Tag Archives: mortgage payment

FHA Is Set To Return To Anti-House-Flipping Restrictions


House flippers buy run-down properties, fix them up and resell them quickly at a higher price. Above, a home under renovation in Amsterdam, N.Y. (Mike Groll / Associated Press)

Can you still do a short-term house flip using federally insured, low-down payment mortgage money? That’s an important question for buyers, sellers, investors and realty agents who’ve taken part in a nationwide wave of renovations and quick resales using Federal Housing Administration-backed loans during the last four years.

The answer is yes: You can still flip and finance short term. But get your rehabs done soon. The federal agency whose policy change in 2010 made tens of thousands of quick flips possible — and helped large numbers of first-time and minority buyers with moderate incomes acquire a home — is about to shut down the program, FHA officials confirmed to me.

In an effort to stimulate repairs and sales in neighborhoods hard hit by the mortgage crisis and recession, the FHA waived its standard prohibition against financing short-term house flips. Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping it — to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a buyer using an FHA mortgage — provided that you followed guidelines designed to protect consumers from being ripped off with hyper-inflated prices and shoddy construction.

Since then, according to FHA estimates, about 102,000 homes have been renovated and resold using the waiver. The reason for the upcoming termination: The program has done its job, stimulated billions of dollars of investments, stabilized prices and provided homes for families who were often newcomers to ownership.

However, even though the waiver program has functioned well, officials say, inherent dangers exist when there are no minimum ownership periods for flippers. In the 1990s, the FHA witnessed this firsthand when teams of con artists began buying run-down houses, slapped a little paint on the exterior and resold them within days — using fraudulent appraisals — for hyper-inflated prices and profits. Their buyers, who obtained FHA-backed mortgages, often couldn’t afford the payments and defaulted. Sometimes the buyers were themselves part of the scam and never made any payments on their loans — leaving the FHA, a government-owned insurer, with steep losses.

For these reasons, officials say, it’s time to revert to the more restrictive anti-quick-flip rules that prevailed before the waiver: The 90-day standard will come back into effect after Dec. 31.

But not everybody thinks that’s a great idea. Clem Ziroli Jr., president of First Mortgage Corp., an FHA lender in Ontario, says reversion to the 90-day rule will hurt moderate-income buyers who found the program helpful in opening the door to home ownership.

“The sad part,” Ziroli said in an email, “is the majority of these properties were improved and [located] in underserved areas. Having a rehabilitated house available to these borrowers” helped them acquire houses that had been in poor physical shape but now were repaired, inspected and safe to occupy.

Paul Skeens, president of Colonial Mortgage in Waldorf, Md., and an active rehab investor in the suburbs outside Washington, D.C., said the upcoming policy change will cost him money and inevitably raise the prices of the homes he sells after completing repairs and improvements. Efficient renovators, Skeens told me in an interview, can substantially improve a house within 45 days, at which point the property is ready to list and resell. By extending the mandatory ownership period to 90 days, the FHA will increase Skeens’ holding costs — financing expenses, taxes, maintenance and utilities — all of which will need to be added onto the price to a new buyer.

Paul Wylie, a member of an investor group in the Los Angeles area, says he sees “more harm than good by not extending the waiver. There are protections built into the program that have served [the FHA] well,” he said in an email. If the government reimposes the 90-day requirement, “it will harm those [buyers] that FHA intends to help” with its 3.5% minimum-down-payment loans. “Investors will adapt and sell to non-FHA-financed buyers. Entry-level consumers will be harmed unnecessarily.”

Bottom line: Whether fix-up investors like it or not, the FHA seems dead set on reverting to its pre-bust flipping restrictions. Financing will still be available, but selling prices of the end product — rehabbed houses for moderate-income buyers — are almost certain to be more expensive.

kenharney@earthlink.net. Distributed by Washington Post Writers Group. Copyright © 2014, Los Angeles Times

U.S. To Ease Repurchase Demands On Bad Mortgages

Mel WattMelvin Watt, director of the Federal Housing Finance Agency, outlined ways in which his agency would clarify actions it takes against bankers on loans that go bad. (Jacquelyn Martin / Associated Press).

by E. Scott Reckard, John Glionna & Tim Logan

Hoping to boost mortgage approvals for more borrowers, the federal regulator of Fannie Mae and Freddie Mac told lenders that the home financing giants would ease up on demands that banks buy back loans that go delinquent.

Addressing a lending conference here Monday, Melvin Watt, director of the Federal Housing Finance Agency, outlined ways in which his agency would clarify actions it takes against bankers on loans that go bad after being sold to Freddie and Fannie.

