The Federal Housing Administration (FHA) is considering three policy changes to boost its capital reserves. Under the changes, new borrowers seeking FHA-insured loans will need a minimum FICO score of 580 to qualify for FHA’s 3.5% downpayment program. New borrowers with credit scores between 500 and 580 will be required to provide a 10% downpayment, and borrowers with credit scores below 500 will no longer qualify. The US Department of Housing and Urban Development (HUD) published a notice today seeking public comment on the measures, which are designed to reduce financial risk and preserve affordable mortgage finance. HUD will accept public comment for the next 30 days on the proposed changes.  ”These are the latest in a series of changes to allow the FHA to manage its risk better while continuing to support the nation’s housing recovery,” said FHA commissioner David Stevens in a press release.  

Specifically, the FHA is proposing to update the combination of credit and downpayment requirements for new borrowers, reduce seller concessions from 6% to 3% and tighten underwriting standards for manually-underwritten loans.  The changes also seek to reduce the share of the home sales price that sellers are allowed to contribute at the closing table to offset the buyers’ costs. The current share of 6% “exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value,” the FHA said in a statement today. The proposed change would reduce seller concessions to 3%, which the FHA said would bring it into conformity with industry standards.  The proposed FHA policy updates also require lenders, during the underwriting process, to consider compensating factors that are “the best predictive indicators of loan performance” — credit history, loan-to-value ratio, debt-to-income ratio and cash reserves.

Chris McLaughlin
**************
Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.
http://www.shortsalesriches.com

As a continuation to my previous post, we obtained approval from the lien holder on the short sale.  HOWEVER, since the bank took so long with responding, the initial buyer was no longer interested and jumped ship.  Fortunately, we had another buyer that was ready to step in and commit to the current terms of the short sale.  The approval letter states, that if the buyer’s name changes, that you must obtain approval from the bank.  Ok……fine, no problem (so we thought).  We had the approval letter and a buyer that agreed to the terms as they were.  We notified the bank that we simply needed to change the name of the buyer and they declined the short sale and made us start FROM THE VERY BEGINNING!  Are you serious Bank of America?  As long as it is taking financial institutions to approve short sales, it’s almost inevitable that the buyer will change during that time period.  Foreclosure rates are at an all time high, and here we have a committed buyer, ready to close the deal, and you want him to wait another 3-4 months while we start the process all over again!!  You would think banks would want these non-performing assets off their books as soon as possible, and they would work with you to make that happen. NOT SO!!

Fast forward, after resubmitting everything to the bank, they have finally responded with a counter offer.  Ok, so it wasn’t 3-4 months this time, just one and a half.  However, they had the nerve to counter offer with a price that was $20,000 more than the initial approved purchase price.  There have been no changes in the market in that 1 month time frame that warrants an increase in the asking price.  We simply needed to change the buyers name, NOTHING ELSE!  Now BofA is about to cause this to be a loss for everyone, with them taking the majority of the hit………another foreclosure in their books.

We are currently in the final stages of negotiating this one, i’ll keep you posted on the end results.  Do share your thoughts, we would love to hear your strategies or suggestions in dealing with this type of situations.  Please comment below or better yet – contribute a case study.  As a contributor, we will include your BIO and post back-links to your site.

I am sure there are quite a few frustrated investors, like myself, that are so fed up with bank of america and their short sale approval process.  Let start from the beginning……

I’ve been working on this particular short sale with bank of america since June 2009.  All documents were submitted from my end (authorization form, offer, pof, etc), however I was waiting on the borrower to gather all her information.  Well time went on and we finally got the ball rolling on this short sale around October 2009.  After faxing all documents SEVERAL times, calling weekly to check on the status, submitting several requests for an internal BPO to be completed, I finally spoke with a representive that told me the file had been transferred into REOTrans.  What’s that??  The rep then proceeds to tell me that old files cannot be transferred in the REOTrans system, therefore we would essentially have to start all over with this short sale attempt.  Ok……..whoooooosaaaa!

