Month: June 2011

Freddie Mac economist sees sunny economy in second half

Monday, June 27th, 2011

Freddie Mac Chief Economist Frank Nothaft said the overall economy should begin to accelerate in the second half of 2011 with an improved housing market close behind.

Nothaft said with the continued support of the Federal Reserve, monthly job gains will continue, bringing the unemployment rate toward 8.6% by the fourth quarter, according to his blog post Monday. Mortgage rates, he said, should remain between 4.5% and 5% over the rest of the year and recent price drops pushed affordability even higher.

Economic indicators sagged this spring. Unemployment inched up to 9.1% in May. Consumer confidence hit a six-month low and existing home sales plummeted 15.3% that same month. Confidence among small businesses and homebuilders lingers at historically low levels.

Nothaft said consumers uncertain about the overall economy are holding back on purchasing “big-ticket items” such as homes.

“Some potential buyers who have the means to buy are awaiting clearer signs that home values have firmed,” Nothaft said.

When that occurs remains in question. The Standard & Poor’s/Case-Shiller Home Price Index officially double-dipped this spring. Research from Altos Research said values should bounce up and down for an extended period of time. And Capital Economics analysts said a lack of demand should keep prices from a consistent rise until 2014.

But Nothaft said the rental sector is a lone bright sign in today’s housing market. The National Multi Housing Council reported new debt and equity financing became more available. Vacancy rates on buildings with at least five apartments dropped over the past year and monthly rents rose.

“Even though near-term concerns over income and sales growth are restraining consumer spending, business hiring, and new building, a number of positive signs in the economy indicate that growth will continue and is likely to accelerate in the second half of this year,” Nothaft said.

Anthony Sanders, a professor of real estate finance atGeorge Mason University, said with tumultuous changes coming to the housing market such as tightened purchasing standards and heightened guarantee fees at Fannie Maeand Freddie Mac, the future for housing remains cloudy.

“Mortgage rates are very low. House price declines are slowing in many areas of the country and level if not increasing in others. Mortgage delinquencies have slowed down,” Sanders said. “But the economy is in a ‘soft patch’ and it is unclear how long that will last.”

Nothaft remains optimistic, pointing to the encouraging signs in the rental market and noting home sales remain above last year’s pace when tax credits first began to dry up.

“Look for a gradual improvement in housing activity in the coming year,” Nothaft said.

Fannie Mae and Freddie Mac hold summer clearance sales

The mortgage giants, which have taken back massive numbers of foreclosed homes, are offering significant incentives for new owner-occupant purchasers.

By Kenneth R. Harney, LA Times June 26, 2011
Reporting from Washington—

Looking for a deal where the home seller pledges in advance to contribute potentially thousands of dollars to your closing costs? If so, check out the summer sale terms available from two of the largest and most motivated sellers of foreclosed homes in the country — Fannie Mae and Freddie Mac.

You may know the companies for their troubled mortgage businesses or the financial foibles that crashed them into the control of federal conservators in 2008. They now have massive numbers of properties taken back through foreclosures.Fannie Mae had 153,549 of them at the end of the first quarter. Freddie Mac owned 65,174. That’s nearly 220,000 houses for which they need to find new owners quickly or they’ll rack up even bigger losses for taxpayers.

To move that bulging inventory, both companies have begun time-limited sales campaigns with significant incentives for new owner-occupant purchasers — no investors allowed — and even extra cash for the real estate agents who bring buyers to the table.

Fannie and Freddie both are offering to pay up to 3.5% of the price of the house toward buyers’ closing costs, plus they’ll hand over a bonus of $1,200 to participating real estate agents. Fannie’s program covers properties on which contracts are accepted and close no later than Oct. 31. Freddie’s sale requires contracts no later than July 31 and closings by Sept. 30.

Fannie’s program even offers mortgage money to help finance these purchases, sometimes with as little as a 3% down payment. The company also has what it calls a “renovation mortgage” option that provides additional mortgage amounts to cover fix-ups.

Freddie does not offer special mortgage financing for buyers during the sale period but has other inducements including two-year home warranties and 30% discounts on appliances.

All the foreclosed properties are listed with photos and descriptions at either or (Freddie), where you can search by price, local markets, ZIP Codes and states. Properties include expensive detached homes, low-budget urban condos and suburban tract town houses nationwide. Featured offerings on HomePath recently included:

• A six-bedroom, five-bathroom house in Littleton, Colo., with 4,990 square feet of space. Asking price: $424,900.

