Georgia FHA Home Loans - (& Opinion)

Let me begin by saying the majority of our owner-occupied lending is conforming purchase funding. We do some refinancing and some non-conforming but the majority of our business is builder, agent or investor referrals for new or previously owned acquisition. Let me also say that I know geography and business model also dictate how you are impacted by market changes like many have recently experienced.

I will begin with the more negative side and end with the truth of the matter about the very near future. For the last few weeks our phone call and application volume has been down about 45% - this only makes sense one way but first let me say why it does not make sense any other way.

Call volume going down means people think they are not going to qualify to purchase a new home.

Application volume going down means people are afraid to try and qualify.

We all know what just happened in the lending industry. The "crazy" loans just evaporated. Unfortunately there was also some collateral damage. That damage included some decent loan programs which would have allowed some marginal or limited credit but good income borrowers to acquire a home with little or nothing down at decent interest rates and closing costs. However, it goes beyond that.

Thanks to the media. (Here Ken goes again, thrashing the media!)

Another casualty is a greater portion of the housing market which in turn leads to the economy overall. It is like a nasty chain reaction accident on a foggy interstate. Just when you think the carnage has ended another group of vehicles enters the fog at full speed and does more damage. No, I am not predicting doom and gloom, I will leave that the New York Times and CNN - they do a fantastic job. They will weary of the shooting tragedy, how sad and horrible, and turn their site back on your industry soon enough.

What the media reported and wanted the public to hear is, "Foreclosures up 400% because of the terrible, horrible sub-prime lenders. Left wing groups demand action against these evil capitalists!" And, for the most part, that is what the public did hear.  The public, I remind you, who lavished in the non-conforming loans basking in their low starter rates, their massively overvalued cash-out-refinancing and their exotic hybrid loans concerning which they did not even ask question one beyond, "How much are the monthlies?" 

For the new readers I will restate my previous explanation of 100%. For example, in 2005 there were 1 out of 2000 homes which were sent a Notice of Default. In 2006 that number went up 400%. So now, how many homes were sent a notice of default? That is right, 2 out of every 1000. That, my friends, is 400%.

So the media has won round one. Liberal action groups will probably get Congress to waste some time on ridiculous new legislation that will further cripple the housing industry and economy but will likely never be passed but will still cost you and I billions of dollars in research and development.

And now, for that Distant Rumble.

It is the sound of the thousands of homes which have not been purchased during the last few weeks. It is the sound of homeowners being forced to sell at lower prices. It is the sound of investors who have been "waiting until the smoke cleared". It is the sound of some non-conforming programs returning because why? Because lenders do not make money unless they issue new loans. It is because wall street investors need new loans to purchase to get those first few precious mortgage payments which are almost 100% interest. It is because without housing sales multiple facets of the biggest money maker in legitimate America is crippled.

People MUST move. People MUST up-size and downsize. Investors MUST generate new revenue. Lenders MUST originate new loans. You may not realize it but most lenders sell the loans they originate to other investors. Even if the investor is FNMA or FHMLC the originating lender makes no more income from that loan once it is sold on the secondary market. Most lenders make their only income on the sale of the loan to a bigger investor and even those investors trade and sell deals. 

Before you start worrying too much about FNMA and FHMLC having enough to keep rolling even if they are not purchasing new loans that is not correct. Loans recycle. Their life span is NOT thirty years. Old loans are paid off because people move so FNMA loses a customer until they can get that loan back into their care and servicing. Furthermore, the more seasoned a loan becomes, the less interest is being paid so profit levels drop steadily with each payment on a fully amortized loan. Eventually all big investors would be hurt and disappear if new loans were continually originated.

Can you now hear that distant rumble?

People who have held off for the last few weeks or months to make that new acquisition cannot put it off indefinitely. People who have been transferred and are holding an old property and/or renting in their new location ARE going to buy a new home. Single people who just became married people and married couples who just became families are going to buy a new home. Baby Boomers who just became empty nesters and have 5 bedrooms and 4 baths are going to buy a new home.

Non-conforming is not gone. It is crippled and badly damaged like one of those space ships in Star Trek or Star Wars gliding through space and time trailing smoke and debris. It is not going away but it will not return the way we have seen it for the last couple of years until everyone has well forgotten what happened this time. So, maybe 10 years from now!

