I was surfing the blogs on the ‘Rain' looking For Jumbo Stated Loans to compare what is available and what the group I consult for has. So I decided to at least share with the members of the Rain community this information.
ANNOUNCEMENT:
STATED RESIDENTIAL OR COMMERCIAL JUMBO PROGRAM
Are You Looking to Buy or Sell a Residential or Commercial Property that is between $500,000 and $20 million?
A program that may be able to help a seller and buyer get the deal done!!
This program is designed for purchasers that can't qualify for conventional loans associated with the purchase of real estate - residential or commercial - within the 50 states. No matter the reason - poor credit, non documentable income, self employed, cash income or need of a discreet acquisition - if the purchaser has the required down payment amount and attest they can afford the property - they are approved.
Sell Your Property using our program. Buy a property using our program!
Price Range - $500,000 to $20,000,000 (purchase only - no refi's)
Residential and Commercial - can't be in remote location - no vacant land.
Non Owner Occupant Properties OK
Interest Rate - between 7% and 9%
Down payment Funds - no sourcing or seasoning required
No, this isn't a trick question nor are we opposed to savings - in fact, liquidity is an essential survival strategy that helps investors at all levels ride out tough economic times; however, it is possible to take anything to the extreme including savings.
As Americans across the nation embrace savings for the first time in years, there is a growing need for rational financial reasoning especially when it comes to investments. For years consumers were content to spend money they had not earned then simply make credit card payments or take out a second mortgage. Today all that changed as the rate of savings has gone from literally less than zero to nearly ten percent within the past two years.
While paying down debt and getting one's financial house in order is always a good thing - it is not the same as investing. Setting aside money for a rainy day and keeping a little extra on hand for emergencies is also a solid strategy but should never be confused with growing your money.
Let's take an up-close and personal look at short sales versus savings to see how it will impact the average investor. We will use a hypothetical case study of Mr. Saver versus Mr. Short Sale to see how each strategy plays out over time.
Mr. Saver
Mr. Saver is like most average American's; he is fortunate enough to still be employed and has an "average" household income that just happens to reflect the nationwide median - $50,000. Mr. Saver is 30 years of age with 1.3 children (the third child is a very spoiled dog), married and wishes he had more time to spend with friends and family. Mr. Saver has another 35 years to work before qualifying for Social Security (actually 37 more years but who is counting) and puts away a whopping 10% of his income each and every year....which is far above the national average but we are going to use extremes to show the very real difference in expectations.
At the end of the year, Mr. Saver has put $5,000 into savings and plans to continue with this same habit for the next 30 years. Current interest rates are roughly 2 percent (if you are lucky). At the end of 30 years Mr. Saver will have a balance of $215,750 after managing to save $156,200. Sounds pretty good right? Well, not really. First of all you need to take inflation into account.
Using a historical 30 year adjustment, that same $215,750 will only be worth approximately $73,000 in today's dollars. Yes, we know that is less than what you paid in but that is how inflation works...it robs your money of value over time. To add insult to injury, Mr. Saver must pay taxes on the earned interest. Using a conservative estimate from today, that would eliminate at least another $10,000 to $12,000 leaving roughly $205,000 or less than $70,000 in inflation adjusted purchasing power. Wow...Mr. Saver worked hard and did without for 30 years just to set aside about 18 months of income. He better hope Social Security is in good shape by then because he is going to need it!
"Wait a Minute" you might argue, "Interest rates are likely to go up after the economy recovers". That is certainly true but by definition, interest rates typically lag behind inflation rates or the banks could not afford to lend money. Additionally, most people tend to save less when prices rise - remember, just a few years ago the national average for savings was literally below zero. However, for the sake of debate, we will use a historic interest average of 5 percent. At the end of 30 years the total balance would be just under $370,000 with the same $156,200 contribution and $212,000 interest earned. Taxes on interest would conservatively run $25,000 leaving a total of $345,000 or $116,000 equivalent adjusted for inflation. It's Better... but not by much.
Mr. Short Sale
Mr. Short Sale also is employed with a household income of $50,000, 1.3 children and no other debt. Instead of putting his money into a low interest savings account, Mr. Short Sale decides to invest the same $5,000 toward purchasing his first modest short sale home. He decides to rent it out and allow someone else to pay for the mortgage so is able to take hefty tax write-off's after combining the PITI plus depreciation and closing costs. For the sake of simplicity we will assume he rents the home for just enough money to allow the home to pay for itself without making any profit...in reality, it would be much more likely to create a positive cash flow.
