We now have the chance to read through the recent Stimulus/Spending Bill that was passed largely unread by our Congress. The earmarks and pork anger many, but there is good news on the real estate front:

Owners of second homes and other real estate investments will now be able to refinance their mortgage loans if they are guaranteed or held by either FannieMae or FreddieMac–and if the current value is no more than 5% over the mortgage amount.

Many real estate investors, though, have no idea whether their loans are guaranteed or owned by Fannie or Freddie. However, you may call Fannie directly at 1-800-7FANNIE or visit their site. If you complete the form on Freddie Mac’s site, they will advise you as to whether they are guaranteeing your loan or not.

To qualify for this real estate refi, there may be no late payments (30 days or more) for last year. FICO and credit scores, though, are not considered–nor will private mortgage insurance start anew.

This could be a great help for many investors and second home owners who thought only primary homes could benefit from the Fannie and Freddie refi’s. This may also be a potential Godsend for tenants who face eviction because of foreclosures. This may allow investment property owners to keep their properties–and their tenants in place

The post Refi for Real Estate Investors appeared first on Luxury Home Digest.

If I could be  President Obama’s Mortgage Czar for just one week, the first thing I would mandate is that all existing mortgages become assumable.

When starting my real estate career in Houston, Texas during the last century, it was not uncommon for buyers to assume or take over  existing  financing. In fact, it was a perfect way for the self-employed or those with dinged credit to buy a home.  And because there were no loan origination fees or points,  buyers were often willing to pay a slight premium for homes with assumable loans.

To implement this today would create an immediately available financing alternative for the real estate market–and might even be a way for banks to deal with some of those famously-toxic assets. As Mortgage Czar, I would create two tiers for Assumable Loans:

1. Non-Distressed Loans. Owners of these home have equity and would likely need concessions from neither the lender nor the government, other than permission for the mortgage(s) to be assumed. For example, Seller Smith has an outstanding mortgage of $200,000 and is selling his home for $250,000. Buyer Jones would pay $50,000 plus minimal closing fees and would assume esisting financing. All future payments would now be made by Buyer Jones.  It is a simple transfer of title and mortgagor with no change in terms.

2. Distressed Sales. Sellers of these homes have no equity; in fact, they generally owe more than the home is worth.  Using a blend of short sale and loan modification procedures, loan balances and interest rates on these homes would be adjusted to current market value and rates.  Because buyers would no longer be “buying equity” and would have no equity stake in the properties, lenders could now require that prospective buyers deposit at least three months’ payments with the lender as insurance against potential future default.The Buyer would also be responsible for applicable closing fees.

Implementation of this mandate would allow both the existing borrower and the lender to avoid the costs and damages of the foreclosure process–and would help protect neighborhoods from further decay and decline.

By allowing mortgages to become assumable, we would also be offering a second chance to many whose credit ratings have been demolished by short sales and foreclosures.

Under this plan, lenders would fare much better vis-à-vis short sales and foreclosures–and more homeowners would be able to save their credit and exit their situations with dignity.  Most lenders now force homeowners to be in default with their mortgage before they will even consider a short sale or modification of terms.

It just makes sense to get the mortgage debt seamlessly transferred before it ever goes default.

And with strangled liquidity in financial markets, it makes more sense than ever for this Mortgage Czar to transfer debt rather than forcing buyers to secure new financing–which may or may not be available.

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One Can Modify Luxury Home Loans, too?

Not all clients took my conservative mortgage advice over the years, and some ended up with home loans that have turned downright nasty.

In one case, a client and dear friend was persuaded to take out a Negative Amortizing Adjustable Rate Mortgage (Neg Am) along with a HELOC (Home Equity Line of Credit) a few weeks after the purchase of her $1.8 million Carsbad home.

I just heard that in a couple of months, her mortgage will reset to an intolerable level and she is seeking a way to manage payments and keep her dream home.

Late last night, I discovered that fellow real estate blogger Ryan Rockwood had written an ebook on How To Get A Loan Modification that is packed with information for struggling borrowers–and chock full of insider tips.

For example, I know that many borrowers agonize because either they or their mortgage broker overstated income levels when applying for mortgage loans during the real estate bubble years.  At the same time, attorneys have discovered that many lenders may have violated provisions in the Truth in Lending Act and/or the Real Estate Settlement Procedures Act (RESPA). Rockwood states that there is plenty of blame to go around, and lenders as a rule aren’t pursuing earlier income exaggerations.

That information alone might spur some to pursue loan modifications for their mortgages.