In the mean time there are lenders filling the gap. Our American Dream Home Ownership Program that we began in 2001 in answer to President Bush's and then HUD Secretary Mel Martinez to put millions of homeowners in their own home by the end of this decade has suffered for the last few years because of the sub-prime market luring these good people away into loans that were riskier and costlier.

Can you hear the distant rumble?

In 2001 to 2004 we originated thousands of American Dream loans. In 2005 and 2006 those numbers decreased to almost zero. Nada. Now our phone is beginning to ring again. "Hey, tell me about this American Dream Home Ownership Program you guys just started."

Just started? No, we were obscured by all the smoke.

The bottom line is the volume must return. Maybe it hasn't hit you or your area. Some people I have spoken with from AR say they only need to do one or two deals a month and they have continued to do so and that is wonderful. My team needs to do a minimum of 50 per month and we have not. But it's returning. We have more applications this week than we had the entire month of March.

Can you hear that distant rumble? 

Sometime in the beginning of 2007 I changed the title of my Active Rain blog to "New Day in Real Estate". The reason I did so is because the ripples of change were already being seen in the lending industry. I used the parallel last year in a blog of a giant wave of change beginning with an article titled, "Short Sales: The Coming Tsunami". What we could see on the mortgage banker's table and had been discussing since late 2005 was how all of the ridiculously loose guidelined non-conforming mortgages would eventually impact the housing industry. Most of what has happened was expected by conforming mortgage bankers if not most of the industry.

In this blog there are some very important points that, while expected, have actually gone further than expectations had indicated. Perhaps the most important is PROPERTY VALUATION.

My NOVATION MORTGAGE does not fund a majority of non-conforming (sub-prime) loans but the percentage is not to be dismissed. In 2006 approximately 22% of our loans were non-conforming due mostly because of the great number of non-owner occupied properties we finance.

Let's define "investors" for the purpose of discussion: investor is the buyer of a mortgage backed security. There are the "Wall Street" buyers who purchase mortgage backed securities (you may call them notes) on the secondary market. The secondary market is simply the marketplace where lenders sell their mortgage notes to investors who invest in mortgage backed securities. These buyers are the ones who really control what the lenders do and do not offer to clients. For the sake of this discussion we are talking about non-conforming loans. Which brings me to a list of points real estate agents, real estate investors and home owners need to hear:

SEASONING ON TITLE - Many investors are now wanting to purchase high LTV mortgages (more than 80%) offered only on properties where the seller had a minimum of 90 days on title and as much as 12 months on title. In the very recent past many lenders would do same day or "simultaneous" closings. This meant a real estate buyer could acquire a home and then resell it the same day or even at the same closing table. You may also know these as back-to-back closings.   

NO DOC LOANS - while still available are increasingly rare and expensive. While just a few months ago no doc loans for owner occupied properties were overly abundant it is virtually impossible to get a full LTV loan (100% of the sales price) no doc and very costly even with a moderate down payment.

PROPERTY VALUATION - read this next line out loud, please: Lenders are slashing values on appraisals. Now rinse and repeat. Some lenders are using AVM's and calling the BPO's. Some lenders are using BPO's that are incomplete appraisals (CMA's and maybe no more) to counter the values provided by certified appraisers who have visited, measured and researched the property. Even with strong rebuttals and additional comps values are being slashed by as much as 20%. THIS IS NOT LIMITED TO NON-CONFORMING LOANS.

These are points to be considered at all levels of real estate. Mostly prior to LISTING a property or OFFERING on a listed property.  I am encouraging NAR state members and individual members to consider this when you are completing the "Financing Contingency" on your broker buyer agreements. If you are leaving only 10 days for approval you may be asking too much from the buyer in this volatile marketplace.

There are still high LTV loans, there still are unseasoned loans, there still are non-conforming loans but the entire industry has changed. Some people who could purchase a home two months ago cannot purchase one now. As always it's the weaker ones who are most hurt. 

IF YOU ARE A BUYER or BUYER'S AGENT and you receive a Purchase Agreement that says you will lose your earnest money if you do not have your financing APPROVED within any number of days less than 14 strike that line and do not agree IF you have any reason to believe you may be affected by changes in the lending industry. If you already know the property has a clear title, the owner has held the property for at least six month, the value increase (regardless of upgrades) is not greater than 25% of the sales price and you are paying at least 10% down you shouldn't have any problem getting your financing approved within a short time PROVIDED you comply with the lender's request to show evidence of income, assets or whatever they request. 

