EMINENT DOMAIN TO HELP THE HOUSING MARKET!
The Wall Street Journal recently published an article that sounds more like science fiction than financial reporting. It actually comes under the category of truth being stranger than fiction.
Apparently two cities in San Bernardino County, Ontario and Fontana, want to invoke eminent domain (the power of the government to seize private property without the owner’s consent for the purposes of a public good, i.e. to build highways or public buildings…) to restructure mortgages and improve local housing market problems.
The goal is to help homeowners, who are “upside down” on their home investment–but still current with their payments–to keep their homes. Qualified homeowners would end up with a smaller mortgage obligation and a smaller monthly payment. The result would also stem the erosion of the property tax revenue for the communities involved and help stabilize home prices.
Their plan is to acquire the “underwater” loans from the current investors, reduce the principals to match current market values and create new mortgage loans that they will sell to new investors. The plan sounds great from the homeowner’s standpoint and we applaud the goal.
Through this process, the current investors would get paid pennies on the dollar and the new investors would hold investments to be paid by homeowners who have proven that they will honor their financial commitments, even under adverse conditions: a rapidly shrinking segment of the population.
Our question is what happens to those investors who own the original mortgage loans? Those loans are legal obligations to which the homeowners agreed when they purchased their homes. For over two hundred years in this country, the homeowner has assumed market risk when they purchase their home. When a home value appreciates, and the owner sells, they are not required to share their capital gain with their lender.
Although we commiserate with homeowners who are “upside down” on their home investment, we cannot agree with asking the lender to accept the market loss through eminent domain action. The fact is that every approved short sale is an agreement with the investor accepting that market loss. That short sale process allows the owner of the loan to accept or reject the short sale and the associated loss. They would have no say if eminent domain were invoked.
We shudder to think what impact such an action would have on the mortgage market. Investors do not like uncertainty. Moreover, the resulting interest rates would undoubtedly skyrocket.
As you might expect, this concept is the brainchild of one of the high-flying venture capitalists, who see a way to make a fortune at the expense of others. Those who are politically connected would be the ones funding and selling the new, lower dollar loans.
Of course, anything is possible. As Will Rodgers once said, “We have the best congress money can buy.” It looks like little has changed since he said it.
WHEN IS IT TIME TO REFINANCE AGAIN
Freddie Mac’s weekly mortgage rate survey reveals that the average interest rate on a 30-year fixed rate mortgage was 3.84%, down from 3.88% the previous week. Last year at this time, the rate was 4.71%.
Much depends on the individual borrower’s situation. Naturally, you must have the income to qualify for a new loan and you must be able to verify that income to the lender’s satisfaction. You must also have sufficient equity in your home to meet the lender’s guidelines. Most conventional loans limit the loan amount to 75% of the home’s present market value.
Note one exception is the HARP-2 loan program that will allow specific homeowners to borrow up to 125% of the current market value of their home. The guidelines limit those who may qualify to a small number of homeowners.
One important question to ask is, exactly how long do I plan on living in my present home? If you plan to sell in a year or two, a refinance is not likely to pencil out. It will take some time to recover the costs associated with a refinance.
Another factor in the equation will be your present interest rate. Those paying six or seven percent will have greater financial motivation than those who just refinanced last year at less than five percent. The delta (difference) between your present monthly payment and the proposed refinance payment will determine how much or how little you may save and how long it will take to recover refinance costs.
The formula is simple. Determine the proposed monthly payment on your new loan see how much lower it will be than your present payment. Divide that number into the cost of your refinance and you will have the payback period. Therefore, if your current payment is $ 1700 per month and the proposed payment will be $ 1600, the delta is $100.
If the refinance will cost you $ 3000, your payback period will be 30 months, or five years. The savings after that five- year period are your gain for the refinance.
It will probably be more difficult to learn what your refinance costs will be than anything else in this exercise. Find a local loan consultant with whom you feel comfortable dealing and enlist their assistance. They will have to know about your financial situation in order to give you accurate information.
It may be time to refinance your El Dorado Hills real estate!
WILL BofA’s FORECLOSURE RENTAL PROGRAM HIT CALIFORNIA?
