What is HUD?

It might be a short texting acronym for How yoU Doing.

It is actually The Department of Housing and Urban Development.

 Check them out yourself here:  www.hud.gov

What exactly is a HUD Home?

HUD is a government agency.  The Department of Housing and Urban Development.  They back up FHA Loans and when these default, HUD can end up liquidating the assets on the open market or through other channels.  They also promote home ownership, so they can offer first time home buyers some good options through their various program.  In addition in these tough times they are heading up the government directives like “Making Home Affordable” program. 

Learn more about Making Home Affordable here:   http://www.makinghomeaffordable.gov/

According to their web site:

“HUD’s mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships–particularly with faith-based and community organizations–that leverage resources and improve HUD’s ability to be effective on the community level. “

So what does this mean to you.    Well HUD works with FHA (The Federal Housing Authority) and when someone defaults on their FHA guaranteed Loan or Mortgage, then the house can end up going back to HUD to liquidate if it hasn’t been successfully sold previously by the bank or the home owner in a short sale.

If a house is very upside down, it may be destined to go to HUD, because FHA has minimums they are allowed to take in a Short Sale based on the original purchase price, appraisal and loan amount.  So if a house was way over-priced a couple years ago or has really declined in value, no buyer will be willing to pay what FHA is required by law to take as a minimum amount.  Then the home goes back to HUD to liquidate.

For the State of Colorado and in Montrose the REO Management Company used by HUD is MCB  (Michaelson, Connor and Boul).  They handle all the liquidation for HUD in a region of the United States including Colorado.  http://www.mcbreo.com/st_comain.htm   According to their website, they also cover Arizona, Michigan, Montana, Nevada, Utah and Wyoming.

HUD hires through their REO Asset Management Company one Real Estate agent for a very large multi-county region, they get a small amount of money for listing each of the properties in the MLS.    For Montrose Colorado this agent is Marilyn Hammar.  (Please don’t call her.  She just puts them into the MLS for the Government.  She doesn’t do photos, she doesn’t inspect the properties, she doesn’t have knowledge of them beyond what she is provided…)    Here is a link to a list of all the local listing Brokers for MCB REO in Colorado.  Use these names for your local agent to easily search (by agent) all the HUD homes in an area…

http://www.mcbreo.com/colorado/collb.htm

HUD typically has the homes winterized and secured with a standard key that is the same for all HUD homes in an area.   This allows any agent to show the home (as long as they have a HUD key in their office). 

A Real Estate office and its Broker Owner (Here at Century 21 Action Realty in Montrose Colorado, that is Ninah Hunter) must be registered with the company responsible for liquidating HUD assets in your region in order to make offers on properties.  This is not hard but does require some paperwork.  Once done any of the employed agents or brokers can submit HUD offers on behalf of their buyers.

Sometimes HUD properties will be featured in Auctions, online or offline.  Here in Colorado MCB allows electronic bidding.

Just like with Bank Owned properties don’t expect HUD to fix a lot of things for you.  You are better off documenting the need and reducing your offer price and then taking care of these things yourself.

HUD/FHA do offer a “K” Loan (a small version of their 203K Rehabilitation Loan).  The “K” Loan allows a buyer to finance in and escrow the repair costs for the home.  The repairs must be cosmetic and not structural in nature.  The FHA 203K Loan will handle structural repairs but it is a lot more paperwork.  The “K” loan is perfect for repainting, replacing carpet, built in appliances, tile or linoleum, etc.   The 203K grown up version can be used on a complete gut and remodel.  They lend based on the “after repaired appraised value“, then the draws are handled like a construction loan.

So what are you waiting for go out and buy a HUD home today… Just kidding, but it sounded good. 

If you are in the market already for a house and you are looking for something that might need a little work, a HUD home is a great place to look…

But a Realtor is really the best place to start, because they will have HUD homes, Bank REPOs, Short Sales, Desperate Sellers (Divorce, Illness, Death), etc.   They allow you the best shot at looking at the whole market.  But it never hurts to look around a bit on your own.

Check out my websites for properties and homes in the Montrose Colorado area.

www.SoldCORE.com

www.COrmsbee.c21actionrealty.com

www.MontroseGoldTeamBlog.com

Hope this helped you get a better understanding of what a HUD Home is and how you might go about looking at one.

