Get Preapproved before Memorial Day Weekend: More Changes with Fannie Mae

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Fannie Mae will be releasing a new guidelines for their AUS over the Memorial Day weekend of May 31, 2008: Version 7.0.    Loans submitted prior to Memorial Day with an approval via Fannie Mae’s Version 5.7 will be honored.   Fannie Mae is saying that there will be more Expanded Approvals (higher rates) than what we have experienced.   I’m not saying that’s good or bad…just that if you’re considering a mortgage, getting approved before the Memorial Day weekend could be to your advantage.  Here are just some of the changes:

Loan to values greater than 85%.  Private mortgage insurance is no longer considered a “mitigating” factor for higher loan to values.   The more equity in the property, the more Fannie Mae smiles upon you (this is a not a change, the pmi factor is).

“Authorized Users” on credit cards will no longer be considered.   It was not uncommon for parents to add their child to their credit accounts as an “authorized user”.   This may have been done so that the child could have credit available in the event of an emergency (picture a college student away from home).   Once people figured out that the timely payments made by the parent (or credit payer) was benefiting the “authorized user”, it didn’t take long for some people to actually sell their credit history on that account by allowing strangers to become “authorized users”.   

Debt to income ratios tighter.  “In general, the updates to the maximum allowable total expense ration in DU (Desktop Underwriter aka Fannie Mae) Version 7.0 will be more conservative…”  

Loan Type/Level of Risk.   With Version 7.0, Fannie Mae is associating levels of risk with varios products (from lowest to highest):

  • Fully amortized fixed rate mortgages
  • Fully amortized 5, 7 and 10 year ARMs
  • 6 month, 1 and 3 year ARMs and Fixed Rate Interest Only Mortgages
  • Interest Only ARMs and balloon mortgages

Version 5.7 viewed fully amortized fixed rate, fixed period (3-10 year) ARMs as having the least amount of risk with balloon and interest only mortgages having moderate additional risk.   Negative amortized mortgages were considered the riskiest…now they’re off the charts.

Condos are now considered a higher risk than single family detached.  Version 7.0 views one-unit properties that are not “attached condominiums” as less risk than attached condominiums and two-unit properties.  Three- and four-unit properties have a higher level of risk associated than condo and duplex properties. 

Bankruptcy, mortgage delinquencies and foreclosures.   A bankruptcy needs to be fully discharged and 24 months since the date filed.

If a borrowers credit report shows a mortgage that was reported 60 or more days delinquent in the last 6 months, they will receive a “refer”.  

If the borrower has had a foreclosure reported within the last 5 years, they will also receive a “refer”.    If the date of the foreclosure cannot be determined, if the foreclosure was filed within the last five years and has not been satisfied, the loan will be declined.

Self-employed borrowers will no longer be considered “an additional layer of risk”!   Hey…I have to end this on a positive note!  🙂

Expanded Approval is being pumped up.   Fannie Mae is anticipating more EA approvals.  An EA approval means that the borrower’s scenario is “less than perfect” or some prefer to say “A Minus”.  There are different levels of EA approvals (such as EA-1, EA-2, etc.).   Expanded approval also come with higher rates than a typical conventional mortgage as it’s risk based pricing. 

As Jillayne stated, guidelines will continue to tighten for a while with Fannie/Freddie and the private mortgage companies.  This is again, another reason for people, professionals and consumers alike, to learn all they can about FHA which may be an option to consider over an Expanded Approval and tougher underwriting standards with conventional mortgages. 

Buying a condo with a pending lawsuit

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This Old CondoI just received a call from an agent from another company regarding a complex with a pending lawsuit.  It is one of many calls I have received regarding the same complex.  The developer of the condo conversion project, now two years old, has been asked/forced to come back and make improvements (to the roof, I believe) and agents are scrambling to find a foothold.

One might think that the builder being made to come back and make improvements is a plus for present and future owners.  Whether the builder is coming back as a result of a lawsuit won, or the settlement of a lawsuit brought, isn’t the fact that the property is going to be improved a positive factor?

Not necessarily, at least not during the suit and during the improvement phase.  Why?  Because lenders do not like to finance condos in the midst of pending litigation.  The listed properties are stacking up.  The pending sales are not closing.  The agents being called by owners to list properties are calling everyone to see if the properties can in fact be sold at all during the lawsuit and improvement phase, before they agree to list them.

