Paul's Blog

Here is a current investment summary. As always, a quick response is needed. 

• Project term: 4-6 months.
• Purchase and renovation, 2-family property NJ 07108
• Funding requirement is 93% of cost, representing 45% of After Repair Value (ARV)
• Exit: Refinance
• Projected annualized ROI: 58.6%

Investment, and profit share, and interest, are secured by:

1.     First mortgage; and

2.     Developer company shares (the ownership of the property essentially, avoiding the need for foreclosure in the event of default)
 

Download the Investment Summary

Let me know right away, if interested. I will send you the information package when available.

Review "Safe & Smart REO Investing"

NOTE
Not all projects are published. If you have an active interest, make sure you let me know, so I can contact you when I have an investment that fits your needs!

Rehab/Construction financing
For rehabs followed by refinance or resale, taking up to 12 months. Below is a matrix which will give you a rough indication of the range of current options. Available up to 100% of cost. Have a scenario? Get a quote here

Transaction financing
For back to back closes, or quick rehabs followed by refinance or resale. There are no income or credit score qualifications. Below is the current best pricing available:

 * When can I refi an REO, and how much can I cash out?
6 months following the purchase, based on newly appraised value: 75%ltv for SFD, 70%ltv for 2-4 units.

* What are the seasoning rules for resale?
The seller must be the owner of record. That’s it. Lenders may impose their own requirements, but in practical terms there are none. Contact me if you are faced with a seasoning issue.

* Mortgage secured REO investments
We continue to be faced with opportunities of a lifetime. If you're interested you may want to consider my Safe&Smart, mortgage-secured investment program. Go here for FFI and to get on the mailing list for new opportunities.

Here is a current investment summary. As always, a quick response is needed. 

• Project term: 4-6 months.
• Purchase and renovation, 4-family property 
• Funding requirement is 95% of cost, representing 52% of After Repair Value
• Exit: Refinance
• Projected annualized ROI: 47.3%

Investment, and profit share, and interest, are secured by:

1.     First mortgage; and

2.     Developer company shares (the ownership of the property essentially, avoiding the need for foreclosure in the event of default)
 

Download the Investment Summary

Let me know right away, if interested in which case I will send you the information package.

Housing markets are picking up a little, and lenders are liquidating more properties.
The occurrence of both of these phenomena serves us very well: More opportunities of course, and re-sales of repaired properties become more viable.

The projected ROIs are strong, mostly in the 30-50% range.
These returns are achieved with mortgage-secured investments that rarely exceed 60% of the after repair values. Truly amazing! This will not last forever, but for now we remain faced with what I believe are the best (high return/low risk) real estate investment opportunities of a lifetime!

Renting the properties out, followed by a quick refinance remains the preferred exit.
Rental markets are strong, and rents easily make after repair refinances possible.

Focus on 2,3,4, and now also 4+ family properties
Resale markets are still weak: Sales and mortgage processes take too long, and outcomes are always uncertain. It is for that reason that we remain focused on multi-family properties with strong rental income/refinance possibilities.

We continue to avoid 1-family properties
Rents are (relatively) low, reducing or eliminating refinance as an exit. In addition, there is the reliance on a single tenant, tenant-occupied is tougher to sell, and the wear and tear of the newly renovated 1-family property reduces market value. Developers focus on resale only, which can take too long. Our profit share may be pre-determined, and we charge interest, BUT we want to be paid out so we can make the next investment and earn another profit share!

Investment strategy
We maintain the current strategy: We do not invest as a (co-)owner, but as a mortgage-secured investor with an upfront agreed to profit share. We will take less profit, but we want our money back first + profit share + interest. Go here to review the investment strategy, here if you want to receive summaries of current investments, and here is you need a quote for project funding.

