We met last night and discussed some of the issues that are affecting our industry. HUD is constantly at war with us it appears, and it is a little give, then get. Apparently last Friday they removed the ability to get two appraisals to skip over the 20% profit rule. For those not familiar with this, you are able to make over 20% profit on a home (this is the purchase price to the sales price) if you

1. Can provide all the receipts for the repairs (actual invoices not fake stuff) or
2. You can have two separate FHA appraisals if they both come in OK for value

The lastest we have heard from our mortgage officer is the receipts no longer count towards this. Even if you provide receipts, you cannot make more than 20% on the home. This does not include the re-habs costs any longer and the two appraisals do not skip over that rule.

Basically this now means we have to go back to the 90 day rule, they have lifted the ban but in effect have removed the ability for the fix/flip community to do any fixing in any short amount of time. There are few cases where you can purchase a home and sell it for less than 20% without re-hab.Those of us who use hard money loans (private financing) to finance the deals must now count on either a four to six month sales cycle, or find some other type of loan product such as conventional financing or VA.

Please tell me if this isn’t the case or lets figure out a way around it..

-Vince

AmTrust Bank assets seized by FDIC, bought by New York Community Bank – Phoenix Business Journal:.

So mortgage lending is going down, and the solution? Lets make it more difficult for borrowers to qualify, that will spike the economy.

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WASHINGTON, Nov. 26 (UPI) — Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, plans more crackdowns next month to further tighten lending practices.

U.S. officials say the plan includes the raising of minimum credit score requirements and limiting the amount of overall debt that can be carried related to income.

There is concern, however, that the mortgage industry may become too restrictive and impede an economic recovery in its attempts to roll back loose lending standards that led to the current crisis, The Washington Post says.

Lending by U.S. banks plunged by 2.8 percent in the third quarter, the largest drop since at least 1984, federal data released this week indicates.

Some of that problem is said to be fostered by Fannie Mae and Freddie Mac, which refuse to buy loans that do not meet their rules.

Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject certain borrowers at a higher cutoff point. These borrowers would have at least a 20 percent down payment but whose credit scores fall below 620 out of 850. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts.

via Fannie Mae to tighten lending standards – UPI.com.

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About Us – Learn more about Fannie Mae and how we can help you | Fannie Mae.

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WASHINGTON — Signaling confidence in a recovery, the Federal Reserve decided Wednesday to stretch out the pace of a program intended to lower mortgage rates and prop up the housing market.

Even so, rates on home loans are expected to remain low.

To foster the recovery, the Fed also decided to hold the target range for its key bank lending rate at a record low of between zero and 0.25 percent.

Stocks fell as a brief rally followed the Fed’s statement and then faded. The Dow Jones industrial average came within 82 points of crossing 10,000 for the first time since October but ended with a loss of 81.

Stocks often trade erratically on days when the Fed issues policy decisions as investors pore over the statement. Some analysts said the Fed’s statement was anticipated and didn’t give the market enough reason to go higher — especially with stock indicators up more than 50 percent from their March lows.

“The market got exactly what it was expecting,” said Thomas Wilson, a managing director at Brinker Capital in Berwyn, Pa.

Wilson cautioned, though: “I think there is a real concern out there that this is just a head fake and the stimulus out there is temporary,” pointing to the Fed’s slowing of its purchases of mortgage-backed securities.

With the economy on the mend, the Fed said it now plans to reach its goal of buying $1.45 trillion in mortgage-backed securities and debt by the end of March, rather than by the end of this year as originally scheduled. It’s the second time since August that the Fed has opted to slow emergency programs designed to encourage spending and boost the economy.

Those decisions show Fed Chairman Ben Bernanke and his colleagues are shifting from managing the financial and economic crises to nurturing a budding recovery.

In a far brighter assessment, Fed policymakers said: “Economic activity has picked up following its severe downturn.” In August, policymakers had said economic activity was “leveling out.”

The Fed again pledged to keep its key lending rate at a record low “for an extended period.” Economists predict that means through the rest of this year and perhaps into part of next year.

Holding that rate steady means commercial banks’ prime lending rate — used to peg rates on home equity loans, certain credit cards and other consumer loans — will stay at about 3.25 percent, the lowest in decades. The goal is to entice people and businesses to step up spending to aid economic growth.

Yet even so, Fed policymakers predict inflation will remain “subdued for some time.”

