Lenders Using Facebook To Investigate Borrowers
REAL ESTATE PRACTICE, TIPS FOR BUYERS
March 31st, 2011
I received an email from a client I sold a house to recently alerting me of an interesting call he received from his lender. A representative of the lender visited and read comments on his Facebook page about trials and tribulations he encountered while revamping a rental property he owns here in the north state after it was vacated by indoor pot growers. He resides in SoCal but is in the process of selling his home there to relocate to the Redding area.
His lender, like most lenders, plans to sell his loan in the secondary market (think Fannie Mae or Freddie Mac). Most lenders try to sell their loans to recover their capital since most of their profits come from the upfront fees, not waiting years and years for the borrower to repay their loan in monthly installments. In his case, they were preparing to sell the loan and wanted to verify the home was in fact going to be used as his primary residence as stated on his loan application. After reading his comments on Facebook, the lender suspected he fraudulently purchased the home to be used as a rental with an owner-occupied loan, which offer more favorable terms than non-owner occupied home loans.
My client possessed moving van receipts and documentation proving he listed his SoCal home for sale. I believe this satisfied the lender concerning his true intention to move to Redding. This story certainly makes a point that one should be careful what is posted on social media sites because you never know who might be reading!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
Redding Adopts Reasonable Granny Flat Rules
REAL ESTATE LEGISLATION, SHASTA COUNTY, TIPS FOR SENIORS
March 30th, 2011
Redding city councilors recently relaxed rules governing the construction of second units within the city limits. Realtors have successfully lobbied the state legislature to require planning agencies adopt rules detailing the requirements for property owners who would like to add a second home for a caregiver or family member. The idea behind AB 1866 is to address the burgeoning baby boomer population by allowing a second residence on parcels zoned for one home. Many seniors would prefer to stay in their own home as opposed to moving to a retirement or assisted-living arrangement. Having an on-site caregiver makes this possible.
Municipalities across the state adopted codes for second units. However, some planning agencies made these rules so restrictive building a second unit is nearly impossible. Redding initially adopted stringent rules but recently amended the zoning ordinance to make them more workable in the real world. Here are some of the changes:
- Note the purpose of the changes is to recognize second units are more affordable and energy efficient
- Second dwelling is not required to meet the density requirements of the General Plan or Zoning Ordinance
- Lot size can be as small as 6000 square feet as long as the lot is at least 60′ wide
- Allows second units to be up to 800 square feet as long as it is 30% smaller than the main residence
- Second units can be attached or detached
- Requires one off street parking space per bedroom of the second dwelling
- Allows the second unit to be larger than the main house if the second unit is intended to be the primary residence
- Rules can be further relaxed if the second unit will house a disabled person
The amendments can be found in Chapters 18.43 and 18.15 of the city of Redding Zoning Ordinance.
Now, the Shasta Association of Realtors will ask Anderson, Shasta Lake City and Shasta County to follow Redding’s lead by adopting reasonable second unit rules. Realtors believe construction of second units should be encouraged in response to public demands for more affordable housing alternatives.
Redding already attracts many retirees from elsewhere due to its low crime, recreational opportunities and affordable real estate. Allowing them to build a second residence for a caregiver or family member without lots of “red tape” will encourage them to move here or stay here when their needs change. Hopefully, the word will get out and more property owners will take advantage of these new and improved rules for granny flats!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
Californians Have Best Credit Scores In Nation
HOME LOANS, INDUSTRY NEWS, SHASTA COUNTY
February 14th, 2011
A recent article in a mortgage trade journal pointed out the fact California mortgage applicants have the highest credit scores in the nation. According to the article authored by Heather Cernoch, prospective borrowers in California have average credit scores of 755, 20 points higher than the national average.
Hawaii came in second in the credit score ratings at 751. States in the northeast did well while the lowest credit scores were found in the Southeast region. Mississippi had the lowest average credit score at 695.
I suspect Redding/Shasta County avearge may be lower than California as a whole. The collapse in real estate prices locally in conjunction with double-digit unemployment and conversations with local lenders lead me to believe the average here is significantly lower.
Today, many homeowners with good jobs and credit are wrestling with the idea of strategic defaults on loans for their primary homes, second homes and investment properties. A strategic default is defined as a borrower who elects to walk away from their property because the mortgage is underwater, not because of any financial hardship.
