Helvetica Hard Money

New Housing Crash Looms as Shadow Inventory Climbs past 7 Million

The New York-based mortgage-bond analysts called that number – which is about five-and-a-half times larger than 2005’s national tally of delinquencies and foreclosures – a “huge shadow inventory” that threatens to further destabilize a housing market that had shown signs of righting itself over the summer.

via www.dsnews.com

Buyers' Revenge: Trash the House After Foreclosure

Buyers' Revenge: Trash the House After Foreclosure
Thursday March 27, 11:32 pm ET
By Michael M. Phillips WSJ

LAS VEGAS -- Eddy Buompensiero noticed eight pairs of shoes outside the door of the modest house on Mother of Pearl Street, evidence that the former owners were still living there even though the bank had foreclosed.

Mr. Buompensiero, a gray-bearded inspector for REO Asset Services-1st Realty Group, rang the bell. When no one answered, he taped a letter to the door offering the occupants $1,000 to move out. The catch: They won't get a cent if they trash the house before they leave.

"If it was me, I'd take the money," Mr. Buompensiero said as he drove away. Either way, they're "going to get thrown out in a couple of weeks."

The stucco subdivisions of Las Vegas are caught up in the nation's foreclosure crisis. These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have "substantial" damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.

The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. A ransom? A bribe? "Yeah, somewhat," says John Carver, an agent specializing in foreclosed homes for Prudential Americana Group in Las Vegas. But "you lose a house, and then you get some financial help -- it's a good thing...It's a win-win for both parties."

No one tracks how frequently such payoffs are made. In Las Vegas, agents hired by the banks to handle foreclosed properties say the "cash for keys" approach, as it's known in the industry, is a regular part of the job. After all, formal eviction proceedings can take months and cost potentially much more than a payoff.

Analysts predict that as many as two million homeowners could enter foreclosure this year, caught by a slowing economy, falling house prices and, in many cases, adjustable mortgages with rates rising from high to higher. In Las Vegas, 1.9% of homes in the Las Vegas area were in the foreclosure process in January, almost triple the rate of a year earlier, according to First American CoreLogic Inc., a Santa Ana, Calif., real-estate and mortgage data company.

Each day, auctioneers offer 150 to 200 properties for sale in the small lobby of the Nevada Legal News -- a high-speed inventory of dreams forfeited on Lucky Boy Drive, Jackpot Circle and other Las Vegas addresses. Often in attendance is Eddie Haddad, a 36-year-old who cut his real-estate teeth buying and restoring foreclosed properties. During the boom, he tried developing a 38-story tower of lofts for the Las Vegas art set. But the project stalled, and a few weeks ago, Mr. Haddad again found himself shopping for bargains at the foreclosure auction.

"We expect them to be trashed," Mr. Haddad says of the homes he buys. He prefers to call in the sheriff when he needs to evict hold-out occupants; for him, paying cash is a "last resort."

About 95% of the auctioned properties, however, go unsold and revert to banks eager to get the properties off their books. Some owners just walk away peacefully. But agents say a significant number take what they can carry and take revenge on the rest.

"I'm one of the thousands of people in town in foreclosure so I'd like to get as much as possible for the items," said one recent Las Vegas online ad offering a double wall oven, dishwasher and built-in microwave, all of which, in most cases, legally belong to the bank. Rules vary by state and county, but in Las Vegas, banks typically own everything that is built into a foreclosed home.

"When you're losing your dream, and you're paying all this money to it...and you're hoping that it's going to go up, and you're going to make 100 grand like everybody else did, and it doesn't happen -- you know, people get upset," says Joe Kraemer, a broker with Century 21 Advantage Gold who deals in foreclosed homes.

The evidence of that discontent was all over the carpet when Mr. Carver, of Prudential Americana Group, first visited a foreclosed house on Perfect Parsley Street. It didn't look like the usual waste from an abandoned dog or cat. "I would say 'ferret' from the way it's all along the baseboard, the way an animal would scurry," he said recently, leafing through photos of his most-memorable vandalized properties.

The original owner bought the house new in 2003 for $131,000. A year ago, Mr. Carver says, it could have fetched a quarter of a million. But the market fell fast and the owner, for unknown reasons, fell delinquent. The bank hired Mr. Carver and Leslie Carver, his wife and business partner, to list it, but chose not to refurbish before selling. The house sold for $170,000 in November, ferret scat included.

Cruising the wreckage of the Las Vegas property market every day in his silver Cadillac Escalade, the 38-year-old Mr. Carver has developed a connoisseur's eye for pointless destruction. Vandals who break into empty houses often smash windows and paint graffiti on the walls, he says. But it takes an enraged, delinquent mortgagor to indulge in a frenzy of destruction, such as the one that took place recently in a three-bedroom, 1,949-square-foot house in a residential and industrial area northeast of the casinos on the Strip.

Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child's room once carefully decorated with a floral wallpaper stripe. It's damage that Mr. Carver described as "a vengeance-type thing."

"Some people have issues, and need to do what they have to do, I guess," he said.