Analysts say mortgage rates should remain low for now but could eventually head higher. That’s why homeowners who want to refinance mortgages shouldn’t delay, said Greg McBride, senior financial analyst at Bankrate.com.

McBride said rates will eventually be pushed up by the Fed’s gradual withdrawal from the market, the strengthening housing market and the likely increase in inflation as the economy stabilizes.

Refinancing is especially urgent for people eligible for a separate government-backed refinance program, which expires in June, McBride said. But he said homeowners in adjustable-rate loans whose payments fell this year also need to move quickly.

“They could be tempted to put their heads in the sand on refinancing for another 12 months,” he said. “It could be a different story 12 months from now,” with much higher rates for 30-year fixed rate mortgages.

In their more optimistic outlook, policymakers noted that financial conditions and the housing market have improved. Those observations build on Bernanke’s declaration last week that the recession is “very likely over.”

They also cautioned, though, that other factors could weigh down the recovery. Consumer spending — the lifeblood of economic activity — remains constrained by job losses, sluggish income growth, lower housing wealth and still hard-to-get-credit.

Even though the Fed will slow its purchases of mortgage securities, rates for home loans should remain low “in the 5 percent range” as long as the purchases continue, said Guy Cecala, publisher of Inside Mortgage Finance.

The program has helped the housing market, which led the country into recession. Home sales have firmed, and mortgage rates have dropped. Rates on 30-year home loans fell to 5.04 percent last week, compared with 5.78 percent a year earlier, Freddie Mac says.

But the housing market’s health remains precarious as foreclosures continue to mount.

“This phaseout is significant because housing, though stabilizing, is very dependent on the government help and so much of the economy depends on housing,” said Sung Won Sohn, economist at California State University’s Smith School of Business.

The central bank announced the mortgage-buying program in November, after financial turmoil reached a crisis point.

The Fed has bought roughly $775 billion worth of both mortgage-backed securities and debt from Fannie Mae, Freddie Mac and Ginnie Mae, which finance most new mortgages. The central bank is buying roughly 85 percent of the mortgages issued by those companies, according to one estimate. It’s basically bankrolling mortgage lending.

By doing so, the Fed is helping provide demand for these securities — which had dried up when the crisis deepened — and forcing down mortgage rates. The Fed’s purchases of mortgage securities and debt have averaged roughly $25 billion a week over the past six weeks.

The Fed did say additional mortgage purchases could occur if economic conditions warrant.

A $8,000 federal tax credit for first-time home buyers also is helping to shore up the housing market. There’s a bipartisan push on Capitol Hill to extend the credit, which expires on Nov. 30.

As the recovery gains traction, the Fed will face more pressure to wind down some emergency programs. It’s a fine line. Policymakers need to leave programs intact long enough to support the recovery — but not so long as to unleash inflation later on.

Inflation will remain in check, according to the Fed policymakers, who got rid of language in their August statement that noted rising prices for energy and other commodities.

Factories are still operating well below capacity. Other factors keeping prices in check include the weak job market — enabling employers to avoid wage increases — and cautious shoppers making companies wary of raising costs.

After suffering a free-fall, the economy is growing at a pace of 3 to 4 percent in the current quarter, many analysts predict. But Bernanke warned that growth in the months ahead probably won’t be strong enough to generate many new jobs and prevent the unemployment rate from rising. The rate hit a 26-year high of 9.7 percent in August and is expected to top 10 percent this year.

“The U.S. economy has moved from its deathbed to intensive care, so some of the Fed’s more extreme policy programs can be rolled back,” said Richard Yamarone, economist at Argus Research. “However, the patient is still in intensive care, and the central bank should be careful not to pull the plug too quickly.”

The Associated Press: Fed slows housing market plan; rates to stay low.

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How long does it take for a borrower to secure a first mortgage on 21 stories of the New York Times Building? After countless rejections by lenders, about six months, according to Ben Harris, managing director and head of domestic investments for W.P. Carey (NYSE: WPC). The New York investment firm announced today that it has closed a $120 million non-recourse loan on the landmark tower with the Bank of China.

“Overall, it’s very telling that W.P. Carey got the loan from the Bank of China,” notes Victor Calanog, chief economist with New York-based research firm Reis. It is telling because the China Investment Corp., a $300 billion sovereign wealth fund, is reportedly considering large investments in U.S. commercial real estate via the U.S. Public-Private Investment Program, or PIPP. China’s foreign reserves now stand at $2 trillion.

