Sonoma County Home Loans Blog: September 2009

The Fast and Easy Rehab Loan in Sonoma County

There is a great Fast and Easy Rehab Loan available in Sonoma County that will open up more inventory for your buyers and sellers.  The FHA 203(k) rehabilitation loan is a bit complicated and expensive to use for the homebuyer who is not in the building trade, but the Fast and Easy Rehab Loan version this program is quick, easy to use, with a minimal fee ($250).  This is exciting because our biggest challenge in Sonoma County right now is inventory in the less than $350k range.  In the past, many buyers don't have the extra cash to be prepared to handle a fixer-upper as their dream home purchase.  But this Fast and Easy Rehab Loan is just the tool to open up more inventories to your buyers and more buyers for your sellers in Sonoma County.  Here are some highlights:

• Will fund improvements from $5k to $35k and can additionally fund $8k in Energy Efficient improvements
• 3.5% down payment of sale price plus improvements
• Can use for REO, short sales, incomplete remodels
• Owner occupied only
• 1-2 units
• Only 2 simple draws
• Does not require a contractor
• FICOs down to 620
• Up to $662,500 in Sonoma County

Repairs can include but not limited to:

• Appliances including stove, refrig, laundry, dishwasher
• Termite damage, mold remediation
• lead based paint stabilization  
• Energy upgrades
• Kitchen and bath remodel
• Roof, HVAC, Plumbing, Electrical
• Carpet, flooring, paint, windows, doors, siding
• Exterior deck, porches, stairs, patios
• Septic/well work
• Some landscaping
  

This Fast and Easy Rehab loan program is a benefit for both sellers and buyers in Sonoma County, as REO fixer-uppers can be listed as being a candidate for this financing.  Any issues that would get in the way of a standard FHA loan can now be mitigated with this buyer financing.

Mark Your Calendar!

I will have presentation on this financing with an FHA appraiser present to answer any and all FHA appraisal and improvement valuation questions:

Wednesday, September 30, 2009 1pm- 2:30pm

First American Title Company

Mendocino Avenue  

Educate Yourself.  Space is limited.  RSVP to me.

Today's Rates (see current days throughout the day with APR calculations at

www.sonomacountyhomeloans.com

Ouch!  As recently as Aug 31, FHA was quoted as "not considering adopting the Home Valuation Code of Conduct appraisal system now in place at Fannie Mae and Freddie Mac" ("Inside Mortgage Finance" Aug 31, 2009).  So Friday's announcement came as a shocker.  The FHA Commissioner announced in a series of 3 mortgagee letters (2009-28-30) that beginning January 1^st, 2009, FHA will prohibit appraisals ordered by mortgage brokers or borrowers, in addition to the current restriction of real estate agents' involvement in the appraisal order process. 

Details in the Mortgagee Letter 2009-28 state that "FHA does not require the use of AMCs (Appriasal Management Companies) or other third party organizations for appraisal ordering..." but lenders are all using the dreaded AMCs to order appraisals, and there is no other outlet for placing appraisal orders around the nation since these AMC systems, however flawed, are already in place.

That said, not all AMCs are performing poorly.  A local appraiser is more apt to show up at the home for inspection now that the AMCs have compiled ample stable of approved appraisers.  Appraisal turntimes depend on the individual appraiser, but the AMCs seem willing to light a fire under the appraiser if they are dragging their feet.  My biggest complaint is that the appraisers' payment for service has been drastically reduced.

I don't think HVCC hurts mortgage brokers as much as it hurts appraisers, but HUD is trying to ease the pain by requiring that appraisers "are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property...".  It also states the "The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process..."  Well that is an improvement over current HVCC where appraisers are getting paid as little as half fees from pre-HVCC.  Let's see if it actually transpires to protect HUD approved appraisers for fair payment for their services.

There are provisions for the portability of the appraisal if the borrower needs to change lenders during the process, with HUD requiring the lenders to be more supportive of appraisal portability.  The time a HUD appraisal is valid has been reduced from 6 months to 4 months.

For complete mortgage letters, visit http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

Today's Rates (see current days throughout the day with APR calculations at

www.sonomacountyhomeloans.com

Termite Reports

Here in Sonoma County Conventional and FHA lending does not automatically require a pest report.  One major lender released policy change requiring pest report clearance it the report is included in the purchase contract.  This has been the case off and on, but this may indicate a move back to the conservative blanket requirement of cleared pest items if the report is on the contract. Leaving the report off the contract or waiving the report are options to avoid termite clearance issues.   Here are the details for one lender servicing Sonoma County.

1. A termite report and clearance is required on Conventional, FHA, CalHFA and USDA transactions if the Purchase contract indicates in section 4a, item 1, that the buyer or seller shall pay for an inspection. If the contract is not marked and the buyer does not sign the Wood Destroying Pest Inspection and Allocation of Cost Addendum, the termite report and/or clearance will not be required or requested by the lender.

However, if the purchase contract is marked yes and both the buyer and seller agree that they wish to waive the termite report and have done so by executing either a purchase contract addendum or an escrow amendment the lender will allow it to be waived as long as a termite report has not been provided to the lender or a termite report fee does not appear on the estimated HUD 1 or Final.

