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WHICH IS BETTER WITH LESS THAN 20% DOWN – FHA OR CONVENTIONAL?

December 6, 2010 By

It depends on the buyer’s personal situation. Both FHA and Conventional have their pro’s and con’s. Only your lender can provide accurate information on the differences and determine the options the buyer is qualified for.

FHA “UP-FRONT” MORTGAGE INSURANCE
There are two forms of Mortgage Insurance required on FHA loans. “Up-front” mortgage insurance premium (UFMIP) and “monthly” mortgage insurance premium (MIP). On 10/4/10, the up-front mortgage insurance changed to1% of the borrower’s loan amount. This 1% can be financed into the loan, paid by the lender (rate may increase) or paid in full at COE by the buyer or seller. Most common is to finance the UFMIP into the loan to keep the buyer’s closing costs low.

FHA “MONTHLY” MORTGAGE INSURANCE
Depending on the size of the down payment, the “monthly” MIP now varies from .85% to .90% of the loan amount on an annual basis. This figure is divided by 12 to calculate the monthly amount. Monthly MIP is required to be paid on FHA loans for a minimum of 5 years regardless of the size of the down payment or future principal payments. MIP cannot be removed by obtaining a new appraisal to show equity in the home. It can only be removed after the mandatory 5 years has expired and via principal reduction to 78% of the original loan amount.

CONVENTIONAL MORTGAGE INSURANCE
Private Mortgage Insurance (PMI) is required on most conventional loans with a less than 20% down payment. The amount of the PMI is determined by the buyer’s credit score and down payment amount, and can differ between PMI companies. Due to FHA’s recent change in MI calculations, the borrower’s monthly payment may be lower on a conventional loan with PMI than on an FHA loan with MIP. The buyer may elect to pay the full PMI upfront at closing or on a monthly basis. A limited number of investors will allow for PMI to be financed into the loan amount. Never quote a buyer a PMI amount – consult your Lender for accurate quotes.

QUALIFYING FOR CONVENTIONAL PMI
While PMI on a conventional loan may afford the buyer a lower monthly payment, there are certain requirements for qualifying. The borrower must meet a minimum credit score, meet debt ratio requirements and may need liquid funds in reserves. In some cases, the PMI insurer may require a second underwriting of the file prior to issuing the commitment. Always consult an experienced lender to determine a buyer’s qualifications for obtaining PMI on a conventional loan.

REMOVING CONVENTIONAL PMI
It may be possible for a buyer to remove PMI on a conventional loan at some point. Each investor will have requirements. Among those may be the equity position in the property, location of the property, amount of time since purchased and pay history on the loan. For specific requirements on removing PMI, a homeowner should contact their current investor for specific requirements.

This content was provided by Richard M. Jefferson at On Q Financial, Inc
480.370.3600
Rich.Jefferson@OnQFinancial.com
www.RichJefferson.com

Filed Under: All Real Estate

Top 10 Foreclosure and Short Sale Issues

October 19, 2010 By

In the July/August 2010 issues of Arizona Attorney, Christopher Combs and Adam Martinez wrote a very interesting article about the top issues facing distressed homeowners today.  A lot of the sellers are worried about deficiency, and what the banks are able to do after a short sale or foreclosure.  I’d like to hit the highlights here:

  • No deficiency allowed after foreclosure of home
  • No foreclosures by second mortgages
  • Lender can sue borrower of non-purchase money loan
  • Protection unclear if “cash out” refinancing
  • Anti-deficiency statutes unchanged
  • Rights of tenants after foreclosures
  • No liability for short sale difference unless agreement
  • Cancellation of short sale while waiting on lender approval
  • Listing broker and buyer’s broker not required to reduce commission if demanded by lender
  • Tax consequences of debt forgiveness in short sales and foreclosures

As you may recall, I recently wrote about deficiency judgment from foreclosure.  In that article, I presented that it is imperative in structuring the short sale approval properly, or else the homeowner will be in a worse off position.  In this newer legal opinion, the authors believe that if the lender is releasing the lien to allow the short sale to go through, then they’ve agreed that they will not be coming back.  Unless of course, you agree to sign a promissory note.