Buying condos during a period of pending litigation can be a wise investment for investors seeking to buy at rock bottom prices, holding them as rentals during the improvement phase, and then selling them when the “dust settles”.  But the investor buyer may have to buy them with cash, as lenders may not be wiling to lend. 

Sorry, no, I’m not going to tell you which complex I am speaking about here.  First because it’s irrelevant to the post, as the one I am discussing is just one of many in this situation from time to time.  Second, because I am going to call a few of my investor clients and suggest that they buy the best of these while they are going cheap.  If I tell you where this place is, it would not be in the best interest of my clients. If I blog about this compex by name, other investors who are not my clients may compete with my clients as a result of this post, driving the prices up for my clients.  I blog “transparently”, but never without first determining the positive and negative impact a post may have on my own clients.

I have always said that the best investment is buying into a condo complex that has received moneys from the builder to make improvements.  I have purchased a condo in the past on this basis myself.  BUT you have to be sure that the improvements will be paid for by the builder IN FULL!  The BEST improvements during your HOLD period…are the ones paid for by the builder or developer, and not the home owners, IN FULL, not in part. Even if the seller is going to pay the special assessment, that is not good. If the net result after improvements is a huge special assessment that will be paid out over a 15 year timeframe, increasing the dues substantially, then it is NOT a good investment.

A few recent examples from The Eastside.

One complex had substantial improvements paid for by the builder.  During the lawsuit phase, the units sold at a 16.8% discount.  During the repair phase they sold at a 10.1% discunt.  This is not considering the substantial appreciation during those years, so the discount was more like 25%. There was NO special assessment incurred.  The dues did not increase as a result of the repairs.  The builder was forced to improve the property at no cost to the existing homeowners.

Prior to the suit, the units were selling for $345,000. (Downtown Kirkland).

During the lawsuit phase they sold for $287,000. 

During the repair phase, when they were financeable (suit settled) but cosmetically VERY unappealing, the units sold for $310,00

When the improvements were completed, the units sold for $525,000 partly due to appreciation during the lawsuit and repair phase that took many, many months, and partly due to the increased comsmetic appeal and other resale certificate improved factors.

In 2008, in a weaker market, the units are down from $525,000 to $495,000, but the investors who purchased during the lawsuit phase at $287,000 still have appreciable gains even during a weak market phase.

I wanted to include another example where the property value goes DOWN after improvements instead of up.  That happens when the builder doesn’t pay all of the amount for the improvements, or the lawyer keeps 1/3 of that money, causing a long term special assessment after repairs.  But I have an appointment at 1:00 to present offers on one of my listings.

Just know that the values CAN go down instead of UP after improvements, the key being the shortfall between builder provided repairs or monies, and the cost of the improvements. 

Sellers and Agents: Don't Rule Out FHA Buyers

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I was just working on a finance flyer for a listing agent…something I haven’t done in years!   Anyhow, the home is priced at $442,000 and she requested a 30 year and 5/1 ARM both with 20% down for scenarios…I added FHA at 3% down.  The property is in King County and would qualify under the FHA Jumbo program.   Until the end of the year (I suspect the “economic stimulus” loan limits will be extended beyond) Sellers have an opportunity to expose their homes to buyers beyond the normal “jumbo” or conforming market.  

Here’s a comparison:

30 Year Fixed with 20% down at 5.75% (APR 5.902%).   Principal and interest payment = $2,064.  Cash needed to close = $88,400 plus closing costs of approx. $6,000 (the rate is priced with 1 origintation/discount point) plus prepaids.    This rate requires a mid credit score of 720 or higher. 

5/1 ARM-LIBOR with 20% down at 5.25% (APR 6.810%).  Principal and interest payment = $1,953.   Cash needed to close = $88,400 plus closing cost of approx. $2,350 (the rate is priced with zero discount/origination points) plus prepaids.   This rate also requires a mid credit score of 720 or better.

FHA-JUMBO 30 Year Fixed with 3% down at 6.25% (APR 7.030%).   Principal, interest and mortgage insurance = $2,850.64.   Amount needed to close factoring down payment and closing costs is $20,350 plus prepaids.   FHA is not credit score sensitive (yet) and buyers who are truly FHA approved have done so via a “fully documented” loan.   They’re pretty darn serious!

When you compare 20% down conforming to the 3% minimum down required for FHA; it’s the difference of having approx. $100k for your down payment and closing costs to having a quarter of that.   Some folks have the income (they still have to qualify with FHA) but they’re shy on that kind of savings.   Maybe it’s their first house or perhaps their savings is tied into their retirement or children’s college fund.   These are buyers you don’t want to rule out.