The agency’s idea is to foster an environment in which lenders would fund mortgages to a wider group of borrowers, particularly first-time home buyers and those without conventional pay records.

To date, though, the agency’s demands that lenders repurchase bad loans made with shoddy underwriting standards have resulted in bankers imposing tougher criteria on borrowers than Fannie and Freddie require.

A lot of good loans don’t get done because of silly regulations that are not necessary. – Jeff Lazerson, a mortgage broker from Orange County

Those so-called overlays in lending standards, in turn, have contributed to sluggish home sales, a drag on the economic recovery and lower profits on mortgages as banks reduced sales to Fannie and Freddie and focused mainly on borrowers with excellent credit.

Watt acknowledged to the Mortgage Bankers Assn. audience that his agency in the past “did not provide enough clarity to enable lenders to understand when Fannie Mae or Freddie Mac would exercise their remedy to require repurchase of a loan.”

Going forward, Watt said, Fannie and Freddie would not force repurchases of mortgages found to have minor flaws if the borrowers have near-perfect payment histories for 36 months.

He also said flaws in reporting borrowers’ finances, debt loads and down payments would not trigger buy-back demands so long as the borrowers would have qualified for loans had the information been reported accurately.  And he said that the agency would release guidelines “in the coming weeks” to allow increased lending to borrowers with down payments as low as 3% by considering “compensating factors.”

The mortgage trade group’s chief executive, David Stevens, said Watt’s remarks “represent significant progress in the ongoing dialogue” among the industry, regulators and Fannie and Freddie. Several banks released positive statements that echoed his remarks.

Others at the convention, however, said Watt’s speech lacked specifics and did little to reassure mortgage lenders that the nation’s housing market would soon be back on track.

“The speech was horribly disappointing,” said Jeff Lazerson, a mortgage broker from Orange County, calling Watt’s delivery and message “robotic.”

“They’ve been teasing us, hinting that things were going to get better, but nothing new came out,” Lazerson said. “A lot of good loans don’t get done because of silly regulations that are not necessary.”

Philip Stein, a lawyer from Miami who represents regional banks and mortgage companies in loan repurchase cases, said the situation was far from returning to a “responsible state of normalcy,” as Watt described it.

“When the government talked of modifications in the process, I thought, ‘Oh, this could be good,'” Stein said. “But I don’t feel good about what I heard today.”

Despite overall improvements in the economy and interest rates still near historic lows, the number of home sales is on pace to fall this year for the first time since 2010 as would-be buyers struggle with higher prices and tight lending conditions

Loose underwriting standards–scratch that, non-existent underwriting standards–caused the mortgage meltdown. If borrowers are willing to put down just 3% for their down payment, their note rate should be 0.50% higher and 1 buy-down point. The best rates should go to 20% down payments.

Once-torrid price gains have cooled, too, as demand has subsided. The nation’s home ownership rate is at a 19-year low.

First-time buyers, in particular, have stayed on the sidelines. Surveys by the National Assn. of Realtors have found first-time owners making up a significantly smaller share of the housing market than the 40% they typically do.

There are reasons for this, economists said, including record-high student debt levels, young adults delaying marriage, and the still-soft job market. But many experts agree that higher down-payment requirements and tougher lending restrictions are playing a role.

Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA, said he’s of a “mixed mind” about the changes.

On one hand, Gabriel said, tight underwriting rules are clearly making it harder for many would-be buyers to get a loan, perhaps harder than it should be.

“If they loosen the rules a bit, they’ll see more qualified applicants and more applicants getting into mortgages,” he said. “That would be a good thing.”

But, he said, a down payment of just 3% doesn’t leave borrowers with much of a cushion. If prices fall, he said, it risks a repeat of what happened before the downturn.

“We saw that down payments at that level were inadequate to withstand even a minor storm in the housing market,” he said. “It lets borrowers have very little skin in the game, and it becomes easy for those borrowers to walk away.”

Selma Hepp, senior economist at the California Assn. of Realtors, said lenders will welcome clarification of the rules over repurchase demands.

But in a market in which many buyers struggle to afford a house even if they can get a mortgage, she wasn’t sure the changes would have much effect on sales.

“We’re still unclear if we’re having a demand issue or a supply issue here,” said Hepp, whose group recently said it expects home sales to fall in California this year. “It may not have an immediate effect. But in the long term, I think it’s very positive news.”

Watt’s agency has recovered billions of dollars from banks that misrepresented borrowers’ finances and home values when they sold loans during the housing boom. The settlements have helped stabilize Fannie and Freddie, which were taken over by the government in 2008, and led many bankers to clamp down on new loans.

