I think this product deserves some more attention so I decided to repost. We've had much success with it in the last recent couple months. The closings don't appear to be delayed much if any because of the product. We've been running into 45-60 day escrows because of last minute problems with buyer paperwork or banks not responding. Other than that, smooth sailing! It's proven that when working with buyers not only do they need their own down payment, but they also should have monies available for expenses incurred on top of what's financed through the loan as problems arise mid project. Just a word of caution.
203k STREAMLINE
Used for minor cosmetic work
Should ideally be used for no more than 3 jobs total
No consultant / engineer / architect required
Property cannot be vacant for more than 30 days.
Work must be completed within six months.
Work must be professional.
If job requires a permit, borrowers must get a permit and a sign-off.
Work must commence within 30 days from closing.
Eligible Repairs & Improvements
Roofs, gutters and downspouts
HVAC systems (heating, venting and air conditioning)
Plumbing and electrical
Minor kitchen and bath remodels
Flooring: carpet, tile, wood, etc.
Interior and exterior painting
New windows and doors
Weather stripping & insulation
Improvements for persons with disabilities
Energy efficient improvements
Stabilizing or removing lead-based paint
Decks, patios, porches
Basement completion and waterproofing
Septic or well systems
Purchase of new kitchen appliances or washer / dryer
Repairs Not Permitted
Landscaping or yard work
Major remodeling
Moving a load-bearing wall
Room additions or add-ons to the home
Fixing structural damage
Disbursement of Payments
Maximum of two payments to each contractor, including the borrower, providing the borrower works under a "self help" plan.
No more than a 50% advance is allowed.
Do-it-yourself allowances do not include labor; only materials costs are allowed.
Final payment is paid after submission of evidence of payment to sub-contractors / suppliers or other possible lien claimants.
Good Luck and as always feel free to contact me directly with any questions you might have regarding my postings or products!
I'm coming across many buyers and agents asking about what can be used for down payment now that the seller assisted down payments are gone. I have copied below from the HUD handbook as to what are acceptable down payments. As you can see, buyers can "borrow" these funds as logn as they are ones that are allowed.
Collateralized Loans. Funds can be borrowed for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property. Such assets may include stocks, bonds, real estate (other than the property being purchased), etc.
In addition, certain types of loans secured against deposited funds, such as signature loans, the cash value of life insurance policies, loans secured by 401(k)s, etc., in which repayment may be obtained through extinguishing the asset; do not require consideration of a repayment for qualifying purposes. However, in such circumstances, the asset securing the loan may not be included as assets to close or otherwise considered as available to the borrower.
An independent third party must provide the borrowed funds. The seller, real estate agent or broker, lender, or other interested third party may not provide such funds. Unacceptable borrowed funds include signature loans, cash advances on credit cards, borrowing against household goods and furniture and other similar unsecured financing.
I was curious to see what people have out there when it comes to hard money. I am interested to see what LTV private money lenders will finance using After Repair Value. I heard that there are lenders out there that will actually let you do 100% purchase off sales price based on the ARV. The #s have to work of course. I am interested to see what you guys have out there! Please Post!
I think these numbers were expected. On a positive side, we should continue to see activity from first time home buyers and investors trying to take advantage of the more affordable market.
Loans in foreclosure have doubled over the past year, while delinquency rates continue to soar.
A record 1.249 million homes were in foreclosure during the second quarter of 2008, according to a report released Friday by the Mortgage Bankers Association.
And new foreclosure proceedings were started on about 490,000 of the 45 million home mortgages serviced by MBA members. That's up 9% from the 448,000 starts recorded in the previous quarter.
Mortgage delinquencies continued their grim rise during the three months ended June 30, with 2.9 million homeowners falling behind on their loan payments, apart from those already in foreclosure. Compared with a year ago, delinquencies are up more than 25%, while loans in foreclosure have nearly doubled. Both levels were the highest ever recorded by the survey.
