Get rates like a billionaire…

Zuckerberg is not the only one who can get super low mortgage rates

Paul Sakama, MSNBC, July 20, 2012, link

Paul Sakuma / AP

This man has a lot to smile about, including a 1.05% mortgage rate. Facebook CEO Mark Zuckerberg at the Allen & Company Sun Valley Conference in Sun Valley, Idaho. But he’s not the only one who can nab a cheap rate like that.

By Bill Briggs, NBC News contributor

After seeing Mark Zuckerberg has scored a 1.05 percent mortgage rate on his $6 million California home, we have just two questions: Why does he need a mortgage? And where can I get one like that?

It turns out that 1 percent mortgages are not reserved for billionaires like Zuckerberg.

As South Carolina entrepreneur Ramona Fantini has learned, many modern homebuyers find such tiny mortgage terms hard to fathom — even as Freddie Mac and other traditional lenders dangle bargain-basement rates never before seen in the U.S. economy. She secured a 1.07 percent adjustable rate loan to recently buy two different homes.

“I’m not a bragger and I’m also not embarrassed about it. But when I tell people about that rate, they don’t even believe you,” Fantini said. “So you do quit telling them.”

Several financial companies offer select clients creative ways to access ultra-low-rate home loans — some below 1 percent. Such deals also allow consumers to circumvent the mammoth, time-consuming mound of income and debt documentation now required by mortgage lenders.

There is one catch, though. If you want to try to slip beneath even the record-low interest rate offered this week by Freddie Mac, 2.69 percent on a five-year ARM, the borrower typically must have a healthy amount of collateral. That may include stocks, bonds, and mutual funds, their own profitable business, deep savings, or in some cases, a rich relative, experts say.

Fantini, owner and CEO of Hilton Head-based Pino Gelato, used her inexpensive loan to purchase outright two local houses — one priced at $150,000 and another at $200,000 — for two of her employees. Her workers will live in those homes and slowly pay back Fantini’s company, and not a bank, at that 1.07 percent adjustable rate.

“Right now, because it takes so much in down payments to qualify for a mortgage, it’s been a huge plus for these employees,” Fantini said. “We do it just because we believe in giving back. We don’t even tell (prospective) employees we have this available to them.”

To obtain her loan, Fantini worked with Tyler Vernon, founder and principal of Biltmore Capital Advisors in Princeton, N.J.

“You don’t have to be a billionaire,” Vernon said, “to enjoy preferred interest rates.”

He has arranged for nearly 100 loans at rates ranging from 0.96 percent (for someone who borrows more than $1 million) up to 1.5 percent (for a client who secures less than $500,000). One of those loans was only for $50,000. One topped $8 million.

“Most people do actually use this for a real estate investment,” said Vernon, a former Merrill Lynch vice president. “And it’s definitely cheaper than Zuckerberg’s cost of money.”

How is this accomplished without going the usual bank or mortgage-lender route?

At his previous job, Vernon learned that during the 1980s Merrill Lynch, along with other large financial services companies such as Morgan Stanley Smith Barney, offered loan rates of 0.6 percent to United Parcel Service executives because that company’s once-private stock was so stable.

“So there were a few companies that set up these unbelievable rates targeted specifically to UPS. They didn’t make money on the loans but they knew they would get the (UPS honchos’) asset management business, which led to trades and commissions,” Vernon said.

After launching Biltmore Capital Advisors — an independent firm that can approach any custodian on the market — Vernon applied that same basic philosophy for some his most financially set customers. In his current role, Vernon can group his stable of clients — and employ “the UPS model” — to entice the big boys on Wall Street to loan big money at minuscule payback percentages.

“We say, hey, we can bring you hundreds of millions of dollars in asset management business. But if you want this business, you’ll have to get competitive (with your interest rates). If you want the business, you’re going to have to look at it on the aggregate,” Vernon said.

“So instead of going somewhere and saying, as an individual investor, I want to borrow $300,000 or $400,000 or $500,000, this is kind of the Wal-Mart model,” Vernon added. “We go to a (financial services) company directly and say we can bring you $100 million or half a billion over time. What can you do? So they basically give us really good rates.”

