All Forum Posts by: Account Closed

BP Community:
Branching off the next wave of foreclosure posting I wanted to get a sense from the community on what would happen to the mortgage market once the Fed has stopped buying up mortgage back securities (MBS) from the secondary markets ending on April 01, 2010. How would that impact real estate investors moving forward? So far the American Taxpayer is the proud new owner of about $1.5 trillion worth of MBS (a.ka. dog crap).

Here's a little blurb about the Fed discontinuing buying MBS's.

Beginning in January 2009, and every single business day since then, the Fed has been buying up Mortgage Backed Securities (in a very non transparent market). The program, which ends tomorrow, will have transferred $1.25 trillion of MBS "on behalf" of the US taxpayer, representing the single biggest asset on the Fed's balance sheet, and backing up such liabilities as currency in circulation (yes, that dollar in your pocket is collateralized more than half by rapidly devaluing, and in many cases cash flow non-producing houses) and excess reserves.

David H.

Hello Mike:
Welcome to the BP Community. I hope you are able to learn, network, and work on deals through this community.

David H.

To add to Scott's posting on FHA underwriters they are certified and also face the risk of having non-performing loans appear on their record. That is why the FHA underwriters are so stringent upon their underwriting.

Since there is only prime, FHA, & VA available in terms of mortgages the volume of mortgage business has shifted to FHA due to the high LTV's and low down payments.

I agree with Scott to avoid FHA buyers initially if you can build up the cash buyer list.

David H.

To address Ralph's posting:
If investment banks like Leahman Brothers (who also owned Aurora which was an Alt-A Lender) were using illegal tactics like Repo 105 then I would throw GAAP out the window. This is definitely not looking good for the state of banking.

Here is a clip from a hedge fund blog that describes Repo 105:

(If you want the full article just google Repo 105)

Presenting a detailed look at "Repo 105" - the next soundbite sure to fill the airwaves over the next weeks and months, as more and more banks are uncovered to be using this borderline criminal accounting gimmick to make their leverage ratios look better. This is the first time we have heard this loophole abuse by a bank, be it defunct (Lehman) or existing (everyone else). There should be an immediate investigation into how many other banks are currently taking advantage of this artificial scheme to manipulate and misrepresent their cap ratio, and just why the New York Fed can claim it had no idea of this very critical component of the Shadow Economy.

To add onto J Scott's posting about Option Arm's, I know from personally working for a lot of the major mortgage lenders as a wholesale account executive for banks such as Washington Mutual that there will be a new wave of distressed loans because of the recasting of option arm loans. I personally worked on originating a ton of business from mortgage brokers within the New York Metropolitatn Area.
Banks like Wachovia, Indymac, WAMU, and World Savings sold these option arms like hot cakes when the market was doing well!

The major hitch in the option arm loan is the negative amoritization component that borrowers ignored or were not fully made aware of. The way the banks would attract borrowers into the loan was through a teaser rate which was usually around 1% along with 3 other payment options. (Interest Only, 30 year, 15 year payment.)

Borrowers would only make the minimum payment off the 1% and not payoff any of the principal or all of the interest. Thus it's like only making the minimum amount on your credit card statement and that results in you owing more then you borrowed.

When you combine a ballooning loan balance through negative amoritization and house values plummeting that accelerates the negative equity in the property.

Here's an article about option arm loans in January from CNBC with some good statistics on the next wave of foreclosures.

http://www.cnbc.com/id/34729005

Important Notes From Article:

-From 2004 to 2005 1.3 Million borrowers took out $389 Billion worth of Option Arm Loans alone.

-Some 88% of Option Arms originated between 2004 to 2007 are going to adjust higher from now to 2012. Those Option Arm Borrowers could see their housing bills go up as much as 63%, according to Fitch Ratings.

-If Fed starts raising rates then Option Arm Rates go up also because their rate is tied in with the Treasury Rate.

-Option Arm borrowers can't refinance because of declining home values and tighter credit restrictions.

-The number of foreclosures is projected to be 4 million within the US for 2010.

Hey Brian:
Congratulations on a job well done. Thank you for sharing with the group about what it takes to actually complete a deal from start to finish. It definitely opened my eyes to the process involved in getting a deal done. I wish you many more successful deals for you in the near term future.

David H.

Nick:
Please disregard that last posting about the probates. I didn't see the date of the that posting. Keep on making the short sale videos.

David H.

Hey Nick:
I'm going to miss your funny faces short sale calls with the realtors.

Well I wish you all of the best on your new field of entry and I look forward to you sharing about your experiences as always.

David H.

BP Community:
I wanted to reach out to the BP Community to see what would be the best real estate investing strategy in order to make this deal happen.

Here is the Brooklyn Brownstone deal scenario.

Situation: The homeowner had terminal cancer and was motivated to sell. The homeowner want me to show proof of fund in order to go into contract.

I was unable to secure POF or any type of financing to be able to get this property under contract.

Property Type: Brownstone 3 family 3/3/3 with an unfinished basement.

Location:On the edge of Clinton Hill/Bed Stuy border 2 blocks from subway

Price of Property: $210,000

Repairs: $100,000 (Have two quotes of $80K and $100K)

Liens:
1st Mortgage $74,000
2nd Mortgage $12,000
NY State Dept of Tax $1,613 (Can be shorted)
Violations $14,456 (Can be shorted)
Fed Tax Lien $15,792 (Can be shorted)
Tab Violation $125 (Can be shorted)
Total Liens $117,986 (Liens can be shorted down to $90K)

Total (Before Short) $427,986
Total (After Short) $400,000

Assignment Fee (3%) $12,500
Gus Commission(3%) $12,500

Total Sales Price $425,000

Low End ARV : $600,000 LTV =70%
High End ARV : $650,000 LTV= 65%

This property was in a good area and had a lot of equity built into the property.

What would be the best method to use in order to make this deal work for all parties?

David H.

Hello Brian Wall:
May I ask what the loan term (how many months) is the private money for? Thank you.

David H.