Bank of America recently announced an innovative new program to deal with their “toxic assets.” Since BofA is one of the largest mortgage loan servicers in the country they have been forced to deal with millions of “non-producing assets” (loans that were not being paid by distressed homeowners). BofA was one of the five loan servicers that came to an agreement with government to pay $25 BILLION dollars because of the way that they were handling, or mishandling, foreclosures.
Through this new program, they will select a total of 1000 homeowners in Nevada, Arizona and New York who meet their program criteria. BofA will work out a Deed in Lieu program with those homeowners (accept the deed to the property in exchange for forgiving the borrowers existing mortgage balance) and allow those homeowners to remain in the home as renters.
They are trying to work out a win/win situation where they minimize investor’s losses and the distressed homeowner avoids foreclosure. Of course, the program guidelines are very narrow. It will take considerable effort to identify 1000 homeowners who qualify and who are willing to participate.
The goal is to set the rental payment at market rates, which will be lower than the homeowner’s former loan payment. The program will last for three years. During that time, the homeowner can work on repairing their credit so they could be eligible for a home purchase and mortgage loan.
The program will only accept homeowners who have no junior liens (second mortgages, liens for HOA dues in arrears, mechanics’ liens…etc.) eliminating a majority of distressed homeowners. Borrowers can no apply for this program. BofA will select the candidates who meet the criteria.
If BofA management considers the program successful there is no doubt that, they will expand it, possibly into California, Florida and other states with large numbers of pending foreclosures. Other loan servicers will also be watching closely and we may see variations of this program offered by those servicers.
Select this link to see the complete story from UT San Diego:
If you know someone who is facing foreclosure and is a loss about what they should do, have them contact us at (916) 337-0658 or e-mail Mike@BuyYourVilla.com. We are here to help.
THE FIVE THINGS YOU MUST KNOW ABOUT BUYING RAW LAND
The housing market, like all markets, is cyclical. Although there have been a few bumps in the road over the past few years, the cycles have climbed to red-hot levels and dropped the ice cold depths, we know that it will eventually return to neutral. The American dream is still alive and well and will be so into the foreseeable future. The epitome of that American dream is to buy parcel of raw land, select the exact spot on that parcel to place their home, choose the floor plan that best meets their desires and make the hundreds of decisions that will turn that dream into reality. Unfortunately, not everyone can live this dream.
For those who do pursue the dream, the first step is to select and purchase the parcel of land. Buying raw land is not the same as buying an existing home. A buyer should consider many more factors to ensure the desirable outcome. In this post, we will discuss five factors that any buyer considering a land purchase should know about. Forewarned is forearmed. Making an informed purchase decision will smooth the road to your goal and eliminate many headaches and expensive problems.
Many buyers may not be aware of the fact that a significant number of land parcels on the market today are land locked. Access to them is available only by trespassing on a neighbor’s property or by helicopter. Although it may be possible to obtain an easement from a neighbor, that neighbor is likely to charge for the privilege. Many neighbors have no wish to grant an easement and do not have to do so. Even if you obtain an easement, you will also have to incur the cost of putting in a road and meeting that property owner’s requirement, whatever they may be. Selecting a property to which access is easily available illuminates these headaches. Most of these roads are dirt and can be in poor condition. Some require four-wheel-drive for passage. Parcels with paved road access are rare and usually price a little higher. However, in the long run the real cost is much lower.
Potable water is essential no matter the size of the home. Parcels with access to local utility water are rare and usually much smaller and closer to towns. The most practical alternative is a well. Some properties on the market have existing wells, most do not. Putting in a well can be a speculative process. When you start drilling, you never know for sure if you’re going to hit water. There is also the cost of drilling a well. The deeper you have to go to drill the higher the expense. It can easily cost $5,000-$10,000 to drill the well. In addition, when you do hit water there is no guarantee that well productivity will be sufficient. Obviously, the safest bet is to purchase a property with an existing tested well that produces an acceptable level of supply.
