I have recently been introduced to the FHA 203K Streamline loan for a purchase transaction that I am working on. The house was bank-owned, had been vacant for at least a year, but was in a good neighborhood. The borrower liked the property and saw opportunities to repair the house; but, would not be able to cash-flow the repairs or devote the time necessary to complete the repairs himself. The 203K loan will enable him to finance the necessary repairs into the purchase loan, for a down-payment as little as 3.5%.
As the transaction has unfolded, the borrowers instinct appears to have been on target. The repairs that will be done include the installation of new applicances, a new HVAC system, a new tankless water heater, new carpeting, new windows, and a new garage door. Under the terms of the loan, the repairs need to be completed by a licensed contractor within six-months of the close.
The home inspection did not identify any issues not addressed by the planned repairs, and the appraisal determined that the after-improved value of the house will provide the borrower with more than 10% equity in the property. This loan really can provide home buyers with the ability to find a deal on a house and finance necessary repairs and improvements to gain equity, without too much of their own sweat.
Sure, the loan does require some additional work for the loan originator and real estate agent, and may require 30-45 days to close, but under the right circumstances it is a very good product.
Monday, March 7, 2011
Thursday, March 3, 2011
The Time To Buy Is Now
With housing prices down, and mortgage rates remaining at historic lows (the 30-year fixed Conventional loan rate is currently at or under 5%), now is the time to pull the trigger on the deal, and get into that house that you have been looking to buy.
New costs and fees, higher mortgage insurance costs, government-mandated changes to the commission structure for loan originators, and tighter underwriting and downpayment requirements will work conspire to cause rates to increase in the coming months.
With those factors in mind, homebuyers and their Realtors should ramp up the efforts to get into the housing market and capitalize on the current situation. Of course, it is always wise for home shoppers to consult with their mortgage broker to get pre-qualified for a loan in advance of making an offer. With a pre-approval in hand, buyers can have the confidence to submit strong offers on potential properties, and sellers can have the peace-of-mind, knowing that the buyer has the capacity to close the transaction.
Anyone requiring information regarding their financing options, or who needs a referral to a trustworthy and dedicated Realtor should contact me at 888/627-2002
New costs and fees, higher mortgage insurance costs, government-mandated changes to the commission structure for loan originators, and tighter underwriting and downpayment requirements will work conspire to cause rates to increase in the coming months.
With those factors in mind, homebuyers and their Realtors should ramp up the efforts to get into the housing market and capitalize on the current situation. Of course, it is always wise for home shoppers to consult with their mortgage broker to get pre-qualified for a loan in advance of making an offer. With a pre-approval in hand, buyers can have the confidence to submit strong offers on potential properties, and sellers can have the peace-of-mind, knowing that the buyer has the capacity to close the transaction.
Anyone requiring information regarding their financing options, or who needs a referral to a trustworthy and dedicated Realtor should contact me at 888/627-2002
Making the 203k Streamline Work
An FHA 203k Streamline loan is a great way for borrowers to obtain financing to complete non-structural repairs to a property they own or are purchasing. The Streamline program has the same underwriting criteria as a standard FHA loan, and will allow a borrower to finance up to $35,000 for the repairs. If used appropriately, especially with the high number of REOs on the market that need repairs and are priced accordingly, this loan will enable borrowers to get into a house with as little as a 3.5% down-payment, develop equity, and improve their neighborhoods, one house at a time.
The 203k Streamline requires that the repairs be completed by a licensed contractor, and the final disbursement of the repair funds will not be issued until the property is inspected to ensure that the repairs have been completed according the plans, in a workmanlike manner. With all of its moving parts, the 203k Streamline requires detailed planning and oversight, but with a system and team concept in place, the transaction can go smoothly.
Borrowers, Realtors, loan originators and contractors need to work together to ensure that the bids and plans are submitted in a timely manner, and that all underwriting conditions and requests for additional information are addressed promptly. The team should set realistic expectations about the timelines necessary to close the deal, and plan for potential delays in underwriting because the lender needs to evaluate the borrower, the contractor, and whether the added value of the improvments will exceed the cost of the repairs.
In today's market, the 203k Streamline is a great tool to get "the wrong house in the right neighborhood" sold.
Please feel free to contact me at 888/627-2002 to discuss the 203k program, or any other financing issues.
The 203k Streamline requires that the repairs be completed by a licensed contractor, and the final disbursement of the repair funds will not be issued until the property is inspected to ensure that the repairs have been completed according the plans, in a workmanlike manner. With all of its moving parts, the 203k Streamline requires detailed planning and oversight, but with a system and team concept in place, the transaction can go smoothly.
