Colorado Real Estate

Need for Reform - Fannie Mae and Freddie Mac

2010-05-04T17:19:00.003-06:00

Consider this Op-Ed in the Wall Street Journal from the chairman and CEO of M&T Bank Corporation - Robert G. Wilmers. M&T Bank Corporation is an independent commercial bank holding company.

This op-ed was adapted from his speech at the company's annual shareholders meeting last month.

What about Fan and Fred Reform?

Interactive Graph - The Fed's $1.25 billion MBS purchase

2010-04-16T02:48:00.003-06:00

Very Interesting Interactive Graph

The Fed's balance sheet showing what kind of debt it holds. Red represents US Treasury Securities. The chart shows how - starting in about March of 2009 and finishing in about March of 2010 - the government purchased more than $1 trillion (I believe the final number was $1.25 trillion) in Mortgage Backed Securities, MBS.

Click Here - WSJ Blog Article - and interactive graph

So the government bought up a bunch of toxic mortgages, to save the financial system - and they largely succeeded.

This does not mean that $1.25 trillion dollars will be flushed down the drain. Even if every one of the loans in the MBS portfolios goes bad, the foreclosure process allows the first mortgage holders to recover their investment. Banks (or now the Fed) that hold the first mortgages recover the money by either:
1) Selling the property through the foreclosure process at a county Trustee auction, or
2) Becoming the owner of the property themselves and selling them on real estate market.

In the first case, they get all their money. In the second case, they only get a fraction (maybe 50%, on average) since the 1st is worth less than the market value.

In many cases, there are junior loans on the property as well (2nd, 3rd trust deeds, etc). The junior loan holders usually get NOTHING in foreclosures or short sales. They may still hold the note against the borrower (who has now lost his or her home), but it is very difficult to collect from the borrower by any kind of legal judgment.

Litigation Victory for US Families - Chinese Drywall Case

2010-04-09T15:06:00.002-06:00

Seven Virginia families won a $2.6 million award in New Orleans - reported by the Wall Street Journal on Friday, 4/9/2010.

The families sued Taishan Gypsum Company Ltd., a Chinese State-Owned drywall manufacturer. Taisan did NOT appear in court to defend itself.

See the WSJ article for more details.

US Regulators - Remove Defective Chinese Drywall

2010-04-03T12:19:00.002-06:00

Most of the drywall complaints come from Florida, but the defective drywall made its way to many other homes throughout the US.

IF YOU HAVE THE STUFF, GET RID OF IT!

The defective drywall from China emits sulfide fumes. Homeowners have complained of the stink of rotten eggs, corrosion of appliances, and health problems such as bloody noses, headaches, and respiratory issues.

See this Wall Street Journal article from 4/3/2010 for more details.

Metro Denver Job Growth Study

2010-03-24T20:07:00.006-06:00

the Metro Denver Economic Development Corporation (Metro Denver EDC) released its fifth annual Industry Cluster Study, a competitive analysis of industries leading the region's future economic growth.

The industries in the cluster are: Aerospace, Aviation, Bioscience, Broadcasting and Telecommunications, Energy, Financial Services, Information Technology.

Link to Web Article

New FHA Rules - a price worth paying

2010-03-11T16:03:00.002-07:00

The FHA announced a tightening of its mortgage underwriting rules in late January of 2010. The policy changes are designed to shore up the FHA's capital reserves and help the agency do a better job of managing risk.

Some of the changes:
- mortgage insurance premiums going up from 1.75% to 2.25%
- increases minimum down-payment to 10% for low credit scores (580 or less)
- reduces permissible seller concessions from 6% down to 3%

First time home buyers may be affected (those who have not yet established their credit history, for example).

For the entire article, see the following link from REALTOR.org
http://www.realtor.org/rmonews_and_commentary/articles/2010/1003_fharules

What do HUD and FHA do?

