The real cost of mortgage fraud
Many believe mortgage fraud is partly to blame for the wave of foreclosures that are swamping many housing markets. And a quick scan at national headlines speaks to the depth of the issue.
In early January alone, there were several high profile convictions:
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Six people in Boston were arraigned in a $2 million mortgage fraud scheme.
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A Naples, Fla. man was sentenced to seven years in prison and ordered to pay more than $11 million in restitution for setting up straw deals to obtain inflated mortgages.
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A Colorado man was sentenced to 31 years in prison after a mortgage fraud scheme.
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Two North Carolina men were sentenced for their part in a $6 million mortgage fraud scam.
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Two New Jersey men were convicted in a multimillion-dollar mortgage fraud and property flipping scheme.
Those are just a few of the many early January mortgage fraud headlines from coast to coast. Indeed, prosecution of mortgage fraud is on the rise as the U.S. Justice Department makes the issue a priority. U.S. Attorney A. Brian Albritton has publicly declared that “Mortgage fraud will not be tolerated.”
The Cost of Mortgage Fraud
When you examine the cost of mortgage fraud, it’s easy to see why the federal government is cracking down on the crime. Again, many believe mortgage fraud added to the financial crisis in the subprime mortgage industry and the fall of banks. Consider the latest statistics compiled by the Mortgage Asset Research Institute on the pervasiveness of mortgage fraud:
- As of March 2008, the Federal Bureau of Investigation (FBI) was investigating more than 1,200 mortgage fraud cases – that’s a 50 percent increase from 2006.
- The FBI also reports that about half of the mortgage fraud cases it is investigating report losses exceeding $1 million and some exceed $10 million.
- According to the Financial Crimes Enforcement Network, the number of suspicious activity reports (SARs) submitted relating to mortgage loan fraud increased 1,411 percent from 1996 to 2005.
- According to the TowerGroup, losses from mortgage fraud were about $2.5 billion in 2008 – and the firm expects comparable losses to continue for the next few years.
Although there is a level of fraud that exists where home buyers and/or their mortgage brokers falsify documents in order to get a loan approval, the FBI estimates fraud for profit accounts for up to 80 percent of the problem. That leaves 20 percent – or more – of the issue in the hands of consumers and mortgage brokers.
Keep Client Safe with the SAFE Act
As a real estate broker, you can help protect your clients. Relying on inflated appraisals, disguising purchase loans as refinances, or working with an exclusive appraiser are red flags and could be signs of potential fraud. The federal government has put measures in place, such as the Secure and Fair Enforcement of Mortgage Licensing, or SAFE Act, to discourage mortgage brokers from these practices. A key component of The Housing and Economic Recovery Act of 2008, the SAFE Act aims to better protect consumers and curb fraud by encouraging states to establish minimum standards for licensing and registration of state-licensed mortgage loan originators and has also established a nationwide mortgage licensing system and registry for the residential mortgage industry to increase the accountability and tracking of loan originators. If a broker is convicted, that conviction would be listed in the registry.
The bad news is the registry is not yet publicly available. The good news is systems are actively being put in place to protect homebuyers from dishonest mortgage brokers so the housing market will be less prone to negative impacts from mortgage fraud in the future.
Source: KW Blog
Shadow inventory may slow housing recovery
The housing market has shown some signs of life recently. Existing home sales are up, prompting some optimism. But at the same time, an untold number of houses that have yet to hit the market are waiting in the wings.
And the bigger that so-called shadow inventory, the further off the housing recovery might be.
‘The Tip Of The Iceberg’
By the official count, about 3.5 million homes are on the market right now. Given the rate of home sales, that’s roughly twice the normal supply.
But “that could just be the tip of the iceberg,” says Stan Humphries, chief economist for the real estate Web site Zillow.
It’s not what is already for sale that worries economists like him; it’s the number of homes that might hit the market in the months to come.
“The portion of the iceberg below the waterline is inventory that’s waiting to come into the market at some point,” Humphries says. “And as it bleeds into the market over time, it continues to put downward pressure on prices.”
Shadow inventory comes in several forms. It includes homes in or close to foreclosure but not yet put up for sale — a number that’s increasing. It also includes homes that owners want to sell but are waiting to put on the market until it improves.
