Fix and flip
Good news for investors who want to capitalize on current market conditions. FHA has announced:
In an effort to facilitate the sale of bank-owned properties, the Federal Housing Administration (FHA) has temporarily suspended its 90 day rule against flipping properties. Under the anti flipping rule, the FHA will not insure a mortgage loan if the sales contract is executed within 90 days of the seller’s acquisition of the property. Effective June 9, 2008, the anti flipping rule has now been waived for one year for properties acquired by lenders.
Colorado Foreclosures Maybe Heading for Time Out Room!
Two lawmakers in Colorado are introducing a bill to enable judges to extend a foreclosure for up to 90 days. The extra time could be used to work out a settlement as opposed to the homeowner losing their home to foreclosure.
The problem with mortgage workouts is time. So much of what needs to be done takes an extraordinary amount of time. The workload of the persons dealing with homeowners is overwhelming I am told. In fact much of the time the bank is trying to determine who actually owns the loan and who has the say in what can be worked out or not.
Homeowners facing financial issues should not delay in contacting the mortgage holder. The longer you wait, the less likely you will be able to work out a solution.
Many homeowners do not realize as soon as the bank files a Notice of Election and Demand for Sale, the clock starts ticking. The homeowner must redeem the property by making up the back payments or coming to an agreeable settlement with the mortgage holder. All this takes time.
The Clock Keeps Ticking…
Homeowners do have alternatives to foreclosure. Forbearance agreements can be arranged so the homeowner can pay the delinquent payments on the "back end" of the loan. Some mortgage companies will restructure the loan so the homeowner can stay in the home.
Colorado provides a Foreclosure Hotline to the public seeking to AVOID foreclosure. 1-877-601-HOPE Trained counselors help those in trouble find alternatives in repayment plans, modifications to the mortgage agreement or selling the home prior to the foreclosure.
Upside Down Mortgage
Homeowners who need to sell their property right now are finding they owe more than the home is worth. This is a tough problem to face. How can it happen?
There are several reasons why the mortgage on a home exceeds its value:
- Real estate values in the neighborhood have declined, due to an over abundance of homes on the market or a glut of foreclosures.
- The home owner has refinanced taking out a larger mortgage than the value of the home can support and/or incorporated closing fees into the mortgage, thus increasing the mortgage amount.
- Late fees and back payments have been added onto the mortgage and are also accumulating interest charges.
- A negative amortization mortgage was taken out on the home.
- Lack of maintenance
Homeowners who find themselves in a situation where values in the neighborhood are dropping, but they don’t have to sell their home really have nothing to worry about. Since most people plan to live in a home for many years, the market will rebound and values will increase. Sit tight and tune out all the negative press. Make your payments, enjoy life and when it comes time to sell you will be fine and probably save yourself a few gray hairs in the long run.
If you are a homeowner that MUST sell your home and are up-side-down with your mortgage vs. home value, you do have some choices.
- In a declining market you can price your home to sell and make up the difference with cash from your pocket at closing. Many homeowners do not like doing this, but will just to be able to move on to their next home. If the homeowner is lacking the cash, it might be possible to get a cash advance on a credit card or from relatives to complete the transaction.
- Rent the home out until the market improves. Sometimes this means only a couple years of renting until things look better.
- In the case of a home that has not been cared for, fixing the home might bring it up to acceptable standards to sell.
- Request the mortgage company holding the mortgage restructure your mortgage so you can sell. The balance of what is owned can be transferred into another note which you can make payments on until paid off. The mortgage company may or may not be able to do this depending on what type of lending institution they are. Of course the better the borrowers credit score the better the chances are of negotiating this type of deal.
- Short sale ~ ask the mortgage company to accept less than what is owed and write off the balance. This is a lengthy, not guaranteed process that could take up to 6 months. If the bank is willing to cooperate in a short sale, the amount of mortgage that was relieved could be subject to income tax. (please check CPA for details) Short sales have a negative impact on credit ratings.
- Some employers (as in the case of a transferee) might agree to absorb the amount short in order to get the employee settled in the new location.
- Deed in Lieu of Foreclosure ~ if there is absolutely no way to get the home sold and there are no funds, renters or family to help, giving the home back to the bank is an option. The best way to do that is to start a conversation with the mortgage holder to see how they would like to go about it.
There is really no "one size fits all" solution. Usually there is a way to salvage a situation if one tries. Homeowners in trouble have become the focus of many agencies, with the government looking for ways to help.
If you are a homeowner who is up-side-down and you need to get out of your home, don’t hesitate to call and ask for help. Start with your mortgage holder. If I can assist you in the Denver metro area, please feel free to call.
Homeowners in trouble
There isn’t a day that goes by where we don’t hear or read a story about a home owner having trouble making house payments. The Foreclosure Crisis continues with more and more communities trying to figure out what to do to help. The Federal Government is taking a strong look at various solutions.
Federal Reserve Chairman Ben Bernanke said this week.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure. "
"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole. Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done."
Interesting how the Big Guy has a different twist to solve the problem. I’ve only heard of lenders reducing their interest rates for home owners in trouble. That just means the mortgage payment is made more affordable, especially with the adjustable rate loans that topped out at unmanagable highs.
