Business With Greg Mortgage and Real Estate Blog

A declining market has become a subject we have mentioned over the past year quite frequently. The overall economy plays an important role. But, even when the economy was thriving there still were markets that declined in value.  I am also going to discuss my opinions on what I feel about the industry changes that affect these area’s. 

Some changes in the lending industry have been made to offset the risk on properties located in these markets. It is in place to prevent the inevitable which seems to be the properties will continue to decline in value. Fannie Mae and Freddy Mac have both decided to reduce their maximum LTV by 5% in these area’s. From a risk standpoint I feel ”A” change was needed. However, there are other consequences involved that make this change a further disaster not only for the investors but for the economy in the market.

First thing you have to understand is the piece I wrote yesterday about how 100% financing is becoming almost unavailable and how credit score restrictions are simotaneoulsy reducing the number of qualified home buyer’s. The changes are weeding out consumers who missmanage credit and do not have significant liquid assets. The pool of qualified buyers is greatly reduced yet again. Then you are adding that they will need another 5% down payment in the affected counties. This change is not going to help the economy in these areas. It is not going to stimulate home prices to increase. It is going to make them decrease and also decrease more rapidly. People with limited down payment funds are going to consider moving to the next county that does not have the restrictions.

So, the banks holding loans in this area will be hurt by this as well. People may not have options to refinance any longer. 90% is the maximum LTV for cash-out refinancing under a Fannie Mae or Freddy Mac program. They will be declined to 85% LTV maximum.

Maybe, in these area’s a better idea would be to adjust the loan price and not the LTV.? That would still keep standard financing open and available yet offset the risk of a declining asset.

I fully support our government and their decisions. But, they recently injected some 200 billion into Fannie Mae and Freddy Mac. Wouldn’t it be wise to inject money like that into helping buyers with down payment money to try and restore balance in the housing market? Federal grant money is available to qualified individuals in qualified neighborhoods. How often is it used? I do not see a whole lot of Economic Divisions in the counties who help people buy homes in Urban and Suburban areas.

I want to open a debate on how we should move forward here to improve the situation we are in.

The United States  Department of Agriculture has been offering loans for quite some time. Many area’s are approved to use this type of financing. This loan works simular to FHA or VA as far as qualifying. However, you are subject to income restrictions and geographical area’s. Not all area’s are approved for USDA.

This loan is now one of the strongest ways to finance a home in the qualified area’s. The loan provides 102% financing which allows you to finance the 2% Funding Fee.

There used to be geothermal restrictions on homes. This past year this requirement was eliminated.

If you have a 620 credit score you are Credit Approved. If you are 1 day out of bankruptcy or foreclosure and you have a 620+ you can buy a home!

There is no limit to the amount a seller can contribute to your closing costs and pre-paid items.

There is no PMI.

There is no cash reserve requirments.

There is no sourcing or seasoning of cash required to close if any. So, if you bury your money in a cookie jar that is acceptable.

So, remember this loan and ask your loan officer about it. Or if you want to check the area’s that are approved or check to see if your income qualifies then visit http://eligibility.sc.egov.usda.gov

With the collapse of sub-prime lending many loan products vanished. However, most of these products were doing a short term benefit with a long term catastrophy.

Most loan officers were forced to put customers into an FHA, VA, or USDA loan. These loans are very good loans with low interest rates and helped keep things going for most home buyers and help people with refinancing.

President Bush announced the FHA Secure program to try and bail out those who could no longer afford their mortgage due to an increase in their adjustable rate mortgage.

Then this past month more bad news. The PMI companies stopped insuring 100% mortgages. As a result the Fannie Mae and Freddy Mac 100% programs cannot be insured so they are no longer available.

Then these past 2 weeks we were bombarded with an effective immediately memo for FHA mortgages. Most companies will no longer do an FHA loan that is NOT approved by Desktop Underwriter. So, most people with credit blemishes who have a credit score lower than 580 cannot get an FHA or even a VA mortgage. This eliminates the possibility of borrowers using FHA Secure in most cases as well.

The only true 100% financing left is USDA and VA. About half the lenders offering USDA impose the credit score minimum on that program too.

 I knew this all was going to happen sometime this year. What you buyers need to know is how to buy a home. You may need a down payment. There still are a few ways to come to a closing with no out of pocket money. Also remember that a 401k can help you with a down payment that is not subject to an early withdraw penalty.

Also, remember that houses located in declining markets will require additional money down or further lending restrictions of -5% LTV.

So, the predictions have been made and we have seen some drastic meassures by the feds to help the economy. So have things changed?