If you want to buy or sell a home in Western Colorado, especially in Montrose and the surrounding areas, give me a call.  My name is Chris Ormsbee and I can be reached on my Cell phone at (970) 209-0252.

Big Banks Setup and Robbed American Taxpayers

I have argued for a long while that Big Banks essentially setup and then robbed Amercan Taxpayers.  This is what started the wave of foreclosures and dropping real estate prices.

They pushed easy loans from the top of their organizations down to loan originators that were given incentives and bonuses for selling these high front end income loaded products.  The banks made money and then repackaged and resold the loans as bonds and made more money.  The bond holders are the ones that lose out when the home goes into foreclosure, not the banks. 

Underwriters were told to turn their heads and look the otherway while people that had no business buying a home got approved for 100% or even 110% financing.  Often structured with interest only or as an adjustable rate mortgage that for many home owners was a setup for failure. 

If they had been marketed a reasonable loan product, many would not face foreclosure today.

It irritates me to no end when I hear the main stream media talk about the “investors” and “fraudulent home owners”, those “losers” that took us down with the “liar’s loans” that started all the foreclosures.

What constitutes a lie on a loan application?  If you are estimating income… it is an estimate…  If you are a Realtor or a Contractor or anyone that works on commission or owns their own business, how can you ever be CERTAIN of your income.  You cannot.  I also like to point out that even a government employee who thinks his job is safe can meet hardship in life, whether it is personal or professional.  There are too many types of hardship that accompany foreclosue to list them all here, but the most common is becoming unemployed, or not having work, because construction of new homes stopped, because buying and lending stopped…. 

If the public buys this crap that individuals should be able to predict the future any better than the government can balance its budget, then I guess they deserve what they get… “Dis-information…”  The media ALWAYS puts the banks in the best light.  The only reason there is any negative information about them at all is because of the iternet and the huge wave of foreclosures occuring in the country.   The public is starting to know and demand more honest information. 

Then there was more setup, when the public is told they can half their mortgage payment with a loan modification, but many people think you have to fall behind on a mortgage to get a loan modification. 

Many of these that don’t get approved turn into a foreclosure.

In my opinion the banks were at the root of the problem in the beginning, so what do we do to fix the problem, give them more money so they can pay themselves more bonuses and record “Record Profits”. 

This is the biggest money grab in American history…  The Banks have Robbed the American Taxpayers and are getting rewarded for it.

Greg Gordon an investigative journalist was interviewed by Alex Jones (portrayed by some as a radical conspiracy theorist - but I like him and agree with much of what he says).  

This lays the whole picture out very nicely.  It portrays what I believe happened.  Watch these three video clips and let me know what you think.  Please share your opinion in the comments. 

I hope you watched the three videos (about 30 minutes) that clearly demonstrate how the banks probably set us up or at least saw this coming while they were talking out of both sides of their mouth.

I think the Banks Robbed America! They have caused the biggest flood of foreclosures our country has ever seen.  And we have paid them 100s of billions as a reward for doing so. I think we should call for an audit of the Treasury Department and the Federal Reserve.

Let me know what you think!

Chris Ormsbee is a licensed realtor in the State of Colorado and is employed by Century 21 Action Realty.  He is not a mortgage broker, a lawyer or accountant.

How do you Sell a Manufactured Home in a Park?

Selling a manufactured home in A Mobile Home Park where you rent the spaces offers many unique challenges compared to selling a stick built home.  Financing, Target Market and Park Rules can hamper a sellers efforts to sell their home.

What are the specific Challenges to selling a manufactured home in a park? 

1. These homes are very difficult to finance especially right now. 
2. Most people shopping in this segment of the market aren’t flush with cash.
3. Buyers only get a partial benefit of home ownership.
4. You often cannot target investors as many parks don’t allow rentals.