By reducing the loan amount to give the mortgage holder instant equity means home owners who must sell might be able to use this adjustment to get out of their home without having to lose it to the bank.
Bernanke’s reasoning for giving the home owner equity was to take stress off the homeowner and give him financial incentive to stay in the home.
I’m not sure I agree with Mr. Bernanke on this. Given a choice between taking a lower interest rate or a reduction of loan amount, I would have to make my decision based on my future plans.
If my intention was to stay in the house, the lower interest rate would be more attractive in the long run.
If my life situation was such I had to move, my preference would obviously be the principal reduction.
So the solution aka Bernanke is not "one size fits all." Of course nothing in life is…
Bottom line, the market may stink, but the strategy is still the same. If you live in an area of declining values and don’t have to move.
DON’T MOVE. DON’T SELL. STAY PUT.
On the other hand if you are thinking about downsizing, moving up or investing, now is the time to do it. What you lose on your current home you will gain equally if not more by acting now.
Really.
There is Life After Foreclosure
Please feel free to call on me if you have questions. I welcome your click or call.
Scams of Foreclosure
As Colorado continues to be one of the States hit hard with home foreclosures the public needs to be aware of the scammers and their tricks. Freddie Mac the governmental organization that purchases mortgages from the banks has produced an informational video to get the word out.
If you or someone you know is facing foreclosure, pass this on.
Foreclosure Investing for Dummies
First time home buyers, second time home buyers, investors whoever you are, our Denver real estate market in many sectors is prime for making a good deal. Many savvy buyers/investors realize this and are making their purchases now.
Investing in Foreclosures is not for everyone. There are many aspects that need to be considered, researched and understood. If you are thinking about purchasing a distressed property, there’s a new book that might help you understand the process. Written by Ralph Roberts it’s called: Foreclosure Investing For Dummies.
The book is written in plain English and talks about the different foreclosure purchase strategies.
- Banking on Bankruptcies
- Knowing When to Purchase
- Negotiating Short Sales
- Knowing the Lien Holder pecking order
- Tracking down property tax sales
- Bidding for properties at a foreclosure sale
Working with foreclosures is not for the weak of heart. Armed with knowledge of the process, a solid strategy and some investment capital, a wise investor can make a good living by specializing in this market.
The Dummy book is a valuable resource for those who wish to learn or merely brush up on their skills. I highly recommend it!
Predatory Lenders are Scum
Remember the famous saying, "A few rotten apples, spoils the bunch?" Well the saying holds true for more than just apples. In Colorado like much of the US, we have had our share of "predatory lenders."
Predatory lenders are the bad actors who come out and tell people less than the whole truth and nothing but the truth. They give loans to people who have no business getting a loan.
Yuck. They make me ill.
Now the Department of Regulatory Agencies, Division of Real Estate has issued a position statement on Tuesday, July 3rd with respect to House Bill Section 12-61-904.5 (1)(b) C.R.S., requires mortgage brokers to make a "reasonable inquiry" concerning the borrower’s current and prospective income, existing debts and other obligations. The Division of Real Estate does not prohibit specific mortgage products or documentation types. Rather, the Division views this provision as a responsibility of the mortgage broker to recommend appropriate products. Mortgage brokers may only recommend appropriate products "after reasonable inquiry has been made in order to understand borrower’s current and prospective financial status."
As a result most major investors, including GMAC, Wells Fargo and others, have translated that a "reasonable inquiry" cannot be determined on documentation types in which the borrower’s income is omitted from the application. As of immediately there will no more "no stated income loans." Additionally lenders are suspending funding of certain documentation types with buyers who are currently under contract.
How many contracts will fail?
No income loans are nothing new nor are they all bad. There are good people who use no income loans who actually should be allowed to do so. Thanks to the bad apples in the bunch the good will get thrown out with the bad. Sellers who thought their homes were sold, will be finding out otherwise very soon. Hopefully the buyers will be able to rewrite the loans and close as planned.
The legislature is acting in a response to years of abuse by bad mortgage brokers and some irresponsible borrowers. Some were genuinely wronged, but many knew exactly what they were doing. They cheated the system, now the rest of us have to pay.
Bandaids are only good for scraped knees.
Colorado mortgage brokers will now have to register with the state in order to do business. This registration is not a proficiency test, it’s a background check. Well that’s good, we can eliminate the really bad apples with criminal records etc. but who’s to say they actually know how to prepare a loan? Do they subscribe to a code of ethics? Do they use reasonable skill and care protecting the borrower’s personal information?
The next question is, "Will Mortgage Brokers be Responsible for Predicting the Future?"
Making a reasonable inquiry into a borrowers debts, obligations and income should be part of the process of preparing a loan to a borrow. But I must ask the question, if this is now law, what if the mortgage officer makes a loan to a borrower that defaults? Is this mortgage broker at fault too? Can the borrowers come back and sue the mortgage broker for giving him the loan he asked for? Somehow this just doesn’t seem right.
The Bad Apples Change the System, we all lose.
So at the present moment there are honest buyers and sellers scrambling to keep a deal together. There are honest, career-minded mortgage brokers considering changing a career because of the undue risk. Then there are the bad apples out there rotting and smelling and going about their business as usual.
What is the solution?
This site brought to you by Kristal Kraft, a licensed Colorado Real Estate Broker
The