Fannie and Freddie buy bundles of home loans from lenders and sell securities backed by the mortgages, guaranteeing payment to investors if the borrowers default.

scott.reckard@latimes.com

john.glionna@latimes.com

tim.logan@latimes.com

Reckard and Logan reported from Los Angeles; Glionna from Las Vegas

Many Seniors Trying To Retire With A Mortgage

http://www.trbimg.com/img-541cd768/turbine/la-baby-boomer-mortgages-20140919/750/750x422 By Andrew Khouri

When Tom Greco bought his four-bedroom home three decades ago, he assumed he’d pay off the mortgage before retirement — just as his parents did.

Things didn’t work out that way.

Instead, his $4,500 monthly mortgage payments — a consequence of several equity withdraws over the years — became a financial drag.

“It’s pretty hard to retire with that,” the Irvine attorney, 66, said.

More and more older homeowners are carrying mortgage debt, a burden that threatens to delay their retirement and curtail spending among the massive baby boomer population.

Nearly a third of homeowners 65 and older had a mortgage in 2011, up from 22% in 2001, according to an analysis from the Consumer Financial Protection Bureau, using the latest available data.

Tom Greco and his wife are downsizing
Tom Greco and his wife are downsizing from an Irvine house to a Lake Forest condo. To retire, Greco needs to reduce his mortgage payment. (Allen J. Schaben / Los Angeles Times)

The debt burden also grew — with older homeowners owing a median of $79,000 in 2011, compared with an inflation-adjusted $43,400 a decade earlier.

For decades, Americans strove hard to pay off their mortgages before retirement, an aspiration that when achieved was celebrated with mortgage-burning parties.

But for the latest retirees, reaching that goal, if they ever had it, is increasingly less likely.

Baby boomers bought homes later in life, and with smaller down payments, than previous generations, said Stacy Canan, deputy assistant director of the consumer bureau’s Office for Older Americans. Many also refinanced during the housing bubble and used cash from their equity withdraws to pay off other debt, take vacations or put children through college. Surging home prices and low interest rates made that possible.

Then the recession hit. Job losses delayed attempts to pay off mortgages. And many baby boomers took in their adult children after the collapse, refinancing to help their kids weather a brutal job market, said James Wells, a housing counselor with ClearPoint Credit Counseling Solutions.

“Before, the children could take care of themselves,” he said. “Now, not so much.”

The number of mortgage-holding households headed by someone 65 or older rose from 3.8 million in 2001 to 6.1 million a decade later, the consumer bureau said.

Rising debt levels also reflect a psychological shift among Americans, financial advisers and economists say.

“People who lived through the Great Depression came out of that period with a great aversion to debt,” said Lori Trawinski, director of banking and finance with AARP’s Public Policy Institute. “As a culture we have loosened our opinion of debt.”

As baby boomers enter retirement age — 10,000 per day, according to one estimate — the decisions that once supported an easier lifestyle could make later years tougher. Some may have to keep working to pay their mortgage, and others will have to cut back on other expenses to retire, the bureau’s Canan said.

“People will indeed have to do some juggling of their budgets,” she said.

Jacqueline Murphy is doing just that. The former clerical worker for the New York City Police Department retired in March, thinking her pension and Social Security, coupled with a part-time job, would allow her to live comfortably and cover mortgage payments on the Bronx town home she bought for $375,000 during the housing bubble.

But the 63-year-old hasn’t yet found a part-time gig, and a large chunk of her income is going to the $2,200-a-month mortgage.

So she’s cutting back. She keeps the lights off as much as possible, has cut back on gardening to reduce the water bill, and sometimes gets help from family to buy groceries.

“I thought retirement was going to be wonderful,” she said. “Now that I am retired, I am sorry that I did. I am focused on how I am going to make it to next week, how am I going to make it to the next mortgage payment, and I am constantly worried.”

Wells, the housing counselor, said those he counsels often didn’t budget for reduced retirement income when they refinanced to help their children, fix a car or take a vacation. They were working then, so the payments seemed reasonable.

“They are not really thinking long term at that point,” he said.

Greco, the Orange County attorney, said he took a “shortsighted view.” Enticed by dropping interest rates, he refinanced his Irvine home four times.

He then used the money from the cash-out refinancings to pay down credit card debt and finance home renovations, including a pool he himself designed.

“A foolish move,” he said of the refinancing, but one that many others, including friends, did as well.

A recent study from Harvard University’s Joint Center for Housing Studies showed that of mortgage holders ages 65 to 79, nearly half spent 30% or more of their income on housing costs. Of mortgage holders 80 or older, 61% pay that amount on housing.

And the debt carries further risks.