So far from my personal expirience it seems that people are starting to buy houses. They are also taking advantage of the interest rates being low. Although the overall numbers may not lead to more activity than 2 or more years ago. I think our industry will see a great 2008. Competition has started to become less and less. There are less lenders, real estate companies, and loan officers.

In the past few weeks I have seen a dramatic change. More applications. More purchases. More people inquiring. I think somewhat driven by a bargain of lower home prices.

Lending is still being re-shaped. There are still issues at hand. But, overall I truely beleive this is a great time for a consumer to take advantage!

With REO listings growing and getting a higher demand from home buyers I thought I would start a post about the financing avenues.

In the past there was typically a problem in the lending community with education on how to include repairs and rehabilitation in a home purchase. So many loan officers would say they cannot do it or imply it is not available. Some would offer it and say you have to have good to excellent credit.The fact is that all the above is a myth and that the problem is loan officer education on the subject.

Programs available:

1) Construction/Rehab: This program is commonly offered by lenders whom do Home Construction.

Some limitations include:
a: Good Credit with limited or no delinquency.
b: Down Payment requirements of 5% or up to 25%.
c: Imposing a minimum on the Rehab project. Example: Rehabilitation minimum of $50,000.
d: Higher interest rates, limited amortization options, and sometimes only available as an ARM or Balloon.

Some factors that may help buyers:
a: More options for draw schedules.
b: More options regarding verification of income and assets.
c: Some offer self-rehab although limited.

2) FHA 203K: This program is offered by Approved FHA lenders. However, there is a course you have to complete as a Loan Officer to be able to do these loans. So, it is rare to find someone that offers an FHA loan and also is able to offer 203K. HUD has a list of approved FHA lenders and approved 203k consultants on their site.

Some drawbacks include:
a: Full Documentation Only. Most self-employed individuals struggle to be approved due to lack of profit showing on their Schedule C.
b: Limited Draw Schedules although it allows most of the work to be done more quickly.
c: Owner Occupied Only! No investors.

Some factors that may help buyers:
a: No Credit Score Requirement!
b: Limited to No Down Payment!
c: Typically there is no minimum requirement on rehab project.
d: Low interest rates regardless of credit score!

3) FHA 203Ks: This program is like the above but it is a streamline version. There is no additional requirement for a Loan Officer to do them. They only have to work for a company that is FHA approved.

This program is probably one of the best to use on any home. If your buyer has good credit or bad credit the rate is low.

The limitations:

- Up to $35,000
- Cannot do anything requiring blueprints

Say you hate the kitchen cause it is puke green. Done!

The house has no appliances. Done!

You are disabled and need wheelchair access. Done!

You want to gut it to the studs and hang new drywall, flooring, kitchen, bath, appliances, siding, windows, lighting, a new roof, down spouts, FURNACE, plumbing, HVAC, electrical, add a deck, add a porch, add a patio, basement finishing/remodeling/waterproofing, septic and a well. Done!

Perfect. Even those borrowers with limited credit, no credit, flawed credit can qualify.

 Fannie Mae also has a nice product available called Homestyle. It typically requires a 5% down payment but there are ways to get around that. FHA is far superior though.

Federal grant money is available to homeowners needing money for repairs and home buyers needing help with down payment. Home buyers can also repair a property with grant money.

How? Call your county! Contact their Planning and Development division. Some have various names for this but anyone working for the county who deals with real estate should know who you need to talk too.

 The county you should contact is the one in which the house is located.

So, are you ready to see what happens when the new method is released on calculating credit scores? They anticipate a release around March but there is much debate going on about how exactly this will unveil. It is supposed to be better at identifying low and high risk consumers for the financial services industry.

 Sounds like the best will get better and the worst will become even lower.

Yes! The market is saturated with homes for sale plus the interest rates are very low. When supply exceeds demand sellers try to cut prices to sell fast.

 The interest rates are so low that if you refinanced in the last 4 years you may see an interest break and save some money!

Well, we all hear several versions of what, when, and why about this whole mess in America. I am going to take some time and write a long post to try and give you an opinion from a loan officer and some information to help you understand.

 Let me start by saying this is a very vague and easy to understand way of explaining the current situation we are in here in America.

For those who have only seen the market open up it’s doors and try to let anyone buy a home I want you to know this has happened in the past. The simplest way to explain exactly what has happened is to say Lenders took loans that had more risk in the past then stopped doing those loans at a later date. It is the simple rule of cause and effect. They took more risk cause they saw an opportunity to make more money. The effect was over time they started losing money and that resulted in where we stand today. The risk I am speaking of is changing the ways they qualified people in the past and making it easier for them to obtain a loan. Some of the specifics on exactly what changed is lower down payment requirements, lengthening the term of a mortgage, raising the % of your gross income your bills can be, accepting alternative methods of verifying income, and adjusting the methods in which payment is made or interest is calculated.