• A two-bedroom condo with 1,164 square feet in Las Vegas for $43,999.

• A $184,900 two-bedroom, one-bathroom home in Long Beach.

• A four-bedroom, two-bath house in Brentwood, Md. Asking price: $65,000.

The summer clearance sales are part of rapidly accelerating efforts by both companies to get ahead of the tidal wave of foreclosures flowing into their portfolios in recent months. During the first quarter, Fannie Mae alone acquired 53,549 properties. However, during the same period, it managed to sell 62,814 houses — a record number that produced a net outflow.

Freddie Mac also sold more foreclosures than it took in during the first quarter, acquiring 24,709 houses while selling 31,628.

Both companies are targeting only buyers who plan to live in the homes — rather than non-occupant investors who want to flip or rent them out — as part of a larger neighborhood real estate stabilization effort.

The contribution of up to 3.5% of the sale price toward the buyers’ closing costs can be substantial. On a $200,000 house the buyers could receive $7,000 toward their closing expenses, which might well be the difference between their ability to afford to buy or not. Combine that with additional incentives, such as favorable financing or warranties, and the total package can look extremely attractive to first-time and moderate-income purchasers.

Are there downsides or restrictions for would-be buyers on either HomePath or HomeSteps? Absolutely.

Top of the list: Keep in mind that these are foreclosed properties and some of them have been abused by previous occupants. Fannie and Freddie both do repairs to bring houses up to what they believe are marketable standards, but don’t be surprised to find that they are not in pristine condition.

Second, although foreclosures do generally sell for less than non-distressed houses, you need to understand that Fannie and Freddie are in the business of maximizing returns on assets for their federal creditors. Do not assume that the listing prices are deep-discount giveaways. Be diligent in comparing prices and values before bidding and negotiating — just as you would with any other real estate purchase.

2 Big Banks Exit Reverse Mortgage Business

New York Times June 17th 2011
The nation’s two biggest providers of reverse mortgages are no longer offering the loans, as the economics of the business have come under pressure.
Wells Fargo, the largest provider, said on Thursday that it was leaving the business, following the departure in February of Bank of America, the second-largest lender. With the two biggest players gone — together, they accounted for 43 percent of the business, according to Reverse Market Insight — prospective borrowers may find it more difficult to access the mortgages.Reverse mortgages allow people age 62 and older to tap what may be their biggest asset, their home equity, without having to make any payments. Instead, the bank pays the borrowers, though they continue to be responsible for paying property taxes and homeowner’s insurance.

But the loans have increasingly become a riskier proposition. Banks are not allowed to assess borrowers’ ability to keep up with all their payments, and more borrowers do not have the wherewithal to stay current on their homeowners’ insurance and property taxes, both of which have risen in many parts of the country. At the same time, borrowers have been taking the maximum amount of money available, often using it to pay off any remaining money owed on the home. Yet home prices continue to slide.

“We are on new ground here,” said Franklin Codel, head of national consumer lending at Wells Fargo. “With house prices falling, you reach a crossover point where they owe more than the house is worth and it creates risk for us as mortgage servicers and for HUD.” He was referring to the Department of Housing and Urban Development, whose Federal Housing Administration arm insures the vast majority of these loans through its Home Equity Conversion Mortgage program.

As a result, banks are seeing a rise in what are known as technical defaults, when homeowners fall behind on their taxes or homeowner’s insurance, both of which are required to avoid foreclosure. According to Reverse Market Insight, about 4 to 5 percent of active reverse mortgages, or 25,000 to 30,000 borrowers, are in default on at least one of those items.

Bank of America, meanwhile, said that declining home values made fewer people eligible for reverse mortgages. So it decided to redeploy at least half of those working on the mortgages to its loan modification division, which has been criticized for failing to help enough homeowners on the brink of foreclosure.

For Wells Fargo, however, the inability to assess borrowers’ financial health was the biggest factor for exiting the business. Anyone over the age of 62 with enough home equity can take out a reverse mortgage, regardless of their other income. The amount of money received is determined by the borrower’s age, the amount of equity in the home and prevailing interest rates.

“We are not allowed, as an originator, to decline anyone,” added Mr. Codel of Wells Fargo. We “worked closely with HUD to find an alternative solution and we were unable to find one with them, which led to this outcome.”

Reverse mortgage borrowers are required to pay premiums for mortgage insurance, which protects the lender if the homes are ultimately sold for less than the mortgage value, since the government is required to pay the difference to the lender. The premium rates were increased last October to account for declining home values (though one sizable upfront mortgage premium was eliminated to make the loans more attractive to certain borrowers).

