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Fannie Mae’s HomePath program, for instance, is exclusively for borrowers purchasing Fannie Mae foreclosed properties. This program provides a variety of benefits; for example, it allows borrowers to purchase eligible properties without an appraisal.
Using this program, loan-to-value (LTV) ratios can reach 97 percent for primary homes and 90 percent for second homes or investment properties that do not have mortgage insurance. If a property’s LTV is higher than 80 percent, however, the HomePath program’s pricing adjuster will apply, meaning that these deals will have higher interest rates and closing costs compared to loans with LTVs lower than 80 percent. More information about the HomePath program can easily be found at homepath.com.
Like Fannie Mae’s program, Freddie Mac’s HomeSteps lending program is exclusively for borrowers purchasing Freddie Mac foreclosed properties. The HomeSteps program, however, requires a full appraisal — as do most distressed properties, excluding HomePath properties — although Freddie Mac will repair most of the physical problems that affect the mortgage’s approval. The HomeSteps program provides additional buyer incentives, as well, including a two-year limited home warranty and a 30 percent discount on appliances purchased through approved vendors. More about this program can be found at homesteps.com.
Brokers and originators also should know what their options are when working with HUD foreclosures. Often, HUD-foreclosed properties are in worse condition compared to Fannie Mae and Freddie Mac properties and, of even greater note, HUD will not perform any repairs for their properties. Almost all HUD foreclosures have no utilities, and the borrower may be charged several hundred dollars to turn on the utilities for just a few days.
To complicate matters, many HUD-appointed title companies are over- loaded with work, which can diminish the quality of their service. HUD-appointed settlement agents also must receive the complete closing documents about six business days before the date of the scheduled closing, a circumstance that can be highly problematic given the fact that lenders typically require the closing date to be set before the creation of the closing documents.
Brokers and originators should be prepared to offset this problem simply by assuming a closing date — i.e., the lender’s turnaround time plus about 10 business days, thus providing some flexibility for slower lenders or for adjusting any errors that may occur. Following that, have your lender create the closing documents dated with the assumed closing date. After the settlement agent receives the closing documents, the agent should allow you to schedule the closing, ideally for the same date that you originally assumed or, if everything goes smoothly, perhaps even earlier.
Some lenders refuse to lend on HUD-foreclosed properties, but brokers and originators may discover a handful of possible benefits in addition to the difficulties of working with these properties. For instance, if you’re doing an FHA loan for a HUD-foreclosed property, HUD typically will have an appraisal and termite report performed for the property — a report that some lenders will allow you to use in lieu of a new appraisal. Further, if you know a lender that offers 203(b) loans, that lender could make completing these deals even easier.
Finally, because the HUD contract normally includes a sheet for estimated repairs, this could save time and money for your borrowers, as they may not need additional repair estimates.
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According to economic research company CoreLogic, the national number of loans in the foreclosure inventory declined 8.4 percent from December 2010 to this past December. Even if foreclosed properties have reached the peak of their inventory, however, it likely will take a few more years for the market to absorb the current volume of distressed properties.
As the housing market works to get back on track, the road may continue to be a bit rough for mortgage brokers and originators. Deals that involve distressed properties may comprise a bulk of some originators’ business and, with that, a handful of case-by-case snags are impossible to avoid. Nevertheless, with thorough education and strong preparation, brokers and originators can deal with these inevitable bumps in the road and help their clients uncover the home of their dreams.
Lynne Wang is the owner of Dallas Best Mortgage, which was ranked among the top 25 largest metroplex residential mortgage lenders by the Dallas Business Journal in 2009, 2010 and 2011.
The company was named Small Business of the Year by the Greater Dallas Asian American Chamber of Commerce in 2010. Wang serves as secretary of the North Texas Association of Mortgage Professionals, a chapter of NAMB. Reach her at (972) 480-9888 or firstname.lastname@example.org.
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