Fannie mAy does not lend on "starter homes" and fixer uppers. that is what sub-prime lenders are for.Originally Posted by Melonie
Fannie mAy does not lend on "starter homes" and fixer uppers. that is what sub-prime lenders are for.Originally Posted by Melonie
Dude, stop talking about a subject you know nothing about. Mel too. I wouldn't tell you how to do your jobs, so don't tell me mine. Over 60% of loans now are stated income loans, and No Doc loans are rising as well. It's a fact of life. Fannie may/freddie Mac do not do these loans, and they are rapidly loosing market share. You can call me up today, and I will fund an No Doc loan for you.Originally Posted by DJ_WuLf





Thanks for making this point in an extremely straightforward and unambiguous manner !I DO Believe that there are private investment firms out there who ARE making "no-doc" loans to SOME PEOPLE who are buying SOME Properties but these loans are deeply tied into the value of the property itself where the "Lender" actually WANTS the borrower to default after making payments/improvements. In some cases (usually with a big down payment) the borrower is actually set up to fail and default. The financing world is CRAZY right now. Its where all the crooks are working.
If you'll reread my posts you'll find that I never said they did. What I DID say is that Fannie Mae and Freddie Mac coming under much higher scrutiny in regard to the actual creditworthiness of would-be home buyers, and tightening their creditworthiness standards on future loans as a result, will spill over to the creditworthiness standards of other financial institutions in particular commercial banks and savings banks. I then attempted to draw the conclusion that tighter creditworthiness standards would disqualify a significant number of would-be home buyers from the (conventional) mortgage market, and thus create downward market pricing pressure on the lower priced segment of homes which includes 'starter homes' and 'fixer uppers' by nature of the price category.Fannie mAy does not lend on "starter homes" and fixer uppers. that is what sub-prime lenders are for.
I'm not going to argue the point that if someone looks hard enough, and if someone is willing to accept whatever terms that a lender is willing to offer, that today a person can find 'creative' financing for just about anything. Yes, 'creatively financed' home purchases is a growth industry today, with the example of 'interest only' adjustable rate mortgages probably being the most extreme example. Obviously Fannie Mae and Freddie Mac are going to lose market share as their creditworthiness standards are tightened, thus leaving marginally qualified and unqualified would-be home buyers with no choice other than to seek 'creative financing' elsewhere !
However, the wisdom of using 'creatively financed' real estate purchases as an investment vehicle is IMHO entirely contingent on real estate market prices continuing their rising trend, in exactly the same way as with conventionally financed real estate purchases, which was the original point of this entire thread. I am going to assume that the point you are REALLY trying to make is that 'creative financing' lenders are actually going to keep the marginally qualified and outright unqualified would-be home buyers as active participants in the real estate market, thus perpetuating the real estate pricing bubble for a while longer.
Good point actually, as this might indeed be the result in the short term. However, adding yet more homeowners who can't afford their mortgage payments to a housing market where many homeowners are already in that position will only increase the steepness of any future real estate market value crash when financial fundamentals finally come home to roost ! But IMHO the prudent 'investment' would be a short term chunk of Capital One stock shares, and the shares of other sub-prime lenders, rather than real estate itself !
~
Last edited by Melonie; 01-04-2005 at 07:05 PM.
The lender NEVER wants the borrower to default. Lenders are in the finance business, not the real estate business, and everytime a lender takes a home back, they lose their ass.
Fanni/Freddy CAN'T tighten up their credit/value crieria any more than they are. If they did, they would not be able to fund any loans at all.
Many buyers opt for alt-A or BC lenders not because they can't qualify for a conforming loan, but because conforming lenders require too much personal info, ask too many questions, aren't flexible for self-employed people, have horrible customer service, and above all, take too goddam long to close a loan. Many of my clients need a purchase or re-fi done in DAYS, not MONTHS so they come to a non-conforming lender. Some people, because they work in cash businesses, write off their income, or whatever, cannot prove they make enough money when they actually do. In that situation, they would be turned down by a conforming lender but not a BC lender.





