Georgia FHA Home Loans - (& Opinion)

In recent months I have seen a large number of property assemblages listed by agents from "the big names" in the business as well as some local players. As an investor I may look at this differently than the average person but obviously assemblages are meant for buyers like me and not homeowners.

Interestingly not one assemblage has sold since I started tracking. I have, however, funded deals for investors who went out and did their own assemblage sans professional representation. These investors were able to purchase quite well below market average in two cases and slightly above market average on a smaller assemblage with a lot of road frontage.

What are your experiences with assemblages? Do they give a distinct advantage to anyone other than the agent(s) who stands to make a much larger commission because of the increased sale value? That is NOT, by the way, a dig on agents - hey, it makes larger loan amounts for the lender as well!

Is there a wrong way to put together an assemblage? 

I do know that I'm one of the few conventional lenders in Georgia and Florida who can put together a 100% financing deal on assemblies so that has to be somewhat of a disadvantage by taking out all but the more successful investors/developers. 

I can mark my calendar. In fact, I can almost set my watch. Every time there is a big investor seminar or other function here in Atlanta I'm going to get the phone calls. Dozens of new investors wanting to use an FHA 203k loan to acquire an investment property.

Let me cut straight to the point: Investors cannot use the FHA 203k loan to acquire and rehab investment properties UNLESS they intend to occupy the property for at least one year ... preferrably two ... or they are a government or non-profit agency.

The FHA 203k will not work for non-owner occupied properties to individuals investing for profit.

Furthermore the rates aren't that great, it's more difficult to meet the qualifications on income, assets and debt-to-income ratio, and you don't have as many options in terms as you would with a conventional rehab mortgage solution.

Effective in October of 1998 the FHA ceased allowing the 203k to be used for non-owner occupied investment properties. Obviously if you're acquiring a duplex, triplex or quadruplex, those are investment properties. The stipulation is that you must live in the property.

Several conventional lenders, including Novation Mortgage, offer better solutions, easier qualifications and more term options for owner occupied properties than you will find from an FHA insured loan program. (Remember, FHA does not make loans. You still borrow from a lender but the FHA insures a portion of the loan repayment to the lender.)

Simply put if you are looking to buy an investment property for rehab to add to your profitting portfolio you're going to need another type of rehab loan. There are many solutions available and several allow you to close with nothing out of pocket and cover the cost of the rehab. All you'll need to do is make payments on the acquisition amount and the draw down. Some select solutions even allow qualified borrowers to finance those payments back into the loan during the draw period.

Interested in learning more about investment subjects like this one? Send me your email address and I'll make certain you are included in our occassional mailing list and invited to our live seminars and webinars. 

This madness must stop. Federally chartered banks, as you may or may not know, are just one of the entities not required to hold state licensing to make loans. Lenders and brokers are and they are held to high standards and constantly under the "threat" of losing their license ... or worse ... even if one rotten apple makes a mistake. 

Federally chartered banks? Nope. Not subject to state laws. In fact, in Georgia, they don't even have to abide by the "Fair Lending Act" but lenders and brokers do. So do you think you get a better deal from a Fed bank? No way! These guys can rake you across the coals and nobody can do anything about it.

According to a report filed by Patrick Crowley of MortgageDaily.com, "A spinoff of the American Express Co. [Ameriprise Bank FSB] has launched a federal savings bank that is jumping into the mortgage business. But instead of loan originators, borrowers will be dealing with financial advisors who are exempt from licensing."

Deregulation is one thing. Unregulation in a highly regulated industry is unacceptable. 

No - this isn't "directly" related to real estate but it is related and timely. If you've read my blogs you know I avoid postings like this. However, it's time to do something about this situation. I received this email today from a relative in Alaska who received it from somewhere else. If you authored it, great job!

At first I thought this was  funny...then I realized the awful truth of it.

Tax his land, tax his bed, tax the  table at which he's fed. Tax his tractor, tax his  mule, teach him taxes are the rule. Tax his cow, tax his  goat, tax his pants, tax his coat. Tax his ties, tax his  shirt, tax his work, tax his dirt.

Tax his tobacco, tax  his drink, tax him if he tries to think. Tax his  cigars, tax his beers, if he cries, then
Tax his  tears. Tax his car, tax his gas, aind other ways to tax  his ass.

Tax all he has then let him know that you won't be  done till he has no dough. When he screams and hollers, then tax him some more, tax him till he's good and  sore.

Then tax his coffin, tax his grave, tax the sod  in which he's laid. Put these words upon his tomb, "Taxes  drove me to my doom..." When he's gone, do not relax, its  time to apply the inheritance tax.

