Gil Kerbashian - Illinois Home Loans

Short Sales: How Do Short Sales Work and Why are Short Sales So Prevalent?

Short Sales: How Do Short Sales Work and Why are Short Sales so Prevalent?

I hope the below overview helps you understand the short sale process.

What is a Short Sale?:

A Short Sale, also known as a pre-foreclosure sale takes place when a homeowner needs to sell his or her home because they may be having a hard time making payments or are required to move and can't sell the property due to market conditions. If a full foreclosure process is executed, the homeowner will experience severely ruined credit. By conducting a Short Sale, the homeowner can reduce losses while having a easier time rebuilding credit. Homeowners in a Short Sale situation must seek out potential buyers at a price that the market can bear, not what is owed on the property.

When the buyer and seller are brought together, the first step is to decide on a fair price for the home. Often times the price can be 5-15% below market in order to generate sales activity in order to expedite an offer to purchase. The buyer will typically offer a settlement amount for less than what is due on the mortgage. Most Short Sale home sellers do not receive any net profits from the sale of the property because all of the funds are used to pay off the debt.

If the buyer and seller can agree on a price, they will enter into a contract. This should be prepared by a knowledgeable short sale Realtor and short sale transaction coordinator for the protection of both parties.

Approval by Bank:

Though the buyer and seller agree to the sale, the bank must approve the final price, market value of the property and terms. A Short Sale package outlining the settlement offer is sent to usually to several departments at the bank but will finally end up given to the head of the loss mitigation department. The bank's lawyers, REO manager or case managers will review the offer and determine whether or not the amount of the price is sufficient to negotiate down the mortgage balance. The bank will speak with its investors in an effort to secure approval for the Short Sale. Realtors and transaction coordinators often spend 3-4x more effort to close Short Sales for their clients. Short Sale sellers need to be committed to the process and their service providers. Sellers must also be very PATIENT with the process.

The likelihood of success will rely on many factors but mostly; the real estate market, the value of the property and the mortgage balance. Be prepared for a slow process- banks are very slow about getting back to buyers and sellers. Agressively pricing a home for sale is important in the beginning in order to quickly secure a purchase offer and commence the liquidation process. Banks sometimes take up to 6 months before giving an answer. If the bank agrees to the sale, that's when the ownership transfer starts to finalize.

Tax Implications:

Sellers should consult a tax attorney prior to listing a property for sale. You may have to pay taxes on the amount of the mortgage that was forgiven because of the short sale. In many situations, that will not be the case and tax laws have changed to make it easier for sellers to sell. You will want to know this information before deciding on a course of action. If you are the buyer of the property, you should rely on your Realtor to find out the status of the property: Many homes have hidden liens against them because of second and third mortgages. As a buyer you will want to have a clean title and the best way to do that is to work with a short sale Realtor.

Why are Short Sales so Prevalent?:

With the Wall Street initiated financial crisis came a collapse in housing prices. In some regions of the country property values tumbled 50%, cutting the homeowner equity in half.

Prior to the financial crisis, many homeowners utilized home equity loans and cashout refinance transactions to pay for many of lifes expenses. Some used the cash to improve their properties and others to buy material goods. Regardless of the reason, millions of homeowners drew down much of the equity in their homes. As a result homeowners ended up with too much debt and little to no equity. This impacted millions of homeowners across the country which has been the primary reason for so many foreclosures. Because so few homeowners understand Short Sales, they have been guided to take the less desirable path of foreclosure- it doesn't have to be this way.

If you would like more information regarding Illinois Short Sales, please call (847) 873-7295

 

 

 

QRM. Is 20% Down Being Pushed By The Big Banks?

Ahead of the Curve - Fast Finance Perspectives 
 (ok to use topics for your personal enewsletter)

1) QRM: The 20% Down Payment Regime
2) Best Spring Start Since 2007

1)  QRM- Quality Residential Mortgage. The 20% down payment mandate for lenders that can't hold at least 5% of a conventional home loans liability. This would dibilate about 80% of the 1200 mortgage bankers in the U.S.   