Well to sell a Manufactured Home in a Mobile Home Park I believe you must do the following:

• Price the home to sell.  See what the recent (6 months) solds are and decide how yours compares.
• As a seller you need to Finance the home for the buyer. 
  • If you owe a bank on the manufactured home you are trying to sell, you may need their permission or a lawyer to draft a contract that wraps the note.
  • If you own it outright, then it is easy to finance for the buyer, just decide what you need down and how long you can stretch the payments out for.   I often recommend someone finance a manufactured home for 5-10 years at 10% interest with 10% down payment.    Seems reasonable to me at this time (10/29/09).
  • If you really need the cash, drop your price more, or offer down payment assistance to the buyer and find a lender somewhere that will finance the home for at least some buyer.  Often Credit Unions will do it and treat it as a vehicle loan.  Many commercial sources have dried up…  There is also the option of private lending, a relative, etc. that has the cash that can be the bank.
• Advertise and market to potential renters because this should be a comparably affordable option for them and at the end of 5-10 years their rent gets cut in half once their home is paid off.  They do accumulate some amount of equity as well (If they take care of their home).
• Point out all the freedoms and benefits of home ownership to buyers:  Remodeling, no shared walls with neighbors, equity accumulates monthly as you make the payments…

So Really Its not “That Hard” to sell a Manufactured Home!

You just need to get creative and address the buyer’s key needs:  Price and Terms. 

Good Luck!

Thanks for Reading!  Contact Chris Ormsbee or Diane Haynes with the Montrose Gold Team at Century 21 Action Realty in Montrose Colorado.  Call us at (970) 249-7777 and be sure and say you saw the blog!

Should You Refinance Your Home Mortgage?

Drop it by at least 1% on a comparable Mortgage.

Typically a good mortgage broker will tell you that you need to drop your interest rate by 1% to make it worth your while and pay all the fees (origination, appraisal, recording, etc.).  So if your rate is 7% or more and you are planing on staying in the home, it should be a no-brainer… refinance!

Consider the Terms of Existing Mortgage

You also need to consider the terms of the existing loan.

Are there any prepayment penalties, or prepaid mortgage insurance?

Is the Mortgage (Note and Deed of Trust)  a fixed or a variable rate loan?

Right now the variable rate loans are still in the 4%-5% range and some HELOCs (Home Equity Lines of Credit) are running even lower.

Variable Rate Loans - are not by definition bad and can be useful for the right circumstances.  For example if you know you will sell your home (due to kids leaving, divorce or marriage plans, etc.), then a 3 or 5 year fixed rate loan that is a lower than a fixed rate loan now and adjusts later might be the best decision for you.  A good mortgage broker or lender should discuss your overall financial picture with you and try to help you determine what will best fit your needs.   The bottom line is you are borrowing money and the lowest interest you can pay on that money is the best deal… but you need to look at both the short term and long term realistically.

A key problem with these ARM (Adjustable Rate Mortgages), that has given them a lot of bad press and even the blame for the flood of foreclosures on the market, is that they were sold to people unscrupulously (not explained accurately) or the people were just more optimistic about their futures than they should of been, but they have been used successfully by millions of people.  

You have to pick the right tool for the Job.  As a rule for the average homeowner, first time home buyer, etc. I would recommend a fixed rate 30 year note and suggest strongly to them that they should regularly pay in an extra couple hundred dollars to pay it off in 15 years. 

What position is the loan you want to refinance and are their others that will be affected?

If you have a second or third mortgage, It is rare but possible for them to complete a subordination agreement, to allow the first to be “re-written” and/or remain in “first” position.  It might also be possible to consolidate multiple loans into one loan, however if you go over 80% of the value then you will be paying mortgage insurance often called MIP or PMI. 

The Mortgage Insurance Premium, effectively raises your interest rate, but will go away after you reduce the mortgage principle balance to 78% of the LTV (Loan to Value).  It is like the Credit Card “Insurance” protection that if you lose your job they will “hold” the account “for only .89 per 100″ (just pitched to me today on an account with a balance of over 13,000, so for only…. $115/MO insurance, I can have the surety that if I cannot pay, I won’t have to.   It is basically an extra 1% (.089) of interest monthly which is effectively raising my interest rate by 10% annually…. Thanks but NO THANKS… I never do this!)

The MIP or PMI is not that expensive but is usually about 1 to 1 1/2 percent additional interest or at least cost to you, which is a cost of borrowing the money, so I call it interest even though it is actually insurance.

Insurance Sucks, but is a necessary evil in our society.  But Credit Card Insurance and Mortgage Insurance in general should be avoided wherever possible.