The deal began in early January when the financially troubled New York Times Co. announced plans to raise up to $225 million in cash by selling its portion of the 52-story Manhattan skyscraper in a sale-leaseback. At the time, industry watchers indicated that the plan had perhaps come too late for the beleaguered owner of The New York Times and the Boston Globe. The conventional wisdom was that even if willing buyers were to step forward, debt financing was largely unavailable.

Then in March, W.P. Carey closed the $225 million sale-leaseback in an all-equity deal that included two of its publicly held, non-traded REIT affiliates. The transaction with the Times Co. encompassed approximately 750,000 sq. ft. of rentable space. The leaseback terms include a 15-year lease period with a rental payment of $24 million for the first year, and escalating rents throughout the remainder of the lease.

Despite the deep pockets of W.P. Carey’s lender, securing a non-recourse loan in the current debt-restricted climate was not easy. “Typical commercial mortgage loan-to-values were 80% to 90% on assets like this in the heyday, and this is a 55% loan-to-value mortgage,” says Harris.

While specific details of the loan were not disclosed, Harris acknowledges that it falls within the range that W. P. Carey is seeing in today’s debt market of five to 10-year terms with interest rates based on spreads of 350 to 450 basis points over U.S. Treasuries.

Steve Kohn, president of Cushman & Wakefield Sonnenblick Goldman, which served as the exclusive advisor to W.P. Carey on the deal, agrees. “For a single lender, a loan of this size required us to focus on larger life insurance companies and major off-shore banks,” Kohn maintains. “Most lenders today need to syndicate loans over $50 million.”

While the financing would likely have been easier to secure a couple of years ago and brought in much higher proceeds, W.P. Carey feels fortunate that it was able to acquire the Midtown Manhattan office space for approximately $300 per sq. ft. Excluding this deeply discounted sale, New York office properties on average traded for $800 to $900 per sq. ft. in the first quarter, according to Reis.

“The Bank of China is showing a very savvy strategy to come into the marketplace today and take advantage of a very thin competitive set where they can dictate terms and get great loans,” says Harris of W.P. Carey. Since September of 2007, the company has closed approximately $400 million in financing.

Calanog believes that many of the distressed sales over the past six months are the result of owners unable to cover debt service, many of whom have been weeded out of the market. Going forward, he says, there may be more pressure on U.S. buyers competing with foreign investors like China. Why? The Chinese investors are willing to accept less of a discount.

“If the Chinese can allocate their money wherever they want and they choose to invest in U.S. properties,” Calanog concludes, “that is a signal at least in the near term that values may actually increase and maybe they’ve bottomed out now.”

Bank of China Provides $120 Million Loan On New York Times Building.

Stern, a business development director at an information technology company in Charlotte, North Carolina, said he was shocked to see his credit score drop to 619 from 740 after entering the trial period for a loan adjustment under President Home Affordable Modification Program. A salary reduction caused him to seek a change in the terms of his loan before he missed any payments.

Banks, including Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., report the loan modifications to credit bureaus. The adjustments can lower credit scores because of the way the FICO formula, the most widely used by U.S. lenders, works.

“There should be clear disclosures so consumers understand this is a major hit on the credit score,” said Evan Hendricks, Washington-based author of “Credit Scores & Credit Reports.” “There’s no sugar-coating the reality of the negative impact.”

The Home Affordable Modification Program began in March to reduce mortgage payments for those who are delinquent or in danger of defaulting. The lower-cost loans are subject to a three-month trial period, meaning data for the completed number of modifications under the program is still pending. Existing modification programs have not been very effective and have fallen short of goals, said Senator Richard Shelby, a Republican from Alabama, at a hearing on the housing programs in Washington yesterday.

Almost 2 million loans have been modified since 2007, according to the Hope Now coalition of servicers, investors and counselors in Washington.

Limit Modifications

Borrowers might decide against participating when they learn what the program can do to their credit scores, said Jack Guttentag, founder of the Web site mtgprofessor.com and professor of finance emeritus at the University of Pennsylvania’s Wharton School. That could limit the number of modifications and result in more foreclosures, Guttentag said.

