Fannie Mae and Adjustable Mortgages in the News
May 4, 2010 By
April 30, 2010 – Friday- was not a good trading day. The government brought criminal charges against Goldman on Thursday and every stock was beaten down due to their economic connection with one of the formerly strongest investment banking firms in the world. Did not matter. Banking, investment banking, manufacturing, real estate– all down.
Goldman, a household investment banking giant, had a $240/share stock price in Dec 2008 when Lehman and Bear Stearns started the downslide in the market. Now, at $145/share, the company has lost billions of value for their stockholders and clients. What makes it worse is that their top executives told Congress that they are not responsible for their clients’ decisions.
So, amidst this telltale story of Wall Street greed, you may have missed the small press release that Fannie Mae sent out.
Basically, Fannie Mae said it will tighten lending standards on adjustable-rate mortgages and “interest-only” loans that helped fuel the housing bubble and have led to a disproportionate share of losses for the mortgage-finance giant.
The changes, which will take effect in September, will require lenders to qualify borrowers based on whether or not they can afford potentially higher payments once adjustable-rate loans reset, and will require much more stringent criteria for interest-only borrowers.
During the housing boom, borrowers increasingly used adjustable-rate mortgages with low initial rates to buy bigger homes and banked on ever-rising values to refinance before payments rose higher. When prices stopped rising, more borrowers weren’t able to sell or refinance to avoid higher payments. That sent defaults soaring.
Fannie said it will require borrowers to have credit scores of at least 720 and 30% equity. Borrowers must also have at least two years worth of cash reserves remaining after closing.
For adjustable-rate mortgages that reset within their first five years, lenders will have to qualify borrowers under higher payment levels, using the greater of either the current interest rate plus two percentage points, or the current interest rate plus the extra margin charged by the lender.
If you have the money to buy, just hope that the markets remain volatile so that you can find underpriced properties worth purchasing! Good news for investors and buyers.
I have just been appointed to join ExcellenREO
March 17, 2010 By
I have been working for TitaniumInc.com for two years assisting home owners having difficulty paying their mortgages. My title is Home Retention Consultant. Titanium Solutions is a wonderful company. Basically, different banks / services contact Titanium who in turn send one of their Brokers like me out to the Borrower’s Home. The goal is to make contact with the borrower and have them speak directly with the bank in my presence, OR if they are trying to do a loan modification, my assignment may be to obtain the documents and have them notarized, then fedex to the Servicer.
Titanium has a sister company, called Excellen REO. This company has hired 1100 real estate agents and broker across the country – and I am one of them – to list their assets, that is, properties. These are bank owned properties, otherwise known as REO (real estate owned). I will be posting more information on this web site in the near future. I do not expect any listings until possibly May, 2010. However, I will keep you posted.
What is a Short Sale?
August 15, 2009 By
Simply put, the property is legally owned by a person or corporation and is often occupied by an owner or tenant or it could be vacant. However, the owner owes more on the property than what it is worth, therefore the bank or lender needs to approve the sale since the lender stands to lose money.
Paperwork / Rules for Offer Submission: A standard purchase and sale agreement is used along with an addendum acknowledging the fact that this is a short-sale transaction.
The asking price can be whatever the homeowner chooses since they still own the property. The seller might be pricing it low to encourage multiple offers, might have it high to try to recoup as much money as possible or it might be priced correctly. In most cases the lender has not approved a sale at the list price so a Buyer doesn’t know if his offer even at list price will be accepted. The buyer should perform their own market analysis and make an offer close to that. Submission of the market analysis to the listing broker at the time of offer may also be a good idea.
While it might be nice to have repairs made, the seller certainly doesn’t have the resources to make them and the lender is very unlikely to do so since they don’t own the property. So an “as-is” sale is the best and most likely to be successful. This makes trying to buy a short-sale property that needs repairs using conventional or FHA financing challenging at best and an exercise in futility at worst. This also contributes to the low success rate of completing a short-sale transaction.
Buyer should give a check to escrow after the offer is accepted. A Buyer can be flexible with this unlike a Bank REO situation. The Buyer should also supply proof of funds for down payment and pre-approval from the lender for any new loan to make your offer stronger.
