HARP 2.0 HITS THE STREETS

Fannie Mae and Freddie Mac both released the new HARP 2.0 programs this week. This loan program was designed to answer the question from all the home owners who paid their mortgage on time and were underwater and have been saying; “What about me”?

For three years now all we’ve heard about has been help for distressed home owners.  But there are many, many of us out here who, through no fault of our own, have been paying our mortgage on time but cannot get our loans refinanced. Anyone who purchased a home prior to 2008 most likely has an interest rate between 5.50% and 7.00%. With current rates in the low 4.00% range it’s maddening to think that only first time home buyers or people who made large down payments before can get a low mortgage rate now. HARP 2.0 should and will help.

Anyone with a loan balance below $417,000 has a very good possibility of having their loan held by Fannie Mae or Freddie Mac.  This is the first step to take. Find out for sure (self-help is available on their web sites or call me. I can look it up for you). Generally, there is no Loan to Value consideration.  Rates today on this program are in the 4.50% – 4.75% range.

Now, there are some pitfalls. Not every loan is owned by Fannie or Freddie. You may or may not have to pay for an appraisal. There is no way of knowing until your loan application is run through the underwriting engine. Also, you will not get the current loan market rates. Expect to pay about a ½% higher rate on the HARP refinance (this part is dependent on credit score and Loan to Value).

All in all we are very hopeful this can help more home owners refinance their mortgages to lower rates and lower payments. This will help all of us.

Let us help you and your clients. Call us any time. (480) 359-5682.  If you don’t reach us right away we will get back to you within a few hours the same day or the next morning. Every time.

Can the FHA 203(k) loan program be the cure for the Phoenix market?

The Phoenix, Arizona market has seen some unique challenges over the past few months. Now, before you e-mail me and say “what are you talking about? The last few months?!” I know. I know. We’ve been experiencing challenges since 2007. But what I mean when I say the last few months is this.

There is now and always is a pool of first time home buyers in any market. With severely depressed prices there is no middle market here. Those who are not forced to sell are sitting tight and not moving. So there really have become only three viable buyers in this market, the first time home buyer, the relocation buyer and the investor. (One could also include the government in this discussion but we’ll leave that for another day).

The first time home buyer and the relocation buyer are competing against cash paying investors for the best properties on the market. One year ago these investors were doing “fix and flips’. That is, buying the property for a deep discount at foreclosure auction, and fixing them up and selling to first time home buyers at fair market prices. The home buyer was getting a newly remodeled house and it was good business for everyone. But then the “buy and rent” crowd moved in. The “buy and rent” investor is willing to pay a higher price for the house then the “fix and flip” investor because they don’t have to worry about reselling the house right away. Demand for rentals has risen and with it so have rental rates. The fix and flip investor is now being squeezed out of the market. There is less inventory available for fix and flip investor and the first time home buyer to buy.  What is the answer then?

Many home buyers are now going back to new builder homes. Although the new builder home prices are seemingly still a bit too high in most parts of town.. Another idea is to buy the bank REO that is in disrepair and use the 203(k) program to remodel the house.

Consider this example using simple math. Let’s say a home is priced at $80,000 but it needs $20,000 worth of work. If that home were completely fixed up and on the market today it could be sold for $100,000. The fix and flip investor does not want to buy this house. There is no immediate profit in it. The buy and rent investor is also going to be hesitant because even though rents are high they are still not wanting to buy a house at 100% of market value. Cash buyers want a discount. Enter the first time home buyer and the 203(k) program. The home buyer can buy the house, use the money to do all the renovation work and have a home that cost them exactly what is worth today.

If a Buyer’s Agent wants to dramatically increase the pool of available homes for their client to look at then consider the fixer-upper house and utilize the 203(k) loan. If a Listing Agent wants to increase the pool of buyers and command a higher price for the listing then he/she should also employ this strategy. First hire a HUD qualified 203(k) consultant to examine the home and make recommendations for repairs. Then hire a General Contractor that is HUD trained and knows how to work with the product. The end result is a remodeled house with all the appointments picked out by the home buyer and a happy customer.