FHA Jumbos allow buyers to have a loan amount of $567,500 in King, Pierce and Snohomish Counties with as little as 3% down payment (some lenders require 5% down).    With second mortgage’s evaporating and fewer “piggy back” options available, buyers who have less than 20% down where their loan amount will be over $417,000 will be considering FHA as an option.    For example, sales price of $625,000 with 10% down (loan amount $562,500) would be an excellent FHA JUMBO candidate…only offering cash or conforming products will pretty much limit your buyers to those with 20% down.   FHA buyers do not have to be minimum down…they can be less than 20% down or have a credit score or perhaps one of the borrowers has a mid score of 679.

I’ve written before about why Sellers should consider FHA…however with the temporary expanded loan amounts…now it’s even more compelling.   

Sunday Night Stats – Just the Facts

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King County Condos

Active Listings: 3,917 UP 37 – median price $324,900 – MPPSF $321 – DOM 55

In Escrow: 930 – DOWN 10 – median price $299,900 – MPPSF $304 – DOM 48

Sold YTD : 1,886 – UP 110 – median list price $289,625 – median sold price $282,642 – median PPSF $288 – DOM 47

Sharing this breakdown info I needed to do for my own business.  Condos in parts of Kirkland, Bellevue and Redmond

Condos Sold YTD:

98033: median sales price $479,500 – DOM 59 – MPPSF $334

98034: median sales price $250,000 – DOM 49 – MPPSF $263

98007: median sales price $269,500 – DOM 37 – MPPSF $286

98052: median sales price $320,500 – DOM 56 – MPPSF $285

Issaquah: median sales price $294,950 – DOM 30 – MPPSF $288

King County Residential

In Escrow: 2,704 DOWN 109 – median asking price $431,850 – DOM 41 – MPPSF $207

SOLD YTD: 5,736 UP 322 – median sold price $440,000 – DOM 51 – MPPSF $221

Both of those median price per square foot numbers are down from last week.

Actively for sale 11,453 UP 222 – MPPSF <$800,000 is $220 – MPPSF >$800,000 is $337

So inventory is up 222 and in escrow and closed combined are up 213, so still not selling faster than they are coming on market.  I’m thinking at some point that balance has to tip in the other direction.  Running pretty close this week.

Stats not compiled or published by NWMLS. (Required disclosure) 

Keeping the Keys to Your Home

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I love reading the comments over on the CR blog. They’re great entertainment when I need a break from trying to dig my way out from deep inside the new WA State Distressed Property Law class I’m writing. Tonight, as I was reading the comments from this post on Fannie Mae lifting the “declining markets” rule, I found a link to this website (hat tip w.)

Keepingthekeys.com is providing hope (for a fee) for homeowners who wish to use legal options to stay in their home as long as possible, or to prevent foreclosure altogether.

We’ve all read, and some RCG commenters have complained loudly, about loan servicing companies being slow to approve short sales, modify loans, or engage in any kind of foreclosure workout with homeowners. Well, perhaps the threat of predatory lending and violations of state and federal law at loan origination will bring loan servicers to their knees.

The legal team at Keepingthekeys.com seems to be focused mainly in California, where the current count of 1000 foreclosures per day seems to ensure a model for business growth for the next decade.

So what can homeowners do who are located in Washington State and want legal help? Sometimes homeowners in financial distress just want an attorney to take a look at their documents.  Taking this simple step is better than full blown homeowner denial, and legal help can often be more affordable than the homeowner might think.  I’ve been on the look out for Seattle area law firms offering affordable legal counsel for homeowners facing foreclosure.  Now I’ve found one and I bet you’ll never guess which firm decided to extend a hand to this market.  Thanks, Craig and Marc.

Now, what to do about all those homeowners who committed stated income fraud at application in 2007.  Hmmm.  Perhaps there’s a reason why foreclosure rates continue to climb.  Maybe it’s not just “denial” or “loan servicing” backlogs.  

Seattle Neighborhood Round-Up

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The weather is warming and so are the Seattle neighborhoods….

Issaquah Undressed asks: 50 to 80 in a day?   More changes happening on Beach Drive Blog.

Get your “Spring Cleaning” in gear for CHS Capitol Hill Seattle and The Garage Sale, and Miller Park Neighborhood Association announces neighborhood clean up this Saturday.

