| |
Portfolio loans can be a powerful alternative to many common lending restrictions of the mainstream - Fannie Mae, Freddie Mac, FHA type programs. Because portfolio loans are retained by the lender and are not sold in the secondary market, lenders make their own, common-sense rules, specifically to offer alternate solutions. Below are the highlights. /// In the next issue, a summary of the stipulations for converting a property from owner-occupied to non-owner occupied. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker (What's a Mortgage Banker?)
Portfolio loan features/benefits
The list below is incomplete because a portfolio loan can be "a fit" in so many unique circumstances. As you read through it you can probably think of a few of your own situations yourself. In addition, because the documentation and verification standards are different, sometimes a portfolio loan is a solution just because the paperwork, or circumstances are not a fit for another type loan. (The documentation requirements for condos for example is a lot lighter).
- No Mortgage Insurance to 90% LTV
- Jumbo loans to $5,000,000
- HELOCs to 85% LTV. Great for REO investors with "free and clear" homes
- 2nd fixed rate mortgages to 85% LTV
- 620 min. Fico
- 50% max. Debt To Income (DTI)
- One month (rolling) mortgage late allowed
- Vacation homes to 80% LTV
- 3-4 Family Owner Occupied to 80% LTV
- 1-4 family investment to 80% LTV
- Condominiums with <40% rental units
- No rate add for acreage
- No rate add for any loan <$1,000,000
- No rate add for cash-outs
- No rate add for condo, manufactured/modular homes
- No rate add for escrow/impound waiver
- No rate add for rural properties
Program Rules - Lender Rules- Underwriting - are the 3 levels of lending criteria that culminate into a loan approval. Mortgage financing is a key element of the purchase process, so it pays to understand the process. A synopsis below.... /// In the next issue, a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker (What's a Mortgage Banker?)
Program rules
All mainstream mortgages are subject to universal program rules. If lenders do not follow these rules they will not be able to sell the mortgages (which virtually all are), OR WORSE - lenders will be obliged to buy loans back at a later stage. It is the fear of buybacks that drives the current over the top scrunity. Buyback processes can be huge! and are virtually always initiated for non-performing loans (we've seen a few of those as of late I think) - so there is a risk that a lender has to buy back all non-performing loans ever originated if it does not strictly adhere to the program rules. Imagine the fear this instills into the business environments at mortgage lenders nowadays!
You can find all program rules (FHA, Fannie Mae, Freddie Mac, USDA, VA) at my Information Center.
Lender rules: "Overlays"
In addition to the program rules referenced above, all lenders have their own, unique underwriting criteria, usually called "overlays". Lender overlays are mandated by the risk tolerance of the lender, or the investors who buy the lender's mortgages. Overlays are what makes one lender different from another. As an outsider you will never know what the forever changing details/differences are, which is why you need the support of a knowledgable mortgage specialist - and here is why you are best of dealing with a mortgage banker.
Underwriting
Underwriters are charged - and burdened! - with making loan decisions in the highly charged, risk adverse environment I described above. Now more than ever they need perfected loan applications, in full compliance with often changing rules, and then some! They appreciate additonal details, documentation, narratives, notes, etc. Underwriters really want to approve loans, but we need to give them the tools and comfort to do so! This is why borrowers need to be encouraged to volunteer information, and deliver complete documentation (and more of it, rather than less), quickly.
Note that Underwriters do not "have to" approve any loan. It's rare, but it is possible to be declined - even if everything fits. Conversely, underwriter discretion can work in the borrower's favor as well where a loan gets approved that would in most other cases be declined. Here again is why you need to work with a mortgage expert, skilled in loan advocacy and matching presentation techniques to make sure loans get approved.
There are important practical differences between a Mortgage Lender, Mortgage Banker, and a Mortgage Broker. Mortgage financing is a key element of the purchase process, so it pays to understand the options. It is particularly good to understand the mortgage banking concept, which allows you to in effect make full application to many lenders all at once - very advantageous in today’s mortgage environment! /// Next week a synopsis of loan decisioning, also useful to know, and the week following a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker
What they are
>>Mortgage Lenders are usually depository institutions (banks, credit unions). They have a single line of products and unique lending criteria. All mortgages are sold in the secondary market (mostly Fannie Mae, Freddie Mac).
>>Mortgage Bankers use their own money to fund mortgages. They sell the mortgages either to Mortgage Lenders, or the secondary market. They offer a broad range of loan products and have the flexibility of matching an application with the lending criteria of an investor to whom they sell loans. Mortgage banking is now the hottest business model in mortgage financing because you are in effect applying to many lenders, all at once!
>>Mortgage Brokers are intermediaries who brings mortgage borrowers and mortgage lenders together, but do not use their own funds to originate mortgages.
