Foreclosures Are Like Ants! We Don’t Want Umm; We Squish Umm, But We Need Umm!
Question: How many people do you know that haven’t made a mortgage payment in the last several months, and they haven’t received a notice of foreclosure from their bank yet? If fact, in some cases, they haven’t received anything from their banks yet!
More and more, we are seeing families staying in their homes without any action on the part of the banks.
But what is that really doing to our communities? Based on a recent report by DQ News, in what is called the “golden triangle” (which makes up the better part of the Southwestern Section of the Inland Empire) there are more than twenty-five thousand homes that no mortgage payment was being made, on homes with mortgages, and there were no Notice of Default letters sent to the home owners.
But what does that really mean? When you consider that when these home owners stop making their mortgage payments, they also stop paying their property taxes. So consider these numbers: Many of the people who have stopped making their house payment bought in 2007 and before. Many of these same buyers bought their homes at a price point of roughly $400,000 – $650,000. If, based on a property tax rate of 1.5%, for a $400,000 purchase price, the annual property tax paid by the home owner is $6000. Now multiply those $6000 by the 25,000 homes. You will find that $150 million stop going into the local economy! This a huge number that just keep growing!
So again, what does the lack of mortgage payment really mean; to our neighborhoods; to our cities; to our counties? It is not too difficult to understand why cities like San Bernardino, Rialto, and Stockon must declare bankruptcy! Why are so many government services no longer available? Why are city worker’s weekly pay checks in jeopardy?
A positive aspect in all this is that, because of pride and ego, and the fact that no one wanting the neighbors to know that they are going through hard times, families are staying in those homes and taking care of them! They are keeping up their lawns. They are making sure stays nice. No weeds, no trash, etc. This is very good for neighbor appeal and property values!
This morning, TBWS produced a wonder piece concerning our market, delinquencies and foreclosures.
In the end, though awfully painful, foreclosures serve a much needed service! The process allows banks to move the former owners out and re-sell the property. At which point, property taxes will begin to to paid again and the local economy and city appearance begins to pick up!
Foreclosures are kind of like ants, nobody wants them in our homes, but the service they provide is monumental! They move out what isn’t being used, they break it down, and it get recycled back into the environment.
Be Careful; You May Be Playing With Fire!
Riddle: When is a great loan and purchase option not so great; in fact, potentially dangerous?
That’s the million dollar question when it comes to the HomePath mortgage loan. For those that don’t know, the HomePath loan allows a buyer to purchase a foreclosed house, owned by Fannie Mae, from a specific list of available properties.
The loan allows for low down payment, no mortgage insurance, expanded seller contributions, and more. In most cases, a HomePath property is available for move-in ready properties for just about every buyer, like: owner occupants, investors, or families buying a second home. The availability of providing financing to investors with a low down payment amount is huge!
In fact, buyers have a wide variety of home buying options, for example: 1-4 unit properties, condos and PUDs (limited to Fannie Mae warrantable projects), Modular housing, and Leasehold estates.
So far everything seems excellent and exciting — provided that your buyer knows what they are buying and have experience fixing potential defects concerning the home.
As of late, Fannie Mae has done a fantastic job fixing up their properties, but what about those houses that haven’t been fixed? You know, the ones that your first time home buyer is salivating over because they believe that they are getting an incredible deal!
Since there are no property inspection or appraisal requirements on HomePath homes, it doesn’t take much imagination to figure that a buyer can claim, as they sit in front an unscrupulous attorney, that their real estate agent didn’t inform that their house was defective in any way. Moreover, because there was an appraisal, they may have also paid a lot more for their house than the going rate for a similar home in the neighborhood.
Selling a HomePath home to clients buying their first home brings certain responsibilities on the part of the real estate 
professional! Think about it, would you give your sixteen year old, who just learned how to drive, a race car as their first car? Most would agree that it is not unreasonable to presume that that car will end up wrapped around a pole sometime in the near future!
In conclusion, HomePath homes are priced very well to sell! The HomePath loan provides great financing for a specific market! They increase the number of homes sold in a neighborhood, which means additional property taxes, more revenue for the local economy, etc.
However, we can’t lose sight of the intended audience and market the product accordingly. For if we try to cram all comers into a HomePath home, because “they’re easy sales and everyone wants one,”we will breathe new life into old nemesis, aka: the “Payment Option Home Loan Products” (just in a different form). For those who don’t recall recent mortgage history, these types of loan allowed clients to choose, every month, which payment option they wanted to make, for example: a fixed 30 year loan payment, a fixed 15 year loan payment, an Interest Only payment, or a Minimum mortgage payment (most hovered around 1%). Essentially, the loans were designed for investors, in a surging market, who planned to sell the home in a short period of time, so in order to maximize their profit margins; they would be able to make a 1% payment to the mortgage.
Unfortunately, many, many untrained and unethical mortgage people took their unsuspecting clients, many of whom were on fixed incomes, or retired, and who had no intentions of “flipping” and selling their homes; and put them into a loan that provided a 1% payment option. The problem was that these un-savvy home owners had no idea that the loan would eventually re-adjust, then their mortgage payments would double, triple, or even quadruple. The result was devastating, foreclosures soared, scores of families lost their homes, and we are all living through the outcome of this massive real estate stumble!
