1) If it is a bank foreclosure asking you to qualify through their bank, They are requiring this because:

A) They want one of their people to check you out to make sure you are really qualified.  Sadly, a large percentage of  pre qualification or pre approval letters are not worth the paper they are typed on.  Some lenders do not even run credit before they say you are pre approved! 

B) They want an opportunity to get your loan business.  Banks make money off of each loan they close.

C) If the bank approves you and you go with another lender and the loan “blows up” you can go back to the bank and they can close the loan for you.  Remember they already approved you.

2) It it is a foreclosure asking you to get a 2nd approval through their preferred lender.  This means that the foreclosing entity and lender are not in the same company.

A) They want a lender they trust to go through your file to make sure you have the ability to close the purchase because of reasons mentioned in 1A

B) They make absolutely no additional money if you use their preferred lender.  They do get peace of mind which can be priceless.

C) They know if their preferred lender does the loan it will close.  If you use another lender and it “blows up.” you can go back to the preferred lender to close the deal and rescue the deal.

D)  Certain financing is available on certain types of foreclosures.  Very few lenders take the time to learn “niche” loans which is another reason you will see a preferred lender.  The preferred lender knows how to do the unique financing.

Note:Due to the complicated nature of financing these days we are seeing preferred lenders on both short sales  and regular sales now too.

Lenders’ perspective:  I am fine with the 2nd approval process.  I am happy to call the other loan agent and see what they need and get it over to them as quickly as possible.  It is the nature of our business right now. Also, they are providing a complimentary service for my client. They are providing options.   I am always suspect of lenders that dislike this process.  It is really not that much extra work. It makes me wonder why they do not want their clients to have additional options.

Fannie Mae has created a new interactive video where you control the outcome of the story based on your answers.  It basically lets you role play through your financial situation.  I played with it for awhile and it does actually have some solid points.  It is at least a different way to look at your financial situation and thankfully they are honest.  Check it out
http://www.knowyouroptions.com/ways-home

I would recommend this for Realtors to send past clients to if that client is now in trouble. It answers the questions in a safe, non threatening way and the entire website is a resource that will help your clients.

Expect:
1) An emotional yet controlled recovery: 
The emotional aspect:  If you read the business section you can see the view on the recovery swing rapidly from day to day.  On Monday we are recovering and on Tuesday the market is being hailed as the next big depression.  On Wednesday everything is sunshine and rainbows and on Thursday we are doomed.  There is a lack on consistency in mood.  This is what we call an emotional recovery.  Every speck of data is sending the media and emotional investors to the extreme on each side. It is manic depressive to say the least.

You can take advantage of this by investing when they say it is the end of the world.  It is amazing some of the deals on solid companies that have been offered up in the last 36 months due to doomsday news. It is a great time to start saving for retirement or increasing your retirement savings.   Rates also will go up and down with the news. Quick cheat sheet below
Great Depression = lower rates    Recovery= higher rates

The Control Factor:  This recovery is being controlled and pushed along by the government and the “powers that be.”  Look at the housing issue.  Our country cannot afford to let the foreclosures all hit the market at once. There are just too many.  This happened in 2008 and it devastated home values and threw the economy into the dump.  Since the 2008 free for all, there has been a much more controlled release of foreclosures.  Between the attempts at modifying, moratoriums and behind the scenes deals we have been seeing foreclosures come out in a low controlled movement.  Expect this to continue. The flood of 2008 will not happen again. It will be the trickle of 2011,2012,2013 and 2014.  I say no to the double dip.

2) The Year of the Short sale:
Short sales are speeding up a little bit which is great but what is even greater is that in the past few months we have seen more and more buyers  actually wanting to buy a short sale.  In the past people were hesitant due to all the unknowns involved.  However, short sales in many cases are now priced more aggressively than foreclosures, there is more short sale inventory and lenders are more willing to approve them. Also, there is new legislation in CA that makes it more attractive for homeowners to short sale their homes.

3) Lending to loosen a bit:  We are starting to see the beginning of slightly looser lending. Debt ratios are not loosening up but some of the documentation is. Stated is still a far way from coming back although there are some hard money sources offering stated income as long as there are assets.  We are starting to see more products coming into the market and more investors wanting to do local deals that are unique.  A big part of our 2011 plan is trying to say yes twice as much as we say no.  
4) Modifications to remain problematic:  The way in which modifications are being handled is so poor that I have absolutely no hope that it will be fixed by the end of 2011.  For example, I was reviewing a friends credit report who was going through a modification and even  though they had made their modification payment every month on time their credit history showed 7 lates due to partial payments (the modification payment).  Their score had dropped from 780 to 540.  They did everything right and their credit was hit harder than if they had done a short sale.  Bank of America is being sued by a few states over their modification processs and their have been countless stories of modifications gone bad.  The bottom line is that the servicers make more money by foreclosing or a short sale than they do by modifying. Until this is changed expect modifications to remain useless for the masses.