For more information on how to qualify for the FHA 203(k) program and how this loan can work for you contact Duckworth Lending Group at (480) 359-5682. We are ready to guide you through this process.

Are You Ready To Buy Again After…….A Short Sale?

The Short Sale offers a tremendous challenge for all parties involved. It is an emotional strain on the home owner. It is an extraordinary amount of work for the home owner’s realtor. And it is taxing on the eventual buyer and his/her agent (and lender) as all wait and wait and wait, unsure of the outcome. Meanwhile all are left wondering if other, perhaps better, opportunities are being ignored. These are not pleasant for anyone involved.

Worse yet though has been the aftermath of this new phenomenon. A strategy the banks have now decided is the desired course of action, for them.

Perhaps HUD (the Department of Housing and Urban Development) had a hand in this from the beginning. In 2009 HUD issued one of their mortgagee letter as it pertains to new financing through the FHA loan program. HUD ML 09-52 states:

Definition of Short Sale:

a previously owned property was sold for less than what was owed (short sale), or there is principal write down of indebtedness that cannot be refinanced into a new mortgage (short pay off).

FHA Guidance on Short Sales:

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to;

• take advantage of declining market conditions, and
• purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

However, there was acknowledgement that everyone who went through a Short Sale was not a credit risk and should be given the opportunity to buy again.

Guidance on Borrowers current at the time of Short Sale:

Borrowers are considered eligible for a new FHA-insured mortgage if;

• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
• the proceeds from the short sale serve as payment in full.

And, the final word was on those in a default and/or pre-foreclosure status at the time of the Short Sale;

• Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.

HUD does acknowledge that some may have been forced into Short Sale due to extenuating circumstances and offers the following;

• default was due to circumstances beyond the borrower’s control, such as death of primary wage earner or long-term uninsured illness, and
• a review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default

What this all means is that if you did sell your house under a Short Sale then you may be eligible for financing right away if;

• You made all of your payments on time during the process, including your other credit accounts and,
• You did not sell your house just in order to take advantage of the market conditions and get out from under a big mortgage that you no longer wanted to pay.

What are generally considered acceptable reasons are forced company relocation or a loss of one income in the household due to layoff, death, extended uninsured illness or divorce.

Otherwise, if you fell behind on your payments then the three-year rules applies.

If you or someone you know sold a house as a Short Sale we can help. Now is the time to start working on your finances and credit to get yourself ready to buy a new home. Contact Duckworth Lending Group at (480) 359-5682 for professional help.

Join Us! Credit and Legal Ramifications in a Mortgage Crisis – CE 3 Hrs Legal

Come to Academy Mortgage in Scottsdale for this informative 3 hour class taught by Attorney and Author, Patrick Ritchie.

Friday, January 20, 2012.   8:30 – 11:30 am

Approved for 3 hours of CE Legal requirements.

RSVP to Duckworth Lending Group. (480) 359-5682.

CE legal Hours class at Academy Mortgage

Are you ready to Buy Again After……..a Bankruptcy?

There are many myths surrounding bankruptcy.  One of the most serious myths is that an individual with a history of bankruptcy cannot qualify for a home loan. This myth can prevent someone deep in debt from obtaining needed relief.

The truth is that while lenders hate bankruptcy, they love federal guarantees. The Federal Housing Administration (FHA) is a government agency that insures certain home loans, and its policy for qualifying for a home loan is very flexible. The FHA will guarantee a home loan after a bankruptcy when:

• Twenty four months have passed since the bankruptcy has been discharged;

FHA-insured home mortgages are also available to Chapter 13 debtors during bankruptcy. The debtor must (1) have completed one year of payments as required while under Chapter 13 and (2) must obtain a letter from the Trustee of the court, stating the dollar amount the applicant can borrow.