The economic decline is much more complicated and has many more elements than the introduction and implementation of one mortgage loan product (no matter how much damage that product created), but we can’t repeat the sins of the past! The HomePath product is very good! Again, the loans for these homes are extremely attractive! You just need to make sure that you line up the right home with the right buyer — and work with someone that writes these types on home loans on a regular basis!
From the desk of: Claudio Gormaz, First Time Home Buyer Specialist,
with GEM Mortgage
Direct: 951.294.2274; Fax: 951.220.6707; claudioalexis@verizon.net
Why Do My Deals Keep Blowing Up? 3 Steps To Transaction Success!
In the last few years, maintaining the lifestyle that we attained just a few years prior has become extremely difficult!
Many people in the real estate industry have taken substantial hits to their income. So it is that much more important to make sure that if you get a client’s offer accepted that the transaction will close.
However, before we begin thinking about depositing our commission checks, we have to know what we have to do to make sure that our transactions close successfully! In short, it breaks down to basic science; if you know how something works, you can easily track and predict success. However, if don’t know what it takes to make the wheels go round, you are literally playing with fire with every transaction! You cannot expect success, if your entire business model is built on a crap-shoot.
REALITY: We have all read that the mortgage lending guidelines have tightened up regarding buyer qualification. However, it is those very changes that will absolutely affect your future income!
The mortgage industry has suffered for the last several years in the form of record setting quantities of foreclosures and short sales. These hits, according to http://ml-implode.com, have caused 388 mortgage companies and banks to go out of business since 2006. Therefore, lenders and government agencies such as FHA and VA have made adjustments to minimum borrower standards in order to reduce mortgage delinquencies. Gone are the days when a borrower merely needed to be able to fog a mirror and they would receive $500,000!
1) Depending on the client base you work with, each client type will have specific issues that need to be in place if you expect success with the sales transaction. For example, whether you work with investors or first time buyers, you must make sure that they have to funds to close the deal (whatever form that takes, you must know that success can and will take place before you enter into that relationship)!
2) Assuming all lenders are alike; each replaceable at any time based on interest rates and costs for performing the service they provide, is huge mistake; one that will cost you a lot of money!
In order to keep money circulating, mortgage lenders sell the loans they write to Wall Street in the form of mortgage back securities (MBS). Investors buy those MBS and may impose additional restrictions to the posted guidelines, referred to as “overlays.” It is those over-lays that ultimately determine the type of loans that a lender can provide to a client. So, it is crazy to assume that simply because one lender can or can’t do a particular type of loan, all lenders will have the same lending guidelines!
3) Develop strong and respectful relationships with your loan officers. A classic mistake made in a transaction is driven by the “need/demand” to get an immediate answer on a client’s pre-qualification.
If your loan officer hasn’t established a proper working relationship with you as their “business partner,” and said loan officer feels pressured to produce a fast turn-around on that pre-qualification letter. That loan officer will attempt to gather as many pre-qualification documents as possible. But rather than inform their “business partner” that they [the loan officer] are having difficulty gathering vital documents from the client, they [the loan officer] may feel compelled to enter information into the automated underwriting system based on approximated data. In other words, they’re guessing in order to get an automated underwriting approval for the real estate agent!
You can imagine what may come next:
The loan officer sent you a “pre-approval” letter for your client (that may or may not be worth the paper it’s written on). Your offer gets accepted, approved, the close of escrow date is set in place and now that file gets submitted to underwriting. At this stage, given these conditions, you are about to enter into an extremely stressful period of your life! In the words of Betty Davis: “Buckle up, this is going to be a bumpy ride.”
The strength of your deal is based on “fudged” information. All because that loan officer couldn’t get the needed information from the client in order to provide the real estate agent a “true” approval letter. According to multiple escrow data, it is estimated that approximately 41-62% of all transactions received on a monthly basis will never close. Allowing for the fact that some deals die because of things that are beyond anyone’s control, there are a substantial number of loans that should never have been initiated!
Again, the transaction (and the available commissions) is in peril because vital client data was not secured before the loan was submitted to underwriting, and a lack of communication between loan officer and real estate agent only exacerbates the situation!
Therefore, if you want to get back to earning what you used to earn, you need to make sure that every transaction that is accepted will close! However, your deals won’t close if you don’t know what is needed to make a transaction successful — which, incidentally, doesn’t mean that now you must do your lender’s job as well; but as a “professional”, you must have some idea of how things work!
You must understand, on some level, the basic guidelines that your lender’s company is using to make their lending decisions. This provides a great opportunity to have a cup of coffee with your lender so they can provide you some “inside information” or perhaps a “cheat sheet.”
The only way to achieve a successful working relationship is that you must respect the professionalism of the mortgage lender you are working with! You can’t impose on them the impossible task of changing your flat tire while you’re still driving at 60 mph! If you want you want every transaction to fund and close, you must truly be partners!
Finally, you must take responsibility for your clients. You must be an advocate for your client! If your client needs down payment assistance, you must make sure that the offer you submit covers their needs. If your client is an investor, and they want to flip a house they purchased, you must make sure that you know your lender’s guideline ratios for required timelines before the house can be re-sold and/or profit amounts. If your clients require FHA or VA financing, the success of your transaction depends on your knowledge of “health and safety” regulations imposed by each agency for the financing of the purchase, etc.
Good luck in your future business!
From the desk of: Claudio Gormaz, First Time Home Buyer Specialist, with GEM Mortgage.
Direct: 294.2274; Fax: 220.6707; claudioalexis@verizon.net
First Time Home Buyer's 411 