Accounts Receivable Tax, Building Permit Tax, CDL license Tax, Cigarette Tax, Corporate Income Tax, Dog License Tax, Federal Income Tax, Federal Unemployment Tax (FUTA), Fishing License Tax, Food  License Tax, Fuel permit tax, Gasoline Tax (42 cents per  gallon), Hunting License Tax, Inheritance Tax, Interest expense, Inventory tax, IRS Interest Charges IRS Penalties (tax on top of  tax), Liquor Tax, Luxury Taxes, Marriage License Tax, Medicare  Tax, Property Tax, Real Estate Tax, Service charge taxes, Social  Security Tax, Road usage taxes, Sales Tax, Recreational Vehicle  Tax, School Tax, State Income Tax, State Unemployment Tax  (SUTA), Telephone federal excise tax, Telephone federal universal  service fee tax, Telephone federal, state and local surcharge  taxes, Telephone minimum usage surcharge tax, Telephone recurring and  non-recurring charges tax, Telephone state and local tax, Telephone  usage charge tax, Utility Taxes, Vehicle License Registration  Tax, Vehicle Sales Tax, Watercraft registration Tax, Well Permit  Tax, Workers Compensation Tax

COMMENTS: Not one of these taxes  existed 100 years ago and our nation was the most prosperous in the  world. We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.

What  happened?

And now I have to "press 1" for  English.

--

Really. With this election season upon us let's PLEASE consider how heavily taxed we are. Let's not compare ourselves to other nations for none are as great and powerful as we could be. Let's send a message to Washington: we are tired of being overburdened by social programs that do not repair laziness, government employment regulations making it difficult or even impossible to discipline and terminate workers who do not meet expectations, use taxes which hold back the economy from free market explosions because you and I have worked hard enough, long enough to be able to deserve to relax and enjoy our nation without being hindered by heavy taxes. Tell prospective leaders, "We have had ENOUGH of your tax and spend economics and the transfer of wealth under penalty of law. We work hard and take the risk so others can have a better life? NO MORE!!!"

Vote for FAIR TAX CANDIDATES and vote to TRASH the Social Security Program in favor of a PRIVATE solution and let WalMart handle it! And let's vote to REQUIRE welfare recipients to (a) be citizens of the United States and (b) to WORK for their PAY in programs similar to the CCC of the early to mid 20th century.

I'm still miffed over that comment in the September 11th cover article in Business Week entitled "Nightmare Mortgages" which said, "Banks tapped an army of unregulated mortgage brokers to do what needed to be done to keep the money flowing, even if it meant putting dangerous loans in the hands of people who couldn't handle or didn't understand the risk."

Unregulated? You've got to be kidding me! On which planet are mortgage brokers unregulated? Furthermore brokers aren't lenders and lenders are very much more regulated. I will admit that I don't agree, at ALL, with the viewpoints shared in the article about the Payment Option ARM loan solution because it blames the loan and the lender ... not the borrower. Agreed there are unscrupulous loan originators but their broker and the lender are ultimately responsible for their actions even if not directly. And you had better believe there is not one unregulated lender in this nation making loans on primary residences. 

I'll tell you who is unregulated. Reporters, journalists and writers. That's who is unregulated. They can write anything they want and then claim "freedom of the press". Just becuase you read it in a national publication does not give any indication that the information contained therein is accurate. 

The truth is mortgage brokers are the best place to go for a loan and if you're not in the industry you may not have heard of the report "[The] study found the APR (annual percentage rate) on broker-originated first mortgages were 1.13 percentage points less than loans originated by lenders, and 1.98 percentage points lower on second mortgages." http://RealtyTimes.com

And by the way, I constantly push for the requirement for all loan officers, mortgage originators, whatever you want to call the person who accepts the application and suggests the loan product to the borrower, to be regulated (licensed, bonded, continually educated, etc.) in every state. 

Oh the interestingness of real estate investing. This morning I received the preliminary site report. Just a bit more than I anticipated - by about $30,000. I had estimated $20,000 in site work but the estimates came in closer to $50,000 so I did what any investor would do.

Withdrew my offer of $60,000 for both lots.

Then re-offered $30,000 for both.

The issue wasn't just needing to pipe the storm drainage through the property and cover it with loads and loads of dirt as I had hoped but we will have to pipe the storm drainage so that it will bypass the properties then enter a large, fenced retention area which will have to be maintained.

The fortunate condition is that there is plenty of room on the larger lot for the retention pond and that will put the liability for care on one owner, not both, which would have required a miniature HOA for those two little low priced homes! 

That's really all there is to add today. This is the slow part.

More Rockin Hills for the interested investor or the bored reader. 

Who would have thought? The Business Week cover article sought to hurl stones at the mortgage lending and brokering industry and the innocent, intangeable Pay Option ARM. Innocent as in motorcycles don't speed, BMW's and Lexus' don't weave in and out of traffic or make illegal (no signal) turns, SUV's don't run over pedestrians, and guns don't shoot people.