In a recent survey, Zillow found that nearly a third of homeowners would have considered putting their homes up for sale if the market were better. Nationally, that would mean between 11 million and 30 million homes that aren’t listed but are waiting on the sidelines.
Stuck With Unwanted Homes
The would-be sellers include people like Jennifer Dalzell. She and her husband bought a five-bedroom row house just four years ago in the shadow of the nation’s capital. Her husband is in the military, so they move around a lot.
Dalzell says she’s watched the appraised value of their home plummet along with their retirement savings and mutual funds. Her husband will be moving to his new gig in Africa without the family, in part because they don’t want to sell at what she believes is the bottom of the market.
“Because we can wait, we’ll wait until we feel that we can get a better price for the house,” Dalzell says. “I think the market will come back. It feels like there’s money out there, and people are just sort of waiting. And I guess we’re contributing to that waiting game.”
There are no records that quantify how many people like Dalzell there are. In fact, sizing up the shadow inventory is tough.
“Unfortunately, our data are very delayed, and we really don’t have a sense of exactly where we are,” Former Federal Reserve Chairman Alan Greenspan said at the National Association of Realtors conference in May.
The key question, Greenspan said, is quantifying how many single-family dwellings are available for sale.
Number Of Foreclosed Homes Unclear
But it’s not clear how many more homes will be heading into foreclosure. If prices keep falling, that number is bound to grow.
Government data released Tuesday showed the number of homes going through the foreclosure process jumped 22 percent during the first quarter. The number of homeowners who are seriously delinquent on their mortgages is also up. Delinquencies are growing the fastest among borrowers who had good credit scores.
And that’s only part of the challenge. As banks take possession of more foreclosed homes, not all of those are listed — sometimes because they are holding back inventory so they don’t flood the market.
“I do know that banks are holding onto inventory, and what they’re doing is they’re metering them out at an appropriate level to what the market will bear,” says Pat Lashinsky, chief executive of online brokerage site ZipRealty.
He says this strategy has paid off for banks — even if it also pushes a full housing recovery further out.
“By not flooding the market, they were getting better pricing on the homes that they owned,” Lashinsky says. “And instead of people coming in and offering less than what the prices were, they were ending up in multiple-offer situations and getting more for the homes.”
Lashinsky adds that a large shadow inventory is not all bad because it creates a kind of buffer. Having so many people hold back prevents a free-fall in home prices. And when the economy recovers, he says, there will be plenty of homes to buy.
This Month In Real Estate – December 2009
New FHA guidelines may help condo sales
New FHA Guidelines Could Aid Condo Sales New Federal Housing Administration condo-loan guidelines that took effect Dec. 8 could make it much easier for condo buyers to get a loan. Under previous guidelines, half the units in a new condo development had to be sold before the FHA would underwrite a mortgage in the complex. New guidelines cut the requirement to 30 percent and raise the ceiling on FHA loans in a development to 50 percent from 30 percent.
The new rules also allow condo associations to turn down an accepted offer if they agree that it’s too low—unless they will be violating the Fair Housing Act. This is expected to motivate many associations to seek FHA-approved status for their buildings. Even if they solve the vacancy problem, FHA loans can be a tough sell in some buildings, says Miami-area practitioner Madeleine Romanello, an associate with Douglas Elliman Florida. “An FHA loan still has the connotation of being low-income.
Condo boards say, ‘No, we don’t do FHA.’ They don’t understand that the FHA is the only game in town. We could be moving tons of condos if we could get their buildings FHA-approved,” Romanello says.
Source: Investor’s Business Daily
U.S. regulators close AmTrust and Tattnall banks
Cleveland, Ohio’s Amtrust Bank was seized by regulators Friday, making it the fourth largest institution to go under in 2009. Five smaller institutions – three in Georgia and one each in Illinois and Virginia – were also shuttered over the weekend.
These latest six closings bring the total number of failed banks for the year to 130, and are expected to cost the FDIC’s already-depleted insurance fund a combined $2.4 billion. As DSNews.com previously reported, the agency’s reserve used to protect consumers’ deposits has slipped into the red – $8.2 billion in the hole at the end of the third quarter.