For a short period of time (2003 to 2006) it was possible to "out improve" the neighborhood by several percent in value. Not now. Comparable SALES (not LISTINGS) once again rule the value. In essence if you buy a $250,000 home in a $250,000 neighborhood and put $50,000 into the kitchen, bath and finishing the basement your chances of recovering your investment just dropped tremendously. I did not say it can NOT be accomplished, I said it is not as EASILY accomplished as it was as recently as February of this year. 

I do receive a few questions and comments directly from Active Rain readers and I am always happy to answer your questions within the scope of my knowledge and experience. If you have further questions about this feel free to email me directly and I will answer as quickly as possible.

It is not polite to point. How many times did you hear that in your formative years? I heard it enough to stick in my head. But sometimes it is a technique that works.

Our clientele ranges in scope from first time home buyers just barely out of high school to seasoned investors with multi-million dollar portfolios and years of investment management experience. It may surprise you to find that there are individual members of both groups who need hand holding and members of both groups who need directional guidance.

One way we determine who needs which method is by asking common sense questions and questions very specific by using industry terms and prhases as well as examining the history of that particular person's home buying experience. For all first time homebuyers and first time investors we offer quite intense workshops which really get into the details of home or investment ownership including the financing, management, tax and insurance responsibilities.

One of my best clients is a former National Director of Operations for a large home improvement company. He has extensive stock investment experience and has done quite well. He had purchased seven of his own homes but never owned an investment property but he is approaching retirement and has been acquiring investment properties. He still needs hand holding and he's on his fifth investment.

On the other hand we have a client who is in his thirties, has bought three of his own homes and is on his ninth investment property. He no longer needs hand holding but he always, ALWAYS calls us first before he speaks with an agent or seller about a property to make the numeric decision. He's getting good enough to do it on his own.

What I am doing is encouraging you to develop a strategy for groups and individuals because educated and experienced clients are the best ones you can have but you can not treat the rookies like rookies. Now we revisit my first home buying experience.

I had been to the closing with my parents, my dad had bought and sold his own homes and several investment properties. In my mind I felt experienced and I suppose my agent believed I was. At the time I was 23 years old, managing two retail outlets which did about $300,000 in annual revenue and had seven employees. I was confident.

I was green.

I made every mistake a rookie buyer could and the deal was terrible. (It was the worst deal of my career and it cost me a lesson.)

What could someone have told me that I didn't already know? Simple:

As a first time home buyer the only payment you are thinking about is the house payment.
Buying a home has many advantages but a few more management skills are required.
You are going to have taxes and insurance (if not escrowed - what is escrowed?)
You are coming from a one bedroom apartment to a three bedroom, two bath home - you have needs.
Window dressings for 24 naked windows will be somewhat pricey.
Do you have enough furniture?
Do you own lawn care equipment?
What will you do if the toilet overflows and will not stop running?

And the list we use has over 200 items on it designed not to frighten a home buying prospect into continuing to rent or live with parents but to be prepared for the tsunami of change. We make it an event with balloons, party favors, festive snacks, music and more. I have both hosted and attended some really boring first time buyer seminars.

They work. They can stretch out the time between first contact and first contract but I will tell you that virtually every client we have developed through our seminars will fight for their right to always use Novation Mortgage and our network of friends and they come back for their own needs, they refer their friends and family, and they feel good doing it.

Even as agents it behoovs you to attend these events not just to snake some clients (in fact you better ask permission PRIVATELY to pass out your cards - I will embarass you at my events if you do what it seems invariably an agent whom I do not know does, stand up and ask the question in front of the entire group - I say, not at this time, no. Ladies and gentlemen there are agents in attendance here today whom I know and trust. They will be available to speak with you at the end of the event.)

Agents should attend because they also learn about things. My Novation, for example and a shameless plug, has The American Dream Home Ownership Program in response to President Bush's 2000 challenge to place 10,000,000 new families in their own home by 2010. Our program is not score driven, allows high DTI's, provides 100% financing at rates comparable to the rates any good credit borrower can get, requires no reserves, no VOR, and no cash input at all from the borrower.

As a realtor who didn't already know that, how many sales have you missed because you didn't know a lender could do things like that anymore? 