Closing can occur within 30 days but the 30 day clock will not start until the lender gives their approval – see below.
What is the time frame in this scenario? Initially this type of offer is handled like it would in a non-short-sale situation. The listing broker will present it to the seller but once they approve it, it will be forwarded on to the lender for their approval. At that point the listing broker has no control over the process and is in a wait and see mode like the Buyer.
This approval process may take one week or it may take up to three months. One thing to keep in mind is that while all parties are waiting for an approval of the offer another department of the lender/bank is working on the foreclosure and may actually foreclose on the property with offers in for approval.
If that happens, the deal is dead and the listing terminated as the former seller is no longer the owner of the property and does not have authority to sell. If that happens and the Buyer is still interested in purchasing the property work with your broker to follow-up on the property as it will come back to market with a different listing broker and usually a different listing price.
In addition to brokers, a short-sale negotiator may be involved who attempts to negotiate with lenders on behalf of the buyer and seller. By having experience working with lenders the hope is that they will be more successful than the inexperienced seller going it alone. It has proven to be somewhat effective but there is also a fee involved. It is a contingent fee that typically runs in the $2,000-$5,000 range and it is expected that the buyer pays this fee if they are successful. If the seller is using a negotiator it should be disclosed in the listing description so if you don’t see it, ask the question to avoid a surprise down the road. You really need patience.
What is an REO?
August 15, 2009 By
Did you know that the bank or servicer will own the property in this scenario?
Your real estate agent or broker will negotiate this purchase for the buyer between a bank employee instead of an owner/seller).
Paperwork/Rules for Offer Submission: Standard purchase and sale agreements are used as well as the banks’ own addendums and disclosures. Offers must be complete and filled out in accordance with the banks’ rules in order for the buyer’s offer to be considered. These offers are either delayed until corrected or rejected by the bank regardless of the price being offered. Any delay on a desirable property severely limits your chances of getting your offer accepted.
The bank orders an appraisal or a BROKR PRICE OPINION. Then at the time of foreclosure/listing they have the listing broker determine if that value is still valid. Most of the time the Bank is pricing near market and is expecting to transact the property close to the asking price. If you feel the asking price is well over market it is best for the buyer to perform your own market analysis (something your agent or broker can do) and provide that information to the listing broker along with the offer. Stories, letters, opinions etc that are not supported by facts are of no value and cannot be used by the listing agent to help your offer. Many times the listing agent is working within a system where all they do is go online and fill in a few boxes – price, loan type, down payment, close date, indicate if the earnest money is in cashier form or not and if there is a preapproval. The lender never has the opportunity to see additional paperwork nor do they care. But if the market analysis is done well, the listing broker might be able to use that to justify a lower price thereby making your offer acceptable.
Repairs: The Bank prefers not to make repairs so an “as-is” sale is best. If a few repairs need to be made to facilitate FHA or Conventional financing the Bank might be willing to accommodate that so it is certainly ok to ask for. It’s best for supporting bids for the repairs to accompany the offer so the Bank knows the buyer is not just making numbers up. Often times the house will be a fixer or in a condition such that traditional lenders will not lend on the property. In those cases, an all cash offer or possibly a construction loan are necessary to get the deal done. The bank does not like to consider FHA offers since many of these properties will not qualify, and the bank may prefer all cash offers.
Earnest Money: It will need to be in the form of a cashier’s check (not a note). Proof of funds for the down payment and loan approval for the balance will also need to accompany the offer.
Closing Date: A short escrow closing is favorable. Many institutions are beginning to have penalties for closings that run beyond some date so make sure your lender can perform in that time frame. If there is any doubt you either need a different lender or need to have the lender agree to cover those late fees if they don’t perform timely.
In all cases, the listing broker does not have any control over the response time no matter what timeframe you put in the offer for acceptance. The best approach is to ask the listing broker for an approximate length of time needed for response and use that in your offer. If the offer is for far less then the asking price do not be surprised if the response is an outright rejection. Banks are trying to maximize their returns and are not looking to give properties away. They are also usually unwilling to go through multiple counter offers and if they feel the potential buyer is trying to “steal” the deal they will not try to negotiate. If the offer is a solid offer (close to asking, few contingencies) it may get accepted without a counter.
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