As one mortgage industry expert points out in the article, Californians have managed to weather the wave of foreclosures and precipitous price drops without serious damage to their credit ratings. Let’s hope this trend continues!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Wells Fargo Lowers Credit Score Bar for FHA Loans
FHA LOANS, HOME LOANS, TIPS FOR BUYERS
February 11th, 2011
Wells Fargo implemented new underwriting rules in mid-January that will help buyers with credit scores below 600. 
Borrowers with credit scores as low as 500 can now qualify for a loan if they meet certain requirements. Here’s an outline of their new loan policies:
- Borrowers with credit scores of 500-579 must make a 10% downpayment and the downpayment cannot be a gift or provided by a downpayment assistance program such as those offered by Redding and Shasta County.
- Borrowers with credit scores between 580 and 599 must tender a 5% downpayment under the same conditions as above.
- Borrowers with credit scores of 600 or better can make a downpayment as low as 3.5% and gift funds are acceptable.
In all cases, Wells Fargo is limiting closing cost credits to the borrower from the property seller to 3%. In the past, seller contributions up to 6% were allowed.
An FHA loan is a government insured loan. The loans are processed and funded by FHA approved lenders. If the borrower defaults on the loan, the government steps in, makes the lender whole, then resells the property after foreclosure.
Historically, this program has not cost taxpayers a dime. However, the decline in home prices, the struggling economy and the marked increase usage of the FHA loan program has resulted in red ink. HUD, which oversees this loan program, recently modified the mortgage insurance requirements to increase revenues to cover losses. Today, borrowers can expect to pay more in upfront fees and monthly payments of mortgage insurance premiums to keep FHA solvent.
For additional details, contact Mike Whitman at Wells Fargo in Redding at 226-2646.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Redding/Shasta County Pending Home Sales Soar
HOME LOANS, TIPS FOR BUYERS, TIPS FOR SELLERS
February 7th, 2011
2011 started with 255 pending home sales according to the Shasta Multiple Listing Service as of January 3rd. Today, 405 homes are in escrow. That is a nearly 60% increase in just one month. How can this be?
Some of this can be attributed to dozens of last year’s pending listing inventory expiring on the last day of 2010. Many real estate agents schedule listings to expire the last day of the year. Once these agents realize their listings had expired, they reinstated the listings causing a spike in the pending listing count. This explains about half the spike. The other half is likely due to the upward bump of interest rates that occurred in December. Rates increased about 1/2 % from their historic low point reached in November. Buyers waiting on the fence jumped in when rates started inching upward.
The number of active listings has not changed significantly since the beginning of the year. Today there are 1251 active listings comapred to 1242 on January 3,2011. Likewise, the number of bank owned properties listed for sale is about the same as January 3- 255 vs. 253 today. Short sale listings are also static- 211 then vs. 205 today. The pace of home closings is steady at about 35 homes/week or 159 year-to-date.
Personally, I have noticed an upsurge in activity. The calls I receive on ads, signs, Internet postings and from past clients plus agent referrals are all up from a year ago. 2011 is starting off much brighter than 2010! I have to believe it is not just the beautiful spring-like weather but renewed optimism amongst those wishing to buy and sell. This may be the pent up demand beginning to unleash itself-just in time to absorb the much-talked-about surge of bank owned “shadow inventory” expected in the months ahead.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL SALES EXPERIENCE
Experts Differ On Future of California Housing Market
INDUSTRY NEWS, TIPS FOR BUYERS, TIPS FOR SELLERS
January 21st, 2011
Ask an economist, educator, foreclosure expert and developer their predictions for California’s housing market and you will get a mixed bag of responses. Leslie Appleton-Young, cheif economist for the California Association of Realtors, was optimistic in her belief California home prices will edge upward 2% in the coming year. Others predict prices to remain flat and one foreclosure expert predicts a 5% decline in prices.
Experts agree it will take years for prices to reach price levels attained at the 2006 peak. Leslie believes the moderate and low end of the market have stabilized but further price erosion can be expected for the high end of the market. Location will be an important factor determining which areas will recover first. Inland areas will not see a recovery for “a long time” according to Richard Green, director of the USC Lusk Center for Real Estate. Coastal areas from La Jolla to Marin can expect prices to recover to their peak within 5 years. Jobs will be key to price recovery.