Success to you all! Make it festive, exciting and informative and you'll never have a problem booking every available seat.    

It happens every year - my signs and your signs disappear. Amazingly it happens just about the time "Yard Sale Season" starts up.

Here in Georgia, with the exception of this cold weekend, Satrudays and Sundays have been clear and warm with temperatures in the 80's. That means YARD SALES. Don't get me wrong, I love a good yard sale. I'll be looking for yard sale signs in my area for the next few weekends. When I see one that looks a little too nice for a yard sale and has a nice black heavy steel full frame I'll get even a closer look.

I'll be looking for my PHONE NUMBER etched under the bottom of the Y rods on the post. I've already lost three.

How do you protect your signs? I know we lose them - it's a part of the world of take and take in which we live.

What are your ideas or techniques? 

And I quote, "new reports signal that the real estate market may not be as bad as originally thought". Fox News, 4/4/2007

Maybe that's because percentages are easily misunderstood and manipulated to sensationalize a situation but raw numbers speak for themselves. Here is a short example: The price of cherries went up 4% in May. In April the price of a ton of cherries was $1000 and in May the price of a ton of cherries was $1040. This could also be reported as fruit price jumps 4% in one month - which sounds much worse. 

Now let's look at bigger slice from the kingdom of fruit - Fruitdom if you will:

Apples +.01
Oranges -.02
Malhallas +.14

Wow! Those malhallas went up 14% - that sounds dangerous! But how MANY malhallas are sold?

Apples 3760 tons
Oranges 1044 tons
Malhallas 20 tons

Apples = Conforming conventional loans
Oranges = Alt/A loans
Malhallas = non-conforming (subprime)

So if 14% of subprime loans "went bad" that sounds bad. But when you look at the numbers and see that only 9% of loans are subprime the story loses some of the "shock and awe" of saying "FORECLOSURES UP 400%!"

Sensationalism - is that the new and only word for JOURNALISM? Are they equal in definition?

Let's look at a 400% increase in the number of walhallas that go bad in shipping. In 2002 there were 1 out of 1000 walhallas that rotted during shipment. In 2003 that number jumped by 400 percent to 4 out of every 1000 were spoiled during shipment.

BUT LET'S NOT REALLY LOSE FOCUS HERE

We're not talking about imaginary fruit and this is a fact of which I am well aware. We are talking about fruit which should never have been picked. Shame on the pickers and shame on the packers and shame on the shippers. Yet, without the fruit there would have been less gold.

Crunch the numbers for yourself and you will see that, yes, the situation is not ideal but it has never been nearly as horrible as the media played it. And many swallowed it.

Be smart, stay in school. Or as they say where I come from, "figger it out yerseff".

We have no programs to sell yet we offer the same services to our clients available from many gurus for thousands and thousands of dollars. In fact, one un-named "guru" will teach you about Short Sales for around $4000 and then invite you to join his "program" for $10,000 to $30,000 - WHY? Why do people continue to fall into these traps?

Do yourself a huge favor and save your $10,000 and let us show you how to acquire properties, including short sales, with little or nothing down and to build wealth and cash flow from your investments.

Upcoming Training

Real Estate Investor's 123 QuickStart Workshop - Tuesday April 10th 10AM
NO CHARGE for the in-house daytime version (if you reserve - SHOW UP! The seating is limited and there are dozens of people wanting that seat!)
Call at 678-946-0100

Short Sales QuickStart Workshop - Thursday April 12th 2PM
$199 for this 2 hour jam-packed workshop worth 10 times that amount
Visit the Reservations Page to reserve your space today
Seating for this workshop is limited to only 8 seats for personal attention
Call 678-946-0100

Southeastern Real Estate Investor's Meetup - Tuesday April 17th 7PM
Discussion and exchange of opportunities, information and questions. Simple to RSVP from this link. This is our second get together and the last was wonderful.

Real Estate Investor's 123 QuickStart Workshop - Tuesday April 24th 10AM
NO CHARGE for the in-house daytime version (if you reserve - SHOW UP! The seating is limited and there are dozens of people wanting that seat!)
Call 678-946-0100

I read an article that said, "Nobody saw it coming."

Whatever. I've been telling my clients and my associates for over a year that this cannot last. The numbers don't work. It's all smoke and mirrors. Excitement built on hype and funded with greed. Bad combination.