Please keep in mind a termite report cannot be waived once the lender has seen the report regardless if the contract calls for it or not. A termite clearance will be required and the lender may request that all of section 1 and II items be corrected depending on what the items require.

The following are examples of items that the lender will require to be corrected regardless if they are section I or II:

a. Major infestation, dry rot, fungus or termites that affect the soundness of the security of the property will be required to be corrected regardless if it is a section I or II item.

b. All section I items will be required to be completed. Please note the lender may require a section II item to be completed if it has to do with plumbing, roof leaks or health and safety issues.

c. If the report calls for a licensed contractor to further review and or correct. The lender will require the item to be reviewed and corrected by a licensed contractor via a roof and/or plumbing cert and the bill must be provided to the lender.

Repairs may be paid by buyer or seller. If buyer agrees to pay for repairs, additional monies must be verified to cover the additional repairs.

Termite reports are good for six months from the date of initial inspection for Conventional loans and three months for a VA or FHA loans.

VA Termite Reports

2. VA still requires a termite report and clearance to be completed on all transactions regardless of what the purchase contract states. Please remember VA requires both sections I and II items to be corrected no matter what the corrections are. The Veteran must sign the report and the following verbiage must be typed on both the 1st page of the report and the clearance. "I have received, read, & approved a copy of this report and hereby certify that all work required has been completed, however, the termite report and clearance was performed at no cost to me."

The Borrower (Veteran) cannot pay for the termite report; however the veteran is able to pay for the required repairs.

Today's Rates see current days throughout the day with APR calculations at www.sonomacountyhomeloans.com.

Highlights from Sonoma County EDB 2^nd Quarter Report

The Sonoma County Economic Development Board releases quarterly local economic data for Real Estate.  Statistical reports can be found at http://www.sonoma-county.org/edb/reports.htm.  Here some highlights from the most recent report for Sonoma County.

• Sonoma County's median home price decreased in June by $85,000 (23.1%) on a year-over basis to $300,000. This price is down $275,000 (47.8%) from its June peak of $575,000 in 2006.
• The average number of property listings decreased as closed sales rose over the quarter. 69.2% of listed properties sold in June 2009, a roughly 23% decrease from the 92.0% December 2008 rate. So far, 2009 home sales peaked in April, when 536 sales closed.
• Notices of default increased 10.3% over the quarter, from 1,241 defaults in Q1 ‘09 to 1,370 in Q2. '09 Real Estate.
• Homes in Sonoma County that sold in Q2 2009 spent an average of 107 days on the market. June's average is ten days longer than a year ago and 56 days longer than that of June 2005.
• The average home sold for 96.85% of its list price in June 2009. The ratio is 3.25% less than that of June 2005 and is roughly half a percentage above June 2008's 9.2%.
• There were 1,528 total units sold for an average price of $373,486 in Q2 2009 in Sonoma County. The area with the greatest number of homes sold was Northwest Santa Rosa with 229 units, followed by 165 in both Northeast and Southwest Santa Rosa.
• Fair Market Rents (FMR), as calculated by the Department of Housing and Urban Development, increased 14% in 2009 after a five-year plateau. FMR for 2009 are $1,026, $1,296, $1,839, and $2,150 for one, two, three and four bedroom residences, respectively. FMR has increased by roughly 50% since 2000.
• The office vacancy rate for Q2 2009 in Sonoma County was 21.7%, a year-over increase of 7.4%. Petaluma recorded the highest vacancy rate at 35.7%, while the lowest vacancy rate was 14.7% in the North Corridor region, which encompasses the airport area, Windsor and Healdsburg real estate.
• The local industrial vacancy rate rose 3.0% year- over to 14.4%, continuing its steady upward trend from its Q1 2006 low of 6.1%. Santa Rosa had the highest rate in the area with 16%, while the North Corridor region reported the lowest rate at 12.3%.
• The 8.8% retail vacancy rate is well above the Q2 2008 mark of 4.2%. The "Other" designation of areas including Sonoma, Sebastopol, Cloverdale reported a 5.4% vacancy rate, the lowest in the region,

 Condo PUD  Loan Guidelines are established by Fannie Mae and FHA.

As opposed to a single-family dwelling in a subdivision, condos or PUD units are highlighted by "Ownership of a unit, interest in common elements, mandatory homeowners' association membership, and documents defining/restricting usage of the unit or common elements (CC&R's). Before listing or making an offer on a condo or PUD, it is important to understand any loan restrictions that may derail your deal.

"New" condo projects and "existing" projects have 2 separate sets of lending guidelines per Fannie Mae.  Neither can be manufactured housing. 

A new condo project is defined as:

••      fewer than 90% of the total units in the project have been conveyed to the unit purchasers;

••      the project is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condo; or

••      the project is subject to additional phasing or annexation.

Existing condo projects are defined as:

••      at least 90% of the total units in the project have been conveyed to the unit purchasers;

••      the project is 100% complete, including all units and common elements;

••      the project is not subject to additional phasing or annexation; and

••      control of the homeowners' association has been turned over to the unit owners.

