For Buyers on the Fence

Breaking Real Estate News

Dramatic Changes For Fannie and Freddie | Required Down Payments Increasing

Bank of America reacts to the looming changes for Fannie and Freddie.

First the ‘bad news’: Everything about obtaining a mortgage loan is about to change. Vastly fewer people will have the financial ability to obtain a loan.

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Its a simply fact that we are moving away from a homeownership society. These drastic changes will result in fewer people being able to buy…and of course, fewer home sales. Prices will have to fall…more people will become underwater. More Short Sales…and REOs. (If anyone can argue the case for this downward cycle not continuing please feel free to speak up)

Longer term the private sector will create mortgage products to fill the gap. When will this happen?, not soon. The banks will no longer have to compete with the government (Fannie and Freddie) for mortgages. Hypothetically, competition between the various major banks for mortgage loans will produce more mortgage products…or so the argument goes.

The new normal means significant money down. Be clear, just because Fannie and Freddie will ‘allow’ down payments of 10% doesn’t mean the actual lenders will loan with just 10% down. For the most part, 15-20% will be the new normal for down payments. That’s for all loans. Jumbo mortgages are where the real problems will be.

Fannie and Freddie is lowering the maximum loan limit in the most expensive areas of the country from $729,750 to $625,500. For reference sake, only a few years ago the maximum loan amount was less than $450,000 in most of the US. So, this is a slow…painful, return to normal. The required down payments for Jumbo will be 30%…at least.

For ALL mortgages products the actual cost of obtaining the loan is going to increase substantially. Expect most buyers will need to have as much as 3% just in loan costs… (Not including down payments).

Will this have a negative effect on home prices? You bet.

Now the ‘good news‘. I will fully admit..this is a stretch of the definition of good news. These looming changes could result in a surge in real estate activity. How? Motivate your buyers. Share this info with all your on the fence buyers…they need to know that they need to buy and buy soon or they may simply not qualify to be homeowners. Motivate your home sellers. Home sellers (especially owners of homes over the qualifying loan limits) must price their homes to sell ASAP. In this market, with these looming changes..it DOES NOT pay to wait.

Here is BoAs reaction

The White House outlined last Friday its plans to begin shrinking their support of both of the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. While the process could take several years, the effects will be felt in coming months.

The government took over both GSEs in September of 2008 when the financial crisis took place. Both agencies have been in receivership which has cost tax payers an estimated $134 billion so far. If the housing market was not so fragile the timeframes would be much quicker to dissolve the two agencies.

Last year, Fannie, Freddie and FHA guaranteed 95% of all home loans. The role these government agencies have played has been crucial to the lender markets over the last 40 years. There would not have been a housing market the last two years had these agencies been dissolved as is the plan going forward. The goal is to have the private sector originate mortgages and securitize them without any government backing.

The proposed plan by the administration is to allow the maximum loan limits to fall to $625,500 from $729,750 beginning October 1st, 2011. The plan is to increase minimum down payments to 10% on all loans eligible for purchase by Fannie and Freddie. In addition, insurance premiums charged on new loans backed by the Federal Housing Administration (FHA) will also go up.

Information provided by Kevin Budde, Bank of America

Foreclosure vs Short Sale and What it Means to You

Foreclosure vs. Short Sale and What it Means to You

Facing the prospect of foreclosure or short sale on your home is not easy. So many people are struggling with day-to-day expenses, job loss, health issues and, while it's difficult, you may have to consider how to decrease your debt. If you determine that you must sell your home, or risk foreclosure, we are here to help.

Here is a brief explanation of each process:

Foreclosure - In most cases, a lender obtains a security interest from the borrower who pledges the real estate to secure the loan. When the borrower fails to comply with the terms of the mortgage, the lender has the right to foreclose. Foreclosure is the legal process by which a lender obtains a court ordered selling, or repossessing, of real estate. Furthermore, if the promissory note was made with a recourse clause, if the sale does not bring enough to pay the existing balance of principal and fees, the lender can file a claim for a deficiency judgment.

• Typically, a borrower whose home goes into foreclosure will not qualify for an FHA home loan for 5 years.
• On any future mortgage application, you must answer "yes" to the question "Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?"
• Some borrower’s credit will be impacted more than others for the same payment problem. Your credit score is likely to decrease anywhere between 100-300 points.
• Employers often run credit checks on potential employees
• Depending on the loan type, banks can go after more money from the homeowner if the sale price doesn't cover the mortgage amount due which is known as a ‘deficiency judgment'.
• A Foreclosure can show up on your credit history for 7-10 years.

Short Sale - is a sale of real estate in which the proceeds fall short of the balance owed on the loan. When the borrower can't pay the mortgage loan on their property, the lender may decide that selling the property at a loss is better than proceeding with a foreclosure. This agreement doesn't necessarily release the borrower from the obligation to pay the remaining balance of the loan, which is known as a deficiency, but many times it is possible to negotiate no promissory note or deficiency judgment.