Maybe it did get negative but I've always heard that bad publicity is better than no publicity and let me tell you about all the questions I have answered regarding the POA this week! I couldn't have mounted a massive, guerilla marketing campaign and had more returns. Thank you BW! 

If you read my blog Payment Option ARM's There Is A Good Side last week you'll know my feelings. Likewise you may have also read Ken Stampe's Payment Option ARM - Suicide in a Mortgage Loan which is a look at this powerful mortgage option more designed to instill fear and question into the mind of the reader. Nicely written, however! Then there is my short post on Ralph Robert's FlippingFrenzy.com.

Today I received an update through one of the assocations of which I am a member and it contained an interesting read. As an update to these blogs I'm sure you'll enjoy Harry Dinham's letter to Business Week scolding them for their completely erroneous statistics and for lashing out blindly at the trillion dollar mortgage broker industry.

By the way, if you are a mortgage broker, banker or lender and you are not a member of the National Association of Mortgage Brokers or the Mortgage Banker's Association I strongly recommend you join and get certified. If you're a client or referring clients to mortgage brokers, lenders or bankers I strongly recommend that you use a member company or individual because of their strict guidelines on professionalism and ethics and their powerful certification and continuing education programs.

NAMB Responds to BusinessWeek Article

In case you don't know this is my new diary called Rockin Hills. Yes, you get to follow me along through this oddessy called Real Estate Investing. I wouldn't dare log everything I've done or do in real estate investing but this oneshould teach us all a lesson. Hey, you watch it on TV for30 minutes and now you get to live each day with all of it's pain and joy!

It's 4:40PM here and a nice weather day. I went out to Rockin Hills to walk the construction site and discovered it to be the perfect challenge: Buildable but not without a little more than normal site work. Site work is exactly what it sounds like it should be - getting the site ready for the construction. 

Site work includes removing selected trees, controlling water run-off and drainage, removing or bringing in soil (dirt here in the south), constructing any retaining walls, etc. This one needs site work! There are 2 plots side by side. Road frontage is 151.5' (The single apostrophe ' means FEET and a double apostrophe " means INCHES). Road frontage is simply how much of the property is bordered by a road or street.

The back side of the property is 260' wide and they share a 150' line down the center with each outside boundary being approximately 159' in depth. If you ever buy raw land you'll need to know how to tell these things. Lot 13 is several hundred square feet larger than lot 12 but needs more site work in order to be buildable.

The elevation drop from the street center to the front boundary is less than 2'. The elevation drop from the street center to the center of lot 13 is approximately 16'. That's quite a drop. Most 2 story homes are 16' from the foundation to the eaves. That means all you would be able to see of this house if it were constructed at the front setback line would be the roof and the chimneys!

We have three basic choices that we are considering for positioning the house box on the build site:

(1) Building on a full basement on top of an 8' dirt fill sloping to the center of the property or held by a retaining wall.

(2) Moving the house box to the back of the build site and building on the level ground which would require appoximately 80' of driveway.

(3) Building on a full basement at the rear of the build site and filling the entire build site with 10' of dirt or roughly 7000 cubic yards. About 470 dump truck loads ... not going to happen! That would be about $80,000 worth of dirt alone.

As of today I'm leaning toward option one which would require about 50 dump trucks of dirt and a retaining wall.  Either way, if we go forward with the project, it's going to be a challenge!

My AD&C loan (aquisition, development and construction) is already approved up to $400,000. Nothing out of pocket to acquire the land or handle the construction. Closing costs rolled back in and prime plus one on the drawdowns. 

What are the goals?

To construct two homes with complete costs being under $320,000 and to net, walk away after taxes with, $60,000. This, too, will be a challenge! These are infill homes in a subdivision completed in 1964. High sales in the subdivision are $150,000 for a 3/2 built in 1964 with 980 square feet.

We're building a 3/2 roughly 1450 square feet heated plus a 2 car garage and large porch and pricing them at $219,000

Follow along if you dare! This is real estate investment at it's finest. 

Now it's very early on the morning of 9/11 and I have many things on my mind. Something that would be on my mind if this were not such a memorable date would be educating the general population in an area that brings me great joy: real estate investing.

So here it is. Day one of a new project.

On these two lots I will be building two properties with the intention of providing housing for lower income families and still make a profit. In my county there are hundreds of new homes available in the 500k to 1m range, which is fairly high for this area of greater Atlanta, but I want to build two homes for buyers who could never qualify for that type of property but who still need certain amenities.

My goal for this diary is to let new investors see what can happen during a project of this scope. It is to serve more as an educational blog series than a commentary. However, having "hoed this row" in the past I can almost guarantee some very entertaining reading as we go along.

I'll provide photographic documentation where possible and even scans of pertinent documents when available and applicable. I've been here before and expect many diverse situations as we blog through the next few months.

