FHA and REO Properties

HUD’s Real Estate Owned (REO) properties are a result of paying a claim to a lending institution and the lender transferring ownership of the property to HUD. Typically, title to REO properties is held by the lender prior to transfer to HUD due to the borrower’s default on the mortgage.

Through the Property Disposition Insured Sales Program, HUD offers its REO properties for sale with FHA-insured financing available. Properties must meet FHA’s minimum property standards. The appraisal process is HUD’s primary tool for determining the listing price of FHA REO properties.

Eligible purchasers of the property may be both owner-occupied borrowers and investors as well. For owner-occupied properties, the borrower’s down payment is generally the required 3.5%. When investor financing is requested the down payment is 25% for one-unit properties and 15% for two, three and four unit properties.

However, in some markets, the cash investment requirement may be reduced by the local HUD office. HUD may authorize additional sales incentives that can include down payment reductions or permission to include closing costs into the loan. Where additional incentives are authorized, they will be noted in writing on the HUD Sales Contract. As an example, one incentive offered by HUD was the down payment of $100 and $2,500 in cash at closing to pay for closing costs, tax pro-rations, repairs to the home and replacement of items in the home.

All HUD REO properties must have utilities inspected. HUD’s contractor will permit entry to the purchaser during the contract period to activate the utilities for the purpose of conducting a home inspection. In the event the home inspection reveals that repairs are needed which no longer makes the property eligible for an FHA loan, the lender should contact the HUD contractor to discuss alternatives to allow the sale to continue.

In the event the repairs are substantial, the borrower may wish to finance eligible rehabilitation in the purchase loan utilizing the FHA 203k Rehabilitation Program. When the repairs for the property are less than $5,000, HUD will allow a cash escrow account to be established and all repairs must be completed within 90 days. The escrow account must be administered by the mortgage lender arranging the new financing. The 203k Rehabilitation Program is not allowed on investor financing.

To locate HUD REO properties go to the website of the U.S. Department of Housing and Urban Development at HUD.Gov. Once there find Topic Areas then HUD Homes.

FHA Minimum Credit Scores

FHA Minimum Credit Scores

The Federal Housing Administration (FHA) has announced recently the minimum credit scores they will allow on loans they insure will be increased. Effective October 4^th, on all new loans, the minimum score allowed on loans with 3.5% down payment will be 580. Currently FHA will insure loans with a minimum credit score of 500 with 3.5% down payment.

However, most lenders, including Bank of America, are now adjusting the minimum credit score effective October 4th from 580 to 620 with a 3.5% down payment. This is known as a credit overlay in the lending world. So why, if FHA will allow 580, would a lender set the standards higher? The number one reason is the investors that buy pools of mortgage backed securities won’t buy securities if the minimum credit score is below 620 going forward.

Currently, 95% of all home loans closed are backed by Fannie Mae, Freddie Mac or FHA. This means that almost all of the home loans closed are being put into pools of mortgage backed securities and those securities come with some form of government backing to the investors that buy them. The private sector, which is jumbo home loans, does not offer any form of guarantee and therefore no one is buying them. The largest of banks are keeping the jumbo loans on their books and they are known as portfolio loans.

Even with the government backing, investors are fearful of additional short sales and foreclosures therefore they bid on pools that have the highest of standards only. As long as the secondary markets are still not functioning properly the lenders must have credit overlays on government programs in order to sell the pools of loans. While this in turn allows the lenders to raise more capital in order to make new loans, it does keep tighter standards of underwriting than we were used to several years ago.

10 reasons to buy a home now.

In reading Wall Street Journal I found this article quite interesting:

http://online.wsj.com/article/SB10001424052748703376504575492023471133674.html

Detailed Market Overview

Friday’s bond market has opened down slightly following mixed results from today’s important data. The stock markets initially opened flat but have since fallen well into negative ground with the Dow down 93 points and the Nasdaq down 17 points. The bond market is currently down 4/32, which should keep this morning’s mortgage rates at yesterday’s levels.