Mr. Short Sale continues to purchase a home every 2 years rather than putting the money into a savings account. At the end of 30 years Mr. Short Sale own 15 homes each generating a steady income that pays for itself. One home is paid in full and every 2 years another mortgage is paid off adding to the total number of paid in full homes. Mr. Short Sale can either continue to collect rent every month or sell one or more properties to fund his retirement.
Because real estate is a tangible asset, it has continued to appreciate in value each and every year so those purchased early in his investment career are now worth substantially more in value. In fact, let's assume Mr. Short Sale purchased very modest starter homes for only $50,000 in 2009. In 30 years when he goes to retire, that same property should be worth at least $150,000 due to inflation....that represents only one year's savings compared to 10-15 years worth by Mr. Savings above. Remember, every two years Mr. Short Sales will have another mortgage paid in full.
Ask yourself, how "safe" are your savings compared to short sales?
How to Get the SBA to Finance Your Short Sales Empire
With a display of support for the short sales concept, the Small Business Administration recently announced breakthrough changes to the 504 Loan Program in conjunction with the American Recovery and Reinvestment Act of 2009. Small business owners (defined as those that do less than $5 million in business each year) will be eligible to refinance existing loans that were used to buy real estate or other assets. Even better, the 504 program also provides funding to allow small business owners to purchase real estate as well as fixed assets...including short sale real estate.
This is no small boon for those short sale investors searching for a way to obtain financing in a tough market or wishing to expand their short sale empire through the acquisition of additional types of properties. Keep in mind, small business loans may be interested in acquiring many different types of properties including residential real estate, commercial real estate, retail, storage or many other forms of distressed property.
The enhancement of the 504 Loan program to include refinancing and funding for new acquisitions is especially timely for those short sale investors who have taken steps to incorporate their business or who would like to purchase short sale properties as part of their existing small business. Forming a subsidiary or acting like a holding company is one way to allow your small business to cash in on short sale profits and broaden your bottom line holdings with the bank.
In addition to expanding the scope of new and existing financing options, the program has also increased the guarantee level to 90 percent while correspondingly reducing fees and transactions costs. ARC loans have also been made available to companies facing immediate financial hardship.
Eligibility Requirements:
"Expansion" includes any project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business. The following are some of the conditions under which borrowers will be eligible for refinancing:
* the debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment. The assets acquired must be eligible for financing under the 504 program. * The existing debt is collateralized by fixed assets. * The existing debt was incurred for the benefit of the small business. * The new financing provides a substantial benefit to the borrower when prepayment penalties, financing fees, and other financing costs are taken into account. * The borrower has been current on all payments of existing debt for one year prior to the date of refinancing.
Recent reports have spent a lot of time and effort relating the pros and cons of short sales and other real estate investors, bankers and brokers that dare make a "profit" from short sales but little attention has been given to who walks away from a home and way. Understanding the various profiles can help clear up the confusion while differentiating fact from fiction when it comes to short sales. Here is a short tutorial on who walks and why...plus a few tips to keep in mind when working with each situation.
The Misfortunate - There are always unfortunate situations and circumstances that wreck havoc on people's lives. At the top of the list includes disability or severe illness, divorce, job loss and other life situations which are either too large and significant for the family resources to deal with or which were not planned for in advance. Either way, the cost of keeping a house may become one more additional burden in an already bad situation. Short sale investors are often a very real salvation for those in the midst of a life crisis. Understand what their needs are in order to create a win-win situation which benefits all involved.
The Professional "Victim" - While legitimate misfortunate events and situations take place, some people simply learn how to use the system for their own benefit. For instance, the media ran a series of popular reports earlier in the year showing how average homeowners were unable to make their mortgage payments; one of the featured examples was a woman who had purchased a home ten years ago then refinanced every time her home went up in value. The original 15 year mortgage (which would have been paid in full if she had made one additional payment per year and resisted the temptation to use her home as an ATM) ballooned into an unaffordable monthly payment of quadruple the original cost due to her buying cars, vacations, furniture and other items via taking cash out every step of the way. While there is nothing wrong with living large - when you can legitimately afford it - those that live beyond their means count on the fact someone else will eventually get them out of the bind they are in. Short sale investors are increasingly the only solution to their woes - banks, brokers and others simply can't keep up with the sheer demand.
