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Strategic defaults have been steadily increasing in the residential housing market, as the stigma from having a foreclosure is lessened by the tidal wave of foreclosures across the country. These intentional defaults became such a problem that mortgage giant Fannie Mae now says that homeowners who choose to do a strategic default will be barred from getting another Fannie Mae mortgage for seven years.
A strategic default is when the homeowner can afford to keep making the mortgage payments, but chooses to default anyway because the house is now worth less than the mortgage balance. [click to continue…]
Background: Ten-plus years of incompetent and/or nonexistent regulatory oversight of mortgage brokers and lenders resulted in several trillion dollars worth of bad real estate mortgages being sold to Fannie Mae, Freddie Mac and other investors on Wall Street. When huge numbers of those bad mortgages started to default, our banking and economic system started to collapse, and massive government bailouts were initiated to prevent widespread bank failures. In spite of the fact that Fannie Mae had a history of multi-billion dollar accounting fraud, in addition to their criminal mismanagement, Congress declared Fannie (and Freddie) to be the country’s “mortgage experts” — after their collapse required a government takeover. Taxpayers have paid $146 Billion so far to cover losses at Fannie and Freddie, and the Congressional Budget Office has predicted that the final bill could be $389 Billion.
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Many real estate investors have given up on buying investment property due to their inability to find financing. In some cases, this is due to tighter credit and income documentation rules (no more stated income loans). However, most investors have discovered that even well-qualified borrowers (great credit, cash reserves, proof of income, etc.) are unable to get mortgages to buy or refinance investment properties.
Most lenders have decided to stop writing loans for people who have more than four mortgages — even though Fannie Mae rules allow investors to have up to 10 mortgages. (See our post titled, Fannie Mae Does Investor Loans.) So Fannie would buy these loans from local lenders without recourse, but the lenders don’t care. [click to continue…]
If you’re not an experienced, long-time real estate investor, here are some basic investing tips that can help you get started buying Sacramento investment property without making any fatal financial mistakes.
1. Don’t be paralyzed into complete inaction by the fear of making mistakes. This is known as “analysis paralysis” and it prevents most people from achieving financial independence because they never get started. No matter how many deals you have done, you are going to make mistakes because you’re human. But if you are careful, you should be able to limit your mistakes to ones that merely reduce your profits, rather than causing real financial losses. [click to continue…]
Effective February 1, 2010 – FHA will waive their 90 day seasoning rule for a one-year trial period. This is great news for sellers and buyers of investment property in Sacramento! In the past, it was difficult to resell properties because the end buyer could not use FHA financing unless the seller held title for 90 days. This meant that the seller (wholesaler or rehabber) had to sit on the property for 90 days or try to find a buyer who did not need FHA financing, which ruled out about one-half of all potential buyers. There are still some restrictions, but here are the basics (be sure to read the new rules for yourself): [click to continue…]
When the government’s Home Affordable Modification Program was announced back in March, the goal was to save four million homeowners from foreclosure by getting their mortgage payments permanently reduced. The Treasury Department recently reported that 728,000 trial modifications are underway, but only 31,382 homeowners have received permanent loan modifications. [click to continue…]
(Be sure to read the Fannie Mae Does Investor Loans post before reading this.) To see how many lenders were willing to make loans on investment property, we called every mortgage lender in a town of 50,000 people. Our informal survey included the four biggest banks in the US. We told them we were full-time real estate investors with ten financed properties (the limit set by Fannie Mae), excellent credit, low debt ratio, more reserves than Fannie required, and we wanted to refinance several loans on rental properties. [click to continue…]