Other Considerations…

It is amazing but very few people actually read their Note and Deed of Trust, but they really should…

The Note and Deed or Trust or in some cases a Mortgage, defines all the terms surrounding your debt and its expected repayment as it relates to the lender (usually a bank). 

The Note and Deed of Trust also defines what constitutes a default of the terms and what the default interest rate and penalties are.  The other critical thing is when the Deed of Trust is recorded, this defines the order…. So your primary loan is usually in the first position.  Subsequent loans would take, second, third, etc.

A Deed of Trust is a three party document, you have the Lender, the Borrower and the Public Trustee (at least in Colorado).  This is a publicly recorded document and it defines essentially a contract of your repayment.  If you should default on this contract, i.e. not pay your mortgage, then the lender/bank has the right to foreclose on the Note and Deed of Trust by filing a Notice of Election and demand.  

PLEASE NOTE:  If you are behind on your current mortgage your chances of refinancing are probably very low.  Your best bet is to try to do a Loan Modification.  A late mortgage payment is a big credit score ding that stays with you for about 2 years, it is essentially the same as a Short Sale.

So how low will Mortgage Rates go?

Rates are low and no one knows for sure when they will go up but the consensous is that they will eventually go back up.  Based on the fact that they are at historic lows it seems inevitable.  Yet with the housing market being what it is, with a flood of Foreclosed, Reposessed, REO properties, often in “rough” condition, but still selling at a significant discount to the neighbors house that is a FSBO (For Sale By Owner) or the other neighbor who is trying to get the price from two years ago when the market was vibrant and a “sellers market”.  It is without doubt a “buyers market” right now.  Prices are down, bargains and deals are all over the place and interest rates are low.   

A key problem is the money supply is very tight.  The required credit score is much higher than it was two years ago.  Stated Income or “Liars” loans are a thing of the past, which I think sucks, cause a self employed Realtor has to “Project” or “Plan” on an income, but obviously is not in full control of that destiny, and for that matter neither is the guy who has worked for the County for 20 years or the big Corporation, etc…   None of us know the future, so I think the bias to W2 employees, by completely ditching the “stated income loan” is BS…. But that is just my opinion! 

I think this whole default debacle was created on Wall-street, when they packaged up ”crap” loans with a few “mid” rated loans and a few “good” loans and called it a “better than average” portfolio of loans and sold off these 100 million dollar packages at a higher than fair or market rate and then the crap loans in the portfolio started to default, now we have essentially a B rated “Bond” that is really a “D” or ”F” and it screwed up the trust and rate factors in the secondary market.

Overall is was a Madoff like plan to rob wealth from the masses…  This was done by Investment Banks, that our government Republican and Democratic has decided to “Bail Out” with our money… So now the Government is incentivising the banks to “work with people” and in my opinion promoting further default.

Its scary folks, but all we can really do is play the game as best we can amongst the rules and players that are present here and now.

I just heard today that many banks are currently holding onto some of their REO properties waiting to get a higher price… Apparently they are getting tired of losing money.   Those big bonus checks from the TARP money must be stopping…

Sorry about the rant.

So where will rates go?

Easy answer no one knows…  I think up eventually, I just don’t know when.  If you do an ARM you are betting they will go down or hold basically flat so you can redo the ARM or convert/refinance into a fixed rate mortgage if you stay in the home.

I remember paying 12% in the late 80s and thinking I had a good rate.  So everything is relative.  Right now rates are running in the low 5% range, but I also have a variable rate HELOC that is only charging me 3.5% right now. 

My General Advice on Mortgages is:

I usually recommend to my clients to get a fixed rate 30 year loan even if they intend to pay it off in 15 or 20 years.  Most loans allow prepayment of the principle without any penalties (you want this kind of loan). 

So if you have the 30 year loan and amortize your payments for the 15 year loan then you should payoff your home in 15 years, but if you get laid off or otherwise lose your income stream then you have a lower mandatory payment. 

Realize however, that even if you have been paying an extra 200 per month for 20 years if you don’t make the required minimum payment, they don’t count the extra you have paid toward the amount due.   Therefore every home owner should try to save up 3-6 months of mortgage payments to cover rough times.  