What they have in common
>>Pricing: Lenders need to pay for all loan originations
somehow, whether they pay their own sales force, their own branch network, bankers, or brokers. At the end of the day rates and fees are therefore pretty similar.
>>Equal pricing: Commissions no longer depend on the rate charged so the focus is now always on getting the approval on the best possible terms – lender, banker, or broker.
>>All loans are sold in the secondary market, portfolio loans excepted.
The differences
The practical differences between a lender, banker, and broker, are the breadth of loan programs offered, expertise, and loan decisioning:
>>Mortgage lenders are limited to their own mortgage products and lending criteria. If your application is handled by an application-taker instead of a capable mortgage specialist, you are at risks of delays, or denials.
>>Mortgage Bankers (like me) have expertise, a broad product offering, and the flexibility of matching and approving applications with the criteria of one of their many investors. You are in effect applying to multiple lenders at the same time!
>>Mortgage Brokers have expertise and choice of lender, but do not approve loans. If a lender declines a loan it needs to be submitted elsewhere.
We are still faced with the best real estate opportunities of a lifetime. As sad as it is to say, the economic malaise continues to serve us very well. My investment group is interested in funding
highly profitable (fix and) flip projects - up to 100% of hard cost.
INVESTMENT CRITERIA
Our investment criteria are as follows:
- 1-4 family properties only. (2,3,4-family preferred)
- Preferred investment size: $20K-$100K ($200K max)
- NJ, NY only
- ARV (After Repair Value) of at least 150% of hard (purchase and rehab) cost
- Cross-collaterization on other properties considered.
If you are interested in:
Fed will publish short-term rate projections
The Federal Reserve will now tell the public its expectations for short-term interest rates, starting after its Jan. 24-25 meeting. I find this odd, and here is why...
>>Reliability. If market realities change, the Fed may need to adjust rates. That is the Fed's job first and foremost.
>>Conflict of interest because the Fed may not want to contradict itself, and hesitate to take needed actions that conflict with its own projections.
>>Confusion. This pertains to short term rates, NOT (long-term) mortgage rates. People are constantly confused about this. Mortgage rates are primarily determined by capital markets. I am also concerned consumers will opt for ARMs as a result, rather then long-term security of fixed rate loans.
>>Independence. To my mind the Fed needs to be independent, and anything that takes away from it is a slippery slope, that can ultimately affect confidence in US monetary policy.
Pay points?
If you plan on owning a property for longer than 4 years and want the comfort of a 30-year rate fix, you may want to consider buying down the rate (pay discount points). A rule of thumb is that a 1.00% "discount fee" or "buydown", results in a 0.25% reduction of the note rate on a 30-year fixed rate loan. (Your payback period is about 4 years). And over the life of the loan you will save about 4% of the original loan amount. More information
Pay 1.00%, 4 year payback, save 4% of the loan amount: 1-4-4.
John Sr and John Jr...
I am not here to tell you not to give your kids your first name, but know this: You are at risk of credit report mixups, and correcting it may take time and money, especially if derogatory items are involved. Applications may be declined, delayed, or not approved on best possible terms. I have have come across a few nasty situations lately, and I thought I'd share it with you. Oh.... same first name and different middle initial is not an alternative. - P
Contact me
We are still faced with the best real estate opportunities of a lifetime - and amazingly there are even getting better! As sad as it is to say, the economic malaise continues to serve us very well.
FOCUS ON RENTAL VIABILITY
Because resale markets remained weak (and rental markets strong) during 2011, we started assisting developers with refinances to convert rehabbed properties to rental properties rather than wait for the re-sale. This way we were paid back, and developers could cash out and move on to the next project. Long-term rental viability is therefore now more important than resale value - which is why we prefer 2,3,4-family properties.
INVESTMENT CRITERIA
As of now our investment criteria are as follows:
- 1-4 family properties only. (2,3,4-family preferred)
- Preferred investment size: $20K-$100K ($200K max)
- NJ, NY only
- ARV (After Repair Value) of at least 150% of total hard cost
- Cross-collaterization on other properties considered.
INFORMATION
For investment information go to www.lxfinancial.com
Go here for construction/rehab loan information
To request a quick quote for a project go to www.fixflipnow.com
My best wishes to you for 2012. May it be a fulfilling and prosperous year!
We're open for business :)
As the year draws to a close, time to do a little market assessment....
- It's a buyer's market, for homes and investment.
- Short sale and REO values are low due to market weakness and over-supply.
- REO rehab values are even weaker due to lack of mortgage programs to finance them. (Ever wondered why the lender doesn't just provide the loan?)
- Rental markets are strong. (I prefer 2,3,4 unit investment). More info.
- Mortgage financing is (an inceasingly more) fickle business. Thorough prequalification is key. Here is a form you can use to get a PQ from me.
- Credit improvement is even more fickle, and also becoming more complicated. Self-help often has the opposite effect. More info.
