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100% Financing Options in CA in Declining Markets!

By
Mortgage and Lending with Fair Housing Resource Center

Yesterday I listened to syndicated radio talk show host from Sacramento Tom Sullivan compliments of newstalk 1530.  The more I listened the more I took offense to his over simplistic appraisal of the current market situation and what to do to "solve" it. 

Compliments 1530 Newstalk Sacramento

  • "We should go back to the time when buyers had to put down 20-50% down payment."
  • "Fannie Mae is under increasing pressure to not tighten lending standards by the National Associate of Realtors and the National Association of Homebuilders."

His show ran and as I tried unsuccessfully to get in.  So today, I thought I would post this response for all of you may have listened to yesterday's radio show. 

A couple of things about the current situation:

  1. Unlicensed loan officers working under the DOC
  2. A single licensing system via the DRE and not a dual licensing system: one for realtors and a separate one for lenders.
  3. No clear leadership on the part of DRE nor mortgage bankers for more integrity in the lending system.
  4. No clear irrefutable response to mortgage fraud for profit and for property
  5. Lending based on unrealistic income assumptions for stated income
  6. No ratio and no income, no asset loans to 100% financing
  7. Lending based on unrealistic and unsustainable equity growth of 15% to 30% a year in the Sacramento region and Placer county over the period between 1998 and 2005.

So in order to clean up the mess, you would need:

  1. A system exclusively for lenders to get licensed in CA under the DRE that is apart from a normal real estate license.  CA is the 8th largest economy in the world and yet when most mortgage sales people take their DRE, they have mastered real estate concepts such as "Riparian rights," but only do say 4 math questions out of 150 questions.  Further there is no mention of ethic, integrity, product placement, prudent terms and financial goals for the client.  It is clear the DRE licensing is antiquated and puts consumers and homeowners at risk of getting a loan from a shark.  The test needs to be written by mortgage brokers, bankers and experienced industry professionals with oversight from the Department of Real Estate.
  2. Mandate anyone originating loans MUST BE LICENSED!  No more DOC characters originating under a corporate charter with no experience in my field.
  3. Audit 100% of loan files for fraud or at least announce that they will do this.  Offset the cost via tax credits from State of CA.
  4. No ratio and NINA (no income no asset loans) or no longer available & stated income loans are now done at reduced loan-to-value loans and under clear make sense guidelines.   Stated income loans are still very acceptable given they have sufficient assets and loan reserves.  The market has corrected this problem on their own. 
  5. Cap lending in high appreciation areas to historic appreciations or at least do this on a case-by-case basis.  Link appraisals to actual wage growth in areas or have a make sense reason for doing the loan.  I.e. the property is in an historic stable area of better than average appreciation (such as "FAB 40s", Sun City, Del Webb, etc)

However, lenders should not eliminate 100% financing for qualified buyers. 

So what is a qualified buyer?

  • A buyer who has W-2s, paystubs and assets and better than average credit (680+)
  • A buyer who has W-2s, paystubs but lacks assets and lacks traditional credit; however has demonstrated an ability to make a payment equal or close to that of the new mortgage payment (via a rental rating) and has non-traditional verified credit {such as pg&e, cell, cable, rent, rent-a-center, etc} and have shown ability to manage debt and credit responsibly.  We call these people 620 credit score and they too would be able to get a mortgage.

And that is pretty much it . . .So now let's look at the very programs that are out there that I speak of:

 

  • FHA - Federal Housing Administration:  Great option for a 97.15% loan with a 3% mandatory down payment from the buyer via own funds, gift funds from family, gift funds from a non-profit down payment assistance program.  Great for the buyers in the second category above and fully insured by the US govt.
  • CalHFA: California Housing Finance Authority:  Great option for first time home buyers:  95% mortgage with optional reduced mortgage insurance and a silent 2nd and 3rd at rates of 3% & 6.75% respectively.  Conventional loan underwritten by Fannie Mae.  Great option for "As-is" purchases.
  • VA:  Veterans Administration:  Great loan for veterans with no monthly PMI.  
  • CalPERS:  95% first mortgage with either a 5% personal loan collateralized from CalPERS (but not actually deducted from their retirement account) OR (and this is new) a 95% first with a 5% second secured from the National Home buyer Fund for 100% total financing.
  • National Home buyer Fund:  95% + 5% financing but with higher rates but also for first time or non first time home buyers. 
  • There is also the ability to do a 95% fannie mae loan with a 5% gift from a family member.

All of these programs are available in declining markets and all enable QUALIFIED HOME BUYERS to purchase a home with no money down and no money out of their pocket. 

 Sound risky? 

Not really!  Just follow my instructions above and the rest will take care of itself. 

& of course . . . . IF YOUR CURRENT LENDER IS NOT OFFERING THESE PROGRAMS, CALL ME (OR SOMEONE WHO IS OFFERING THESE PROGRAMS). 

For more information on any of these ideas or programs simply email me at:

mortgageplanner@247refi.com

Mike

 

Comments (2)

Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management

Mike,  I think the radio guys are speaking in simplistic terms for the mass audience.  Your comments are well thought out, but the average man on the street does not ever go there.  I hope those in charge are thinking more like you do.  But, politics trumps common sense in most cases.

May 18, 2008 06:37 AM
Anonymous
JOSE TACORDA

I WANT TO BUY A SHOPPING CENTER AT FRESNO, CA.  PRICE IS $6,000,000 AND NET OPERATING INCOME IS $800,100.  I WANT A 100% LTV OR I CAN USE A DOWN PAYMENT ASSISTANCE.

Apr 28, 2009 05:46 PM
#2