Locally, high unemployment in the Redding/ Shasta County area and the lack of equity refugees from the metro areas will hold our market down. Key industries that once thrived here are gone and not likely to return. Service, government and recreation jobs have taken a hit with the slow national economy. Efforts by government officials at all levels to cut spending may further cripple an already battered housing industry.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
Redding Real Estate Market Review For 2010
SHASTA COUNTY, TIPS FOR BUYERS, TIPS FOR SELLERS
January 11th, 2011
The last year of the first decade of the 21st century is in the history books. 2066 homes sold in the greater Redding area including Anderson, Shasta Lake City and unincorporated areas of Shasta County. 201 land parcels sold and 135 mobile homes sold, all but 18 were mobiles located in mobile home parks.
The number of active home listings plummeted to 1246 on New Years day. 356 homes were in pending escrows. Of the pending home sales, 125 are bank owned properties and 97 were short sales. The year concluded with 2 of every 3 home sales being distressed properties.
Speaking of distressed properties, 253 active bank-owned properties are listed for sale. That’s nearly 100 more than a year ago. Short sale listings account for 213 of the active listings. These are properties that are listed for less than what it would take to pay off the loan and closing costs.
Looking ahead, the Redding/ Shasta County area real estate market will continue to be dogged by impending foreclosures and tight restrictions on mortgage borrowing. My experiences of late indicate local institutional lenders are in a state of paralysis. Overwhelmed by loan applications for purchases and refinances, loans are taking months, not weeks to close. Regional lenders currently offer the best service as big banks flounder.
The entry level priced homes dominate sales activity. The median price hovers around $160,000 and homes priced under $350,000 represent more than 3/4 of all sales. Expect more of the same until the pace of foreclosures drops dramatically.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVIVNG REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Stiff Penalty Likely For Strategic Default By Affluent Homeowners
HOME LOANS, INDUSTRY NEWS
December 20th, 2010
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A strategic default is defined as a homeowner who is capable of making their mortgage payment but elects to let the property go into foreclosure because the mortgage is underwater or the property is no longer wanted. Second homes and rental properties are examples of properties purchased by affluent property owners which are likely to be let go if they owe more than they’re worth in today’s market.
A recent article in THE NEW YORK TIMES claims homeowners who decide to stop making payments on a property they no longer wish to keep could be denied a new mortgage for 7-10 years. Not only will their credit be damaged for a lengthy period of time, they could put themselves in a situation where the lender is suing them for the amount of money owed or lost (termed a deficiency) by the bank. Laws allowing a lender to pursue an owner for a loan loss vary from state to state.
In so-called “recourse”states, the lender may go after the home owner’s assets including their primary residence. Maine, New Jersey and Hawaii are examples of recourse states.
In “non-recourse”states, a lender must look only to the value of the subject property to satisfy the outstanding mortgage balance if they take the property through foreclosure, deed-in-lieu of foreclosure or agree to a short sale. However, these laws may only protect the homeowner if the loans were used to purchase the property as the borrower’s primary residence. Refinance, Home Equity Lines of Credit or loans on second homes and investment properties may not have this protection from pursuit for deficiency losses by the lender(s). Florida, Connecticut and Arizona fall into this category.
California, along with Idaho and New York, fall into a third category referred to as “single-action” states which allows the lender to foreclose on the owner or file a civil lawsuit for the full loan amount. I have heard this referred to as judicial or non-judicial foreclosure. Most foreclosures in California are non-judicial and can be accomplished in 4-6 months from start to finish. However, if the lender believes the seller has substantial assets or has intentionally damaged the security through vandalism or stripping the property of fixtures, they may pursue a judicial foreclosure which allows a judge to award a deficiency judgement.
Anyone considering a strategic default should consult with an attorney to discuss potential consequences legally and financially before stopping payments to their lender(s). Since every home owner’s financial situation is unique, consulting with a qualified expert is critical to determine the best course of action to unload an unwanted property.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 27 YEARS LOCAL REAL ESTATE EXPERIENCE
Short Sales Short Circuited By “Game of Chicken”
INDUSTRY NEWS, SHASTA COUNTY, SHORT SALES
December 13th, 2010
A recent article in THE WALL STREET JOURNAL highlighted a scenario I see in my day-to-day practice of real estate. A property seller, buyer and first lien holder all agree to accept a certain price only to have the second lien holder ask for more money. It’s noteworthy that the second lien holder would get wiped out and not recieve even a penny if the first lien holder forecloses, but nonetheless they demand thousands more than offered to sign off on the short sale deal.