If you are having difficulty with your mortgage, I encourage you to visit the 60 Minute Loan Modification site, where you will soon be able (if not already) to purchase one of the best books I have seen about how to get a loan modification.

The post Even Luxury Home Loans Can be Modified appeared first on Luxury Home Digest.

Luxury Real Estate Market: What is Normal?

I often turn to Billy Taylor, financial services guru at San Diego’s Villa Sotheby’s, when I want to hear the latest scoop on the mortgage market. Just last week, for example, Billy shared that Chase had moved out of the jumbo mortgage market entirely. That leaves a mere handful of lenders who will even consider doing jumbo loans, which help fuel much of the mortgaged luxury real estate market.

Below, Billy shares with us his latest assessment of the mortgage market and how it is impacting real estate sales:

As a real estate professional with more than 25 years experience I often get this question:

“When will the real estate market be coming back?”

Well, I don’t think the real estate market ever left us; it was the financing that left us!

There are many people looking to buy or sell real estate. The phones are still ringing and open house traffic is growing. I receive calls everyday inquiring about loans and real estate available.

It is NOT Consumer demand that is missing; it’s the financing programs available to fulfill those sales transactions that is missing.

Overnight after August 10th 2007 the real estate loan liquidity simply dried up. The secondary market on Wall Street stopped buying Jumbo loans,(those over $417,000), and has yet to come back into the market.

Jumbo loans, which had been 60% of the loan market in California prior to last summer of 2007, are now about 10% of the market. Congress’ loan liquidity solution of raising the Fannie Mae and Freddie Mac loan limits to $697,000 in San Diego, for example, has NOT been the solution many had hoped it would have been. This is mostly because the interest rates delivered were NOT conforming rates as suggested they would be. Rather, they more like a half percentage point higher–and with new restrictions that made them nearly impossible to be approved.

This new jumbo loan category is called Agency Conforming and is nothing more than an old Jumbo loan, but with stricter guidelines and higher pricing. Jumbo pricing above $697,000 to $5,000,000 is even higher in pricing and also faces difficulty in getting approved.

The lifeblood to any market is liquidity and a real estate market would die without financing. In Mexico real estate loans are rare and generally require 50% or more as a down payment. Unfortunately that is why most of the population in Mexico doesn’t own real estate. So a lack of liquidity for real estate loans in the United States, and particularly jumbo loans, has restricted home ownership this past year.

We in the U.S. have had liberal financing available for real estate which has allowed millions to own homes. And therefore an abundance of real estate liquidity has allowed millions to own homes and enjoy a higher standard of living for themselves and their families.

But the lenders have all found underwriting religion and their financial gravy train has derailed. Programs that once fueled the 20% annual growth rates in Southern California real estate have been deleted. Stated income loans, which were probably the most abused offering of the market, is quickly disappearing as lawmaker’s line up to kill it completely. Second trust deeds which allowed lower down payments are rarely offered, and if they are, the pricing is prohibitive. In a word the lending guidelines are “TIGHT”

So where does this leave us and where am I going with this editorial?

Although my commentary is a bit dire I want to make the comment that all is NOT lost. There are still many banks willing to make loans. But it must be said the path to closing the deal is narrower!

Everyone would love to know when the bottom of this market will be reached. Which was the original premise for me writing this commentary?

I have the belief that TIME has nothing to do with when a bottom in a real estate market is reached. I believe the bottom will be reached when the INCOMES of buyers support the ASSETS FINANCED. And unfortunately this was not the case for many of the loans funded in the past five years.

That being said, I believe the real estate owner and investor has to be working with the best and most informed bankers, real estate brokers and real estate agents if they are to be successful in this market. The days of every loan being approved and every transaction closing is over. Sellers, Buyer’s and Agents should be partnering with their banker before a transaction goes into escrow–NOT AFTER. Success in real estate takes more planning and upfront work than in previous markets.

The post When Will the Real Estate Market Return to Normal? appeared first on Luxury Home Digest.

Luxury Home Defaults

Ed McMahon may have wondered what else in new in defaulted real estate with the pending default of his Beverly Hills home.  But yesterday, Standard & Poor’s Ratings Service reported that even prime jumbo loans are starting to buckle.

Over a period of just one month–from June to July, 2008–jumbo loans originated in 2006 saw mortgage delinquencies rise 13.2 percent, while 2007 delinquencies rose 7.3 percent. Overall, mortgage delinquencies in the luxury real estate market are relatively low, with prime jumbos originating in 2006 reporting a serious delinquency rate of just 2.48 percent. But luxury home defaults are on the rise.