But lenders are responsible for making tax and insurance payments on behalf of delinquent borrowers until they submit an insurance claim to HUD, at which point the agency would be responsible since it provided the insurance against default.

In January, HUD sent a letter to lenders and reverse mortgage counselors that provided guidance on how to report delinquent loans to the agency, and what steps the lenders could take to get borrowers back on track, like establishing a realistic repayment plan that could be completed in two years or less, or getting a HUD-approved mortgage counselor involved to help come up with a solution. If one cannot be reached, the lenders must begin foreclosure proceedings.

Both Wells Fargo and Bank of America have said they have not foreclosed on any borrowers to date.

The National Reverse Mortgage Lenders Association, the industry group, said it has been working with HUD to come up with procedures that would allow lenders to assess a prospective borrower’s income and expenses, or at least require homeowners to set aside money to pay for taxes and insurance. A spokeswoman for HUD said the guidance is still being drafted.

As it stands now, borrowers are required to see a HUD-approved lender before they can apply for a reverse mortgage. As part of that process, consumers are educated on the nuts and bolts of how the loans work and what their responsibilities are, including that they need to be able to continue to pay taxes, insurance and keep the property in good repair.

“We don’t tell consumers what decision to make, but we do try to give them the tools to make a decision,” said Sue Hunt, director of reverse mortgage counseling at CredAbility, a nonprofit consumer credit counseling agency. She added that their sessions last about an hour and 15 minutes, on average. The counselors also look at the consumer’s budget to see if it is sustainable with the mortgage, as well as what circumstances might arise that could throw the borrower off track.

“Outside factors are affecting people who thought five or six years ago that they were in pretty good shape,” she added. “The world has changed a bit around them.”

In days past, the borrower would get the reverse mortgage, and equity would continue to build, experts said, which would provide borrowers with more options — like refinancing — should they fall on hard times. Declining home values have changed that calculus for both bankers and consumers. Borrowers have not been able to pull out as much money. At the same time, the government has also tightened its withdrawal limits.

There were a total of more than 50,000 reverse mortgages, totaling $12.66 billion, made industrywide since last October, according to HUD.

Both Wells Fargo and Bank of America will continue to service their existing reverse mortgages. And the reverse mortgage association has said it will work with its members to ensure that senior citizens who need the loans can get them, though some experts said that less competition could increase certain fees.

“There is a certain amount of the business done by Wells and Bank of America that happens because of their bank branches, brand names and large sales forces,” said John K. Lunde, president of Reverse Market Insight. “We would expect something more than half of their volume to be absorbed by the rest of the industry, with something less than half not happening.”

Wells Fargo, which said that reverse mortgages represented 2.2 percent of its retail mortgage business, employs about 1,000 reverse mortgage workers. They are being given a chance to find other positions at the bank. Bank of America said that about half of its 600 workers have been reassigned within the bank. MetLife, the third-largest provider of reverse mortgages, declined to comment on its business.

Foreclosures fall for 8th straight month

By Les Christie June 16, 2011

Foreclosures fall again, but housing market isn't safe yet

NEW YORK (CNNMoney) — Foreclosure filings experienced their eighth straight month of declines, according to RealtyTrac.

In May, filings fell 33% from a year earlier and 2% month-over-month, according to the online marketplace of foreclosed properties. The number of homes that were repossessed (referred to as REOs or real estate-owned properties) in May also declined to 66,879, down 3.8% from April and 29% year-over-year, the firm said.

The huge year-over-year drop in foreclosures doesn’t necessarily mean the housing market is staging a recovery, however.

James Saccacio, the CEO of RealtyTrac, says the declines are likely due to lingering effects of the “robo-signing” scandal, which broke last September, when it was discovered that banks were playing fast and loose with foreclosure documents.

In some cases, it was found that banks brought foreclosure proceedings upon homeowners when they had no standing to do so. Sloppy paperwork sometimes made it impossible to tell which entity was the rightful owner of the mortgage notes.

To help fix the mess, foreclosure proceedings were temporarily suspended. Even though the suspension has since been lifted, the pace of foreclosures remains significantly slower as banks more thoroughly review each case to ensure they are being handled legally and properly.

“Foreclosure processing delays continue to mask the true face of the foreclosure situation,” said Saccacio. “Lenders are somewhat unevenly pushing batches of bad loans through foreclosure as they overhaul their paperwork and documentation procedures.”