Closing costs where you are
Bankrate.com performs an annual closing cost survey. To see what they are in your location, go here.
How many rate influencers can you name?
I get the "what's your rate" question all the time. I think we all know it is a simple question, and a good answer is not. So how many rate influencers can you name? Go here for the incomplete list. If you can think of any I should add, let me know!
Ask a CPA: Year-end tax pointers
Ryan Curran is a "hands-on" CPA, specializing in tax matters pertaining to real estate: Sales, development, construction. There are many things you can do to reduce your 2011 tax exposure. Here a few:
1. Prepay real estate taxes or mortgage interest
2. Sell underperforming stocks or bonds to create a loss
3. If you own a business, deposit checks in the new year
Ryan invites any question or inquiry. Contact him.
Finance REO investments
I do not sell or offer properties for sale. Developers/investors present me properties to finance/invest in. I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.
"A public opinion poll is
no substitute for thought".
- Warren Buffett
Contact me
Developers present me with REO projects on a daily basis. They need financing and investor capital. I am starting a new company dedicated to highly profitable, short-term, REO investments. If you are interested in being part of this as a (founding) shareholder, let me know. /// This week a quick review of mortgages after deed in lieu, foreclosure, or pre-foreclosure (short) sale. See below, or go to my website. - Paul :)
Can you have more than 1 FHA loan?
Yes, under the following cirumstances:
- Relocation. Must document unreasonable commute distance from current home.
- Increase in family size. Must have current mortgage balance at or below 75% LTV.
- Vacating jointly owned property. Example: divorce.
- Non-occupying co-borrower. Co-signed with family on their home
Mortgages after deed in lieu, foreclosure, or pre-foreclosure (short) sale
The waiting period for FHA is 36 months, and for Conventional 24-84 months - depending on LTV.
For further details go here
Finance REO investments
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.
Contact me
I first wrote about this in February. It significantly raises the rate in certain circumstances, like (a combination of) cash-outs, investment property, low credit score, high LTV. I have recently priced loans where the rates came in at close to 6.00%! - P
What are LLPAs?
In 2007, Fannie Mae introduced "Loan Level Pricing Adjustments" (LLPAs). The concept is basic: For loans with higher risk profiles, there are additional up-front charges to offset potential long-term losses. LLPAs went up April 1st, 2011. Whether paid by the borrower upfront, or factored into a higher rate, it can drastically increase the cost of borrowing. As you read this, just remember this rule of thumb: A 1.00% additional LLPA charge on a 30-year fixed translates into an approximate 0.250% rate increase.
Most common LLPAs
1. Adverse Markets (FHA, VA, USDA loans also)
2. LTV/credit score.
3. Special features:
- High-LTV
- Interest-Only (IO)
- Investment Property
- Multiple-Unit Properties
- ARM
- Manufactured Home
- Cash-Out Refinance
- Energy Improvement Feature
- 40-year Term (MBS only)
- Condominiums and Cooperatives
- High-Balance Mortgage Loans
Details: LLPA matrix
You will find the full LLPA matrix here. Note that LLPAs are cumulative. Multiple adjustment may apply. Again, a rule of thumb is that a 1.00% charge represents an approximate rate increase of 0.250% on a 30-year fixed.
All the money is being made in REOs at the moment. Lower risk than securities, and great cash on cash returns. You can buy them, or finance them at <50% loan to value. To add yourself to the mailing list for opportunities go here. /// This week a quick review of mortgages after bankruptcy. In short, the waiting period for FHA is 24 months, and for Conventional 48 months. See below. Next week: Waiting periods following foreclosure, short sale, or modification. /// Rates are still near record lows, but underwriting criteria are becoming tougher: Higher Fico requirements and rental revenue exclusions from qualifying income when buying 1-4 unit properties! /// Make it a good week folks. - Paul :)
From Fix&Flip to Fix&Hold
(Fix and) flips, are a challenge because markets remain weak and it takes longer to re-sell properties. Time=Money. I recommend a hold strategy as revenue property to avoid market risk, and ultimately optimize return on investment.
2, 3, 4 unit properties with rental revenue that support a bank refinance for a permanent loan work best, so you can still cash out. Planning for long-term hold still does not prevent a quick sale. To review a summary of construction/rehab financing options, go here. Planning is key. Contact me early.
Mortgages after bankruptcy
The most common types of personal bankruptcy are:
1. Chapter 7 ("liquidation"). Details
2. Chapter 13 ("payment plan"). Details
An elapsed period of less than two years, but not less than 12 months, may be acceptable for an FHA-insured mortgage, if the borrower can show that the bankruptcy was caused by extenuating circumstances.
For further details go here
Finance REO investments
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.
Contact me
|
|
Mortgage financing news and topics, and meaningful advice for real estate professionals and consumers.
 Listings
Links
Archives
|
Posted by 
;)
;)
;)