In theory I agree that no lender WANTS a borrower to default. However, lenders seem to be much more agreeable to writing a shaky loan if they know that the market value of the underlying asset will have risen 10%-20% between the inception of the shaky loan and the borrower defaulting than if the market value of the underlying asset is likely to remain the same or actually fall 10%-20%. In the first case the lender realizes more than enough market value gains to cover their costs of foreclosure and liquidation with a nice profit left over. In the latter case the lender gets double whammied by having to take a loss on the market value on top of absorbing foreclosure and liquidation costs ! Accordingly, lenders are not likely to allow themselves to be subjected to the financial risks which exist in the latter case. Thus the lenders will become more demanding in terms of borrower creditworthiness or underlying equity or both, meaning that unqualified buyers who do not have significant down payment or collateral assets are going to be rejected by 'creative financing' lenders in exactly the same way as they have previously been rejected by 'conforming' lenders.The lender NEVER wants the borrower to default. Lenders are in the finance business, not the real estate business, and everytime a lender takes a home back, they lose their ass.
I previously pointed out that no-doc no-verification financing definitely benefits dancers who DO actually have enough income/assets to present a very low credit risk to the lender even though their income is difficult to prove. However I think you'll agree that no-doc no-verification lenders still must adhere to some sort of rational credit risk evaluation, thus they're still not likely to write loans to unqualified buyers unless the lender's ass is covered by a large down payment or some other form of hard collateral ! It is a logical conclusion that when no-doc no-verification lenders DO write loans to unqualified buyers on the basis of a large down payment or other hard collateral, that the lenders are in fact anticipating a high probability that the unqualified borrower is going to default - but knowing from inception of the loan that foreclosing on the down payment/collateral equity when the loan goes belly-up will also provide them a tidy profit !Some people, because they work in cash businesses, write off their income, or whatever, cannot prove they make enough money when they actually do. In that situation, they would be turned down by a conforming lender but not a BC lender.
mmm, sort of. lenders are very hard on appraisals. They do not accept wild market variations in value on appraisals, and tend to be very conservative in the value they accept. I see appraisal values chopped by lenders all the time. While it's true lenders look at equity first and credit second, you can still get a stated/no doc loan for 5% down WITH GOOD CREDIT. Those who have money to put down 20%, even without good credit, are a good risk because money down is an equalizer of risk. Fannie May/Freddie Mac require 20% too.In theory I agree that no lender WANTS a borrower to default. However, lenders seem to be much more agreeable to writing a shaky loan if they know that the market value of the underlying asset will have risen 10%-20% between the inception of the shaky loan and the borrower defaulting than if the market value of the underlying asset is likely to remain the same or actually fall 10%-20%. In the first case the lender realizes more than enough market value gains to cover their costs of foreclosure and liquidation with a nice profit left over. In the latter case the lender gets double whammied by having to take a loss on the market value on top of absorbing foreclosure and liquidation costs ! Accordingly, lenders are not likely to allow themselves to be subjected to the financial risks which exist in the latter case. Thus the lenders will become more demanding in terms of borrower creditworthiness or underlying equity or both, meaning that unqualified buyers who do not have significant down payment or collateral assets are going to be rejected by 'creative financing' lenders in exactly the same way as they have previously been rejected by 'conforming' lenders.





An admission which brings us right back to the point of this thread ...mmm, sort of. lenders are very hard on appraisals. They do not accept wild market variations in value on appraisals, and tend to be very conservative in the value they accept. I see appraisal values chopped by lenders all the time
Has Greenspan Over-Pumped the Real Estate Bubble?
"(snip)Finally, my other concern about this behavior is that these are first-time real estate “investors,” or what stock traders would refer to as “weak hands.” Strong hands are professionals and seasoned investors. Weak hands are neophytes who have no experience with equities that always get sucked in as buyers at or close to the peak. Certainly, this is what happened in the first quarter of 2000 when you couldn’t swing a dead cat in this country without accidentally hitting someone who had never invested in stocks in their lives, but now owned either dot-com shares, or an aggressive growth mutual fund that was largely investing in such worthless assets.