In addition to the above, individuals must meet the mortgage lender’s criteria. This usually means showing a stable employment history, a manageable debt to income ratio, and a good credit score. Surprisingly, most debtors are able to improve their credit scores quickly after a bankruptcy discharge.  Your credit score is weighted heavily on recent events, so when you file bankruptcy your score will immediate plummets. However, the farther you are from your bankruptcy discharge, the better your score will become. Additionally, an absence of credit delinquencies and a solid history of on-time payments after your bankruptcy case will boost your credit score.

Any person who has filed for bankruptcy protection and has the desire to buy a new home should start preparing themselves six months in advance.  I say six months because unless you have been monitoring your credit report you will probably need some work done to get the credit score to an acceptable number.  Making corrections on the credit report can take anywhere from one week to two months depending on the circumstances. The sooner you start working on it the better your chances of buying at the 2 year anniversary date. Other things to consider to make the jump back into home ownership smoother are; Be prepared with paperwork.  Make sure you have all of the required documents in a place easy to find and you are ready to go. These include, but are not limited to:

• Complete Federal tax returns (1040s plus all schedules) for two years
• Complete set of Bankruptcy papers including Discharge and all Schedules of Debtors
• A letter explaining the circumstances around bankruptcy filing (your loan officer will review this with you so you know it’s explained together properly and completely)
• Paycheck stubs for one full month
• Bank statements for two full months

You may find a need for more documentation depending on your circumstances but these are items most everyone must supply.

If you or someone you know had a bankruptcy that was discharged on or before June 2010 now is the time to start working on your finances and credit to get yourself ready to buy a new home. Contact Duckworth Lending Group at (480) 359-5682 for help with your personal situation.

Are you ready to buy again after…………..?

In today’s real estate market, foreclosure or short sale are two of the most popular terms. Actually, almost fifty percent of all the Arizona real estate listings are distressed properties; as such, whether you want to sell your home, are looking to purchase a home, or work in the real estate industry, you have most likely heard the terms foreclosure or real estate a lot. However, even though these terms are used a lot, there are quite a few people who do not know exactly what they mean, or how they will be able to buy such properties after having filed for bankruptcy.

By now we are all aware of the troubles of the economy and of the real estate market and the effects they have had on people’s lives. Astonishingly, it’s been more than four years since the bubble burst and things unraveled so quickly for so many people. What this means to the marketplace though is that those first waves of people who had gotten into trouble are now starting to come out of the other end of the tunnel.  What does this mean?

There were three course of actions that people took that inhibited their ability to buy another home right away. Short Sale, Foreclosure and Bankruptcy.  Each of these events, though devastating at the time, are all cured over time. Each one is treated a little differently than the other. But generally, after two to three years most folks can buy another house if they’ve kept their nose clean and paid their bills on time.  Here’s a look at each one.

A short sale can be defined as, homeowners negotiating with the mortgage lender to ‘forgive’ some amount of the debt owned on their homes, so that they can prevent their homes from going into foreclosure. For example, you owe approximately $350,000 on your home; however, the market is currently demanding $225,000 for it. If your mortgage lender will agree to accept less than the original loan amount, you can try to sell your home for $225,000. Generally, mortgage lenders only agree to a short sale if there is proof that you are undergoing some type of financial hardship such as losing your job.

The FHA loan program will allow you to qualify for a new mortgage no less than 36 months after the short sale closing date of the home.

Foreclosures are not too much different except for the fact that the bank acquired the property at a trustee sale and the home owner relinquished all ownership rights to that property without going through the normal sale process.

The home owner who suffered through a foreclosure must also wait 36 months from the trustee sale date until they can qualify for a new mortgage.

The final event that many people have been faced with is Bankruptcy. Most people file for a Chapter 7 Bankruptcy. This type of bankruptcy eliminates all debts. the process takes 3-6 months to complete and the completion is called the Dismissal.  Any person who has filed for bankruptcy must wait 24 months, but not less than 12 months, after the dismissal before they can be qualified once again for a mortgage.