Fannie/Freddie are considering mortgage write-downs
In these so-called principal write-downs, a portion of the loan is forgiven for someone who's having trouble paying. Many Democrats like it, Republicans do not. More info

Rates up
The 30yr fixed rate mortgage averaged 4.08 percent for the week clearing the 4% barrier for the first time since October 27, 2011. Rates

FHA premiums up. 3 Increases:
On 4/9 the upfront MIP will increase from 1.00% to 1.75%, and the annual MIP will increase as follows:

No MI portfolio loans, anybody?

Free app to calculate mortgage payments for your smart phone. It gives you the total payments (including MI) for FHA and Conventional. It is easy to use, and free.

• To get yours go here from your smartphone
• You can also search for: LenderApp
• Activation code: mMMLS

Comments, questions?

Contact me

I have an awesome free app to calculate mortgage payments for your smart phone. It gives you the total payments (including MI) for FHA and Conventional. It is really easy to use and free.

• To get yours go here from your smartphone
• You can also search for: LenderApp
• Activation code: mMMLS

You are not going to like this! Fannie Mae Loan Level Price Adjustments (LLPAs) just went up again, March 1st  (See below) /// FHA mortgage insurance premiums are going up April 1st. ///  In the next issue, a summary of the stipulations for converting a property from owner-occupied to non-owner occupied. /// Comments, questions? I'm open for business! – Paul Luykx, Mortgage Banker  (What's a Mortgage Banker?)

LLPA increases   

In 2007, Fannie Mae introduced "Loan Level Pricing Adjustments" (LLPAs). The concept is basic: For mortgage applications with higher risk profiles, there are additional up-front payments (or rate adjustments) to offset potential long-term losses. LLPAs went up drastically in 2011, and another increase just went in effect March 1st. Whether paid by the borrower upfront, or factored into a higher rate, it again increases the cost of borrowing. If you are looking at LLPA tables, remember two things:

1.     A 1.00% LLPA charge on a 30-year fixed represents an approximate 0.250% rate increase from the base rate.
2.     All LLPAs are cumulative.

See my post of 16Jan2011 FFI. Look up LLPA tables here.

FHA mortgage insurance increases 

Here are the highlights, applicable to most transactions, effective April 1st (May 1st for >$625,000 loans):

• Upfront premium increases from 1.00% to 1.75%
• Annual premium increases from 1.15% to 1.25%
• Annual premium >$625,000 loan, additional 0.25%

It makes portfolio loans even more relevant. Information

REO Investments
Nobody knows when real estate markets will rebound, but many people are looking to invest. The best opportunities are foreclosures and short sales.  Banks own these properties but don’t want to lend money for buyers to take them off the banks hands.  These are called "REO" properties, are often in need of repair, and can be purchased for 20-50 cents on the dollar.

The next question is how to execute the project profitably. REO projects have inherent operational risks and hassles. Have you ever watched a rehab show on TV?  Everything always takes longer and costs more than planned for, and the surprises are rarely good. Below are two good options that delegate key elements to experts, and limit investor hands-on involvement as well as risk.

Mortgage-secured REO investments

My company, LX Financial LLC, joint ventures with developers for 1-4 unit REO projects up to 100% of cost. We do not invest as a (co-)owner, but as a mortgage-secured investor with an upfront agreed to profit share. We want to know in advance what our return will be. We will take less profit, but we want our money back first + profit share + interest. We are OK with the developer making most of the money.

In a way it is still "hands on", because once we have invested we want to exit ASAP. We monitor progress, and support the developer in any way needed. We want to move on to the next investment, and so of course does the developer. If you like this investment approach, contact me. We are always looking for mortgage-secured co-investors. Here is the complete strategy/structure.

Turnkey REO Services (NJ only)

Assuming you are not a professional developer, and you buy the property to rehab and sell, or keep as an investment – you need to take charge. You need to decide what to rehab, and how, select and supervise contractor(s), then drive the sales process and/or the leasing and property management if the property is retained for investment, do all of it well, and fast: Time=Money.
 