Zuckerberg’s strategy
In a sense, that strategy — using collective wealth as the appeal — isn’t a distant stretch from how Zuckerberg, estimated to be worth $15.7 billion — grabbed his dirt-cheap mortgage.

The main difference there, of course: The Facebook founder could have simply plopped down a suitcase (or three) jammed with cash to pay for his entire, multimillion-dollar spread. Financial independence coach Ike Ikokwu called Zuckerberg’s mortgage shrewd, however, because “good debt,” like mortgages, increases personal net worth and offers tax benefits.

Still another option for supremely low-interest loans: Go through a rich uncle or another well-to-do family member. That arrangement may be more common than you know, said Tim Burke, the CEO of National Family Mortgage in Boston. He has set up thousands of such loans between relatives, totaling more than $43 million.

“We have developed this product where, through inter-family loans, certain parents are finding value helping their adult children — if they are not qualifying for home loans and not meeting rigorous underwriting criteria. So instead of making payment to the bank, the adult children are making payment to Mom and Dad,” Burke said.

For these sorts of family loans — particularly for loans above $10,000 — the  Internal Revenue Service has established “Applicable Federal Rates” (or AFRs) that should be charged to a borrower to help them avoid “unnecessary tax implications,” Burke said.

Every month, the IRS publishes a new set of AFRs, in part to help calculate interest on market loans made between family members. This month, the AFR for loans to be repaid within three years is 0.24 percent, and the AFR for a loan to be repaid in three to nine years is 0.92 percent.

Those scheduled payments to the parents also allow the loaners to write-off mortgage interest deductions on their taxes, just like they do a traditional home loan obtained from a bank.

“But Mom or Dad would never dream of foreclosing on son or daughter,” Burke said. “And as I like to say, who has more underwriting experience than Mom or Dad?”

The family loans Burke has helped his clients launch have ranged from $11,500 to $1.3 million, he said.

“This is just one of these tools wealthier families have been using for years, and we’re just trying to take it mainstream,” Burke said. “I know a lot is said about people not borrowing from friends and family, but this is a great way to beat the bank and get a rate like Zuckerberg.”

Government programs are paying off…

20 Percent of May Refinances were HARP

Jann Swanson, Inman News, Jul 16 2012, link

The changes to the HARP program that were put in place last fall seem to be having an affect according to data released this morning by the Federal Housing Finance Agency (FHFA).   The Administration made significant “enhancements” to the Home Affordable Refinance Program administered by FHFA after the original program launched in 2009 failed to attract the volume of borrowers originally anticipated.

HARP 2.0, as the new version of the program is commonly called, eliminated any eligibility ceiling on loan-to-value (LTV) ratios and some risk based fees for borrowers who refinanced into short-term mortgages and reduced fees for other borrowers.  The new program also waived some of the representations and warranties required of lenders, and eliminated the need for a new property appraisal where a reliable automated valuation model estimate of value was available.

No doubt aided by record low interest rates, HARP refinancing has taken off in the last few months.  The program was responsible for 20 percent of all refinancing done during the month of May, the highest percentage in the history of the program.  The number of completed refinances for underwater borrowers in the first five months of 2012 exceeded the total number of such refinances during the whole of 2011.

As the table below shows, while interest rates are helping a lot of people refinance, other factors have also impacted refinancing over the last four years as the market has sought to recover from the housing meltdown.

In May there were 341,209 properties refinanced through Fannie Mae and Freddie Mac and 1,787,223 so far in 2012.  Fannie Mae was responsible for 68 percent or 230,523 of the May transactions and 65 percent or 1,169,063 of all 2012 refinancing to date while Freddie Mac’s refinances totaled 110,686 and 618,160.  A total of 67,456 of the May refinances were done through HARP and 297,103 of those completed so far in 2012.  The proportion of HARP loans done through Freddie Mac relative to Fannie Mae was much higher than for refinances in general with the smaller GSE accounting for 41 percent of HARP refinances in May and 46 percent of those year-to-date.

While it was the removal of the previous 125 percent LTV ceiling that elicited the most interest when HARP 2.0 was unveiled, that feature is only a small factor in recent HARP refinances.  Only 2,954 or 4.4 percent of May HARP loans and 11,118 or 3.7 percent of loans so far in 2012 have had loan-to-value ratios in excess of 125 percent.  More than half, in fact, have had LTV’s in the 80 to 105 percent range.