Borrowers, Realtors, loan originators and contractors need to work together to ensure that the bids and plans are submitted in a timely manner, and that all underwriting conditions and requests for additional information are addressed promptly. The team should set realistic expectations about the timelines necessary to close the deal, and plan for potential delays in underwriting because the lender needs to evaluate the borrower, the contractor, and whether the added value of the improvments will exceed the cost of the repairs.
In today's market, the 203k Streamline is a great tool to get "the wrong house in the right neighborhood" sold.
Please feel free to contact me at 888/627-2002 to discuss the 203k program, or any other financing issues.
Thursday, February 10, 2011
The Dodd-Frank mess
The Dodd-Frank legislation, as it relates to mortgage loan originations and originator compensation, creates a quagmire of confusing and conflicting regulations that erode a borrowers' ability to shop effectively for loans. Part of the problem is that the Dodd-Frank bill is too broad, and it imposes new regulations on multiple compenents of the financial system, like banks, insurers, securities traders, mortgage bankers and mortgage brokers. I am a Mortgage Broker and I will discuss the implications of the bill as it relates to mortgage financing below.
The rule, while intended to provide consumer protection to borrowers involved in mortgage transactions, shows a lack of understanding of common (and beneficial) pricing methodologies that borrowers and their loan brokers can employ to obtain the loans they desire with favorable interest rates, loan terms, and limited fees and expenses. By working together, loan originators and borrowers can achieve mutual benefits by essentially sharing commissions paid by lenders.
Under current regulations, borrowers involved in brokered mortgage transactions receive a credit from the lender based upon the rate that they choose. This credit is known as Yield Spread Premium or YSP, and is paid to the borrower by the lender as a percentage of the loan amount. In these transactions, the borrower will receive a higher credit amount if he obtains a loan above a par rate. This YSP can be used by a borrower to pay broker origination fees, pay closing costs, pay interest, and establish impound accounts for property taxes and homeowners insurance, all without adding to the existing principal balance of the loan or paying out-of-pocket fees.
By prohibiting variable YSPs, paid based upon the interest rate of a loan, the type of loan, or other terms of the loan in favor of a uniform commission schedule based strictly upon the dollar amount of the loan; and by eliminating a loan originator's ability earn less than this predetermined commission percentage, the Dodd-Frank legislation will have the unintended effect of stifling competition and raising the overall costs of obtaining a mortgage.
The bill, which is slated to go into effect on April 1, 2011 attempts to limit a mortgage originators ability to earn excessive commissions on loans by steering borrowers into loans that have unfavorable and often misrepresented terms for the consumer. Under closer review, however, the Dodd-Frank bill fails in this regard. For one thing, gone are the days of the exotic and confusing loans that are widely acknowledged to have been a lynchpin for the financial and housing crises that we have seen in the last few years. These loans were pushed by the lenders that now stand to benefit from the Dodd-Frank legislation. Now, by attempting to establish a compensation ceiling for all loan transactions, Dodd-Frank actually creates an artificial floor that eliminates a broker's ability to charge less, and provide superior service, for the exact same programs and rates that big banks offer.
Any broker shop that has survived the last few years in the mortgage business has done so with thin margins, low overhead and high efficiency, all while offereing better rates than its Too Big To Fail counterparts. The Federal Reserve Board, which will oversee the rollout of the new compensation model, has failed to provide clear directions as to how the the rules should be implemented, which has led to multiple conflicting interpretations of the law. The only beneficiaries of the new legislation, if implemented as it is written, will be the big banks. With only a few weeks to go until Dodd-Frank is slated to be rolled out, the government needs to take a step back and examine the far reaching implications and unintended consequences of this bill.
The end result of this legislation, which is supported by the Too Big To Fails, will result in higher rates and loan costs to consumers. While I am in favor of reasonable and prudent regulations within our industry, I simply cannot understand the logic of this bill.
The rule, while intended to provide consumer protection to borrowers involved in mortgage transactions, shows a lack of understanding of common (and beneficial) pricing methodologies that borrowers and their loan brokers can employ to obtain the loans they desire with favorable interest rates, loan terms, and limited fees and expenses. By working together, loan originators and borrowers can achieve mutual benefits by essentially sharing commissions paid by lenders.
Under current regulations, borrowers involved in brokered mortgage transactions receive a credit from the lender based upon the rate that they choose. This credit is known as Yield Spread Premium or YSP, and is paid to the borrower by the lender as a percentage of the loan amount. In these transactions, the borrower will receive a higher credit amount if he obtains a loan above a par rate. This YSP can be used by a borrower to pay broker origination fees, pay closing costs, pay interest, and establish impound accounts for property taxes and homeowners insurance, all without adding to the existing principal balance of the loan or paying out-of-pocket fees.
