REO Investors … An FHA Referral Source You Must Have in Today’s Market
You have a great opportunity in 2011 to help improve neighborhoods by helping investors get their buyers approved with Federal Housing Administration (FHA) loans! As the economy chugs along and banks continue to release their real estate-owned (REO) inventory in waves, great FHA origination opportunities will exist for mortgage loan originators (MLOs) in the foreseeable future. There are three reasons why investors and MLOs make a great partnership. To begin with, my experience has shown that investors generally do not possess a great deal of knowledge about buyer financing. Your expertise is important to, and welcomed by, investors, allowing them to focus on getting the renovations completed and the property ready for market. Secondly, investors are not inundated with calls from MLOs, as is often the case with real estate agents. While investors do tend to be harder to find, once you find them, you may find it easier to arrange a meeting with them. This is especially true if you have a clear message that communicates how much you can help them. And finally, investors are often challenged with a lack of resources to properly handle the marketing of their properties. Many are trying to simultaneously perform the jobs of real estate agent, general contractor and marketing director. In fact, many investors often have primary employment in other fields and form amateur REO investment groups with peers. Thus, offering ways in which you can assist them with marketing removes a large burden from them, and is always appreciated. Finding real estate investors The following are five ways to locate real estate investors: 1. Real estate investor associations If you haven’t attended these events, it’s time you start! These groups consist of investors coming together to share ideas. There is usually a feeling of camaraderie, making networking simpler. To find an association, search the Internet for your area. One good resource is www.reiclubdirectory.com. 2. REO agents REO agents have listing contracts with banks to sell their foreclosed properties. Contact these agents, explain that you assist investors with helping them understand how FHA can help them be more profitable, and ask them for names and numbers of investors they work with. Additionally, insofar as investors often use agents to buy property but not to sell it, you may end up generating the agent’s curiosity and setting up a meeting with them as well. Your goal is to get the names of investors, but if you end up setting an appointment with the agent too, that’s a bonus! 3. “For Sale” signs Often, “For Sale” signs are posted at vacant homes and homes being renovated. This is a good indication the home is investor-owned. Call the number on the sign or stop by when you see workers at the property to get the name of the investor. 4. Business networking groups These groups are great ways to get referred to investors. Once, at a BNI group meeting, when I asked for referrals to investors, I received three right on the spot! 5. Sphere of influence If you don’t belong to a networking group, inquire within your own contacts to find investors. You may be surprised at how many investors you find this way. Now that you have arranged a meeting … now what? Give them four reasons why FHA is the loan of choice for investors: 1. There is only a 90-day seasoning requirement calculated from the date the deed is signed. Because of the history of fraud with property flipping, many lenders have a 12-month seasoning. 2. Through the use of government agency down payment assistance programs, the entire amount of the buyer’s funds can be covered with no expense to the seller. Check you area for local homebuyer programs. 3. Their buyer gets a better loan. This creates a happier client who may refer friends to buy other homes the investor offers. 4. With FHA, there is a lower credit score requirement. Give them five ways to market their properties: 1. Finance signs Get signs made that state clearly how much they need to put down and the amount of the monthly payment. Have signs printed with the spaces for down payment and monthly payments blank so you can customize each sign to its property. It’s worth the extra effort and it generates more leads. Be sure to follow Real Estate Settlement Procedures Act (RESPA) guides and include the annual percentage rate (APR), the loan type and terms of the loan. 2. Flyers Create flyers for the property advertising financing information and the fact that buyers need little money down. Distribute them to homes in the surrounding neighborhood. 3. A call capture system Advertise your investor’s properties with a toll-free number, offering information about the property, thereby creating leads. Again, note to adhere closely to RESPA guidelines. This may sound old fashioned, but signs still generate leads. You never see an agent list a home without a sign … well no home should go without a finance sign as well. 4. Brochures Create a personal brochure for potential buyers. 5. Homebuyer guides Publish informational homebuyer guides, educating clients about homeownership. I highly recommend LoanToolbox.com to help you with your marketing efforts. True to their name, no company in the country provides more tools for the originator looking to grow their business. With just a few clicks, you can create powerful marketing pieces, and then get back to what you do best: Originating loans. The FHA Streamline K Finally, I want to make you aware of the enormous market that exists right now in many metropolitan areas for an FHA product called the Streamline K. Also known as the “Baby K,” this is a 203k rehabilitation loan for primary occupants only. The loan allows the buyer to finance up to $35,000 for the purpose of cosmetic repairs only. Some items eligible for financing include: Kitchens, bathrooms, roofing, windows and even appliances (sorry, no wall mounted plasma TVs). For further information, go to HUD.gov and search for HUD Handbook 4155.2 and Mortgagee Letter 2005-50. Click here for a full list of 203k Mortgagee Letters. This product has tremendous potential for two major reasons: One, the banks that price their REO properties too high leave little or no room for investor profit. Two, there are more consumers than investors available to purchase these homes. The Streamline K has the potential to be a key factor in improving neighborhoods: It allows the investor’s buyers to use government funds to finance renovations, it puts a primary occupant in the home (rather than a renter), and it leaves the buyer with a great loan product. Fellow originators … you have a great opportunity to create a very profitable and stable niche for yourselves by creating a group of investors who rely on you to help them finance the buyers of their homes. Create an plan of action for 2011 to develop your network of real estate investors. Go FHA! Jeff Mifsud is founder of Michigan-based Mortgage Seminars LLC, a former FHA underwriter with 15-plus years of experience originating FHA loans, an FHA expert for LoanToolbox.com and creator of The FHA Originator, a monthly FHA newsletter. Jeff may be reached by phone at (248) 403-8181 or visit www.MortgageSeminars.com.