Fannie And Freddie Making Banks Buy Back Shoddy Mortgages.

Wall Street Journal Article Summarized By Troy Corman, todayshomedeals.com

Fannie Mae and Freddie Mac have about $300 billion in loans to borrowers that are delinquent, or at least 90 days behind on payments. As a result, the two tax payer financed GSEs have enlisted an army of auditors to comb through mortgage files in search of unsatisfactory or false documentation of borrowers' incomes.

And now they're making banks pay for those shoddy mortgage files and suspect underwriting standards. During the first nine months of 2009, Freddie Mac required lenders to buy back $2.7 billion of loans. Fannie Mae will not share it's figures, but Inside Mortgage Finance estimates that Fannie demanded $4.3 billion in mortgage buybacks during those first nine months of '09.

Banks have also been forced to buy back loans from mortgage backed securities when problems are detected with loans that have been bundled into pools of mortgages. Banks repurchased about $14.2 billion in mortgages overall in the first nine months of 2009, which threatens to wipe out a big portion of their loan origination profits.

Last Thursday, Fannie Mae indicated that 5.29% of it's loans were at least 90 days late, up from 2.13% in the previous year. Freddie reported a 3.87% delinquency rate, up from 1.72% a year ago. As a result, banks have tightened lending standards as average credit scores for loans backed by Fannie and Freddie have risen to 760 from 720 a year ago.

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90 Day Seasoning Rule Waved.

By Kathleen A. Scanlon, nyrelawyers.com

On Friday, January 15, 2010, HUD Secretary Shaun Donovan issued a press release, as part of HUD’s Neighborhood Stabilization initiative, temporarily waiving FHA’s 90 Day Seasoning Rule. Amazingly, HUD is cognizant that the seasoning guideline is having a negative impact on alleviating the problem of abandoned and blighted homes:

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

The online real estate community was buzzing yesterday as news of this waiver spread quickly. The investor “gurus” are, of course, rejoicing and spreading the news far and wide, without a careful read of the Waiver itself. The intent of this temporary policy change is to allow investors to take title to a property, rehab it and sell it quickly. It is not a panacea for those investors who pick up a property at a discount, seeking to flip it for a profit in a “back to back” or “double” closing. For those types of transactions, the 90 day seasoning rule is a non-issue if you utilize a land trust correctly.

HUD’s Mortgagee Letter 2006-14 clarified the Rule and Regulations set forth in 24 CFR 203.37a concerning the eligibility of properties for FHA insurance and the rules governing sales of property. As I have discussed in a previous blog post, Legal Analysis of FHA’s Seasoning Requirements, the real estate and mortgage industry routinely misunderstands and applies these eligibility rules incorrectly and it appears that the trend is continuing with this new Waiver.

FAQS:

1. Does it have to be a property acquired through a short sale, bank auction or an REO to be eligible under the Waiver?

No. There are no requirements in the Waiver concerning the status of the property itself. It is not necessary to demonstrate the distressed nature of the property.

2. So I can get a property under contract, execute a contract with a potential FHA buyer and close with my FHA buyer the same day or the day after I purchase the property?

No this transaction would not be eligible for FHA insurance. The waiver is actually of the requirement that the real estate contract be executed on the 91st day after the investor takes title to the property. The requirement that the investor own the property is still in effect and therefore Contract Vendees and Assignments of contract are still prohibited. Further, an application for an FHA mortgage cannot be submitted to a Lender for consideration without a fully executed Contract. Therefore, Back to Back Closings will be impossible.

3. So I can close a week after I take title?

Virtually impossible for several reasons. I venture that there are almost no Lenders in this post-bubble market that will take an application for an FHA mortgage and be in a position to close a week later. I am going to stretch that to probably 30 days. This is definite if your sale price to your FHA buyer is 20% or more higher than your acquisition price (do the math – its not that hard to hit that number – especially in certain areas of the country where housing prices are below $50,000). If the sale price exceeds the 20% threshhold, the investor will have to document the increase in value with supporting documentation and/or a second appraisal and the Lender will have to obtain a Property Inspection Report (see paragraph 2 of the Waiver). This report will not be ordered prior to application submittal and as discussed previously, that doesn’t take place until there is a fully executed Contract of Sale.

4. I found this great property that my buddy picked up 2 months ago for $120,000.00. He rehabbed it and I am in contract to purchase it from him for $220,000. I want to flip it to an FHA buyer for $250,000.00 can I do it?

You will have to wait until the 91st day after you close title to enter into a Contract of Sale with the FHA buyer. The Waiver will not apply if there is a history of prior flipping activity in the 12 month chain of title (see paragraph 1(c) of the Waiver).

5. In April, the Treasury’s Short Sale Program goes into effect and there should be a lot of distressed properties coming on to the market. The Waiver is going to be a big help in moving those properties!

No, it isn’t. Apparently, government offices do not communicate with each other before issuing rulings – one of the requirements under the Treasury short sale program is that the Contract include a representation that the Purchaser will hold the property for 90 days post-closing. Perhaps the Treasury will revise its Directive and remove this offending language (which, as I had discussed previously, is extremely short-sighted).

Conclusion

Investors should rejoice as finally they are receiving the recognition they deserve: properties are moving because of their hard work and without the proper incentive, it wouldn’t happen. Instead of being the black sheep of the real estate community, investors are a major part of the solution. This Waiver is what investors need to get the properties rehabbed, sold and occupied to ameliorate the problem of abandoned and blighted homes. It is not a license to flip and should you wish to engage in that type of activity, you will not be able to use this Waiver to accomplish your goals.

