Editors: Bernard "Barney" Zick bernard@zick.com, Karen Zick and Amy McIntee

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In this issue:

Bush Administration Proposes ‘Zero Downpayment’ Mortgage Plan

Getting Started: Potential Deals

Advanced Strategies:  How to Get Around a Due on Sale Clause

Legal News: Loan Fraud

Trends: The Economy/MBA Releases Long-Term Forecast for U.S. Economy and Housing Finance Market/California Real Estate Breaks Sales, Price Records/Median Home Prices in Houston Well Below National Average

Upcoming Events: Real Estate Financing One-Day Events in Southern California

Bush Administration Proposes ‘Zero Downpayment’ Mortgage Plan

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Author: Beth Bresnahan
Publishing date: 01/20/04


RISMEDIA, Jan. 20-On the eve of the State of the Union address, the Department of Housing and Urban Development (HUD) released a proposal that would allow homeowners to buy a home without a downpayment.

Federal Housing Commissioner John C. Weicher announced Monday that HUD is proposing to offer a "zero down payment" mortgage.

This action would help remove the greatest barrier facing first-time homebuyers -- the lack of funds for a downpayment on a mortgage, HUD says.

Speaking at the National Association of Home Builders' annual convention in Las Vegas, Weicher said the proposal, part of HUD's Fiscal Year 2005 budget request, would eliminate the statutory requirement of a minimum three percent down payment for FHA-insured single-family mortgages for first-time homebuyers.

"Offering FHA mortgages with no downpayment will unlock the door to homeownership for hundreds of thousands of American families, particularly minorities," said HUD's Acting Secretary Alphonso Jackson. "President Bush has pledged to create 5.5 million new minority homeowners this decade, and this historic initiative will help meet this goal."

Preliminary projections indicate that the new FHA mortgage product would generate about 150,000 homebuyers in the first year alone.

"This initiative would not only address a major hurdle to homeownership and allow many renters to afford their own home, it would help these families build wealth and become true stakeholders in their communities," said Weicher. "In addition, it would help spur the production of new housing in this country."

For those that choose to participate in the Zero Down Payment program, HUD would charge a modestly higher insurance premium, which would be phased down over several years, and would also require families to undergo pre-purchase housing counseling.

In response to questions, Weicher confirmed that the monthly payment would likely be higher for borrowers taking part in the new program as opposed to a traditional FHA program. The downpayment costs would be put into the monthly mortgage payments. So Weicher suggests that consumers who can afford a downpayment are better off going with the traditional FHA program.

Weicher says that private mortgage insurance companies are not likely to be affected by the new proposal. Their consumers are traditionally lower risk, and HUD’s new plan helps those who are higher risk. Weicher also thought the new HUD program would not interfere with work done by downpayment assistance programs run by groups such as Nehemiah Corporation of America.

“We don’t think we’re particularly competing,” Weicher said. “We are serving families who are now not being served by anyone in the market.”

In response to Weicher's statement, Scott Syphax, president and CEO of the Nehemiah Corporation of America, said,

"We at Nehemiah enthusiastically support President Bush's call for the removal of the downpayment requirement for FHA first-time home buyer mortgage approval. Nehemiah was created to help alleviate one of the savage inequalities inherent to the home buying process, and we have been calling
for the removal of the downpayment regulation since our inception. We are pleased Mr. Bush has finally seen the light and seems prepared to remove this unnecessary and often debilitating hurdle for lower income families.

While this measure may very well lead to end of the Downpayment Assistance Program industry, we at Nehemiah believe it is the right thing to do, as it will in turn help millions of deserving Americans across this country achieve the American Dream of homeownership.

We applaud the President's message, but until action is finally taken and this financial barrier is eliminated, we will continue to provide essential downpayment assistance to hundreds of thousands of families located throughout all 50 states, and look forward to celebrating the day that this new action becomes the law of the land."

Weicher also discounted suggestions that the zero downpayment program would lead to an escalation in house prices.

For current FHA mortgage loan limits, visit: https://entp.hud.gov/idapp/html/hicostlook.cfm.

RISMEDIA welcomes your questions and comments. Send your e-mail to: editorial@rismedia.com

Getting Started: Potential Deals

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I recently received an email from a student about a potential deal:

Barney,

Q. Sorry I did not contact you sooner about the deal I found. Let me ask you a few questions. What do you consider to be big enough to be property managed?

A. In Texas, AT LEAST 50 units, unless they are higher priced units or groups of condos or houses.

Q. I’m kind of out of my element when it comes to asking for “a nominal finder’s fee, in that you teach me, in detail, your due diligence process and how you researched the deal”, in exchange for the lead.

