Arn Cenedella

Archive for the 'Credit Information' Category

FNMA eases guidelines on investor loans

I have recently written on several occasions that this market is a good opportunity for first-time buyers and for first-time investors.

On February 6, 2009, FNMA amended its policy on investor loans. Prior to this time, the maximum number of loans was 4. This has now been increased to 10.

FICO scores of 720 and above are required.

And the investor must have 6 months reserves for each investment property. Per the BawldGuy, this is known as a sominex account – ie – knowing you have rainy day cash put away for vacancies, repairs etc. – you know, so you can sleep at night!

Steve Heideman of Bigger Pockets Investment Blog provides additional details.

Additionally, it is possible to use 401K and IRA funds to purchase investment property. This may not be the right strategy for everyone but for some, maybe.

Additional information on stimlus package and first time buyer tax credit

President Obama after much discussion on TV, in the print media, and in the blogosphere will sign the stimulus package on Tuesday.

Of greatest interest to home buyers and sellers alike is the $8,000 tax credit for first-time home buyers.

Unlike the previous $7,500 credit which was a no-interest loan but would need to be paid back; the $8,000 credit is a true credit with no requirement for repayment as long as you own home for three years.

On all things involving Uncle Sam and its wicked nephew the IRS be sure to consult a tax advisor to fully understand how these credits may or may not work in your particular situation.

Marian Bennett, a long-time Coldwell Banker colleague on the beautiful San Mateo Coast has more info on the credit along with her thoughts on its impact – mainly will help first-time buyers.

First-time home buyers this is a great time to get into the market – prices are down, interest rates are down, and now subject ot income limits you might get an $8,000 tax credit.

Opportunities exist!

Please contact me for a no-obligation discussion of the local market, your wants and needs, and let’s see if buying makes sense for you at the present time. No pressure just information. 

Possible Solution to Foreclosure Problem – Open for discussion!

On the San Francisco Peninsula, the City of East Palo Alto has been ravaged by foreclosures.

There are currently 89 homes listed for sale and over 70 of these are either REOs or short sales.

The average price in East Palo Alto went from $200,000 in 1998 to over $600,000 by 2007. Tripled!

The current average price is say $250,000.

Most other peninsula cities saw average prices DOUBLE during this time.

I believe the extra run-up in East Palo Alto was due to sub-prime financing that got borrowers into loans they had no chance to pay back on homes way too expensive for them. East Palo Alto probably has the lowest per capita income of any city on the Peninsula.

I believe most of the people who bought homes in East Palo Alto the past few years are good hard-working people who due either to language issues or a lack of financial knowledge unwittingly bought homes and took loans they could not afford. This was done more by a lack of knowledge than any plan to “game” the system.

I am working with one couple recently referred to me. Before meeting me, this couple bought a house for around $550,000 in East Palo Alto about 3 years ago. When the initial teaser rate expired on their purchase loan, they refinanced and now find they can not afford the payments as the rate adjusted again. Making the situation worse, the cost of the refinance was rolled into the refinance loan. The husband works TWO jobs and the wife also works. They have a son in high school who will go to college – something his parents did not.

Their house may be worth $275,000 now and they owe $550,000.

Their lender is Countrywide. For 6 months now, they have tried to worked out a loan modification and have gotten nowhere.

These folks are good hard-working people. They want to pay their bills on time. They are NOT dead-beats. They did not take out $100,000 HELOC to buy a new Mercedes Benz and big screen TV. They fact that they can’t not make the payments has nothing to do with their personal integrity and desire to do the RIGHT thing.

Drum roll – open to comment and critique – here is my solution for folks like these.

If their lender will not agree to a loan modification, these folks should be allowed to walk from their house with NO DAMAGE to their credit rating. The government could then direct FHA to make these folks a loan to purchase a new home for say $275,000. FHA would not hold the foreclosure against them. FHA would qualify them with the STRICTIST standards. The folks may not be able to afford a $550,000 but they certainly afford a $275,000. Let them walk across the street and buy this house. Give them a 30 year fixed rate – use a 31% to 32% qualifying ratio make sure income is documented. These folks will not default on their new loan.