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DFW Area Four Seasons Gets Foreclosure Notice

Wall Street Journal article summarized by Troy Corman, todayshomedeals.com

Search Dallas homes, www.dallashomes2buy.com

The Four Seasons Dallas, located in Irving, Texas and home of the PGA's Byron Nelson Golf Championship received a foreclosure notice this week. The 431-room hotel was bought in 2006 by BentleyForbes Holdings LLC, which failed to make it's October mortgage payment. It seems it was hoping that the mortgage servicer, CWCapital Asset Management would revise the terms of the loan - since the hotel's cash flow isn't covering the $10.9 million interest payment.

The owners claimed that they have acted in good faith, and point out their $60 million renovation of the property since they purchased it in 2006.

The Four Seasons hotels in San Francisco and New York are also in financial trouble, as cash flows no longer cover the mortgage debt.

Fannie Mae Planning To Sell Foreclosures Faster

Realty Times article summarized by Troy Corman, todayshomedeals.com
Search Dallas homes, dallashomes2buy.com

Fannie Mae has announced that it will sell foreclosures faster in 2010. It is revising a previous policy that allowed mortgage lenders and servicers fifteen days to find a better purchase offer for homes immediately following foreclosure.

This allowed errors to be uncovered in underwriting or servicing. But it also slowed down Fannie Mae's ability to get foreclosed properties sold to buyers. As a result, Fannie Mae's foreclosure count rose by 98,000 properties in the first three quarters of 2009. Although, Fannie Mae sold 90,000 houses during the period, it was still left with 72,000 foreclosures that had not sold.

Doing away with the previous fifteen day rule means buyers will have earlier access to Fannie Mae REO properties, and should get quicker decisions on purchase offers. Investors and bargain hunters, get ready.

Dallas Home Prices and New Home Construction On the Upswing.

By Troy Corman, todayshomedeals.com

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According to the latest monthly report, the median price of pre-owned Dallas homes sold were up 2 percent compared to December 2008. While the number of homes that sold in December decreased slightly, most attribute it's cause to the previous, original government tax refund that expired November 30th.

The new tax refund deadline has been extended to April 30th - you must sign a contract by that date and close by June 30th.

The new refund also has been expanded to now reach upper income buyers, and home owners that have lived in the same home for 5 years can get up to $6,500. Singles with modified adjusted gross incomes of up to $145,000 can qualify although phase-outs begin at $125,000. For couples filing jointly, the credit begins phasing out at $225,000 and modified adjusted gross incomes above $245,000 do not qualify.

New home construction in Dallas-Fort Worth rose almost 10% when compared to 2008. This is the first increase in new home construction in DFW in almost three years. The majority of the new homes are retailing in the $150,000 to $200,000 price range.

That means there is about a 6.5 month supply of new homes in DFW. Pre-owned homes in Dallas/Fort Worth listed with reators® is at a 5.6 month supply. Six months is considered healthy. Also, activity seems to be picking up dramatically according to others I've talked to in the local real estate industry. The April 30 government tax refund deadline should make for a busy 2010 winter and spring.

What Will Affect Housing In 2010?

By Troy Corman, todayshomedeals.com

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Pundits are all over the board on where home prices will end up in 2010. Six fundamental factors are listed below which will have an effect.

Mortgage rates. Mortgage rates have hovered around historic lows in much of 2009 - thanks primarily due to the Federal Reserve, who purchased up to $1.25 trillion in mortgage-backed securities. The question is what happens when the Fed exits the purchase agreements in March and the private market steps in. Most expect rates to increase up to 1%.

The 3 Fs. Fannie, Freddie and the FHA. Nearly nine out of 10 mortgages are now backed by one of the three government controlled mortgage agencies. The FHA, which some have called the new sub-prime, continues to suffer heavy losses. In fact, some predict it may need a government bailout. As a result, it is tightening it's lending standards in 2010 which could disqualify some buyers.

Loan modifications. Loan modification have forced mortgage servicers to hire and create new systems to handle the ever-changing rules and loan modification programs coming out of Washington. Fewer than 5% of those eligible for modifications have been moved into permanent status. Modification programs are improving. But it has also pushed more foreclosures down the road, which will serve as an overhang for housing at least through 2010.

Option Arm Resets. Many took out loans that were pick-a-pay plans which means the buyer could pick out the lowest initial teaser monthly payment plan. Most buyers of expensive homes opted for the lowest monthly payment, which didn't even cover the interest due on the loan. So the amount they owed on the home continued to increase each month. These loans were very popular in California where real estate prices had skyrocketed during the boom. Most resets were on 5-year arms and are due to reset in 2010 and 2011. Many of these loans also have triggers which automatically require the higher monthly mortgage payment when the amount owed on the home is between 110%-125% of the original loan balance, which is happening right now. On average, a teaser monthly mortgage rate of $1,672 would jump to $2,725 on reset.

The Government Tax Credit. The government tax credit has been extended to April 30. Buyers must ink a contract by that date, and close by June 30 to qualify. Also, the tax credit has been expanded to now reach upper income buyers, and home owners that have lived in the same home for 5 years can get up to $6,500. Singles with modified adjusted gross incomes of up to $145,000 can qualify although phase-outs begin at $125,000. For couples filing jointly, the credit begins phasing out at $225,000 and modified adjusted gross incomes above $245,000 do not qualify.

I think that this will fuel a great deal of demand before April 30. So if you're planning on selling your home, get it prepared and get it on the market as soon as possible.

"It's the economy stupid." This famous political axiom seems to have fallen on deaf ears in Washington. Instead of focusing on getting more Americans and businesses back to work, the three democrat-controlled branches of government have obsessed over the government health care takeover. Hopefully, it's passage will not cripple businesses further, and thwart the growth of permanent, benefit-laden jobs. Businesses may opt instead to hire temporary or part-time workers, who don't reap the benefits enjoyed by full-time employees. JOBS, JOBS, JOBS, is what will get the economy and the housing market back on solid ground.