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Paul Luykx

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Great smart phone app for mortgage calculations

03-10-12
Paul Luykx

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.

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LLPAs up again - FHA premiums up again

03-02-12
Paul Luykx

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

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REO investments with limited hands-on involvement

02-28-12
Paul Luykx

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.

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Features & Benefits of Portfolio Loans

01-27-12
Paul Luykx
Portfolio loans can be a powerful alternative to many common lending restrictions of the mainstream - Fannie Mae, Freddie Mac, FHA type programs. Because portfolio loans are retained by the lender and are not sold in the secondary market, lenders make their own, common-sense rules, specifically to offer alternate solutions. Below are the highlights. /// In the next issue, a summary of the stipulations for converting a property from owner-occupied to non-owner occupied. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker (What's a Mortgage Banker?)
Portfolio loan features/benefits
The list below is incomplete because a portfolio loan can be "a fit" in so many unique circumstances. As you read through it you can probably think of a few of your own situations yourself. In addition, because the documentation and verification standards are different, sometimes a portfolio loan is a solution just because the paperwork, or circumstances are not a fit for another type loan. (The documentation requirements for condos for example is a lot lighter).
  • No Mortgage Insurance to 90% LTV
  • Jumbo loans to $5,000,000
  • HELOCs to 85% LTV. Great for REO investors with "free and clear" homes
  • 2nd fixed rate mortgages to 85% LTV
  • 620 min. Fico
  • 50% max. Debt To Income (DTI)
  • One month (rolling) mortgage late allowed
  • Vacation homes to 80% LTV
  • 3-4 Family Owner Occupied to 80% LTV
  • 1-4 family investment to 80% LTV
  • Condominiums with <40% rental units
  • No rate add for acreage
  • No rate add for any loan <$1,000,000
  • No rate add for cash-outs
  • No rate add for condo, manufactured/modular homes
  • No rate add for escrow/impound waiver
  • No rate add for rural properties
Any questions?
Contact me
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Mortgage decisioning criteria, and why you care!

01-25-12
Paul Luykx

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?)

Program rules
All mainstream mortgages are subject to universal program rules. If lenders do not follow these rules they will not be able to sell the mortgages (which virtually all are), OR WORSE - lenders will be obliged to buy loans back at a later stage. It is the fear of buybacks that drives the current over the top scrunity. Buyback processes can be huge! and are virtually always initiated for non-performing loans (we've seen a few of those as of late I think) - so there is a risk that a lender has to buy back all non-performing loans ever originated if it does not strictly adhere to the program rules. Imagine the fear this instills into the business environments at mortgage lenders nowadays!
You can find all program rules (FHA, Fannie Mae, Freddie Mac, USDA, VA) at my Information Center.

Lender rules: "Overlays"
In addition to the program rules referenced above, all lenders have their own, unique underwriting criteria, usually called "overlays". Lender overlays are mandated by the risk tolerance of the lender, or the investors who buy the lender's mortgages. Overlays are what makes one lender different from another. As an outsider you will never know what the forever changing details/differences are, which is why you need the support of a knowledgable mortgage specialist - and here is why you are best of dealing with a mortgage banker.

Underwriting
Underwriters are charged - and burdened! - with making loan decisions in the highly charged, risk adverse environment I described above. Now more than ever they need perfected loan applications, in full compliance with often changing rules, and then some! They appreciate additonal details, documentation, narratives, notes, etc. Underwriters really want to approve loans, but we need to give them the tools and comfort to do so! This is why borrowers need to be encouraged to volunteer information, and deliver complete documentation (and more of it, rather than less), quickly.
Note that Underwriters do not "have to" approve any loan. It's rare, but it is possible to be declined - even if everything fits. Conversely, underwriter discretion can work in the borrower's favor as well where a loan gets approved that would in most other cases be declined. Here again is why you need to work with a mortgage expert, skilled in loan advocacy and matching presentation techniques to make sure loans get approved.

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