Seller Financed Income Properties: Are You Kidding Me?

We want you to meet Steve. Steve is an experienced real estate investor out of Bay Area in California. Steve did everything right; He bought twelve income properties during 2003 - 2005. He put 10% down on each property and didn't fall for the A.R.Ms, instead he financed the deals at a fixed interest rate. Steve diversified his investments by owning these income properties in six states. Smart move!

Not so fast! When Steve saw an amazing buying opportunity in Fall of 2008, he was declined for an investment property loan because he had more than "5" mortgages on his credit report.

Now meet Abbey. Abbey is a novice real estate investor who wants to buy properties to hold for long term. However, Abbey lacks the most important element to qualify for a traditional mortgage: the verified income. Abbey is a part time student and a full time home maker. Her husband's income is not enough to qualify them for an investment property loan.

Both Steve and Abbey have one thing in common: Both see a huge buying opportunity in today's market for the real estate investors. But neither one of them are viable candidates for an investment property loan even with above average FICO scores.

Recently, we asked one of our top loan brokers for some possible options. The answer wasn't surprising: there are none!

So what are 90% of aspiring real estate investors to do, who don't fit the criteria? The solution: Start thinking out of the box!

Interestingly, a huge industry is thriving in today's real estate market. This industry consists of creative real estate investors / sellers. The idea: Carry the note on the property and sell the note on a discount to thousands of note buyers. Note Buyers? What are they?

The note buying is an old idea that's making a come back during the "credit crunch". The void left by the banks, that are too busy rewarding stupidity of their executives, is rapidly being filled by this sophisticated industry.

Bottom line: Don't give up on your real estate investment goals simply because you are not a "viable" candidate for a conventional mortgage. Please contact us so that we can show you how to utilize the "un-conventional" Seller-carry mortgages to take advantage of this once in a lifetime investment timing.

Fannie Mae Rescinds 4 Property Limit for Investors

If you read the Fannie Mae official announcement -- you get the sense that the nationalized group is getting with the program. This excerpt comes from the lead paragraph: "Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery."

The use of the phrases "high-credit quality," "bona fide" and "experienced" was a conscious one, by the way. Fannie Mae is averse to first-time investors and other foreclosure opportunists. Instead, it wants to serve individuals with a history of owning and successfully managing rental property.

To that end, Fannie Mae will now finance the purchases of one-unit homes for investors with an interest in between 5-10 properties, provided that all of the following guidelines are met:

· 25 percent down payment on the investment property;
· Minimum credit score of 720;
· No mortgage payments late within the last 12 months;
· No bankruptcies or foreclosures in the last seven years;
· Two years of tax returns showing rental income from all rental properties;
· Six months of principal, interest, taxes and insurance reserves on each of the financed properties.

And lastly, to reduce fraud, Fannie Mae will now require all real estate investors to sign a form granting lenders permission to verify supplied tax returns against the official, IRS-filed version. This document is less commonly known as a 4506-T.

But lest we think this guideline change is Fannie Mae's olive branch to the people, let's remember that our nation's banks are holding record numbers of foreclosed homes on their balance sheets right now while the most likely buyers of those homes have been to-date locked out from financing.

The rollback gives a secondary benefit to investors, too -- even those not buying additional property.

See, when the four-property restriction went into effect it was a surprise, 11th-hour announcement made on the Friday before Fannie Mae's nationalization. This date, meanwhile, has come to be known as the day before the refinance boom started.

So, on the following Monday, when mortgage rates instantly plunged three-quarters of a percent, homeowners with five properties or more found themselves ineligible.

They couldn't refinance their investment homes; they couldn't refinance their vacation homes; and they often couldn't refinance their primary homes, either. While rates fell for nearly every borrower class, experienced real estate investors were locked out. Today, that's no longer the case. "High-credit quality, bona fide" real estate investors are back in the game.

It's good for them; it's good for the banks; and it's good for housing.

Economists Warn, 'Don't Expect Return to High Growth of Past'

According to a panel of financial experts at the 2009 Economic and Investment Forecast Dinner in Los Angeles last week, more pain lies ahead for the U.S. and global economies as they adjust from a long period of credit-fueled prosperity to a new era in which both economic growth and investment returns are likely to be lower.

At the assembly hosted by the CFA Society of Los Angeles, economists warned that efforts by governments in the United States and other developed nations to stimulate their economies, while necessary, are not going to quickly reverse the recession.

Paul Donovan, managing director and global economist for UBS and one of the panel members, said, “We are in the process of de-leveraging after a 15-year period of gradually increasing borrowing by consumers and others. Policymakers can work to speed up the process of de-leveraging but they cannot stop it. They can try to prevent things from getting worse, and may be able to bring forward the time when we can look forward to a resumption of growth, but what they are doing is not directly stimulating growth at this stage.”

Dr. Sung Won Sohn, former chief economist for Wells Fargo Bank and now professor of economics and finance at Cal State Channel Islands, added that American banks are going to need substantial additional help before they will begin lending again. He explained, “First of all, banks need additional capital and although the government has made some efforts there, more will have to be done. Second, bad loans will have to be extricated from the banks. That hasn’t even begun yet. The third thing that has to happen is the government guaranteeing individual bank loans to small and medium-sized businesses. Things have to go in those three stages. We’re in the middle of the first stage.”