The Gambler - Speculators are likened to gamblers that place a bet. Sometimes you win, sometimes you lose but either way there are times the gambler just needs to cash in their chips and walk away for awhile. Those that got in over their heads may need to unload the excess, streamline the portfolio and manage their margins in order to play the game another day. While many short sale investors are leery of doing business with another speculator - depending upon the fundamentals used to purchase the property in the first place these can often be especially attractive ventures. Often the seller is savvy enough to consider creative deals and may have bought below market value to begin with.
The Bottom Liner - Another interesting group of people is beginning to emerge; the bottom liner. These conservative, financially responsible people bought below their means, made payments and are not facing a major life crisis...instead, the surrounding property values have plummeted so much that they realize the house would have to be held 8, 10 or even 15 years to break even. Increased property taxes and HOA fees - increasingly subject to hefty increases to compensate for those that are vacant and non-paying - are further impacting their bottom line. By walking away they can cut their long term loss. Plain and simple, it's purely a business decision. Keep an eye (and ear) open for these sellers; their properties tend to be in good order and they are wiling (and able) to make a deal.
When it comes to investing in short sales or simply conducting business in everyday situations it's more important than ever to build strong, effective and reliable relationships that won't let you down. If you are new to short sales it is even more important to understand how to navigate these "people problems" to avoid problems and set the stage for profits. Learn how to begin cultivating relationships that matter with these quick tips below:
Tap into a Team. You have heard about teamwork for years but have you ever really put it to use in your own investments? Sit down and decide who to put on your "dream team" then set out to recruit, hire or volunteer until you have the talent and expertise needed for success. Bankers, brokers, insurance agents, mentors, apprentice, workers, repairmen and others are just a few examples of people to know.
Give - Generously. Nobody likes a 'taker' or 'user' so set the stage up front by giving of yourself...generously. Everyone has something to offer - whether you exchange information or hard labor, make it obvious that you value the contribution and will make it worth their time and effort.
Ask & You Shall Receive. Believe it or not, one of the most effective ways to build relationships that really matter is simply to ask. Be straightforward and share your goals, insight and needs openly and truthfully...then ask for help.
Reward - Never fail to thank those that show a personal interest in your success...no matter how large or small. Gratitude never goes out of style and often it is the simple things that make a major impression upon others.
Make a point of acknowledging and showing your appreciation for any gesture - large or small. Remember, a small matter may demonstrate the type of talent and aptitude deserving of larger attention by big players in the future. Don't neglect the details.
Become Super-Supportive- Cultivating relationships that matter means forming a circle of trusted advisors, experts and others that simply will not allow you to fail. Likewise, you must also become super-supportive in return. Learn how to initiate networking, make meaningful meetings that could assist others even before they ask and stay alert for opportunities that could benefit others even if you are unable to take advantage of it.
Shed the "Self-Made" Myth-Few ideas have done more harm to individual investors than the concept of the self-made man...plain and simple, it doesn't exist. Everyone, to some extent or another, has help and support from someone. Perhaps it is a spouse, the assistance of a good job or merely a competent broker...rather than reluctantly accept help - learn to embrace it instead. It's not a character defect but rather reality...invest in your own success by cultivating real relationships that build the foundation of success needed in your short sales career. --------- See you on the other side!
With the recent expansion of incentives designed to increase short sale closures, many would be real estate investors may have come to the conclusion the current administration is investor friendly. However, exactly how friendly and in what format may still come as a surprise.
The PPIP or Public Private Investment Program is one of the more recent plans proposed by the administration as a way for banks to sell toxic assets and other securities to private investors. The idea was to eliminate much of the risk associated with the purchase of these assets through a government sponsored initiative that would use up to $100 Billion dollars in federally funded (taxpayer supplied) funds in conjunction with up to $400 billion more from private investors and FDIC financing. The program was supposed to begin within weeks as of the date of this writing.
So, what is the problem? In a nutshell, banks now want to buy the troubled assets themselves! Yes, you are reading this right...the banks that have been trying for months to sell foreclosed homes and rid themselves of non-performing mortgages and other securities now want to turn around and buy them using even more taxpayer bail-out dollars...and why not? With the government footing the bill for well over 90 percent (plus) of the loan, it's a win-win for large institutional investors. On the one hand, the banks get federal funds to 'bail them out'. On the other hand, they get even more funds to repurchase those same assets - for a fraction of the cost - and then profit on them.
Sheila Bair, Chairman of the FDIC, has come out with an official statement that essentially states banks will not be allowed to purchase their own impaired assets...but to date, no mention has been made of banks purchasing non-performing assets from other banks. So, what is to stop Citigroup from purchasing assets from Bank of American and vice versa rather than simply purchase their own? In the long run, it will matter little to the American public that foots the bill for one of the largest transfers of wealth in the history of the nation.
