With real estate being so competitive, may investors are
investigating real estate mortgages.
This short video explains the variables.. WATCH HERE
Real Estate Note Buyers and Seller Carry Consultants
With real estate being so competitive, may investors are
investigating real estate mortgages.
This short video explains the variables.. WATCH HERE
Pending home sales rose in December for the third straight month, providing further evidence that 2017 was a positive year for housing, but the National Association of Realtors doesn’t expect the good times to keep rolling.
Recent data from NAR, the Census Bureau and the Department of Housing and Urban Development showed that 2017 was the best year for new home sales and existing home sales in a decade.
Now, new data from NAR shows that pending home sales rose in December to the highest level since March 2017, but NAR is concerned that Republican-led tax reform will dent home sales in 2018.
According to a new report from NAR, which was released Wednesday, the Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.5% to 110.1 in December from an upwardly revised 109.6 in November.
That marks the third straight month that the index has increased.
But combine continually low housing inventory and the Republican tax plan, which President Donald Trump signed into law late last year, and you have a recipe for a slowdown, according to NAR Chief Economist Lawrence Yun.
“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018. Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now,” Yun said.
“Sadly, these positive indicators may not lead to a stronger sales pace,” Yun added. “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices – especially at the lower end of the market.”
According to NAR, there’s an “imbalance” of supply and demand, which has led to price increases of 5% or more for each of the last six years, but Yun expects that to slow this year.
Yun said that while tight inventories are still expected to put upward pressure on prices in most areas this year, he expects overall price growth to shrink, with some states even experiencing a decline, due to the negative effect the changes to the mortgage interest deduction and state and local deductions under the new tax law.
“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” Yun said. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.”
Three of the states where the tax bill’s changes to property tax deductions are expected to have a significant impact are already threatening to sue the government over the tax bill.
Last week, the governors of New York, New Jersey, and Connecticut said they plan to sue the government due to the Tax Cuts and Jobs Act’s elimination of certain state and local tax deductions.
The tax bill installs a cap of $10,000 on state and local tax deductions, but several states (including New York, New Jersey, and Connecticut) have state and local tax burdens that far exceed $10,000.
Yun said that he anticipates the changes to the SALT deduction rules to disproportionally impact certain segments of the housing market.
“Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas,” Yun said. “This could in turn lead to both a decrease in sales and home values.”
OIG report notes that Ginnie Mae made progress on oversight, but issues remain.
As readers of HousingWire are likely well aware, over the last few years, there’s been a shift in the mortgage business, with nonbanks significantly increasing their share of mortgage originations as the big banks dialed back in the wake of the financial crisis.
This shift was noted in a recent report from the Urban Institute, which showed that the nonbank origination share rose from 30% in 2013 to 60% in July 2017.
Over that same time period, Ginnie Mae experienced the largest shift, with its share of nonbank originations rising from 37% in 2013 to 75% this year. In 2011, nonbanks made up only 11% of Ginnie Mae’s originations. Ginnie Mae is the arm of the federal government that securitizes federally insured mortgages.
And, according to a new report from a government watchdog, Ginnie Mae was not prepared for the rise of nonbank mortgage lending and “did not adequately respond” to the changes in its lender base.
The report, published late last week by the Department of Housing and Urban Development Office of the Inspector General, states that over the last few years, Ginnie Mae “did not implement policies and procedures in a timely manner for its account executives to follow in managing issuers, did not develop a written default strategy, and did not assess and address the risks posed by nonbanks in a timely manner.”
The report notes that since the financial crisis, both the size and scope of Ginnie Mae’s business changed considerably.
As the chart below shows, the remaining principal balance of Ginnie Mae mortgage-backed securities has increased from $427.6 billion in 2007 to $1.7 trillion in 2016, an increase of 300%.
(Click to enlarge. Image courtesy of HUD-OIG)
While Ginnie Mae’s portfolio has tripled, the makeup of its business changed as well.
As the chart below shows, Ginnie Mae’s issuer base shifted dramatically over the last several years towards nonbanks.
(Click to enlarge. Image courtesy of HUD-OIG)
As the report notes, as of September 2016, six of Ginnie Mae’s top 10 issuers in its single-family MBS program were nonbanks. In 2011, only one of Ginnie Mae’s top 10 issuers was a nonbank.
In fact, Ginnie Mae never had nonbank issuers of this size, nor have nonbanks ever made up such a large portion of its issuer base.
The HUD-OIG report states that Ginnie Mae was not prepared for this shift and was forced to be reactive, rather than proactive, towards the shift in its business.
“This condition occurred because Ginnie Mae was not prepared for the rapid growth and shift in issuer base and its staff lacked the skills necessary to immediately respond to increased risks posed by these changes,” the HUD-OIG report states.
