So you or your client have found a home in a great area in the client's price range. Only one problem: it's in bad shape. The HVAC system is 50 years old, the roof is 40 years old and the windows may as well not even be closed. Plus the kitchen has vinyl floors in 3 different patterns and the counters are all laminate with burns and holes and scars.

Not to fear! Meet the FHA 203K Streamlined renovation loan.

Eligible Improvements Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value. 

• Additions to the structure
• Kitchen or bath remodels
• Finished basement or attic
• Patios, decks or terraces
• Roofing and landscaping
• Safety, energy efficiency and electrical upgrades
• Handicapped accessibility improvements

Luxuryitems are not eligible

• Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use

Someone reading this post will think it's about them. If it is you then do something right for once go turn yourself in and get out of the business of hurting sellers, buyers and my industry you piece of trash.

Today I received a call from a friend and broker who is representing a buyer in a short sale transaction. He called me because I have been on the lender and trainer side of short sales longer than the vast majority of so called "short sales experts" have known the terms. Because I am a HUD Direct Endorsement lender for FHA loans and a Fannie Mae direct seller I know the difference between guidelines and lender overlays. The latter are designed to protect the middle men and often enhance the guidelines for underwriting government and agency loans. So his question was whether or not his buyer was being denied because of a real guideline or something only that lender does.

Since the initial question was about seasoning on title and flipping the answer was very simple - 90 days required from purchase to sale date. In other words the useless piece of the puzzle, the "wholesaler", would need to be on title as recorded in the deeds and records office, for 91 days prior to the clear to close on the sale. I offered some ideas that would help his client take possession of the property prior to the consummation of the sale which included a bona fide lease purchase but when I began to question more specifically some big bright burning flashing red flags started popping up.

First I asked how long the "wholesaler" had been on title. When I found out he has not yet closed and this is a short sale I asked how he got into the mix. The broker indicated the guy is a "Loss Mitigator". Oh, so he works for the lender? No, he's just some guy who owns a loss mitigation service and is wholesale flipping the home from the owner to the purchaser. Oh, a scum sucker!

I have written about "Loss Mitigators" before and I'm going to kick some teeth with my next statement but swallow them and like it if it's you. "LOSS" MITIGATORS WHO DON'T WORK FOR THE LENDER ARE USELESS, COSTLY AND UNWELCOME PIECES OF THE TRANSACTION. I have heard the FTC is investigating you and I'll be happy to provide them with all the case study and education they need to get you out of my industry and far away from real estate.

Naturally I wondered how the "Loss Mitigator" got involved and was very VERY intrigued to learn the listing agent had told the buyer's agent (my broker friend) he would have to deal directly with this "Loss Mitigator".

ORLY?

So the LISTING AGENT cannot deal with the BUYER'S AGENT and the BUYER'S AGENT has to deal with this "Loss Mitigator" who is NOT an employee of the lender?

Interesting. So just who is this so-called "Loss Mitigator" who is not an attorney, is not a real estate agent and does not work for the lender?

After a few more questions and answer I discovered the preferred title agent for the seller had been changed to the preferred title agent for the "Loss Mitigator" who shares and office with the new title agent.

This is probably the best of all: The buyer's agent sent the contract to the seller's agent and the contract came back with the home owner's name lined through and the LLC (company name) of the "Loss Mitigation" dude written in.

My advice? Call the Real Estate Commission, call the bank holding the note on the property and run! I also added to have the buyer contact the seller directly and ask who this "Loss Mitigator" is and what the exact negotiated sales price is. The contract the buyer currently has is probably useless since the "Loss Mitigation" Company (and I sure hate using that term because it's as bogus a use of the terms as they come) signed as the seller. I'm sure Wells Fargo would be very happy to know about this case since they are the ones who allegedly hold the security instrument.

Scumballs, bottom feeders, leaches, parasites, and crooks - I can smell you 864 miles away and you need to get out of this industry. You are in part to blame for the condition of the industry today. You prey on people with your fancy titles that don't mean squat and in fact are INTENDED only to confound the innocent and those who are already facing financial devastation. YOU ARE ON MY RADAR and there are thousands like me who remain silent.

There is a right way to profit from real estate and the success to be enjoyed even in this market can be huge. This is the way thugs, crooks and cheats do it. I don't care WHO you are: If you don't work for a bank, if you are not BUYING homes and adding value before flipping them, if you don't have a LICENSE to represent buyers and sellers, then YOU are an unwelcome turd in the punchbowl.