Today, the weak hands -- people who have never purchased investment property before -- are actually willing to lose money every month because they believe that real estate will keep going up. It’s dot-coms all over again, folks, but with much larger sums of money, much greater degrees of leverage, and, as a result, much more ominous portent. When people were speculating this way in the stock market five years ago, for the most part, all they lost was their savings and their retirement plans. This time, if the cards begin to implode, people could end up quite literally losing not just their investment properties, but also the homes that they live in. (snip)"
Melonie,
I hate to spread a few facts to drown out the author's rhetoric, but he is flat out lying or biasing his "facts" to support a false premise.
He states he has a friend in the mortgage business whose "average" customer is a realestate speculator leveraged to the hilt to buy a property rather than a residence. If that were true, it would mean "true" home sales were not 6.6 million for the year 2004 but 3.3 million. Do you know when home sales were last 3.3 million? 1985 when mortgage rates were 11-12%. What is he is half true? (it is really a quarter) of sales. that puts you at 1994 when rates were 9.0%.
Do you know what percentage of the housing stock (including new homes built) was in 2004? A whopping 8.5%. The lowest it has ever been in the last 35 years was 3.25% when mortgage rates were in double digits and the economy was in a severe recession. The average from 1980-1999 was around 6% of the stock.
Maybe he interviewed a pawnbroker---they always have tales of woe and disaster.
I reccommend you go back to my "cocktail party" guage. How many people do you know who are speculating in residences they do not live in?





Melonie,
Here's the thing. I've read all your ideas, and agree that they make sense based on the facts that you've presented, but...
Right now I'm looking at buying a duplex. It has tenants with one year leases, and the monthly lease income is double the payment. I don't see how it relates to the things you've said at all. I don't see it depriciating (it's already cheap), but even if it did depriciate by 5 or 10k, I would still make a profit with the rental income. My hunch (based on the way the nearby city is "spreading" towards this area, and the nearby college is growing) is that it will actually increase in value. But either way, I'm buying it more for the monthly rental income. How can this be a bad idea?
Lena
It's not Lena, and once you do some homework and make sure the purchase price is below market value, the property is inspected to make sure it's up to code and isn't falling apart (unless you are a rehabber) and that your financing still allows you to make a positive cashflow....then it is ABSOLUTELY a great investment.How can this be a bad idea?
Scorpio: I CHALLANGE you to find me an FDIC Insured BANK who will make a No-Doc stated value Mortgage Loan with conventional terms and reasonable interest! Prove I don't know what I'm talking about rather than just SAYING it. Otherwise YOU need to engage a brain before you type.
There is a Mortgage Company in Kansas City. The Owners of this Mortgage Company are Builders and RE developers who have built sub divisions in the Suburbs on both the KS and MO sides where property values have risen and continue to rise. This was great when Sprint was hiring executives at 50K salaries but NOW .... with sprint downsizing and moving it HQ to the east coast ..... Well there are ALOT of Mid level ($200K - 500K) houses for sale and not many buyers even with 5% interest. As these Mortages foreclose the Mortgage Co guys buy them from the Banks at 80% of appraised value and sell them on creative terms. These guys BUILT these houses in the first place and made money then ... They are making money NOW without doing an labor. Just creative financing where they WANT you to fail so they can do (flip) it again. THIS is happening all over the US and its the part of the market that Carlton Sheets doesnt tell you about. They're setting you up to fail.
Most Insurance Companies are owned by Doctors. Most Banks are owned by Car Dealers and RE Developers. Imagine that huh! Theres ALOT that some people DON'T KNOW!