Sudden changes in expenses, such as those stemming from health problems, can expose seniors with mortgages to greater financial peril, the consumer bureau’s study said. And if another downturn comes, retirement savings and investments are likely to take a hit, raising the chance of foreclosure.

One option is to downsize.

That’s the choice Greco made. In August, he and his wife sold their Irvine house. Next month they plan to move into a Lake Forest condo, knocking down their mortgage payment by thousands of dollars. Even after downsizing, Greco said, he simply can’t retire as he wishes. There’s the condo mortgage and other debt he must pay.

So instead, he plans to gradually work less and less. He started this month, a day after his 66th birthday, by working half-days on Fridays.

In five years, he hopes to have paid down the condo loan enough to get a reverse mortgage that will allow him to only take on cases that interest him.

Reverse mortgages allow people at least 62 years old to receive payments based on the equity in their homes. But unlike a traditional home equity loan, a reverse mortgage does not require monthly payments. The loan, which is easier to qualify for than a home equity line of credit, doesn’t come due until the home is sold or the borrower moves out or dies.

Having to still work is not the ideal situation, Greco said, but retirement will be far easier without the Irvine house as an anchor.

“I needed to get out of that mortgage,” he said.

andrew.khouri@latimes.com  Copyright © 2014, Los Angeles Times

We All Agree: We want to keep people in their homes if possible… sort of.

Re-posted From: Mandelman Matters

I have a long-time reader by the name of Arthur Pritchard.  He’s a really smart guy in his mid-70s, who lives in San Francisco.  He purchased the lot in 1978, and then designed and built his home on Howth Street, right near San Francisco City College, in 1988, with the help of a carpenter and the like.

In 2005, at 66 years young, and getting ready to retire or at least re-tread, he wanted to take some cash out of his home’s equity and the nice people at World Savings were standing by ready willing and able to put him right into an Option ARM mortgage, which I think even the most predatory of the predatory lenders would agree would have been about the most inappropriate choice for him in his stage of life… but, no matter.  We can always come back to that later if it makes sense.

Next, we all know what happened… the world blew up, as the housing market melted down, and the financial crisis ended the rich histories of every single investment bank on Wall Street.  Like millions of others, soon Arthur couldn’t keep up with his mortgage payments and faster than you could say, “don’t worry, you can always refinance,” he found himself headed for foreclosure.

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So far, there’s nothing that’s the least bit surprising or even unusual about Arthur’s story.  I mean, other than the people at World Savings being predatory shitheads that should probably have gone to jail or something close, everything is as it should be, right?  Of course, right.

Well, Arthur vacillated a bit on whether he should fight the loss of his home.  He tried to get a modification, to no avail, which was also not a surprise in the least.  He filed bankruptcy, tried again, and then seeing the writing on the walls he had built himself, he decided to move out and give up the fight.

The problem was that he didn’t have anywhere to go, and with his income a mere shadow of its former self, he ended up in one of the Bay Area’s finest shelters for the poor, the elderly, the people who at one time were abducted by aliens, and several drummers from bands who had hit singles during the 1960s.

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Now, Arthur’s truly a stand up guy, and when I say he’s smarter than your average bear, I’m not just whistling Dixie.  But, living in a shelter in San Francisco and later in San Jose, had to be a lousy way to look at living through his golden years, and after a while, since his home was still sitting there, he moved back in and decided to continue his fight to try to keep his home… or if not, then short sell it.

Either way, at least he wasn’t sleeping in a shelter anymore, so life was better than it would have been otherwise.  And, as is commonly the case, Wells Fargo Bank didn’t seem to be in much of a rush to foreclose and send him packing, so why not keep trying until all avenues had been exhausted?

Besides, since it had been over a year since Wells had filed a Notice of Default, they would have to start the foreclosure process over again from the beginning, so he had some time to stall if nothing else.  He rented the bottom floor of his home to a woman who had lost everything in a bankruptcy and foreclosure, in part because he wanted to help, and also to give him some walking around money and provide some protection against Wells Fargo being able to get him out in a hurry, if that’s what they decided to do.

In fairly short order, he found a lawyer who said that he could probably help him get Wells Fargo to approve a short sale, and sure enough, that’s what happened.  Wells, at least in principal (pun intended) agreed to take $375,000 for the home, the short sale process began in earnest, and being in a desirable area of San Francisco, perhaps the country’s hottest housing market, several buyers appeared on the scene.

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But wait… there’s more.

Quite predictably, another lawyer materialized saying that he could sue Wells Fargo, and get them to settle, which could mean Arthur would get to keep his home.  Having heard similar claims every day for the last six years, I wasn’t totally paying attention… that is, until yesterday.