This is an incredible article.  If you’d like a copy, sign up below

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Disclaimer: I am not an attorney, and the opinions expressed here are not to be interpreted as legal advice. Before making any decision legal decision, you should seek the counsel of a qualified attorney.

Filed Under: All Real Estate Tagged With: ,

Bank of America Halting Foreclosures in All 50 States

October 8, 2010 By
AZ Foreclosures bank of america

Crime Scene at Bank of America?

According to the Wall Street Journal, Bank of America is now halting foreclosures in all 50 states.  Mind you, they’re not stopping proceedings, so they will continue every step of the foreclosure process up until the actual trustee sale.

The decision by Bank of America to extend its postponement to all 50 states takes effect Saturday. The bank doesn’t intend to lift the moratorium on foreclosure sales until its assessment is complete, a spokesman said. The bank hasn’t halted all foreclosure proceedings, however. If a borrower is delinquent, the bank is still issuing notices of default and pursuing efforts to modify certain mortgages, the spokesman said.

It’s tough to speculate exactly what this will cause.  This will slow down foreclosures, obviously, and that will reduce the supply for a short period.  It will also increase the success rate of short sales, keeping the market up.  But a lot of this is conjecture, and this may create a larger supply in a small window of time.  If the banks knew what they were doing, this wouldn’t be an issue.  Unfortunately, I have as much faith in banks as I do in Santa.

Filed Under: All Real Estate

Robo-signing – Which 23 states?

October 5, 2010 By

robo-signing which 23 statesThis past weekend, I wrote about the disaster that is robo-signing.  If you recall, only states that use judicial foreclosures were getting their mortgages halted.  A judicial foreclosure requires that the lender appear in court with a sworn affidavit to in order to obtain a summary judgment permitting the foreclosure.  Until today, there hasn’t really been an official list.

Does my state participate in robo-signing foreclosure halt?

If your state is on the list below, you most likely have your foreclosure suspended:

  • Connecticut
  • Florida
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Minnesota
  • Nebraska
  • New Jersey
  • New Mexico
  • New York
  • North Carolina – Not judicial foreclosure state, but made it on the list
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • South Dakota
  • Vermont
  • Wisconsin

Delaware, which is also a judicial foreclosure state, is not on the list.

Image used courtesy of nerdapproved.com
Filed Under: All Real Estate

Robo-signing & AZ – What does it mean in Arizona?

October 2, 2010 By

Update: Bank of America is halting foreclosure in all states, including Arizona

robo signing azRobo-sign has been all the buzz. Chase and GMAC led the effort in halting its foreclosures in 23 states. They were quickly followed by Wells Fargo, and yesterday, Bank of America joined the cause. Robo-signing means that there were employees signing foreclosure paperwork without actually confirming or even understanding what they were signing. In one case, a woman at Chase bank signed off on 4000 foreclosure proceedings without verifying that Chase had complete authority to foreclose. It is important that the banks have clean title and authority prior to foreclosing.
According to the Washington Post,

In J.P. Morgan’s case, Mukri said the bank “determined that its affidavit procedures were non-compliant with foreclosure processing requirements in some states.” He added that although J.P. Morgan has fixed internal procedures, the “negative impact or harm to customers has not been determined at this point.”

So how does this affect us in Arizona? The states that have temporarily halted their foreclosures are states that use judicial foreclosure. Judicial foreclosure is when the banks go through the court system to foreclose. Unfortunately, AZ is not a judicial foreclosure state. We are a trustee sale state. Our foreclosures typically occur on courthouse steps or in an attorney’s office, not in the courtroom. Robo-signing will not help us in Arizona.

Filed Under: All Real Estate Tagged With: ,

Mosquito Fish for Green Pools

September 9, 2010 By

Distressed properties have been common for a few years now.  I’ve been a part of the solution for the last 3 years, and I’ve even taken some classes to become a Certified Distressed Property Expert.  However, it wasn’t until the day I picked up mosquito fish from Maricopa County’s Vector Control that I realized how much distressed  real estate has become my life.

