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Difference with HUD REOs?

Question:

What do I need to know in dealing with HUD REO’s? Any particular approach, lingo, etc. that I may need in order to be taken seriously?

-W.A    

Answer:

The only thing you need to know when it comes to HUD properties is to follow the instructions of a good agent who deals with HUD REOs or HUD foreclosures all the time. We’ve done a little bit of this, we haven’t gone after it like a mean dog as of yet but we intend to because I think that’s an area that’s really developing. But the secret to that is really having an agent who understands and has experience submitting those offers. What’s probably good to do is to find an agent who was in the last market, in the last downturn and who worked a lot with HUD because that’s all there was and they’re very familiar with what you can accomplish and the one thing about HUD that I can warn you about is that they’re detailed because they don’t necessarily hire the brightest staff in the world so they set these stringent rules for themselves and they don’t really respect how much work you put into having to do their offers. Its not so much what you write up to be taken seriously. To be taken seriously, you just have to follow the guidelines that they give you, and that they give everybody the same thing. You won’t shine here. This is not Fannie Mae or any of that nonsense. Basically, it’s just a vanilla, cookie-cutter method. The only thing that could happen is that your agent’s an idiot and drops the ball and doesn’t get your offer in on time, doesn’t have all the appropriate paperwork, hasn’t crossed all the t’s and dotted the i’s. That’s it! And I just read about somebody who in my area had submitted an offer and were waiting and waiting and waiting. They were told they had the deal and they went on and found out that it was back on the market, listed as available again. And this was basically because their agent had screwed up and dropped the ball on something and the property was relisted again. They were able to capture it back again but you know they would have never known. It could have sold to somebody else and when it sells to somebody else you’re S.O.L, you’re toast – that’s it!

So, it’s not so much about any secret weapon. It’s really important for you guys to learn the process that’s involved in these kinds of offers. HUD, you need to understand ALL the elements that are involved in that for yourself so that you double check your agents and I know that sounds a little wacky, but it really is important.
    
-TA

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What if an REO property needs more than your estimate?

Question:

Hi Tony, Please help me reconcile these two statements: 1. You once said that you never cancel escrow on an REO agent. 2. You also said that you run “an offer mill” making 15 offers per day or so.

How can both be true? What if your offer on an REO property is accepted and then you inspect the property and discover that it’s going to require a lot more work and money than you thought? Do you lower the offer? Isn’t that what you called a “terrorist offer?” Or do you cancel altogether? And if so isn’t that the same as cancelling out of an escrow? You just disappointed an REO agent.

Or do you inspect every single REO property before you make an offer so that scenario never occurs. That means you and Sabrina are inspecting at least 15 properties per day.

 

Answer:

Dear David,

Nice of you to write. Let’s take your questions apart piece by piece.

1 – I don’t run “offer mills.” My goal is to send out 15 offers a day. However, we personally only write a minimum of five and those are LOIs on an 8 1/2 X 11, pre-designed template where we basically just enter the property and agent information. However, we only make offers for two reasons:

One, on properties that I’m interested in buying. These are made through the listing, or a buyer’s agent within the listing agent’s office or through a buyer’s agent outside the listing agent’s office.

Two, on properties where I am interested in meeting the listing agent such as a pending listing where I use an LOI (Letter of Intent/Interest) type offer. This is what I call a “calling card offer.” It’s just my way of introducing myself using a point of interest for the listing agent.

2 – I have never canceled a deal once I have a seller accepted offer and have opened escrow.

3 – Presently, in our market, properties that we pro-actively select to submit offers on fall into one of two categories: REOs or Short Sales. The REOs are typically inspected by Sabrina and/or myself and the agent representing us, prior to submitting our offer.

The short sale offers are submitted with one contingency – “Subject to Interior Inspection.” We seldom inspect short sales unless we are concerned about the present condition or the upgrades. This is typical and accepted when dealing with short sales where the final price has not yet been approved by the lender. Keep in mind, short sales for us are the equivalent of gambling, that’s why we call them “Slot Machine Offers.”