The failure of Amtrust alone will cost the FDIC an estimated $2 billion. Established in 1889 as The Ohio Savings and Loan Company, Amtrust was a nationwide originator of home mortgages and also offered construction and development loans. But according to a statement from its regulator, the Office of Thrift Supervision (OTS), Amtrust “was in an unsafe and unsound condition because of substantial loan losses, deteriorating asset quality, and insufficient capital.” OTS said a high level of AmTrust’s problem assets was attributable to residential and land acquisition, development, and construction lending concentrated in Florida, California, Arizona, and Nevada.
In an FDIC-assisted transaction, New York Community Bank in Westbury, New York agreed to acquire all of Amtrust’s $8 billion in deposits, wholesale borrowings of approximately $3 billion, and “certain assets,” Community Bank said in a press statement. According to the New York institution, these assets, totaling $11 billion, include performing single-family mortgage and consumer loans of approximately $6 billion which are subject to a loss-share agreement with the FDIC; cash of approximately $4 billion; and securities of approximately $1 billion.
Community Bank, though, was quick to point out that it declined to take on any non-performing loans serviced by AmTrust Bank or any other REOs; construction, land, or development loans; private-label securities, or mortgage servicing rights. The FDIC said it will retain these assets for later disposition.
The FDIC also transferred to New York Community Bank all qualified financial contracts to which AmTrust was a party, and said as part of the overall transaction, Community Bank has issued it a cash participant instrument, which the FDIC has until December 23 to exercise, allowing it to obtain shares of common stock in Community Bank.
Georgia leads the nation with the most bank collapses in 2009. Regulators closed three more institutions in the state on Friday, bringing that total to 24 for the year.
The Buckhead Community Bank in Atlanta, Georgia was acquired by State Bank and Trust Company of Macon, Georgia. The Buckhead Community Bank had six branches in Georgia operating under various names. State Bank also assumed all of the failed institution’s $838 million in deposits and total assets of $874 million. The FDIC estimates the cost to its deposit insurance fund will be $241.4 million.
State Bank and Trust Company also took over the operations of First Security National Bank in Norcross, Georgia. First Security had four branches, deposits of $123 million, and total assets of $128 million. The FDIC said it expects First Security’s failure to cost $30.1 million.
The Tattnall Bank of Reidsville, Georgia was acquired by HeritageBank of the South. in Albany, Georgia. The Tattnall Bank had two branches, $47.3 million in deposits, and total assets of $49.6 million. Its failure is expected to cost the FDIC $13.9 million.
Illinois is second in the nation when it comes to failed banks, with 20 in 2009. Benchmark Bank in Aurora, Illinois is the latest institution to join that list. Chicago’s MB Financial Bank agreed to take over Benchmark’s five branches, its $181 million in deposits, and purchased approximately $139 million of its $170 million in assets. The cost of Benchmark’s collapse is estimated at $64 million.
Greater Atlantic Bank in Reston, Virginia was also closed by the OTS. The FDIC brokered a deal with Sonabank of McLean, Virginia, to acquire the failed institution’s five branches, its $179 million in deposits, and total assets of $203 million. The FDIC expects Greater Atlantic’s closure to cost its insurance fund $35 million.
Info Source: dsnews.com
Government Tax Credit EXTENDED AND EXPANDED!!
President Obama is expected to sign a bill passed by Congress today extending and expanding the first-time homebuyer tax credit to homes under contract before May 1.
The credit, equal to 10 percent of a home’s purchase price, remains capped at $8,000 for first-time homebuyers, but income limits have been raised.
Congress also approved an expansion of the credit to allow homeowners who have been in a principal residence for at least five of the last eight years to claim a tax credit of up to $6,500 if they sell that home and buy another.
That will provide an incentive not only for entry level, but move-up buyers — a goal supported by real estate industry groups.
An extension of the existing tax credit — currently set to expire at the end of the month — was controversial, as it will cost an estimated $10.8 billion over 10 years. Critics said most of those who have claimed it would have bought a home anyway.
Earlier this year, former real estate broker Sen. Johnny Isakson, R-Ga., introduced a standalone bill that would have raised the ceiling on the tax credit to $15,000 and lifted first-time homebuyer and income restrictions.
