Phoenix Arizona Investment Property with Oggy Karchev of Realty ONE Group

The Obama administration, in conjunction with federal regulators and led by the overseer of Fannie Mae and Freddie Mac, is very close to announcing a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.

Currently there are about a quarter of a million foreclosed properties on the books of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), with more coming.

The foreclosure processing delays of last year created a backlog of properties yet to be processed, which are just now being re-started. One of the initiatives of this program is for the federal government to be in the position to mitigate and manage any new wave of foreclosures, sources say.

Late-stage delinquencies still in the pipeline number close to two million. Foreclosure starts outnumber foreclosure sales by two to one and "the trend toward fewer loans becoming delinquent, which dominated 2010 and the first quarter of 2011, appears to have halted," according to LPS.

Knowing this all too well, the Treasury Department, Federal Reserve, HUD, FDIC, Fannie Mae and Freddie Mac, with their conservator, the Federal Housing Finance Agency (FHFA) at the helm, are engaged in a collaborative effort to face this new wave of foreclosure properties head on and figure out a way to keep these REOs from sitting on the books of the government and sitting empty in the nation's neighborhoods prone to vandalism and deterioration.

A pilot sales program will be starting in the very near future, according to administration officials. They are working on what the market potential is, what pricing would be for these bulk packages, how government can partner with private investors with lots of cash on hand, and who has the operational experience to manage so many properties all at once.

A number of institutional investors have shown appetite and interest in bulk REO deals, according to officials, but the plan has to incorporate ways to help facilitate financing for such large numbers. That has been one of the biggest roadblocks to deals already in the works between hedge funds and the major banks. Sources close to these private bank negotiations say there is plenty of cash to buy foreclosed properties, but building out a management structure for the rentals is pricey, and some investors are finding the math doesn't add up to make it worth their while.

Larger investors want to be able to get real scale in any government program, in the range of 50, 100, 500 properties per deal, or $1 billion-plus in assets, say officials close to the plan. That's why the government is looking to test a combination of different approaches. Fannie Mae did a $50 million sale last June, but that was on the small side. Officials are evaluating at what larger asset sales beyond that would look like.

"We expect several pilots that will involve both local investors and institutional investors. The goal here is to reduce supply by converting foreclosed homes into rental units," says Jaret Seiberg of Guggenheim Securities. "Less supply - even less fear about a flood of foreclosed homes hitting the market - could stabilize [home] prices."

Officials say they want to bring back private capital and help support rental opportunities for households, particularly when rent rates are up at the same time home prices are down.

FHA Extends Waiver of Arizona Investment Property Anti-Flipping Regulations through 2012

In an effort to continue stabilizing home values and improve conditions in Arizona communities experiencing high foreclosure activity, the Federal Housing Administration (FHA) will extend FHA’s temporary waiver of the anti-flipping regulations. Meaning Arizona Investors who have purchased an investment property needing repair can turn around and re-sell the property upon completion (rehab) even if title seasoning is less than 90 days. *Restrictions and regulations apply

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011. The new extension will permit Arizona Homes to be resold to Owner Occupant buyers using FHA-insured financing. This law stands true to purchase HUD-owned properties, Phoenix bank owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize Arizona Real Estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA. All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to owner occupant borrowers. The Waiver continues to be limited to sales meeting the following conditions:

·All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

· In cases in which the sales price of the Real Estate property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value:

Documents and restrictions for Arizona Investors reselling property include but are not limited to:

· Receipts and documentation to prove increase of value in a short period of time (usually for 20% increase or greater)

· 2 appraisals conducted by licensed Arizona appraiser one paid by buyer and one paid by the Investor (lender takes the lower of the two)

While Arizona FHA home loans still remain an attractive option for many Arizona home buyers, conventional loan down payment percentage minimums continue to decrease.

In fact, in today's market in Arizona, while an FHA loan will require a 3.5% down payment, and is also a much more unattractive loan for the seller, now a conventional loan with mortgage insurance for as little as a 3% down payment is available to home buyers. 

Arizona conventional loans do require a buyer to have solid debt to income ratios and a good credit score. However, for certain buyers, there may be some advantages to looking at a conventional loan, as opposed to an FHA loan. This program is only available to owner occupant buyers not Investors adding to a Phoenix Investment Property Portfolio.

First, on a conventional loan, the debts of a disclaiming spouse, or in other words a spouse who chooses not to have ownership in the property, are not counted against the borrower. Nor is negative credit from a spouse who is not on the conventional loan with a spouse.

For instance, if you have a couple who was recently married and one of the two of them recently had a foreclosure or short sale under their name, then when attempting to obtain an FHA loan, both spouses would have difficulty qualifying because of an issue that occurred to one spouse prior to the marriage. However, in the case of a conventional mortgage, if one spouse can qualify on their own, than the other does not have to be on the home loan.

In addition, conventional loans do allow for higher loan limits, up to $417,000 and thus allow someone looking at a higher price range to still purchase an Arizona home with a smaller down payment.

Phoenix homebuyers with good credit and debt to income ratios, Arizona Conventional loans are now available again for those who qualify. Interest rates are still record low and Arizona buyers can still purchase a home and own for less than leasing similar properties from Arizona Investors.