Electrical power is another essential ingredient in the equation. Although solar alternatives are becoming more viable, connection with the grid is the safest, tried and true, solution. PG&E, like any other utility, charges to bring in power to your building site from the closest access. The closer that access, the lower the costs. There is also a consideration about putting the power lines underground or on poles overhead. Finding a parcel with power at your desired building site is ideal. It is also extremely rare. Finding a parcel with power access at the property line is your second best choice. That is not the usual case with most parcels on the market but they do exist. It is far more common for most parcels to have power 200 to 500 feet, or more, from your desired building site. Bringing power in on those parcels can be very expensive.
SEPTIC – PERCOLATION TEST
No County will issue a building permit unless the applicant can produce a Perk Test report indicating that the soils at the selected location will absorb and filter waste materials. If the property passed a perk test, that assures the owner that the septic system they install will function properly. A good buyers agent will include a clause in the purchase offer document stipulating that the buyer can cancel the agreement of the property does not pass the perk test.
Land parcels with access to local sewer systems are rare indeed. A vast majority of properties will require a septic system and passing a perk test is essential. A few properties on the market have already passed the perk test and the listing agents are usually happy to provide a copy of the test report.
Financing the purchase of raw land is very different from financing the purchase of an existing home. There is no such thing as a 30-year fixed-rate mortgage for land. The majority of land sellers will accept only cash offers. There are rare occasions where a seller will finance a portion of the purchase for short term (one to two years). Most will require 30% to 50% down. The third financing alternative is the hard moneylender. Some will finance the purchase with as little as 20% to 25% down for a period of two to three years. However, their rates and fees are much higher than you will find when financing an existing home.
For those who qualify, there are construction loans available where the lender makes payments for each phase of construction. For example, they fund for the foundation, inspect the completed work and then fund for the framing. Inspections are made after each phase prior to founding the next. When construction is complete, the loan converts to a standard home mortgage loan. In almost all cases, construction must be completed within 12 months.
Finally, prudence dictates that prospective buyers consult the local County building Department to ascertain the costs for permits and fees. Much will depend on the location of the parcel selected in the size of the home you wish to build. It is always a good idea to have a ballpark estimate of your total costs before pursuing your dream.
Feel free to contact us, at 916-337-0658 or e-mail Mike@BuyYourVilla.com, if you have any questions or wish more information about a parcel in which you have an interest. Our goal is to help buyers successfully navigate this process and make their dream a reality.
CAN I GET A LOAN AFTER FORECLOSURE?
More than four million homes have been lost to foreclosure since the housing market started its decline. Unfortunately, experts expect many more in the coming years.
When the decline started most of us were not prepared, especially the banks. Mistakes were made and many people were hurt. Sadly, other than filing for bankruptcy protection, nothing wrecks a borrower’s chances of qualifying for a home loan like a foreclosure.
Fortunately, those distressed homeowners who obtained an approved short sale will fare much better.
Lender’s loan guidelines forbid most lenders from making loans to borrowers with a bankruptcy or foreclosure on their credit record from between two and seven years. Naturally, the circumstances for each foreclosure are different. Those circumstances will affect the borrower’s eligibility accordingly. Those who were able to maintain, or regain their income levels to the point of remaining current with payments for all obligations other than the mortgage will qualify sooner than will borrowers who were unable to make any of their payments. Employment history is also an important factor. The longer a borrower is employed at one company, on in the same line of work, the better. A two-year, uninterrupted employment period, is an absolute minimum.
Do not expect to qualify for the most competitive interest rates. Lenders will consider your loan a higher risk and will want a higher yield on their investment to compensate.
The selection of a lender for the new loan will also influence the required wait time. Government-backed loan programs require a borrower to wait a minimum of three years before loan approval. Some portfolio lenders, lenders who do not sell their loans and service them for the duration of the loan, can have shorter wait-time requirements.
The best course of action is to select a loan consultant with whom they feel comfortable dealing, explain the specifics of their situation, and allow their consultant to try to find a lender who will approve and fund a loan. You may learn that you have to wait a little longer. If so, you can use the time to improve your credit record and put some cash aside for the down payment and closing costs. Although waiting may not be something you want to do, you may end up better off as a result.
Select this link for a Mercury News article on this subject:
If you would like your specific situation with a licensed Mortgage Loan Originator in confidence, contact us at (916) 337-0658 or e-mail: Mike@BuyYourVilla.com