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, RealtyTrac Inc. in Irvine, California, said yesterday in a statement. That’s a 15 percent increase from a year earlier.

Scores based on models established by Minneapolis-based FICO, formerly known as Fair Isaac Corp., are used to gauge a consumer’s financial health. The numbers, which range from 300 to 850, affect the ability to get mortgages, credit cards and insurance products, as well as the rates borrowers pay for them. A FICO score of 740 is generally needed for the best mortgage rates, according to Liz Pulliam Weston, author of “Your Credit Score.”

‘Behind Eight Ball’

“We view an account that has been settled or renegotiated for less than the full amount as a negative because historically consumers on reduced payment plans represent a greater risk,” said Ethan Dornhelm, a principal scientist at FICO’s San Rafael, California, office. The size of the impact may be more for borrowers with higher credit scores, he said.

“My FICO score and ability to get credit is in danger,” said Stern, 64. The limit on his credit card, which he relies on for business purposes, was slashed to $500 from $15,000. “This program is helping with payments on one side, but then hurting your credit on the other, so you wind up behind the eight ball.”

Stern declined to say which lender he used because he doesn’t want to jeopardize his reduced payment plan.

CDIA Rules

The Consumer Data Industry Association, which represents credit bureaus, has guidelines for lenders to follow when reporting loan adjustments. Mortgage investors Fannie Mae and Freddie Mac adhere to CDIA rules, which state that homeowners in the trial period should be reported as current and on partial payment plans if they are not delinquent with payments.

When homeowners fall at least 30 days behind on a mortgage payment, they should be listed as delinquent until the account is current, said Norm Magnuson, a spokesman for the Washington- based trade group. A new classification will be created in November that specifies a borrower received a loan modified under a federal government plan.

FICO may study whether penalizing borrowers for loan workouts is still valid as more changes are completed under the Obama administration’s housing plan, Dornhelm said.

Borrower’s Obligation

Lending institutions may offer their own loan workout programs that extend the life of the loan, lower the interest rate or reduce the principal amount owed and report those new terms in different ways to the credit-reporting firms, said Jesse Keenan, an adjunct professor of housing law and policy at the University of Miami School of Law.

New York-based Citigroup and Bank of America in Charlotte, North Carolina, said they report loan modifications in compliance with CDIA guidelines. JPMorgan Chase, based in New York, follows the guidelines yet needs software updates to report the special condition, according to spokesman Tom Kelly.

“If you’re a lender, you want to know that a borrower had to have a loan modified to keep up with payments,” said Greg McBride, senior financial analyst atBankrate.com, who is based in North Palm Beach, Florida. “It’s not unfair that a loan modification impacts a credit score since the borrower didn’t meet the original obligation.”

200-Point Dip

A loan modification won’t slash a credit score as much as a foreclosure will, according to Gerri Detweiler, a credit adviser for San Francisco-based Credit.com. A foreclosure stays on a credit report for seven years and may cause a dip of 200 points for borrowers with high credit scores, said Dornhelm of FICO.

Consumers who are considering loan workouts should know the exact terms of their agreements, including whether there is a permanent or temporary reduction in the monthly payments, and be wary of signing a waiver of rights, said Barry Zigas, director of housing policy at the Consumer Federation of America in Washington. They should always work with nonprofit housing counselors, he said.

Borrowers should also ask their lenders whether they are obtaining modifications through the government program or the bank’s proprietary program, and how the changes will be reported to the credit bureaus, Zigas said.

“Homeowners need to focus on the mountain, not the molehill,” said McBride, the Bankrate analyst. “They get to stay in their homes and can always try to repair their credit scores.”

Cheaper Mortgages Spark Lower FICO Scores for Payers

This is what happens when greed takes over:

A former Scottsdale accountant was rearrested Friday in connection with what authorities described as a $67 million real-estate Ponzi scheme.

Dan Wise, 52, was arrested by Scottsdale police after a Maricopa County grand jury indicted him Thursday on multiple theft and fraud charges.

Wise was being held on a $500,000 cash bond, according to police. Wise was previously arrested by Scottsdale police in April, but he was released as the investigation continued, a police spokesman said.

The Arizona Corporation Commission ordered Wise and his affiliated companies on Wednesday to pay almost $67 million in restitution and $5.4 million in administrative penalties for defrauding at least 125 investors in multiple states in a promissory note scheme. It is one of the largest securities sanctions ever levied by the commission, according to a commission release.