By prohibiting variable YSPs, paid based upon the interest rate of a loan, the type of loan, or other terms of the loan in favor of a uniform commission schedule based strictly upon the dollar amount of the loan; and by eliminating a loan originator's ability earn less than this predetermined commission percentage, the Dodd-Frank legislation will have the unintended effect of stifling competition and raising the overall costs of obtaining a mortgage.
The bill, which is slated to go into effect on April 1, 2011 attempts to limit a mortgage originators ability to earn excessive commissions on loans by steering borrowers into loans that have unfavorable and often misrepresented terms for the consumer. Under closer review, however, the Dodd-Frank bill fails in this regard. For one thing, gone are the days of the exotic and confusing loans that are widely acknowledged to have been a lynchpin for the financial and housing crises that we have seen in the last few years. These loans were pushed by the lenders that now stand to benefit from the Dodd-Frank legislation. Now, by attempting to establish a compensation ceiling for all loan transactions, Dodd-Frank actually creates an artificial floor that eliminates a broker's ability to charge less, and provide superior service, for the exact same programs and rates that big banks offer.
Any broker shop that has survived the last few years in the mortgage business has done so with thin margins, low overhead and high efficiency, all while offereing better rates than its Too Big To Fail counterparts. The Federal Reserve Board, which will oversee the rollout of the new compensation model, has failed to provide clear directions as to how the the rules should be implemented, which has led to multiple conflicting interpretations of the law. The only beneficiaries of the new legislation, if implemented as it is written, will be the big banks. With only a few weeks to go until Dodd-Frank is slated to be rolled out, the government needs to take a step back and examine the far reaching implications and unintended consequences of this bill.
The end result of this legislation, which is supported by the Too Big To Fails, will result in higher rates and loan costs to consumers. While I am in favor of reasonable and prudent regulations within our industry, I simply cannot understand the logic of this bill.
Wednesday, February 9, 2011
Many factors are keeping downward pressure on home prices and making home ownership less attractive. The obvious ones include high unemployment rates and perceptions that the real estate market has not yet bottomed out; but several underlying and less obvious factors implemented by the big banks and in Washington, DC, are cuffing the invisible hand of the housing and mortgage markets, and causing significant roadblocks on the road to economic recovery.
There is a consensus that exotic and risky loans that were peddled by big banks and resold on the secondary market in years past have had a significant impact on the today's housing market and mortgage environment, but the banks' secondary marketing campaigns for these loans has proven to have been much more damaging. In the aftermath, mortgage brokers, appraisers, and real estate agents have taken the brunt of the criticism, and are now the subjects of supposed "consumer-protection" legislation that will further erode potential borrowers'/purchasers' ability to obtain competive loan products and pricing.
In addition, banks have badly mismanaged their foreclosures and caused more apprehension in the population of potential homebuyers through the "robo-signing" scandal, their unwillingness and/or inability to offer relief to underwater homeowners, and new underwriting policies and guidelines that are keeping qualified borrowers away from the closing table.
Currently, legislators are slated to implement the Dodd-Frank Act, which will cause commissions for loan transactions that secure real property to be set by loan amount only, and not influenced by rate. If implemented, these proposed mortgage regulations will eliminate a loan originator's ability to charge less for the exact same loan products offered by the big banks, which will cause consumers to pay more for services. The banks are behind the legislation because it will shift the competitive balance of power in their favor. On its face, the Dodd-Frank Act may seem like a good idea, but when you look into what the law would require and what the actual consequences are, if implemented, its is exposed as more double-speak and smoke and mirrors.
Instead of eliminating competition, and driving the costs of obtaining financing up, the government needs to take a step back and let the housing market correct itself without artifical market restricitions.
There is a consensus that exotic and risky loans that were peddled by big banks and resold on the secondary market in years past have had a significant impact on the today's housing market and mortgage environment, but the banks' secondary marketing campaigns for these loans has proven to have been much more damaging. In the aftermath, mortgage brokers, appraisers, and real estate agents have taken the brunt of the criticism, and are now the subjects of supposed "consumer-protection" legislation that will further erode potential borrowers'/purchasers' ability to obtain competive loan products and pricing.
In addition, banks have badly mismanaged their foreclosures and caused more apprehension in the population of potential homebuyers through the "robo-signing" scandal, their unwillingness and/or inability to offer relief to underwater homeowners, and new underwriting policies and guidelines that are keeping qualified borrowers away from the closing table.