For those that don’t know REOTrans, now called Equator, is Bank of America’s new online system used to process short sales.  This system, built just for them, will supposedly completely and dramatically change the way they handle and process short sales…and it is powered by the Equator technology platform. This is the same platform that has processed millions of transactions and has been completely customized for short sales.

Now fast forward…….once the borrower authenticates their access to the online system, they are then required to select an agent to work on file.  Where does that leave the investors that negotiated their own short sales you ask????  Short!!!  The equator system requires you be an agent or attorney in order to create an account and proceed with initiating any short sales with BofA.   Therefore, I had to quickly rethink my approach.

Fast forward again, the borrower and agent are now setup in the system so they can begin uploading documents.  The good thing is equator tells you what document to upload and when.  The annoying thing is, it doesn’t let you know the system only accepts PDF files.  So when it comes time to upload all supporting documents, and the system request you to upload pictures of the property, make sure you have put them in a PDF document - otherwise your documents will be rejected and you will have to re-upload everything.

Now the offer has been uploaded, as have the supporting documents.  Stay tuned………

Sincerely,

Frustrated Short Sale Investor

There are many ways to purchase real estate; but in these times there is a method proven to be most lucrative for those that want to buy a house but do not have the credit score or money needed for the required down payment – Lease Options.  There are so many reasons that lease option purchases make sense, but mainly it allows those that would not qualify to purchase a home right now, be able to buy a home they desire.

The basis of the lease option purchase is that you will sign a contract to buy a house, yet you will not automatically own the property in question. The reason it is called “lease option” is because at the end of the lease term, you have the option to purchase the property at an agreed upon price.  The terms of a lease option purchase are that you would actually be tenants in the home for a period of One, Two or Three years; then if you decide to exercise your option to purchase, you would attend the Settlement/Closing proceedings to take full and total ownership of the property.  Most lease option agreements require a minimal deposit, which is used towards the purchase price of the home, if you choose to purchase.  Payment terms are specified in the lease option agreement.

The biggest advantage that you have when you get involved in a lease option agreement is that a portion of the rental amount that you pay will be set aside in a separate bank account and that money also goes towards the purchase price of the property.  The opportunity to pay down the purchase price is one of the benefits to doing a lease option as opposed to renting.  This is also a great opportunity for those who think that they cannot buy a house because they have less-than-perfect credit; type of purchase also gives you the time that you need to be able to pay down any debt.

There are different terms that a lease option purchase is known by: a Lease Purchase, Rent with Option to Buy, and Lease Option. These terms are all used interchangeably, so do not be confused, they all are the same thing. When you sign a lease purchase contract you are going to be able to move into the house right away and are going to be living there for the entire duration of the lease portion of the agreement.

Remember, a lease option contract is just that – an option.  If you choose not to purchase the property at the end of the term - that is perfectly fine.   In these economic times, banks are being very strict with their lending terms.  Even people with perfect credit are finding it difficult to get approved.  The whole point behind the lease option purchase is to allow you –the Buyer- to buy the home that you want, at the time you want. 

The term REO is one that you might not be familiar with unless you are in the Real Estate industry. Very simply put, REO stands for Real Estate Owned and actually means that a bank, or finance company, owns the property in question after it has been foreclosed upon due to non-payment of the mortgage loan. Once a property goes into foreclosure and a sale date is set, that property is then put on the auction block to be sold.  However, most properties don’t sell at the auction, in which case they become property of the bank.  As soon as a bank has taken possession of a property, they will determine what that property is actually worth and what it could realistically be sold for, which could be determine by licensed professionals in the Real Estate industry: a Real Estate Broker/Agent and/or an Appraiser. Banks will try to get rid of the property by having it listed by a real estate agent and/or re-auctioning it. 

The question of how you, the buyer, can benefit from buying REO properties is one that many people ask when they want to get involved with this profitable part of the real estate industry. When you are looking into buying an REO property, you are going to be dealing with the bank or lender that currently owns this property, and the realtor that the lender has chosen to sell these properties to the general public.  REO or bank owned properties are sold in what is called ‘As-Is’ condition, meaning the bank will make no repairs or adjustments to the property – you take it the way you see it.