I guess what I am saying, why penalize these folks because the market in their area collapsed? and because the professionals (both loan and real estate) that got them into the house did not do a good job?

This approach would not require any government money and would be financed with the usual FHA MI premiums etc.

The lender would take the loss – not the government – not the US – not us.

This couple would be able to remain homeowners albeit in a different house.

And my sense is if this program would go into effect, I think you would find lenders much more willing to do a loan modification because if they didn’t buyer would walk and buy house across street.

The program might only apply to designated FORECLOSURE DISASTER ZONES – perhaps by census tract.

What do you think?

Taxpayers not on the hook. Lenders take the loss. Buyers are able to remain owners. Win-Win?

Comments please.

Congress drops $15K tax credit. Maybe $8,000? Does Congress have any idea what they are doing?

All indications are that the $15,000 tax credit contained in the Senate stimulus plan is dead.

Exact details are still to be worked out but Bloomberg reports that the credit may end up at $8,000.

Still unknown is: first time buyers? all home buyers? income limits? no income limits?

Honestly, the more Washington DC goes round and round, the more I believe they do not know WHAT THE HECK they are doing! Medicine is based on the philosophy “to first do no harm” or something like that. Maybe our leaders in Washington DC should heed that idea!

Yes we are in a recession.

Yes people are losing their jobs.

But we have been in recessions before and we survived.

Yes people are losing their homes but none of the programs put forth in my mind have any chance of working. Let the market take care of it. People with poor credit, got sub-prime loans, to buy houses they could not afford with no money down – I do not think these folks can be saved. Let the lender foreclose and TAKE THE LOSS as they should. Let the lender sell the home at a much lower price and then people will be able to ACTUALLY AFFORD the house and a new bottom will be set and the market will recover.

These Washington DC types are running around like chickens with their heads cut off.

Do not mortgage our kids future on some half-baked scheme that probably will not work.

CA Senate Bill 1137 slows down the foreclosure process

A recently passed California law slows down the foreclosure process and installs safeguards to increase the chances that homeowners are notified when a lender wants to start foreclosure proceedings.

This law also offers additional protections to tenants of homes being foreclosed upon and allows local govenrments to fine lenders who do not maintain properties they have foreclosed on.

Here is State of Califonia Government release on SB 1137

Here is a question and answer document on Senate Bill 1137

Here is the actual Senate Bill 1137

There is help out there for homeowners in trouble.

Beware of companies offering to help you for a fee that must be paid up front. 

Free assistance is available.

EPAToday interview with Henrietta June 2008 – Housing Market Update

Here is a clip of an interview I did at EPA Today with Henrietta on the housing market in June 2008.

I will be doing another market update this Thursday February 9.

Representatives from EPA Can Do will also be on the panel and the topic will be the real estate market and what can be done to keep more people in thier homes and out of foreclosure.

EPA Can Do is a non-profit organization that offers legal assistance to East Palo Alto residents.

Homeowners in trouble with their mortgage (Part 1)

If you are having trouble making mortgage payments or if you owe more than your home is worth, there is help available for you. Do not just put your head in the sand and hope something good will happen.

Generally a homeowner in distress has 5 options:
Loan workout or modifcation
Deed in lieu of foreclosure
Short sale
Bankruptcy
Foreclosure

Each of these options have serious legal, credit, and taxation ramifications. Before choosing any option be sure to consult with competent legal and tax advisors. Real Estate agents can help guide you through the process but are not qualified to answer specific legal and tax questions.

Here is a list of useful links to government and community based nonprofit organization
websites which include information on foreclosure prevention, loan modification, no cost HUD approved counseling services and other important information.

U.S. Department of Housing and Urban Development
http://www.hud.gov

U.S. Department of Housing and Urban Development
Guide to Avoiding Foreclosure
http://www.hud.gov/foreclosure/index.cfm
*Talk to a counselor

Federal Housing Administration
http://www.fha.gov

Hope Now
http://www.hopenow.gov

Internal Revenue Service
http://www.irs.gov

Search for: Mortgage Debt Relief Bill
Click on: Home Foreclosure Debt Cancellation

Click here for a list of NO COST HUD counselors

So get help if you need it. Try to make the best of a bad situation.