14 years working in Strip Clubs. "What a long strange trip it's been"
Lena: Any income property you can buy at 50% of ACTUAL income is a good deal. The downside is that if it is subsidized housing you have to deal with lots of Govt BS and repairs can easily outpace the positive cash flow. A years lease is meaningless because it can be broken easily usually only forfeiting that deposit. Good tenants are VERY hard to find nowdays and bad ones can tear up more than you ever imagined. With encroaching urban and academic populations comes Zoning restrictions which may make you duplex into a Single Family home overnight (thereby eliminiting one rental income). You may even lose the property to eminent domain when they decide to build a Highway or a Wal Mart there. You very seldom profit form this anymore. Those were the good old days.
The property you describe sounds like a good investment but it is much more hands on (and just as risky) as a good mutual fund which can return the same average 20% per year as ROI. It really depends on how much TIME you have to monitor and repair your investments. RE is labor intensive. Securities aren't.
14 years working in Strip Clubs. "What a long strange trip it's been"
Scorpio: I CHALLANGE you to find me an FDIC Insured BANK who will make a No-Doc stated value Mortgage Loan with conventional terms and reasonable interest! Prove I don't know what I'm talking about rather than just SAYING it. Otherwise YOU need to engage a brain before you type.
There is a Mortgage Company in Kansas City. The Owners of this Mortgage Company are Builders and RE developers who have built sub divisions in the Suburbs on both the KS and MO sides where property values have risen and continue to rise. This was great when Sprint was hiring executives at 50K salaries but NOW .... with sprint downsizing and moving it HQ to the east coast ..... Well there are ALOT of Mid level ($200K - 500K) houses for sale and not many buyers even with 5% interest. As these Mortages foreclose the Mortgage Co guys buy them from the Banks at 80% of appraised value and sell them on creative terms. These guys BUILT these houses in the first place and made money then ... They are making money NOW without doing an labor. Just creative financing where they WANT you to fail so they can do (flip) it again. THIS is happening all over the US and its the part of the market that Carlton Sheets doesnt tell you about. They're setting you up to fail.
Most Insurance Companies are owned by Doctors. Most Banks are owned by Car Dealers and RE Developers. Imagine that huh! Theres ALOT that some people DON'T KNOW!
Dude, You have absolutely no idea what you are talking about. Here, I'll prove it to the rest of us:
Define "conventional" in terms of a mortgage.
Class is now in session.
again, you don't know what you are talking about.Originally Posted by DJ_WuLf
For instance, Subsidised housing or "section 8" IS desirable because the government guarantees the rent, pays more than market value, and section 8 tenants are less willing to tear the place up for fear of losing their section 8 vouchers.
second, if a municipality re-zones the building to a one unit, you will be grandfathered in and will not have to give up renting the second unit.
third, you COULD gain 20% with securities, and you could just as easily lose your entire investment. That would never happen with real estate (unless you are uninsured)





I absolutely agree with Scorp on this issue ... with "your financing still allows you to make a positive cashflow" being the key phrase. This is of course the area of major risk. Yes, granted, under the current situation of tenants with leases for the next year, with a known mortgage payment every month, with known property tax rates for the next year, with pretty well known building maintenance costs for the next year, you can be rather confident of a positive cash flow for the next year. But your mortgage payments run for 20 or 30 years ! Can you be confident that this year's cash flow equation will remain positive in future years, with potential real estate tax increases of 20% per year as local gov'ts attempt to balance their budgets, with stagnant wage levels making it difficult or impossible to retain tenants willing to absorb rent increases, with rising college tuitions and dropping gov't tuition assistance levels reducing the number of future students, etc. This potential risk is even higher if you use adjustable rate financing for your mortgage, meaning that future monthly mortgage payments will also rise along with rising interest rates.Originally Posted by scorpio
The scenario to be feared the most is that 5 years down the road, other landlords start running into negative cash flow problems before you do. When this happens, the speculator landlords will quickly try to get out from under a loss situation and put their properties on the market. This in turn will depress the rental real estate market such that if/when you reach the point where negative cash flow convinces you to unload the property that you'll take a second whammy by having to sell at a significant loss in terms of property value. In extreme cases, i.e. if the neighborhood goes to hell, there won't be any qualified, willing buyers at any price - which is where rows of boarded up houses come from !