The Labor Department gave us today’s more important data with the release of June’s Employment report. It revealed a surprising 9.5% unemployment rate when it was expected to rise to 9.8%. The data showed that 125,000 jobs were lost during the month, which was close to forecasts of a decline of 100,000. It also said that average hourly earnings fell 0.1% when forecasts were calling for a slight increase.

The drop in the unemployment rate can be considered negative for bonds, but analysts feel this decline was more to unemployed workers giving up on finding a job than it was more people working. The number of payrolls lost is fairly neutral as it was close to forecasts and the declining wages reading is good news for bonds because it eases any inflation concerns that may exist. So overall, the data has failed to either impress or concern the bond and mortgage markets.

The Commerce Department released May’s Factory Orders data late this morning, announcing a 1.4% decline in new orders at U.S. factories. This was much weaker than expected but doesn't carry the influence that some of the other monthly reports do. Therefore, its impact on this morning’s rates has been minimal.

Next week is very light in terms of relevant economic reports scheduled for release. There are no important Treasury auctions or other events scheduled that are likely to affect mortgage rates. The financial and mortgage markets will be closed Monday in observance of the Independence Day holiday and will reopen Tuesday morning. There is no early close for stocks or bonds today, but I suspect this afternoon’s trading will be light as traders head home for the long weekend. Look for more details on next week’s events in Sunday’s weekly preview.

Tips for Realtors (but good for buyers also)

10 Tips to avoid delays in Short Sales
The short sale process is complex and involves many different parties who must all agree to take a loss on an outstanding debt (for example, investors, additional lien holders, and mortgage insurance). This leads to a longer timeline than a traditional home sale. Here are some key factors that you can influence to help minimize delays.
1. Set appropriate expectations with sellers, buyers and buyer’s agents so that they understand the complexity and resulting length of time a short sale can take.
2. Have the homeowner call the Short Sale Customer Service (866-880-1232) to start the process and register in Equator. Prepare the homeowner to provide the complete financial hardship documentation, including all sources of income, assets and liabilities and have it updated regularly to Equator.
3. Ensure that the property is listed on MLS, and actively marketed for sale.
4. Negotiate external 3rd party fees prior to submission of HUD (for example, the following fees are typically not approved by investors: short sale negotiation, reconveyance, document preparation, notary, recording, courier, processing). Supply the complete HUD-1 that is valid for at least 60 days and includes all fees.
5. Review all documents & document images for accuracy and clarity prior to upload.
6. Ensure that the customer and agent tasks are completed as timely as possible (for example, accepting short sale assignment, submitting short sale offer, and uploading offer documents must be done within 7 days).
7. Work to get a purchase offer representing the best possible fair market value (with current detail on the market and activity) and highest net proceeds for the investors.
8. Submit fully executed purchase offers with all appropriate addendums signed by both buyer and homeowner, and include all supporting documentation.
9. Work to get a release on outside liens as early as possible.
10. The following situations will cause delays. Please notify us as soon as possible if:
 Change in buyer or agent or terms at any time during the process
 Customer files bankruptcy/divorce
 Any changes after the approval letter is issued (be conscience of the expiration date)

Is the Market Improving?

'Double dip' decline seen for housing

BY JONATHAN LANSNER

2010-06-17 16:06:05

Christopher Cagan is a veteran Southern California economist who is perhaps best known for his real estate analysis with title insurer First American. He now consults and operates the InvestmentMeasures.com investment-management Web site. We asked him what he's seeing in the cards for the real estate market ...

Q: What are your thoughts on real estate going forward?

A: In the short to near term, I expect a double dip. This is the logical aftermath of the sugar shot from the federal first-time buyer tax credit. It borrowed buyers from the future, and we are now going into that future. Also, we are not too far from the end of the traditional SoCal buying season. I have already seen asking prices reduced 5 percent or so in May from April.