Currently, legislators are slated to implement the Dodd-Frank Act, which will cause commissions for loan transactions that secure real property to be set by loan amount only, and not influenced by rate. If implemented, these proposed mortgage regulations will eliminate a loan originator's ability to charge less for the exact same loan products offered by the big banks, which will cause consumers to pay more for services. The banks are behind the legislation because it will shift the competitive balance of power in their favor. On its face, the Dodd-Frank Act may seem like a good idea, but when you look into what the law would require and what the actual consequences are, if implemented, its is exposed as more double-speak and smoke and mirrors.
Instead of eliminating competition, and driving the costs of obtaining financing up, the government needs to take a step back and let the housing market correct itself without artifical market restricitions.
Tuesday, January 25, 2011
FHA 203(k) Streamline Loans
In many home purchase transactions where the subject property is in need moderate repairs, borrowers, and their Realtors, find themselves in a Catch-22 situation - banks won't lend money to buy the house without the repairs being made, and the repairs can't be made until the home has been purchased.
Enter HUD's 203 (k) Streamline Program. This loan will enable the borrower, with a down payment as low as 3.5%, to obtain financing that will cover the acquisition cost, plus the costs of making necessary repairs and improvements. In most cases, the work will need to be performed by a licensed contractor, and the plans need to be prepared and approved by the lender during the loan approval process. The borrower can obtain up to $35,000 for these repairs, and draw funds from an escrow account established by the lender at the close of the transaction to pay the licensed contractor at the completion of the repairs. This loan affords the borrower up to 6-months to complete the work, and the final disbursement will only be made after a HUD-approved inspector verifies that the repairs stipulated in the contract have been completed. These repairs must meet HUD's Minimum Property Standards, and all necessary permits must be obtained to meet all applicable building codes.
Under the right circumstances, these loans can be a real benefit to borrowers who are unable to cash flow needed repairs. The final loan amount is based upon the After-Improved Value of the property. Feel free to contact me to discuss the benefits of these loans. I can be reached at 888/627-2002 or kkertin@gmail.com
Enter HUD's 203 (k) Streamline Program. This loan will enable the borrower, with a down payment as low as 3.5%, to obtain financing that will cover the acquisition cost, plus the costs of making necessary repairs and improvements. In most cases, the work will need to be performed by a licensed contractor, and the plans need to be prepared and approved by the lender during the loan approval process. The borrower can obtain up to $35,000 for these repairs, and draw funds from an escrow account established by the lender at the close of the transaction to pay the licensed contractor at the completion of the repairs. This loan affords the borrower up to 6-months to complete the work, and the final disbursement will only be made after a HUD-approved inspector verifies that the repairs stipulated in the contract have been completed. These repairs must meet HUD's Minimum Property Standards, and all necessary permits must be obtained to meet all applicable building codes.
Under the right circumstances, these loans can be a real benefit to borrowers who are unable to cash flow needed repairs. The final loan amount is based upon the After-Improved Value of the property. Feel free to contact me to discuss the benefits of these loans. I can be reached at 888/627-2002 or kkertin@gmail.com
Outlook for 2011
The mortgage industry has undergone significant changes during the last year, and will continue to see change in the early part of 2011. The industry, as a whole, has experienced a significant reduction in the number of licensed loan originators and independent brokers, due to stricter licensing guidelines, real estate market conditions, and other factors.
Business models, like my own, in which I try to pay borrowers' closing costs with a portion of my commissions earned on the deal, are again under pressure due to proposed new regulations that are slated to go into effect on April 1, 2011. Like many other regulations that have evolved after the mortgage crisis, these regulations will have a negative impact on a borrower's ability to obtain competitive rates, by eliminating a mortgage broker's ability to offer superior rates and fee structures at a lower cost than the big banks would charge for the same loan products. The competitive advantages that I have had, due to lower overhead and more efficient operations are being eroded as an unintended consequence of new regulations. Nevertheless, I remain committed to offering my customers a better deal than anyone else.
Moving forward, I will continue to provide exceptional customer service and the lowest possible rates.
Business models, like my own, in which I try to pay borrowers' closing costs with a portion of my commissions earned on the deal, are again under pressure due to proposed new regulations that are slated to go into effect on April 1, 2011. Like many other regulations that have evolved after the mortgage crisis, these regulations will have a negative impact on a borrower's ability to obtain competitive rates, by eliminating a mortgage broker's ability to offer superior rates and fee structures at a lower cost than the big banks would charge for the same loan products. The competitive advantages that I have had, due to lower overhead and more efficient operations are being eroded as an unintended consequence of new regulations. Nevertheless, I remain committed to offering my customers a better deal than anyone else.
Moving forward, I will continue to provide exceptional customer service and the lowest possible rates.
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