“As a result, Ginnie Mae may not identify problems with issuers in time to prevent default,” the report continues. “Additionally, it may not be able to properly service loans absorbed in a default and may require additional funds from the United States Treasury to pay investors in the event of a large issuer default.”
The OIG report states that in 2011, Ginnie Mae began reviewing its internal procedures but did not enact official changes until July of this year.
From the report:
In 2011, Ginnie Mae determined that its desk manual, which included its operating procedures, no longer reflected its current operation and stopped requiring its use. In late 2014, Ginnie Mae hired a contractor to review its current state. The contractor completed the review in 2015, and began working with Ginnie Mae to develop policies and procedures to replace the desk manual. Ginnie Mae began implementing the policies and procedures that resulted from this review in July 2017. Several account executives told us they did not have adequate policies and procedures to manage issuers. They said they learned how to perform tasks from one another.
The report also states that Ginnie Mae did not address the potential for defaults concentrated among several large originators that may rely on credit lines for funding, as opposed to depositories, which would theoretically have capital on hand to cover defaults if needed.
From the report:
Ginnie Mae did not develop a written default strategy, which included identifying, analyzing, and planning for all default scenarios and determining whether its staff and master subservicers had the capacity to default and absorb large issuers (issuer with more than 100,000 loans). Ginnie Mae operates with a small staff and relies heavily on contractors to perform its core responsibilities, including servicing loans absorbed from defaulted issuers. Ginnie Mae officials told us that they recognized the challenges Ginnie Mae faced and had ideas on how they would execute large or multiple-issuer defaults, but Ginnie Mae did not begin to implement a written strategy to address large issuers or all default scenarios until July 2017.
The OIG report lays out a series of recommendations for Ginnie Mae to enact to ensure the agency is properly overseeing nonbank originators, including:
It should be noted that Ginnie Mae’s Michael Drayne, senior vice president in the office of issuer and portfolio management, provided a response to the OIG’s report, as part of the published report itself.
In Drayne’s response, he states that Ginnie Mae responded appropriately and within its means to the changes in its business.
“The report asserts repeatedly that Ginnie Mae’s overall organizational response to the changing environment was not sufficiently timely, but nowhere is it explained how Ginnie Mae could reasonably have been expected to make substantial organizational changes more rapidly than it has been able to do, given the need to develop skills and procedures during the time merely to cope with day-to-day program management needs that did not previously exist,” Drayne writes in response.
“Our view, in fact, is that Ginnie Mae and OIPM staff in particular have displayed an unusual degree of vision, persistence and skill in re-organizing in the face of extraordinary change over a five-year period, without the occurrence of any significant lapses in the management of the MBS program,” Drayne add
If a person wants to become a homeowner but lacks the qualifications to qualify for a traditional mortgage, signing a land contract is another option for purchasing property.
A land contract is a written agreement between the seller of the property and a potential buyer. Instead of taking out a mortgage and making payments to a bank, the buyer makes payments to the seller. But the seller retains ownership of the property until the buyer pays the entire purchase price. The land contract is essentially a type of rent-to-own agreement.
People can use land contracts to buy or sell any type of property, including personal residences, commercial buildings and land. There are several common situations where a buyer and a seller might use a land contract instead of going through the conventional mortgage process:
A land contract provides quite a bit of leeway when it comes to the conditions of the sale. Some of the items that the buyer and seller have to agree on include:
Sellers may allow buyers to make regular payments on property over a certain period of time, or they can demand a balloon payment after a specified amount of time. For example, the contract might state that the buyer has to pay off the entire sale price within five years. During the five years, the buyer could take steps to improve his credit and secure approval for a conventional mortgage.
On average, it takes 65 days for a home to sell. If the seller doesn’t want to wait this long or fears that a bank may turn down a mortgage for the property, the seller can opt to sell it with a land contract. Lenders may not agree to a mortgage for a property that requires extensive repairs or doesn’t meet other criteria. The seller has the option of selling it through a land contract instead of making the improvements or repairs.
Real estate markets constantly fluctuate; in a down market, the seller can often get more money for the property by offering a land contract. Buyers are typically willing to pay a higher overall price in exchange for seller financing.
A land contract has disadvantages for both the buyer and the seller.
A buyer who purchases a home with a traditional mortgage accumulates equity as he makes payments. He also gets to take advantage of gains in the housing market that raise the value of the house. Should the buyer decide to sell the property before the mortgage is paid off, the buyer still gets to realize the equity in the home.
However, if the buyer uses a land contract and decides he doesn’t want to remain in the home, he has no equity, even though he has made payments, a down payment and the home has risen in value.
It’s important to note that the courts consider the buyer an equitable titleholder to the property. This means that the buyer has an interest in the property, which prevents the seller from completing any actions that disrupt the buyer’s potential claim to the property.
