Another Example of why Fannie and Freddie don’t like condos……

Here are two more examples of why Fannie and Freddie are not very excited about condos:

• Example #1 we have a 216 unit condo complex with only 1 occupied unit.    That means that for an association who’s budget is $86,400 per month ($400 x 216 units – strictly an example), they are taking in $400 per month.    That’s an $86,000 shortfall.  Per month.   What are the odds they can continue to do that?
• Example #2 we have an 850 unit condo complex with about 43% of the units occupied, but only 13% of them are owned.   The rest are all rented.   Do you think the 13% who bought their units are excited about sharing the project with tenants who “historically” don’t take as good of care of the property as owners do?   Using the same $400 per month budget for association fees, that condo project is only taking in $43,600 per month.    That puts them on a $296,400 per month shortfall.    Per month.   What are the odds that they can continue to do that?

These are just two of the type of condo problems that are making Fannie and Freddie very leery of condo projects.   So, if you are thinking of taking advantage of the deals in real estate out there and looking at buying a condo, do your homework first.    Here’s a quick overview of the main points to look at:

• What percentage are owner occupied first or second homes rather than rentals?  (The goal is 90%)
• If there are rentals allowed, do they allow weekly or daily rentals (if so, the answer is no from Fannie and Freddie)
• Does any one entity own more than 10% of the total project (in terms of completed units?)
• Is the association’s annual budget showing a deficit (see above).  If so, the answer is no.

Those are by no means the only issues that need to be addressed, but if you can clear those four, then you have a big clue as to whether it will work or not.

If you find a condo project that doesn’t meet Fannie and Freddie’s guidelines, what can you do?   It’s pretty simple.   You need to find a portfolio lender who doesn’t follow Fannie and Freddie’s guidelines.

K

Calculated Risk: Vacant High Rise Condo Units

A couple of articles about vacant or near vacant high rise condo towers in Florida …

From the News-Press: Sole occupant of 32-story Fort Myers condo wants out

Victor Vangelakos is the only buyer to take possession of his unit in the 32-story Tower 1 of the Oasis high-rise project in downtown Fort Myers.

Apparently the original plan was to build 5 towers with a total of 1,079 units. That is about 216 units per tower, and all but one unit are vacant in Tower 1. Tower 2 appears to have few lights on too.

And from the WSJ on the 850-unit Everglades project in Miami: BofA Lawyers Rebuked in Cabi Case

Only 109 or about 13% of the Everglades’ 850 units have sold, according to CondoVultures.com. However, as of last month, the developer has rented about 260, or about 30%, of the units, in what it calls a “deferred purchase program.”

That sounds like another 480 vacant units.

Many of these high rise condo towers are part of the “shadow inventory” because the units do not show up on either the new home sales or existing home sales reports (unless they are listed in the MLS). For some areas – like South Florida and Las Vegas – this is a significant part of the inventory.

You know, 20 years ago, we didn't need Straight Talk in the mortgage world.   Everyone did the right thing and everything moved along......

Now we do.   Would you like to work with a lender who will tell it to you straight?    Would you like to have someone looking out for what's best for you?

Would you like to work with a lender who has to blog under a pen name - because their bank doesn't like what they are saying?

If so, call us at 330-536-3623 or send an e-mail to info@straighttalkaboutmortgages.com and we'll have one of our team of lenders get back to you, typically within 4 hours during normal week days.

Kenny H.

A Picture is Worth a Thousand Words

Technorati Tags: Spending, Government, Budget Deficit

You know, 20 years ago, we didn't need Straight Talk in the mortgage world.   Everyone did the right thing and everything moved along......

Now we do.   Would you like to work with a lender who will tell it to you straight?    Would you like to have someone looking out for what's best for you?

Would you like to work with a lender who has to blog under a pen name - because their bank doesn't like what they are saying?

If so, call us at 330-536-3623 or send an e-mail to info@straighttalkaboutmortgages.com and we'll have one of our team of lenders get back to you, typically within 4 hours during normal week days.

Kenny H.

Straight Talk will be quiet for the next few days…..

As we are undergoing some structural changes, some site changes, and some ideological changes as well.   Stay tuned and thank you for your patience.