Now ask yourself, if banks are trying to get in on the action of buying "toxic assets" - why aren't you? The PPIP is targeted to major institutional investors (including banks) which only make money if those same assets are expected to go up in value over the coming years. Now may be a good time to consider the recent admonishment by Marc Faber who believes the United States is heading for Zimbabwe type hyper-inflation...
"I am 100 percent sure that the U.S. will go into hyperinflation," Faber said. "The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate."
Prices may increase at rates "close to" Zimbabwe's gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe's inflation rate reached 231 million percent in July, the last annual rate published by the statistics office."
Marc Faber knows it. The banks know it. The federal government knows it...inflation is the name of the game for the coming economy and real estate is one of the only measures the average person can take to protect themselves against the ravages of inflation. You can bank on it! --------- See you on the other side!
Short sales are complex transactions involving careful coordination and close cooperation among a number of parties -- servicers, appraisers, borrowers, purchasers, real estate brokers, title agencies, and often mortgage insurance companies and junior lien holders. A short sale usually provides a better outcome for borrowers, investors and communities, but because of the complexity and time involved, servicers have often opted to pursue foreclosure instead, even where a short sale would have provided a substantially better outcome for everyone involved. The Making Home Affordable (MHA) Program provided additional details yesterday on its plan to stabilize the US housing market and prevent avoidable foreclosures, and it is good news for short sales.
The foreclosure alternatives for borrowers eligible for MHA include:
- A Short Sales/Deeds-In-Lieu Program to Facilitate Foreclosure Alternatives
- Incentives for servicers to pursue alternatives to foreclosures
- Borrower incentives to cover relocation expenses to homes that are affordable
- Streamlined process combining short sales and deed-in-lieu transactions
The Foreclosure Alternatives program will provide incentives for servicers and borrowers to pursue short sales in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. It provides a standard process flow, minimum performance timeframes, and standard documentation, and offers financial incentives to servicers and borrowers.
Fourteen servicers, including the five largest, have now signed contracts and begun modifications and refinancing under MHA, and including both these servicers and Fannie Mae or Freddie Mac, more than 75 percent of all loans in the country are now covered by the MHA program.
When a borrower meets the eligibility requirements for a Home Affordable Modification (HAMP) but does not qualify for a modification or cannot maintain payments during the trial period or modification, the MHA Program recommends a short sale to avoid the foreclosure process. This helps the borrower sell a property for less than the amount owed, helps the lender avoid the costs of foreclosure, and helps you get properties at bargain basement prices.
How The Home Affordable Short Sale/DIL Program Works:
- Borrower Eligibility. Borrowers will be eligible for the Foreclosure Alternative Program if they meet the minimum eligibility criteria for a Home Affordable Modification but did not qualify for a modification or were unable to sustain payments under a trial period plan or a modification. Prior to proceeding to foreclosure, participating servicers must evaluate each eligible borrower to determine if a short sale is appropriate. Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor's recovery through foreclosure Incentive Payments.
- Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or DIL.
- Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.
- Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 by Treasury.
- Standardized Documentation: The program will publish streamlined and standardized documentation, including a Short Sale Agreement and an Offer Acceptance Letter. These documents will outline specific marketing terms, describe the rights and responsibilities of all parties and establish clear timeframes for performance. Creating one standard set of documents that the industry can use is expected to minimize the complexity of these transactions and significantly increase use of the short sale option.
- Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.
- Minimum and Maximum Duration: Under the program, servicers will allow borrowers at least 90 days to market and sell the property, with possibly more time based on local market conditions. The property must be listed with a licensed realtor experienced in selling properties in the neighborhood.
Marketing of the property may run concurrently with the foreclosure process; however no foreclosure sale can take place during the marketing period specified in the Short Sale Agreement as long as the borrower is acting in good faith to sell the property. There will be a maximum marketing period of 1 year for the property, provided any longer period not otherwise delay foreclosure sale, to ensure diligence by servicers and borrowers in moving as quickly as possible to complete the short sale and deed-in-lieu process.
- Selling Commissions and Fees: Reasonable and customary real estate commissions and selling costs that may be deducted from the sales price will be specified in the Short Sale Agreement. The Servicer will agree not to negotiate a lower sales commission after an offer has been received.
- Fees and Charges: Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.
- Property Eligibility: Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared.
- Program Expiration: Eligible borrowers will be accepted until December 31, 2012. Program payments will be made upon successful completion of a short sale or DIL.