A. I work closely with my consulting students and usually don't have time to follow up on "out of the blue" deals. If it is really a great deal, I am no fool; I will do it. In general, give me a deal and watch how it works. We usually pay $500 for "tips" but I seldom follow up on them due to lack of time. However, if they are in Houston, I will find the time, or my associate, Greg will do it. We usually pay $2000 for signed deals. With tax sale deals, we pay $500 minimum for houses and more for better deals…usually up to $2,000, when we buy.

Q. Maybe I don’t fully understand the whole process. Do liens really get wiped out during a tax sale?

A. Yes, that is why, if there is a loan, most lenders will pay the taxes to protect their position.

Q. If you end up with the deed after the redemption period has expired, do you “inherit” any of the encumbrances that existed before the tax sale?

A. The IRS can be an exception. Remember, the taxes were an implied liability before the property was sold.

Q. Regardless, I went by the property. It was a town home community. There were 22 buildings and I would characterize it as a little “tired” but in reasonable shape. The manager told me that the nearly $800K in back taxes was resolved yesterday. She also told me that the occupancy was ~82%. I guess if you had 1 Mil in cash to spend, this would have been a good one to move on given the assessed value.

A. Given time, I can raise that much. But smaller deals can be done quickly.

BZ

Advanced Strategies: How to Get Around a Due on Sale Clause

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A student of mine sent me an email asking how to get around a “due on sale” clause. Here’s how I replied:

You suggested that the seller is VERY motivated, having moved out of town and there is no management on his weekly rental property. Yes, now is the time to strike. But I don't know if moving it into a land trust will get you around the due on sale clause. It totally depends on the actual due on sale clause and how it is worded. If it is worded in the way the usual Fanny Mae forms are, then ANY transfer triggers due on sale.

What to do? You can always get permission from the lender to have the seller move it into a trust and then, after that is done, have him make you the beneficiary of that trust. It works great but there are only 50-50 odds they will say yes, and it does take time to find out. You could move it into the trust with them as the beneficiary and just take your chances that they would not call “due on sale”. If you do that, make sure and do a CYA (Cover Your A**) letter stating that you can not promise what the lender will do.

I would say your best bet would be a 35 month lease option. The standard “due on sale” form says that any option of three years or longer is considered a violation of due on sale. If the property is more vacant than full, has sewer leaks (scary) and his ex-girlfriend is on the title, I would guess he would sign just about anything to get the problems solved.

Option money could be enough to pay half a commission to the selling agent, which was $1500 on the reduced common schedule she agreed to. The last half can be paid to your buyers’ broker when the deal is funded. Make payments equal to the notes that need to get paid. Make sure he gets a Quit Claim Deed from the former girl friend and it is filed and his deed is put in escrow. You might even have him make the next month's payment before your payments begin. Solve all the problems you can up front. For instance, put in the option that the cost to fix the sewer leak will be paid by you and come out of the price.

Let me know if I can help more.

BZ

Legal News: Loan Fraud

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If one was to review the many instances of loan fraud, one would find it often occurs when the seller and the broker and the loan broker and the appraiser and the inspector and everyone else involved are either cousins, or as close as cousins. A situation like this just leaves too much room for "cooking the books" as they used to say at the accounts table at the Enron employee cafeteria.

This came across the wire…it has to do with Utah, but I would bet this will be a trend.

Effective January 1, 2004, an individual who holds a mortgage, contractor, real estate, escrow officer, or appraiser license can act in only one role on a transaction. For example, you cannot be the mortgage broker and the real estate agent on the same transaction.

I just like to give you a heads up on these things.

Trends: The Economy

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The economy and real estate investing are closely tied. There is something to do in all markets and a profit in each. Up markets usually mean stability if prices have been going up, as in California. If prices have been the same, as the economy heats up and if there is local growth, prices will rise, as is the case with Texas.

The services tell us the U.S. economic growth has been revised to 8.2% for the third quarter, changed from an expected 7.6% mainly due to a re-evaluation of the rate of change in business inventories. The quarter also was boosted by a 6.4% rate of growth in consumer spending.

The Conference Board reported its consumer confidence index rose to 91.7 in October, the highest reading since last September. One researcher says the rise suggests consumers are beginning to see a positive turn in the labor market.

Forecasters polled by the National Association for Business Economics expect the GDP growth to rise 4.5% next year, up from a 4% growth prediction in September. The group also sees spending increasing 10%, exports up 7.5% and a $42 billion rise in inventories in 2004.

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[Thanks to our friend Mark Victor Hansen who forwarded this article to our attention.]

MBA Releases Long-Term Forecast for U.S. Economy and Housing Finance Market

Washington, D.C. (January 22, 2004) The Mortgage Bankers Association (MBA) released its long-term economic forecast for 2004, 2005 and 2006 during its annual State of the Real Estate Finance Industry press briefing.  MBA is projecting strong economic growth through 2006, with gross domestic product (GDP) growth rates exceeding 4 percent each year.