Mosquito fish in my car

Mosquito fish in my car

We normally advise clients that keeping the utilities on can help sell their home, even though it’s a short sale.  Sure, the sellers don’t care how much the home sells for, but it certainly makes the process faster, and by bringing in a higher price, it increases the likelihood of a successful short sale.  That said, most people that are in this situation can’t afford to keep making payments while the banks dilly dally about what to do with an offer.

As a result, we end up with green pools that look like this.  Green pools by themselves are not that big of a deal.  You can always shock a pool, add some chemicals, and voila, you have a great looking pool again.  So if the color isn’t a problem, then what’s the point of this article?  Well, if you take a close look at the image, you might notices that this pool is infested with mosquito.  There’s larvae everywhere in this pool.  It’s hard to tell when looking because the larvae stay mostly still.  It wasn’t until I introduced the mosquito fish into the pool that you can see the mosquito scatter.

West Nile Virus has become a serious concern in AZ the past few years. I don’t know anybody that’s contracted it, but it’s been in the news a bit. To read more about it, you can go to http://www.azdhs.gov/phs/oids/westnile/. The biggest risk is contracting encephalitis from a mosquito bite. In addition, it’s much easier to attack the mosquitoes while they are stuck in the water. Once in the air, they’re a pain in the rear.

Mosquito Fish SnackingMosquito Fish at workIt is very hard to capture with still images what happens when the fish are introduced into the pool. Also, the fish were very shy. I had about 15 fishes, but when I dumped them in the pool, they stayed mostly away from the surface. I was able to capture a couple images of the fishes snacking away.

Did you know that it is our responsibilities as AZ residents to prevent mosquito growth? Chapter III, Regulation 2 of the Maricopa Environmental County Health Code states:
No person shall cause, maintain or, within his control, permit any accumulation of water in which mosquitoes
breed or are likely to breed. The owner, occupant, or person in control of any place where mosquitoes are
breeding, or which constitutes a breeding place for mosquitoes shall take all necessary and proper steps to
eliminate the mosquito breeding and to prevent its recurrence through the elimination of or the institution of
necessary control measures at mosquito breeding sites.

To get these fish for free, visit the Vector Control. Be sure to call for directions as using your GPS will get you lost in Tent City, and unless you’re friends of Sheriff Joe, I would recommend against that.

Filed Under: All Real Estate Tagged With:

Packages from Home

August 21, 2010 By

Packages from homeThis month’s featured business is Packages From Home. I first met them at a poker tournament they hosted back in July.  When they explained what they did, I couldn’t help but join the rest of the players and donate to their cause.  I now have the honor of featuring them here.  To read more about them, go to Packages From Home.

From the organization:

Packages From Home is a 501(c)(3) non-profit organization in Phoenix, Arizona. Our mission is to send care and comfort packages to deployed American military heroes who are stationed in active duty theaters around the world, as well as to facilitate activities that elevate morale of all veterans.

Packages from Home began as a labor of love for our founder Kathleen Lewis. Her son, Christian, is a soldier with the Army’s 1st Infantry Division. Christian was deployed to Iraq in March 2004. Kathleen began sending care packages to him on a regular basis. When Kathleen received a phone call from him thanking her for all of the comfort items from home, she found out that her son was the only soldier in his squad receiving any packages from home. At that moment, Kathleen, with the help of some friends, decided to “adopt” her son’s entire squad and began shipping packages to the other men in his unit.  Kathleen felt it was important to let these American heroes and complete strangers know they were being thought of and appreciated at home.

Word of her thoughtful efforts spread like wildfire through Kathleen’s circle of friends, and eventually more and more people began to contact her wanting to help.  In October 2004, Kathleen received a call from then local KFYI radio talk show host, Bruce Jacobs, inviting her to be on his morning talk show and discuss Packages From Home. After the appearance on his show, Kathleen’s phone lines lit up. Some people wanted to donate money, others wanted to donate items, and more wanted to donate their time to help support her son’s squad. Kathleen soon realized that her 2-car garage could hold only so many people and care packages at one time. In November of 2004, Packages From Home requested charitable status with the IRS.  Packages From Home then became a 501(c)(3) non-profit organization.

