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from Local Attorney, Michael H. Wasserman

Friday, March 28, 2014

FNMA Extends Spring First Look Closing Cost Promo

by Michael H. Wasserman

The spring 3.5% closing cost credit incentive offered on newly listed Fannie Mae “HomePath” properties has been extended for one more month. 
Introduced back in February, the original program applied to offers submitted by March 31st for contracts closing by May 31st.
The deal now applies for offers submitted by April 30 that close by June 30th.
This appears to be a highly popular incentive program. I am working with several clients on FNMA purchases fortunate enough to participate here. These are great opportunities to boost buying power for select Chicago area home and condo purchases.
More information available from FNMA here

Tuesday, March 25, 2014

EVERYTHING OLD IS NEW AGAIN: Return of the Sub-Prime Loan

The mortgage industry is poised to start making sub-prime mortgage loans again. CNN Money reports that several smaller lenders are now offering loan products to borrowers with credit scores of 640 and lower. Last month, Wells announced it would offer FHA guaranteed loans to borrowers with credit scores as low as 600. Now Carrington Mortgage (a firm I have not seen funding Chicago area home mortgages) has announced it will lend to consumers with credit scores as low as 540.

In fact National Mortgage News reports that the average minimum FICO score for the 15 lenders with the lowest minimums in fourth quarter 2013 was 571, down from 599 one year ago.

Lenders are aiming principally at two market segments - young first time home buyers and former owners who were wiped out in the market collapse. Why? two forces seem to be driving the softening of the lending standards: A shrinking pool of new loan applications and rising costs associated with adaptation of the new QM (qualified mortgage) regulations. In other words, some lenders adapting to the standards imposed so that they would underwrite loans more stringently want to cover their costs by making loans to lesser qualified borrowers!

VA & FHA backed loans will still allow for very low downpayments, but in the private markets, borrowers should expect to pay interest rates as high as  8-10%  and have down payments of 25-30% of the purchase price.


Sunday, March 9, 2014

Say it Ain't So: Low (No) Down Payment Real Estate Investing Making a Comeback ?

by Michael H. Wasserman

Apparently, we have learned nothing over the last 8 years. Folks are actually starting to tout no and low down payment loans again. Worse yet, many consumers seem ready to follow their suggestions.

Back before the bubble burst, the markets were giddy with buyers purchasing homes and investment properties with no (or next to no) down payments. Conventional wisdom at that time held that property values could only go. up. Huge equity gains were inevitable. Profits would flow to anyone smart enough to buy a home - even more so for those who bought without actually paying anything out of pocket.

Then the market collapsed in 2007 and the fallacy of that theory became painfully apparent. Property values plummeted. Owners went from no equity to negative equity. Severely. HELOCS were frozen or worse yet, called due by lenders. Properties became unsalable - sellers could not afford to pay out the shortages. You remember, don't you?

The after-effects from all of the resulting delinquencies, defaults and foreclosures are still with us. Thousands of families displaced by the loss of their homes. Countless others still cannot move, or have become "accidental" landlords renting out properties they cannot sell, owing more to their mortgage lenders than their homes are worth. Many have sold short. Some lenders forgave that debt, triggering huge income tax liabilities for borrowers. Others sold their homes but still retain repayment obligations (deficiencies) to their lenders. Many, many have - or will - file for bankruptcy too.

Things are getting better to be sure, but I still see more than my share of short sales, REOs, and sellers forced to write checks at their closings to cover their sales. As optimistic as I am for the spring and summer markets before us, no reason to believe that the distress sales are now all behind us. Would anyone who lived through this once buy a no down payment home again?