2010-03-08T12:43:00.003-07:00

US Department of Housing and Urban Development - HUD

Mission Statement:
HUD's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships--particularly with faith-based and community organizations--that leverage resources and improve HUD's ability to be effective on the community level.

http://portal.hud.gov/portal/page/portal/HUD/about/mission

FHA - Federal Housing Administration

The Federal Housing Administration, generally known as "FHA", is the largest government insurer of mortgages in the world. A part of the United States Department of Housing and Urban Development (HUD), FHA provides mortgage insurance on single-family, multifamily, manufactured homes and hospital loans made by FHA-approved lenders throughout the United States and its territories. While borrowers must meet certain requirements established by FHA to qualify for the insurance, lenders bear less risk because FHA will pay the lender if a homeowner defaults on his or her loan. FHA has insured over 37 million home mortgages and 47,205 multifamily project mortgages since 1934. Currently, FHA has 5.2 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio. Clearly, FHA provides a huge economic boost to the country in the form of home and community development, particularly in today's challenging financial climate.

Fannie Mae and Freddie Mac

2010-03-06T00:05:00.003-07:00

Who are Fannie Mae and Freddie Mac? Sunday July 13, 2008

Fannie Mae -- the Federal National Mortgage Association -- and Freddie Mac -- the Federal Home Loan Mortgage Corporation, while privately owned by shareholders are congressionally-authorized, "government sponsored enterprises" (GSEs) regulated by the U.S. Department of Housing and Urban Development (HUD).

As the largest sources of home financing in the U.S., Fannie Mae and Freddie Mac, as regulated by HUD, are charged by Congress with "providing stability and liquidity in the secondary mortgage market, providing secondary market assistance relating to mortgages for low- and moderate-income families, and promoting access to mortgage credit throughout the Nation, including underserved areas." Both Fannie Mae and Freddie Mac fund residential mortgages by purchasing loans directly from lenders, such as mortgage bankers and depository institutions, and holding these loans in portfolio or by issuing mortgage-backed securities that are sold to a wide variety of investors in the capital markets.

While Fannie Mae and Freddie Mac are privately owned corporations, their status as congressionally authorized, government sponsored enterprises, empowers them with certain privileges including being exempt from paying state and local taxes (except property taxes) and enjoying access to a $2.25 billion standing line of credit from the U.S. Treasury Department. The Treasury Department, at the urging of the Federal Reserve may now temporarily increase this line of credit, in order to help Fannie Mae and Freddie Mac through their current economic problems.

The other two government sponsored enterprises are the Institutions of the Farm Credit System, which include the Agricultural Credit Bank and Farm Credit Banks, and the Federal Agricultural Mortgage Corporation (Farmer Mac). Both of these GSEs provide agricultural real estate interests with the essentially the same services Fannie Mae and Freddie Mac provide to the home mortgage industry.

On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA. The action is "one of the most sweeping government interventions in private financial markets in decades". As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of the U.S.'s $12 trillion mortgage market.

Sources:
http://usgovinfo.about.com/b/2008/07/13/who-are-fannie-may-and-freddie-mac.htm
http://en.wikipedia.org/wiki/Fannie_Mae

Short Sale Pitfalls

2008-02-08T16:38:00.000-07:00

Are you late on your payments? Is your ARM going to go up - soon?

PLEASE READ TO THE END FOR A RAY OF HOPE.

One way to search for relief is to try to do a "Short Sale" - that is, to put your home on the market and negotiate with your lender to accept less than the mortgage payoff so that you can get out of the loan, and the bank can avoid taking back your home through the foreclosure process.

This seems to be something that both sides could easily agree to do. THEN WHY ARE SO MANY SHORT SALES UNSUCCESSFUL?

There is no simple answer, but here are a number of reasons for the relatively low success rate on short sales.

1) The whole process is complex, consisting of too many decisions makers and to many steps along the way.

2) There are many entities that must approve the process. A no from any one stops you dead in your tracks.

3) There can be disagreement about the current market value.

4) The loss mitigation department can be UNRESPONSIVE. (Potential buyers will not wait too long, they tend to move on).

5) It is NOT always clear who to contact in the lender's loss mitigation department.

6) If there are subordinate lenders (2nd, 3rd, etc.), they may object to the terms.

7) What documents does the lender require? It is not always clear.

8) Intervening bankruptcy can shut down the short sale.

9) Many real estate agents do not know how to effectively conduct the process.

HERE IS YOUR RAY OF HOPE: SOME SHORT SALES CAN BE COMPLETED!