I have partnered with Stuyvesant Yale, a company that will do the rehab, the leasing, and property management - all with the hands-on leadership and pro-active style of an investor: How can we get this done faster, cheaper, better? They are also on the alert for any issues that the investor need to be aware of, what the possible solutions are, how they can help, etc. Contact Stuyvesant Yale. Your turnkey REO Service then can include any, or all of the following:

• Project financing
• Rehab
• Resale (typically handled by your realtor, who is therefore part of the team)
• Resale financing
• Leasing
• Property Management
• Refinance (cashout or rate/term)
   

The basic role of the Investor/Developer using the turnkey REO services then is to source the investment, and qualify for the project financing. 

Program Rules - Lender Rules- Underwriting - are the 3 levels of lending criteria that culminate into a loan approval. Mortgage financing is a key element of the purchase process, so it pays to understand the process. A synopsis below.... /// In the next issue, a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker  (What's a Mortgage Banker?)

There are important practical differences between a Mortgage Lender, Mortgage Banker, and a Mortgage Broker. Mortgage financing is a key element of the purchase process, so it pays to understand the options.  It is particularly good to understand the mortgage banking concept, which allows you to in effect make full application to many lenders all at once - very advantageous in today’s mortgage environment! /// Next week a synopsis of loan decisioning, also useful to know, and the week following a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker

What they are
>>Mortgage Lenders are usually depository institutions (banks, credit unions). They have a single line of products and unique lending criteria. All mortgages are sold in the secondary market (mostly Fannie Mae, Freddie Mac).
>>Mortgage Bankers use their own money to fund mortgages. They sell the mortgages either to Mortgage Lenders, or the secondary market. They offer a broad range of loan products and have the flexibility of matching an application with the lending criteria of an investor to whom they sell loans. Mortgage banking is now the hottest business model in mortgage financing because you are in effect applying to many lenders, all at once!
>>Mortgage Brokers are intermediaries who brings mortgage borrowers and mortgage lenders together, but do not use their own funds to originate mortgages.

What they have in common
>>Pricing: Lenders need to pay for all loan originations 
somehow, whether they pay their own sales force, their own branch network, bankers, or brokers. At the end of the day rates and fees are therefore pretty similar.
>>Equal pricing: Commissions no longer depend on the rate charged so the focus is now always on getting the approval on the best possible terms – lender, banker, or broker.
>>All loans are sold in the secondary market, portfolio loans excepted.

The differences
The practical differences between a lender, banker, and broker, are the breadth of loan programs offered, expertise, and loan decisioning:
>>Mortgage lenders are limited to their own mortgage products and lending criteria. If your application is handled by an application-taker instead of a capable mortgage specialist, you are at risks of delays, or denials.
>>Mortgage Bankers (like me) have expertise, a broad product offering, and the flexibility of matching and approving applications with the criteria of one of their many investors. You are in effect applying to multiple lenders at the same time!
>>Mortgage Brokers have expertise and choice of lender, but do not approve loans. If a lender declines a loan it needs to be submitted elsewhere.

We are still faced with the best real estate opportunities of a lifetime. As sad as it is to say, the economic malaise continues to serve us very well. My investment group is interested in funding 

highly profitable (fix and) flip projects - up to 100% of hard cost.

INVESTMENT CRITERIA

Our investment criteria are as follows:

• 1-4 family properties only. (2,3,4-family preferred)
• Preferred investment size: $20K-$100K ($200K max)
• NJ, NY only
• ARV (After Repair Value) of at least 150% of hard (purchase and rehab) cost
• Cross-collaterization on other properties considered.

If you are interested in:

• Fix & Flip project funding, go here for Information and/or a Quick Quote
• Investing with us, go here for Information 

Fed will publish short-term rate projections
The Federal Reserve will now tell the public its expectations for short-term interest rates, starting after its Jan. 24-25 meeting. I find this odd, and here is why...

>>Reliability. If market realities change, the Fed may need to adjust rates. That is the Fed's job first and foremost.