This is also where a second line of credit or HELOC (Home Equity Line of Credit) can come in handy and could be drawn down to cover the monthly payment of the first mortgage.  It can and should be used as a type of safety net.  Its best to construct or define your net before you need it.  Once you need it you may not qualify for it.  In otherwords they too look at ability to repay and employment, etc.   If you lose your job you might not qualify for a HELOC.  If you get the HELOC first, then lose your job, you can draw from the HELOC.  (They seldom if ever based on my knowledge - requalify the individual before drawing actual funds.  Therefore the static qualification now to establish the HELOC is good until you either close the account or try to refinance your first mortgage.

So happy borrowing and while I love cash buyers, they are typically retired people that have had a whole “successful” life to save up money or gain equity in their prior home, so for the proponents of ony ever buy anything with just cash…  My advice is think about borrowing, there are bargains everywhere and rates are low.  Keep you cash so you can be sure you can make the payment.  Borrowing and Lending and even charging interest aren’t evil as some would suggest, they are just business.

Good Day!  Chris

Chris Ormsbee is a license Real Estate Broker in the State of Colorado.  He works for Century 21 Action Realty in Montrose, CO 81401 at 1245 E Main St, right on the NW corner of Main St. and San Juan Ave.
Chris Ormsbee is not a lawyer or an accountant but he is a “real” person and an Internet Marketer and he has occasionally slept at THE Holiday Inn Express!

Check his other stuff out at:

On Facebook as myself: ChrisOrmsbee

Real Estate Blog: http://www.YourCOREAdvisor.com/blog

Divorce Advice Blog: http://www.thedivorceworkshop.com/

Wacky Ideas, Thoughts and Whatevers: http://ideasthoughtswhatevers.blogspot.com/

From where I am sitting, I am still seeing a relatively high number of foreclosures in our area.   I think our market tends to lag the general market by about a year to 18 months. 

Some predict a further mushrooming of this effect as many banks have been waiting to test the water and see what is coming next.

Montrose Colorado is a beautiful place to live and was growing at a good pace and is still expected to double in size over the next 10-20 years. 2 Years ago this was easy to believe.  Now I think it will be pushing clear to the 20 year mark, unless the money supply situation straightens itself out.

Banks supposedly have money to lend (hundreds of millions of it financed off the tax payers backs).  But Banks are not lending as much as they want to because of new regulations and policies enforced by underwriters to ensure safer loans.  Whether you are for or against this doesn’t really matter. Tight lending it is stopping people from buying and selling homes, that would of otherwise been bought rather than rented.

At the same time Credit Card companies are squeezing already strapped people (including me), by cutting their credit limits down and raising interest rates.  Eliminating peoples “Cushion” or “Float” Capital.  This is particularly important for the small business owner with one or two employees who’s cash fluctuates with jobs as they come and go or pay or delay… 

This means people like Realtors and small contractors who rely on credit to finance their business are unable to finance their business and are tapping into any savings or reserves they may have.    They are probably losing out on some jobs because of this lack of available credit.

Many also do not understand that once their credit limit is cut, if their balance exceeds 50 % of the allowable credit, then it docks their credit score, possibly preventing them from getting a home loan.

The credit crunch is real and its affecting hundreds of millions of people and guess who is making money off of it… The banks, the same banks that got us into this mess.  I know there are thousands of “preachers” out there who support that everyone have a “strong” or even entirely cash position and boy wouldn’t that be nice, but Credit is a lot like a drug, they get you hooked and used to using it and then when they cut you off you are in real trouble.  Its unfortunate that they are using the current housing crisis as a time to try to make more money off the backs of the struggling American and that they have overtightened the money supply for home loans.

Montrose Colorado really didn’t have a foreclosure problem, until the money supply dried up.  This stopped construction and caused lots of layoffs and for people like Realtors, their income was halfed, quartered or even eliminated, leaving the them with a deficit.

I personally had a sizable chunk of savings and available credit for “down times”, but it has been eroded and used up and I can’t just force people to use me or to even decide to buy a house. 

I have never worked harder and been paid less in my life.

There is a glut of inventory on our market and many prices have not fallen yet to where I feel they will actually be purchased.   Most shoppers are looking for a 50 cent on the dollar deal…  Few exist.  Those that do are offered from “motivated” banks, but they usually require a great deal of repair and fix up, so this usually cuts out the first time home buyer and focuses on the investor.