QRM (Dodd-Frank) states that if a lender makes a conventional loan with less than 20% down payment, the lender would be required to maintain 5% of the loans liability. The concern is that smaller community banks and lenders wouldn't be able to maintain the reserves compared to larger publicly traded (stock funded) banks.

Wells Fargo campaigned for 5% liability on loans with less than 30% down in an attempt to increase requirements. This was an obvious attempt to impinge on smaller lenders. QRM does not apply to FHA or VA at this time. QRM rules are still evolving.
Is this rule redundant? Mortgage insurance has been available to protect banks faulty low down payment loans, and loan buyback requirements are in place to capture the remainder of the risk.

Low down payment as shown by the performance of zero down USDA, zero down VA and 3.5% down FHA are not the problem, debt ratios, faulty underwriting and low credit scores are.

2) The Spring market has kicked off and I'm starting to feel the velocity pick up quickly- thank goodness! The last six weeks have resulted in a triple in purchase preapprovals from the first quarter of 2010. Candidly, December and January seemed like a repeat of a down 2008-10 but the second half of Jan 2011 hit with a breakout in purchase preapprovals.

It appears that buyers (most) have a better respect for the preapproval and up front paperwork requirements.

80% of the healthiest buyers, that I've dealt with in the last six weeks have been glad to submit a full preapproval package. This seems to be mostly due to a better job buyer Agents are doing coaching their buyers about the requirements of a strong preapproval.
Every buyer should have a full preapproval- save your valuable gas and time by avoiding prequals whenever possible. 
   
KUDOS to the agents that are emphasising quality and certainty from their buyersides.
Please feel free to use the above information in your enewsletters. If you need more topics, please call me. Here to help fund and close your transactions.    
As always, staying ahead of the curve to keep you informed.

Gil Kerbashian
NMLS 197757
Residential Lending Since 1997
(847) 873-7295 

FHA Credit Score Changes Coming

In February we were still funding loans down to a 580 credit score, now its 620 with most lenders. Some lenders are taking score requirements up to 640 and 660. The lending process is moving back to its technical book procedures. The changes are good because those that are buying now shouldn't experience defaults, and bad because many buyers aren't prepared for the rapid changes.

Regarding verifying down payment - Important: Any underwriting unit can ask for bank statements and official verification of deposits in tandem for the last 60 days up and through closing. NOTE: Any large deposits going into the account will need to be fully sourced, even if its a large deposit going into a giftors account. Cash deposits are not allowed. WHY?...

Recently there has been a slew of sellers kicking back the down payment to buyers in order to off-load properties. This has caused a tightening of down payment verification. Please take a moment to read the link at

http://gilkerk.realestateloans.com/fha-gift-letter/2009/05/07/i-need-to-make-a-home-loan-application-help.html

FHA : What are Origination and Discount Points?

Definition of a "Point": A "Point" is a financial term used in the mortgage business to represent a percentage of the loan amount. One Point would be 1% of the loan amount, two Points would be 2% of the loan amount, so on and so on.

Origination points: Points charged to originate a mortgage loan. FHA allows a maximum of 1 point to be charged on FHA insured transactions.

Discount points: Points charged by the broker or lender to obtain a specific rate. To "buydown" a rate from 5% to 5.25% may cost 1 discount point.

Origination and discount points are labelled as such and must segmented into their own categories on the Good Faith Estimate.

Discount points DO NOT count towards the minimum statutory committment amount.

Negative Home Equity? Fannie Mae 105% Refinance Coming Soon

Mortgage Rates Now a-la-carte

Mortgage rates have gotten sliced and diced in very narrow catagories and credit score ranges. Last year we were able to pool 700 ficos with 650.. this doesn't hold true any longer. I've included the MAIN FANNIE MAE AND FREDDIE MAC matrix below for what we as mortgage lenders have to look at before we price a loan. There is also matrices for cash-out refinances, condo's, investment properties and 2nd homes.