But I don't expect a catastrophic drop. To a great extent, prices and mortgage rates are now governed by the authorities -- Fed, government, etc. This used to be called a "socialist" model. I really don't see how 30-year mortgage rates can stay at 5 percent, but there they are. But 96 percent of all mortgages are now made/guaranteed by the government in one form or another. Mortgage rates are low, what I would consider a steal. Hence social policy has supported home prices and insisted that interest rates be low. Since we're largely operating on a socialist rather than a market model, I don't see home prices going down much more.

Q: Will this hold up all values?

A: The only exception is the high end, which I expect to keep falling, because jumbo mortgages can't be passed on to Fannie Mae/Freddie Mac -- and also because there are fewer move-up buyers. For instance when someone buys a foreclosure there is no seller to move up. But I do see a long, draggy, and bumpy bottom, extending through 2011 or even 2012. This will be an inventory-driven bottom, as the current and especially shadow inventory gets worked through. It will take a while to work through all of this and get back to "normal" market conditions.

Q: And Orange County?

A: I believe that Orange County will be the first to recover in real estate. It is the "first choice" area, and recovered early last time. People only went to the Inland Empire after they were priced out of OC, and the inland areas didn't really catch on fire until 2003. That is, Orange County is the canary in the coal mine. A successful project will signal the beginnings of the next upturn. But we're not there yet.

Q: So when does the ugliness end?

A: I see significant price rises starting in -- or near -- 2013 and going on for several years after that. It will begin in first-choice areas such as Orange County in particular, with second choice areas (Inland Empire) not catching on until later.

There are two reasons for this upcoming bull market. First, home prices in Southern California are cyclically undervalued. They were clearly overvalued in the boom -- kept especially high by generous lending, which made such prices possible) --but now they are below the 20 to 30 year trend line. I am telling my friends to buy. For some of them, if they don't buy 2010-2012 they never will be able to buy.

Second, I see the return of inflation. With our huge budget deficits and outright money creation, not to speak of rising senior and other entitlements, inflation has to rise (that is, the dollar has to depreciate). Inflation, of course, will raise real estate prices.

Many people will simply not believe that good things will happen to real estate any time soon, if ever. They are burned out on that. They see bad news all the time. So I don't want to sound like "Here is that cheerleader again!" but there will be a recovery down the road.

Q: Don't you worry about mortgage rates?

A: True, mortgage rates will go up. But history tells us that home prices -- again, coming out of a deep bear situation, coming out of an undervalued situation -- will outpace inflation. Think of the 1970s, an inflationary period, when for six years in a row California single-family resale prices rose at 20%-plus per year, outpacing inflation every time. So by 2020 we could see some really high home prices, higher than 2006-07 boom prices, admittedly in inflated dollars.

Q: How bad could it get before recovery?

A: I think our general economy could well have a Japanese-style "lost decade." Some have argued that we have already had one -- stocks no higher than ten years ago, lower after inflation -- and that we are now going into a second one. Where are the engines of growth? Where are the jobs? I see a slow recovery and I also see inflation down the road.

© Copyright 2010 Freedom Communications. All Rights Reserved.

Great News for those with Short Sales on their credit

Fannie Mae Relaxing Rules

FNMA has recently announced the minimum waiting period to obtain a new mortgage after a short sale or deed in lieu foreclosure is being reduced. Effective, July 1, the wait will go from a minimum four to five years to two years. FNMA wants to encourage solutions for homeowners and to avoid foreclosure.

A minimum 20% down payment is required to qualify for the two year minimum payment. With 10% down the four year minimum will remain in place and less down will be longer. Foreclosures remain at a five year waiting period.

Extenuating circumstances, such as a job loss or a divorce, allows a two year minimum with 10% down. FNMA expects borrowers to reestablish their credit as well. Foreclosures and short sales generally have the same effect on a borrower’s credit score. Three active revolving or installment debt credit trade lines for a twelve month payment history will be required. Nontraditional credit will not be allowed.

FHA, with 3.5% down, is considering changes in their guidelines which currently requires a minimum of three years after a short sale or deed in lieu foreclosure.