Since my Active Rain blog is entitled Real Estate Investing I want to share my postings with those of you who have never experienced turning raw land into comfortable housing. If you have any questions about the project as it goes along, PLEASE ask here in the blog so we may all learn together.

Later, when I'm not in such a somber mood as at the present from seeing the flag already flying at half staff I'll post my projections for the plan, why I chose the location, and my predictions for the project so we can all track together.

All blog posts about this subject will begin with either Rockin Hills or RH followed by some other particular title or simply the date. 

In the mean time, remember this date and what happened. Furthermore be honest about who the enemy is and why they are fighting.

Peace.
Ken

It's wonderful to be in the position to site around both campfires. I mean be in on meetings for both loan originators and real estate agents. There is a good deal of enlightenment from this opportunity.

One thing that never ceases to amaze me is the lack of realization that this is much more a 50/50 team work opportunity than either "side" would like to concede. At times agents feel that the loan originator just takes the application and says "yes" or "no" failing to have the slightest bit of understanding that the loan originator may spend as many as 10 hours or more just looking for the right home for a specific borrower. Obviously the better qualified the borrower AND property the less investment of time needed.

Most folks don't realize that on the lender side as many as 8 or more people will spend several hours each getting the file to closing.

Likewise there are times when loan originators have no clue that the real estate agent spent $37 in gas, two lunches, 1 missed child's sporting event and more just to find the right property for the borrower AFTER they spent 4 hours digging through listings and talking to seller's reps about the properties.

WE ALL WORK HARD

I recently wrote that we all see the world from our own perspective. In teamwork we must forego our shortsightedness and see the world through our teammate’s eyes. It doesn’t matter that the last loan originator you worked with was a terrible service provider or that the last agent with whom you shared a client was an overbearing dictator. That doesn’t mean the next one is.

I’ve heard it, you’ve heard it, we joke about it. “Well I’ve been doing this for ______ years and I NEVER ... “ or “Well MY lender would … “ . Agents if you want to alienate a loan professional that’s the best way to do it. I’ve also heard “Well, I’m the lender’s rep and without me you’re not getting this deal closed.”

NOBODY GETS PAID

Come on people. We’re all under stress. Nobody gets paid until the docs are signed and the mortgage is funded. Period. Agents aren’t allowed, by federal law, to have the specifics of the borrower’s finances. Sometimes they’re pretty bad and the loan originator has to take it to the wire to get the deal closed.

Originators have no idea what ridiculous demands the buyer is placing on the agent. Maybe the agent spent 100 hours showing homes before they got an offer accepted. The originator doesn’t know this.

Where everyone can work together is by opening their eyes and closing their mouths to listen to their deal partner and work together to achieve a SMOOTH closing. This industry can be stressful enough without having two sides of the table when it comes to the agent and the mortgage professional.

WE ALL LIKE TO THINK WE’RE IN CHARGE

In our industry there is a great excess of ego. Firstly we all have to be great sales people otherwise we’re not going to last very long. One way to achieve a great level of sales performance is by looking good to prospects. Here’s how this recently backfired.

A client of a mortgage company who had been working with that mortgage company for several months decided to use a new agent as a buyer’s representative at the recommendation of a friend. The buyer uses a specific type of real estate investment loan and looks for a specific type of real estate investment property for which that loan can be used.

The agent presented dozens, maybe hundreds of properties to the client none of which matched his specific requirements. The agent decided to take matters into her own hands and call the loan originator and get some things straight. Her opening statement was “Why are you blocking my client from bidding on these properties?”

It actually would have been a good question had it any validity. The originator asked for clarification and the agent provided it by explaining how many properties she had presented and how many hours she had wasted looking for properties that meet the buyer’s criteria. Then she threw the spear: “We’ll just use MY lender because MY lender can get these deals closed.”

YOU COULD NOT HAVE HEARD A PIN DROP

We call it The Screamer Factor. I heard the shouting through the walls. “YOUR lender? Do you own a mortgage company? Did you approve this client for the loan HE asked for?”

Shhhhh. I say that sometimes. Put them on hold and tell me the story.

I got an earful. My response wasn’t what the originator wanted. “Be the professional. You’re response is based on anger and feeling threatened. Once you feel threatened you’ve lost hope for a peaceful resolution between team mates. Quiet education is the path to success.”

They were seeing the situation from their own little world. In the end the buyer decided to take a break from looking for properties and hasn’t done anything since. Who lost?

NEW DAILY SCHEDULE

HTTP://JUSTIN.TV/REIBROKER

Topics include the real estate market in general, interest rates, short sales, declining markets, buyer trends and much more!

Hopefully I'll see each of you there and I want to get around to each of you as a guest speaker as soon as we get the bugs ironed out.

(You'll have to follow one more link from that site for now. Hope to have that cured very soon!)