- Deed-in-Lieu: At the servicer's option, the Short Sale Agreement may include a condition that the borrower agrees to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time specified in the Agreement or any extension thereof. In this case the borrower would have 30 days to vacate the property and would be entitled to $1,500 to assist with relocation expenses, in addition to any other funds the servicer may provide to the borrower.
I understand why your reporter focused on my colorful hair and YouTube marketing videos in her story about Short Sales Riches, our business model for helping homeowners close "short sales" and avoid foreclosure judgments.
But by emphasizing the critics, she missed the context for why our business is having such success.
This is an unprecedented time in the housing market. More than half the homes for sale are distressed properties, including short sales, where banks agree to accept less than what is owed in return for the homeowner's help in selling the house.
But ask any Realtor and you'll hear the problem: short sales have become "long sales" because the banks - and there are generally two involved - take forever to agree on the price and split of the proceeds. As a result, Realtors don't want to show short sales much anymore. They didn't get into real estate to negotiate peoples' debts with banks.
Our business places option contracts on promising homes that face foreclosure, triggering the appraisal and sales process. We hire a negotiator to do the back-and-forth work with both lenders and find the bottom-line price. Once we can market a sales price as pre-approved, the property becomes much more attractive to buyers, who have also become leery of short sales.
Your readers should know that when the homeowner accepts the option contract, they also receive a signedRelease Of Option agreement that can be exercised at any time. If for any reason they want out, we will withdraw. But our experience is that sellers are happy to have someone show an interest in their property, in hopes they might avoid foreclosure. We have yet to have a single complaint!
We also give the homeowner an extensive Affidavit of Understanding that makes them aware of possible taxable events or deficiency judgments, inherent in all short sales or foreclosures. But in our case, to close some deals, investors have agreed to pay back-due homeowner association fees and gotten banks to waive deficiency judgments, benefits not generally seen in today's market.
Your article said that lenders might object if they knew we planned to resell the property. But they do know, because we tell them! And as other documents provided to your reporter made clear, banks are routinely rejecting short-sale offers, only to see the property sell for far less at foreclosure. By negotiating a pre-approved price, we are getting houses moving.
Short Sales Riches is an entrepreneurial response to a housing market facing unprecedented challenges. The Wall Street Journal reported last month that because of snags with second lenders, just 51 loans have been modified since Congress passed the $320-billion Hope for Homeowners program last July. During that same time, my negotiators have helped me close more than 51 sales in Tampa Bay alone!
It's easy to criticize people who make money in today's real estate market, but real hope for homeowners isn't going to come from Congress or Wall Street fat cats. This private-sector messenger might have crazy hair and funny YouTube videos, but he's a real guy who's been in the trenches and knows how to work with lenders to give homeowners true hope they can bank on.
One of the first lessons to learn about negotiating the biggest profits when working with short sales is to never say no. While most of life's important lessons tend to revolve around saying no in one form or another, the central premise to reaching an agreeable negotiation is to simply never say no. As long as both parties are still talking, there is enough room to reach an agreement.
Learn how to never say no even in the toughest situations by implementing a few of these great tactics for your next short sale deal:
Nurse the negotiations rather than simply saying no. Instead, find out what needs to be paid, when and how much? Are they willing to accept anything in trade? Is there another way to finance it such as holding a note or seeking out a partner? Learn everything you can about what is needed, by who and when then set out to find a solution that will work for both parties.
Use a simple "IF/Then" phrase. For example, "If I am able to provide xx by xx then will you agree to the terms of my deal?"...keep going until they say "yes" then put it into writing via a formal or informal contract.
Create a Sense of Collaboration. Validate their needs and goals prior to initiating your own. Let them know you are seeking to create a win-win situation that will benefit both of you then ask what they need to make that happen. Be sure to share what you need from them and why...remember, people that use the phrase "because" are more successful in obtaining their goal even if the reason isn't all that important. Simply creating a sense of collaboration is an important step in negotiating a reason to work together rather than selecting sides with a winner versus a loser.
Simply Don't Stop. One of the most simple and easily overlooked strategies is to simply don't stop. Even if a deal appears to go sour always leave the door open by presenting a written option or alternative. Deals often go bad so make it easy for people to contact you in the future. Allow them to save face by keeping the tone neutral and the relationship friendly. Research shows they will be even more willing to work with you in the future if the first attempt fails and you respond positively and friendly. Rather than being viewed as an adversary, keep the lines of communication open by presenting a neutral yet friendly demeanor. You can still walk away from the deal while allowing them the time and opportunity to contact you in the future.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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