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Freddie & Fanny

by The Barringer Team

The country’s two largest sources of mortgage money have a blunt warning for anyone thinking about joining the growing “walkway” trend, where homeowners stop making payments and months later send the house keys back to their lender: you will feel the pain.

In March, Fannie Mae sent out new guidelines to lend­ers intended for walkaways and other foreclosure situa­tions. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are “documented extenuating circum­stances.” In those cases, the mortgage prohibition is for three years.

Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.

Free Mac, Fannie’s rival, counts foreclosures as major credit blots for seven years, and a senior official said the company is now aggressively pursuing some walkaway borrowers “to preserve our deficiency rights” where permit­ted under state law.

The walkaway trend is particularly noteworthy in former housing boom markets — including California, Florida and Nevada—where many homeowners find themselves up­side down on their loans, owing tens of thousands more than the current market value of their houses. If they in­vested little or nothing in down payments, some owners reason, continuing to make payments —even if they can afford to — may be throwing good money after bad.

A number of websites have popped up claiming to cut the hassles of bailing out of a mortgage. One company promises that clients “will be able to live in the home for up to eight months with no mortgage payments,”  after paying $995 for a customized plan. The same site says it will pro­vide clients with “legal credit repair” to “improve your FICO scores.”

Another website claims that “your credit can be re­paired and (you will) be able to purchase a house in as few as two years”—after paying a $495 fee. Still another company says walkaways can expect “up to one year liv­ing payment free” as the lender goes about filing for fore­closure. That company charges $995 for its how-to-do-it kit.

 

Fair Isaac Corp. of Minneapolis, developer of the FICO scores used in mortgage transactions is unhappy at any suggestion that a foreclosure could be minimized or wiped away in a short period of time. Its scoring model counts foreclosure as a long-standing and severe events, nearly comparable with bankruptcy, with negative consequences for all forms of credit that walkaways might seek to obtain. That includes credit card applications, auto loans, student loans — and even insurance and employment.

FICO spokesman Craig Watts said that the impact of a foreclosure on an individual’s score depends heavily on the payment history, length and number of credit trade lines in a consumer’s file, but “It is always significant.”

Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview that “there are so many bad reasons for walking away” from a home loan. Not only are borrowers’ credit standings wrecked — forcing them into excessively high interest rates on any credit they can manage to obtain —but they also face other potential prob­lems including federal income tax liabilities.

Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of the principle debt eliminated to escape income tax liability for the amount forgiven. Walkways borrowers, by contract, have nothing forgiven and the IRS may de­mand income taxes on the balance they never paid, accord­ing to Migala.

When they apply for a loan from either Freddie Mac or Fannie Mae, she said, the standard application form asks whether they have ever experienced a foreclosure or handed over their deed in lieu of foreclosure. If applicants check “yes” the loan is immediately shifted to manual un­derwriting. Every piece of information is scrutinized by un­derwriters, who probe for the fact surrounding the loss of the house.

For borrowers who faced genuine financial hardships leading to foreclosures, underwriters are likely to be more sympathetic a few years down the road. But if you walk away, here’s the deal: Don’t expect to get a new home loan — certainly not one with favorable terms — for five to seven years.

That’s no matter what some promoter promised you online.

Kenneth Harney

San Francisco Chronicle Real Estate

kenharney@earthlink.net

Timing the Bottom of the Market

by The Barringer Team
Timing the Bottom of the Market
In just the past few weeks, we’ve seen a myriad of economic news that has had a tendency to keep real estate investors on the sidelines. We’ve seen continued gyrations in the stock and bond markets. We’ve seen a Federal Reserve that continues to chase the snowball downhill; one that will continue to cut rates in the weeks and months ahead because it waited too long to act in 2007. We’ve seen mortgage rates on
30-year-fixed-rate loans fall to 5.25%, spike to 6.25% and now fluctuate in the midrange. We see a falling dollar, rising inflation and soaring commodity prices. All this news has a way of keeping many real estate investors paralyzed on the sidelines, as they contemplate investing in this market. “How low will she go?” they ponder.
I am convinced that very few real estate investors, if any, will actually time the market just right and pick “the bottom,” although many are seemingly making a go of it. We have already seen billions upon billions of dollars lost in a market that everyone seemed to think would never stop rising. In the same way that no one saw the top, no one will know when or exactly what will cause the turn from our declining market to a sustained or rising market. One thing is for sure, it will happen and most likely in an unannounced and swift fashion. The markets will form a bottom and rise again. The motivation and flexibility that sellers afford buyers today will be long gone, and real estate will regain its good name as being the best long-term investment available in the U.S.A.
Real Estate Benefits
The benefits of owning real estate go way beyond appreciation; something many investors have forgotten today. The primary benefits (in addition to appreciation) include cash flow, equity build-up, and excellent tax benefits. These considerations should not be overlooked when investing for the long term in real estate. The appreciation will return positive; and buying now, at or near the bottom, is the best way to enhance that “appreciation” benefit.
Consider This
Rental demand is stronger than ever in most residential markets, pushing up rents approximately 4% per year. Vacancies are shrinking as poor credit is rising and lending guidelines are tightening, making it more difficult for borrowers to obtain financing. When you consider all these “investor” benefits, along with low interest rates and an overall price correction in the market, is any real estate investor a
fool not to be buying as much property as possible today? It’s a question one must think about seriously.
Although many, myself included, have been hurt to varying degrees by the turnaround in real estate values, it does not change the fact that today presents the most incredible buying opportunity for real estate we may ever see. There are “buys” out there that are simply incredible. They are Xtreme as I like
to call them; quite Xtreme!
Identifying Value
Here in my home state of California, we continue to find individual buys that are Xtreme., we have developed a unique software program that enables us to search and locate property and instantly determine the value for any given property. Value is different than price, and our program identifies that in seconds.
In the past few months,We have been involved in numerous multiple-offer situations. Yes, you read that correctly. We have represented numerous buyers and investors on their purchases in the past few months where we were NOT the only buyer trying to buy that property. Why? Because the property value was Xtreme; it was priced well under market value and was a great investment opportunity.
 
When property is priced well enough, it definitely draws attention—fast attention!  The buyer who finds and gets an offer in on that property first often gets the prize!
 
Obtaining the Deals
Structuring such an offer for our clients requires experience, timing, and attention to detail.  Relationships with other agents may also play a role in this intricate process and oftentimes contribute to the success of getting an offer accepted. Knowledge of dealing with banks and REO properties cssertainly plays a key role as well.  All of these factors are crucial in today’s market and something buyers and investors are seeking out in an agent who would represent them.
 
I invite you to be an investor and take advantage of this incredibly Xtreme buyer’s market.  These Xtreme properties will be snatched up quickly by someone.  The question is, will it be by you or someone else?
Bill Barringer
Real Estate Broker
The Barringer Team
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The Barringer Team
Century 21 M&M and Associates
912 W 11th Street
Tracy CA 95376
209-833-7777
800-984-7282
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