This is of course extremely sensitive to local conditions now and in the future - and you know the particular area in question much better than we do !
An interesting read on the potential future risks involved with real estate ...
(snip)"Today something unusual is happening. Even in this modest recovery, the rental market is extremely weak. The explanation is simple: The excitement around mining money from lots and shingles, coupled with the lure of low rates, is persuading people to buy houses even though rentals are, in many cases, a far better deal. The frenzy has driven the ratio of house prices to rents up to levels that are simply unsustainable. According to data from Fidelity National Financial, the ratio now stands at 15.2, the highest level in at least 20 years.
Since the mid-1990s, prices nationwide have risen an astounding 25% faster than rents. As usual, the gap is most glaring in hot markets. Michael Sklarz, a real estate analyst with Fidelity National Financial, calculated the ratios of median home prices to annual rents in a number of U.S. cities. Since 1995 the ratio has jumped to 18 times rents in San Francisco (up from 13); to 22 times in San Diego (up from 13); and to 18 times in New York (up from 11). In Orange County, a house selling for $800,000 two years ago now fetches $1.2 million. But rents haven't budged; tenants are still paying the same amount to enjoy that sumptuously priced home as in 2002-around $4,000 a month.
The numbers are much like inflated P/E ratios. In time, rents exercise a gravitational pull on housing prices. "House prices are just the present value of future rents, so when the prices decouple, the fundamentals aren't supporting the rise," says Andrew Clark, an analyst with Lipper, a financial research firm. "Prices must eventually fall back into line." Morris of HSBC reckons that if rents rise with inflation, at around 2.5% [a year], for the next six years, housing prices would have to stay totally flat to bring the ratio back into balance, showing no gain at all through 2010.
Prices are also way out of line when stacked against another important yardstick: personal income. From 1975 to 2000, home prices always stayed in the range of 2.7 to 2.9 times median annual income; in fact, 2.9 was once considered a huge number. It's where the ratio stood before housing prices sank in the early 1990s. But starting in 2000, this crucial figure entered uncharted territory. Today the ratio stands at 3.4, 17% higher than just five years ago. And get this: The ratio is now 6.4 in California and five in Massachusetts. Just to return to the once-lofty level of 2.9 would require roughly five years of flat prices-about the same kind of market correction that would be necessary to bring prices back in line with rents.
When rates do jump, some people who stretched to buy their houses with the shorter-term ARMs won't be able to afford the monthly payments. It doesn't have to be a huge number; a relatively small shift in the ranks of sellers puts heavy pressure on prices. But people holding 30-year fixed-rate mortgages aren't totally protected either. The market value of their house isn't affected by their own carrying charges but by the monthly payments a new buyer must make. Say 30-year rates rise by next year to 7.25% (which is still below the 35-year average of more than 9%). To keep mortgage payments at the same level homebuyers enjoy today, would-be borrowers will have to take out a 20% smaller loan.
There's another powerful threat to demand-one that has gotten surprisingly little attention: the burden of property taxes. Last year total property taxes on homes and condos reached about $235 billion-about 87% of what Americans spend annually in mortgage interest. For many of the elderly, property taxes are the biggest housing expense. And they're exploding, with little relief in sight. In a study of 12 suburban towns outside Los Angeles, Miami, New York, Washington, and other cities, Runzheimer International, a research firm in Rochester, Wis., found that taxes rose an average of 39% from 2000 to 2004. "With the increases in local budgets, property taxes will just keep rising," says Ken Cuccinelli, a Virginia state legislator who lives in Fairfax County. "My taxes have jumped 80% in five years."(snip)"
Last edited by Melonie; 01-08-2005 at 11:48 AM.
I'm providing EXAMPLES and evidence of the potential pitfalls of investment Real Estate that I have learned from ACTUALLY OWNING Investment property rather then buying Carlton Sheets course off of late night TV as Scorpio seems to have done.