"The national foreclosure numbers continue to be driven by the hardest hit states continuing to get much worse," said Jay Brinkmann, MBA's Chief Economist. "The increases in foreclosures in California and Florida overwhelmed improvements in states like Texas, Massachusetts and Maryland."
California and Florida accounted for 39% of all foreclosures started during the quarter. Those two states as well as six others - Nevada, Arizona, Michigan, Rhode Island, Indiana, and Ohio - all had foreclosure start rates higher than the national average.
Subprime still sinking
Once again, subprime adjustable rate mortgages (ARMs) weighed heavily on the down side. Subprime ARMs, which represent only 6% of all loans outstanding, accounted for 36% of all foreclosures started during the quarter.In other words, 6.63% of all subprime ARMs went into foreclosure during the period - nearly 20 times the rate for fixed rate prime mortgages.
"Even if subprime stabilizes," said Mike Larson, a real estate analyst with Weiss Research, "I would anticipate that prime loans would start to play catch-up. We're not just confronting a credit crisis any more, we're dealing with broad economic problems that are contributing to delinquency rates."
On the bright side, Larson says the deterioration in home prices has slowed in the last couple of months, which could help delinquencies level off as well.
"They'll continue to worsen," he said, "but not at the pace of the last year."
Nevertheless, Jay Brinkmann warned that it would be fruitless to try an call a bottom in this market any time soon.
The trend has been steadily pointing towards mortgage brokers being fazed out. I think many major companies will follow suit and reduce retail and completely shut down wholesale divisions. Hopefully in the process we don't hit more of a slump due to transition in lending practices.
The lender says it plans to shrink its mortgage lending business because of the weak housing market.
Lender GMAC Financial Services said Wednesday it will close all of its 200 retail offices and lay off about 5,000 employees as part of plan to reduce its mortgage lending and servicing because of the housing market downturn.
The majority of the layoffs are slated for GMAC's mortgage lending division, Residential Capital LLC, known as ResCap, and will reduce work force at the unit by 60%, the company said.
In the first half of the year, ResCap's U.S. mortgage loan production was valued at about $35.7 billion, down nearly 39% from the same period in 2007.
"While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," Tom Marano, ResCap's chairman and CEO, said in a statement. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk."
Some 3,000 employees may get their pink slips this month. The rest are expected to lose their jobs by the end of the year, the company said.
ResCap is also the latest in a long list of lenders that have stopped using external, wholesale brokers to originate loans. Wachovia Corp. (WB, Fortune 500) exited the wholesale mortgage lending business in July, for example, while rival Bank of America Corp. (BAC, Fortune 500) got out of the business several months ago.
Richfield, Minn.-based ResCap will continue lending through brands such as Ditech or GMAC Mortgage Direct, which customers can reach online or through call centers, said spokeswoman Jeannine Bruin.
"We're not going to have a retail presence where customers walk in the door," Bruin said. (But) "we are very much still originating loans and servicing the customer."
To cover severance costs, ResCap will take a charge of $90 million to $120 million against earnings.
In July, GMAC said ResCap's second-quarter losses widened to $1.86 billion from $254 million in the prior-year period. To try to reverse the trend, ResCap took steps to cut back the size and risk of its balance sheet, and boosted loan loss provisions.
Like many lenders have done since the credit market dried up, ResCap has focused on originating home loans that it can resell to government-sponsored mortgage companies Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).
ResCap has also virtually abandoned the market for subprime loans. In the first half of this year, ResCap made just 13 subprime loans, compared with nearly 26,000 in the same period a year earlier.
At the end of June, 14.6% of ResCap's U.S. home loans were at least 60 days past due. That's up slightly from the close of the first quarter, but down from 15.5% on June 30, 2007.
New York-based GMAC is controlled by Cerberus Capital Management, but automaker General Motors Corp (GM, Fortune 500). still holds a 49% stake in the business.