Then President Obama decides that we will incent or attempt to force banks to do Loan Modifications with their borrowers, but the process is extreamly slow, uncharted territory and many are getting ripped off by shisters advertising on the radio, internet or otherwise that they will take care of everything and they are not, the people still get foreclosed out.  Others upon ill advice of attorneys or other counselors or spinners are suggesting to people to miss a payment to begin negotiations.  While this kinda makes sense it is just increasing the problem and it screws ones credit up BAD for about two years.  This is basically the same as a short sale on your credit based on my understanding. 

If you are going to do a Loan Modification, either do it yourself or call the state hotlines first.  Get references for companies from real people (preferably in your area and trust me its worth your time particularly if you REALLY want to keep your home).   Ensure that the hired negotiator will take no upfront moneys from you.  They only get paid when they get the Loan Modification with the exception of a small fee (under $150).  If they want more upfront money be very careful and require joint notification of each submittal and call the bank yourself to follow up with it.

Of course you can always call a Realtor for advice!  Ask a few questions to see if they know what they are talking about and if your not convinced, try another.

You can reach me at (970) 209-0252. 

Thanks Chris

My partner in Real Estate just asked me what the unemployment rate in Montrose was.  So of course I googled it.  Here are the results as of 8-19-09. 

Here is a link to the site and I threw in the State of Colorado and the USA broad measurement for comparison.

http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&idim=county:CN080850&idim=state:ST080000&tdim=true

Looks like we are tracking at 8.5% as of Jun, got as low as 8.4% in May and had hit a high of 9.4% in March (all of 2009).

My advise based on this is make sure you have a job here before you move here or anywhere for that matter…

I was reading a series of blog posts from people seemingly more knowledgable than I about the general economy.     Sadly funny and sickening at the same time, but puts this whole debacle into a light and format that the average American can understand.   Thank you Rick Newman…

http://www.usnews.com/blogs/flowchart/2008/12/17/why-i-deserve-a-bailout.html

When scrambling to pay property taxes each year, I have often thought I should start a church to qualify for non profit status and tax exemption from property taxes.   After reading this blog post I can see I got it all wrong and should aspire to be a bank…

The “Bank of Chris”.  Or maybe “Ormsbee Savings and Loan…”  I will settle for a mere 500K!  OK even 100K!  Wheres my TARP funds?

NAR Real Estate Summit - Summary Videos…

Ok, here is a short post.  Some great informational video snipits from the Real Estate Summit.

http://www.realtor.org/meetings_and_expo/real_estate_summit

Check it out!  Elegant and well edited.  Takes about an hour to watch them all.  Some great ideas and explainations of what is going on… A view from the top!

Here is a link to the site for Loan Modifications

http://www.makinghomeaffordable.gov/

and if you want even more cool info check out:

http://www.realtor.org

They provide tons of free information and tips and keep you up to date on current affairs and new laws.

First I must admit I just saw this and am ALARMED based on my skimming of the facts… or at least the rumors… 

It appears on the surface that this new bill would largely prohibit creative financing often used by Sellers to entice or enable buyers to purchase their real estate. 

As I understand it, if a property owner wanted to “wrap” their mortgage or do a “Lease Option” or a “Lease Purchase” or probably even a “Land Installment Contract”… that they could only do one in three years or they would be classified as a Mortgage Broker and would need to be licensed and comply with all these laws.

I am sure whomever wrote this bill HR 1728 had good intentions, BUT, if the above is true… I feel it will be devastating to our already “fragile” or “weak” Real Estate Market.

I also think it is just more segmenting of the “classes”, forcing the poor to be poor forever…  I am not endorsing “crazy lending”, some of which got us into this mess, but I am endorsing and do endorse creative solutions to problems… These often include some creative financing.

On top of that there are many industrious folks out there trying to make a living by buying and selling homes and many of them use these strategies to sell their homes.  This would devastate small and large rehabbers… but mostly the small ones. 

Typical isn’t it!  Lets pick on the little guy and kick him when he is down.  Its what the banks already do to us.  The Banks assess their risk based on the borrower’s ability to repay.  This hinges on Job Stability, Disposable Income, some metrics relative to Gross Income, other debts and obligations.   So based on the typical American the Bank looks at their less than ideal borrowing ability, due to their poor credit history or weak job history or likelihood of future employment, or a common one these days… their lack of enough gross income.  Then the Bank calculates how it can screw us harder if we are “down”… more upfront, prepayment and administrative fees, a higher interest rate, stricter default terms, adjustable rates with higher caps or more frequent adjustments. 