5) Foreclosures are here to stay:  There will not be a flood but the trickle will continue.  There will continue to be some great foreclosure deals.

For buyers and investors 2011 will be a year filled with opportunity.  For everyone hoping they can gain equity to refinance their house we are still a few years off. I do still hope that a no equity refinance will be introduced but I am not holding my breath.

Let’s look at the math for a 30 year fixed FHA loan at 4.875%

Current rules FHA Cost:

Purchase Price: $400,000

3.5% down: $14,000

2.25% upfront fee: $9000

Total Loan Amount: $394,685

Principal and interest: $2088.71

Taxes (estimated): $322

Insurance (estimated): $80

Mortgage Insurance: $175.70

Total Monthly payment: $2667.33

NEW AS OF OCTOBER 4TH FHA Cost:

Purchase Price: $400,000

3.5% down: $14,000

1% upfront fee: $4000

Total Loan amount: $389,860

Principal and interest: $2063.17

Taxes (estimated): $322

Insurance (estimated): $80

Mortgage Insurance: $287.52

Total Monthly payment: $2753.61

Although the monthly payment is higher for the first 5 years (You have to pay mortgage insurance for 5 years) with the new rules if you keep the loan for the full 30 years you will actually save about $2485.  Where this will become an issue is with “cusp” borrowers.  Borrowers who were max qualified at a certain amount will now qualify for less.

Written by Jennifer Ready www.Readybell.com

1) Does this property have prior short sale approval?  If it does that is great news because it means the bank has already approved the sale once which means they may approve it again with you quicker.  Buyers get tired of waiting for shortsales all the time and drop out.  Inevitably 2 days later shortsale approval is issued and that is where you come in.  You cannot just take over the approval.  It is a process but certainly a faster process than starting from scratch.

2) How much do they owe? If the seller owes $700,000 and is selling it for $300,000 good luck.  However if the seller only owes $325,000 that is good. It is easier for a bank to agree to taking a smaller hit. Less management gets involved.

3) Which bank is the loans with?  Wachoivia is known for being super easy and fast to work with.  Some of the other banks are a bit tougher to get to agree to a shortsale.  Ask your Realtor what they think the odds are.

4) Are there tenants and when will they be evicted? Check out yesterday’s article as to why this is so important.

5) How many loans are there and who are they with?  The more loans with various banks the longer it takes basically because more negotiating needs to be done.  Often the 1st and 2nd lien holders (mortgages) make it impossible if they cannot agree with each other on the terms.  The 1st will often short what the 2nd will get and the 2nd sometimes will not agree to that.

6) How many shortsales has the listing agent done? There are Realtors in the SF bay area that do nothing but shortsales all day long.  They have worked with every bank and know the drill and sometimes have relationships at the banks.  If the listing Realtor is a shortsale guru that is a good sign.  It does not guarantee that it will go through but it does push the odds up.

7) Has a notice of default been filed…when? A notice of default basically means the bank is gearing up to foreclose. If the seller only became interested in selling via a shortsale after the notice of default had been filed you may have a staller. Be cautious. If you are nervous that you may be dealing with a staller once the seller accepts your contract have your agent ask to see if you can come in and check on the house with  them there of course.  Perhaps a once a month visit.  If they do not want to do this beware.  Any normal, nice person selling there home would let the patient buyer check out the home once a month.

Tip:

1) Have your lender pull a property profile.  This will have who has been on title for the property.  Your lender needs to check to make sure that the seller you are buying it from is in fact on title.  With a normal transaction this is handled in the first few days however with a shortsale there is a lot of waiting before anything gets done and surprises after 7 months of waiting are not good.  They should also look for recent title changes.  There are scams taking title away from homeowners and selling the properties out from under them and your lender needs to be on the lookout.

Questions/comments Jready@mmcdcorp.com  www.ReadyBell.com

Nuts and Bolts: A home buyer cannot make their payment and owes more than the house is worth. They list the house with a Realtor for sale.  A buyer makes an offer and the seller accepts.  The Realtor now has to convince the bank/banks that is owed the money to accept less than what they are owed.

Reality:  Shortsales are rarely short and the outcome is often unpredictable.  In an ideal situation the short sale is agreed upon and the buyer gets the home. The bank gets less money then they are owed but they avoid the cost of foreclosing on the home and they avoid the risk of the market declining further and getting less than what a shortsale would net them.

As with anything in life people have figured out how to exploit the shortsale in order to put more $ in their pockets. Unfortunately, it is the buyer who suffers for this.