In the mean time, if you have any mortgage or finance related questions, send them to Info at Straight Talk About Mortgages.

You know, 20 years ago, we didn't need Straight Talk in the mortgage world.   Everyone did the right thing and everything moved along......

Now we do.   Would you like to work with a lender who will tell it to you straight?    Would you like to have someone looking out for what's best for you?

Would you like to work with a lender who has to blog under a pen name - because their bank doesn't like what they are saying?

If so, call us at 330-536-3623 or send an e-mail to info@straighttalkaboutmortgages.com and we'll have one of our team of lenders get back to you, typically within 4 hours during normal week days.

Kenny H.

A Look Back – What Has Changed and What Hasn’t?

In July of 2008, I wrote a piece as a guest post on Paul Kedrosky’s site, Infectious Greed.    I called that piece The Top 7 Things Every Home Buyer Should Know.   The piece got a lot of “press” and actually got me interviewed by the New York Times.    I was talking with the reporter who I’ve gotten to know at the New York Times about a month ago and we realized that it was almost exactly a year since he had ran the piece, “Considering the 7 Year Plan.”    He made a comment at that point, “It would be interesting to see what, if anything, has changed over the last year in your opinion of what a home buyer needs to think about.”     I agreed and decided at that point to do that.

So this is the introduction to what will be a 7 part series over the course of the next week or so.   I’m going to take each item, one by one, and look at what my view was in July of last year and then factoring in what I think has or has not changed over the last 15 months.

Here’s a hint for you – out of the 7 parts, I think that we’re going to find that at least 3 or 4 of them have changed substantially.

I’ll have the first one up in a day or two.

Thanks for listening in/reading what my thoughts are…..

 

Tom Vanderwell

What happens when they take the punch bowl away….

A good analysis of what we might be heading toward a deflation to inflation economy……

Inflation, Deflation

Straight Talk Lending – Verbal Verification of Employment – on a self employed borrower?

Okay, here’s the next installment in what could be called “Obstacles to getting a loan.”

It used to be that for all employed borrowers (people who work for someone else) we’d have to do a verbal verification of employment within 10 days of closing.   Not a big deal.

Now, the rules are the same for employed borrowers, but they’ve added a new guideline for self employed borrowers.   For self employed borrowers, we need to do a verbal verification within 30 days of closing.   How do we do a verbal verification of employment on a self employed borrower?   A couple of options:

• A phone conversation between someone in the operations department at the bank and the borrower’s CPA.
• A written letter from the CPA verifying that the business is still operating.
• POTENTIALLY a copy of a business license or something like that.

Why are they doing that?  I’m guessing, but a couple of thoughts:

• In today’s economy, there are a lot of small businesses that have closed their doors.
• Fannie and Freddie want to make sure that they aren’t doing loans to a self employed borrower who’s business has tanked since the end of the last tax period.

Another paperwork hassle, another hoop to jump through.

I’ll continue to keep you informed.  If I can help you navigate the new rules, call me at (616) 292-7559 or e-mail me at tvanderwell@straighttalkaboutmortgages.com.

Thanks!

Tom Vanderwell

Straight Talk Lending

Straight Talk Lending – Age of Documentation

It’s time to deal with another one of the changes in the underwriting
guidelines and how that might affect you and/or your clients.   This
one is about the age of documentation.

What?  Paystubs can get old?   Yep.    Let me explain:

The old way:  For
loans on existing construction (houses that are already there before we
close), it used to be that as long as the documentation was less than
120 days old, that was good enough.    For new houses where we were doing a construction loan, as long as the documents were less than 180 days old, we were good.

The new way: For existing homes, that time frame has dropped to 90 days and for new construction, it’s dropped to 120 days.  Oh, and the documentation can be no more than 30 days old as of the date of application.