In the end, lawmakers who supported an extension of the tax credit were forced to add it as an amendment to a bill extending federal unemployment benefits, HR 3548, to gain passage.
The bill was amended in the Senate last week and approved Wednesday in a unanimous 98-0 vote.
House lawmakers passed the bill today in a 403-12 vote, with all 12 no votes cast by Republicans.
The Obama administration had previously indicated it would support the more limited extension of the homebuyer tax credit included in HR 3548 (see story).
Although income limits for claiming the credit will be raised from $75,000 to $125,000 for individuals and from $125,000 to $225,000 for couples, homes purchases exceeding $800,000 will not be eligible.
Real estate industry groups hailed the extension of the credit as a necessary step to sustain a fragile recovery in housing markets.
“At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum,” Robert E. Story Jr., chairman of the Mortgage Bankers Association, said in a statement.
FHA Loan Limits
FHA Loan Limits As a result of the passage of the American Recovery and Reinvestment Act of 2009, on February 25, 2009, HUD published changes to FHA’s single family loan limits . Given that most of the loan limits decreased for 2009, most areas will revert to the higher 2008 mortgage limit. On October 29, 2009, House and Senate passed legislation to extend the current loan limits for FHA and Freddie Mac and Fannie Mae (the government sponsored enterprises, or GSEs) through December 31, 2010. These loan limits, set at 125% of local area median home price and capped at $729,750, would have expired on December 31, 2009 in which case loan limits would have been reduced in many markets.
HERE ARE A FEW LINKS AS A REFRESHER IN FHA FINANCING:
Yes, The Housing Market Has Rarely Looked Better
Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver’s salary, let alone something that nice.
Last week, Standard & Poor’s reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There’s no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you’ve been sitting on the fence, it’s time to act.
Ordinarily I’d never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren’t likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can’t imagine a better time to buy than now.
In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren’t going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.
Unless you’re really prepared to accept the demands (and headaches) of being a landlord, I don’t recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.
There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.
But there’s a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.
Debt Clouds Future of Miami Landmark Fontainebleau
MIAMI — South Florida’s Soffer family, already roiled by the June bankruptcy of its $3 billion Fontainebleau casino-hotel project in Las Vegas, is grappling with troubles at another cornerstone of its $7 billion real-estate empire: The original Fontainebleau hotel in Miami Beach.
The Soffers bought the 55-year-old hotel in 2005 and embarked on a 2½-year, $500 million renovation aimed at returning it to its former glory, when it was a playground for stars including Elvis Presley and Frank Sinatra. But the 1,504-room property, which appeared in films such as “Scarface” and “Goldfinger,” now faces problems with the debt it took on, according to people familiar with the matter.
Lenders, led by Bank of America Corp., could declare a default on a $670 million construction loan for various reasons, including Fontainebleau’s failure to keep reserves to cover more than $60 million in contested liens against the property by contractors who have not been paid, these people said. A 45-day agreement not to declare default expired Monday, they said.
In a statement, Fontainebleau executives declined to comment on the expired forbearance deal, calling it a “private document.” They said the hotel is “engaged in constructive negotiations with our lenders.” The hotel has not missed a debt payment and the executives point out that it is faring better than its South Florida rivals since reopening in November.
The Miami troubles mark the latest setback in the Soffers’ recent push into big hotel projects, spearheaded by 41-year-old Jeffrey Soffer, the son of founder Donald Soffer. Known for racing cars, sailing on his 257-foot yacht and dating supermodel Elle MacPherson, Jeffrey Soffer extended the family’s luxury-property holdings with the Fontainebleau projects and the $130 million renovation of the 392-room Fairmont Turnberry Isle Resort in Aventura, Fla.
The Soffers’ biggest problem is the Fontainebleau Las Vegas, which filed for Chapter 11 bankruptcy protection in June after its lenders refused to provide it funds from its $800 million revolving loan to complete the project. Jeffrey Soffer signed $220 million in personal guarantees to secure financing for the project, Fontainebleau confirms.
Mr. Soffer, who has put his yacht, Madsummer, on the market for $175 million, says his family’s empire will persevere. “As with most businesses during these particularly difficult economic times, we are facing challenges,” he said in a statement. “But our family has always worked its way through the inevitable downturns that occur in the real estate market.”