-On a short sale where the selling price has already been pre-approved by a lender and we are interested in purchasing at the approved price, we would be inspecting the property prior to opening escrow.

4 – In the past, when I have been out of town, and before the existence of the Flip video camera, I would have to rely on Sabrina or an agent to inspect a severely damaged property, something that has always made me somewhat uncomfortable. There have been times where they have underestimated the repair costs. One that comes to mind, is actually a recent purchase of a property where they missed that a part of the foundation was made of brick. This is a very costly repair.

However, it would be more costly if I cancelled that escrow as the level of damage it might cause my business may be unrepairable. In all honesty, many times it’s not so much the damage it will cause my reputation as a professional buyer, but the fact that having that level of commitment assures me of the loyalty of top brokers, indefinitely.

In any event, this is the way I’ve chosen to do business and I believe it’s largely responsible for the success that I’ve experienced. Keep in mind that I suggest that as new buyers, you keep your contingencies for inspecting, financing and everything else in place to protect yourselves from your own errors or poor judgement. Take your time, inspect properties carefully, really understand what you’re doing and the cost of those repairs as well as the added value that they will bring to the property. A declining market is not a forgiving atmosphere.

The bottom line is this, we don’t make offers on properties without prior visual inspections! Nor would I recommend that anyone entertain that idea, it just isn’t prudent since the condition of the property is such a crucial part of your equation. If the picture that I conveyed of our system of making offers was a disorganized or disorderly conglomeration of disjointed actions – nothing could be further from the truth!

I don’t make frivolous offers. I don’t waste an agent’s time by making uneducated guesses. Every action we take in our office is well thought out and pre-calculated with a specific reason in mind.

Unfortunately, my ability to communicate may not be as good as the systems in my office. Please forgive me for any confusion that I may have caused.

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Today’s Real Estate News 11.01.2013

The Amenities Trending Up (and Down) in Luxury Homes
“Views, windows and outdoor spaces are some of the most in-vogue amenities in luxury homes, according to an analysis of listing descriptions by real-estate website Trulia.”

The ‘Texa-fication’ of America
“In 1981 a book titled The Nine Nations of  North America, written by Joel Garreau, suggested that North America could be divided into nine nations, which have distinct economic and cultural  features. Arguing that national and state borders are largely artificial and irrelevant, Garreau’s nine “nations” — including Ecotopia, MexAmerica, Breadbasket, Dixie, The Foundry, New England, Quebec, The Empty Quarter and The Islands — provides a more accurate way of understanding North America.”

HAMP’s Redefault Rate at 27% and Likely to Rise
“Over the life of the government’s Home Affordable Modification Program (HAMP), 1.25 million homeowners have received permanent HAMP modifications, and 27 percent of those have later redefaulted on their loans, according to a quarterly report to Congress from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).”

FHFA Still Piloted by ‘Acting’ Head as Watts Vote Blocked
“Senate Republicans blocked a vote on the nomination of Rep. Mel Watt (D-North Carolina) to head up the Federal Housing Finance Agency (FHFA).”

Use your home to boost retirement savings
“Do you dream of leaving full-time work behind at 60, or even sooner? In MONEY’s 2014 Retirement Guide, you’ll learn the five essential rules for pulling off early retirement — rules built on tough lessons from recent years and new thinking about investing.”

MBA’s Stevens Testifies on Housing Finance Reform
“David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA), testified today before the U.S. Senate Committee on Banking, Housing and Urban Affairs at a hearing titled, ‘Housing Finance Reform: Essential Elements of a Government Guarantee for Mortgage-Backed Securities.'”

Starwood Property Trust spins off new public REIT
“Real estate investment fund Starwood Property Trust (STWD) plans to spin off its single-family residential business, forming a new REIT called Starwood Waypoint Residential Trust.”