Don't expect any of the mortgage rates you see in the paper or online to hold true. The mortgage rates you see online are "base" rates and are only offered to a very small percentage of the population with the highest credits scores and largest down payments.

With declining property values, high loan defaults and lower credit scores so common now you will be better served working with a mortgage person you can first trust and one that has access to many lenders. Access to many lenders will help you find the right rate and approval for your particular needs.

As you can see on the below matrix 720 credit scores with lots of equity home owners are getting the best rates. This matrix applies to conventional loans only not FHA or VA loans. FHA and VA loans offer there own risk based adjustments. Guideline changes have been almost non stop since the end of 2007 due to the disrupted nature of mortgage lending.

Below adjustments are strictly for addtional points added for risk based add-ons. 1 point equals 1% of the loan amount. EX: 1 point for a $100,000 loan is $1,000, 2 points for a $100,000 loan is $2,000, and so on.

A borrower that doesn't want to pay risk based 'points' can typically increase their rate to absorb points. It usually costs a .25% increase in rate to eliminate 1 point.

Example: .25% increase in rate may eliminate a 1 point charge, .50% in rate may eliminate a 2 point charge. A 5.0% rate may have a 2 point charge or the client may pay 5.5% rate with 0 points.

The below risk based point adds are national guidelines that apply to all conventional mortgage lenders. Some lenders can add on their own additional "regional" risk premiums.

Clients can choose to incur the below addtional points or a higher rate to offset any additional points that must be charged due to additional risk.  

Should I lock my mortgage interest rate - youtube video.

What are FHA Closing Costs?

End of Fed Easing Around The Corner. Will Put Upward Pressure on Mortgage Rates. Lock Them in Now.

Stocks could face a rough summer after the Federal Reserve ends its multi-trillion-dollar easing program in June, investment pro Byron Wien told CNBC.

AP

Though he is sticking with an otherwise-bullish forecast for the year, Wien said the June expiration of the central bank's Treasury-buying program—often referred to as quantitative easing—likely will trigger a rough patch.

"It's hard for me to assess how much of the big move in stocks since the end of last summer was attributable to the fact that money was so plentiful and not much of it went into the real economy," the vice chairman of Blackstone Advisory Services said.

"An enormous amount went into financial assets. In June that money is going to be choked off, QE 2 is going to be over, and I don't think there is going to be a QE 3 and so therefore I think the market could be vulnerable."

In late August, 2010, Fed Chairman Ben Bernanke made remarks that signaled the central bank would kick off another leg of its QE program.

Save for a brief pullback after the tsunami in Japan, stocks have not looked back since though the actual QE 2 program, in which the Fed began buying another $600 billion in Treasurys, did not begin until November.

The cumulative effect of the Fed easing has expanded its balance sheet to nearly $3 trillion.

As such, there are doubts that it will continue to ease and risk adding to the inflationary currents already swirling through the economy with near-zero interest rates and surging consumer prices in food and energy.

"They've done as much as they can get away with," Wien said. "I just don't think they can keep on pumping money into the system."

Still, he is sticking to his full-year projection of 1,500 for the Standard & Poor's 500 [.SPX  1317.95    3.79  (+0.29%)   ], though he added that "during the summer you may have something of a swoon."

Wien said the market also needs to pay attention to the deficit debate in Washington, as the warring parties try to come up with a workable plan to get the US fiscal house in order.

He said proposals such as the current one from Wisconsin Republican Rep. Paul Ryan don't go nearly far enough.

"When you think that we're running a budget deficit of ($1.5 trillion) and we're going to cut $38 billion out of it—if you were a bellhop you wouldn't accept that as a tip," he said. "It seems to me they're not doing enough."