(For a more detailed report, go to: Prime Jumbos Showing Strain: S&P : Housing Wire)

It also appears that originations in the luxury market may be tightening. Thursday evening, Billy Taylor with Villa Sotheby’s International Realty in Del Mar, whispered that Chase Mortgage is pulling out of jumbo loan originations (at least at the broker level).

My prediction? There will be much more discussion about creative and seller financing in the months ahead. If financing is required for the purchase of a luxury home, it may be the seller who provides it.

Finally, stay tuned for Bob Dyson’s radical mortgage rescue program that could stabilize the real estate market very quickly–and that is quickly gaining prominent political support….

The post Jumbo Loan Defaults in the Luxury Market appeared first on Luxury Home Digest.

The real estate predators are always there–in good times and in bad.

There are whispered stories in real estate circles of certain escrow and loan officers who, in the heady days of real estate, slipped deeds into the stacks of papers homeowners were signing as they refinanced their homes. The deed, of course, moved the property into the predator’s claws.

As the Discovery Channel shows, predators will always pick off the unsteady, the not-so-swift and the elderly because the catch is easy and the herd moves on. No different with these criminals.

But you know what’s scary?

The employers of these predators, when or if they discovered the crimes, fired the perps summarily–and kept their collective mouths shut. They didn’t want bad press, they didn’t want exposure, they didn’t want to field the possible litigation that sometimes come from predator attorneys.

It was a criminal catch and release program that spared corporations their reputations and the hassle of potential lawsuits.

As as result, it should surprise none of us that these same real estate criminals (and others who have caught onto their scams) are again preying on unsteady homeowners. This time they disguise themselves as the good guys of real estate, who are out to save stressed homeowners from foreclosure. Their lines and lead-ins go something like this:

I can save your home from foreclosure. I can save your credit. Just sign here.

Other wannabe-predators offer embarrassed and delinquent homeowners the chance to stay in their homes as renters, and then offer to buy them back when circumstances improve. Families can remain in their homes, the kids can stay in school, and neighbors will never know the difference.

The only problem is that the prices at which the homes will be eventually offered back to the former owners may be far above market value.

The true real estate predator will offer to make the foreclosure go away with a simple loan. All the distressed homeowner needs to do is sign on the marked lines (at the bottom of the promissory note and deed of trust)–which means that he and/or she have just signed over the deed to the house. These predators are really good at slipping these critical documents into big stacks of paper that need to be signed in any real estate transaction. If we recall, this is the same tactic these creeps used a few years ago and their targets remain the same: The distressed, the unsteady and the elderly–who also own homes with enough equity or opportunity to make it worth the hunt.

My advice to distressed homeowners? Immediately consult with a reputable real estate professional or attorney before signing anything offered by a real estate problem solver–and remember that the predators wouldn’t be after you if there wasn’t any meat on the target.

The post Troubled Homeowners: Beware the Predators appeared first on Luxury Home Digest.

This months hot real estate question:

Which homeowners will benefit from President Bush’s recent interest rate freeze for subprime loans? And who will be left out in the cold? It’s a question on the mind of both mortgage and real estate professionals alike.

Drumroll.

The winners, who may receive a five-year extension (and possibly even longer) on their low introductory mortgage rates, are those:

• Whose mortgage loans are truly subprime. Traditional ARM mortgagees apparently need not apply.
• With FICO scores at or somewhat below 660.
• Who originated their home loan between 2005 and this past July 30.
• Who are relatively current in their mortgage payments.
• Who cannot afford higher monthly payments.
• Who have less than 3 percent equity in their homes.
• Who actually live in the mortgaged property. Investors need not apply.
• Whose mortgage rates are due to reset in the next two years.
• Who call their loan servicers, and begin the application process. Dont expect them to call you.

The losers appear to be everyone else in San Diego, but most particularly those:

• Who are already facing foreclosure of their San Diego home.
• Who have already refinanced their homes.
• Who are more than than 60 days delinquent on more than one payment in the past year.
• Who have high FICO scores (above 660, it appears).
• Who have prime adjustable rate loans.
• Who can afford the mortgage rate reset.

Nationally, it appears that around 1.2 million borrowers may be considered for this introductory rate freeze. Some will be offered the opportunity to refinance, particularly if there is sufficient equity in the home to do so. It is widely expected that around 600,000 will actually qualify for the rate freeze.

