The Desire to Get Buyers In Homes
When it comes to disposing of rising REO, asset managers say the problem now is the strict guidelines, which is becoming a major obstacle at getting borrowers into these homes.
The president of REOMAC, Shelley Kaye, told Managing REO that the loan guidelines have gotten too strict and the money has dried up.
"We get halfway through a transaction and the guidelines change - the deal falls through. No matter what the bank seems to be doing, we're just in a Catch-22," she said.
"And there are so many new laws and regulations - it's been difficult to work with the buyers and get the property sold. It's not because we don't want to, it's because our hands are tied." As more adjustable-rate mortgages reset within the next six months, the industry will see things get worse before they get better. Properties are coming in the market from the FDIC and Treasury. Asset managers continue to be flooded with homes.
"I know the government is trying to do their bailouts but I just hope that it's not too little too late," Ms. Kaye said. "I wish they were targeting more of the homeowner who needs the assistance rather than some of the big heavy-duty players in the industry that created some of this mess. Perhaps they should have let them go and really focused on the homeowner that's really in trouble. In my opinion, that's what keeps the economy going, that homeowner who is making their payment."
Years ago, she said, borrowers who bought homes had to have either 20% down or 10% in mortgage insurance. "And that was more costly, so we all saved our pennies to get into properties. In the last few years, creative financing out there made it too easy for everyone to get in. It's not everyone who should be a homeowner. Perhaps some should have lived in an apartment for another year and saved money rather than jumping in. I had to save for it."
Homes are coming down in price so they're really at a very affordable level at this point, she said. "The biggest obstacle is the loans. We need to make sure we have financing out there, so everyone who is qualified can get into that home. Maybe that's what the government should have done, assist them so loans are available and people are able to buy the homes. Not these fly-by-night programs used previously to let borrowers who should have never gotten a home get into these homes."
These days she believes more lenders are considering REO repairs in order to keep values up and not sell to investors. "It doesn't benefit anyone for the lender not to go in and do everything they can do to keep the property in good condition."
For homes in dangerous areas or places where vandalism is high, the trick is to get those properties sold quickly. "If you are going into an area with gangs, there is nothing much you can do. It's going to get tagged and vandalized. The copper will be sold. You can't leave them sitting in some areas of the market for a long time."
Ms. Kaye speaks highly of the FHA 203k rehabilitation program, which she says is ideal for buyers that need to do repairs. "They work as a construction loan. They don't start the payment until the work is done. You go in and tack the amount onto the loan of the house - what the value would be as the house would be in a repaired condition. That's assisting the homeowner so they don't have to come out of pocket for the funds. Renovation loans are extraordinary loans for that buyer that wants to go in and do some work on their own - get the home fixed up - as long as they are able to afford the payments on the higher price. You don't have to make payments until that repair is complete. That is a great tool to get a buyer into a home that can qualify for the program."