The Soffers aren’t the first real-estate clan to be clobbered by the recession. Chicago’s Bucksbaum family lost $4 billion in the value of its stake in General Growth Properties Inc. as the mall owner descended into bankruptcy earlier this year. New York developer Harry Macklowe and his son, William Macklowe, were forced to sell the GM Building and hand over several other Manhattan skyscrapers to lenders.
The Soffers’ problems stem partly from the U.S. hotel downturn, which has pushed occupancy to its lowest levels in more than 20 years.
The Miami Fontainebleau is doing better than many. Executives say it is often more than 70% occupied, compared with 67.2% from January through July for the Miami market, according to Smith Travel Research. Dubai World, the investment arm of the Persian Gulf state, paid $375 million last year for a 50% stake in the hotel.
The Soffers stripped the iconic hotel to its foundation and shell, reconstructed each room, installed a massive swimming pool and added a spa, health club and trendy restaurants. The reopening gala was a lavish, celebrity-filled affair that featured a Victoria Secret lingerie show.
But lenders are withholding a final $26 million yet to be drawn on the construction loan until the Soffers resolve the problems with contractors, people familiar with the talks say. Those people say the lenders could also declare a default on the loan because the hotel had not delivered audited financial statements to the lenders or maintained cash-management records for the lenders’ review.
Fontainebleau executives say the contractors’ bills remain unpaid because an outside audit commissioned by Fontainebleau found that some contractors were overbilling or falsifying their work records. Attorneys for several of the contractors say they never saw results of the audit.
“I think it’s obvious there was no money to pay them,” said Herman Braude, one of the contractors’ attorneys. A spokesman for Fontainebleau declined to comment on the specific allegation from Mr. Braude.
Donald Soffer, 76, began building the family empire in 1967, when he bought 785 acres of swampland in northern Dade County to develop Aventura, a collection of country clubs, condominiums and office buildings. Last week, a Miami bankruptcy judge refused to force the Fontainebleau Las Vegas banks to pay.
“We’re working through these issues now,” the company said in its statement, declining further comment.
Congress clears way to rent foreclosures
Here are two questions getting a lot of attention on Capitol Hill and from the Obama administration: When homeowners lose their houses to foreclosure, should they be able to stay in the property, leasing it at fair market rent from the lender?
Should they also get an option to purchase the house from the bank at the end of the lease term, assuming they have the income to afford it?
Before leaving for their August break, Democrats and Republicans in the House took a rare, unanimous stand on both questions by passing the Neighborhood Preservation Act by voice vote. The bill was co-sponsored by Reps. Gary Miller, R-Diamond Bar (Los Angeles County), and Joe Donnelly, D-Ind. The bill would remove legal impediments blocking federally regulated banks from entering into long-term leases – up to five years – with the former owners of foreclosed houses. It would also allow banks to negotiate option-to-purchase agreements permitting former owners to buy back their houses.
The idea, said Miller, is, “at no cost to the taxpayer,” to “reduce the number of houses coming into the housing inventory and preserve the physical condition of foreclosed properties,” which ultimately should help stabilize values in neighborhoods with large numbers of distressed sales and underwater real estate.
If the bill is approved by the Senate, participation by banks would be purely voluntary. But the legislation might encourage banks to calculate whether they would do better financially taking an immediate loss at foreclosure, or by collecting rents and then selling the property at a higher price in four or five years.
Though it was not opposed by banking lobbies, the bill quickly attracted critics. The Center for Economic and Policy Research, a think tank based in Washington, said a key flaw is to leave decisions about leasebacks solely to banks themselves. “If Congress does want to give homeowners the option to stay in their homes as renters,” said the group, “it will be necessary to pass legislation that explicitly gives them this right.”
Some private-industry proponents of short sales – where the bank negotiates a price that’s typically less than the owners owe on their note – say turning banks into landlords won’t work well, either for the banks or foreclosed owners who want to stay in their houses.
Al Hackman, a San Diego realty broker with extensive experience in commercial transactions, argues that leasebacks with options to buy are the way to go – but not if banks run the show. Hackman and a partner, Troy Huerta, have recently begun putting together what they call “seamless short sales” as alternatives for banks and property owners. Their short sales and leasebacks are “seamless” because the financially distressed homeowners remain in their properties, before and after the settlement.