While not a lot of borrowers are taking advantage of the fee elimination incentives offered for borrowers picking 15 and 20 year mortgage terms 15 percent of borrowers so far this year have chosen the shorter term alternatives compared to 10 percent in 2010.  In May that number spiked to 19 percent.

Their golden years are paying off for the rest of us…

Seniors will play key role in housing recovery

Nearly 5 million expected to buy, sell property in next 3 years

Tom Kelly, Inman News, Wednesday, July 11, 2012, link

<a href="http://www.shutterstock.com/pic.mhtml?id=58996723" target=blank>Senior homeowners</a> image via Shutterstock.Senior homeowners image via Shutterstock.

A new study by the Harvard Joint Center for Housing Studies revealed that lender unwillingness to issue loans remains the biggest chuckhole on the road to housing recovery.

Some homebuyers — many of them low-equity members of Gen X and Gen Y — can’t qualify for a loan.

Many lenders are requiring higher credit scores than what was needed to qualify for a loan just a few years ago. Plus, some banks are also requiring potential borrowers to come up with larger down payments.

As a result, the number of buyers on the sidelines unable to purchase a home is greater than expected.

So where’s the smooth road to housing today? The Market Enhancement Group, a research team based in Southern California, recently broke down the latest data supplied by the U.S. Census Bureau.

It came as no surprise that not only do seniors have a ton of equity, but nearly 5 million of them plan to sell and buy in the next three years. Homeownership for seniors (65 and older) is as high, or higher, than any other age group.

And, because many of them plan to pay cash, there’s no need to provide a seller with a letter of preapproval from a lender. No worries about FICO scores. Questions about size of down payment are largely irrelevant.

“In all the hoopla over youth, we’re forgetting a very important segment of the population: seniors,” the MEG report found. “They’re not flashy and they’re not the ones creating new trends on social media or with the Internet. But senior homebuyers and sellers have one unique characteristic that sets them apart from other generations: stability.”

Here are some key findings from the MEG study:

  • Overall, only 31 percent of U.S. homeowners own their home free and clear.
  • Sixty-eight percent of all seniors own their home free and clear. The remaining 32 percent will own their homes free and clear in six years or fewer.
  • Fifteen percent of all senior homeowners plan to sell their home in the next three years and buy another home; this translates into 4.9 million families and 9.8 million transaction “sides” for real estate salespersons.
  • Ninety-four percent of those 4.9 million families selling their home plan to pay cash for their next home.

Traditionally when Americans retired, they would make big cross-country moves or head south to the sun. But times have changed and, while some seniors still seek the sunshine, more are opting to stay put or make a short-distance move.

Only 1.6 percent of retirees between the ages of 55 and 65 moved across state lines in 2010, according to an analysis of Census Bureau data. Florida was once the retiree haven, attracting more than 1 in 4 retirees who did move. From 2005 to 2010, that number dropped to 1 in 7.

More retirees are opting to stay near where they once worked, moving out of the pricey real estate metro areas to places an hour or two outside of the city, where real estate prices and taxes tend to be cheaper.

To help facilitate these senior moves, the National Association of Realtors offers a Seniors Real Estate Specialist (SRES) designation. It focuses on better understanding senior needs – so that agents learn to ask the right questions at the right time and in the right tone of voice.

To earn the SRES designation, applicants must complete a two-day course, pass an exam and provide documentation of at least three transactions involving senior clients in the past 18 months (or submit two such transactions prior to the first annual renewal date).

The education module includes a comprehensive workbook, presented in 11 sections. During the opening day, instructors define niche marketing and generational differences, and discuss housing issues, the process of retirement, equity conversion and capital gains taxes.

Day two delves into estate planning, communication modes and the role of the agent as it relates to developing a client base; communicating with the client and their advisers and family members; educating parties to the transaction; negotiation strategies; and administrating the process to a successful conclusion. The workbook also includes tips on working with and counseling seniors, reprints of articles and other reference materials.