Lock Out Periods for BK's and Foreclosures

Ahead of the Curve - Fast Finance Perspectives
 (ok to use topics for your personal enewsletter)
 
 
1) Seasoning Requirements After a Major Financial Hardship
2) Inside Job the Movie: LINK TO TRAILER
3) Real Vs Nominal Housing Prices: 1890-2010: LINK TO GRAPH
4) Postcard Campaign
 
1) Since late 2008 and the reorganization of the lending guidelines commenced, I've had many inquiries from Realtors and their prospective buyers who’ve wanted to get into a new home or BACK into home ownership.
 
What I wanted to share with you is a current (as of today) overview of how long certain negative things need to be “seasoned” before different types of mortgage financing can be offered.
 
Bankruptcy:
 
The two most common types of bankruptcy (BK) are the Chapter 7 (liquidation) and the Chapter 13 (reorganization).
 
FHA will need a Chapter 7 BK to be dismissed 24 months.  Someone who is in a Chapter 13 and is in the process of repaying their debts can qualify for a FHA loan after 12 months of proof of repayment, no “lates” on anything on their credit report AND “permission from the court”.
 
FNMA/Fannie Mae after a Chapter 7 is allowed after 48 months from the discharge/dismissal date.  A two-year waiting period is allowed if certain ”extenuating circumstances” can be documented.  The lock-out time may be extended to 7-10 years if there is more than one BK on the clients credit.
 
FHLMC/Freddie Mac will generally require a borrower to have waited 7 years unless either “extenuating circumstances” can be met then its 24 months. Lenders aren't too accomidating with shortened timelines right now. 
 
The US Department of Veterans Affairs will allow an eligible Veteran to qualify for a VA loan typically two years after discharge date of a Chapter 7 BK.  There are guidelines that VA spells out for a Veteran to qualify between 1 and 2 yrs after discharge date according to Chapter 4 of the VA Lender Handbook:  if both of the following are met
 
borrower and/or co-borrower have reestablished satisfactory credit, and the bankruptcy was caused by circumstances beyond your and/or your spouses control (such as unemployment, medical bills, etc.)
 
Another situation for a determining that an applicant is a satisfactory credit risk is in situations where the BK was caused by failure of a business of a self-employed applicant and:
 
the applicant obtained a permanent position after the business failed, there is no derogatory credit information prior to self-employment, there is no derogatory credit information subsequent to the bankruptcy, and failure of the business was not due to the applicant’s misconduct.
 
For Chapter 13 BK’s the 2 situations outlined that may conclude a VA lender to extend credit are:
 
Satisfactorily making at least 12 months of payments, “permission from the court”, finishing all payments satisfactorily.
 
Foreclosure
 
FHA requires a 36 months seasoning
 
Fannie Mae and/or Freddie Mac require 7 years from the completion of the Foreclosure for the Date of the credit pull for the new loan.  The old “between 5 and 7 year rule” was changed effective October of 2010.  Now there is a 3 yr “extenuating circumstance” rule (90% LTV for a primary residence) with Fannie Mae and its at only 2 yrs with Freddie Mac.  
 
VA follows their guidelines for a Chapter 7 BK with the request that the complete facts of the circumstances for the Foreclosure be submitted AND if the Foreclosure was on a VA loan note that “full entitlement” will not be available for the new loan.
 
USDA generally requires 36 months OR if after 12 months, reestablished credit and an underwriter “waiver”.  This is completely up to the discretion of the u/w.
 
Short Sale
 
A Short Sale is an option of a homeowner selling a home for less than the balance on their current mortgages and the mortgagee agrees to a reduced payoff.  The bank’s decision to allow a Short Sale is typically in lieu of the foreclosure process. This process and agreement does not necessarily release the homeowner from the obligation to pay the remaining balance of the loan known as the DEFICIENCY.
 
FHA requires 36 months in most situations.  If CERTAIN GUIDELINES are met that follow Mortgagee Letter 09-52… the homeowner could qualify for an immediate purchase.  Did you catch that… RIGHT AWAY.  This is an important guideline change that is often misunderstood.
 