Capitol Hill Triangle and a favorite breakfast treat in a tiny cafe, and on Capitol Hill, the poster for this years’ Block Party! 

Captain Columbia City launches it’s new neighborhood personalities interviews, for more cinematic news…vote for your favorite “Movies on the Wall” at West Seattle Blog.   

Blogging Georgetown and the annual Georgetown Art and Garden Walk and Mid Beacon Hill is covering Georgetown and uncovering a new mural. 

It’s Farmers Market time again at Kirkland Weblog, and at the Outer limits: The Lake City Blog the Farmers Market is relocating. 

Broadway Seattle  bikes Broadway… The Wedgewood Blog … and the Rock Walk.   

Atop the Top: Queen Anne Highlights points out that a person can always learn something new about their neighborhood. Cosmo Seattle and new info on Denny Park. 

Pondering Fame and Infamy at One A Day -Mostly Seattle and lastly…Breaking News on Ballard Avenue!

Countrywide facing shareholder lawsuit

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Directors and officers of Countrywide Financial will have to defend themselves against “shareholder accusations of insider trading and an overall failure to monitor lending practices that led to the company’s collapse” per the New York Times tonight.

Rejecting the arguments of Countrywide executives and directors that they were unaware of lax loan operations that led to ballooning defaults, Judge Mariana R. Pfaelzer of Federal District Court in Los Angeles ruled Tuesday that she found confidential witness accounts in the shareholder complaint to be credible and that they suggested “a widespread company culture that encouraged employees to push mortgages through without regard to underwriting standards.

Here comes the sun!!!

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“Little Darling…it’s been a long, cold-lonely winter.  Little Darling, it seems like years since it’s been clear.  Here comes the sun,”

…so “they”: say.  I’m delayng this listing one day from Wednesday to Thursday, hoping for a bit of blue sky and sunshine.  My iPhone tells me it will be sunny from Thursday until past Sunday!  Do I dare believe it!?!?  Oh well, I’ll have some backup gray sky photos just in case.

Planning to run around taking as many sunny photos of other listings on Thursday and Friday too.  Anyone with snow photos ought to do the same.  Thursday is Picture Day..with Friday as a backup.

This morning I was singing Sesame Street’s “Sunny day, everything’s A-OK” but it was driving Kim nuts…so I switched to the Beatles.

*****UPDATE******** yes the sun came out!  Replacing the gray day photo with sunny photos!

That’s pretty much the identical photo that I had, but with a BLUE sky.  YAY!!!

This one that the owner took is awesome.  He climbed on a log in the creek.

 

Financing an Investment Property

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EDITORS NOTE:  Rates on this post are from 2008!  Mortgage rates for investment properties are much lower now! Contact your local licensed mortgage originator for a current rate quote.

Obtaining a mortgage for a non-owner occupied propery is much different than buying one you will reside in.  For starters, qualifying is tougher and mortgage interest rates are higher as it’s a riskier transaction for the lender.   Here are some quick tips to help get you started if you’re considering buying an investment property.

Plan on using at least 20% for your down payment plus closing costs.   With a 25 or 30% down payment, you will receive a slightly better interest rate.   Just to give you an idea, here is a sample of some current rates based on a single family dwelling with a sales price of $450,000 for a 30 year fixed mortgage and a minimum 720 credit score:

Owner Occupied with minimum 20% down:  5.75% priced with 1% origination/discount point (APR 5.904%)

Non-Owner Occupied (NOO) with 20% down: 6.375% with 1% point (APR 6.537%)

NOO with 25% down: 6.250% with 1% point (APR 6.413%)

NOO with 30% down: 6.125% with 1% point (APR 6.289%)

Of course, you can always pay more in points to have a lower rate.   This is just to provide you with an apples to apples comparison.

There are two camps for qualifying for an investment property:  those who are proven at managing rentals and those who are buying a rental for the first time or who have less than 2 years history.  If you have less than a 2 year history, then it’s likely that you will not be able to use rent credit from the proposed purchase.  Lenders allow 75%  of the rent to be used for qualifying purposes.   Proving you’re a financially successful landlord to the underwriter will take your last two year’s complete tax returns including the Schedule E’s.   If you can qualify for the full PITI payment on the investment property along with your current PITI payment on your residence, then the underwriter may only require a regular appraisal.  Otherwise, count on the appraisal costing almost twice as much as a typical appraisal for conventional financing.   Fannie and Freddie also require a minimum of 6 months reserves (cash assets after closing) for NOO borrowers.