While first-time homebuyers are absolutely critical to the housing industry, seniors should not be overlooked. They might not need as many loans, but they definitely are able to move.

Taking a bit of pressure off underwater homeowners…

Consumer agency unveils simplified mortgage disclosure forms

The proposed forms, which begin a public review period, are designed to clearly reveal important details of home loans to borrowers before they sign final documents.

E. Scott Reckard and Alejandro Lazo, Los Angeles Times, July 10, 2012, link

The Consumer Financial Protection Bureau released its final proposal for simpler mortgage disclosures — a three-page summary of home-loan costs and risks — to a lukewarm response from industry groups and a key consumer advocate.

The proposed disclosure forms, released Monday, are the product of 18 months of research and consumer testing. The bureau said the forms would benefit consumers by using plain language and lenders by replacing two sets of more complex disclosures that currently must be made.

The comparison sheets are designed to clearly disclose important details of home loans to borrowers before they sign their mortgage documents, preventing nasty surprises at closing and sometimes years later.

The proposed “loan estimate” and “closing disclosure” forms, with the same categories in both, are to be given to borrowers three days after they apply for a loan and three days before it closes to give them time to evaluate the mortgage.

The simple forms for consumers were accompanied by 1,009 pages of material explaining the bureau’s proposed approach and how lenders should implement the new rules.

Bankers and consumer groups reacted guardedly, saying they needed more time to study the details. The Center for Responsible Lending, a leading consumer advocacy group, declined to comment, referring questions to National Consumer Law Center attorney Diane Thompson, who expressed disappointment.

Thompson said the forms make it possible for consumers to compare interest rates and closing costs for loans, and provide assurance those terms won’t rise significantly when the loan closes. They also make clear whether a loan is adjustable, state a maximum payment and examine insurance and property tax costs.

But the new forms downplay a previous benchmark, the annual percentage rate, which attempted to summarize the combined effect of the fees, interest rate and term of the loan in one figure. Thompson said that emphasizing the separate components of a loan at the expense of the overall effect could cause borrowers to select a loan that isn’t the best alternative.

“Nobody has had time to digest the final forms and to read the details of the testing reports,” Thompson said. “But from what we’ve seen, they’ve focused much more on the constituent components of the cost of credit rather than allow homeowners to compare loans that are priced differently.”

A group representing major financial firms was cautiouslypositive about the proposal.

“We are generally supportive of the effort and have been working with them for a while on this,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable. “We are still reading it and won’t have comments good or bad until a little later in the week.”

David Stevens, chief executive of the Mortgage Bankers Assn., said he welcomed simpler disclosure rules but said the change would “impose massive change on the industry.”

“We will be working with the CFPB to make sure the forms, and the rules surrounding them, are best for borrowers and lenders alike,” Stevens said.

In the past, consumers often complained about hefty finance charges that cropped up just as they were ready to buy a home. Many said they had not realized the consequences of adjustable loans — mortgages whose rising payments helped create the mortgage meltdown that touched off the financial crisis.

“Our proposed redesign of the federal mortgage forms provides much-needed transparency in the mortgage market and gives consumers greater power over the exciting and daunting process of buying a home,” bureau Director Richard Cordray said in a news release.

The proposal also would rewrite rules governing high-cost mortgages, requiring homeowners to meet with financial counselors before taking out the expensive loans. The new rules would ban penalties imposed on borrowers who pay off home loans early and would outlaw most balloon payments, large one-time payments at the end of a loan.

The proposed rules also would cap late fees, ban loan-modification fees and restrict fees charged when consumers ask for payoff statements for their loans.

The new rules are not yet final. The public has until Sept. 7 to review and comment on the proposals. Links to information and the proposed new regulations are provided at the Consumer Financial Protection Bureau website, http://www.consumerfinance.gov.

In a market like ours, take every advantage you have…

6 paths to success for buyers in tight markets

Dated décor, canceled listings can work in your favor

Dian Hymer, Inman News, Monday, July 9, 2012, link

 

<a href="http://www.shutterstock.com/pic.mhtml?id=86955121">Finish line</a> image via Shutterstock.Finish line image via Shutterstock.

In low-inventory markets, some buyers are having a hard time finding a home to buy. There are steps you can take to improve your odds of finding a home at a time when interest rates are at record lows and affordability is high.

