Month: May 2011

Short sales and foreclosures are facts of life in the real estate market these days.

There is a good chance, then, that agents and clients will encounter them when they go to purchase a home or investment property.

Short Sale

Short sale means that the lender on that property wants to sell it and is going to accept less than the current owner owes on it.

Foreclosure

A foreclosure means that the lender has taken back, or is in the process of taking back, the property where the owner has fallen behind on the payments.

In either case, buyers will be dealing directly with the listing agent and the lender on the property as opposed to the seller, who is out of the loop at this point.

Processes

Dealing with the lender means that there is another set of processes to go through.

Depending on who the lender is, and authority of the listing agency hired by the lender, it may take several days or, in some cases, weeks, to learn if an offer is accepted.

Due Diligence

Once an offer has been accepted and the terms agreed upon, it is up to the buyer to do his or her due diligence as far as a home inspection.

Many of these properties are sold as is, and if a buyer has any doubt as to the soundness of anything, he or she has the right to get it inspected at his or her expense.

The buyer has a window in the contract that allows him or her to back out of the deal if there are any major issues.

Short sales and foreclosures can present challenges.

However, opportunities that short sales and foreclosures offer may be great opportunities for those who are willing to go through the process.

In a nutshell, Fannie Mae and Freddie Mac are intermediaries. They buy loans from lenders and then turn around and sell them to investors.

Most mortgages, regardless of the type, are originated with the expectation that they will be sold after they close.

Loans that are kept in-house, by a big-box lender or perhaps a smaller bank, are called portfolio loans. These loans often carry higher rates and have more stringent guidelines than other mortgages, in that the owner of them is taking all of the responsibility and the risk of the borrowers defaulting on them.

When a loan that meets specific criteria closes, Fannie Mae or Freddie Mac buys it. The loan is then bundled with other similar loans and sold to investors as one security instrument.

The benefits to the lender are twofold.

First, the lender makes money on the mortgage, both in the origination of the loan, as in fees, and when the lender sells it to Fannie or Freddie. Second, when the lender sells the loan, it now has a new supply of money with which it can write new mortgages. Once a lender receives this new money, the cycle then repeats itself with the origination of more loans.

The benefit to investors is that they can buy thousands of loans that were originated to a specific set of guidelines and determine the level of risk that is suitable.

For example, they can specify whether a loan is for a fixed-rate or adjustable-rate and what equity a borrower must have.

If you are looking to purchase or refinance a home, or apply for any type of credit, you may be having some challenges.

This could be due to items that are on your credit report.

Some type of credit repair, or restoration as it is sometimes called, may offer some benefit, depending on your situation.

Credit restoration is for people who should be able to qualify for a mortgage from both an income and asset perspective, but who have items on their credit reports that prevent that from happening.

It could be due to a medical situation.

It could also be due to a change in employment status.

When creditors place anything derogatory on your credit report, including late payments and collections, they are required to abide by the federal Fair Credit Reporting Act (FCRA).

The FCRA dictates how items are placed on a report.

The FCRA also dictates how you can dispute them.

A credit restoration agency will file paperwork with the creditors on your behalf.

The paperwork lets the creditors know they are out of compliance with the FCRA and that you would like to have the items removed. The job of the restoration company is to walk you through the entire process.

Your obligation to repay these items is a separate matter, though, from the items that appear on your credit report.

In searching for a credit restoration company, find out how long they have been in business and ask if the company is part of any trade associations that require high ethical standards.

Expect to pay a fee of $400 to $500 for the restoration work. You’ll also have to wait 45 to 90 days for your credit to be repaired, depending on what needs to be done.