Many of you who regular read my writings know I often write what others are thinking even if they don't want to publish it. This, of course, makes me the point of contention for some while other appreciate my openness and *transparency*. That word is so abused these days - especially by those people who claim that by telling you the costs of the mortgage up front they are somehow the only people in the industry you can trust. Hogwash and bologna.

In my years in the industry I have seen thousand (and thousands) of mortgage applications. The greater majority of those applications have become loans. During the last 3 and 1/2 years I have written about what happens between application and closing many times right here on Active Rain. Hopefully you have read enough to pick up on the fact that there are as many as 35 or more moving parts and people in the mix from application to close. Oddly enough I had a "loan officer" once argue with me about that number. But I digress.

Escape me it does not that there are people in the mortgage industry who are inept and have a difficult time comprehending the process themselves and that makes it harder for people not in the industry to know if they are working with a mortgage professional or an application taker. That being said I have always made myself available to anyone, from anywhere in the country, for any reason to answer questions about what is happening in the loan process. Call my Google Voice number at 678-439-8683 and we can chat about it.

Professionals tend to want to do everything in a very planned order of execution and, as a general rule, that planned order goes something like this:

1. Talk to the prospect about the loan needs and interview them for details of the type of transaction they are interested in or which will best serve them.
2. Take a complete application which includes asking where the borrower(s) work, bank and live for the last 2 years.
3. Examine and evaluate the credit report.
4. Barring obvious reasons to deny or suspend at that point the mortgage professional will use an underwriting engine for a preliminary decision which will be based solely on statements made by the applicant regarding employment, income and assets and the credit report which will be read directly by the automated underwriting engine.

I enjoyed the session today with Seth Weissman. I did the intro and bought the lunch (well, my boss did :), and well known and respected attorney Seth Weissman did the training. The responses and questions from the 60 some agents who attended the 4 hour session were interesting and thought provoking.

Here was one of the questions that was asked which may surprise you: "If I know I have a home in a predominately Jewish area is it okay if I advertise only in the Jewish Times (a big local magazine where I have indeed advertised) and not in the big paper which services a broader audience"? Mr. Weissman, THE authority on FHA violations not only in Georgia where he quite literally wrote the book, says "no". He doesn't say it is a blatant violation but he does say it could be construed as a violation and the average cost to defend against a charge of violating the FHA is $50,000 and that's if you win.

Another one was also surprising and that is if someone asks if the area is a gay friendly area how do you think you can respond? Interestingly enough gender preference is not a class that is protected under the FHA so you can answer (according to Mr. Weissman who wrote the book ;) but you cannot answer if you are asked if there are a lot of same sex parents with children in the area.

What about an owner who insists on not showing their home to a certain race or nationality? Or an advertisement printed only in Spanish? Better yet what about an advertisement printed only in English and Korean?

Lastly, and I have been aware of this one for some time because of my history as a landlord, if you prohibit pets and advertise that way you are likely in violation of the FHA where animals are used as companions for people with disabilities. That does not mean just blind people either. He relayed the story of a case where a tenant had a young son who suffers from fetal alcohol syndrome and as a result has very bad anxiety and panic attacks and he was prescribed a companion animal to help him overcome that debilitating condition.

All in all most people learned they didn't know nearly as much about the Fair Housing Act as they pretended to know before today's CE class. If you want to know more please contact Seth Weissman at Weissman, Nowack, Curry and Wilco.

And here's a plain English brief from HUD click this link.

"They just keep on changing these rules, don't they?" It was an honest question from a frustrated agent.

Here is what I do know: FHA Concentration can shoot you in the foot. HUD Mortgagee Letter 2009-46B in Section 1 Subsection V Paragraph 10 parts a, b and c tells us about FHA Concentration and how to see it coming from miles away. Keep in mind you can still get financing in developments which have reached the maximum concentration levels specified by HUD for FHA insured loans but not with FHA.

The easies rule to remember is thirty percent (30%). If the project development (not phase) has 30% or more of the available units financed with an FHA insured mortgage there will be no further issuance of FHA case numbers in that project. In a nutshell this means there will be no more FHA loans issued for those condominiums until the concentration level again falls below 30%.

For condominiums consisting of three or fewer units only one unit may be financed with an FHA insured loan. With condo projects of four or more units the 30% rule comes in to play. If you are math challenged just remember for every 10 units in the project only 3 can be financed with an FHA insured loan.

So remember, in Georgia and especially the metro Atlanta area, even if I have not yet closed a condo loan in your new or existing condo project I know a few things about condos. This might be the first time you and I have ever met but one look at my gray hair and you'll know I didn't just step off the chicken farm yesterday.