Odds and Ends

  • FHA can be a great way for first time buyers to get into the investor market when they’re buying a 2-4 unit home.  The buyer must occupy in one of the units and the mortgage will be treated as an “owner occupied” transaction.   You will have upfront and monthly mortgage insurance and can buy with as little as 3% down payment.
  • Second homes are sometimes treated as investment properties.  This is really up to the underwriter.  Typically if the home is located within 50 miles of the borrowers residence or if it does not make sense as a second or vacation home, the underwriter may determine that it’s an investment which means tougher underwriting and the NOO rate.
  • Fannie Mae programs exist that help family members buy properties that don’t meet the second home requirements without treating it as an investment purchase (Family Opportunity Mortgage).

As always, I highly recommend that you meet with your local Mortgage Professional as soon as possible if you’re even just considering obtain a mortgage for any reason (investment property, residencial purchase or refi, vacation home, etc.).

 

Sunday Night Stats – King County

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In January of 2007, 455 people were able to sell their homes in 30 days or less at 99.84% of asking price.

In January of 2008 only 261 people were able to sell their homes in 30 days or less and they sold at 98.93% of asking price.

42% fewer people sold their homes within 30 days of listing the home for sale in January 2008 vs. January 2007

In January of 2007, 13.25% of all homes sold had been on market for over 120 days and sold for 97.52% of asking price at time of sale.

In January of 2008, 21.67% of all homes sold had been on market for over 120 days and sold for 95.60% of asking price.

And yet…they sold for a little more.  Volume down by 30%, days on market longer, but median sold prices up from $430,000 to $431,375.  Median asking prices up from $430,014 to $439,000.

That was January…let’s jump to April (I don’t know the answers before I type this BTW.  I figure I can’t introduce my agent bias if I post in real time.)

In April of 2007, 1,184 people were able to sell their homes in 30 days or less for 100.62% of the asking price.

In April of 2008, only 561 people were able to sell their homes in 30 days or less and they sold at 99.25% of asking price.

53% fewer people sold their homes within 30 days of listing the home for sale in April 2008 vs. April 2007

In April of 2007, 13% of all homes sold had been on market for over 120 days and sold for 97.8% of asking price at time of sale.

In April of 2008, 20% of all homes sold had been on market for over 120 days and sold for 95.97% of asking price.

But in April, no more volume down; prices up.

Median sold price in April of 2007 was $474,950 ($50 less than median asking price)

Median sold price in April of 2008 was $451,250 and median asking price at time of sale was $459,925

 Volume Down 32% 2008 YTD vs. 2007 YTD

By Request: Stats for “Curious” in Redmond 98052 pretty strong relative to King County as a whole.  Also for Curious – Woodinville 98072; not a pretty picture.  For Aiboh here’s 98074 Sammamish – not bad.  A lot better than Woodinville.  I have to put the special request stats on my blog for space purposes.  But keep the requests coming and if I can’t do them on Sunday night, I’ll squeeze them in during the week somewhere. 

Regular weekly stats:

King County Residential

Actively For Sale: 11,231 – UP 268

In Escrow: 2,813 – UP 63 – MPPSF $210 (dropped $2.00 again – and that’s asking price

Closed YTD 5,414 – UP 305 – MPPSF $220 YTD (April MPPSF $224)

Not sure why closed sales keep running high while the properties in escrow are running low as to median price per square foot.  You would expect the closings to be affected eventually as these close, but so far not.

MAYBE a lot of the ones staying in escrow are short sales, and they are not closing at all.  That would be the only explanation I can come up with for “in escrow” MPPSF running lower and lower and closings not being lower. 

King County Condos

Actively For Sale: 3,890 – UP 106 MPPSF $320 Down $3.00

In Escrow: 940 -UP 40 – MPPSF $303.50, Down $1.50 but close to where they were the week before last.

Closed YTD: 1,776 – UP 101 – MPPSF $288 – asking prices still running high relative to closed prices.  Especially considering April closed sales are running at $270 MPPSF compared to April 2007 at $300 MPPSF.

Volume down 52% April YOY in condos and prices are starting to see more signs of weakening.   But again, given the sold properties in both residential and condo were on market for a long time, we could be seeing some old inventory selling off at drastically reduced prices.  Some old stale inventory is runing scared from “new on market” and dropping prices accordingly.  

Stats not compiled or published by NWMLS. (Required disclosure)