There’s another factor at play, as well. The banks can’t sell the homes they’ve already seized so they aren’t as incentivized to repossess more homes.

“[There’s] weak demand from buyers, making it tough for lenders to unload their REO inventory,” said Saccacio. “Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month.”

The banks don’t want to take on the expense of maintaining the homes — property taxes, heating costs, repairs and insurance — if they can’t sell them quickly.

Selling off the inventory of repossessed homes is crucial to the housing market, said Jim Gillespie, CEO of Coldwell Banker. Sold at steep discounts, REOs compete with new homes for buyers and have severely depressed new home sales.

“That’s a critical element for the economic recovery,” said Gillespie. “If new homes were selling anywhere close to their levels of five years ago, it would add a full point to the GDP.”

The steepest drops in filings have come from judicial states, ones in which the courts are involved in repossessions. In these states, where foreclosure proceedings are subject to the scrutiny of the courts, it appears banks are taking special care to make sure they’ve stamped out the last vestiges of the robo-signing issues.

Nevada, where most cases are handled outside of court, continued to be foreclosure central. One of every 103 households received a notice of some kind in May. However, that was an improvement of 23% compared with May 2010. Arizona, with one filing for every 210 households, and California, one for every 259, were second and third.

The judicial state of Florida, where the housing market is no better, has seen a much greater drop-off in filings over the past year, down 62%. It now has the eighth highest foreclosure rate, of one filing for every 461 households. A year ago, it was in the top four, along with the other “Sand States.” To top of page

Short sales trending to ‘top down’ approach

Monday, June 13th, 2011

With short sales gaining popularity as a more financially sound route to loss mitigation, the dynamic of how they are worked out is changing — with banks providing real estate agents with “warm leads” for short sales.

A panel at HousingWire’s REO Expo in Fort Worth, Texas, explained the industry is turning to a “top down” approach to short sales to accumulate more successful workouts.

“I’m excited to discuss this because it’s a completely new phenomenon,” said Marie Chung, director of REO and Short Sale Services at Modern Realty.

Chung said that rather than brokers cold calling delinquent borrowers to offer short sale services, more banks and servicers are supplying brokers with warm leads — that is, borrowers already willing to participate in a short sale.

Jaysen Greenleaf, director of client relations and business development at Phoenix Asset Management, said his clients — the lenders who hold the mortgages — are now calling borrowers. These lenders then pass on a borrower’s information at the point that the borrower is ready and willing to cooperate in a short sale.

It’s less confusing for the borrower to deal with the bank as opposed to the asset manager, Greenleaf said, and borrowers become more open to the process.

“Our short sale closings increased about 20%,” Greenleaf told conference attendees.

Still, getting borrowers to participate in a short sale can be a challenge, the panelists admitted, causing many brokers to get creative in their tactics. Greenleaf said many of his employees have success by bringing food to the homes in a high-touch fashion. He has also heard of pre-paid Visa card incentives that require a borrower contact a servicer before they can use the card.

Proposed rules could shut many out of housing market

Bankers, community advocates protest tough down payment requirements 6/10/2011

Proposed rules sparked by the financial industry meltdown of 2008 could have the effect of clamping down credit so hard that lower-income buyers and many others would be shut out of the mortgage market, critics say.

The critics, including an unlikely coalition of mortgage lenders, consumer advocates, housing industry officials and lawmakers, say regulators have gone too far in their effort to prevent a repeat of the reckless and fraudulent lending that brought the nation’s economy to its knees.

Opponents argue that the new rules, proposed by a bevy of federal regulators, could have the unintended consequence of restricting the American dream of homeownership to the wealthy, leaving behind many creditworthy buyers and shrinking the pool of home buyers just as the housing market is struggling to regain its footing.

“If this rule goes through as it stands, the demographic of borrowers who get (favorable rates) will be white and wealthy,” said David Stevens, chief executive officer of the Mortgage Bankers Association and former commissioner of the Federal Housing Administration. “African-American, Latino and first-time home buyers will be charged higher prices.”

Critics say the rules would force up the borrowing costs for lower-income and younger borrowers because lenders would charge higher rates for loans that do not qualify for QRM status. They say that could sideline millions of potential first-time buyers who haven’t saved the full 20 percent — and hurt the prospects of the 11 million current homeowners who owe more than their home is worth.Stevens was commenting on 376 pages of proposed rules for “Qualified Residential Mortgages,” which would require a 20 percent down payment and limit a borrower’s debt payments to no more than about one-third of income.