New Condos Requiring "Lender Full Review"

New condo projects require a "Lender Full Review" which has strident eligibility requirements.  Here are a couple of red flag requirements.

••      No more than 20% of the total square footage of the project can be used for nonresidential/commercial purposes.

••      No more than 15% of the total units in a project may be 30 days or more past due on their homeowners' association (HOA) dues. For example, a 100 unit project may not have more than 15 units that are 30 days or more delinquent.

••      At least 70% of the units in the Condo Project must have been conveyed or are under contract to purchasers who will occupy the unit as a primary residence or second home.

••      For the EOM Program, the minimum percentage of owner occupied units is 50%."

••      Additional guidelines apply if the condo is a conversion.

Limited Review for Existing Condo Projects

Fannie Mae financing-eligible existing condos would be approved either from being on the approved condo list (https://www.efanniemae.com/sf/refmaterials/approvedprojects/index.jsp?from=hp), or by performing a "Limited Review".  Requirements for Limited Review are:

••      The project must be an established project.

••      Mortgages CANNOT be secured by attached condo units that are investment properties.

 LTVs

For existing condos, LTVs are limited.  For a principle residence, max loan-to-value is 90% (yes, there is still mortgage insurance for condos to 90%).  For a second home, 75% LTV is the limit.  Investment properties cannot utilize the limited review.

FHA

FHA insured financing follows different guidelines than Fannie Mae.  Here is the link for FHA approved condos in Santa Rosa.  https://entp.hud.gov/idapp/html/condo1.cfm .  You can use this website to search approved condos in any city.  It is becoming harder to find a lending investor who will do a formal approval on a condo project that is not on this list, so beware when listing or making an FHA offer on a project not on this list.

PUDs

A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by a homeowners' association for the benefit and use of the individual PUD units. In order for a project to qualify as a PUD, each unit owner's membership in the homeowners' association must be automatic and nonseverable, and the payment of assessments related to the unit must be mandatory.

Fannie Mae does not require a lender to perform a review of a PUD project if the mortgage is secured by a detached unit within a PUD.  When reviewing a PUD project with attached units (whether new or established), lenders should determine that the project meets the following requirements:

••      The project does not consist of single-width manufactured housing units.

••      The individual unit securing the mortgage satisfies Fannie Mae's insurance requirements for PUD projects.

••      The individual unit securing the mortgage is 100% complete.

Today's Rates throughout the day http://www.sonomacountyhomeloans.com/

The FHA anti-flipping rules are growing in popularity by lending investors and being adopted for both VA lenders and many conventional mortgages as more lenders are looking to protect themselves from financing property "flips".  Here in Sonoma County where opportunistic investors are putting recently purchased homes on the market it is important to understand how many of these properties will be un-financable in traditional financing terms.

The FHA rules are defined by HUD issued Mortgagee Letter 2006-1(http://www.nlihc.org/doc/MortgageeLetter2006-14.pdf). The anti-flipping rule established by HUD defines a flip as a property that is purchased by a speculator, and sold within 0-6 months, at a price at least 20% greater than the previous sale price, absent of improvements supported by appraisal note.   According to the rule, the seller cannot hold title for less than 90 days.  For reslaes between 91 and 180 days, where the new sales price exceeds the previous sales price by 100%, additional validation of the property's value will be required. 

Here is Sonoma County, property flips are common.  Investors, many of them real estate agents themselves, have swooped in to pick up distressed properties needing some improvements.  These properties often are purchased at foreclosure process auction for as little as 30% of market value had the property been in fair shape.  Upon fixing up the property, the investors want to get it back on the market as fast as possible, flipping their investment.  For turn-around sales that take place less than 90 days from previous acquisition of title, FHA will not insure the mortgage.  VA doesn't have a guideline anti-flipping rule but the lending investors who provide the funds for the purchase loan will not allow it now for VA.  And most conventional lending investors are disallowing less than 90 day flips to protect themselves from inflated valuations on the subject property and to discourage speculation.

Exceptions to the Rule

There are exemptions to the 90 day anti-flipping rule.  The exemption most commonly cited in Sonoma County is "Sales of properties by state and federally chartered financial institutions and Government Sponsored Enterprises."  This applies to banks that have ownership of the property which applies to REOs owned by the banks.  Other exemptions include HUD owned homes, Government agency owned homes, non-profits with deed restricted housing, inheritance sales, employer purchased housing for relocation, and homes in federal disaster areas.

Red Flags

There are Red Flags alerting underwriters to violations of anti-flipping policies when they review home purchase loan files.   The following items will red flag a lender of a potential property flip.

·   Property seller is not owner on record.

·   Seller has recently acquired title and the mortgage lien date is new.

·   Cash was paid for the home in a recent transaction (no liens on property).

·   The preliminary title report submitted to new lender has no title company name or logo.

·   Any reference in contract to "double escrow".

·   For Sale by Owner.

·   Affiliated parties to transaction.

•   Appraisal date precedes contract date.

For more Sonoma County real estate financing info and up-to-the-minute rates, go to www.sonomacountyhomeloans.com.