FNMA’s new “deed for lease” program
WASHINGTON – Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday.
The government-controlled company, through its new “Deed for Lease” program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that.
Add comment November 5, 2009
Congress considers increasing FHA down payment
Congress is considering a proposal to make FHA down payment 5% instead of 3%.
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Add comment November 5, 2009
Should you disclose to the lender on short sale flips?
Short sale flips – the process of shorting a property then reselling it for a cash profit in a simultaneous closing has been taking heat lately from title companies and real estate brokers. Realtor blogs are filled with drivel about how these transactions are illegal or unethical. What’s the real truth?
The Basic Process
The process of the short sale flip works as follows.
Step 1: Investor signs a contract to buy a house from a seller who is behind in payments.
Step 2: Investor contacts seller’s lender to negotiate short sale
Step 3: Investor gets lender to approve short sale
Step 4: Investor lines up backend buyer
Step 5: Investor closes with seller, paying off lender, then resells to backend buyer in simultaneous closing for a profit.
In essence, this is no different than a regular wholesale flip except instead of paying off seller’s lender in full, investor pays off seller’s lender at a discount.
The Hoopla
Some Realtors and title companies think there should be full disclosure to the lender and seller about the resale of the property, otherwise the bank and seller are being “defrauded”. In order to be defrauded, someone must be owed a legal duty of disclosure.
As far as disclosure to the seller, I see no issue because the seller is not getting any money out of the deal either way. His lender will not agree to a short sale while the seller walks away with money. So any profit made by the investor is fair game. As far as disclosing to the lender that you plan on reselling the property for a profit, of course you are going to do that. That’s what investors do – they make a profit. If you planned on keeping the property as a killer rental instead of flipping it, there would be no issue. If you fixed the property up and sold it 3 months later, there would be no issue. For some reason everyone gets upset because you are flipping it an hour later for a profit. In order words, what exactly triggers a duty to disclose to the lender that you intend to make a profit?
Disclosure
Chances are this will end up in court someday and a jury will have to be convinced that failing to tell people you are reselling your property for a profit is somehow a fraud upon the lender or the seller. Nobody wants to be the test case, so I think that to be on the safe side, your contract with the seller should clearly disclose that you intend to resell the property for a profit.
“Buyer may resell the property in a simultaneous closing for a higher price and make a profit.”
This covers the seller, but what about the lender? Well, the lender gets a copy of the contract in the short sale package the investor submits to the lender. This puts the bank on notice (We all know that the package is 100 pages long and the bank’s loss mitigator is probably not going to read the contract in detail, but who’s fault is that?). Should you further disclose in your cover letter to the lender that you have a buyer lined up to resell the property to at a higher price? Maybe. Maybe not.
Add comment November 3, 2009
8k tax credit deal reached by Senate
A deal has been reached by the Senate that would extend the 8k tax credit and then some. Income limits would be extended to 225k for couples and there would be a $6500 credit for people who are repeat buyers.
1 comment October 29, 2009
Report: Borrowers more likely to walk away when there’s no recourse
If you owe more than your house is worth and it gets foreclosed, a bank can come after you personally for a deficiency. Except, however, in states like CA which prohibit a deficiency on a personal residence (except if you refied your loan or it’s a VA loan). In states that have anti-deficiency statutes, homeowners are more likely to walk away because there’s nothing to lose – except your credit.
Add comment October 28, 2009
Barron’s – Tax Credit Worse than Thought
By RANDALL W. FORSYTH
Barrons, October 21, 2009
THE FEDS SEEM INTENT UPON REFLATING the housing bubble. Not the Federal Reserve, as you may have read elsewhere, but the federal government.
Following the cash-for-clunkers idiocy, the federal government may extend its subsidy for homebuyers.
As an inefficient use of taxpayer money, clunker cash pales besides the homebuyer handout. With housing affordability currently the best it’s been in most of our lifetimes, with marked-down home prices and mortgage money in the 5% range, you wouldn’t think homebuyers would need a subsidy.
But there it is, and it’s a lot more expensive than you think.
How’s that possible? Gayer figures that of the 1.9 million homebuyers that will get the $8,000 tax credit, 85% would have bought a house anyway. The price tag of $15 billion — about twice what Congress had intended — he reckons will result in approximately 350,000 additional home sales, at a price tag of $43,000 for each additional sale.
The National Association of Home Builders, not exactly a disinterested bunch, figures the subsidy would boost house sales considerably more, by 700,000 homes. That implies each of those additional sales would cost American taxpayers only $133,000 — still “a very expensive and poorly targeted subsidy,” writes Gayer.
Unbelievable, you say. But remember, everybody gets the subsidy, both the vast majority who would have bought any way and yet are getting a windfall, plus those who were lured into the market by the largesse. It’s like buying free drinks for a crowd that’s bellied up to the bar with their wallets open already.