What did this all do for us and them?

More people could purchase homes. More people could refinance loans. More people ended up owning homes. More lenders started doing loans. People became more educated about mortgages and home ownership than ever before. People had more opportunities to sell their home. More people could buy their home. Prices rose due to demand exceeding or being more balanced with supply.

Profit margins increased. Investors made more money. More investors helped fund home mortgages. More lending opportunities were created. Lenders employed more people and met the demands.

Then….. It was almost like someone took a needle and busted the bubble and the air was let right out and not many were willing to blow any air back in.

There were several causes. There are several people to blame. Do you think any of us wanted this to happen? Well, I sure will give you my list and ranking. So here it goes:

#1 Investors - The mortgage market was turned into a stock market. Let’s say the entire mortgage market was traded on the stock exchange as a symbol and the lenders behind the symbol were responsible for the performance of the symbol on the market. When and investor places their money into an investment they demand a return and when that return ends up dry and amounts to a loss they pull out.  So then you have lack of funding avenues. So as they pull out the programs we once had dry up and are no longer available. Housing demand drops due to less people being able to buy or refinance. Supply exceeds demand and prices drop. Housing values decline.

#2 Mortgage Lenders - So they are the heart and soul at the top of managing the investment right? They are the ones who determine what they do with the money and they present the opportunity to the investor. They take all their data and give them a profit estimate. They create programs and handle risk management. They also manage fraud. If you want my opinion some got a bit too greedy for the short term gain and either did not realize or could not predict the long term loss.

#3 Consumers - Yeah that is right every homeowner in the United States that defaulted or could not pay the mortgage they promised to pay can be blamed too. You see there are factors that caused each and every one of the foreclosures to happen. Some were in the consumers control and some were not. Bottom line is you promised to pay. You broke that promise. Then the bank lost money. The houses sold for far less than enough to cover the investment. Then they also became a majority of homes for sale in many area’s.

So, are we there yet? Did we reach the bottom of the hill and can we start climbing again? I think the answer is NO! But, if more people in the United States would just say YES and believe you would probably see things happen that were good more times than bad.

So, some 180+ lenders either stopped some form of mortgage lending or went out of business all together.  Some investors know that their is still a high profit margin in high risk lending. They still infuse funds here and there to handle these loans. They are just not everywhere like they used to be. In order for those investors to prosper there has to be better decisons made all around. Whether you are a consumer, investor, mortgage lender, loan officer, or anyone with an ability to affect economy.

 Here is what I do know. There are plenty of loans to get. There are plenty of houses to buy. There is plenty of free information and people willing to help you with making financial decisions. The more you learn the better off you are. Take the time and do not rush into anything.

2008 is upon us and there will still be vast changes. Be prepared and learn. Almost everyone involved will need to re-shape the wheel then learn how it rolls.

With the current market conditions you usually hear about the negative when you check the news. But, what you do not hear is the positives.

By now you are probably aware that their have been vast changes in the ways mortgage lenders are able to help you buy a home. In the past their was a plethora of programs for people not conforming to A+ guidelines. In fact there were so many programs that most lenders could not even keep up or begin to master them. Now that box full of loans is starting to become less full. There are still many great programs today for people who deserve homes.

With the high amount of foreclosures in the United States there has been a huge amount of inventory in the real estate market. Many complain that houses are not selling. Or that the market is slow. This is all true. There are more homes for sale and a greater percentage of foreclosed homes for sale.

What this creates is a buyer market. There is plenty of inventory and several choices. Houses are selling below market value and banks are losing money on their real estate they foreclosed on. It is the banks loss and your gain as a consumer.

One product I offer is FHA and I bet you FHA will sweep up most of the market share in loans that people not conforming to A+ standards will do. There is a wonderful program that FHA offers and it suits the current market conditions better than any other. Whether your credit is excellent or you have a few problems that you can provide explanations for. Whether you have money for down payment or you do not. It is called a 203k(s). You can typically buy a home and get up to 35,000 to do a rehabilitation of the property. It could be as small as you need only a new refrigerator or new carpet in the living room. Maybe you want to redo all the drywall, floor covering, kitchen cabinets, counter tops and appliances. It is a wonderful loan and you do not have to have perfect credit to get it….