Our sole purpose is to provide food, personal care, and recreational items to deployed American troops, at no cost to them. Since March 2005 we have averaged 1,000 to 1,500 packages a month being shipped to our heroes. Our goal is to ship many more. We collect donated items from generous patriotic citizens who live all across America. These items include non-perishable food, personal toiletries, and recreational items like games, books, music CDs and movie DVDs. A list of items needed by the troops is available on our “Things to Donate” page along with the location of “Drop Off Locations” in the greater Phoenix Arizona area where items may be donated. (No alcohol, tobacco products, pressurized containers, x-rated materials or any other item deemed unsuitable or unsafe will ever be sent by us.) Our staff and volunteers carefully pack the donations into U.S. Post Office Flat-Rate Priority Mail boxes. The boxes are then mailed to U.S. servicemen and women who are deployed overseas in harm’s way. Monetary donations go towards mailing costs and/or purchasing of special items to send to the troops.

Packages From Home is one of the organizations listed and recognized by the Department of Defense to send care packages in support of our troops. Through our own efforts and the efforts of complete strangers we have grown from a 2-car garage into a full organization.

Filed Under: Featured Business

Deficiency Judgment From Foreclosure

August 12, 2010 By

Deficiency JudgmentI get many questions from clients regarding consequences of a short sale and foreclosure.  Specifically, many people are concerned about the tax burden and the deficiency judgment.  I found this helpful flow chart made by Diane Drain over at www.dianedrain.com.

One thing you will notice is that this chart shows a Trustee’s Sale is different than a Judicial Foreclosure.  Trustee Sales is what happens every day at the court house steps and in law offices.  These are by far the most common form of foreclosure.  The alternative is Judicial Foreclosure.  This is what happens the lender goes through the court room to foreclose.  For the most part, lenders don’t like this route for a couple of reasons.  One is that there is almost no benefit to them, and second, there is a redemption period, and that makes the waters too murky for the lenders.

So what does this table tell us?  Regardless of whether you are the owner occupant or you are an investor, as long as the property is a single family dwelling or duplex and on 2.5 acres or less, you will not have any deficiencies from any lenders if it goes through a trustee sale.  Any junior deeds of trusts get wiped out after a trustee sale.  Please note that these do not wipe out judgments or HOA liens.  The way it has been explained to me is that even if it’s a cash out refi or you bought 10 big yellow hummers, you’re fine as far as deficiency goes.  Uncle Sam will be knocking on your door for sure, though.

Now, if this is a situation where the home is on more than 2.5 acres or is neither a single family dwelling or duplex, then through a trustee sale, the lenders can come after you for the difference.  However, the Arizona Revised Statutes (ARS) state that the lender has 90 days to file, or else they’re out of luck.  We hear 6 or 7 years thrown out a lot, and it is simply untrue.

So what happens if the bank decides to go through a Judicial Foreclosure?  Well as long as the property sits on 2.5 acres or less, the home is single family or duplex, and all the debt is purchase money, you’re safe.  If even one of those is not true, then the distressed homeowner is subject to a deficiency.

So with all those questions answered, we now have to consider short sales.  It looks like anybody doing a short sale needs to ensure that their short sale approval letter states there won’t be any deficiency judgments.   In most of my short sale approvals, the language goes something like “Paid in full for less than the full balance.”

This is a lot of information to digest, so please feel free to comment below or contact me directly for clarification.  As always, I am not an attorney or an accountant.  Please do not make any legal or tax decisions based on the information here.  Please consult a lawyer and tax professional when you are ready to make any type of decision.

For the full flow chart, review the deficiency judgment flow chart.

Filed Under: Short Sales Tagged With: ,

Don’t flip out! Flips are ok!

August 10, 2010 By

tempe real estateIn our current real estate market, flips have become a daily part of our business in addition to bank owned properties and short sales. It is vital for your success to partner with a lender who understands flips and can successfully navigate the process.