Here’s how they work:
First, the bank agrees to a short sale to a private investor, just as they often do now. In the seamless version, however, the investor is contractually bound to lease back the house on a “triple net” basis – the tenants pay taxes, insurance and utilities – for two to three years. The former owners only qualify if they have sufficient income to afford a fair market rent and can handle the other expenses, including maintaining the property. The deal comes with a preset buyout price after the leaseback period. That price is higher than the short-sale price paid by the investor, but lower than the original price of the house paid by the foreclosed owners.
Hackman and Huerta already are doing seamless short-sale transactions.
Here is one that Hackman says is moving toward escrow:
A family purchased a house for $725,000 with 20 percent down in 2005, then made substantial improvements with the help of an equity line of $72,500. The house now is valued at about $500,000, but is saddled with $625,000 in mortgage debts. Enter the seamless short sale: Hackman has brought in a private investor who is willing to buy the house at current value, all cash. As part of the deal, the investor has agreed to lease back the house at $25,000 a year, triple net. In three years, assuming they’ve been good tenants, the original owners have the option to buy back the property for $550,000.
Hackman says the internal rate of return to investors can be raised or lowered based on rents and the buyback price, but typically are in the 8 percent to 10 percent range. “It’s a win-win,” he says. “The owners stay in their houses. Private investors get a moderate return on what should be a safe investment.” Plus the banks are out of the equation.
Source: San Francisco Chronicle
New Regulation Z of The Truth in Lending Act
Regulation Z of The Truth in Lending Act (TILA) has undergone important changes that you need to know about when talking to your clients. These changes take effect for all new applications taken on July 30, 2009 and after, apply to ALL types of mortgage loans in ALL 50 states plus the District of Columbia, and could impact the overall timeline of the mortgage loan origination process.
Here are the four key parts of the new regulation you need to know:
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Initial Disclosures. Under the new rules, initial disclosures must be provided to the borrower for all loan types within three (3) business days of when an application is taken or received. Initial disclosures include: the Good Faith Estimate (GFE), Truth in Lending Statement and state-specific disclosures.
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Collection of Up-front Fees. The new regulations prohibit lenders from collecting many up-front fees prior to when the borrower receives the initial disclosures.
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Re-disclosures. If there are changes to a borrower’s loan program, loan terms, and/or Annual Percentage Rate (APR), the initial disclosure package must be re-disclosed to the borrower, and it must be received by the borrower at least three (3) business days prior to closing.
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Timing of Loan Closings. Prospect cannot schedule the loan closing until at least seven (7) business days after the initial disclosures are mailed to the borrower. If re-disclosures are needed because of changes to the loan program, terms or APR, the loan closing cannot be scheduled until at least six (6) business days after the re-disclosures are mailed to the borrower.
When will the housing market rebound?
When will the housing slump finally end? Even the experts’ crystal balls are hazy. The Wall Street Journal, which Thursday reported its latest quarterly survey of housing data, says it depends on which city or part of the country you’re talking about. Home sales were up compared to last year in Washington, D.C., and Northern Virginia, Orlando, Minneapolis, Southern California, and the San Francisco Bay area, according to findings from research firm MDA DataQuick as well as reports from local real estate practitioner organizations. Sales declined in New York City and nearby Long Island, Chicago, and Charlotte, N.C., and the outlook was particularly bleak in Miami-Fort Lauderdale and much of Florida, Detroit, and Las Vegas. But Jody Kahn, an analyst at John Burns Real Estate Consulting, a research organization, points out that there are variations even in the hardest-hit metro areas with the most attractive neighborhoods continuing to thrive. Employment is the most telling factor, says Mark Zandi, chief economist at Moody’s Economy.com. “If people don’t have jobs or fear losing their jobs, then buying homes is out of the question,” he says.
Source: The Wall Street Journal, James R. Hagerty (07/23/2009)
This Month In Real Estate – July 2009
- July 2009
How To Use The $8,000 Tax Credit For A Down Payment
Potential first-time buyers have yet another reason to consider purchasing a home: the monetization of the tax credit.