The major advantage to buying REO properties is that you can usually buy them way below market value, and even less than the listed price – thus purchasing bank owned homes are great for investors looking for properties at a discount.  However, not all REO properties are in distress and need full rehabs, therefore purchasing a property from the bank is definitely ideal for the retail buyer as well. 

The acquisition process is quite simple but does involve some negotiation.  First things first, get connected with a knowledgeable and trustworthy real estate agent.  Start receiving listings of REO or bank owned properties in your area of interest.  If you see a property that you are interested in, have your agent submit an offer.  The key to a successful REO transaction is in the follow-up.  It is imperative that the agent follow-up with the bank and/or listing agent, submitting any supporting documentation needed in order to get your offer accepted.  

Due to the state of the current real estate market, REO properties are more prevalent, especially in the Maryland, DC, and Virginia area.  Banks are not in the real estate business, they are in the lending business, and are therefore not interested in holding on to houses.  This provides the perfect opportunity for buyers to get great value at a lower cost.  

As an investor in foreclosed properties, I read an article the other day that really had me thinking! Investors/Buyers PLEASE BEWARE!

There are so many foreclosures that are popping up on the market today that could be a great deal, since you are now able to buy so many houses at a huge discounts.  However, BEWARE - There could be a major problem that you may not know about, when buying and moving into these foreclosures. There are and have been more foreclosed properties that have reportedly been used by the previous owner/occupant as a Meth Lab or Drug Lair – this is a major hazard.

The problem here is that you really cannot tell by looking at these foreclosures that they were once used as Meth Labs.  Residue is usually in the walls, carpet, and places you probably wouldn’t think about.  Evidence does not disappear by doing a simple surface cleaning because the chemicals, that eventually become Methamphetamine, cannot be removed by merely using common cleaning products. The buyer will need to have a professional crew, that specializes in hazardous waste removal and disposal, come in and start the process of going through everything that is contaminated.

The financial and health problems that arise from living in a drug house are major. A buyer should not rely on receiving fully disclosed information on the foreclosed property from an agent or the foreclosure paperwork.  In most cases, when you buy one of these foreclosures you are not going to know the home was used to produce drugs until you start to have physical complications, start feeling sick or are diagnosed with any of the ailments that Meth exposure is known for. It is unfortunate that so many of these foreclosures are out there on the market, and that no one really knows their history until it is too late.  The financial burden that the buyer could wind up bearing includes the responsibility of the cleaning/decontaminating the property, which could be very costly, as well as any accumulated healthcare bills.

Do your due diligence as an investor/buyer! It may be difficult or next to impossible to find out the complete history of a property, but definitely, if you are aware of any illegal pastimes that took place in the foreclosed home you are looking to purchase……..STAY AWAY!  The problems that could arise are devastating and destructive and not worth the risk.

Hot off the Press!!!

According to the Washington Post, “more than two years into the housing crisis, lenders are beginning to allow more troubled homeowners to unload their homes for less than they owe. The practice, known as a short sale, is gaining popularity as an alternative to foreclosure, but it remains a difficult and lengthy task to pull off because the lender bears the brunt of the loss. ”

BOA’s  senior vice president who manages the foreclosure and real estate division stated the following about completing short sales: ”we understand this is an opportunity to mitigate our losses, while helping turn around the housing market and help homeowners” .   If you get nothing else from this post, note that banks are realizing short sales will help them, thus encouraging and streamlining the process!! 

Here are some information that just might get you more interested in doing short sales:

• # of short sales completed jumped 208% in Q1 2009 (compared with Q1 2008)
• Rate is expected to get higher (thanks to Obama’s recent bank incentives and falling home prices)
• Bank of America now aims for 1-wk short sale approvals
• Wells Fargo began streamlining its short-sale process last year, now aims for 30 days or less
• 23% of home sales in Loudoun County are short sales
• Bank officials used to wait until they received a short sale offer before starting the process, however now they encourage early contact to get the ball rolling

Now there are a few points that you may or may not agree with, such as “A bank may be willing to write down the value of the property 10 percent from the current value, but it probably will balk at taking a larger hit, he said. “They are not just taking any offer. . . . You are not going to be able to get 20 or 30 percent off market value”.   I think that’s BS!  But let me know what you think.  Click here to view the article in it’s entirety, and leave a comment on this blog post to let me know your thoughts!