The year 2004 looks to be an exceptionally strong year, building on the gains of the last part of 2003, with the result of continued strength in employment and the housing market.  We see the job market getting even stronger, even with - and in some cases due to - the record gains in productivity, resulting in a positive impact on home purchases and mortgage originations," said Doug Duncan, MBA chief economist and senior vice president, research and business development.

"Despite this level of economic growth, we see interest rates increasing only moderately due to continued expectations of low inflation.  Long-term rates should increase from current levels by 40 to 50 basis points by the end of 2004, and another 70 to 80 basis points during 2005.  Coming off our recent lows, these are very modest interest rate increases for the level of economic growth we are expecting," Duncan said.  The key points of the latest MBA forecast are the following: Real GDP growth will average 4.7 percent during 2004, and 4.1 percent in 2005 and 2006.  The unemployment rate will decline from the current level of about 5.7 percent to 5.2 percent by the middle of 2006.

The 10-year Treasury rate will rise to an average of 4.5 percent by the fourth quarter of 2004, 5.3 percent during the fourth quarter of 2005, and average 5.4 percent during 2006.  Mortgage rates will follow a similar pattern, although the spread between mortgage and Treasury rates is expected to tighten.  Existing home sales will come off record levels and fall by 5.1 percent in 2004 and fall by 3.6 percent in 2005 and be essentially unchanged in 2006.  Sales will remain at very high levels by historical standards.  New-home sales will fall by 7.2 percent in 2004 and fall by 3.3 percent in 2005, but remain unchanged in 2006.  In addition, home-price growth is expected to be modest, with existing-home prices increasing 5.5 percent during 2004 and new home prices increasing 3.7 percent.  Price increases in 2005 and 2006 are expected to be in the 4 percent range.

Mortgage originations will be down from a record high in 2003, but will hit $1.99 trillion in 2004, $1.72 trillion in 2005 and $1.78 trillion in 2006.  While the refinancing volumes will be far below the levels of 2002 and 2003, mortgage originations for purchasing homes are expected to be $1.31 trillion in 2004, $1.35 trillion in 2005 and $1.42 trillion in 2006, versus $1.27 trillion in 2003.

Source: Mortgage Bankers Association

Contacts Laura Armstrong
(202) 557-2730
larmstrong@mortgagebankers.org

Matthew Royse
(202) 557-2727
mroyse@mortgagebankers.org

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership prospects through increased affordability; and to extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters excellence and technical know-how among real estate finance professionals through a wide range of educational programs and technical publications. Its membership of approximately 2,700 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org. 

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Source:  Inman News

California real estate breaks sales, price records
Low inventory, high demand pushes single-family median to $404,520 in December
Tuesday, January 27, 2004

The median price of an existing home in California in December increased 19.4 percent and sales increased 11 percent compared to the same period a year ago, the California Association of Realtors reported Monday.

"The median price of a home in California topped $400,000 for the second time in 2003, hitting a record $404,520 last month," said C.A.R. President Ann Pettijohn. "Demand for homes continued unabated, propelled by mortgage rates that remained below 6 percent and an extremely low inventory of homes for sale."

The median price of an existing, single-family detached home in California during December increased 19.4 percent over the revised $338,840 median for December 2002, C.A.R. reported. The December 2003 median price increased 5.1 percent compared to a revised $384,930 median price in November.

Los Angeles-based C.A.R. is a state trade organization with more than 135,000

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The median price for single-family homes in 2003 peaked at $143,000 during July, representing the highest median price ever recorded in Houston, but this figure still remains well below the national average.

Source: Houston Association of Realtors

Upcoming Events:

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Real Estate Financing One-Day Seminar 

(Go to http://www.zick.com/sem_REF.shtml for details.  Call our office at 1-800-677-3253 to register TODAY!)

Saturday, February 21, 2004
Los Angeles Radisson Airport
6225 W. Century Blvd.
Los Angeles, CA 90045
310-670-9000

Sunday, February 22, 2004
Disneyland Hotel
1150 W. Magic Way
Anaheim, CA 92808
714-778-6600

We are hard at work planning additional Boot Camps and Seminars for 2004.  We add events to our calendar frequently, so be sure to check www.zick.com often!

The Fine Print...

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We will do one newsletter like this one (Advice for the Impatient Investor) and one called the REIT Report (containing Real Estate Education Industry News and a lot of personal opinions), approximately once a month.  (However, keep in mind, our newsletters are free so don't get upset if we skip one occasionally!)  

Advice for the Impatient Investor has been published for fourteen years (but not in a row). The next issue should be out about March 1st.  The next REIT Report will go out on or about February 15th.  

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