Last month, detectives and federal agents served search warrants at Wise’s Scottsdale residence, businesses and a storage facility, police said.

In April, the U.S. Securities and Exchange Commission obtained a temporary restraining order against Wise and froze his assets. Authorities believe the former certified public accountant targeted his clients in a multi-million dollar real estate investment scheme, according to a SEC statement.

The Commission’s complaint names Wise and his four companies – Whispering Winds Properties, LLC; LM Beagle Properties, LLC; Karlena, Inc.; and Axis International, Inc.

The complaint alleges that Wise solicited tax and accounting clients, along with their friends and family, and encouraged them to borrow money to invest in his real estate holdings.

From July 2001 to January 2009, Wise raised more than $67 million from about 125 investors by touting his 10 to 15 years of experience in real estate investments, authorities allege. He lured investors with promises of lucrative annual returns ranging from 12 percent to 22 percent.

Wise claimed to use investor funds to make short-term real estate loans that would be fully secured, and assured investors they could obtain their money anytime with a 24- to 48-hours notice, according to the complaint.

However, the complaint further alleges Wise never funded real estate loans, never paid the promised returns to investors, and never honored investors’ redemption requests.

via Scottsdale accountant rearrested in Ponzi case.

On March 4, 2009, guidelines were released under President Barack Obama’s Making Home Affordable initiative, which is designed to help up to 9 million homeowners stay in their homes through refinanced mortgages or loan modifications.

To qualify, you must:

• Owe between 80-105% of your mortgage. An analysis of Zillow Q4 Real Estate Market Reports shows that 26% of mortgage holders, or 14.8 million homeowners, currently qualify to refinance under these specifications. One quarter (24.6%) of homeowners with mortgages (14 million) do not qualify because they are underwater and owe more than 105% of their home’s value. This is especially true in hard-hit areas of California or Florida, where home values have fallen 40% or more since the peak.
• Have a loan backed by Fannie Mae or Freddie Mac. Approximately 60% of single-family loans are backed by Fannie or Freddie, but a homeowner may not know this about their own loan. If you don’t know, call Fannie at 1-800-7FANNIE and Freddie at 1-800-FREDDIE or submit online forms with Fannie and Freddie.
• Have a conforming loan. That means a loan under $417,000 in many areas or up to $625,500 in high-cost areas like San Francisco, Boston or Washington, DC. Even still, the Zillow Home Value Index (median home value) for the city of San Francisco is $724,244, which says that lots of people have loans higher than the conforming limit. (Note: the conforming loan limit for certain high-cost areas of the U.S. for 2009 mortgage originations is now $729,500.)

Refinance, Home Loan Refinance – Zillow.

A The administration’s housing plan provides two types of assistance that are designed to help make mortgages more affordable for up to 9 million homeowners: refinancing and loan modification.

Special refinancing program. Many homeowners with more than 20 percent equity in their home can refinance their mortgage at today’s low rates and decrease their monthly payment by hundreds of dollars. But people whose home values have dropped significantly often have a tough time finding a lender that will refinance their mortgage, especially if they owe more than 80 percent of their home’s current value. This special program will help those people refinance into cheaper loans. To qualify, your loan must be owned or guaranteed by Fannie Mae or Freddie Mac, and you must not have missed any loan payments in the past 12 months. The deadline for refinancing under this program is in June 2010.

Your mortgage may be owned or guaranteed by Fannie Mae or Freddie Mac even if you send your monthly payments to a different mortgage company (the mortgage servicer). Ask the servicer whether Fannie or Freddie owns your loan, or you can look up your loan in the Freddie and Fannie databases at http://MakingHomeAffordable.gov.

This program is designed to help people who are struggling to make mortgage payments. The government will provide incentives for lenders to lower borrowers’ monthly mortgage payments to 31 percent of their gross monthly income, either by lowering the interest rate to as little as 2 percent or by extending the terms of the loan up to 40 years. Lenders can also lower the amount of principal owed. To qualify, the loan must have originated on or before Jan. 1, 2009, the principal balance cannot exceed $729,750, and the home must be a primary residence. Borrowers also have to document income and sign an affidavit of financial hardship. The modification must take place by Dec. 31, 2012.

Do You Qualify for Federal Mortgage Assistance Programs? – washingtonpost.com.