Bill McCord's Blog

Until recently the only hope of buying again after losing you house through default was with FHA, and for many that will still be the best voice.

 However, a new option is now possible.

The much maligned Fannie Mae is now allowing some people who avoided Foreclosure through either a Short Sale or a Deed in lieu of Foreclosure to get a regular Conventional Mortgage again.

The good news is that Fannie Mae will buy those loans from Banks that make them. It does not mean that all Banks will offer them.

Banks that do offer these loans will typically apply tougher standards than normal to offset what they might consider an increased risk.

To qualify you must have had good credit before and since the Short Sale / Deed in Lieu of Foreclosure.

If you can meet this requirement here are the times after which you will have a good chance to buy your own home again (at vastly lower prices and interest rates than you had before).

TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment

FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

SEVEN (7) Years above 90% Loan to Value | with less than 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

Many strange things have happened these past few years but here’s one of the most interesting.

John Doe, his wife, and 4 children live in a small city North of San Francisco and had rented till around 2006 when they bought a nice house with more space than they had ever had. All was well till John lost his job in 2009, and 10 months later lost his house to Foreclosure.

He now lives in that same house as a Renter paying $1,800/month rent versus the $2,500/month and mortgage he previously paid as its owner.

This is the result of new type of Real Estate Investor buying multiple Bay Area foreclosed homes to be rented both for short term profit, and long term Capital Gains.

In this case the Investor is McKinley Capital Partners who have joined with a New York hedge fund who have so far bought about 300 homes and plan to add up to 500 more.

Some very basic research has shown me that this process is replicated in many other markets where the values have stabilized and an upward trend is very likely in the near future.

FANNIE MAE’s GOOD DEED DEAL

FANNIE  MAE owns a good percentage of all Foreclosed homes (R.E.O’s) in todays market, and for many reasons they are more agressive in trying to get them sold.

HOMEPATH is the fantastic program they have developed to make this happen.

HOMEPATH MORTGAGE allows ANY Buyer (not just 1st timers) to buy a Fannie Mae owned house with:

0 LOW DOWN PAYMENT. 3% which can be from Savings, Gift, Grant (see CHP at http://mccordrealtyservices.com/wp-admin/post.php?action=edit&post=542 ) or virtually any other source.

0 NO LENDER REQUESTED APPRAISAL.

0 NO MORTGAGE INSURANCE (P.M.I.).

0 EXPANDED SELLER CREDITS FOR Closing Costs.

0 FLEXIBLE TERMS i.e. 30 yr fixed, 3,5,7, Year Adjustables etc

o O.K. FOR PERSONAL OR INVESTMENT properties.

0 VERY FLEXIBLE CONDO REQUIREMENT (more so than FHA).

IN ADDITION

There is the HOMEPATH RENOVATION MORTGAGE which is designed for properties needing moderate renovation work. As well as all the benefits of the regular HOMEPATH  progran this provides up to $35,000 cash for Repairs and Remodelling.

This amount is added to the regular mortgage based on the value of the property once the work is completed.

Any active Buyer should be sure to check any available houses covered by the HOMEPATH Programs.

For more information contact me at bmccord@rwnetwork.com or scroll down the the next item here.

The real estate crisis has gutted house prices, tipped millions into foreclosure, and rattled the global economy to its core. But for many would-be home buyers, the historic boom and bust have been a blessing in disguise. During the first half of the previous decade, easy credit and speculative excitement worked to make houses increasingly expensive. By the fourth quarter of 2005, median home prices had reached 2.77 times median household incomes. That is sharply higher than the 1.92 average of the 15 years ending in 2003 and too expensive for many families. But the subsequent crash in home prices–values have fallen roughly 30 percent at the national level from their 2006 peaks–has helped restore affordability to this once inflated market. By the third quarter of 2009, the price-to-income ratio–a key measure of housing affordability–had fallen below its 15-year average, to 1.84 for the nation as a whole.

Beginning Jan 2010 Silicon Valley Counties (North Santa Clara and Southern Alameda) sales prices have stabilized and some areas are now seeing small increases.

