The Phoenix Area Foreclosure Experts

More difficult to turn your home into a rental as you buy a new home

By Craig

It's more difficult to sell a home these days, especially if you want to break even (or make some money). Many homeowners have turned to the idea of making their current home a rental -- thereby allowing them to buy their next home.

 
FNMA is making a rule change effective with loan applications dated 8/1/08 and after. The change is for a borrower turning their current home into a rental property when they are purchasing a new home to owner occupy.

FNMA will continue to permit 75% of the proposed rental income to be used to offset the current mortgage payment in qualifying IF there is documented equity of a least 30% in the existing property.  This can be done with an appraisal of the property less the outstanding lien or liens.

You must also document the rental income with a fully executed lease AND a copy of the tenants deposit into the borrowers account. 

If the 30% equity can not be documented then the borrower must qualify with the current mortgage payment on the home they claim is to be rented out AND the mortgage on the proposed new owner occupied home  AND must have 6 months PITI in reserves for both properties.

As you know, guidelines & policies are changing rapidly in real estate. When an NBA coach sees his team getting beat underneath the glass they put in a big man to block shots and rebound.  When they get beat on the 3 point line they put in some smaller good defenders etc... Fannie mae is getting beat but instead of the PICK & ROLL it is called the "BUY AND BAIL."

It goes like this... homeowner has a home he bought for 600,000 with 100% financing, payments are 3,500 a month. Home is now worth about 450.  They decide to buy a new home for 300,000 which would cut their payments in half. Once moved into the new home, they stop making payments on the old home and let the bank have it back. The key to the deal is that when they apply for the new home loan they provide a "lease agreement" saying that somebody is going to "rent" their current home.  That used to be all that was required...just provide the lease.

The homeowner is comfortably in their new home. Over the next few years while their credit is damaged they at least can stay in their nice new home which they got at a very good price. homeowner is happy... lenders and fannie mae take the loss.

So like the coach of the team, Fannie Mae got beat a few times and said he let's change the way we play so that people can't beat us that way any more.

Picture Sunday

Sunday's are days of relaxation, meditation, family, gratitude, and worship (if you are so inclined). I like to share my favorite photos on Sundays. I hope you enjoy these two.

There was a fire recently in the Ahwatukee area near Phoenix. The dark smoke trailed through the sky casting some dark shadows. I was in my backyard at the right time to see the sun filtered through the smoke. It was a brilliant red at times, though these shots do not capture the exact color. The second shot shows a glass hummingbird in the foreground. Click on the photos to see their original size.

 

Surprise! What a deal?

As my last few posts (#1 and # 2) will reveal, I've driven my clients from one end of the Valley to the other lately. The best deals we found today both had pools ... and very nice pools at that. Here are the details:

House # 1

• 1,558 sq ft built in 1999
• 3 bed / 2 bath / 2 car
• pebble tec pool with waterfall and heated spa on a 13,392 sq ft lot (over 1/4 acre)
• Original price: $276,000 on 11/05; price at trustee's sale: $266,172 on 5/08
• REO Foreclosure LIST PRICE: $140,000 ($89.90 per-sq ft)

                                  backyard                                              nice pool

House #2

• 1,668 sq ft built in 2001
• 3 bed / 2 bath / 2 car
• plaster pool with waterfall & pop-up self cleaning heads on a 7,776 sq ft lot
• Original price: $280,000 on 6/06; price at trustee's sale: $135,920 on 5/08
• REO foreclosure LIST PRICE: $134,900 ($80.90 per-sq ft)

The fact that a professional investor did not pick house #2 at the trustee's sale for the opening bid of $135,920 would indicate that they cannot compete with the current prices on REO's.

I have mentioned it before on this blog, but prices were at -- or higher -- than this BEFORE the boom of 2004-2005. Prices have become low enough to even attract some doom sayers I know. After all, the principal and interest payment on a $135,920 loan (list price for #2) at 6.25% interest is $836.88.

My client was impressed with both these deals, but is actually more interested in a house that is listed for more money. It's 1,868 sq ft with a pool listed at $149,900 ($79.70 per-sq ft). Surprise is a good deal for him because he just landed a teaching job in N.W. Glendale.

A real bargain in Chandler, AZ

The deals keep getting sweeter. How about a 2,314 sq ft home in Chandler  built in 2002 with 4 bedrooms, 2 baths, a 2-car garage, and a 8,314 sq ft lot -- for $208,500 ($90 per-sq ft). Did I mention limited mountain views from the backyard and great ones from the street? This home sits in a great south Chandler neighborhood with wonderful greenbelts and parks. All the homes are well-kept and there is a sense of community.

Here's the history on this "Brady" model by D.R. Horton (Continental Homes):

• last bought for $372,000 on 12/27/2005
• reverted to the Lender (First Magnus) at the trustee's sale for $275,000 on 5/8/2008
• listed for $208,500 on 6/12/2008 as a REO

I spotted this deal because it was so much lower than all the other REO's in the area, which were listing and selling in the $230-$250K range. I called one of my clients who was interested in the area and we took these pictures:

 

There is currently one low-ball offer on the property. It looks like we may make an offer on this one.

