Courtesy of the NY Times…

MORTGAGES

A Tough Time for Self-Employed Borrowers

The New York Times

By BOB TEDESCHI

Published: May 12, 2010

MOST borrowers are facing a much tougher mortgage environment than a few years ago, but for those who are self-employed or own small businesses, maneuvering through a loan application can be even more arduous.

Before 2008 these borrowers, many of whom have difficulty documenting their income, often used what are known as stated-income loans. Lenders focused on credit histories and earnings estimates, circumventing the need for pay stubs or W-2s.

But during the mortgage crisis, stated-income loans became known as “liar’s loans,” because some borrowers falsely inflated their incomes, and qualified for more than they could afford.

Today, stated-income loans have nearly disappeared. Those still available through regional lenders like Hudson City Savings Bank come at a cost: interest rates around a quarter of a percentage point higher than conventional loans and down payments of at least 30 percent.

The self-employed borrower’s only choice, mortgage brokers say, is to submit two years’ tax returns and hope that they qualify for a conventional loan.

That would not be a problem, the brokers said, if all self-employed people filled out their tax returns conservatively. But in this economic climate, the self-employed have been more likely to lighten their tax liabilities by taking business deductions, thereby lowering their official income levels, as well as the likelihood of qualifying for a loan.

“You have to be more conservative about how you claim your deductions, or how you approach unnecessary purchases for the business,” said Robert Duquette, the president of the New York Association of Mortgage Brokers.

Mr. Duquette says that self-employed borrowers will have no trouble qualifying for loans if they have significant cash, as well as credit scores of at least 700, and stable and significant profit for the previous two years.

But many small-business owners, hit by the recession, are showing losses on their income tax statements.

“Of course, a borrower can make an argument for extenuating circumstances, like reserve duty for a few months, or a temporary hospitalization,” said Regina Mincey-Garlin, the president of RCG Mortgage Solutions in Montclair, N.J.

Mr. Duquette of the New York Mortgage Brokers Association said the mortgage crisis had hurt small-business owners more than others. “Everyone who’s getting income from places other than salary and wages is getting hit harder than everyone else,” he said, “because they’re being scrutinized more carefully.”

And those who have only recently started a business — perhaps after a layoff — may face even greater difficulties, he added. During the recession, many companies laid off workers, hiring them back on a contractual basis. Because these people have no long-term history of stable earnings, Mr. Duquette said, lenders often reject their applications or impose higher rates.

Still, self-employed applicants shouldn’t give up hope, said Debra Killian, the president of Charter Oak Lending, a mortgage broker in Danbury, Conn. Many people wrongly assume they cannot qualify for a loan at all, she said, “but 30 percent of the time — maybe 40 — they’ll qualify. They may be frustrated at all the documentation we ask them to provide, but they can still qualify.”

Small-business owners considering whether to qualify a purchase as a business or personal expense on their taxes, Ms. Killian said, should do the math.

If a business owner shows too little net income to qualify, say, for a $300,000 mortgage at 5 percent, and instead qualifies for a 5.25 percent loan, the monthly payments add up to an extra $5,520, roughly, for the first 10 years of the more expensive loan.

“If you save yourself a few thousand dollars in taxes in a year by taking those extra deductions,” Ms. Killian said, “how much will that cost you on your mortgage, or your ability to even get a loan?”

My feedback: I HAVE heard of stated income products w/as little as 20% down. I have yet to see one of these lower down payment products close, however there are encouraging signs of greater existence of these types of exotic loan products re-emerging. Call me if you have questions, or need to be guided in the right direction. This IS quite a challenging lending market for the self-employed. The name of the game is reducing one’s taxable income by taking as many legitimate business deductions as possible, yes? However this strategy definitely hurts one’s ability to qualify for a loan, as full documentation loans take into account the income shown on tax returns AFTER deductions are eliminated. Perhaps new loan programs will take into account this unique hurdle for the self-employed, once the market stabilizes and loan defaults are lessened. I, for one, am definitely hoping for the best. Bless! C

Debate Rages Over Supply of Foreclosed Homes

By James R. Hagerty

Why is there such a fierce debate about whether the housing market is slowly healing or heading for another free fall? Partly because no one can estimate with much confidence how many foreclosed homes banks need to sell or how fast they are getting rid of all that property.

A huge chunk of today’s housing supply comes from homes that have been acquired by banks or mortgage investors through foreclosure, plus those that are being offered by people who hope to avoid foreclosure by doing “short sales,” selling their homes for less than the mortgage balance due. The National Association of Realtors estimates that such “distressed” situations accounted for 35% of home sales in February and March.

The latest heroic attempt to tally how many foreclosed homes are available for sale comes from analysts at Barclays Capital in New York. They estimate that banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. That’s far lower than previous estimates. Barclays explains that it has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank’s previous methods, the estimate for February would have been more than 600,000.

Estimating the inventory of foreclosed homes is tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly makes such calculations, estimates that banks and mortgage investors own 758,000 foreclosed homes.

So we have a pretty big gap. Is it 480,000 as Barclays thinks, or 758,000, as per RealtyTrac? Tom Lawler, an independent housing economist who tracks reams of housing data when he isn’t tending the livestock on his farm near Leesburg, Va., figures the total is more than 550,000 but probably less than the RealtyTrac estimate.

