Mortgage Fraud: The Forgotten Clue in the Minneapolis Duplex Market

November 3rd, 2008 categories: Twin Cities Real Est

 
If media headlines were our sole source of information, it would be easy to believe the entire reason for the mortgage crisis is evil loan officers who gave bad buyers loans for properties they couldn’t afford.
 
However, a story in Inman News today served as a reminder that nothing about this crisis is that easy. The real estate media outlet reported that a real estate agent and two former loan officers are among 17 people indicted by a federal grand jury for their alleged roles in a mortgage fraud scheme involving 25 residential properties in Missouri.

The Realtor and two former loan officers are accused of conspiring with property buyers to submit false information to lenders in order to purchase homes at inflated prices and pocket the extra proceeds.

Mortgage fraud hasn’t received a great deal of media coverage in the latter half of 2008. However, I believe that when the forensics of history are applied to this economic crisis years from now, we’ll discover it played a much bigger role than we imagined. Read the rest of this entry »

Spoken by Kari Lundin | Discussion: No Comments »

Grab A Paper Bag: FHA Changes Rental Income Rules for Loans

October 9th, 2008 categories: Financing

 
I had a panic attack the other day when a co-worker informed me she just had clients get turned down for a loan because “FHA is no longer letting you count 75 percent of a property’s rental income toward qualifying for the loan”.
 
Gulp. That would nearly destroy the owner-occupied duplex market.
 
So I did some digging.
 
Turns out that yes, FHA did change its rules on using the rental income to qualify; on your purchase of a second home. According to HUD, FHA has seen an increasing number of homeowners choosing to vacate their existing homes and purchase a new one. This may be due to a number of reasons: a shorter commute, growing family, or simply a terrific opportunity.
 
If the homeowner isn’t able to sell the house or qualify for two mortgages on her own, she has a problem. Many are choosing to solve this by renting their first home out in order to cover the mortgage, which seems like a reasonable enough solution.
 
The problem is the FHA is concerned that in order to qualify for the second property, the homeowner may provide the bank with misleading facts as to the rental market value of their original home. Were this the case, the home may not demand enough rent to cover the mortgage payment and consequently, end up as another foreclosure.
 
Of course, there are always exceptions. In order to obtain a mortgage for a second property, the homeowner must be able to: qualify for both properties on her own, be relocating with an employer to an area not within a reasonable commuting distance, or have at least 25 percent equity in the first property.
 
The thinking with the latter is clearly that the homeowner has more to lose, and the FHA may prevent a “buy and bail”. What’s that? It’s when someone buys a more affordable house with the intention of no longer making payments on the first. Oh? And by the way? If you’re thinking of doing this, it is considered mortgage fraud, which is cause for legal action.
 
So can you still use 75 percent of the rental income of a duplex to help you qualify to buy the property? Absolutely! It pays to check the facts.
 
 

Spoken by Kari Lundin | Discussion: 1 Comment »

Twin Cities Foreclosure Statistics Reveal Surprising Trends

August 14th, 2008 categories: Twin Cities Real Est

ForeclosureOne of the challenges in the current market for the Twin Cities Realtor’s associations has been spotting trends in terms of trends with lender-involved properties, vs. those being sold by a traditional seller. Until recently, it was impossible to discern what percentage of properties on the market involved lender-owned properties or short sales. Consequently, it was also virtually impossible to determine how traditional sellers were fairing.

In an effort to address and decipher these issues, the Minneapolis Area Association of Realtors released a comprehensive report yesterday detailing the full impact of the mortgage crisis in the Twin Cities market.

Highlights of the report include:

  • “Over the past year, the inventory of lender-mediated properties for sale has almost doubled, while traditional inventory has declined by 16 percent
  • Of all current active properties for sale, 21.7 percent are foreclosures or short sales.
  • Traditional homes continue to hold their value better than foreclosures and short sales. The Q2 median sales price of foreclosures and short sales has fallen by 11.7 percent in the last two years while traditional homes has declined by only 3.4 percent.
  • The prevalence of lender-mediated homes varies greatly from area to area. A full index of MLS areas and cities is included in this report. “

While the report does not address small multi-family housing (duplexes, triplexes and fourplexes), it nonetheless provides useful information to investors. To see the full report, click here.

Spoken by Kari Lundin | Discussion: No Comments »

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