I do condo loans. Give me a call and let's chat then let's get your loan closed. Right Mrs. Martin? (Mrs. Martin came to me with a very unusual and challenging condo loan and we are closing on Friday. No other lender she worked with including banks with two or three words in their name could get it done for her.)

"Oh I don't want to mess with all that trouble", the agent said to me during a phone conversation. She meant she did not want to mess with selling a home that needed a new roof, some plumbing repair, new carpet and new appliances which I could finance into the loan amount.

I asked, "why not? What trouble?"

It seems she had a few misunderstandings about how this powerful purchase loan works. The truth is it doesn't involve any extra work for her than a regular FHA loan. What it does it take an unsellable home and turn it into a sale. Conventional loans do not allow for some of these types of repairs on an "as is" home sale. Even there it increases the sale amount by the mere virtue of dealing with a homeowner financing the property instead of an investor paying cash for the property.

The FHA 203k Streamline purchase loan is perfect for the large majority of homes in the US. Any home that qualifies for a standard FHA home loan, the 203b, also qualifies for the FHA 203k if it needs less than $35,000 in non-structural upgrades or repairs. So what CAN you do with an FHA 203k loan?

• Repair or replacement of roofs, gutters and downspouts
• Upgrade of plumbing and electrical systems
• New flooring or floor covering
• Exterior decks, patios and porches
• Minor remodeling (no structural such as room additions)
• Paint and wall covering
• Weatherization including storm windows, storm doors, insulation and weather stripping
• Purchase and installation of new appliances
• Disability access improvements interior and exterior
• Basement finishing and remodeling
• Basement and crawl space moisture control and waterproofing
• Window and door replacement
• Exterior residing such as replacing old, defective siding
• Septic system or well repair or replacement

December 1st, The FTC, Testimonials and your Blog/New Media

December 1, 2009 is the date your blog and all new media advertising meets new enforcement and scrutiny. Meet the Federal Trade Commission 16 CFR Part 255 "Guides Concerning the Use of Endorsements and Testimonials in Advertising". Much of the "guide" applies to celebrity endorsements and the use of "disclaimers" such as those which say "results not typical".

The word "endorsement" is used 188 times in 16 CFR 255 and the word "testimonial" is used 92 times. Where the real danger comes in, of course, is if someone complains to the FTC about something they read on your blog, Facebook, Posterous or any other New Media outlet. You and I, reader, both know there are "testimonials" even here on AR which are not even from real customers or are using real customer's names but they have no idea those testimonials exist. That is the focus of 16 CFR 255 in addition to endorsements and testimonials on late night television.

It has been noted that it is difficult to determine how much deception actually occurs from false testimonials and I am sure it would be very difficult and costly to prove a violation of FTC regulations on a small basis for individual blogs. The best way to avoid violations is to solicit testimonials from your clients that you can keep on file or to use a third party company like iKarma for example.

Thanks to Jeff Link for pointing out the more English short segment FTC REVISED Guides Concerning the Use of Endorsements and Testimonials in Advertising.

Obviously, from the market numbers, people do not get as excited about "historically low interest rates and low home prices" as they do low rates and rapidly escalating values. My numbers show it, your numbers show it and the national reports show it. Oh there are a few people "doing better than they ever have" but I'm a long stretch from generating the 400-600 loans a year I enjoyed in 2004 through 2007 - cue Archie and Edith singing "Those Were The Days". So if we thought low cost of money and low housing prices were fueling the business obviously we were wrong.

We didn't think that, though. We thought the fact that almost anyone could buy homes as primary residence or investment properties was driving the market. However, there are some very important figures to note: Interest rates are lower than ever and housing costs are extremely low.

As you can see from this chart of actual data this is THE point of lowest average interest rates since 1971. With rates in the high 4s and low 5s for prime borrowers and the 40 year average at 9.024 percent I would encourage everyone to think how it may be possible to buy that new home or first home now. I have never said, "right now is the best time to buy" but if that time has ever come it is very likely right now.

There is no way interst rates are going to hold this low for a myriad of reasons including inflation and dollar devaluation. Right now the government is spending your future income as fast as they can pass Bills and Resolutions into law. You can have whatever political bent you care but the facts are the facts and those are the facts. The national debt will soon cause interest rates to begin to rise. They may not rise as quickly as they did back in the late 70s when inflation was out of control thanks to massive government misspending but rise they will and I have not found one economist worth their weight in salt who think the rates will not reach double digits in the next 3 to 5 years.

Compare those interest rates to the Robert Schiller hosueing data set from Irrational Exhuberance and you have a very unique picture:

That top red line "Home Prices" really tells a story. If we combine the two we see housing prices back down to almost 1980 levels and interest rates lower than any other time in this history.