How many homeowners will fall into this total is unknown; however, we are reaching out to our clients and readers and advising them to contact their lenders to see what options might be available. We will be following those results with great interest and would appreciate hearing from anyone who has gone through the application process.

The post Mortgage Rate Freeze: Who Wins and Who Loses appeared first on Luxury Home Digest.

Opportunities for real estate fraud couldn’t have been more ripe than in 2005 and 2006, when real estate prices started to quietly soften–especially in fertile markets like San Diego, Phoenix, Las Vegas and Miami.

Home prices in these areas had rocketed to unsustainable levels, and some of the micro markets within these areas had already started to stall as early as 2005. By 2006, market time and “days on market” had begun to climb, to the discomfort of many sellers.

Many had listed their properties, hoping their homes could sell for at least as much as the recent neighborhood comparable sales or their own refinance appraisal–and perhaps even more. Some of these sellers were more motivated than others, and reduced their listing prices substantially to attract more buyers.

The stars were perfectly aligned for the real estate crooks:

• The housing market was declining, and there was general confusion in pricing;
• Mortgage money was easy, especially with stated income loans.
• Many of these shady real estate agents also wore the hats of loan brokers–and vice versa. This allowed better control of the transaction.

For example, we had an Imperial Beach home listed at close to $500,000, based on the owner’s 2005 refinance appraisal. Because the property needed so much work, the motivated absentee seller agreed to reduce the price to $399,000 and sell the home in as-is condition. Almost immediately, we had an offer for $500,000 (100 percent financing) with $120,000 to be credited back to the purchaser at close of escrow. The South Bay agent assured us the buyer was approved by their crooked in-house lending operation.

We presented the offer to the seller, and advised to him reject it outright. It was an obvious case of loan fraud.

A few months later, we had another fraudulent purchase attempt on a home we had listed in Carlsbad. It was a lovely listing in Rancho Carrillo that had also had a substantial reduction in price. We received a verbal offer from an out-of-area contractor who had never seen the property. His loan broker called from Northern California, and explained that their offer (100 percent financing again) required over $100,000 back because of all the work this contractor would have to do. They wanted me to write the offer, believing perhaps that if I “double-ended” the deal, I would be more cooperative.

We shot back a quick rejection. This newer home, by the way, was already in pristine condition–and was sold shortly thereafter to very qualified buyers.

This time, though, I called the San Diego office for the FBI, and reported all the information I had regarding this attempted fraudulent purchase. I provided names, telephone numbers and email addresses–and never heard anything more.

Since then, we have seen countless cases where homes were sold at highly inflated prices in 2005 or 2006 with 100 percent financing. That can be an immediate red flag for either buyer and borrower misrepresentation–or possible loan fraud.

There is also the technique of hiding a kickback in inflated commission, because lenders aren’t privy to real estate commissions paid. Though not exactly illegal, it is a practice that should be examined. I am inclined to think commission kickbacks should be considered a lender disclosure issue.

The untallied costs of these real estate and lending crimes and schemes have contributed enormously to the current real estate crisis.

In the meantime, the US Department of Justice (DOJ) has wasted huge amounts of time and resources the past few years pursuing the National Association of Realtors (NAR) over ownership of MLS data and other obscurities. Their time, I believe, would have been far better spent pursuing organized and fraudulent real estate practitioners. Had they, the FBI and other law enforcement agencies been more aggressive in this arena, the real estate market might be in a different position today.

The post Real Estate Fraud: Cash Back and Consequences appeared first on Luxury Home Digest.

Become a victim of identity theft, and you could be in for the nightmare of a lifetime.

We have known several identity theft victims. One family lost their home because of it–and another even fears for his safety. It is a vicious crime that can take years to  resolve and the damages can last far longer than that. And all too often, identity thieves are never caught or punished.

Almost 10 million Americans are victimized by identity theft each year, and it is one of the fastest growing financial crimes.

The best solution is prevention and freezing your credit may be one of the simplest steps you can take to help stop this crime. A security freeze will prevent thieves from obtaining credit in your name by locking, freezing and blocking access to your credit report and credit score.

The cost to do this is fairly minimal ($10 in California), and is a solution available to residents of:

Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Indiana, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

What happens if you want to obtain new credit? The consumer is given a PIN to grant access to the credit file. Again, a nominal fee may be charged to do so.

How does the credit freeze work? Simple. If a business or lender cannot obtain credit information, new credit will not be issued to the thief. Unfortunately, though, you will have to unfreeze your credit if applying for a new loan or mortgage.

For additional reading about this subject, click here.

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