>>Conflict of interest because the Fed may not want to contradict itself, and hesitate to take needed actions that conflict with its own projections.

>>Confusion. This pertains to short term rates, NOT (long-term) mortgage rates. People are constantly confused about this. Mortgage rates are primarily determined by capital markets. I am also concerned consumers will opt for ARMs as a result, rather then long-term security of fixed rate loans. 

>>Independence. To my mind the Fed needs to be independent, and anything that takes away from it is a slippery slope, that can ultimately affect confidence in US monetary policy.

Pay points?
If you plan on owning a property for longer than 4 years and want the comfort of a 30-year rate fix, you may want to consider buying down the rate (pay discount points). A rule of thumb is that a 1.00% "discount fee" or "buydown", results in a 0.25% reduction of the note rate on a 30-year fixed rate loan. (Your payback period is about 4 years). And over the life of the loan you will save about 4% of the original loan amount.  More information
Pay 1.00%, 4 year payback, save 4% of the loan amount: 1-4-4.

John Sr and John Jr...
I am not here to tell you not to give your kids your first name, but know this: You are at risk of credit report mixups, and correcting it may take time and money, especially if derogatory items are involved. Applications may be declined, delayed, or not approved on best possible terms. I have have come across a few nasty situations lately, and I thought I'd share it with you. Oh.... same first name and different middle initial is not an alternative. - P

Contact me

We are still faced with the best real estate opportunities of a lifetime - and amazingly there are even getting better! As sad as it is to say, the economic malaise continues to serve us very well.

FOCUS ON RENTAL VIABILITY 

Because resale markets remained weak (and rental markets strong) during 2011, we started assisting developers with refinances to convert rehabbed properties to rental properties rather than wait for the re-sale. This way we were paid back, and developers could cash out and move on to the next project. Long-term rental viability is therefore now more important than resale value - which is why we prefer 2,3,4-family properties.

INVESTMENT CRITERIA

As of now our investment criteria are as follows:

• 1-4 family properties only. (2,3,4-family preferred)
• Preferred investment size: $20K-$100K ($200K max)
• NJ, NY only
• ARV (After Repair Value) of at least 150% of total hard cost
• Cross-collaterization on other properties considered.

INFORMATION

For investment information go to www.lxfinancial.com

Go here for construction/rehab loan information

To request a quick quote for a project go to www.fixflipnow.com

My best wishes to you for 2012. May it be a fulfilling and prosperous year!

We're open for business :)

As the year draws to a close, time to do a little market assessment....

• It's a buyer's market, for homes and investment.
• Short sale and REO values are low due to market weakness and over-supply.
• REO rehab values are even weaker due to lack of mortgage programs to finance them. (Ever wondered why the lender doesn't just provide the loan?)
• Rental markets are strong. (I prefer 2,3,4 unit investment). More info.
• Mortgage financing is (an inceasingly more) fickle business. Thorough prequalification is key. Here is a form you can use to get a PQ from me.
• Credit improvement is even more fickle, and also becoming more complicated. Self-help often has the opposite effect. More info.

Closing costs where you are
Bankrate.com performs an annual closing cost survey. To see what they are in your location, go here. 

How many rate influencers can you name?
I get the "what's your rate" question all the time. I think we all know it is a simple question, and a good answer is not. So how many rate influencers can you name? Go here for the incomplete list. If you can think of any I should add, let me know!

Ask a CPA: Year-end tax pointers

Ryan Curran is a "hands-on" CPA, specializing in tax matters pertaining to real estate: Sales, development, construction. There are many things you can do to reduce your 2011 tax exposure. Here a few:
1. Prepay real estate taxes or mortgage interest
2.  Sell underperforming stocks or bonds to create a loss
3. If you own a business, deposit checks in the new year
Ryan invites any question or inquiry. Contact him.

Finance REO investments
I do not sell or offer properties for sale. Developers/investors present me properties to finance/invest in. I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.