Here are four ways you can get access to those funds for upfront costs.
Short-term bridge loans are now available from a variety of lenders so that buyers can tap the benefits of the $8,000 Federal Housing Tax Credit for First-Time Home Buyers upfront. If you are eligible for the tax credit, these bridge loans will enable you to use the money for your down payment and closing costs with the credit as collateral. You will have to pay the money back after they’ve filed their tax return and received a refund.
There are essentially four sources for this type of financing, and their terms can vary considerably.
1. State HFA Bridge Loans
As of early June 2009, 10 state Housing Finance Agencies offered tax-credit bridge loans, and more were planning to do so. Although each state HFA loan differs, here are some typical characteristics:
- You’ll need to make a minimum downpayment from your own funds, probably around $1,000.
- You’ll have to go through local lenders approved by the HFA to actually originate the loan, since HFAs are not originators.
- In some cases, the loans are interest-free; check with the state HFA to find out.
- The HFAs have set aside a limited amount of funds for the loans, so they tend to be made on a first-come, first-served basis.
- You’ll be expected to use HFA-backed financing for the mortgage on your home purchase. This financing typically comes with a below-market interest rate and usually requires borrowers to meet eligibility criteria. These criteria will vary greatly, but they often require borrowers to be first-timer buyers and meet income-eligibility requirements. For the bridge loans, there’s a good chance the criteria will be similar to what’s required for the tax credit.
Since the bridge loans are made in tandem with your HFA’s financing products, you apply for the loans when you apply with the HFA-approved lender for your mortgage financing. You should be able to find a list of approved lenders on the HFA’s Web site.
2. Local Government or Nonprofit Loans
If your state HFA doesn’t offer the loans, you can ask an HFA staff person to direct you to local nonprofits or state or local government agencies that do. If that person can’t help you, a good place to start a search is with a national nonprofit group called NeighborWorks, which maintains a list of more than 200 local affiliates that provide housing assistance. The loan programs for each of these affiliates differ, so you will need to check with them on their underwriting standards and loan terms—and even on whether they make bridge loans repayable with the tax credit.
3. Local HFAs
Another source, if your state HFA can’t help you, might be the National Association of Local Housing Finance Agencies. Local HFAs are much like state HFAs but with jurisdictions limited to their locality. To learn whether there’s a local HFA in your area, call NALHFA at 202/367-1197.
4. FHA-approved Lenders
If you’re unable to identify a state or local HFA or other governmental agency or nonprofit to assist you, you can tap bridge-loan assistance if you work with a lender approved by the U.S. Department of Housing and Urban Development to originate FHA-backed loans. HUD maintains a database of FHA lenders on its Web site that’s searchable by a number of criteria including city, state, county, and service area.
In a difference with the assistance provided by state and local agencies or nonprofits, the bridge loans provided by private, for-profit FHA-approved lenders must be structured in the form of a personal loan or line of credit collateralized by the tax credit. The bridge loan can’t be structured as a second mortgage.
Also, although FHA allows you to use the bridge loan to cover your closing costs or to buy down your interest rate, you can use it for the down payment only after you’ve covered the 3.5 percent minimum that’s required on any FHA loan. Thus, you’ll have to come up with the 3.5 percent minimum down payment yourself or else tap another source of assistance for it. That can include gifts from family. Seller-funded down-payment programs are not permitted. HUD provides complete details in a May 29 Mortgagee Letter on “Using First-Time Homebuyer Tax Credits” (2009-15) that went to its approved lenders.
Since it’s the HUD-approved lender and not FHA itself that’s making the bridge loan, actual loan terms will vary. At a minimum, though, the bridge loan must meet certain restrictions, most of them imposed to weed out fraud or ensure borrowers aren’t getting in over their heads. These include:
- Loans can’t result in cash back to the borrower.
- The amount can’t exceed what’s needed for the downpayment, closing costs, and prepaid expenses.
- If there’s a monthly repayment, it must be included within the qualifying ratios and, when combined with the first mortgage, can’t exceed the borrower’s reasonable ability to pay.
- Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
- There can be no balloon payment required before 10 years.