One approach is to broaden your search. You should be clear about what it is you want to buy. But, homebuying involves making compromises. Just make sure you don’t give in on the essentials. You need a home that will last you for the long term. Avoid listings with major defects that will be expensive or impossible to fix.

The sorts of features you should be willing to give up, if necessary, are house style, or a large yard, which can be a maintenance drain. If you’re having no luck buying in your first-choice neighborhood, check out the adjacent areas. These could be the next turn-around neighborhoods when the overall housing market improves.

You could also do an about-face and consider condos rather than single-family homes. This might have the advantage of shortening your commute to work.

Ask your agent to cull the inventory of expired, withdrawn and canceled listings that didn’t sell in the last year or two. These may not have sold because they were priced too high. If the sellers are still interested in selling, and aren’t locked into a lease, you might be able to work out a mutually acceptable price.

Be open to making improvements rather than holding out for a home that’s in move-in condition. Major fixers will probably be snapped up by investors to rehab and resell at a profit. This is a competitive market and not one for novice homebuyers.

However, if a listing isn’t receiving attention because of its dated décor, this could work if you intend to live in the property and not try to flip it for a profit. Be sure to work with an agent who has experience with cosmetic renovations, or consult with a decorator.

You’d be surprised what updated plumbing and light fixtures, new paint, floor finishes, appliances and improving the outdoor living can do to turn a dowdy listing into a comfortable abode. Just make sure you don’t tackle too much. You don’t want to overimprove for the neighborhood, and structural issues are taboo.

Don’t exhaust yourself by bidding on a house you can’t get. A Piedmont, Calif., home was recently listed for $985,000. Seventeen buyers made offers. It sold for $1.2 million. Underpriced listings are often bid up in a low-inventory market. Wait to make an offer until you find a listing that’s priced within your affordability range.

Don’t be afraid of accepting a backup offer if your bid isn’t accepted. The transaction fallout rate is pretty high in this market. Keep looking for another listing while you’re waiting to see if the first deal goes through.

All-cash offers tend to win in multiple-offer competitions. To be competitive, try to put yourself in a position to pay all cash. If you have savings you can tap and you can secure a private temporary loan from parents or borrow from a 401(k), you might be able to make a cash offer.

If your parents are providing some of the financing, ask them to write a letter that you can provide to the sellers that confirms your source of funds. This should be accompanied with documentation of the parents’ funds. You can refinance into a conventional mortgage later.

THE CLOSING: If the market where you’re looking is too hot, you can take the watch-and-wait approach. The market is always changing. When inventories increase, there will be more opportunities for buyers.

If you thought the credit sale was over, think again…

Mortgage rates fall to record lows

The average for a 30-year fixed-rate mortgage falls to 3.62% this week from 3.66% last week, Freddie Mac says. The 15-year fixed rate drops to 2.89% from 2.94%.

E. Scott Reckard, Los Angeles Times, July 6, 2012, link

Lenders were offering the 15-year fixed-rate mortgage at 2.89% this week, down from 2.94% a week ago and also a record low.

The starting interest rates for adjustable-rate mortgages also were at or near record lows this week, Freddie Mac said.

Freddie Mac said borrowers would have paid on average 0.8% of the loan amount to the lenders to obtain the 30-year loan at the record low rate and 0.7% of the amount on the 15-year loan.

Freddie Mac surveys lenders across the nation early each week. It asks about the terms they are offering on loans of as much as $417,000 to borrowers with good credit and 20% down payments for home purchases or at least that much equity in their property if they are refinancing.

Borrowers in such circumstances often can find slightly better rates if they shop around. And they also can obtain lower rates by making additional payments known as discount points to their lenders.

Mark your calendars!

Important foreclosure deadlines near

Lew Sichelman, United Feature Syndicate, July 5, 2012, link

Important homeowner deadlines nearDeadlines are looming for anyone seeking a foreclosure, for borrowers whose lenders require them to carry flood insurance and for homeowners considering a short sale. (Comstock, Getty Images / July 5, 2012)
Deadlines are looming for anyone seeking a review of their foreclosure proceeding, for borrowers whose lenders require them to carry flood insurance and for homeowners considering a short sale:

Foreclosure review. Under the terms of an enforcement action between Uncle Sam and large mortgage servicers, you still have time to ask someone to ensure that you were treated fairly if you were involved in a foreclosure.

