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Posts Tagged ‘real estate financing’

I recently viewed a real estate presentation.   The speaker was visibly perturbed by the recent decision of Fannie Mae to limit investors to 4 mortgages.  His point was that experienced investors will help the housing recovery by buying the REO/foreclosed properties and holding them.  Helping clear the inventory of bank owned properties on the market could only help the housing market. But by limiting investors to 4 mortgages, Fannie Mae was unnecessarily limiting investor activity that could help the economy.

I’m sure he was pleased by the recent announcement by Fannie Mae, that it will be updating its guidelines so that investors will be able to obtain financing if they have between five to ten mortgages not four (note that the mortgages can be with any lender, not just Fannie Mae).  Not surprisingly the criteria is more stringent than in the past, bigger down payments and a minimum credit scores of 720, but at least for those who qualify the artificial ceiling of 4 mortgages has been lifted.

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Some of us already knew it was possible to get a bank to do a loan modification prior to delinquency, now Fannie Mae joins the party.  Kenneth Harney’s column in the Sunday San Francisco Chronicle announced that Fannie Mae will allow borrowers to request alterations to their mortgage even if they have never been late.

Essentially a loan modification is when a bank agrees to changes the terms of your mortgage due to financial hardship.   Most banks won’t reduce the principal owed, often leaving the property underwater, but they will lower the rate (I recently heard of a mortgage that was modified to an interest rate of 1% for 5 years) and they will extend the term (ie. from 30 years to 40).

The loan modification industry is a wide open field and lots of confusion abounds.  The feds have been slow to put any regulation in place, so as usual the market is making it’s own rules.  Unfortunately,  some people are getting scammed by brokers that say they will negotiate the loan, and then disappear with the fee.  But loan modifications can work and for some people banks have been quietly modifying loans even before the mortgage ends up in the loss mitigation department.  Some banks are even proactively looking for signs of distress and contacting the borrower early.

Harney’s article is a good read and documents that a trend that was already underway comes into the mainstream with the Fannie Mae announcement.

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The mortgage market, particularly with the take over of Fannie Mae and Freddie Mac by the US government, continues to be in flux. If you own more than 4 properties or want to do a cash out refi: watch this mortgage market update.

Disclaimer: I am not recommending this business. However I have talked to Todd and in my opinion he is knowledgeable.

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Have you tried to finance or re-finance a property lately? It’s a different world. A reader’s question featured in the Benny Kass column wondered if the lenders would laugh in their face if they applied for a home equity line. Since all they have in equity is the down payment they made a year ago, it would be pretty tough to get a line of credit on that property. Hopefully their broker won’t laugh in their face as well.

I’ve recently talked to a mortgage broker as well. I wanted to refinance some land and I also have an ARM on a duplex that is expiring in October. I have the ARM at a great rate, 5.6% however unfortunately that kind of a rate is not available now, ARM or no ARM, for an investor. Homeowner rates are the highest they have been since September, 30 year fixed is at 6.42% and 5 year ARMS are at 5.89%. Since investor loans are at least a point more, I’m likely looking at a 7% loan which means a higher payment. So I have to decide whether to sell or absorb the higher payment. It’s a close to breakeven property.

Lenders will no longer finance land at a 80% LTV. They will only consider loans at 65% or 70% LTV for land. With the loan I currently have, it is at best 75% LTV depending on what the appraiser would say. So in that case I would have to come to the table with money.

It was not a very encouraging conversation, certainly not much in the way of options. I commented to the broker that he must have heard many stories like mine where we are stuck with negative cash flow property that is tough to refinance and that puts us in a tough spot. His answer was memorable, at least to me, “Actually, you are a success story”. Eeek, since I’m not feeling like a success story at all, I really feel for the “failures”.

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