No big deal right?   Well, consider a couple of scenarios where it could mess you up:

• Customer applies for a mortgage on August 2.   For a variety of reasons, we need to verify the money that he has in his 401K plan for cash reserves.    Guess what, we can’t use the quarterly statement that he got sent on June 30.   Why?  Because it was 33 days old as of the date of application.   So he’s got to get another statement from his 401K through July.  Guess what, his 401K provider only does quarterly statements, so he’s got to get a special one printed out.
• Short Sales – we all know stories of short sales that have taken a very long time.  I’ve rarely had one take more than 90 days, but that’s one more thing you have to keep track of.   If you are buying a short sale and it’s taking forever, you might very well have to update all of your documentation with your lender.    You don’t want to find that out at the last minute because most short sales are written up in such a way that the selling bank wants to close within like 72 hours after they sign off on it.   

Now I’m going to climb on the soapbox a little bit.    I believe that many of the changes in underwriting guidelines are truly warranted.   We got way too lax and gave many mortgages to people who shouldn’t have gotten them.   I don’t believe that the tightening up of this particular guideline will do anything other than create more paperwork hassles.

I’ll have more as time goes on, but in the mean time, keep track of the date of application, the dates on the documents and make sure it doesn’t “trip you up.”

And if I can be of help, give me a call at (616) 292-7559 or e-mail me at tvanderwell@straighttalkaboutmortgages.com.

Thanks!

Tom Vanderwell

Straight Talk Lending

Wall Street – What Happened – Part 1

An interesting video series on what happened by the Wall Street Journal…..
Parts 2 and 3 will run Friday and next Monday.

Wall Street

125% Loan to Value Refinance Loans

According to Housing Wire, Fannie is accepting 125% refinance loans starting on August 1.

Here’s what I know from “my bank:”

• It’s still only first mortgage to first mortgage refis for loans that are currently with Fannie or Freddie.   You can’t roll a second mortgage into it.
• If the loan is above 105% of the value of the house, there are pricing adjustments that didn’t used to be there.  These pricing adjustments quite realistically price the “risk” of writing a refi for up to 25% more than what the house is worth.
• Because of these adjustments, I don’t expect that these will result in that many refinance transactions and won’t result in that many people who are able to keep their homes strictly because of this program.

A good PR move (maybe), but not a real big market mover in my opinion.    If you want to talk about it more, dial me up at (616) 209-8811 and I can tell you how this might affect your loan.   Or you can e-mail me by clicking Tom Vanderwell.

Thanks!

Tom

Fannie Mae Moves Up Start Date for 125% LTV HARP Loans : HousingWire || financial news for the mortgage market

Fannie Mae (FNM: 0.5838 +0.66%) will accept mortgages refinanced through the Home Affordable Refinance Program (HARP) with loan-to-value (LTV) ratios between 105.01% and 125% on August 1, one month earlier than previously announced.

125% Refinance

The Fed Translated….

Yep, it’s that time again.    The Fed met yesterday and today and came out with their announcement this afternoon at 2:15 pm.   I promise that this one won’t be as long as the last Fed Translated was.

As usual, my comments are in bold and italics…..

April 29, 2009

For Immediate Release:

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.  The downhill slope is less steep than it was.  Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.  We aren’t going to see a substantial turn around in the economy soon.  A weak, ambivalent turn around, probably, but not a strong return to growth.  Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. What else could they say but to say that they anticipate that what they are doing will eventually work?   Would the markets be happy if they said, “We don’t have a clue whether what we’re doing is going to work?”   Nope.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. They don’t say for how long, but I’m going to say that I think we’ve got 12 to 18 months until we start seeing a rapid spike in inflation and a rapid jump in interest rates.  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.  Let’s look at that for a minute.   They think that inflation would be lower than is healthy for a while and so…. So they are going to do what they can to spur things on and encourage inflation – which brings up the possibility that they’ll stir up inflation that they can’t “control.”   Kind of scary…..

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of financial and economic developments.  They are going to continue to do what they’ve been doing because: 1) They don’t want to take the step that they are trying to avoid which is to overhaul the banking system and 2) If they aren’t willing to take the big steps with Bank of America, Citibank and others, they have nothing else they can do.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Tom here….. So what do I expect the Fed’s statement will do to the markets?   Actually, probably very little.   We might see a little more volatility in the next few days but I expect that we’ll see more volatility and turmoil out of the results of the banking stress test than we will out of this statement.

The Fed Translated

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