Michael Jackson IS the greatest of all time.  We just wanted to send our condolences to the Jackson Family.  We are certainly praying for the family and all those whose lives he touched.  I am a serious Michael Jackson fan and am still devastated by the news.  When I initially heard what happened, my heart sank to my feet.  It all started with MJ; he’s is truly an entertainer and there will be no other like him.  We love you Michael and rest in peace.

This is a testament that life is short; Thank God and cherish each moment!

Fannie Mae is changing their rules regarding multiple mortgages to investors in order to help jump start the housing recovery.  Their current policy of financing a maximum of four investment or second home properties has been changed to five to ten for properties purchased after March 1, 2009, whether or not Fannie Mae is the investor on the borrower’s other mortgages.  The following are the new eligibility requirements:

Eligibility Requirements

·        Limit of five to ten financed properties per borrower, with underwriting requirements including a 720 minimum credit score and 70–75% maximum LTV/CLTV/HCLTV (depending on the transaction and the type of property involved).

·        Applicable to whole loan purchases or mortgaged backed securities.

·        Lenders must use a special code 150 when they are delivering loans to investors or to borrowers for second home properties.

Reserves Requirements and Assignment of Rents

The following are the new Fannie Mae reserve requirements for loans on investment properties and second homes to borrowers with multiple financed properties:

One to four financed properties (including the subject

property):

·        Two months of reserves on the subject property if it is a second home,

·        Six months of reserves on the subject property if it is an investment property, and

·        Two months of reserves on each other financed second home or investment property.

Five to ten financed properties (including the subject

property):

·        Two months of reserves on the subject property if it is a second home,

·        Six months of reserves on the subject property if it is an investment property, and

·        Six months of reserves on each other financed second home or investment property.

Investment property borrowers must now execute a Multistate 1–4 Family Rider Assignment of Rents Form 3170 authorizing the assignment of rental revenues to the lender. Fannie Mae is deleting the requirement for rent loss insurance though. For more information, visit Fannie Mae’s website .

Understanding How Investment Loans Differ from Typical Mortgage Loans

Investment loans differ from a typical mortgage loan on a primary residence.  Since the money will be used for investment purposes, lenders usually require a larger down payment for one thing. The interest rate is usually higher as well. Investment loans are for shorter periods of time while the monthly payments are higher, but less money is paid in interest during the term of the loan.

Requirements for Conventional Investment Loans

Lenders require a title policy be purchased, an inspection be conducted and an appraisal be done on the property to make sure the property appraises.  Every conventional lender will review the borrower’s current debt to income ratio, past credit history and ability to repay the loan.

Hard Money Lenders

Investor funding through hard money lenders is an alternative to obtaining traditional conventional financing for many investors these days. Hard money loans can be used for not only acquiring property but rehabbing and resale of single family homes. Hard money lenders look at the asset more than the borrower’s credit history and income so it is easier to get financing.

Hard money lenders are mostly other investors who have cash and are willing to loan to you as an investor.  Finding them is not that difficult. The best way to find a hard money lender is to get a referral from another investor or friend or family member. In fact, you may already have a family member that is interested in loaning to you.  There are many hard money lenders that advertise on the Internet as well.

Make sure you leave a comment.  If you liked it, if you didn’t like it, if you loved it, just let me know that you’re alive!

As a real estate investor, you should constantly be building your buyers list.  What good is having a deal but having no one to sell it to?  Below is a link to a quick video on one of many methods you can implement to grow your buyers list to sell your properties.  This method brought us 30+ QUALIFIED buyers in 1 hour.   Check it out!  

Effectively Building Your Buyers List to Sell Houses You Have For Sale

After viewing, leave a comment below stating your thoughts or experiences with finding buyers for your deals.