In order to qualify for a CalHFA loan, certain eligibility requirements must be met. They are:
Be a first-time homebuyer, which is defined as a person(s) who has not had an ownership interest in their primary residence during the previous three years. (Requirement is waived if property is located in a Federally designated "Targeted Area*". To find the boundaries of an eligible Targeted Area go to http://nkca.ucla.edu/Master.cfm?Content=Map&ZoomTo=tract. Select County, then enter the six-digit census tract number. A map outlining the boundary streets will appear. (Note: do not enter the decimal point and use leading zeroes, e.g. Alameda- 407500; Los Angeles- 570603 San Diego- 010012; Tulare 002202))
Have an annual household/family income that does not exceed income limits for the family size and county in which the home is located.
Have enough money to cover the required down payment (usually 3% to 5%) plus closing costs. Some restrictions apply to gifts.
To help with this requirement, CalHFA offers down payment assistance programs and programs to help with closing costs. Plus, these programs can be combined with the first mortgage programs. A list of these and other programs can be found at www.calhfa.ca.gov/homeownership/programs.
Property must be owner-occupied for the term of the loan or until sold.
Meet credit, income and loan requirements of the CalHFA lender and the mortgage insurer.
Be a citizen or other national of the United States or a qualified alien as defined by the federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA)
*Targeted Areas: Census tracts in which 70% or more of the families have income, which is 80% or less of the statewide median family income.
I don't know how many of you noticed the changes to CalHFA lately but since the dissolution of Nehemiah and other seller sponsored DAPs, CalHFA tightened their guidelines a bit. It seems now if you have ltv of less then 95% to put down, you will need a 620. If your LTV is going to be higher than 95%, then you will need a 680 credit score.
Also, if you have DU approval, your max DTI is 55% regardless if you have an approval at higher ratio. Manual underwrites limit you to a max DTI of 45%.
I would recommend checking out the pricing matrix yoruself to make sure your borrower qualifies. Also, from my understanding the amount of available funds is NOT unlimited.
There are a few key points to get out of this tax credit. First, it is an interest free loan that HAS to be repaid over 15 years, starting after 2 years of initially acquiring it. Second, and most relative, it is more of a REFUND at tax time and does not provide money up front to first time homebuyers as a down payment assistance. So, all in all I really don't see this being very helpful in lieu of DAPs out there now and clearing what is already a mountain high of inventory. I'm keeping my fingers crossed for Nehemiah to come back....
A $7,500 credit may push some new buyers into the market. But the money must be repaid, and the program probably won't be enough to jump start the housing markets.
Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.
But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.
"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.
The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Buyers with income of between $95,000 and $170,000 are eligible for a partial credit.
The Senate Finance Committee estimates that about 1.6 million people will use the credit.
The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.
Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.
The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).
"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.
And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.
"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.
No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.
"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."
And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.
"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."
Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.
"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."
Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.
"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."
So here is the scoop on Nehemiah and such. Most people think that the program ends on October 1st. Let me hint you in. Most banks already dropped the program as of last week. Wells Fargo will not take any DAP applications after the 18th. So, if you have someone telling you that you have until Oct 1st to close, make sure they have a banking line that doesn't leave them and you hanging. What good is Nehemiah on Sept 30th if there is no more banks to fund the loan. Thought everyone could use this info as I am scrambling to finish all my transactions before the 29th of this month to ensure I have a bank on the secondary market that will buy the loan.
Will keep everyone posted if we figure out another way for down payment assistance.
I think many peopel were waiting for this news to come out. It's not uncommon to see people that have never defaulted with A+++ credit to start defaulting here in CA.
More borrowers with good credit are defaulting on their home loans, and that's going to make it even harder for the staggering housing market to recover.
Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.
The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogicthat compiles and analyzes residential mortgage statistics.
Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.
And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.
"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.
Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.
Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe
Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.
Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.
"Home prices will drop for quite a while - maybe several years," he said.
Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.
And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.
"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."
More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.
Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.
More foreclosures, fewer loans
The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.
About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.
That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."
While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.
"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."
But there will probably more hard times ahead before markets come back into balance and recovery begins.
Paul Bozek
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