Apart from this being a normal process indicating the last stages of any financial cycle, it has been significantly driven by 5 major sources:

1. 1^st Time Buyer Tax Credits which ended mid 2010.
2. Extension of FHA and V/A maximum loan limits for High Priced Zip codes.
3. Historically low interest rates.
4. Huge increases in the number of 1^st Time Buyer programs from Federal, State, County, City, and Employment specific sources. These continue to increase and improve.
5. Major reductions in Bank Owned (REO), and Short Sale properties coming to market as Banks have beefed up programs designed to keep people in their homes where possible. This has allowed more normal conditions to have control of sales prices.

NOTE: I’m only describing my local Market here in Silicon Valley. I know conditions in other areas have been, and continue to be hit worse than us.  

Here’s a question from a client who has just had an offer accepted on a bank owned (REO)  property.

Question.

Hi Bill, I was talking to a friend about REO and wanted to get your expertise on the matter.  She mentioned recently there were news about how bank were approving foreclosure while owners were doing a refi and other things, so at the end of the day even the bank didn’t own title to the property.  The loan is sold off to multiple lenders and Title is unclear.  Have you heard about it?

My Answer.

Hi Lisa,   As with many things described as “News” in ourMass Media this is just another Urban Legend. In this case one that shows absolutely no knowledge of reality. What it is talking about is a mixture of different situations based on rumours and hearsay, in all cases relating to either Short Sales, or loan modifications, usually from the 29 States where “mortgage” law is different than in California.

It has nothing to do with REO properties which by definition are fully owned by a Bank. There is no other “Owner”. Title is in the name of the Bank and will be delivered by them to the new owner as in any other purchase. An owners Title Insurance  policy will, as always, be paid for by the current owner (the Bank) and given to the new owner through Escrow. There is nothing different today than when you bought your house.

New questions are allways welcome at bmccord@rwnetwork.com

From: Lisa Ly

Sent: Thursday, December 23, 2010 8:11 AM

To: bmccord@rwnetwork.com

Subject: REO Question

The Administrations well meant efforts to make it possible for many homeowners to avoid foreclosure has stirred up a hornet’s nest among some media commentators.

The Plan described at http://www.makinghomeaffordable.gov/ uses up to $75 billion to provide incentives to holders of FANIE MAE and FREDDY MAC loans to work with Borrowers to refinance, or modify existing problem loans, rather than simply go ahead and foreclose.

This is a classic version of the glass ½ full, or ½ empty. Typically, in our current exclusively partisan media, the answer is dictated solely by political affiliation regardless of the facts.

This is unfortunate because there are legitimate reasons for supporting, opposing, or, better still, improving the current process.

One the one hand it is a legitimate effort to try to help Joe Public get through a situation brought about by failures in our economic systems. Given the Trillions of dollars being ploughed back to the very people who caused this situation, the $75 Billion allocated to this program is peanuts.

On the other hand there is a valid argument to be made that subsidizing refinances, or modifying problem loans, is simply putting off an inevitable final default. This can often hurt the very people it purports to help by having them use up scarce funds in a doomed attempt to save an impossible situation, rather than simply give the property back to the Lender and getting  on with life.

The December report on the status of this program provides ample ammunition for both schools of thought, and the regulators have shifted emphasis to try to deal with the problems showing up.

The summary shows that 728,000 loan modifications are already in the required trial phase. Unfortunately only 31,382 have completed that phase and have become permanent, saving homeowners an average of $550 per month. The low rate at which Trials become Permanent  is a serious problem raising concerns that a significant number of these modifications are simply allowing the Banks to delay acknowledging the number of bad loans on their books and to avoid taking the losses on to their Balance Sheets.

If that is true then the inevitable result will be a longer period of foreclosed properties coming to market as these failed modifications fall apart.

As with most things there is not a simple answer, but on balance I come down on the side of giving the program a fair shot. This is based mostly on my view that given the countless billions we have poured into supporting the financial institutions that caused the problems,  a little effort to give similar assistance to the victims is not unreasonable.