Back in February, the Office of the Comptroller of the Currency and the Federal Reserve Board extended the deadline for the independent foreclosure review from April 30 to July 31. Now the deadline has been extended again, to Sept. 30.

The extensions provide more time to publicize the enforcement action, which requires participating servicers to retain independent consultants to identify borrowers who may have been harmed during foreclosure proceedings in 2009 or 2010. So far, the response has been disappointing.

As of this writing, just 196,000 borrowers had asked for a review. The servicers have selected 142,400 more cases for review on their own, for a total of 338,400. That number is expected to grow, says Bryan Hubbard, a spokesman for the Office of the Comptroller. But as of now, that’s just 7.5 percent of the estimated 4.5 million borrowers covered by the enforcement action.

The requirements for a review are simple: Borrowers are eligible if their loans were serviced by one of the participating lenders listed below, if the house was their principal residence, and if the loan was active in the foreclosure process between Jan. 1, 2009, and Dec. 31, 2010.

You don’t need to have lost your house to be eligible.

You also may be covered if you paid your way out of the foreclosure process by bringing your loan current, participated in a loan modification, sold the house for less than what you owed, or simply handed the keys back to your lender.

Participating servicers include America’s Servicing Co., Aurora Loan Services, BAC Home Loans Servicing, Bank of America, Beneficial, Chase, Citibank, CitiFinancial, CitiMortgage, Countrywide, EMC, EverBank/EverHome Mortgage Co., Financial Freedom, GMAC Mortgage, HFC, HSBC, IndyMac Mortgage Services, MetLife Bank, National City Mortgage, PNC Mortgage, Sovereign Bank, SunTrust Mortgage, U.S. Bank, Wachovia Mortgage, Washington Mutual, Wells Fargo and Wilshire Credit Corp.

There is no cost for a review, and you should have been contacted by now if you are eligible. If not, then start the ball rolling right away by getting in touch with your servicer. Keep accurate records of any attempt to do so and of what is said in any conversations.

Flood insurance. If you want an example of the gridlock that has gripped the legislative process, consider the National Flood Insurance Program.

Eighteen times since 2008, this vital program has been extended at the last minute by lawmakers who can’t seem to agree on how to reform it. In 2010 alone, it was allowed to expire four times because Congress couldn’t get its act together. By the Property Casualty Insurers Association’s count, coverage could not be purchased for a total of 53 days.

Now the program is set to expire again, this time on July 31.

Without flood insurance, borrowers cannot obtain federally insured mortgages or loans that qualify for purchase by Fannie Mae or Freddie Mac, the two government-controlled mortgage giants. Together, Fannie, Freddie and the Federal Housing Administration have their stamp on perhaps 90 percent of the mortgage market.

More than 5.5 million owners rely on the National Flood Insurance Program to insure their homes. It’s not just a coastal problem either. Nearly 10 percent of the houses in the Midwest are in floodplains.

The National Association of Realtors estimates that 1,300 sales are either canceled or delayed each day that coverage is not available. During the 2010 lapses, the association says, about 40,000 deals were stalled.

Last year the House passed, by a resounding 406-22 vote, a bill that would reform and reauthorize the flood-insurance program for five years. But a similar bill loaded with superfluous amendments has languished in the Senate. Now, Senate Majority Leader Harry Reid, D-Nevada, has promised to schedule floor debate on similar legislation this month.

Will it happen? We’ll have to wait, probably until the last minute, to find out.

Tax relief. The window is closing on one of the most important tax-relief provisions enacted by Congress during the housing crisis to help financially strapped homeowners.

Under a 2007 law that expires Dec. 31, taxpayers are allowed to exclude from income the amount of debt on their principal residence that is forgiven or canceled by their lenders. After that, if you participate in a short sale in which the lender allows you to sell for less than what you owe, you will be required to report the difference as income on your federal tax returns.