• Typically, after 2 years, a homeowner whose home is sold in a short sale will qualify for an FHA loan.
• There is no question on a mortgage application regarding whether you've ever done a short sale.
• Late payments will show up on your credit report but short sales are usually not reported to the credit bureau.
• Ask your lender whether they will report the short sale as "paid less on a settled account" vs. "settled/paid in full" as this could affect your credit score.
• Usually, it will take approximately 18 months of consistent, on-time credit payments to restore your credit score.
• In conclusion, a Short Sale is far less damaging than a foreclosure. The lender will often allow a short sale if they feel the financial loss is lower than that of a foreclosure proceeding. As a borrower, you can avoid having a foreclosure on your credit report and the short sale process is typically faster and less expensive.

Please contact Tonya Garduno, or Natosha Estes @ (951)285-5587, or (909)263-2951, or Email: tgarduno@sbcglobal.net for a FREE CONFIDENTIAL CONSULTAITON.

The Truth About FHA Loans

Myth #1: Anyone can qualify for an FHA loan.

Truth: Not everyone will qualify. Generally speaking, it’s easier to qualify for an FHA home loan than a conventional mortgage loan. But that doesn’t mean they’re available to everyone. In fact, the Department of Housing and Urban Development (HUD) has recently tightened up their lending standards for FHA loans. One of the changes affects people with low credit scores. If your credit score is below 580, you’ll have to make a larger down payment. If your score is way below 580, you probably won’t get approved for the loan. With good credit, you’ll still have to make a down payment of at least 3.5% to get approved. You’ll also need to document your income and expenses, to show that you can afford the monthly payments.

Myth #2: You can get an FHA loan with no money down.

Truth: In the current economy, you can’t get any kind of loan without making a down payment of some kind. The days of “easy credit” and “no money down” disappeared when the housing bubble burst. The minimum down payment for an FHA loan is currently 3.5%. And, as mentioned earlier, you’ll need a credit score of 580 or higher to qualify for the 3.5% down payment. If your score falls below that cutoff point, you’ll have to put 10% down.

Myth #3: FHA loans are safer, because the government will bail you out if you fall behind.

Truth: Wishful thinking. If you fall behind on an FHA home loan, you can be foreclosed upon — the same as any other type of loan. Remember, the FHA is not the one giving you the money. You must apply for one of these mortgages through an FHA approved lender. The government just insures the lender against losses resulting from borrower default. So the lender can still foreclose on you, if you fail to make your payments. As an FHA borrower, you might have more workout solutions and modification options available, but that’s about it. The FHA will not “bail you out.” So make sure you buy an affordable house!

Author's Note: The original version of this article was written by Brandon Cornett. Brandon is a consumer advocate and publisher of the Home Buying Institute. Visit the author's website at www.HomeBuyingInstitute.com to learn more.

Senate OKs New Tax Credit Closing Deadline

Senate OKs New Tax Credit Closing Deadline

Backers of amendment cite backlog of 180K homebuyers

By Inman News, Wednesday June 16, 2010

The Senate has amended a bill to give homebuyers who were under contract on a home purchase by April 30 an additional three months to close the deal and claim the federal homebuyer tax credit.

Extending the deadline for closing from June 30 to September 30 would allow lenders more time to clear a backlog of 180,000 homebuyers nationwide, said amendment sponsor Sen. Harry Reid, D-Nev.

The amendment to HR 4213, the "American Jobs and Closing Tax Loopholes Act of 2010" -- which primarily extends unemployment insurance benefits--was approved in a 60-37 vote Wednesday. The vote was mostly along party lines, with only four Republicans in favor and on Democrat opposed.

"While I am disappointed that more Republicans did not support this common-sense measure to strengthen the economy and reduce the deficit, I am committed to ensuring that more Nevadans and Americans can become homeowners and that this amendment becomes law," Reid said in a statement.

The House passed an earlier version of the bill in December, and the Senate approved its own version in March. The Senate is currently working on resolving differences between the two bills.

The National Association of Realtors supports the amendment, saying Realtors have reported that as many as one-third of qualified applicants have been told by lenders that their loans will not close before June 30 because of the sheer volume of loan applications in the pipeline.

The amendment does not extend the deadline for homebuyers to qualify for the tax credit, NAR said in urging lawmakers to approve it, but simply extends the deadline for closing transactions already in contract.

"Since these applications were already in the pipeline and figured into the program's cost, the extension of the closing deadline should not incur any further government costs," NAR President Vicki Cox Golder said in a statement.

There has been some speculation that some homebuyers will attempt to submit fraudulent claims for the tax credit by backdating documents showing they were under contract by April 30, and that extending the deadline for closing would expose the government to more fraudulent claims.

GREAT TIME FOR FIRST TIME BUYERS

YOU MAY QUALIFY FOR...

$8,000 in FREE MONEY

BUT YOU'VE GOT TO MOVE QUICKLY!