Start with the Deepest Assistance First
Since state HFA bridge loans are typically allowed for as much of the downpayment as possible (up to the credit limit of $8,000), your best bet is to start with the state HFA. If it doesn’t have a program in place, learn what you can from it about other state or local programs, including nonprofits. If these sources don’t pan out, you can work with an FHA-approved lender. However, since HUD requires borrowers to put down a minimum of 3.5 percent, they can access bridge-loan assistance only for other upfront expenses such as closing costs, an interest-rate buy-down, or a portion of the downpayment above 3.5 percent.
**For more information on the First-Time Home Buyer Tax Credit, please visit my website
This Month In Real Estate – May 2009
FORECLOSURE FRENZY
Just when you thought you may have had a handle on the Foreclosure mess a new law emerges or a new program is born. Does the word Bail Out ring a bell or how about Stimulus Package, or Hope Now Program? It doesn’t appear the government can get it straight how do they expect a consumer to.
I guess we should all feel better that Florida is not number one in rankings but takes second place to California. Despite the fact that according to Realty Trac the number of Florida properties with foreclosure filing in 2008 more than doubled the state total from the previous year. The bottom line is we have a mess on our hands and something needs to be done now. I always loved the catch phrase by Syms Clothing Store; “an educated consumer is our best customer.” As far as I know they are still up and running and must have a lot of educated consumers. I think we all need to educate ourselves when it comes to foreclosures.
If not you, I am sure you know someone who is or will be facing foreclosure at some point. It is a grim reality, and you need to know your options. Most homeowners do not know who to turn to and get so frustrated that they either do nothing and let the bank take their home to auction or try and work out a plan with their lender.
Ever try calling your lender? If you really want to ruin your day this is a great way to do it. That is if you reach them and do not get cut off 3 times, transferred to the wrong department twice and finally get someone on the end of the line in India. Most of the time you will find out they are not willing to do much and can make the situation more stressful! As for the most part they are not the most pleasant people to deal with. Who can blame them, they get a ton of calls each day and usually get yelled out by most. I wonder why the lenders keep losing their employees. Most of them would rather get a root canal then stay at their jobs.
This Month In Real Estate – March 2009
Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to help combat the “doom and gloom” messages of the national print and television media with real information on real estate.
ATTENTION: First Time Home Buyers!!
If you’re a first time home buyer, your timing couldn’t be better! The newly passed stimulus bill may qualify you for an $8,000 tax credit! With mortgage rates at record lows and a large selection of homes on the market, this is the perfect time to make a move toward owning your first home!
Keep in mind that a first time home buyer is defined as someone that has not owned real estate in the past three years; it doesn’t even matter if this actually is your first home or not! Call me for details or click here for Frequently Asked Questions and Answers.
Mortgage Applications Surge With Low Interest Rates!!
U.S. mortgage applications spiked in the first full week of 2009 as record low interest rates triggered the highest demand for loan refinancing in 5-1/2 years, according to the Mortgage Bankers Association.
Low mortgage rates, however, have yet to fuel a surge in loans for home purchases.
The MBA said its seasonally adjusted index of mortgage applications for the week ended Jan. 9 increased 15.8% to 1,324.8. That’s the highest reading since the week ended July 11, 2003, when it reached 1,358.2.
Thirty-year mortgage rates have dropped dramatically since the Federal Reserve unveiled a plan in November to buy as much as $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.
The refinance share of applications increased to 85.3% from 79.8% the previous week, the highest level since the MBA started conducting its survey in 1990.
Spencer Rascoff, chief operating officer at Zillow.com, an online real estate service company based in Seattle, said loan requests to his company are up more than 200% from just two months ago, with loan requests on pace to hit about 25,000 in January and loan quotes on pace to hit 200,000.
“Many experts agree that rates will stay relatively low for at least the next few months since the federal government is now committed to buying mortgage-backed securities to keep borrowing costs low,” Rascoff said.
Here’s a sampling of interest rate drops:
30-year-fixed mortgages, averaged 4.89%, down 0.18 percentage point from the previous week, the lowest level recorded in the MBA’s survey’s history.
15-year fixed mortgage averaged 4.63%, down from 4.67% the previous week.
One-year ARMs decreased to 5.89% from 5.90%
Source: Reuters, CNNMoney.com (01/21/2009)