The law is supposed to protect us in the U.S. from the Banks “predatory lending” practices that have gotten us into this mess.  Essentially what happened is:  One bank, who got all the upfront money from the borrower (more than normal - predisposing the buyer to failure), justifies doing this based on the risk, then these banks “re-packaged” these “risky loans” with some other “less risky loans” and then they resold them as a “package” (fraudulent package in my mind) without passing on the premium or giving enough of a discount to offset the risk and in this case the eminent and subsequent failure of these large packages are what is causing the problem with liquidity. 

But it appears this well intentioned protectionist bill is also taking a whack intentional or not at Private Financing and Creative Financing.

We need Creative Financing!  If the Banks become the sole means of financing business and life, then we shall surely get screwed with or without laws on the books…  Don’t get me wrong, I am not anti-bank, I am anti bank bad behavior and anti monopoly or oligopoly.  I am very much for Private Money Lending and for Seller Financing and Creative Financing in general.  These are ways you solve problems, not create them…

As far as risk to the consumer or the bank for that matter, I would postulate that the current actuarial (statistical) tables and formulas didn’t take into account the current recession/depression we are in… The massive job loss, the steeply increasing gas prices we experienced and will likely see again…

In today’s American economy it doesn’t matter if you are a new employee or a lifelong employee.  It doesn’t matter if you are a Manager or one of many lower level worker-beings.  Anyone that doesn’t own their own company could be laid off or fired in short notice based on any number of circumstances, well beyond their own control.  Economic changes, new laws, shifts in technology, shifts in demand, foreign competition, current competition’s advances, mergers and acquisitions.   The point is no ones job is safe and no one is looking out for us. 

Owning your own company isn’t a lot better, if you quit paying your creditors and suppliers, then you will soon be out of business and have no income.

The banks have known the risk of self-employed individuals for years.  This includes people like me… A Realtor.  It is harder to get a loan from a bank right now if you are self employed, you need to have two years of tax returns to prove your ability to repay and these days they scrutinize the numbers more closely.  So if you have just left your job to do your thing… Start your own business, you likely cannot get financing from a bank.

This isn’t intended to be a rant, but the point is many people cannot get or use traditional bank type financing to purchase a home and if non-traditional financing is essentially outlawed then it will prevent these people from buying.

Home ownership is the American Dream!  So why should we prevent it? 

We should do what we can to enable Creative Financing.

We possibly need some structure and approved forms and methods to better standardize the owner financing, but I hope we do not create some huge behemoth regulatory agency and/or prohibit or even discourage it.  We already have laws on the books for fraudulent practices.

It is frustrating as a licensed Colorado Real Estate Broker that I cannot prepare the forms for lease options and mortgage wraps or subject to type deals.   The banks have mostly stopped assumable mortgages, because they got abused, but where they exist, they are a form of creative financing themselves, because the seller usually or presumably has equity and carries back a second mortgage (note and deed of trust) for some of the equity and the buyer takes over their payments where they were in their existing loan.  (NOTE:  The banks stopped because they weren’t getting as many fees, in many cases there were no fees to the buyer to assume the loan…)

Some would say this is the Governments job to protect us…  Other than protecting our country and our borders, I disagree!  I think it is our own job.  We need to Read, Write, Talk  and learn about what we are going to do.   Math skills help to!   In other words, if you only earn $10 you cannot spend $12 without creating debt… If you repeat this for very long you will quickly become insolvent.   

We shouldn’t trust wholeheartedly anything we are told, we should investigate and check it out.  But often we are lazy, don’t have time, or we just really trust someone…  This is how people get scammed and get into trouble.  With the availability of the Internet, if a person has basic reading and writing skills (that many don’t - taught and graduate from our Government managed schools), then they should be able to research just about any topic with a few hours a day for a week or so and get a good general understanding of the subject matter at hand.