So, that’s where things stood, at least until last night when Arthur called me to tell me of the latest developments affecting his picture perfect retirement years.

Apparently, the lawyer would not take his case to court unless Arthur could come up with some serious coinage, yet another entirely unsurprising development to my way of thinking, so Arthur was back to the short sale path, and that meant he’d be back in a shelter at some point in his future.  And, I’m sorry, but that just sucks and now my mind was connecting dots.

Okay, so maybe a lawsuit over the predatory use of the now illegal Option Arm loan would have been the best answer… maybe Wells could be pressured to settle with a guy in his mid-70s, who never should have been offered such a volatile solution.  But, regardless… Wells was already approving a short sale at $375,000…

… and having recently done a lot of research into reverse mortgages, it occurred to me that I could help Arthur get a reverse mortgage for right around $375,000 too. 

So, if Wells Fargo was now willing to allow Arthur to sell the home he’d built and lived in since 1988 for $375,000… why not sell the home to Arthur for $375,000, and Arthur would use a reverse mortgage for the purchase.  That way, he’d be able to live in his home as long as he wanted to without having to make a mortgage payment… while Wells Fargo would still be getting the exact same amount for the property they already said they were fine with receiving.

Now, I’ve known for some time that both Fannie Mae and Freddie Mac have strict policies against such transactions.  They approve short sales, but only if the current homeowner moves out… the new buyer or renter has to be a stranger to the property.

The first time I heard about Fannie and Freddie’s policy about post-short sale strangers, I thought it sounded stranger than fiction. Banks approve short sales because doing so makes more financial sense than foreclosing as re-selling the property at auction.  Absent any fraudulent intent on the part of the borrower, why would anyone care who was renting or buying a home after it was short sold?

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But, I remember clearly, the day I called Fannie’s spokesperson to inquire about the thought process behind the policy, and was told… sure enough, the current homeowner had to move out, or the short sale would not be approved.  It seemed to me that the policy was intended to punish the borrower who could no longer afford his or her mortgage payments, and that punishment was to lose the home as either owner or renter.

I do understand, under more normal circumstances, why such a rule would be in place.  I mean, you wouldn’t want borrowers capable of paying their payments to be able to simply decide to pay some lesser amount, while remaining in their homes.  But, come on… these are not “normal” circumstances, by any stretch of the imagination.  And again… Arthur’s is NOT a Fannie or Freddie loan anyway.

So again, the operative question would seem to be: Can we all agree that we want to keep people in their homes if possible… or aren’t we in true agreement about that?

Just consider once more the facts of Arthur’s situation:

  1. He built his home in 1988.
  2. He’s now in his mid-70s, and can’t keep up with the increasing payments on his Option ARM mortgage, courtesy of World Savings.
  3. Wells Fargo has agreed to short sale the property for $375,000 and with an appraisal of roughly $600,000, at his age, Arthur could get a reverse mortgage for, let’s just say, $375,000 and that way, remain in his home for the rest of his life without having to make a mortgage payment.
  4. After his death, the home would be sold and the $375,000 lien (plus interest) would be paid from the proceeds of that sale.
  5. Anything left over after that, would go to Arthur’s heirs.

But, Wells won’t take the $375,000 from Arthur.  They’ll only take the money… even though it’s the same amount… from a stranger.  Wells is not protecting the investor with this policy, the investor would get the same amount either way.

All Wells Fargo’s refusal to accept the money from Arthur would accomplish is to force a 75 year-old man into a homeless shelter.  Everything else would remain the same either way.

So… do we agree that we want to keep people in their homes if possible or don’t we?

Surely, there aren’t people at Wells that would prefer that Arthur have no home to live in for his remaining years.  Surely, there aren’t investors that care where the $375,000 comes from, right?  Doesn’t it seem obvious that there’s some way to make this situation have a much happier ending than it will if everything is left status quo?

Are we trying to keep people in their homes, if it’s possible to do so?  Or are we more concerned with punishing borrowers who fall upon hard times, as in the worst “hard times” in 70 years, as is the situation today?

Surely, we can all see that desperate times call for desperate measures, or at least unusual times call for unusual measures… and no one benefits from putting a 75 year-old on the streets of San Francisco.  Arthur is 75… is someone honestly concerned about “moral hazard,” here?

If so, that’s just stupid.  This is a common sense solution to an obviously undesirable outcome that will occur without it.  Do we want to keep people in their homes if possible?  Or are we punishers first, who are more concerned with leaving a nickel on the table?

I’d like to say that I know the answer to that question.  I used to think I knew… but now, I’m not at all sure.