If you're a "First Time Home Buyer," which means you haven"t owned a primary residence for the past three years, you can qualify for an $8,000 tax credit for the purchase of a primary residence between January 1, 2009 and December 1, 2009. You get the $8,000. even if you owe no taxes! And, as long as you keep the home for three years or more, you never have to pay it back!

And...You Could Get the Credit This Year! Call Me for Details!

Don't Miss This Opportunity!

Right Now is the Best Time Ever to Buy a Home:

• Prices are a Their Lowest Point...Down Over 50%
• Interest Rates are at Historic Lows.
• There are Many Federally Supported Loan Options Available.
• Bank Owned Properties and Short Sales Offer Great Deals!
• And the U.S. Treasury Will Give You $8,000. to Do It!

People Who Buy Now Will Benefit in the Years to Come!

Contact Me to Learn All the Details...

Breaking News... There's Also a $10,000 State Credit!

I am your BANK REPO and SHORT SALE Specialist! I have daily updated information! Call or email me

Seven Most Common Options When Selling A Home

Normal Sale

• Equity is Positive (Note: Liens & Penalties divide by .92=Rough Estimated Break-Even Selling Price)
• Sales Price minus (Loans, Liens, Prepayment Penalties and Selling Expenses)=Net Positive Cash to Seller

Wait (Increase Equity)

• Equity is Not Sufficient For Seller To Sell in Current Market
• Seller Stays in Home, Continues Making Payments and Waits Until Sales Prices/Values Improve
• Equity Will Improve but Only as Real Estate Market Improves
• Seller can List and Sell in Future once Property Appreciates and Seller has Sufficient Equity
• Seller Risks that Interest Rates and Prices Also Go Up for the Property that Seller Intends to Purchase

Negative Equity (Seller Brings Cash)

• Equity is Negative (Liens and Selling Expenses are Greater than Sale Price); But Seller is Solvent
• Sales Price minus (All Liens and Selling Expenses)=Negative Amount, Potential Loss by Seller's Bank(s)
• Seller Has Cash to Make Up the Difference: Brings Cash to Escrow to Pay off the Negative Amount
• Seller's Bank(s) Approval Not Needed Because There is No Actual Loss to Bank at Closing
• No Damage to Seller's Credit

Short Sale (Seller Signs Personal Note)

• Equity is Negative (Liens and Selling Expenses are Greater that Sale Price); But Seller is Solvent
• Sales Price minus (All Liens and Selling Expenses)= Negative Amount, Potential Loss by Seller's Bank(s)
• Seller Doesn't Have Cash to Make up Negative Amount to Bank (But Seller Also is Not "Wiped Out")
• Seller Negotiates and Signs Unsecured Note for Loss Amount with Bank, if Bank Agrees, During Escrow
• Bank(s) Might Approve Because of No Actual Loss, But Generally Only as Last Resort to Foreclosure
• Property Sells, Closed Escrow: Seller Makes Payments to Bank until Unsecured Note is Paid Off
• Seller Gets No Money at Closing
• Seller's Credit Rating Might be Damaged, Likely Not as Bad as with a True Short Sale or Foreclosure

Short Sale (No Seller Resources Available)

• Equity is Negative (Liens and Selling Expenses are greater than Sale Price); Seller is Not Solvent
• Sales Price minus (All Liens and Selling Expenses)= Negative Amount, Will be Loss by Seller's Bank(s)
• Seller Accepts and Offer Subject To Seller's Bank Agreeing to Accept Less than Full Payoff
• Bank Might Forgive the Net Loss if Seller Qualifies (Foreclosure Appears Inevitable to Seller's Bank)
• Bank Hopefully Agrees-Generally Only if Foreclosure Appears Inevitable (Seller is "Wiped Out')
• Seller Gets No Money at Closing
• Seller's Credit Rating is Damaged (Sometimes not as bad as with Foreclosure; Seller: Consult With CPA)

Bankruptcy

• Seller Is Not Solvent; Seller Consults with a Bankruptcy Attorney to see if Seller Qualifies for Bankruptcy
• Seller Might Be Allowed to Remain in Property Longer than with Foreclosure (Seller; Consult Attorney)
• Seller Might Still be Allowed by Bankruptcy Court to Sell the House (Seller; Consult Attorney)
• Seller's Credit Rating is Damaged (Sometimes not as bad as with Foreclosure; Seller; Consult With CPA)

Foreclosure ("Walk Away")

• Seller Stops Making Payments
• Bank Eventually Forecloses (NOD filed, then Notice of Sale posted; Home Sold by Bank, or Taken Over)
• Foreclosure Process is Public Record
• Very Major Credit Rating Damage for Seller; Usually Remains on Sellers Credit Report For Seven Years

THIS POST IS FRO INFORMATION PURPOSES ONLY. ALWAYS CONSULT A TAX ADVISOR AND/OR ATTORNEY ABOUT POTENTIAL RAMIFICATIONS BEFORE SELLING YOUR HOME IN A DISTRESS SITUATION.