News Channel Mortgage

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.

Even with bargain hunters starting to come out of the wood work and credit just barely starting to thaw out, things are still fairly bleak in the real estate market. Home prices saw a record decline in the third quarter, with foreclosures doing the most damage. Bailout money has been plentiful, from the $350 billion spent so far to help struggling financial institutions to Freddie Mac eating such huge losses that it had to tap taxpayer money already. What about struggling mortgage owners, though? The government has clearly stated that they aim to help out the homeowners too, but how will Uncle Sam decide who will get the helping hand? That answer may not come easy.

The Bush administration recently announced a new foreclosure prevention program that aims to help troubled borrowers and keep them in their homes. The plan, spearheaded by the Federal Housing Finance Agency, has worked with a coalition of lenders, servicers, investors and community groups called Hope Now to target the “most-at-risk” homeowners. Who does that mean specifically?

At present, Fannie and Freddie are looking to extend aid to homeowners that are more than three months past due on their loans so that the most troubled borrowers get the most immediate attention. You’ll have to jump through a few hoops, of course, including having to write a “hardship letter” to explain why you fell behind on your payments for a “good reason.” Good reasons could or could not include job loss, divorce, and medical bills. Borrowers will also have precious little equity in their homes, and if you exceed the mortgage balance by more than 10%, you’re too “well off” to get help. Other homeowners are so far deep underwater that there’s no way to pull them out. If you were already up to your eyeballs in debt and then lost your job for example, you’re out of luck there, too. Prepare for bankruptcy and giving up your home.

Lenders participating in the program will be sending out letters to those who qualify and requesting information like pay stubs and bills and the aforementioned hardship letters. If you’re busting your ass to keep your mortgage current, don’t expect anything but a hefty tax bill somewhere down the line.

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Usually Boards do not need the owners’ approval to increase dues as needed within a certain annual increase cap. Changing the CC&Rs to add new requirements regarding rental activity would normally take a large majority to vote it in, and also can be quite costly if they revamp the entire CC&Rs at the same time.

On the one hand I can see the need for having a rental cap, on the other hand I don’t understand how you can say yes to 11 people and then no to the next guy. I have not seen as many Board Meetings and HOA Operations with rental caps, as I have seen those without them. It’s a relatively no thing to have it in the CC&Rs.

It’s become a huge issue around the Country when the developer sells say half of the units, and then has to rent the rest due to decreased demand. I think there is now a term for it. Instead of a condo conversion it is a condo reversion.

sampai,

Was it your concern, or the lender’s concern? I’ve never seen a lender do that, so we are quite shocked. I’ve even seen places with $0 in reserves get mortgage funding. Most if not all small complexes do not have enough owners to accumulate sufficient reserves for all replacement items, and special assessments are needed for most big projects. You need a lot of units to accumulate enough money for roof and siding replacement. 8 plexes would not usually do that, and yet they have qualified for mortgage funding.

My issue wasn’t with the rental percentage (although that is a long term concern.) It was with the HOA dues not providing for adequate reserves.

In this economic environment, I feel sorry for the condo boards that are trying to get homeowners to see that putting in a rental cap and/or increasing dues is a *good* thing.

Sorry I don’t have a link to it, but I believe it is the Washington Condominium Act enacted in 1990 that provided for uniform standards of disclosure via the Resale Certificate.

The HOA is to keep records of which are owner occupied and which are rented out. There is likely a requirement that you report when it is rented vs. owner occupied, and often they can tell when someone asks for a change of address for notifications, minutes and payment coupon books. Plus neighbors tend to know and report that at meetings.

All purchases of condos require a Resale Certificate which includes the number of units, the number owner occupied, the number rented out, the amount of money in the reserve account, and many other things.

The only time I’ve seen a gray area as to owner occupied vs. rental, is if a parent buys it for a child who pays them “rent”. Technically that is a rented unit. But if the parents only took out the loan because their child didn’t qualify for the loan, or they got a better rate, I’d say that is more like an owner occupied than a rental, especially if the person living in it is making the mortgage payment.

I do think associations should critique situations like the one above, but I’m sure you’re not suggesting that owners lie about it being rented to protect their property values.

Leanne,

Are you unaware of the many people who accurately predicted the bubble and financial devistation?

I could give you a list of them if you’d like.

You might even be interested in reading what they’re saying today. Let me know, and I’ll post it here.

By the way, Eleua was one of them along with synthetik and The Tim.

Leanne, there are many reasons why people prefer to use an anon handle when blogging. We don’t mind here on RCG.

Re: 130

If I have owned a lived in a condo (or house) for say five years and decided to move out and start renting it, am I required to report this? If not, how can anyone know the true occupied/investor ratio?

leanne, I don’t have a problem with people not using their real names–especially our “regulars”. You get to know where they’re coming from and folks may agree or disagree or agree to disagree–no different than those of us who sign our names.

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