortgage, and deed.
Q. The buyer is a licensed real estate agent and is going to occupy as a primary residence. Is the buyer eligible for the incentive and the selling agent bonus (where available)?

A. Yes.
Q. Are second homes (defined as a vacation home or a home used only part of the time) eligible for the incentive?

A. No. The purchaser must be an owner occupant who will use the property as their primary residence. All buyers must sign and include the Owner Occupant Certification form with their initial offer package prior to submission.
Q: Do properties have to be HomePath Mortgage or Renovation financing eligible in order to qualify under this offer?

A: No.
Q: Is this incentive available only to buyers who use HomePath financing?

A: No. The incentive is available to all eligible buyers, regardless of whether they pay cash or choose to finance. However, if the buyer is financing the purchase, the lender may impose restrictions on the use of the incentive. The buyer should consult his or her lender.
Q: Are non-profits or city purchasers who intend to rehab the property and sell it to an owner occupant eligible for the incentive?

A. Yes. The public entity should be entered as an investor buyer type.
Q: Are there limitations to the incentive when using the Neighborhood Stabilization Program (NSP)?

A: Possibly. Public Entities are treated as owner occupants and therefore the incentive may be offered to eligible owner occupants and public entities (PE) and/or their designated partners. If a buyer is using financing, the lender may impose restrictions on the use of the incentive so the buyer should consult his or her lender.
Q. Can a buyer use the 3.5% in closing costs toward repairs?

A. Yes. Up to 3.5% (subject to lender limitations) can be applied toward closing costs, points, prepaids, home warranties, surveys, appliances, or repair credits as determined to be acceptable by the buyer’s lender. The incentive may be reduced to accommodate a buyer request for repairs to be performed by the seller prior to closing.

Q. Does the incentive apply to every property on HomePath.com or only those properties that are eligible for HomePath financing?

A. The incentive is available on every home on HomePath.com except homes offered via auction or pool sale or in instances where the insurer will not permit the incentive.

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Posted in Financing, HomePath | No Comments »

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