A seller in a land contract has to assume the risk of a mortgage lender. There’s always the possibility that the buyer may not make the agreed-upon monthly payments. This is one reason that buyers usually pay more for property bought with a land contract.
The seller can file a land contract forfeiture in court that basically evicts the buyer and terminates the buyer’s interest in the property, but this option takes time. However, the seller gets to keep all payments made by the buyer and retains ownership of the property.
The Consumer Financial Protection Bureau is likely to be reigned in if not rendered impotent or even abolished under President Trump. He has said he would come “close to dismantling” it along with Dodd-Frank. That is good news for small business, consumers, the economy in general — and note investors.
The CFPB is the brainchild of super-liberal Massachusetts Sen. Elizabeth “Pocahontas” Warren, who never met a business she doesn’t want to regulate.
“At stake is the agency’s aggressive approach to regulating credit and prepaid cards, mortgages, payday and student loans, debt collection, credit reporting and other areas of consumer finance since opening for business in 2011.”
WASHINGTON, Nov. 11, 2016 — Donald Trump has taken the first step to fulfill his campaign promise to “dismantle” Dodd-Frank and the Consumer Financial Protection Bureau. He is considering one of the leading critics of Dodd-Frank on Capitol Hill, Rep. Jeb Hensarling, as Treasury Secretary.
Mr. Hensarling last year laid out a blueprint for replacing Dodd-Frank that many observers view as a starting point. In an interview Thursday, he said the Trump team’s statement “is music to my ears,” and that he planned to make the bill, dubbed the Financial CHOICE Act, his top priority next year.
He said he had spoken with Mr. Trump’s team about the matter in the past, adding: “I think they like the thrust of the legislation and many major components of it.”
As for the prospect of him taking the Treasury slot, the Texas lawmaker said he would “certainly have the discussion” if the Trump administration comes calling, “but I’m not anticipating the telephone call.”
The transition team’s blueprint on the president-elect’s website states that the Trump team “will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”
The president-elect has tapped Paul Atkins, a former Republican member of the Securities and Exchange Commission and longtime Dodd-Frank critic, to recommend policies on financial regulation. An aide to Mr. Atkins, who heads a financial regulation consulting firm, referred requests for comment to the Trump transition team, which couldn’t be reached.
Mr. Hensarling’s bill is built around a trade-off: Banks can free themselves from various regulations, such as tough stress testing, as long as they maintain capital equal to at least 10% of total assets and high ratings from their regulator.
That would immediately help many small locally focused banks that tend to be better capitalized, but not necessarily megabanks with sprawling international operations that generally have capital levels below that level.
In the interview, Mr. Hensarling said he would try to convince Mr. Trump’s team to support his approach instead of their campaign-trail promise to reinstate the Depression-era Glass-Steagall law separating traditional lending from investment banking.
Mr. Hensarling’s bill also would make other significant changes, such as requiring that many financial regulations be subject to cost-benefit analysis for the first time and tying the budgets of regulatory agencies, including the CFPB, to congressional appropriations.
The CFPB has enjoyed a high level of independence by getting its funds from revenues insulated from the legislative process.
It is possible Senate Democrats could seek to block GOP efforts they view as overreach, but lobbyists and congressional aides are optimistic that some moderate Democrats up for re-election in 2018 in states that voted for Mr. Trump will be inclined to compromise. Republicans also may come under pressure to change the Senate rules to ease passage of controversial legislation, but it is far from clear they would make that move.
Our take:
The proposed Seller Finance Enhancement Act – HR 5301…, an amendment to the Dodd/Frank legistation is way over due
This bill rolls back some of the excessive regulations of Dodd/Frank by allowing Seller Financed transactions to expand from 3 in a rolling 12 month period to 24 in a year.
While this is not a massive change, it will provide significant relief for the vast number of real estate investors who choose to seller finance property.
Dave Franecki
Acquiring income producing property is one of the best ways to create wealth and achieve one’s long term financial objectives. However, at some point, many investors tire of managing their properties. If you are an absentee landlord, this may experience this soone r than later. Of course the natural question is…. if owning real estate is not as glamorous or as easy as is promoted, what else does one do to create wealth? The stock market? Well maybe not—this year’s average returns are roughly 2% with a lot of risk like playing in a casino.
For example two seasoned investor friends bought several lower price band rental properties in Birmingham, Chicago, Indianapolis and Milwaukee. They were convinced their target 20% cap rate was very a reasonable. Now after 2 years, multiple property managers, handymen, evictions, code violations, phantom tenants etc, they saw their very easy projected cap rate drop to more like 6-7%. The stress, worry and frustration really began to take their toll.