SunTrust Mortgage is exiting broker lending
“The changing mortgage landscape continues to impact large banks and lenders, with SunTrust Mortgage (STI) announcing plans to exit broker lending, effective Dec. 31, 2013.”

Fitch will rate second Freddie Mac risk-sharing deal
“As promised, Freddie Mac is coming to market with another risk-sharing deal, thereby shifting some of the product into the private market. Freddie said it will likely get this deal rated, and it looks like they will, via Fitch Ratings.”

Homebuilders drive into peak season
“Homebuilders are driving into their peak season, with more than 75% of annual homebuilder returns historically generated in the November-to-January timefame, Keefe, Bruyette & Woods noted in its latest report.”

REO-to-Rental securitization gets sterling Triple-A rating
“Moody’s Investors Service (MCO) provided a credit analysis for Invitation Homes 2013-SFR1, an REO-to-Rental securitization, awarding $278.7 million in triple-A ratings, in what is by far the largest tranche in the deal.”

Homebuilders to Rally as Bet on Taper Premature: EcoPulse
“Shares of U.S. homebuilding companies have fallen more than 20 percent since May, even as home-improvement retailers rose to a record high, a sign some investors are too pessimistic that higher mortgage rates could derail new construction.”

Wells Fargo Said to Settle FHFA Claims for Less Than $1 Billion
“Wells Fargo & Co. (WFC) agreed to pay less than $1 billion to settle Federal Housing Finance Agency claims it sold faulty mortgage bonds to Fannie Mae and Freddie Mac, according to a person briefed on the deal.”

Ellie Mae misses estimates due to lower mortgage volumes
“Oct 31 (Reuters) – Ellie Mae Inc, whose software is used by mortgage professionals, reported a lower-than-expected third-quarter profit, hurt by lower mortgage volumes and higher R&D spending, pushing its shares down more than 20 percent after the bell.”

Chinese heavily focused on US real estate. How big of an impact are Chinese investors having on US property values? China now has 1 million US dollar millionaire households.
“There is a heavy demand from abroad for US real estate.  China as you know is now solidly the second largest economy in the world and with it is wielding heavy economic power.  Wealthy families are growing and with it, the ability to purchase investments and assets all around the world.  In California target locations like Los Angeles and San Francisco bring in dramatic levels of dollars from abroad.  The California housing market has been on a massive run-up in the last couple of years.  As we’ve discussed, a large part of this has been driven by domestic investors but how much of this is being driven from those abroad?  In particular how much money is flowing in from China into US real estate?  It is interesting to note that Chinese property investors are targeting select coastal regions whereas some domestic hedge funds have gone after properties in Arizona and Nevada.  It is hard to ignore the money flowing in from abroad.”

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Today’s Real Estate News 10.29.2013

Summary:

Today, DS News reports about how much real estate us investors have purchased since 2011. Realtytrac shares the opinions on leading brokers regarding the QRM proposal and how the foreclosure rate has been increasing in New York City and Long Island since Hurricane Sandy. According to CNN  Money, home prices are still increasing. Realtor.org shows their approval in delaying flood insurance increases. The MBAA’s president & CEO stresses a housing policy balance.  According to the Housing Wire, Hensarling is pointing the finger at Dodd-Frank for the mortgage market’s “volatility,” the Special Inspector General for TARP outlines the failures of the “Hardest Hit Fund,” the underdogs of mortgage servicing are forecasted to rule the mortgage market according to mortgage servicing experts, mortgage originations are most likely to decrease and the FHFA states that mortgage rates are to continue to climb. Bloomberg reports that consumer confidence has decreased the most since August 2011 and BofA could be forced to pay somewhere between $5-8 BILLION to settle federal claims while it’s Countrywide unit and investors in mortgage-backed securities are expected to ask a federal judge to overrule FDIC’s objections and settle for $500 Million.

Investors’ Home Purchases Total $1 Trillion Since 2011
“Since 2011, investors have purchased more than 950,000 homes; and with 370,000 purchases so far this year, they have already surpassed the number of purchases they made in either of the past two years, according to a new report from RealtyTrac.”