Maybe I am weird, but I don’t think the concept of a loan or terms of repayment are by themselves all that complicated and actually most owner financed deals are much more straightforward, easier to understand and actually save the consumer/buyer money with simple interest (lack of compounding interest, which makes the loan seem cheaper than it actually is).  In my opinion, it’s the complicated legalease of the bank notes or mortgages that creates the need for all the regulation that this law is trying to further regulate…)

So I don’t think ”Creative Financing” is bad in any form.  Its ”Creative” after all… 

I do think that most Realtors ought to be able to understand and even fill out the forms if they existed.  As it is now, you often have a buyer with poor credit or little cash, or a seller with no equity but a sweet loan that someone else would like to take over and neither side usually wants to pay an attorney.  But at least in Colorado a Realtor cannot complete these forms (or even a lease for that matter), because they (the forms) don’t exist.  Realtors (in Colorado) are only licensed to fill out State Division of Real Estate Approved Forms.

Now for commercial Real Estate it’s different… I think a lawyer is key to making the deal work and both sides can usually afford one. 

But for residential as much as we suggest lawyers to people, in my experience, few use them.  

So often the seller drafts the paperwork (by copying something they don’t understand), since the seller can act legally on his/her own behalf.  The buyer just signs, probably often doesn’t even read the document.  THIS IS HOW PROBLEMS HAPPEN!   If these parties even had the “non-legal” assistance of a Realtor or even a Title Company acting administratively to ensure the forms were filled out correctly and all the pertinent issues discussed and addressed, then I doubt we would have many problems with this.

I would be suspicious of the Bank and Mortgage Lender lobbyist on this one, but the sad thing is, I really doubt it would bring them more business… They are already denying people the money, they don’t want this business, what will really happen is that the rich will get richer and the poor will get poorer or have more of a hurdle to climb to get out of their situation. 

More Americans will be forced to rent where they could of otherwise purchased a home.  This bill will increase the number of Americans who cannot buy a home.

Since the Government is trying to help us… Maybe the Government should give people a skip a payment coupon once a year as an advanced tax credit as a way to get the money to the banks or private lenders… and prevent the home owner/buyer from entering into default and/or foreclosure.   Few people WANT to lose their home…

Many Real Estate Investment courses teach purchasing properties with no money down using lease options and wraps and many energetic entrepreneurs go out there and make it happen just like that.  You can do sandwich leases, down payment second mortgages, etc. and these people turn around and finance their buyers with wraps.  These can work just fine, or they can default just like a regular Note and Deed of Trust from a bank.

People seem to forget or are maybe unaware that creative financing has existed for as long as money has, but the protectionist groups are pushing for more consumer protection in order to really strip us of more of our legal rights to buy and sell Real Estate.

Here is a link to the Bill Summary:

http://www.govtrack.us/congress/bill.xpd?bill=h111-1728&tab=summary

The full length version is here:

http://www.govtrack.us/congress/billtext.xpd?bill=h111-1728

I honestly haven’t read it (the full bill).  I am also afraid few of the representatives did either (usually  important things get left out of the summaries that they do read.) 

Here is what got me riled up and made me write today:

Excerpt from an Email from Peter Conti - A Real Estate Investor and Trainer from Denver, CO

A New Federal Law Will Make it Impossible For You To Sell Properties Creatively!

            HR 1728, which has already passed in Congress, will effectively keep you from:

• Selling properties with owner-carry back or wrap-around mortgages
• Selling properties using land contracts or contracts for deed
• Selling properties using lease/option
• And, possibly, borrowing private money to buy properties

Please Join Us for a CRUCIAL Conference Call to Learn What You (and all your colleagues)

Need to Do TODAY to Stop this Bill from Becoming Law!

            We’ll outline what the proposed bill says and what you need to say to your elected officials to get it STOPPED.

Sorry this post was a little unorganized but I am short on time and cannot edit any further.

Please post a question if you want further answers and I will try to dig it up for you to the best of my ability.

Remember also that if you or someone you knows needs to buy or sell a home or any type of property, please have them call or call us with their number.

Chris Ormsbee - Realtor & Broker Associate - licensed in the State of Colorado.  (970) 209-0252

Diane Haynes - Realtor & Broker Associate - licensed in the State of Colorado (970) 596-3521

I will try to edit this later to add the write your local congressman link…  We really do need to voice our concerns or they will surely be ignored or forgotten…