Get a team together to help you – attorney, CPA, and knowledgeable real estate agent.

They can help you conisder all your options and assist you in making the best decision.

It appears $15,000 tax credit for home purchases may not include income limits.

The current $7,500 tax credit for first-time buyers has income limits of $95,000 for individuals and $150,000 for couples. Due to our high housing prices, this credit has done little to spur our local market.

It appears the proposed $15,000 credit will not have income limits and will apply to all home purchases – personal residences only.

Calculated Risk gives good info on the details of the $15,000 Senate approved tax credit.

Bloomberg reports this credit will benefit higher income earners unlike the current $7,500 credit.

Buyers always contact me and say they want to buy a foreclosure.

I get several inquiries or phone calls a week from buyers wanting to buy a foreclosure.

I ask: Why? They say: To get a good deal.

They want a list of foreclosure homes before the lender forecloses on the home – Realty Trac sells this information.

In my opinion, this is the wrong strategy for buyers who want to get a deal!

First of all, buying property on the court house steps at a foreclosure auction is NOT for the non-professional John Q Public who rightfully wants to get started investing in real estate. Investing in real estate is a good thing for the long-term.

Consider the following:

The best buys in the market are REOs – real estate owned by banks and other lenders – who have foreclosed and take title to the property. Several of my clients have recently purchased REOs for about 50% of their previous sale price. Most if not all REOs are listed on mls. Have your agent search specifically for REOs – that is where you will find the best deals.

Let me explain my thinking….

Consider you have an owner that owes $400,000 on his house and for whatever reason he can not make his payments – so the lender starts foreclosure proceedings by filing a notice of default – this process in CA takes 3 months and 21 days minimum.

If the property is worth $500,000, this owner can put his property on the market – sell tomorrow for $450,000 and walk away with $50,000. Why would this owner walk away from $50,000 cash – the answer is: he would not!

If the house is now worth only $350,000, he can not sell the property without lender approval of a short payoff.

Say the property does go to the foreclosure sale, the bank’s minimum bid would be their loan amount or $400,000 plus back payments, unpaid taxes, penalties etc.

If the property was worth only $350,000; why would anyone bid $400,000 at foreclosure auction? Again the answer is – he would not.

Bottom line the only properties that go to foreclosure HAVE LITTLE OR NO EQUITY. If there was equity, owner could sell cheap and get at least some cash out.

So the smarter strategy is to let bank foreclose – take title and put on market as an REO.

Based on my experience in listing and selling REOs, the bank would probably put this property on the market at $250,000 – get 6 offers and sell for $310,000.

Trust me after 31 years in the business, the best buys are NOT foreclosures – it is a myth – the best buys are REOs.

Hope this helps. Let me know if I can be of any help in finding you a DEAL

Good news for Investors – Fannie Mae rule change

Until today, Fannie Mae had a rule that they would not buy mortgages from borrowers who had five or more real estate loans – or perhaps more accurately stated – mortgages from borrows that had loans on five or more properties.

Fannie Mae changed this rule today:

Per Fannie Mae announcement 09-02:

Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

I have recently written several posts stating my belief this is a great market for first-time buyers or for first-time investors.

This Fannie Mae rule change will make it easier for investors to make additional real estate investments.

Due to price decreases and interest rate decreases, invesotrs can now buy property in certain areas of the San Francisco Peninsula with 20% down and have a break-even cash flow. This was impossible two years ago.

In more expensive areas, the numbers are also better than they were two years ago but will require 30% to 35% down.

I have contacts with real estate brokers throughout the country – Dallas, Raleigh, Austin, Phoenix, Indianapolis, Sacramento, San Diego, and the Bid Island. If you are looking for wloer downpayments with greater cash flow, these areas are worth a look.

And do not forget, you can use 401(K) and IRA funds to purchase real estate so if you are tired of stock market gyrations, this is an option to consider.