Friend #1, Jason, decided to just bail and sell. He is putting his money into group foster homes. If professionally operated he will generate a serious return and satisfy his passion-to help kids, get his wife out of work, not to mention the serious cash flow. Friend #2, Dan, has decided to sell his properties and be the bank with seller financing. He decided to turn all the tenant worries into mail box money. He doesn’t want a job, just the cash flow.
Dan and I discussed the variables. As a seasoned note guy and seller carry consultant I made several recommendations to Dan on how to structure the transactions. We discussed the pros and cons. How to structure the transaction– to make a long term play with minimal risk. I was able to utilize my years of real estate experience and note structuring basics to demonstrate to him how, if structured properly he could generate a safe and reliable 10%+ return on his investment. A quantifiable and predictable rate of return.
When structuring a seller carry back, Dan is taking a very proactive approach—focusing on six primary underwriting areas. While his goal is to quickly sell his rentals, above market pricing, he wants to mitigate risk and maximize his return and still keep his options open in the event he wants to sell his seller carry back note in the future and avoid a deep discount(haircut) on the note resale. He is not just selling to anyone with a pulse thus minimizing risk and no stress .
Dan is implementing the following underwriting criteria.
The net result is:
Buyer defaulted? Take it back and sell again.
When it is all said and done, which is better a rental or a note?
Seller financing is an under utilized tool and is here to stay.
Dave Franecki is the Fund Manager of Capstone Capital USA.
Capstone Capital USA focuses on acquiring Performing and Re-performing 1st position notes and structuring seller financed transactions.
07/11/2014
Housing pricing for Maricopa County is steady, but per new ASU research, the Phoenix real estate market may be on the edge of another shortage.
Conversely, single family home sales were down 20per cent from May 2013. This means if prices flatten, then if demand increases, prices could also increase.
Per Michael Orr, demand has been much weaker since July 2013. “The slight recovery in demand that had been developing over the last two months dissipated again in May,” Orr said. ” While move-up homeowners and second-home buyers are starting to compensate for the departure of investors who went to other areas of the country for better bargains, activity by first-time home buyers is still unusually slow.”
The multifamily market is up, construction permits are up and rental demand is strong. The supply of single family homes for rent are down to 32 days.
Cash buyers still are at 25 percent of market, while the normal range is only 7-12 days.
Bottom line, lending still has a long way to recover.
06/26/2014
Zombie properties, formerly referred to as shadow inventory, are still evident in the housing market landscape. A byproduct of the lengthy judicial state foreclosure timelines.
RealtyTrac examined both state and lending institutions with the most “zombie” properties. They further describe zombie properties as those where the foreclosure process was started, but not completed and the property is vacant.
Nationwide there are 141,406 properties in that box. Only 20% of foreclosures have been vacated by the homeowner before the foreclosure has been completed.
The numbers are down 16 percent from Q2 in 2013.
Many states are NOT seeing a drop in the number of zombie properties. Specifically, Mississippi, DC, Wyoming, New Jersey and Delaware. Florida accounts for 33percent followed by New York, New Jersey, Illinois and Hawaii.
Financial institutions holding the most paper are: Wells Fargo, Bank of America, Chase and US BankCorp.
06/11/2014
“Per Michael Orr of the Cromford Report, “Soft” has been the resounding theme of the Phoenix-area housing market throughout 2014.”
The slowdown is directly related to investors leaving the Phoenix market and how slowly the regular buyers have been to pick up the vacuum.
Metro Phoenix, with its staggeringly low prices and flood of foreclosures, was one of the first markets in the country to experience the investor buying spree, starting around 2011. Investor activity peaked in July 2012, making up almost 40 percent of all Valley home sales when the median single-family price was a mere $149,000, according to Arizona State University research.
That high investor demand — combined with the short supply of homes for sale, foreclosures abound and all-time-low mortgage interest rates for regular buyers — shoved the market into a frenzy as prices climbed steeply.
Investors left as the bargains wound down and regular buyers have been slow to make up for the loss of activity.
In April, single-family sales Valley wide were up about 9 percent from March but down 16 percent year-over-year, the report said.
“New home sales were down 12 percent from last year and because very few investors buy new homes, we can conclude that something significant has changed in buyers’ motivations,” said Michael Orr, the report’s author and the director of ASU’s Center for Real Estate Theory and Practice.
However, Orr said demand from regular buyers is more pent-up rather than nonexistent, and the solution remains mostly in the hands of lenders.
“It would not take a huge change for demand to perk up,” Orr said. “This could be: some more large lenders offer loans suitable for entry-level buyers with FICO scores of 620 and above; a greater degree of forgiveness by loan underwriters for people who went through foreclosure or short sale; 10 percent more millennial deciding to buy than rent.”
This all bodes well for seller financing. If a seller is willing to finance, it will open up a huge pool of buyers otherwise on the sideline.