Fannie Mae guidelines right now require a 72 month seasoning for FULL ELIGIBILITY.  After 24 months… a borrower could qualify with at least 20% down and after 48 months the maximum LTV is 90%.  Their “extenuating circumstances” rule may allow someone to only have to put 10% down in as little as 2 yrs.
 
Freddie Mac is sticking to their 48 month seasoning… or 24 months if their ”extenuating circumstances” guidelines can be proven/met.
 
VA guidelines that we’ve seen have looked very similar to FHA’s above;  36 months OR if after 12 months and fitting the similar new guidelines of ML 09-52.
 
USDA generally requires 36 months OR with the right underwriter’s “waiver” and approval.
 
Did you get all that?  Its pretty crazy and you can see that things are VERY DIFFERENT now and the job of a “mortgage guy” (and a Realtor) is to know more than just “what’s the rate and fees”?  These guidelines are effective TODAY and have changed a few times in the past year.
 
We have to educate consumers who are current home-owners that are in tough situations (ask me about the “Upside Down Playbook”) along with shoppers who have fallen into Hardships.  The toughest part of our jobs right now is telling people what they NEED TO KNOW and not just what they WANT TO HEAR.  The hope is that the knowledge from the paragraphs above will help you shine and win more referrals and future business.
One big TAKE AWAY is that with Conventional Financing’s standard guidelines… if a customer WALKS (strategic default) on their home and lets it go into a Foreclosure they’ll have to wait SEVEN YEARS to get a loan.  If they work with a trained REO Realtor to structure a Short Sale they could only have to wait 2 years or possibly qualify IMMEDIATELY with an FHA loan. 
Partnering with a good, educated LO can make all the difference.
 
4) Co-op postcard mailer campaign working well and available for my business partners. Start reinforcing your name with clients today! Call or email to find out more.
 
 
Please feel free to use the above information in your enewsletters. If you need more topics, please call me. Here to help fund and close your transactions.   
 
Personal email: gilkerk@yahoo.com
 
As always, staying ahead of the curve to keep you informed.

FHA Mortgage Insurance Chart

FHA Mortgage Insurance Premium Chart

Chase and Quicken "Preapproved" The Borrower. Really?

Housing Affordability Rises to All Time High

The housing affordability index measured by the National Association of Home Builders and mortgage lender Wells Fargo hit its highest point ever in the fourth quarter.

The so-called HOI (Housing Opportunity Index) climbed to 73.9 percent during the quarter, meaning nearly three-quarters of families earning the national median income of $64,400 could afford to buy a home.

It surpassed the previous high of 72.5 percent set back in early 2009, and jumped from 72.1 percent in the third quarter of 2010.

“Today’s report shows that housing affordability at the end of 2010 was at its highest level since we started computing the HOI,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB), in a release.

“However, while this is good news for consumers, both home buyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales.”

In other words, please either lower mortgage rates even more or make qualifying for a mortgage even easier than it already is, perhaps by bringing back 100 percent financing.

Indianapolis Most Affordable, NYC Most Expensive

The Indianapolis-Carmel, Indiana metro was the most affordable in the nation during the third quarter, with 93.5 percent of all homes sold considered “affordable” to households earning the area’s median family income of $68,700.

Conversely, the New York-White Plains-Wayne, N.Y.-N.J. metro was again the least affordable in the nation, with just 25.5 percent able to buy on the area’s median income of $65,600.

Of course, now that mortgage rates have risen about a percentage point in the past three months, affordability will likely dip considerably.

Courtesy of the Truth About Mortgage Blog

TARP Watchdog Says Foreclosure Plan Is Failing (Audio)

TARP Watchdog Says Foreclosure Plan Is Failing (Audio)

Fri, 2011-02-18 10:14 — Mortgage News Ticker

Foreclosures in the U.S. matched their highest level on record at the end of 2010, according to the Mortgage Bankers Association. And that's frustrating to one of the nation's top financial watchdogs.