“What is truly disturbing,” Mr. Lawler wrote in his daily housing-market commentary Wednesday, “is that given all of the economic data the government tracks, the sector it appears to track the worst is…the housing market!  Why is it that the government has not deployed more resources to better track and report data on the housing inventory, households, home sales, home prices, and, of course, foreclosures and the number of homeowners who have lost their home to foreclosure?”

(That’s an especially good question given that the U.S. government has a bit of exposure to the housing market. Inside Mortgage Finance reports that mortgages backed by government-related entities – Fannie Mae, Freddie Mac, the FHA and the VA – accounted for more than 96% of home loans originated in the first quarter.)

Whatever the number of homes that banks, the federal agencies and private mortgage investors own now, it’s likely to increase. Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.

To get a rough sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a “shadow inventory,” consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.

Barclays expects 1.6 million “distressed sales” of homes – mainly foreclosures or short sales – both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. Around 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.

Barclays expects U.S. home prices on average to fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual improvement in the unemployment rate to 8% within the next two years from 9.7% in March. The home-price picture would worsen if job growth sputters or banks “push homes through the foreclosure pipeline faster than expected,” Mr. Tayon says.

Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country, such as the Las Vegas area and Orange County, Calif., that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.

In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick, a research firm. – End of Article-.

So, what thinks ye? No one knows exactly when and if banks and private investors will dispose of the bulk of their foreclosed inventory…current signs show a trend of  banks disposing of foreclosed inventory in large chunks to (often all cash-paying) private investors, though foreclosed properties are still prevalently found on the open market today. My prediction is that we will continue to see a mix of the two and that foreclosed homes WILL continue to affect home values, preventing runaway appreciation in the near-term, despite low inventory. They will of course continue to attract first time buyers and investors alike, who often engage in bidding wars that may very well drive the prices of foreclosed inventory to at or near current market values. One thing’s for sure: THESE be interesting/unprecedented times! CT

The increase in the National Assn. of Realtors’ pending home sales index is a sign that the government’s extended tax credit for buyers may bolster sales this spring.

A home in Palo Alto. Pending sales of previously owned homes rose 21.8% in the Midwest, 9.2% in the South and 9% in the Northeast in February, but fell 4.8% in the West in February, according to the National Assn. of Realtors. (Paul Sakuma / Associated Press / April 5, 2010)

By Alejandro Lazo – for the Los Angeles Times

April 6, 2010

The number of previously owned homes placed under sales contract surged 8.2% in February, according to data released Monday, the first sign that the government’s extended tax credit for buyers may bolster sales this spring.The National Assn. of Realtors said Monday that its pending home sales index, a forward-looking measure based on contracts signed, rose to 97.6 in February from a downwardly revised 90.2 in January. That was 17.3% above February 2009, when the index was at 83.2. A reading of 100 is equivalent to the amount of activity hit during 2001, when home prices began their record climb and when the data were first measured.”I don’t expect a vigorous market resurgence or a sharp, new rise in home prices,” said Michael D. Larson, a housing and interest rate analyst with Weiss Research.”Foreclosure inventory will continue to be doled out into the market over the next year or two, taking some vigor out of this recovery,” Larson said. “But it will be a recovery nonetheless, one warmly welcomed by battered home sellers, banks and home builders.”The Midwest notched the biggest increase, rising 21.8%. Pending sales climbed 9.2% in the South and 9% in the Northeast, but fell nearly 4.8% in the West.

Sales nationally have plummeted for three consecutive months beginning in December after surging last fall as buyers rushed to take advantage of the government’s credit for first-time purchases before its initial November expiration. Congress extended that incentive of as much as $8,000 for first-time borrowers through the end of April and expanded it to include as much as $6,500 for some current homeowners. Contracts signed typically lead to closings in one or two months, although distressed sales such as foreclosure sales and short sales often can take longer.

Yes, (Candy here)- in my experience, short sales and sometimes foreclosures, can take much much longer than the typical sale. Have questions? Think it might be the right time to invest in a discounted property? Email me!

Thanks & bless,

Candy

Happy Easter & Happy Passover to all those who celebrate this special time of year! I pray your hearts are all warmed by joy, success and renewal, which is especially what Easter reminds me of! Also, of course I’d like to announce the winner of our latest Earth Cafe Cheesecake Giveaway….drumroll please….ok, should this come as a surprise? With the MULTIPLE number of entries, re-tweets, “be-friending” acts, and entries, clearly the odds were in her favor. Thank you random.org for your help! Sooo, I am happy to announce, the winner is…Amanda!!!  Amanda, I will be emailing you directly to get your mailing address and other info so that your healthy cheesecake can be on its way right away! To everyone else, thanks for playing! Stay tuned as there will definitely be MORE giveaways very soon. I also will be randomly selecting some of your questions to answer just as soon as I CAN!! If you’re interested in seeing any of our recent wedding photos, please check out my other blog, www.VeganBride.com, as I’ll be updating with Part II of our wedding album very soon as well, and sponsoring more contests!  But back to real estate…

Love & peace!!!

Candy