Leading Brokers Weigh in on Impact of New QRM Proposal, Reveling Concerns Over Mortgage Rules Taking Effect in 2014
“RealtyTrac® (www.realtytrac.com), the leading online marketplace for comprehensive housing and real estate data, today released opinions from five leading real estate brokers across the country on the impact to the real estate market and mortgage industry posed by the newly proposed Qualified Residential Mortgage (QRM) rules set to take effect in January as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010.”

New York City and Long Island Foreclosures Continue to Increase a Year After Hurricane Sandy Hit
“One year after Hurricane Sandy made landfall on the U.S. eastern seaboard, RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today reported that foreclosure activity in the first nine months of 2013 is up 33 percent compared to the first nine months of 2012 in the 7-county region including the five boroughs of New York and Long Island.”

Home prices continue to climb
“Home prices posted the largest annual gain since housing bubble days in August, although the month-over-month gain slowed for the fourth straight month.”

Realtors® Applaud Bipartisan Legislation to Delay Flood Insurance Rate Increases
“The following is a statement by National Association of Realtors® President Gary Thomas:

“The bipartisan ‘Homeowner Flood Insurance Affordability Act’ introduced today in the Senate by Sens. Robert Mendendez, D-N.J.; Johnny Isakson, R-Ga.; and Mary Landrieu, D-La., and in the House by Reps. Michael Grimm, R-N.Y., and Maxine Waters, D-Calif., will help millions of homeowners who are facing sudden and extreme increases in flood insurance premiums, which are an unintended consequence of legislation to reform the National Flood Insurance Program.”

Stevens Calls for a Constructive Balance in Housing Policy
“Washington, DC (October 28, 2013) — David H. Stevens, President & CEO of the Mortgage Bankers Association (MBA) today delivered the following remarks at the association’s 100th Annual Convention and Expo in Washington, DC.”

Hensarling blames Dodd-Frank for mortgage market volatility
“Rep. Jeb Hensarling, R-TX, received thousands of cheers from attendees during the Mortgage Banker’s Association 100th Annual Convention and Expo Tuesday as he painted the Dodd-Frank Act as the real threat to mortgage finance reform.”

SIGTARP details Hardest Hit Fund failures
“The Hardest Hit Fund, which was launched by the Treasury to help families in areas stricken by the housing bust, fell short of its stated goals, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) warns.”

Smaller competitors may dominate servicing in the near future
“Mortgage servicing experts foresee a future market dominated by specialists such as Ocwen Financial (OCN) and Nationstar Mortgage Holdings (NSM), while big, traditional banks head for the hills when it comes to servicing to escape litigation and costs.”

Mortgage originations expected to fall 32% in 2014
“Mortgage originations are estimated to reach a total value of $1.2 trillion in 2014, a 32% drop from 2013 levels, the Mortgage Bankers Association said Tuesday.”

FHFA: Mortgage rates continue to climb
“Mortgage interest rates continued their upward climb, with contract mortgage interest rates increasing 0.11% from August to September, according to the Federal Housing Finance Agency’s index of new mortgage contracts.”

Consumer Confidence in U.S. Slumps by Most Since August 2011
“Confidence among U.S. consumers declined in October by the most since August 2011 as the budget impasse and debt-ceiling negotiations in Washington took a toll on outlooks.”

BofA Accord With FHFA Could Cost $8 Billion, Fitch Says
“Bank of America Corp., the second-biggest U.S. lender, may have to pay $5 billion to $8 billion to settle federal claims tied to faulty mortgages after a rival lender’s deal set “a relatively high bar,” Fitch Ratings said.”

Countrywide, Investors Seek Approval of $500 Million Pact
“Bank of America Corp.’s Countrywide unit and investors in its devalued residential mortgage-backed securities will ask a federal judge to overrule objections from the Federal Deposit Insurance Corp. and approve a $500 million class-action settlement.”