In actuality, that cost does not come in the form of checks being mailed out to homebuyers. They get an $8,000 credit to their 2009 taxes when they file their return next April 15 — a “tax expenditure” in the jargon of Washington. Either way, there’s less money in the Treasury after it racked up a $1.4 trillion deficit in the fiscal year just ended — equal to 10% of gross domestic product, a percentage not seen since the nation was paying to fight World War II.
“There are two larger points we should not lose sight of,” Gayer writes. “First, tax expenditures are not a free lunch. The billions of dollars spent on the tax credit will ultimately have to be paid back through higher, economically distorting taxes. And while a tax credit is unlikely to be the straw that breaks the camel’s back, our growing debt burden is something to fear.
“Second, government policies to promote homeownership (or, more accurately, home-borrowership) were partial contributors to our housing and credit market problems,” he continues. “Ultimately, we need to decrease the government’s housing incentives, including the mortgage-finance subsidies, the mortgage-interest deduction, and the favorable capital gains treatment for housing. A good place to start this weaning would be by not extending or expanding the home-buyer tax credit.”
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By RANDALL W. FORSYTH
Barrons, October 21, 2009
Add comment October 23, 2009
Homebuyer Credit Scams?
AP – Tens of thousands of people may have taken advantage of the first-time home buyer tax credit to defraud the government, an IRS watchdog office said Thursday, in testimony that could jeopardize efforts to extend the popular program.
Add comment October 22, 2009
The Housing Market Shows Signs of Recovery or Does It?
Finally, after a debilitating plunge the housing market is showing signs of a recovery. Statistics show that home sale prices have steadily rose for the last few months but that rosy picture is still tainted from the on-going foreclosures and layoffs. Homebuyers have mega incentives at their disposal to purchase new and resale homes and many have taken the opportunity to breathe life into the housing market but we are not out of the woods just yet.
According to the Case-Shiller Price Index, compiled by Standard & Poor, July had an outstanding increase of 7.2 percent in home sales which accounted for the largest jump in the last ten years. It makes you want to breathe a sigh of relief and the increased numbers show improvement but let’s really take a closer look at this recovery before bringing out the balloons and party favors.
A third of the recent increase in home sales is first-time home buyers taking advantage of the federal tax incentives and these first time homebuyer tax incentives end in November. Another third are on account of foreclosures that unfortunately will not end anytime soon.
While the country is becoming excited about the recent influx of home sales the Case-Shiller national housing report explains this surge of home sales; Looks like the lower the price tag the higher the sales and homes selling for over $250,000 are still down.
Prospects for a full recovery look good but slow coming; more foreclosures are on the horizon. Sub-prime creative loans were all the rage in the mid-2000’s and the focus was on interest-only payments but the time is quickly coming for those payments towards the principal with ballooned interest rates. Are homeowners ready for this? Not all of them. Could this mean a new wave of foreclosures? Yes!
Interest-only creative sub-prime loans were a resourceful way of buying more than you needed and more than you could afford. Homebuyers could purchase a home and pay the interest while delaying any payments towards the principal for several years. However; not only are those principal payments coming due but now the payments will increase double and triple the amount. While homeowners were certain their salaries would have increased and career goals had been met, during this downturn in our economy most have been sadly disappointed.
So we’re looking at this surge of home sales as the beginning of a recovery but the tax credit will be eliminated in the next two months and we’re still facing layoffs and foreclosures…it’s too soon to call it but for homeowners looking to buy, it’s still advantageous to get a new home now.
Add comment October 7, 2009
Home Warranty Plans Can Save Buyers and Sellers Repair and Replacement Fees
After all the trauma of seeking your dream home homebuyers rarely think about what could possibly break and that could cover a multitude of items. As a home seller just think of the peace of mind you could have by purchasing a warranty package for the unknown. And what an enticement; purchasing a resale property with a protection plan in place. Homebuyers will be more willing to deal.
Any unexpected repairs and replacement costs can quickly add up and put a dent in your pocket. With a slow moving real estate market warranties make homes that are for sale more attractive to prospective homeowners.
Your home could be pristine, kept in an elegant manner but nothing lasts forever. The best well maintained home will need some form of upkeep one day and most resale homes have some of the original appliances. Homeowners never intend for something to stop working but face it, everything comes to an end at some point.
Home warranties are inexpensive insurance plans that provide a specific coverage if an appliance malfunctions. This could mean repairing or replacing the appliance depending upon the type of coverage you purchase. All plans differ including the exclusions and out of pocket fees, so it’s best to compare various home warranty packages.
Typically a home warranty will cover items like:
• Dishwashers
• Microwaves
• Refrigerators
• Stoves, Ovens
• Garbage Disposals
• Water Heaters
• Washer and Dryers
• Air Conditioning
• *Furnace/Heater (some packages include this as an add on for an additional fee)
Items that are not usually covered:
• Septic tanks
• Window a/c units
• Pools
• Garage doors
But buyers beware; each warranty package will include a denial of coverage clause; this will apply if the homeowner fails to take proper care of the item. Improper conditions, unusual wear and tear and improper installation will usually negate the contract however; because every package is different you should pay close attention to contract exclusions.
Add comment October 7, 2009