The other alternative is a foreclosure. Under the tax code, there is no levy on canceled debt. But the black mark a foreclosure leaves on your credit record is more devastating than a short sale, which itself is more than just a ding.

Partly because of the looming deadline, and partly because lenders realize less of a loss on short sales than on foreclosures, the number of short sales is growing. According to mortgage data collector RealtyTrac, 26 percent of the houses sold in the first quarter were short sales.

As of now, there seems to be no urgency on the part of lawmakers to extend the tax safety net. But stay tuned.

Prices are on the up and up…

Home prices up for 3rd straight month

msnbc.com staff, MSNBC.com, June 26, 2012, link

The hits keep coming for the U.S. housing market.

While the rest of the economy struggles with sluggish consumer spending and a stalled job market, data recently has been showing housing on the upswing. Prices for single-family homes rose for the third consecutive month, a widely-watched survey showed Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7 percent on a seasonally adjusted basis, topping economists’ expectations of 0.4 percent. On a non-seasonally adjusted basis, prices fared even better, rising 1.3 percent.

Just three out of the 20 cities in the index saw declines in April on a seasonally adjusted basis.

“It has been a long time since we enjoyed such broadbased gains,” David Blitzer, chairman of the index committee at Standard & Poor’s, said in a statement.

“While one month does not make a trend, particularly during seasonally strong buying months, the combination of rising positive monthly index levels and improving annual returns is a good sign.”

Compared to a year ago, prices were down 1.9 percent, beating expectations for a decline of 2.5 percent, and an improvement from the 2.6 percent annual decline seen in March.

 

203(K) to the rescue (of your investment)!

A fixer-upper purchase strategy

Consider future value financing

Jack Guttentag, Inman News, Monday, June 18, 2012, link

 

<a href="http://www.shutterstock.com/pic.mhtml?id=11717578" target=blank>Fixer-upper</a> image via Shutterstock.Fixer-upper image via Shutterstock.

You are attracted to a house that is perfectly located but it just came out of foreclosure and needs a lot of work to make it habitable. To swing the deal, you need to finance both the purchase and the required repairs. How do you do that?

I recently wrote an article dealing with the first part of this problem: financing the purchase of a house in such poor condition that it might prove unacceptable to lenders as collateral. A strategy for minimizing the risk of getting turned down for a purchase mortgage is described in Purchase a House in Poor Condition? on my website.

But getting the mortgage required to purchase a house is only one of the challenges facing the buyer when the house needs work. The second challenge is finding a way to finance the needed repairs. The standard purchase mortgage doesn’t do that because it is based on the lower of sale price or the appraised value of the home in its current condition.

An obvious solution is a second mortgage, but they are not available in the current market except where the first mortgage is too small to do the buyer any good. Second mortgage lenders are still smarting from the steep losses they suffered on second mortgages written during the go-go years leading up to the financial crisis. An unsecured personal loan would be extremely costly if it were available at all.

The solution to this problem is a mortgage on which the loan amount is based on the value of the property after needed repairs have been made. Then one mortgage would cover both a purchase and the repairs needed to make the house habitable. This is future value financing, and it is available through a special FHA program termed “203(k).” This program is available to both home purchasers and existing homeowners who want to rehabilitate their properties in conjunction with a refinance.

The Section 203(k) program is complicated because FHA as the risk bearer has to make sure that the future value of the property upon which the mortgage amount is based actually materializes. To protect itself, FHA requires an appraisal of the property’s value after completion of the planned rehabilitation, in addition to an appraisal of the property “as is.”

Further, before the mortgage is insured, the lender must create a rehabilitation escrow account that contains the money allocated for expenses. FHA has procedures in place to assure that draws against this account are properly disbursed and accounted for, and that the rehabilitation work is completed.

Lenders are encouraged to participate in 203(k)s by the insurance against loss provided by FHA. However, 203(k)s are more complicated and involve more paperwork than the mainstream FHA program, and participating lenders use specially trained staff. As a result, many lenders don’t offer 203(k)s. Lenders that do offer them charge a rate above that on standard FHAs — figure on paying about 0.25 percent more. HUD provides a list of Section 203(k) lenders; see FHA 203(k) lenders. I have started a project to certify Section 203(k) lenders, but it is not yet ready.