I cannot guarantee success. However, if you want investigate your options, please contact me, and we can talk about your situation.

I have an investor with an efficient process and the financial resources to improve the chances of success. Not all distressed property owners will qualify, but if you want more information, AND YOU LIVE IN THE GREATER DENVER AREA, I would be happy to discuss it with you.

You can go to my web site and contact me from there.

http://www.lomheim.com/

A Potential Investor's Questions

2007-12-04T16:09:00.000-07:00

I spoke to a potential investor recently, and he had a few general questions about purchasing an investment property. In case anyone else may have similar questions, I have posted his questions and my responses below.

If you have any of your own questions, feel free to contribute them, and I will do my best to post the answers promptly.

1) Is there a rule of thumb that tells what percentage of your gross income you should not exceed in order to qualify for a loan as an investor?

Answer - The sum total of all your expenses (mortgage, food, clothing, insurance, etc.) should not exceed 50% of your gross income.

2) Given that I have a certain amount of equity in my primary residence, is there a rule of thumb about how much I may be able to use as leverage for the purchase of an income property?

Answer - No, there is no rule of thumb - the current situation in the mortgage industry is complex and driven by the large number of foreclosures in real estate market. Although it is unlikely for an investor to qualify for a 100% loan, if you can prove your income (this is called a "full doc" loan in mortgage industry lingo), and you have a very good FICO credit score, you may be able to finance 90% of the purchase price.

3) If I choose to purchase a new property and keep my existing home, what is the best way to proceed?

Answer - You must evaluate your position carefully and proceed based on your own financial requirements and objectives; there is no single solution that fits each investor's unique requirements. However, one option would be for you to lease your existing home, thereby converting it into an investment property. Once you have a signed lease, (and you have equity, a good credit score, etc.,) then you should be able to obtain a loan to purchase the new primary residence.

NOTE - When you convert a property from a primary residence to an income property, in addition to reporting gain or loss from the rental each year, you should also consider CAPITAL GAINS tax implications for the future. When you eventually sell an income property, you must pay the capital gains tax if it is sold at a profit - unless you do a 1031 exchange and "trade" up to a more expensive income property.

Bid on a Foreclosure? Hmmmm. Maybe not.

2007-11-29T07:36:00.000-07:00

With all the attention in the media about the problems in the mortgage industry, is it time to invest in a Foreclosure?

In a word - no.

Bidding on a home in the process of foreclosure can be a risky financial gamble.

Why?

1) Foreclosure is a long process - it takes six months (at least)

2) The total debt (that you inherit if you buy) is often greater than market value

3) Home owners who lose their homes often do real damage before they leave

So - what you may want to consider instead is REO property!

How does foreclosure work?

2007-11-15T14:14:00.000-07:00

When you borrow money from a lender to purchase a home, the Public Trustee in the County where the home exists creates a "Deed of Trust". This is done to protect the lender - if the borrower defaults on a loan that is secured by a deed of trust, an attorney for the lender will foreclose on the defaulted deed of trust.

The process begins when the lender's attorney files the Notice of Election and Demand for foreclosure and the accompanying documents with the public trustee. Within 10 days, these documents must be recorded to initiate the process.

1) The timeline begins at this point, when the notice of default is recorded.
2) Within 10 business days, a notice of default is published and mailed to the appropriate parties.
3) Within 3 months, the sale date is set.
4) Property is sold to the highest bidder at public auction on the sale date.

The borrower has the right to cure, or bring all payments up to date. In most cases, the borrower will not be able to do this and the foreclosure process continues.

Most foreclosures have a list of debtors waiting for payment, and they each have a place in line on the list. By the time a home has gone to foreclosure, it usually means that both first mortgage and second mortgage holders exist, and the total debt on the property is more than the value of the home.

Since the borrowers are almost always "upside down" - they owe more than the home is worth - most foreclosures do not end in a sale. In this case, the more junior lien holders lose out, and the first mortgage holder becomes the owner. Then the property goes back on the market to be sold as "Real Estate Owned" (by the bank).

REO properties are bank owned properties. They are placed on the market and sold in the normal real estate process.

For information on REO properties available in the Denver area, visit my Web Site: WWW.LOMHEIM.COM