Does this mean now is a good time to buy? The best time to buy?

Only if you need to. If you do not need to buy then no time is a good time to buy - that includes for investors. In fact investment money is much more difficult to find overall than it has been since the mid 90s. Oh, I'm sure someone will disagree but the facts are the facts - just because Joe Smith in Montegumma has been able to borrow the money to buy 10 homes in the last 12 months doesn't do a thing for Bob Davis in Roswell. I'm sure Joe Smith will be more than happy to sell you his book for $29.95 or his seminar for $199 if you know what I mean.

As always if you are in the southeast and you need answers never hesitate to call me on my cell at 678-439-8683 whether you are an agent, seller, builder, buyer, or home owner. I will be more than happy to answer your questions and provide services where I can.

HIGHLIGHTS ONLY - I don't want to distribute incorrect information so if you have a viable correction please make it known in the comments.

HR 3458 "The Worker, Home Ownership and Business Assistance Act of 2009"

While it is called an "Extension and Modification of the First-Time Homebuyer's Tax Credit" it really is an extension and overhaul or re-construction. Modified doesn't seem to cover it. If you are interested the full text of the Resolution signed into law is found at this link on Thomas Library of Congress. (This is also based on S 1678 dated September 16, 2009 and passed unanimously in the Senate.)

All the good stuff related to the Tax Credit seems to be found in Sections 11 and 12. I am not interested in sharing my political opinion in this post (had to clarify this post) but working with you to develop a fuller and more accurate understanding of this new law. We know the second version of the First Time Homebuyer's Tax Credit was scheduled to end with homes purchased, and closed on, before December 1, 2009. The key word at that time was "closed". The newest version has a different twist which we will examine. So, here we go line by line where application matters to our common clients:

Section 11(a)(1)(A) extended to May 1, 2010

Section 11(a)(2)EXCEPTION IN CASE OF BINDING CONTRACT - if the binding contract is entered BEFORE May 1, 2010 then the closing must occur BEFORE July 1, 2010

Section 11(b)(6)EXCEPTION FOR LONG-TIME RESIDENCE OF SAME PRINCIPAL RESIDENCE - if the person buying the primary home lived in their primary residence for "any 5-consecutive-year period during the 8 year period ending on the date of [qualified] purchase" they also qualify for the credit under SEC.11(c)(1)(D)

Section 11(c)(1)(D) sets the maximum credit for long-time residents to $6,500

Section 11(c)(2) sets the maximium individual AGI to $125,000 and the maximum married couple AGI to $225,000

Section 11(d)(3) sets the maximum purchase price [not loan amount] to $800,000

There are other subsections specific to military personnel who are deployed found primarily in Section11(e)(E)

Section 12 is also pertinent but contains mostly clerical changes and restates the recipient of the credit must be at least 18 years of age at the time of purchase of the home.

IN SUMMARY

You must close before May 1, 2010 (so no later than April 30 2010), if you are not a "first time home buyer" (defined as someone who has not owned a primary residence during the last 36 months prior to the closing date) you must have lived in your primary residence at least 5 continuous years out of the 8 years preceding the closing date unless you enter into a binding contract before May 1, 2010 then you must close before July 1, 2010. Individuals may take advantage of the tax credit if you earn no more than $125,000 per year Adjusted Gross Income and married couples may not earn more than $225,000 AGI. Your sales price may not exceed $800,000 and you must be 18 years of age.

BIG DISCLAIMER: I AM NOT A TAX ATTORNEY OR ACCOUNTANT and everything you just read is my opinion on what the law says. Do not make any decisions based on the content of this blog post. Seriously, do not use this as a substitute for tax advice or legal advice.

Clark Howard I think you do a great service to the public at large when exposing scams and ripoffs*. Still I'm calling you out Clark and I hope you actually take this to heart - this time. Not to tear you down or make you look bad but to keep you from confusing your listeners with (a) incorrect information and (b) misapplied information.

For those of you who don't know Clark he apparently was quite a successful travel agent (made millions and millions so I have heard) back in the 70s and 80s and is now a syndicated radio personality. I neither dislike Clark nor wish any malice upon him and hope he continues to enjoy success in whatever he does. The trouble is he knows just about enough about mortgages to screw you up if you trust him at his every word. He knows most of the words and the correct correct definition of them but invariably I cringe before he finishes talking about them. Why should I have expected today to be any different? Back when I did a lot of radio advertising I constantly had to battle the "but Clark Howard says ..." callers. What a nightmare that could be. Clark likely has no idea of the confused aftermath he sometimes causes for his listeners who actually believe he knows more about the inner workings of home finance than we seasoned, trained and educated professionals who may have closed thousands of loans.

