Arn Cenedella

Archive for the 'Real Estate Finance' Category

90 day FHA flip rule

The past 18 months I have been quite active with investors who typically pay cash for a foreclosure REO in either East Palo Alto or east Menlo Park.These investors typically fix the property up and place back on the market for sale. These transactions are known as flip due to the short turn-around time from original purchase as an REO and then re-sale to the “end user” – either an owner occupant or long-term investor who wishes to rent the property out.

Last year, FHA had a rule that stated they would NOT fund any purchase of the property that was originally purchased within the past 90 days. In fact, they would not fund a loan on a property when the contract for sale was entered into less than 90 days after to the last purchase date. Read the rest of this entry »

Where are interest rates headed?

Wall Street Journal says mortgage rates may increase from about 5% to 6% in the next year.

I don’t like to get into the “prediction” game because no one really knows.

Many act like they can see the future but the only thing we know for sure is what’s happening right now. When providing counsel to my clients, we do brain-storm about various scenarios. But at the end of the day, everyone tries to make the right decision based on the best information available at the time. I don’t see any other way to do it.

Certainly, one could argue that rates are pretty darn low right now so therefore logically they only can go up. Others will say economy is too weak for inflationary pressures to get stronger so rates probably won’t do much.

When I first got into the real estate business, my father said and I quote “Anytime rates are in single digits, that’s a good loan”. That was back in 1978 so 5% would have been tough to imagine way back then.

Read the rest of this entry »

How high will interest rates go?

The Federal Reserve’s program to buy Mortgage Backed Securities (MBS) will end on March 31, 2010.

Many analysts believe this will cause mortgage interest rates to increase.

While there are many different opinions on where mortgage rates will increase to, the general consensus is 5.5% to 6%.

For more information, please review Paul Smalera’s post in the CBS MoneyWatch.COM.

A short sale does not mean you do not owe the lender any more money

Many homeowners believe that if their lender agrees to a short sale, they have no further obligation to the lender.

This is not true!

As the Wall Street Journal reports today, many lenders are being more proactive about going after homeowners for the remaining unpaid balance on loan. For example, if the mortgage balance is $400,000 and the lender agrees to accept $300,000 in a short sale – the lender can ask the homeowner to sign a note for the $100,000 remaining. Other lenders have gone to court to obtain the additional money from other borrower assets.

So be sure you understand what the lender is agreeing to when they approve a short sale. Have your attorney review the agreement or negotiate it for you.

Understanding the tax implications of a short sale

I have written several posts advising homeowners in trouble with their mortgage to consult both their attorney and their CPA before agreeing to a short sale.

The Wall Street Journal has written a good post highlighting the potential tax impacts of doing a short sale.

Homeowners could be tax on the gain in their property even if they do not get any cash out of a short sale which is how they always work. Say someone bought a home for $200,000 several years ago and at some point refinanced for $350,000. The property was then sold via short sale and the lender agreed to take say $300,000 as pay off for the loan. This homeowner could be charged tax on the $100,000 gain since they bought at $200,00 and effectively sold at $300,000.

In addition in the above example, assuming the lender forgives the $50,000 debt not collected through the short sale (lender owed $350,000 and received $300,000), the homeowner will have a taxable income of $50,000.

It is not the intent of this post to give specific concrete advice about short sales but rather just alery everyone that there are complex legal and tax issues that must be dealt with. Do not agree to anything before you get this advice. A mistake here could result in a big tax liability.

Do any of these government mortgage relief programs work?

I have generally been pretty skeptical about whether any of these much talk-about government programs will actually help any homeowners? Are these programs just more of the “promise a lot, deliver a little” that we seem to get out of Washington DC the past 10 years or will they actually help people.

I like to stay in touch with my past clients on a regular basis and try to speak with each of them at least every quarter and often once a month.

Today I called a first-time home buyer, Jim, who in January 2009 bought a home in Redwood City at a very affordable price. After a few minutes of chit chat, I suggested it might be a good time to look into a refi since rates have dropped maybe about 1% since they bought. He told me that they were already working on that through the Making Home Affordable program. They hope to reduce their rate over 1%.  Jim said since he mortgage was owned by Freddie Mac and Fannie Mae, Jim and his wife, Lynn, were eligible for an interest rate reduction. Please understand, Jim and Lynn are current on their mortgage payments – a requirement for the loan refinance. Jim and Lynn purchased with 5% down on a house a little over $500,000 – so a typical refiance that requires 20% equity is not possible for them – but with the MHA program refinances up to 105% of the value are allowed.

Jim told me they hope to know by June whether their application will be approved.

I am interested to see if the progrma will actually work as intended and reduce their loan payments to a more affordable level. Stay tuned and I will keep you posted.

Check the Making Home Affordable site for more info.

Click here to see if your loan is owned by Freddie Mac and Fannie Mae.

Is the real estate market approaching bottom?

The Sf Chronicle often paints a fairly bleak picture of the local real estate market.

However on today’s front page, the San Francisco Chronicle reports on some postive movement in the market.

The SF Chronicle reports that the Bay Area median price is around $300,000 and that with a Bay Area median income of $80,000, one can now buy a median price house.

Furthermore, 5,000 homes a month are purchased in the Bay Area.

Are we at the bottom? I do not know – but I think we are getting closer.

I do believe this is a good time for the first-time home buyer and novice investor.

Is there a slight uptick in the real estate market?

Kappy Mann, a colleague in Truckee Lake Tahoe recently posted an article from Rueters that states many people are entering the market for the first-time since ownership costs are now approaching rental costs in some areas of the country.

Combine low interest rates with lower housing prices, add in federal and possibly state tax credits and there is opportunity to make a good buy on your first property.

If you are looking in the San Francisco Bay Area, please contact me and I will give you all the information you need to decide if buying is right for you at this time. I am currently working with first-time buyers from $150,000 to $800,000 price range.

Obama Home Mortgage Rescue Plan part 6

One of the things President Obama promised was greater use of the internet to make information about government programs and activites more accessible to the general public.

The MakingHomeAffordable website is now up and runnning.

This is a very useful site which will help homeowners determine if they are eligible for either the refinance plan or the loan modification. You can find out if your loan is owned by Freddie Mac or Fannie Mae.

There is a wealth of information here. Check it out.

If you need further guidance just let me know.

Obama Home Mortgage Rescue Plan part 5

Obama’s plan contains 2 main parts:

1. Refinance options for loans that are up to 105% of the current market value of the home.

2. Loan modifcation programs for people where option #1 does not apply and they are having a hard time making the monthly payments.

Obama has named the plan #1 – Making Homes Affordable.

Katie Curmutte, Zillow on Mortgages Unzipped blog provides lots of details on the plan.

Katie covers option #2.

Further details are available at: http://www.financialstability.gov/ and here and over here too.

If you are a homeowner in trouble or just want to know what your options are, just let me know.

I have written several posts on this issue and these posts contain links to other great information.