Although the new Treasury Secretary Timothy Geithner presented a fresh plan for economic recovery this week, panelist Robert L. Rodriguez, CEO of First Pacific Advisors, LLC, gave failing grades to the efforts so far by Washington policymakers to deal with the financial crisis. Rodriguez oversees some $6.2 billion in investor assets at First Pacific and was recently named Fixed Income Manager of the Year by Morningstar Research.

Rodriguez said, “I have been highly critical of the actions taken by (Federal Reserve Board Chairman Ben) Bernanke and (Former Treasury Secretary Henry) Paulson, and the rest of the federal government, throughout this credit crisis. They have been on the wrong road and wasted precious time and resources.”

Rodriguez added that recent actions by the new administration do not give him any more confidence. He said he was particularly concerned about mounting government debt. “Our ratio of debt to GDP is skyrocketing,” Rodriguez said. “How we finance that expansion in our debt is a very important question. Do we finance it by printing money or by selling bonds? If the answer is bonds, who is going to purchase them? Excess debt creation led to asset inflation and over-consumption, culminating in this credit crisis mess. A cleansing of the credit system and a reprioritization of economic initiatives are required.”

Despite the grim economic outlook, Dr. Sohn and Donovan said there was a possibility for stock market gains this year.

Dr. Sohn said, “We’re not likely to see the kind of equity gains we’ve seen in the past. But equity markets over-react, and stocks have clearly over-reacted on the downside. Even in the middle of a long recession or depression, we have seen equities jumping 40 to 50 percent. It can happen. We may be in a secular bear market, which can last 12 to 15 years, in this case dating from 2000. But you can have significant bear market rallies within that time frame.”

While cautioning that investors remain highly risk-averse, Donovan added, “You could probably argue that U.S. equities do have some ability to outperform European shares, given what is priced into market.”

The panel discussion in Los Angeles was moderated by Bloomberg TV Anchor Kathleen Hays. CFALA is a network of investment management professionals working to disseminate useful financial information and increase awareness of the value of the Chartered Financial Analyst (CFA) designation, which is intended to lead the investment profession by setting the highest standards of ethics, education, and professional excellence.

Regulator Calls for Foreclosure Suspension, Banks Consent

On Wednesday, the Office of Thrift Supervision (OTS) – the primary regulator of federal savings holding companies and thrifts, including the nation's largest banks and mortgage lenders – called on OTS-regulated institutions to suspend foreclosures on owner-occupied homes until the Financial Stability Plan's "home loan modification program" is finalized.

At a congressional hearing on the same day, lawmakers pressed the chiefs of major banks who were present to agree to at least a three-week moratorium, the timeframe Treasury officials have given for nailing down the specifics of its proposed mortgage aid program.

The CEOs of Bank of America and Citigroup both agreed to a temporary foreclosure freeze. BofA's Kenneth Lewis said his company would comply as long as it wasn't an “open-ended” suspension and stayed within the 3-week window. Vikram Pandit from Citi said his bank would commit to ensuring persons living in the home were not foreclosed on, but said he could not extend the same concession to property investors.

Wells Fargo's and Goldman Sachs' chief executives, both in attendance on Capitol Hill, said they were already underway with their own aggressive loan modification initiatives, which included necessary foreclosure halts when applicable. ING Direct, another one of the largest thrifts regulated by OTS, said that it also has a moratorium in place for owner-occupied properties, lasting through the end of March.

Following OTS' call-to-arms, House Financial Services Committee Chairman Barney Frank (D-Massachusetts) said he expects that more than 95 percent of U.S. banks will halt foreclosures until the Treasury rolls out its mortgage relief plan. Frank is currently pushing for legislation that would protect lenders from lawsuits resulting from modifications made on mortgages held by secondary market investors – something banks say poses the biggest obstacle to meaningful mortgage relief for troubled homeowners.

The new Financial Stability Plan was unveiled on Tuesday by Treasury Secretary Timothy Geithner, and although at that time he failed to divulge any specifics on government-led mortgage aid, administration officials have said Geithner intends to commit at least $50 billion in funding to prevent avoidable foreclosures by reducing monthly payments for homeowners.

According to a Washington Post report, Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), met yesterday with more than two dozen officials from large banks, nonprofit organizations, and industry groups at the Treasury Department to discuss ideas for foreclosure prevention. The Post said that participants from both sides of the debate -- consumer advocates and the financial industry -- were unaware the other side was invited but said there appeared to be consensus on the depth of the nation's housing crisis.

John Taylor, president of the National Community Reinvestment Coalition, told the Post, "The thing that was striking was the uniformity of support for the idea that we can no longer rely on a voluntary system" within the financial services industry to lead the foreclosure prevention effort.

According to Taylor, there was also strong support for a federal program to buy troubled mortgages at a discount and modify the loans for borrowers, the Post reported. "I know that is going to cost some people some money, but the truth is the foreclosures keep driving us further into this recession," Taylor said.

OTS Director John Reich said in a statement issued on Wednesday, “OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new plan takes hold.”

Reich and other OTS officials participated in the inter-agency effort led by the Treasury Department to develop the Financial Stability Plan.