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Financing for bank REOs -are they more flexible?


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2011 Jun 23, 9:53pm   2,393 views  5 comments

by rktbrkr   ➕follow (0)   💰tip   ignore  

Just wondering if banks facilitate sales of their REOs with more accommodating financing especially with higher credit requirements for foreclosures. Example Joe Sixpack has a credit score thats only semi good, not terrible but not solid gold and can't come up with 20% down or whatever the banks are now requiring and he submits a bid of 150K for a BOA REO. Jose a speculator from Rio submits an all cash bid of 120K, have the banks been so burned by their own behavior that they would go for the lower cash offer?

Are banks required to impose the same credit standards in all situations? Can they "bend the rules" and finance Joe Sixpack who is buying one of their REOs and reject his pal Bud Weiser with the same credit score and cash for downpayment?

I know a very high % of REO sales are all cash but I'm also curious if banks will accept the higher risk when they are the direct beneficiary. TIA

#housing

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1   FortWayne   2011 Jun 24, 1:40am  

The whole reason we got into this housing mess is because banks did bend the rules on lending.

Bank housing loans should be abolished completely, otherwise it's a ticket straight into the poor house.

2   Tude   2011 Jun 24, 1:45am  

In some of the harder hit markets with few buyers (think Sacramento or inland valley CA areas) I have seen many ads with notes about creative financing, low down, FHA, rehab loans, etc.

I think what really matters is location and how bad the bank wants to unload the property.

3   eastbaydude   2011 Jun 24, 2:42am  

What is the selling price of the REO?

If the REO asking is 150K, what will it appraise at? if it appraises at 110, the bank will not loan anyone more than that. Joe six-pack will need to come up with the other 40K difference on top of their down payment.

Sellers know this so they won't deal with it. If you are a finance buyer and can come up with the difference and it is stated in your offer, your offer is as good as the all cash buyer.

In my experience, Financing buyers and all Cash is the same to the seller.
Don't be misled that all cash buyers get first dibs.

Sellers (especially BoFA REOs) now no longer match or re-negotiate appraisal prices. This was a big problem for them in 2009-2010. People were bidding $160 (using your example) with the higher offer than asking to get their bids accepted. During negotiations, the selling price would lower to match financing contingencies

The difference is that All Cash Buyers usually don't have the same contingency clauses as the finance buyers. Hence, Banks love that. if Joe Sixpack wants to compete with that, their offer needs to be as strong as the cash buyers.

For example, All Cash buyers don't have the appraisal, financing, or inspection contingencies in their offers. If you are a finance buyer, and have the same contingencies, they consider your offer.

The Appraisal contingency is what kills most deals now. If the house does not appraise, the lending bank will not loan. Banks will not loan more than market price.

Cash buyers will pay whatever amount.

The Finance buyer will need to come up with the difference on top of their deposits. Most finance buyers what a recourse if it doesn't appraise. If you are a conventional finance buyer with a strong 20% down, 6 month finance reserve, and additional capital to match the appraisal-sales price difference, you can get financing even with mid 600 ficos. Problem is most Joe sixpacks don't have that type of cash reserves.

BTW, BoFA REOs require pre-approval through BoFA which mostly means they want you financed through them.

4   rktbrkr   2011 Jun 25, 11:26pm  

To keep it simple lets say the house appraised at the 150K price Joe is offering but his cash and fico are less than BOA normally requires, he isn't a basket case but he's not risk free either.

(Are the ads offering "creative financing" for REOs?)

I was smiling when I typed "bend the rules"

5   corntrollio   2011 Jun 27, 7:20am  

eastbaydude says

For example, All Cash buyers don’t have the appraisal, financing, or inspection contingencies in their offers.

You have to be pretty confident in the state of a property to waive an inspection contingency, don't you think?

This was common during the boom because speculators were encouraged to submit clean offers, but the wisdom is rather lacking.

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