Some people however must file a different kind of bankruptcy. This is called the Chapter 13 Bankruptcy whereby some types debts are dismissed without further obligation and the others are put into a payment plan, generally 60 months in length. The person filing the Ch. 13 bankruptcy will be eligible for new mortgage financing within after 12 months of on time payments to the trustee and with the trustee’s approval.

Duckworth Lending will provide you with information that will definitely find helpful, once you decide to purchase a home after you have filed for bankruptcy or have suffered through a short sale or a foreclosure. Give us a call.

Advice to homebuilders: Reach out to the anonymous generations

Advice to homebuilders: Reach out to the anonymous generations.

Although I disagree with his assumption about fixer-uppers (still more preferred in Phoenix than a new home) his insights into new buyers in the market are worth reading.

Renovate Phoenix – Let’s get going!!

Phoenix, AZ – October 13 2011

I heard a statistic today that said there are 250,000 vacant homes that have not been foreclosed on (back to this later). In a related story I read that banks that had forestalled the foreclosure process will now start to accelerate the pace.

Phoenix currently has 17,000 active homes listed for sale. This is an unhealthy level. By all methods of measurement Maricopa County should be at 25,000 homes. What this means is that there is a shortage of homes for sale and that there is upward pressure on prices. MGIC’s Market Trend Analysis Report showed that at the end of the 2nd quarter 2011 year over year prices declined 13% from last year yet in the latest Cromford Report it states that home prices have been stable year over year if you look at month ending September 2011.  What does that tell us?

First off is that prices have been rising for about 3 months now. This is no surprise if you are currently listing or selling properties. The supply is short and each quality home is getting multiple offers all above list price. All of us actively in the business know this. We see it every day. We also saw it one year ago but then the market tanked again and so we are cautiously optimistic.

The second thing it tells me is that something’s got to give. and I believe that something will be the acceleration of foreclosures with more properties hitting the market by the first quarter of 2012.

Now back to those 250,000 vacant homes. With the extreme weather shifts in Phoenix these homes are going to be in pretty bad shape. Why not go back to the tried and trued? The FHA 203k. If you are a Listing Agent and you partner with the right Contractor and the right Lender you can market that listing with a pre-packaged renovation plan. The only thing the buyer will have to decide on his paint color, carpeting and appliance package. Take the worry and the decision making out of the equation. If there are no structural repairs required you can add up to $35,000 under the streamline program for repairs, closing costs and contingencies. the loan balance can go up to 110% of the after improvement appraised value. If the home needs more extensive work including structural (room addition for example) then the full 203k program will work.

This same concept applies to anyone buying properties as a traditional Fix and Flip. Shorten up your production cycle and close more quickly if you incorporate the 203k loan into your marketing plan. The home owner will be much happier when they buy a house that they have some control over what the final product looks like.

These programs were very popular in the late 1980’s and 1990’s so they are time tested. The processes have been streamlined and perfected. If you work with the right Contractor and Lender  and they are the perfect vehicle for today’s housing market. Are you ready to take advantage?

Can you still make money on a Property Flip in Phoenix?

“It’s not what you sell it for, it’s what you buy it for”

We’ve all heard the news by now. Real estate prices dip 13% year over year in Phoenix.  Is it really possible for a real estate investor to make money flipping properties any more? The answer is Yes, without a doubt. It is still possible. But your support team has to be sharper than ever. Every person on the team must deliver on time and on budget.

Let’s look at an example of this. Say you bought a house at auction June 1st for $70,000. You’ve calculated that you’ll need to invest $25,00 into the house for upgrades to bring it up to market standard. Your money man is asking for a 12% return (if only) on the initial $70,000. You calculate that the repairs will take 60 days and you can start marketing the property with your eye towards that 91 day mark when you are outside the HUD 90 day flip rule. You sell the house on Day 91 with a 45 day escrow. Your closing date is now October 15th.