Telling someone "You don't know what you are talking about" is not a valid debate principle. It may work with submissive women and small domestic animals but NOT with ME unless you actually RESPOND to the challenge with something other than a question.
Again: I CHALLENGE you to find me an FDIC Insured BANK who will make a No-Doc (based on credit score only) stated value Mortgage Loan with CONVENTIONAL TERMS (15-30 year duration with the property itself as the only stated collateral) and reasonable (5-7%) interest!
I say YOU CAN'T DO THIS because FDIC Regulations will not allow it. Prove I don't know what I'm talking about rather than just SAYING it. Otherwise it's just a pathetic personal attack and useless as a post in any forum. Jealousy often manifests itself as rage without reason.
14 years working in Strip Clubs. "What a long strange trip it's been"
DJ, you're the only one doing personal attacks and expressing rage (at least in internet terms by boldfacing and capitalizing things).
It's a discussion about the real estate market! No need to get all worked up....
Melonie,
Your comment that rents have risen less since the mid 1990s is literally nothing more on its face than saying interest rates have fallen.
In a central way a rental real estate piece of property competes with bonds. Both provide a stream of income over time. The 10 year T-bond was 6.5% on average in 1995 and 96. It is not 4.25%. The asset appreciates in price for the same income stream the lower long-term rates go. The situation reverses when rates rise. The fixed income stream becomes less valuable (price of a bond goes down) and the rent rises faster.





Unfortunately, your analogy of rental real estate to bonds neglects large and significant differences between the two investment types. Bonds have a stated rate of return for the life of the bond, while rental real estate's rate of return is subject to many LARGE variables. Perhaps more importantly, bonds have no associated "ownership costs", whereas rental real estate has significant ownership costs in the form of property taxes and upkeep/maintenance costs.
OK, Wolf-Boy:
A little background on me, I have been in the finance industry for 8 years and the mortgage industry for 5. I have been a loan officer, broker, and now I am an account executive with a national mortgage lender. Oh, and I own investment property. Carlton Sheets has nothing to do with it. (I do own his property management course, and it's very good)
So, what are your qualifications? What industry do you work in?
To answer your question, The FDIC has absolutely NOTHING to do with mortgage lending. The FDIC insures deposits. Most mortgage lenders are not the kind of banks that you can open an account in. That being said, here are is a small list where you can get an Alt Doc loan (Stated income, State Income/Stated Asset, No ratio, No Doc, etc.)
BNC
New Century
Argent
First Franklin
Freemont
GreenPoint
Broker Funding Solutions
Delta Funding
Long Beach
Wells Fargo
GMAC
CIT
Citi Financial
NovaStar
Pinnacle
Platinum
National City
Creve Cor
ResMae
WMC
Etc,
Etc,
Etc,
get the picture?
You do not know what you are talking about.
Respond if you need to be schooled further.
If you don't understand that FDIC regulations determine how a BANK operates and the criteria that Bank uses to evaluate loans (Mortgages included), then there is no point in continuing a discussion because: "You do not know what you are talking about".
Thank you for agreeing that "Most mortgage lenders are not the kind of banks that you can open an account in." (Although I wouldn't end a sentence with a preposition) What kind of Banks are they? I wonder why real Banks avoid these loans?
Those are rehtorical questions ..... I don't believe I'll be attending any more of your second hand Carlton Sheets classes. I have the picture clearly focused. No further schooling required.
Last edited by DJ_WuLf; 01-10-2005 at 01:27 PM.
14 years working in Strip Clubs. "What a long strange trip it's been"
banks specialize, in case you haven't noticed. Some are investment banks, some are in the consumer loan business, some do auto and other installment loans, some banks take private deposits, some take only commercial, some banks do mortages. Some do it all. Typically, the best ones for a particular type of loan are the ones who specialize in that type of loan, so....if you want the best mortgage programs, you go to a bank that specializes in mortgages.
Is that simple enough for you?
Do you need me to use smaller words?
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