How low can you go in El Mirage?

How about $105,000 for this El Mirage property in pre-foreclosure. The house:

• was built in 2002
• has 1,573 sq ft
• is a 3 bed / 2 bath / 2 car garage
• sits on a 9,096 sq ft lot
• is well maintained (now that's unusual)

 

 

What's the catch? It's a short sale with Wells Fargo holding the 1st and 2nd notes. The asking price (which I commonly refer to as the listing agent's marketing price) is lower than the 1st mortgage, so Wells will need take a loss on the 1st and completely write off the 2nd.

It's anyone's guess if  Wells Fargo will actually accept an offer that low. However, the house has been on the market with stops at the following price points:

1. April 14th, 2008 -- $199,000
2. may 15th, 2008 -- $149,900
3. June 12th, 2008 -- $139,900
4. June 18th, 2008 -- $105,000

There had been NO hint of an offer at the higher prices, so Wells Fargo will have to take a serious look at any offer if they hope to avoid the trustee's sale.

My client wanted to see this house because the price was so low. It is definitely the lowest priced house in the area. He is struggling over living in El Mirage (which is common), but has added it to his list. Hmmmm ... how low will they go?

Countrywide REO's double in Arizona in 2-weeks

Yesterday I posted about the national increase in Countrywide REO's. Arizona posted some incredibly high increases and more than doubled it's total from just 2-weeks ago. On June 5th there were 333 Countrywide REO's in AZ. On June 16th the total was 678.  This is not the highest total the state has owned, as the number has been over 700 several times. However, the total had dramatically decreased over the last 2-months -- even as low as 297.

Properties become bank REO's when no one will buy them at the Trustee's Sale. This usually happens because the mortgage balances are too high to make the properties a good buy for anyone (especially investors). Banks are forced to buy back these properties for the amount of the 1st mortgage note ( to see a multi-part series on the public auction).

Click below to see 11-months of numbers:

Countrywide REO's shoot back up

The word from REO agents was that May and June would see a new wave of Trustee's sales and REO's (Real Estate Owned properties). These numbers from Countrywide back up that information. They show that a 4.5 month trend of declining REO's from Countrywide has officially ended around 6/5/2008.

The decline in REO's began around 1/17/2008 when the REO's peaked at 15,649. They steadily decreased until 6/5/2008 when they hit a 4.5 month low of 12,287. As shown below, the number has risen by 1,742 to 14,029. This is the largest single increase in the last 12-months.

For eleven months of data check below:

Back from vacation

I grew up in western N.Y between Niagara Falls and Buffalo. My bride of 22-months had never met my 2 brothers and their families -- nor seen Niagara Falls. It was about time she did. It was a great week and now I'm back.

Phoenix drops $21 per-sq ft over last 6-months

The value of sold  homes in the City of Phoenix has dropped $21 per-sq ft over the last 6-months. The average home that sold in November 2007 was 1,801 sq ft and cost $275,846 -- which equals $153 per sq ft. In contrast, the average sold home in May 2008 was 1,840 sq ft and cost $242,834 -- which equals $132 per sq ft. This information can be seen highlighted in yellow below:

The average price of a home dropped a corresponding $33,012 during the same time period. However, it is still more accurate to look at the price per-sq ft because the average size of "sold homes" varies from month to month. To further illustrate, multiply 1,801 (size of average November home) X $132 (current price per-sq ft) and the outcome is $237,772. What this really means is November 2007's home of 1,801 sq ft would sell today for $237,732. The net difference is $38,114 ... not the $33,012 difference between the gross sales price of November 2007 and May 2008.

Note: I use the criteria of single family homes, patio homes, and townhomes over 1,000 sq ft and under $1,000,000 to smooth out the data and eliminate the exceptionally high and very low sales. I have used this methodology for over 2.5 years so the numbers are consistent from month-to-month

It really isn't "as-is" anymore

I recently wrote a post on an emerging trend in the world of bank-owned properties (REO's): "as-is" properties no longer have to mean "as-is." Banks are trying to unload REO's and are now more willing to compromise on repairs -- as opposed to losing a ready, willing, and able buyer. I am now in the middle of a second situation where the bank was willing to retract that clause (and a third is brewing).

This house is a 2,200 sq ft, 5 bedroom, 3 bathroom house within 2 miles of Arizona State University in Tempe. It is a prime property for anyone wanting a rental investment because 5 bedrooms X $475 monthly rent = $2,375 revenue. The down payment and financing my clients selected will result in a $1,500 monthly payment, so the expected net monthly income is $875.

The inspection revealed a roof near the end of it's life, a gas water heater that must be relocated for safety reasons, an inoperative furnace, and some smaller items. We had already contracted for less-than-list AND 3% seller contribution to the buyer's costs. The buyers wanted another $7,500 price reduction because of the mentioned items.

The bank said "no" to the $7,500, but offered $3,000 instead. We sent over a "cancellation form" and were ready to find another house. 3-days later the listing agent called to inform us the bank acquiesced to our request and would now happily lower the price another $7,500.

When you see that clause in a listing know that the Realtor was required to insert it. But it never hurts to ask.