The rules are intended to reduce the number of risky loans by requiring that lenders hold onto 5 percent of any loans that do not qualify for QRM standards. Loans that meet the standards could be sold fully into the secondary market, which is normal practice for most mortgage lenders.

It was this lack of “risk retention” that led to the surge of risky lending that has helped trigger millions of foreclosures and sent home prices tumbling, according to Sheila Bair, head of the Federal Deposit Insurance Corp.

“The fact that securitizers did not have skin in the game with these loans, by and large, or meaningful skin in the game, led to a lot of the lax underwriting and abuses that we saw in the mortgage markets,” Bair told the House Financial Services Committee last month.

But others say the regulators are swinging the pendulum too far.

“I think everyone in the industry agrees that you’ve got to have some skin in the game,” said Cameron Findley, chief economist at “The what question is: How much skin in the game do you want to have? And how do you balance that with the size of the hole so many homeowners are in today?”

The proposed rules are opposed by a long list of groups that don’t often align on financial regulation matters, including the Mortgage Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition.

Critics fear the new standards will create a two-tiered mortgage market in which a borrower with enough money to afford the higher down payment would pay less, compared with an  equally creditworthy borrower with a smaller savings account. A recent report by J.P. Morgan  estimates the gap could amount to as much as 3 percentage points, which could mean the difference between an affordable monthly mortgage payment and continuing to rent.

The new rules also would hit families harder in high-cost markets. Based on current average prices, for example, buyers in the Northeast would have to come up with $53,000 for a 20 percent down payment on a typical existing home, compared with $33,000 for a typical home in the Midwest.

The rules have also focused renewed attention on the fate of government-controlled  mortgage entities, including Fannie Mae and Freddie Mac, and the FHA.

The proposed QRM guidelines would not apply to those agencies, which currently back some 90 percent of all new mortgages. That could further complicate the shared goal of Congress and the White House to wind down government-backed mortgage finance and restore the flow of private capital.

“It’s going to force FHA to get huge, because all small down payment loans will go to FHA; there won’t be any low down payment finance other than them,” said Stevens, the former FHA commissioner. “So they’ll still be a huge source of funds for all low down payment loans, 100 percent-backed by the government with no private capital competing.”

The new rules are being proposed jointly by six federal regulators: the Federal Reserve, the Department of Housing and Urban Development, the FDIC, the Federal Housing Finance Authority, the Office of the Controller of the Currency, and the Securities and Exchange Commission. The regulators all declined to comment on the widespread opposition, saying they were unable to do so while the official rulemaking comment process is still under way.

But in a sign the regulators have heard the protests, the agencies issued a joint statement Tuesday extending the comment period — originally set to end this Friday — until Aug. 1 “to allow interested persons more time to analyze the issues and prepare their comments.”

An analysis by the National Community Reinvestment Coalition found little correlation between  size of down payment and default rates. Based on a review of 1 million loans written for the most creditworthy borrowers in 2006 and 2007,the default rate ranged from 0.14 percent for those with a 20 percent down payment to 0.26 percent for those who put just 3 percent down.

“It’s still a very acceptable level of default,” said John Taylor, president of the NCRC, which advocates for access to banking services. “The industry would be very happy with it.”

The default rate for all mortgages outstanding was 8.32 percent at the end of the first quarter of 2011, according to the Mortgage Bankers Association.

Another analysis by found that of mortgage loans written from 1997 through 2009, roughly 80 percent would not have met the QRM standards.

Critics of the new standards argue that the current high default rate was mostly the result of a wave of predatory lending and exotic loans — from artificially low “interest only” payments to “no documentation” loans that relied entirely on a credit score to assess the risk of default.

There’s widespread agreement on the need to better assess the risk of default. But opponents of the new standards say they pose an even bigger risk. If too many borrowers are denied mortgages, the already weak housing market would be further crippled by a dearth of new buyers.

“The concern is they decide to rent for the next five years,” said Findley. “So they’re not buying, and home prices are going to continue to fall.”

Falling home prices have already cut deeply into a key segment of the housing market — the “move-up” buyer that includes growing households who have accumulated equity in their first home. Falling home prices have already erased trillions of dollars of home equity, making it harder to come up with a down payment of any size. The proposed 20 percent down requirement could further shrink that pool of buyers, sending house prices falling further.