Neil Barofsky, the special inspector general for the massive federal bank bailout program, or TARP, is stepping down from his post in March. He says the Obama administration's program to prevent foreclosures is broken, and that many of the people it's supposed to be helping are now "in a far worse place than they would have been had this program not existed."

When he took the job of keeping tabs on the Treasury Department, Barofsky says, he received "quite a welcome to Washington": a mildew-ridden office in the basement. ...

 link to article and audio: http://www.npr.org/2011/02/18/133839730/tarp-watchdog-says-foreclosure-plan-is-failing

 

FHA 203KS FORMS

"We wrote an offer on a foreclosure and the appraiser called out repairs including a new Roof. The borrowers bank wouldn't do the loan. Another agent in the office recommended Gil Kerbashian. Gil was amazing. He returned my calls quickly, explained the loan program well, pre-approved my clients the same day and we CLOSED on a home that the bank said couldn't be done." Melissa Ross, Remax Professionals

The FHA 203K (ks) home loan program helps homebuyers finance up to an additional $35-45,000 (includes EEM, weatherization, contingency and rehab admin fees) into their mortgage to improve or upgrade the home before move-in or refinance repairs with some of the lowest rates available.

Thinking about energy efficiency items (EEM)? You can get an additional $8,000 for your energy efficiency improvements, bringing your total rehab dollars to $43,000 including contingency reserves. I might even be able to get you an extra $2000 if you wanted to insulate or caulk the home for additional energy efficiency.

This terrific home loan product helps homebuyers and homeowners quickly and easily tap into affordable mortgage money to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser during a foreclosure sale ("as is" sales are so popular these days).

Don't let an old roof, mold or missing plumbing or HVAC, damaged appliances or fixtures stop you from buying a home.

The current market offers a lot of attractive home purchase opportunities right now but many buyers do not have the required money to fix up these homes after purchase. The FHA 203ks is the perfect loan for this purpose.

I'm here to help you obtain this loan and structure the transaction properly. It should not be difficult and with my expertise, you'll be comfortable with the process of fixing up your dream home! Be detailed, give yourself an extra 30 days to close and we'll get it done together.

Below you'll find some important links that you'll need for the 203ks process. All you have to do is take a look and drop me a line for the remainder of the forms required for your contractor. I've done the ground work to organize them for you. Most of the forms are straightforward.

ALL FORMS NEED TO BE FAXED OR EMAILED DIRECTLY TO ME FOR REVIEW. I WILL FORWARD THEM TO THE UNDERWRITER AFTER REVIEWED.

Please make sure the property is prepped for the appraiser: utilities on and property cleared of debree.

Please call me if you need any assistance.

Overview about the program: http://www.203kspro.com/

Please use the following Excel Spreadsheet for contractors to submit all bids on: www.realestateloans.com/203ksbidform.xls

Borrower, Contractor, Lender agreements: Call me for updated forms (847) 873-7295.

Initial draw request for up to 50% of initial expense towards materials only. All contractors are paid the final draw when all work is completed in total by all contractors.  

Real estate agents, please write up your contracts as any other- you don't need any special addendums or forms. Please let the sellers know that this is a 203ks loan and will require an additional 30 days to close.   

Borrowers: please submit all of the above items at one time up front. Utilize a high quality licensed and insured contractor in order to complete the bids correctly and with detail. Any missing items will cause a delay for YOU. Work with high integrity professionals.

Thank you.

PLEASE SUBMIT ALL AGREEMENTS AND FORMS DIRECTLY TO GIL KERBASHIAN FOR INITIAL REVIEW

FHA FHA LOAN MORTGAGES MORTGAGE BROKERS MORTGAGE RATES REFINANCE
REFINANCING HOME LOANS MORTGAGE BROKER MORTGAGE REFINANCE MORTGAGE LOAN
INTEREST RATES HOME EQUITY LOANS  NEW HOME LOAN HOME LOAN RATES HOME MORTGAGE LOAN
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