Buyer Beware #1:  The Stall Tactic

In many cases you can stall a foreclosure by attempting to do a shortsale.  If the bank is getting ready to foreclose and suddenly an offer on the home appears in many cases this can buy the homeowner additional time in the house.  What we are starting to see is homeowners who truly have no intention of actually selling the house but instead list the home as a shortsale in order to buy time. The next step in the stall tactic  is Bankruptcy. 

I have seen two instances recently when once the shortsale got approved the seller filed for Bankruptcy a few days before the short sale was set to close.  This is DIRTY.  Once they file bankruptcy the bank cannot go through with the shortsale and the seller buys more time in the house.  The good, patient buyer who waited for the short sale to be approved is left out in the cold.  The bank cannot move forward with the shortsale until the bankruptcy is discharged. 

Buyer Beware #2: The Double Escrow lives on Shady Lane

There are many investors buying short sales at below market prices and then immediately selling them for higher prices.  Some investors have Realtors that are actually trying to do “double escrows” and sell the buyer the home while the investor is in escrow on the short sale.  That way the investor never really puts out any money.  Stay away from this. This is SHADEVILLE.  When you buy a home the person selling it needs to own it.  This seems like common sense but to many it is not. 

We have also seen Realtors try to sell the contract.  What I mean by this is, let’s say Joe the investor is in contract to buy 123 main street in a short sale.  The short sale gets approved by the bank so Joe’s Realtor is willing to sell you Joe’s contract for lets say a fee of $5000, under the table of course.  They will “assign” the contract to you.  You are paying Joe for the opportunity to buy the home.  Great for Joe.

Buyer Beware #3 Tenants that will not leave

As a rule of thumb you generally do not want to buy a short sale that has tenets.  The reason is that often the owner does not evict them properly and then you are in an awkward situation because you now have to research California tenants laws to see if you will ever get to live in your dream home.  Landlords generally do not serve eviction notices the day they list their house as a short sale.  Many wait until they have short sale approval. If they are still getting rent they want that money.   Short sale approvals generally do not last for over 30 days and most the time the eviction law requires more time than that. This means you get the house and tenants.  If you are buying the property as an investment and the tenants are paying great but if you plan to live in the house this can be trouble.

There are a lot of bitter tenants.  They have been making their rent payments faithfully for 2 years and they are now getting kicked out.  It is not unheard of for a tenant to trash the property or refuse to leave.  There are also tenants who have not been making their rent payments because they found out their landlords was not paying their mortgage.  They have no incentive to leave because they have been living rent free.  If the shortsale does not go through it will generally take at least another 3 months before the bank boots them out.  That is 3 more “free” months and the bank will pay them to leave.  Cash for keys anyone?

If you do find your dream home and it has tenants in it make sure your Realtor and the selling Realtor has a game plan on moving them out.  You generally want them out at least a week before you close so that you can make sure the house is not trashed and that they are actually leaving.

 Shortsales can be fantastic, wonderful, experiences where all involved win and they are worth looking at.  Just keep your eyes open.

Questions/Comments: jready@mmcdcorp.com or www.Readybell.com

If you are purchasing or refinancing a home with a loan (not FHA)

DO NOT BUY ANYTHING WITH YOUR CREDIT CARDS.

As of June 1st Fannie Mae is requiring lenders to check the borrowers credit right before funding.  If anything changes on your credit your loan that you already have signed loan documents on could be denied.   In order to protect yourself

1) DO NOT BUY ANYTHING WITH YOUR CREDIT CARDS OR OPEN NEW LINES OF CREDIT.

2) PAY YOUR CREDIT CARDS ON TIME

3) DO NOT ALLOW ANYONE TO RUN YOUR CREDIT.

By following the three above rules you will have no problems.  If you decide to go against any of the above you could be setting yourself up for disaster.

There are two issue with this. 

#1 misrepresenting income or continuance of income is fraud.  Mortgage fraud is very serious and carries severe penalties.

 #2 the bank would find out because every single lender verifies employment right before the loan funds.  If the lender finds out there is no longer a job and the borrower does not qualify without it the buyer loses the loan and generally their deposit as well.

There are 3  ways employment is verified on every loan.

#1 Current paystubs and w2′s

#2 The loan processor requests a written or verbal verification of employment before the loan is submitted to underwriting.  They contact your employer directly for this

#3 Verbal verification of employment at Funding.  They will not fund the loan unless your employer verifies you are still working there.

If you are leaving your job and do not have another job lined up you should not be using that income to qualify for your loan.  If you switch jobs in the middle of the loan you need to tell your lender so that they can adjust the transaction.  Many people think that if they get through underwriting and they sign loan documents they are in the clear.  You are not in the clear until the loan closes and the house has recorded./  Honesty is the best policy.  If you are working with a lender that is encouraging you to misrepresent yourself leave that lender quick.  Mortgage fraud is serious and no house is worth it.