You’ve determined that the current market value for this house is $115,000 and that you will have to pay 10% in realtor commissions and buyer/seller closing costs. After your carrying costs and investor payback you end up netting $4,989. Not a home run but if you have 8 in production at a time that’s a good living.

Now, let’s look at what happened last year. Prices dropped 13% year over year. That $115,000 became $113,000. But wait, the first lender dropped the ball and the buyer could not qualify. You had to resell the home at the now current market value of $112,000 and could not close until the end of December. Your developer profit just went from $4,989 down to $416, a 93% drop. In fact, I saw several last year where I was the second lender in on the deal and the developer had to pay out of their pocket to close. That’s not good for anybody.

Let’s look forward. How do you mitigate your risk and maximize your profit? Economists are predicting another 5% drop in 2011. That number should not worry you. Remember, that is the median retail price. With bank owned inventories rising this year it’s a sure bet that wholesale prices will decline even further. But, let’s say you still have to pay $70,000 for this house and your realtor’s market analysis comes in at $115,000.  Not to worry. First, you have to be ready to pull the trigger on the repairs the day you buy the house. Get the contractor started right away. Next, put the house back on the market as soon as you can – within 30 days. You may have some major construction going on when the first buyer takes a look but the buyer’s realtor can help them visualize the finished product. Have your description of materials ready and even color brochures of appliances, cabinets, etc. for them to look at.

Do not write a contract though until all of the major work is completed. The ten-day inspection period starts and you don’t want anything holding up the process or create a situation where multiple resinpections have to be ordered. Most importantly though, find a lender that will not make you wait 91 days to write the contract. U.S. Bank allows for property flips that are sold in less than 91 days on contracts with FHA financing. The only caveat is that the bank will have to order their own home inspection right up front and you will be required to address all HUD “health and safety” items on the home inspection. You are most likely doing this already any way.

Now you sell the house on day 45, write a 45 day escrow and close by day 90. You’re probably safe on the appraised value as the comps used on the appraisal tend to be lagging 30 – 90 days. You’ve just turned a profit of $5,952. Not bad. Especially if you have several in production at one time.

Now, back to the beginning quote. Don’t buy that house for $70,000. Wholesale prices dropped. Every $1.00 in savings on the purchase price adds $1.05 to profit. “It’s not what you sell it for….”

Contact Daniel Duckworth at his office at 480-538-5682 or cell phone at 602-526-1283 or by e-mail at daniel.duckworth@usbank.com

New round of Agency credit tightening

Earlier this month the Obama administration announced its goal to reduce government involvement in mortgage lending.  Currently  85% of all mortgages are funded by FHA, VA, USDA, Fannie Mae or Freddie Mac. The administrations immediate stated goal is to shrink that number to below 50%.

As we’ve learned over the years, lenders will slow down lending activities by using two tools. Raising rates or tightening underwriting guidelines.  Look for both of these to happen.  More with conventional loans then FHA loans though.  Look for Fannie Mae and Freddie Mac to start requiring a minimum of 10% down in the future. FHA will most likely raise their mortgage insurance premium by .25%.

Factbox: Short term plans to reduce U.S. govt role in housing
The Obama administration unveiled on Friday a plan to unwind the government-controlled mortgage buyers Fannie Mae and Freddie Mac. Below are the administration’s short term steps to reduce the government’s role in the $10.6 trillion mortgage market.

http://www.cnbc.com/id/41532848/

Here is a prime example of underwriting changes already taking place. Borrowers have been allowed to pay off debt in order to qualify. That is changing for revolving debt. That debt must now be counted even if you are paying it off. Solution:  We counsel our customers to pay off debt before point of application.

Here’s the silver lining.  With the government pledging to get out of the mortgage market private investors will step in. We can envision lending actually getting back to a common sense approach soon.  Raise your hand if you would trade higher mortgage rates for more common sense underwriting and more speed in the process and more approvals. That day is coming.