WHAT IS CONSIDERED A ‘FLIP’?

The primary lender definition of a ‘flip’ is when the current seller has been on title for less than 90 days. A secondary definition is when there have been ‘multiple’ title transfers of a property within the last 12 months.

WHO CARES & WHY?

Your buyer’s lender cares. In the past, fraudulent flip transactions were used amongst family members or business partners to artificially increase the value of a property and ultimately sell the home to an end user at an over-inflated price. Parties to these scams were sellers, buyers, realtors, loan officers, appraisers and title companies. To avoid this fraudulent behavior in the future, investors and regulators have put in guidelines and safeguards to verify that any ‘flip’ transaction is bona fide.

DEED TRANSFERS

Before your buyer makes an offer on a property, it is vital to check the title history of the property. When did the seller take title? Have there been multiple deed transfers in the last 12 months? Has the price increased dramatically on the title transfers? If the county records do not give you updated information, you will want to ask the listing agent. Prior to the offer on a ‘flip’, call your lender and discuss the property. Your buyer’s lender will need to follow certain ‘flip’ guidelines.

FLIP INVESTORS

If your buyer is purchasing a ‘flip’, your lender will have only certain investors who will accept the loan and each have their own underwriting criteria for flip transactions. This criterion also differs whether the loan is FHA, Conventional or VA. The guidelines are too in-depth to cover in this newsletter. It is vital that you work with a lender who understands flips, knows which investors will loan on them and how to properly document the file for an approval. Interview the lender carefully to determine their understanding of the process and never use an unqualified or inexperienced lender on a flip!

APPRAISAL REQUIREMENTS

The appraisal requirements also differ between investors and are determined on the value increase of the property from the time of the seller’s purchase compared to your buyer’s purchase price, and also on what upgrades or renovations have been done. If the seller has done renovations, it may be required or helpful for the seller to provide documentation to the buyer’s lender on the work done. Oftentimes, a desk review or second appraisal will be required on a flip transaction. An educated and experienced lender will understand how to document your buyer’s file and manage the appraisal process so that required information is included in the appraisal.

Richard M. Jefferson, Sr. Mortgage Consultant

NMLS #25381

16150 N. Arrowhead Fountain Ctr., Suite 260    Peoria, AZ  85382

Phone: 480.444.7143   Direct Fax: 480.444.7193

rich.jefferson@onqfinancial.com /    www.richjefferson.com

Filed Under: All Real Estate Tagged With: ,

August Market Update

August 6, 2010 By

tempe real estate

Area Supply Close Fails Pending Selling Days to sell Supply (weeks) Median Ask Median Pending Median Close Price
Anthem 218 46 25 70 65% 87 27 $192 $199 $200
Avondale 611 158 64 220 71% 75 23 $110 $104 $105
Chandler 1,775 359 175 417 67% 100 26 $199 $187 $185
Fountain Hills 329 37 25 47 60% 152 44 $449 $349 $376
Gilbert 2,014 428 223 514 66% 101 26 $186 $186 $185
Glendale 1,537 395 159 517 71% 81 23 $119 $111 $116
Goodyear 761 181 71 231 72% 96 24 $156 $145 $143
Mesa 2,692 560 278 708 67% 93 26 $146 $129 $130
Peoria 1,409 299 150 397 67% 102 26 $170 $159 $162
Phoenix 7,777 1,613 796 2,030 67% 86 26 $123 $100 $110
Queen Creek 717 194 73 222 73% 101 21 $140 $126 $126
Scottsdale 2,896 403 345 464 54% 143 36 $585 $400 $385
Sun City 406 80 44 72 65% 108 26 $139 $134 $124
Surprise 1,368 354 142 439 71% 91 22 $135 $129 $132
Tempe 524 112 63 112 64% 95 25 $186 $173 $169
TOTALS 25,034 5,221 2,632 6,460 66% 96 26 $155 $130 $135
Filed Under: Market Update Tagged With: ,
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