The former owners, who couldn't be located, paid $261,892 for the house when it was new in March 2006, borrowing $209,513 in their first mortgage, according to public records. Now it's listed for $149,000 -- as is.

Banks rarely pursue charges against destructive homeowners; it's not worth the cost and trouble. Instead, they try to prevent home rage by giving agents such as Mr. Carver blanket authorization to offer at least $300 to occupants to get them to leave peacefully.

Late last month, Mr. Carver left a letter on the door of a house with a red-tiled roof in Henderson, abutting Las Vegas. "I may be able to offer you cash to vacate the property," the note said.

The owner, a 43-year-old man with two children who spoke on the condition that his name not be used, says he bought the property in 1993 for $140,000. Three years ago, he says he had the house appraised for $440,000 and took out a $207,000 home-equity loan to pay off credit-card bills and buy his wife a new van. His initial payments were an affordable $1,800 a month.

He fell behind, however, after he went through a divorce and his landscaping business faltered, just as his interest rate was rising. The man worked out a payment plan with the bank and borrowed heavily from his father, but, including penalties, his monthly payments rose to $4,000, he says. After two months, he says, he ran out of money, and the bank foreclosed.

He called Mr. Carver after receiving the cash-for-keys note, but was left cold by the bank's initial $500 offer to leave the house soon, intact and broom-swept. "If I stay here it will cost them a lot more money," both men remember the former owner saying.

The man says he was just pointing out that eviction is expensive for the bank and says he had no intention of damaging the house. But he had "pushed the right buttons" for Mr. Carver. "He didn't actually come out and threaten the property in any way," Mr. Carver says. "But I assumed that he probably wouldn't be too happy if he got evicted and locked out."

Mr. Carver consulted with the bank and upped the offer to $2,800.

"Better than nothing," the owner responded.

Last week, Mr. Carver went to the house, found it clean and whole, and handed the man a check. "Everybody walks away somewhat happy," Mr. Carver said. "I guess."

New Nevada Bill AB 440 Means Near Death to Stated Income Loans

NEVADA PASSES AB 440 REQUIRING LENDERS TO VERIFY A BORROWER'S ABILITY TO REPAY A LOAN

In an effort to protect consumers from unscrupulous brokers and as a knee jerk reaction to the current subprime turmoil, Nevada passed Assembly Bill 440.  Effective October 1st, 2007, AB 440 amends NRS 598D.100, in part, to make it an unfair lending practice for a lender to: “knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.”

To read the new bill in its entirety click here: Nevada AB 440

http://www.leg.state.nv.us/74th/Bills/AB/AB440_EN.pdf

The issue with the Nevada bill is that it is unclear to what extent a licensee must investigate a borrowers stated income declarations and many licensees have expressed concern over the meaning of "commercially reasonable means or mechanisms" in the context of determing that the borrower has the ability to repay the loan.

NEVADA MORTGAGE LENDING DIVISION TRIES TO CLARIFY AMBIGUITY 

In an effort to clarify the ambiguity the Comissioner of the Mortgage Lending Division issued a statement to lenders. Among other things, the Division says that "licensees must verify the information that borrowers provide. The Division recognizes that there are some general sources, such as Salary.com and the Department of Labor, which may be utitlized to verify income in those situations where verfication of employment, pay stubs or tax returns are not utilized."  The Division also stated that, "it is also important that licensees document for examination purposes that these discussions and verifications occurred.  One suggested method fo rdoing so would be the completion of a worksheet for each home loan."  The Division provided a sample worksheet. Click here for a copy of the worksheet.

http://www.mld.nv.gov/Documents/2007-09-14-MLD-ExhibitA.pdf

Click here to Read the Commissioner's Letter in full.

http://www.mld.nv.gov/Documents/2007-09-14-MLD-LtrNo2007-2AB440.pdf

NEVADA HOUSING MARKET WILL LIKELY SUFFER FURTHER PRESSURE AS A RESULT OF FURTHER LIQUIDITY ERROSION

The letter and the worksheet did little to provide lenders with confidence to continue lending to stated income borrowers in the state.  In fact, several major lenders made statements that they will discontinue making stated income loans until the legislation is repealed including Wells Fargo and TB&W.  It does not take a Harvard economist to predict what affect this will have on the Nevada housing market, already having one of the highest foreclosure rates in the nation.  '

See also article written by NARREIA Staff

http://www.narreia.com/newsadvice/news_detail.php?blog_id=956

HELVETICA TEMPORARILY CEASES FUNDING STATED INCOME RESIDENTIAL LOANS

It appears that Nevada is putting an unreasonable burden on lenders requiring them to investigage borrower and broker fraud.  The irony is that the Lender who fails to identify the fraud, may be sued by the same perpetrator pursuant to AB 440 and prosecuted for that same fraud. Until Nevada repeals or amends the new law to allow for more predictability in its interpretation, Helvetica and its affiliates have joined those others lenders that have decided to cease making stated income residential loans to borrowers in Nevada.  Let's hope that other states do not follow suit, else stated income borrowers will be left without a source for a loan.