"A public opinion poll is
no substitute for thought".
- Warren Buffett

  Contact me 

Developers present me with REO projects on a daily basis. They need financing and investor capital. I am starting a new company dedicated to highly profitable, short-term, REO investments. If you are interested in being part of this as a (founding) shareholder, let me know. /// This week a quick review of mortgages after deed in lieu, foreclosure, or pre-foreclosure (short) sale. See below, or go to my website. - Paul :) 

Can you have more than 1 FHA loan?
Yes, under the following cirumstances:

• Relocation. Must document unreasonable commute distance from current home.
• Increase in family size. Must have current mortgage balance at or below 75% LTV.
• Vacating jointly owned property. Example: divorce.
• Non-occupying co-borrower. Co-signed with family on their home

Mortgages after deed in lieu, foreclosure, or pre-foreclosure (short) sale
The waiting period for FHA is 36 months, and for Conventional 24-84 months - depending on LTV.

For further details go here

Finance REO investments
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.

  Contact me 

I first wrote about this in February. It significantly raises the rate in certain circumstances, like (a combination of) cash-outs, investment property, low credit score, high LTV. I have recently priced loans where the rates came in at close to 6.00%!  - P

What are LLPAs?
In 2007, Fannie Mae introduced "Loan Level Pricing Adjustments" (LLPAs). The concept is basic: For loans with higher risk profiles, there are additional up-front charges to offset potential long-term losses. LLPAs went up April 1st, 2011. Whether paid by the borrower upfront, or factored into a higher rate, it can drastically increase the cost of borrowing. As you read this, just remember this rule of thumb: A 1.00% additional LLPA charge on a 30-year fixed translates into an approximate 0.250% rate increase.

Most common LLPAs 

1. Adverse Markets (FHA, VA, USDA loans also)

2. LTV/credit score.

3. Special features:

• High-LTV
• Interest-Only (IO)
• Investment Property
• Multiple-Unit Properties
• ARM
• Manufactured Home
• Cash-Out Refinance
• Energy Improvement Feature
• 40-year Term (MBS only)
• Condominiums and Cooperatives
• High-Balance Mortgage Loans

Details: LLPA matrix
You will find the full LLPA matrix here. Note that LLPAs are cumulative. Multiple adjustment may apply. Again, a rule of thumb is that a 1.00% charge represents an approximate rate increase of 0.250% on a 30-year fixed.

All the money is being made in REOs at the moment. Lower risk than securities, and great cash on cash returns. You can buy them, or finance them at <50% loan to value. To add yourself to the mailing list for opportunities go here. /// This week a quick review of mortgages after bankruptcy. In short, the waiting period for FHA is 24 months, and for Conventional 48 months. See below. Next week: Waiting periods following foreclosure, short sale, or modification. /// Rates are still near record lows, but underwriting criteria are becoming tougher: Higher Fico requirements and rental revenue exclusions from qualifying income when buying 1-4 unit properties!  /// Make it a good week folks. - Paul :)

From Fix&Flip to Fix&Hold
(Fix and) flips, are a challenge because markets remain weak and it takes longer to re-sell properties. Time=Money. I recommend a hold strategy as revenue property to avoid market risk, and ultimately optimize return on investment.
2, 3, 4 unit properties with rental revenue that support a bank refinance for a permanent loan work best, so you can still cash out. Planning for long-term hold still does not prevent a quick sale. To review a summary of construction/rehab financing options, go here. Planning is key. Contact me early.

Mortgages after bankruptcy
The most common types of personal bankruptcy are:
1. Chapter 7 ("liquidation"). Details
2. Chapter 13 ("payment plan"). Details

An elapsed period of less than two years, but not less than 12 months, may be acceptable for an FHA-insured mortgage, if the borrower can show that the bankruptcy was caused by extenuating circumstances.

For further details go here

 
Finance REO investments
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.