The call in to his show on Tuesday started out innocently enough and I was driving back to my office, where I work as a mortgage banker which I have done for the last umpteen years, so I listened. I did not hear the caller's question but I heard Clark say something similar to, "then you will have 25% of your debt at over 7% interest and that's not good". Agreeable - that probably is not good but I never give financial opinion without knowing the full story. That scenario may be good if she currently has 75% of her debt at 25% interest, know what I mean?

Then Clark started talking about "no cost mortgages". He even said, "many lenders will tell you there is no such thing" but goes on to talk about them as if they really exist. He must not remember the FTC cracking down on those ads which came even from giants like Countrywide for advertising "no cost loans". I'm assuming he has read my blogs in the past as I continue to tell the truth "there is no such thing as a no cost loan" or "there are closing costs and you pay for them".

Clark, there are no "no cost" or "zero cost" loans. They don't exist on the real planet where Jane and John Homeowner depend on the services of dependable mortgage professionals. If those are no cost loans then I should be able to sell you a $100 suit for $500 and tell you the shoes I included are "no cost".

Sure, the broker or lender can make it so that the borrower does not have to bring any money to the closing table and if the home owner only plans to be in that home or that loan for about five years or less it may make sense. But they are not "no cost loans". They have a cost and that cost should be explained in detail to the borrower and the alternative comparisons demonstrated. An informed and properly educated consumer is our best client.

The other thing Clark was wrong regarding (that made me actually look at my phone and think of calling in as though I had an ice cube's chance in getting through to him) was very misleading and will cause someone harm if they believe it. He was doing the right thing about talking about the power of 5/1 ARMS. Then he should have hushed because he started dancing in territory he had no business in - talking about rates and closing costs at particular lenders.

In his defense he probably just looked at some website to get the rate for a 5/1 ARM and he said "ING has it for 4% and there closing costs are generally lower than the other lenders who offer the 5/1 ARM." That was more than he had business or knowledge to say and I challenge him to present actual figures to back it up. Also, if you think ING is offering a good price send me your GFE and TIL and let's see just how good it is.

First of all the rate changes all day every day. I quoted 4% on a 5/1 ARM on Monday and it went up to 4.25% by mid-day on Tuesday and back down to 4.125% by mid-afternoon. PLUS Clark has no idea what anyone's rate is because it is based on many things including credit score, loan amount, appraised value of the property, type of property, geographic location of the property, term of the loan, purpose of the loan, and more.So, his statement is misguided and quite possible dangerous.

When we as lenders, bankers or brokers advertise a rate we are required, by federal law, to also tell the APR of the rate and the terms of the loan in an equal presentation of the rate. In other words if we say 4% and the APR is 4.285% we are required to say it in the same voice and publish it in the same font on the same line. What Clark doesn't get, and obviously doesn't care about, is you hearing him say "4%" and you automatically assume you're qualified for it and it applies to the loan you are seeking. Then you wear some poor loan officer out arguing with her because your rate is 5.125% (or whatever) but you stick to it that Clark Howard Said ... like he's some financial god or something. He's not. HE'S A RADIO SHOW GUY. He has no known formal education or experience in mortgages, okay?

He continuing digging a trap by saying ING's closing costs are "two to three thousand dollars lower than their competitors". I wish I had that noisy alarm he plays when he does his scam alert. Do you know sometimes closing costs are not even two thousand dollars on a loan? In fact many times the total closing costs to the lender are much less than two thousand dollars especially on loans under $150,000. So that's a BIG RED FLAG.

What Clark gives is neither rock solid professional advice nor accurate commentary. He's like other radio show/journalists who have dabbled in tertiary understanding of mortgage finance and real estate who should offer the disclaimer that their information is basically not much better than (or as good) bar-room chat. What Clark did on Tuesday is not unlike what Clark has done many times over the years and that was quote an interest rate and insinuate that interest rate was available in conjunction with a "no cost loan". Wrong on almost every case. When you want the truth and accurate information turn off the radio, get away from the misleading commercials and call me on my cell at 678-439-8683 (Clark you can call me too. I don't dislike you. Come buy my brunch and we'll talk about golf. My office is on Johnson Ferry.)

*I think Clark Howard does a tremendous amount of good for people by exposing scams and ripoff and giving great travel advice. I also know I have wasted hundreds of hours over the years re-educating people from what they have heard from Clark and other people like him who really do not need to be quoting rates and closing costs so freely.