Offer Transitional Loans until Subprime Market Returns

Subprime Lending Temporarily Out of Business

Many of the largest lenders are now forced to limit their lending to what they can keep or what they can sell to Fanie Mae and Freddie Mac, the government sponsored mortgage investors who buy only loans that fit their relatively conservative standards.  Many brokers have found their subprime submissions even though approved, are "dead at the final yard."  Innovative mortgage brokers have found alternative ways to finance their borrowers despite the subprime fallout.  Private money lenders offer an attractive subprime alternative without all the extra paperwork. 

Private Money Lenders May Offer Transitional Loans

While subprime lenders shut their doors, many deserving borrowers are scrambling to access cash from equity in their properties.  Borrowers with substantial equity in their real estate still have sources of capital.  A private money lender such as Helvetica is less concerned with the borrower's credit than with the protective equity in their property securing its loan.  Borrowers in need of a quick refinance to ...

• consolidate debt,
• payoff liens,
• bailout a bankruptcy,
• avoid a foreclosure,
• market a listed property or
• get cash to transition through a turbulent mortgage market

... still have opportunities with a private money lender.  Typically private money lenders will loan up to 65% of the quick sale value on a property and sometimes more in afinity areas i.e., those areas with historically high demand and that are less affected by cyclical swings in the economy.

Is Your Lender a Portfolio Lender or Mortgage Banker

Portfolio Lender vs. Mortgage Banker

Portfolio lenders raise money from private investors to fund loans.  Mortgage bankers fund loans using a warehouse line to ultimately sell to institutional investors.  A host of mortgage bankers have evolved over the past couple years as institutional appetite for riskier loan products has increased.  Mortgage bankers pricing and ability to fund loans are highly influenced by Wall Street's appetite or aversion to risk.  As a result, loans may stay in a pipeline for weeks and months while a mortgage banker adjusts to radical market swings.  This puts a brokers loan submissions at risk.  In contrast, portfolio lenders are less impacted by market swings and institutional investor appetite.  As long as portfolio lenders continue to offer their investors attractive risk adjusted returns, investment capital continues to be plentiful and as a result loan submissions continue to be funded quickly.  Portfolio lenders do not have to wait for institutional lenders to purchase loan pools to clear warehouse lines for future fundings. 

Ask your hard money lender whether they are a banker or portfolio lender.  Make sure your loan submissions are not stuck in a backlog because of recent market changes.

How to Obtain Preferred Pricing from a Hard Money Lender

Creating a strong partnership with a hard money lender can offer brokers the following rewards:

• Faster loan processing times
• Volume discounts and preferred pricing
• Cooperative marketing opportunities
• Priority call returns and support
• Personalized training, education and onsite seminars
• Joint ventures, branch licensing and correspondent lending opportunities

Hard money lenders receive large volumes of loan submissions daily from brokers often looking for a last resort to place a hard to fund loan.  A large majority of these submissions are incomplete, unrealistic or "spam" loan submissions. Making a hard money lender's loan review simple can substantially reduce the workload and increase the likelihood that a broker would be entitled to personalized attention and preferred pricing. 

Here are some easy ways to obtain favorable pricing from a hard money lender:

1. Retain High Closing Ratios:  High closing ratios means less loan fallout and lower costs per closed loan.  High closing ratios gains the respect and the confidence of a hard money lender providing for smoother and more timely fundings on future loan files.
2. Avoid Habitual Loan Shopping:  Refrain from habitual loan shopping.  Loan shopping is charaterized by submitting a single loan to multiple lenders simultaneously.  Lenders do not like to commit resources to processing loan files that have a high likelihood of being funded by a competitor. 
3. Review the Appraisal to Insure Realistic Property Values:  Reviewing the appraisal and checking comps prior to a loan submission to insure property value is accurate reduces loan fallout and increases a lenders confidence and leads to priority processing for a preferred brokers loan files. 
4. Volume Submissions: The more loans that a broker closes with a single hard money lender, the more valuable each loan file submitted is.  Brokers that close more loans often are entitled to substantial discounts and preferred pricing.    
5. Submit Complete Loan Packages: Complete loan packages reduces loan push back and reduces processing time.  A complete package includes: fully completed and accurate 1003, 1008, GFE, TIL, appraisal, preliminary title, payoff demands, purchase contract (if a purchase transaction), borrower authorization and tri-merge credit report. 
6. Use Online Submission Forms: online loan submissions reduces duplicate data entry.  If a lender offers the ability to submit loans online or has an automated underwriting engine, brokers are often incentivized to use these services as they drastically reduce data entry. 
7. Use Preferred Vendors: using the preferred vendors of a hard money lender including title, escrow and appraisal services creates efficiencies and predictability in the loan process thereby reducing costs. 
8. Review and Understand the Lender Guidelines. Brokers often submit loan files without paying attention to the lender guidelines and loan products offered.  This increases loan fallout and cost per closed loan.

And finally, inviting your hard money lender to a playoff basketball game can't hurt.