  Contact me 

I am amazed at the detailed questions I get nowadays from Realtors, borrowers, and others. It prompted me to convert my website to a Mortgage Information Center for peeps who want to know more. It includes a detailed Mortgage Summary (stuff you'll want to reach at least once if you are a Realtor), complete FHA/Fannie Mae underwriting guidelines, 203K presentation, and more. Check it out. If you have any recommendations for making it better, please let me know. /// As the stock markets go up and down, so do interest rates. Surpringly, rates have not increased as much as one would expect. The US Dollar remains the preferred currency. Read. /// Make it a good week folks. - Paul :)

FHA streamline refinance
This refinancing option is considered streamlined because it allows you to reduce the interest rate on your current home loan quickly without an appraisal and without having to qualify for the loan again. The loan must be in good standing and the refinance must lower your monthly payments. There are no cash-out options, but the closing costs may be added to the loan. Any FHA loan with a rate of 4.50%+ should be evaluated for viability. You can make an online request for review here.

How many properties can you finance?
The answer is: Ten, 1-4 unit properties. (Other type properties are not included). The reserves and credit score requirements go up, and maximum loan to values come down with properties 5-10.

Reserves
When the borrower will own 1-4 financed properties (including the subject property) the reserve requirements are:

- 2 months on the subject if it is a second home,
- 6 months on the subject if it is an investment, and
- 2 months on each other financed 2nd home or investment.

When the borrower will own 5-10 financed properties (including the subject property) the reserve requirements are:

- 2 months on the subject if it is a second home,
- 6 months on the subject if it is an investment, and
- 6 months on each other financed 2nd home or investment.

Fico and LTV

For full details go here.

Fix & Flip investment list
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. To add yourself to the mailing list, subscribe here.

  Contact me 

____________________________ 

"Think not those faithful who praise all thy words and actions,
but those who kindly reprove thy faults"
Socrates

As promised, here is a summary of current construction/rehab loan options. The 203K is the only mainstream program. The others are not, which means that there is limited availability and the terms are somewhat higher than they would otherwise be. The good thing is that you are dealing with portfolio lenders who set their own standards, and the conditions and loan pricing (rate and fees) are more flexible. - Paul :)

FHA 203K
A rehab to permanent FHA loan

• Owner-occupied only, 1-4 unit properties.
• Rehab only, BUT what makes it a rehab is when the existing foundation is used, so sometimes it can work for construction also.
• Rate: Market FHA rate + 0.50% approximately

BORROWER / BUILDER LOAN
(Borrower who hires a builder)

• 1-4 family units, residence or investment property
• Construction or rehab
• LTV to 80%, to 90% with cross-collaterization
• Land purchase up to 75% of the lot purchase price
• 12-18 month term
• Available for less than perfect credit
• Interest only payments based on funds advanced
• Rate: 5%+, 3%+ fees

SELF-BUILD LOAN
(Borrower acts as own general contractor)
See Borrower/Builder Loan above.
 

BUILDER / SOLD LOAN
(Builder has a contract to sell the completed home)

• 1-4 family units (up to 12-units on exception basis)
• Construction or rehab
• LTV to 70%, to 75% with cross-collaterization (SFD only)
• Land purchase up to 75% of the lot purchase price
• 12-18 month term
• Available for less than perfect credit
• Available for builders with limited experience
• Rate: 5%+, 3%+ fees

BUILDER SPEC LOAN
(Construction of a model or spec home)

• 1-4 family units (up to 12-units on exception basis)
• LTV to 50%
• Land purchase may be included in the loan
• 12-18 month term
• Interest only payments based on funds advanced
• Rate: 7%+, 4%+ fees

FIX AND FLIP LOAN
(Spec purchase and rehab)

• 1-4 family units
• Up to 100% of cost
• 6-12 month term
• Rate: 12%+, 9%+ fees

Do you have a scenario?  Ask me!  

____________________________ 

""We need to learn to set our course by the stars,
not by the light of every passing ship"

Omar N. Bradley