“If we exacerbate that by having credit restricted, and the private sector is wary about jumping in, and house prices continue to fall, more homeowners are underwater, putting more pressure on bank balance sheets, it really could tip the scales in a way that would be very dangerous,” said Christopher Hebert, research director at the Joint Center for Housing Studies at Harvard University.

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Home sellers court risks with last-resort loans

Financing provided by sellers is making a comeback, but there are plenty of pitfalls

By Prashant Gopal
updated 6/12/2011 12:23:36 PM ET

Sue and Douglas Reed knew no bank would give them a mortgage—not with a bankruptcy and two foreclosures fresh in their credit history. They turned to Hilarie Walters, whose childhood home on 15 acres in Marshall, Mich., had been on the market since 2009, a year after she inherited it. Walters agreed in December to sell the property to the Reeds for $105,000. She also consented to a risky payment plan that in effect makes her the couple’s mortgage lender. “They’re paying me interest every month, but I’d rather have the money and be done with it,” says Walters, an unemployed single mother who is using their payments to cover the mortgage on her Battle Creek (Mich.) residence. “It does make me nervous.”

Financing provided by sellers, popular in the 1980s when mortgage rates reached 18 percent, is making a comeback in markets such as Michigan that have been hit hard by foreclosures and where tightening lending standards and years of economic distress have drained the pool of creditworthy buyers. For a small but growing number of people, it’s the only way to get a deal done. “Anytime the market is in this much trouble, people have to find ways to get it to function,” says Dennis Capozza, a professor of finance at the University of Michigan in Ann Arbor. Capozza has direct experience with seller financing: He purchased a friend’s foreclosed home a couple of years ago and then allowed him to buy it back in installments.

Last year 52,991 U.S. homes were purchased with owner financing, up 56 percent from 2008, according to Realtors Property Resource, citing data collected from county record offices. Such deals accounted for 1.5 percent of all transactions in 2010. Michigan, which has a 10.3 percent unemployment rate, leads the nation with about 1,600 home listings that advertise seller financing, followed by Florida, Ohio, California, Wisconsin, Minnesota, and Texas, according to property website Trulia.

The risks in such deals are significant for both buyer and seller, says Jason P. Hoffman, a Faribault (Minn.) real estate attorney. “Each of them is seeking an advantage in an otherwise difficult situation, and they’re hoping everything will work out as envisioned,” Hoffman says. “It’s an act of faith.”

The Reeds, who put $25,000 down, make monthly payments of $565, reflecting a 7 percent interest rate, with the full balance due in five years. “This is the American dream, and we’re going for it no matter what,” says Sue, 56, who sells snacks from a trailer at estate auctions and going-out-of-business sales. “We’ll either make it or it will break us.”

The riskiest deals involve sellers who have bank loans on the properties, Hoffman says. Most mortgages contain a “due on sale clause,” meaning the lender can call the loan if the home is transferred. While community banks sometimes grant exceptions, many homeowners take their chances, hoping lenders won’t ask questions as long as the payments stream in, he says.

Some investors see seller financing as a marketing tool. Mark Cook, 30, a real estate agent in Lake City, Fla., says he sees an untapped market in people who have had their credit ruined by a foreclosure or short sale. Cook is working with a Canadian investor who bought and renovated four homes in Florida’s Cape Coral and Fort Myers areas since September, selling them to buyers who needed financing. One more is for sale now, another is under renovation, and they have contracts to buy another handful of homes.

Cook markets homes to buyers with foreclosures in their credit history, as well as second-home purchasers and self-employed borrowers who don’t show enough income on their tax returns to qualify for traditional financing, he says. He offers an interest rate of 9.95 percent and a balloon payment after seven years to buyers who can put down 20 percent in cash. “We are advertising in markets that are cheap, and we’re satisfying the consumer’s appetite for a bargain,” Cook says. “Assuming you’re not creditworthy and have cash, we are your avenue for buying a home.”

Rebecca Hill, a 33-year-old high school science teacher, and her fiancé, Nicholas Lehman, bought an almost 2,000-square-foot house in Cape Coral through Cook for $107,000 on May 4. Her credit was damaged a year ago when her ex-husband lost a home they had purchased together in foreclosure, according to Hill. While they paid a premium for a seller-financed home, the monthly mortgage costs are $175 less than the rent they previously paid for a unit half the size, she says. “If I wait for my credit to be restored and then purchase, I’m not going to get a $107,000 four-bedroom home,” Hill says. “That’s not going to exist anymore.”

The bottom line: In 2010, almost 53,000 homes were purchased in the U.S. with owner financing—sales that might not have happened otherwise.

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