The borrower looking for future value financing must deal with multiple players. In a typical case, the real estate agent who shows a potential buyer a house in need of work will recommend a lender who will preapprove the borrower for a 203(k). The preapproval is based on estimates of sale price and repair costs. The sale price estimate is provided by an appraiser selected by the lender who values the property on both an as-is and after-repairs basis. The repair cost is provided by a licensed general contractor who is usually recommended by the lender.

In addition, if the repair costs are more than $35,000, FHA requires the borrower to retain a HUD-approved consultant to help manage the process. Among other things, the consultant prepares the required architectural exhibits, and monitors the improvements at each stage. HUD provides a list of consultants (see FHA 203(k) consultants) and sets their fee schedule, but does not warrant their performance. Lenders will usually recommend consultants that they have worked with, and this is one case where a lender referral is likely to serve the borrower well. The consultant’s fee can be included in the mortgage.

I expect to see increasing use of 203(k) in the next few years. Millions of homes emerging from the foreclosure process will enter the market, and many of them have been neglected and need work.

Relo done right in a Seller’s Market…

Overcome mortgage obstacles when relocating

REThink Real Estate

Tara-Nicholle Nelson, Inman News, Thursday, June 14, 2012, link

 

<a href="http://www.shutterstock.com/pic.mhtml?id=78076867" target=blank>Relocating homebuyers</a> image via Shutterstock.Relocating homebuyers image via Shutterstock.

Q: My husband and I are planning to relocate up north and change jobs and our environment. Should we get preapproved before changing places of employment, or would it be all right to take another job as long as it is the same type of work? What steps would you advise us to take?

Relocating can be a little tricky, from a mortgage perspective. It’s always advisable to get preapproved for a mortgage before you make a major move like a job change, but lenders are pretty good about scrutinizing all the details these days.

If you get approved for a home loan while you live and work in one town, then try to use that loan to purchase a home more than 25 miles away from your job, chances are good that your lender will require some sort of note from your existing job documenting that they understand you are moving and will allow you to have some sort of long-distance working arrangement, or will want to see proof of a new job in your new town.

To your point, though, by “new” job, lenders are looking for you to have a job in the same field as you’re currently working in. They don’t want you experimenting with entirely new lines of work on their dime, in case things don’t work out and you find yourself with the new mortgage but without any job at all.

Keeping those things in mind, I recommend you take the following course of action:

1. Find your local real estate and mortgage pros in your new home town. Get referrals from folks you know in your soon-to-be neck of the woods and ask questions of agents on the active Q-and-A pages of the big national real estate listing websites to develop a short list of agents to meet with.

Ask these agents to refer you to local mortgage professionals. Although most lenders are national, local mortgage brokers and bankers know what local financing challenges may exist; they know local appraisers; and they also know about opportunities like city and state down payment assistance programs.

Contact them, make appointments, then take a day trip to your intended hometown and meet with these folks face to face to find a great personality fit. When you feel like you’ve created a good connection with one real estate pro in particular, you might even ask him to give you a tour of a number of homes that are currently on the market, so you can get a real-time reality check on what price range of homes you’ll be aiming for.

2. Explain every part of your financial and job situation to both of your pros. Well before you quit your job, perhaps even while you’re meeting with these agents and mortgage pros, explain your financial, job and timing situation to them. Don’t miss out on the expert knowledge these professionals have, as well as their up-to-date experience of what lenders will want and will require from you. Talk with them about what specific paperwork you’ll need to produce in order to document that your next job is in the same line of work as this one. And keep all of these things in mind as you execute your relocation, your home purchase and your job hunt.

3. Work with your chosen real estate and mortgage pro to put an intentionally sequenced action plan in place. With so many moving parts in the air, don’t be surprised if some advise you to get a job, move and then rent a place on a month-to-month lease while you house hunt. Others may tell you to try to time it all perfectly, house and job hunting at the same time.

Personally, I’m inclined to eliminate any intense time pressures from the house-hunt experience whenever possible to minimize panic-based (i.e., bad) decision-making, so I would encourage you not to create a situation in which you have to close a home purchase by a certain date in order to have a place to live when you start your new job or have similar pressures in that vein.