The news article cites an example of a La Jolla condo owner with a cash offer from an investor. He was forced to try a short sale when the value of his condo sankwell below the amount owed to his lenders. He owed $260,000 to the first lien holder (now Freddie Mac) and $50,000 to the second lien holder, being handled by Specialized Loan Servicing, LLC. Freddie Mac has offered Specialized $3,000 to release their lien, an amount typical in the short sale transactions I’ve been involved with. SLS is holding out for $7,000.
The end result is a game of chicken, where the second lien holder tries to extract additional monies from the seller, buyer, first lien holder or real estate agents involved. Unfortunately, in many cases the game ends in a foreclosure, and the second-lien holder gets nothing.
Reasons cited by second lien holders for playing this game include:
- the mortgage payments are still current
- they wish to pursue the borrower for any deficiency but may relinquish that right by agreeing to a short payoff
- they believe they have nothing to lose since their loan is worthless anyways due to falling home prices
Here are some interesting stats quoted in the article:
- 11 million homeowners owe more than their homes are worth
- Another 2.5 million have 5% equity or less
- About 1/3 of the 1.33 million loans in some stage of foreclosure have second liens
- Second loans are typically owned by banks and credit unions
- Most first mortgages are held by Fannie Mae, Freddie Mac or investors in mortgage securities
- Loan servicers are overwhelmed trying to handle the short sale process
- Declining home prices create disputes over values used to approve short sales
- Lenders are wary of fraud, which the short sale process is subject to, by anxious homeowners
California law protects certain borrowers from being pursued by lenders who foreclosed or agree to a short sale. Purchase money loans for owner-occupied primary residences are usually exempt from lenders seeking deficiency debt repayment. However, California homeowners that refinanced or took out second loans usually lose all protections if they agree to a short sale. Lenders will release the lien so the property can be sold, but reserve the right to chase after the borrower for the loss they incurred.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE SALES EXPERIENCE
Popular FHA Loan Program Changes Rules
FHA LOANS, HOME LOANS, SHASTA COUNTY, TIPS FOR BUYERS
December 6th, 2010
Just a few years ago, virtually anyone could qualify for 100% financing even with stinky credit. Those loans evaporated after the bubble burst causing an upsurge in usage of FHA loans in the Redding/Shasta County real estate market. The reason is the relatively low down payment requirements (3.5%) offered by the FHA loan program. Due to its popularity, and defaults on loans, HUD is tweaking the program in hopes of stemming a tide of red ink.
The two primary changes involve the upfront fee collected from the borrower (being reduced) and the mortgage insurance premium (MIP) tacked on to the payment (being increased). The MIP is going up from 0.5-0.55% to 0.85-0.9% depending on the size of the downpayment. The upfront insurance premium is dropping from 2.25% to 1%. This fee is either paid in one lump sum at closing or rolled into the loan and paid over the life of the loan.
On the surface this does not sound too bad but in the real world this will cost the borrower dearly over the long run. Here’s an example provided by FHA and detailed in a recent article in THE NEW YORK TIMES. A borrower puts 3.5% downpayment on a purchase price of $154,000 (the median home price today) and finances the upfront mortgage insurance fee into the loan. The mortgage payment, including principal, interest, taxes, homeowner’s insurance and both mortgage insurance premiums goes up from $1,205/month to $1,238/month. The increase includes the drop of the upfront MIP from $3,344 to $1,486 but the monthly increase in the MIP from $68 to $111.
All FHA loans require mortgage insurance while conventional loans have a sliding scale for insurance rates if the borrower tenders less than 20% downpayment. The FHA MIP can be eliminated after 5 years if the loan-to-value ratio drops below 78%. This can be accomplished by paying down the principal, appreciation of the property value, or a combination of the two.
FHA has for the first time set a minimum credit score threshold of 500. Those with credit scores between 500 and 580 must tender a 10% downpayment. However, practically speaking, most lenders will require higher credit scores to assure they can get the loans insured by FHA. The financial meltdown has created a vast new realm of buyers that heretofore would have never considered an FHA loan due to the hefty mortgage insurance premiums. Company executives, teachers, and people with six-figure incomes are now applying for FHA loans!
The desire to leverage real estate purchases with a minimal downpayment is alive and well, despite the added cost for the opportunity to do so.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
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