However, I will say that the end is in sight. What has happened is that lenders who took the most risk are out. I found it sadly ironic that there was a rep from SouthStar in my office on Thursday of last week trying to by some loans and saying how secure and stable their company is because of all the great decisions they have made.

Friday the sizzled and Monday imploded. Gone. One of our truly more direct competitors just vanished.

Are we being impacted? Not too much by our funding ability. The major impact is because of the collateral damage resulting from the confusion of real estate professionals, investors and homeowners who really are not sure what just happened.

Stupid loans just went bye-bye. Don't worry. Welcome to reality. Baby your credit, save some money and stop changing careers every 12 months.

I have spent literal hours and hours on the phone with people from across the nation explaining how they can still excel in this New Day In Real Estate.

Simple, just keep working, investing, showing and listing.

Hang on. If you need some confidence or have a specific question feel free to email me. But have hope!

Here Is A Recent Actual Deal Done At Novation Mortgage:
576 score
Full Doc
100% purchase
1st time home buyer
58% DTI
$3600 in collections remained open
6% seller concessions
and a conventional fixed 30 interest rate!

I know - I haven't posted in a couple of weeks .... we've been quite busy funding loans since our bottom of the barrel "competition" bailed out and left all you serious real estate professionals holding worthless mortgage approvals. But here is something I found interesting while browsing some online ads mostly from FSBO's and thinking about what I was actually reading.

It's a list of words in REAL ESTATE ads on a popular list site. Some of them are interesting but none of them are as interesting as what the seller may really have meant, or what my off-center mind wondered if they meant, when they chose the words for the title:

Like New...Move In Ready
Home With Acreage
HUGE Backyard
Priced WAY BELOW MARKET
100% financing available
LAST CHANCE!!! ROCK BOTTOM PRICE !!
Don't Miss This Rare Find
SALES PRICE DROPPED!! GREAT LAKE PROPERTY
quiet street + equity
"Spacious Family Home"
Only 6 Months Old & Perfect Throughout!
LOCATION, LOCATION, LOCATION
DIVORCED COUPLE NEED TO SELL
MOTIVATED SELLER WITH PROPERTY IN PRIME LOCATION


Okay - so those are excerpts from the ad titles but is this what they really meant to say?

Like New...Move In Ready - it almost burned to the ground and it rained inside for about 3 months but we finally got the sheetrock back on the walls and the electrical inspection. The darker colored paint covers the smoke and water damage very nicely.

Home With Acreage - right between a pig farm and a chicken farm. You'll need a four wheeler to get in and out of the driveway but once you pass the old falling down barn it's all downhill from there.

HUGE Backyard - nothing between you and the Federal Prison over 1000 yards away! Great open fields to play in until dark when they let the dogs out. You can actually make a few bucks charging families for parking on visitation day which is Sunday.

Priced WAY BELOW MARKET - We realy feel like the market should make this a half-million dollar home but it doesn't so we priced it lower than what we really believe it should sell for and you can get it for only $150,000.

100% financing available - like every other home in the nation. We just couldn't think of anything more catchy to say about this dump.

LAST CHANCE!!! ROCK BOTTOM PRICE !! This home has been on the market for 5 years and if you don't buy it now I think it will be struck by lightning where I left my lawnmower and gas can inside and burn to the ground sometime after this weekend. Please please PLEASE buy this money trap!

quiet street + equity - all of the rest of the homes are vacant, condemned or foreclosed so we're pretty much ready to give this one away. Make me an offer and it's yours!

Only 6 Months Old & Perfect Throughout! To the left is the concrete plant and in the back yard is the end of the airport runway but the house is perfect!

LOCATION, LOCATION, LOCATION - you'll want to get a running start coming out of the driveway because it empties right onto the interstate. You can be to the police station, prison, or county dump in less than 30 seconds walking from your front door!

DIVORCED COUPLE NEED TO SELL - we may have had a few spats in some of the rooms but the sheetrock damage and broken glass is easy to repair. There is a small amount of smoke damage from the x's cooking habit and there may still be some grease on one of the bathtubs from where I regularly serviced my motorcycles but some ZippyClean should take care of that.

MOTIVATED SELLER WITH PROPERTY IN PRIME LOCATION - House is built on the very edge of a deep ravine! Great veiw when it rains you can watch the trees and neighborhood homes slide in a beautiful gushing river hundreds of feet below.