Dean Graziosi | Dean Graziosi Real Estate | Dean Graziosi Investment

Lewi Ranieri, the creative originator of the mortgage-backed security is not taking a removed, back-seat approach to help homeowners stay in the homes.  His Selene Residential Mortgage Opportunity Fund provides hands-on solutions for defaulting homeowners.

Ranieri has assembled a savvy group of experienced advisers to help struggling owners stay in their homes.  The counselors sound more like

upbeat, can-do problem solvers than debt collectors.  The prevailing attitude is positive, friendly and result oriented.

The Selene Fund advisers offer plenty of experienced advice about restructuring debt and improving the value of the residence.  Solutions have included advancing money to perform repairs, debt counseling and budget review.  These tools are used by Selene to get the homeowners back on track and repaying a much lower mortgage level than previously existed.

Ranieri has admitted a sense of guilt about his development in the mortgage-backed securities market.  His hope is that property owners will use his fund to save their ownership and that government will come to realize that the real cure to stemming the foreclosure tide lies in voluntarily reducing mortgage amounts rather than lose the bulk of the value.

In short, the Selene Fund appears to be a mortgage short sale.  Lenders may actually save more than they lose by giving back to the original buyers.  Ranieri’s plan addresses the two key obstacles facing millions of today’s owners.  These struggling and often unemployed owners cannot afford the current mortgage payments and are not motivated to keep paying on homes with mortgages that exceed the home’s value.

What makes this housing slump so unique is the stunning loss of value spread throughout the nation.  Federal government and state driven plans are not resulting in affordable mortgage modifications.  Through Selene’s willingness to negotiate lower mortgages, but the cost side and value side of the slump are being addressed. 

Selene’s program also is designed to restore the traditional homeowner’s pride of ownership, which has slumped badly in the recession.  Ranieri wants owners to want to remain in their homes and is offering principal reductions that make it hard to say no.    

Lewie Ranieri is a famed mortgage dealer.  He learned his reputation at Salomon Brothers in the 1980’s.  His staff of mortgage traders was depicted in Michael Lewis’s Liar’s Poker.  Ranieri developed the concept of mortgage-backed securities that helped open the mortgage market to billions of dollars of newfound investors.

When the housing industry began to tumble, these mortgage-backed securities were vulnerable.  Many people blame Ranieri’s plan for the near collapse of many financial institutions and hundreds of billions of dollars lost by investors.

Since leaving Salomon Brothers, Ranieri has stayed active in the mortgage industry.  Unlike investors in his products, he has amassed quite a fortune.  Now, Ranieri has a plan that he hopes will serve as a model to save the homeowner.

His prototype is called the Selene Residential Mortgage Opportunity Fund.  The program’s mission is clearly stated.  The fund buys mortgages at a deep discount, works with homeowners to get them back paying a revised obligation and then resells the new mortgage at a profit. 

To encourage homeowners to get back on track, the Ranieri fund passes along a greatly reduced mortgage obligation.  The key component is Selene’s willingness to cut the loan balance.  Ranieri points out that this opportunity serves a higher purpose than government plans to lower payments by lowering interest rates.  The Selene Fund gives the homeowner unexpected equity at realistic values.

Thus far, Ranieri has raised $825 nm=million form foundations and corporations like the South Carolina Retirement Systems.  Ranieri hopes that the government will develop similar programs.  Ranieri realizes that his small fund will not solve the U.S. housing crisis.  He hopes that it will serve as a prototype for future programs.

Ranieri’s hand-on approach is refreshing and has given frustrated owners a ray of hope in an otherwise dismal environment. 

In the past, condominium financing from the FHA was fairly loose.  A 3.5% down payment was all that was needed.  During the recession, the FHA was caught off guard with the number of complications experienced by many condo associations. 

These loosely managed associations fell far short of the requirements detailed in the group’s prospectus.  As a result, many new purchasers were surprised to find they were liable for previously unpaid condominium fees or that they had invested in associations that were not fiscally responsible.

Effective February 1, 2010, the FHA has added stipulations for associations that expect FHA approved loans.  The new requirements mandate associations to be fiscally responsible and solvent before the FHA will approve a development.  The down payment will remain 3.5% but only associations that comply with the new guidelines will be eligible for FHA loans.

These guidelines will protect purchasers and should actually serve as benefits to condo associations who meet the standards.  To qualify for FHA approval, associations are now required to:

·                     Maintain a cash reserve equal to 10% of the annual budget

·                     Adopt as policy a standard assuring that no more than 15% of its owners are more than 30 days late with condominium dues

·                     Allow potential lenders access to financial and insurance policies

·                     Assure that one investor cannot own 10% of the units within the association

·                     Fidelity insurance must be purchased for associations with more than 20 units

·                     A maximum of 25% of the condominiums may be used for commercial space

Fannie Mae revised its FHA lending practices in 2009.  The two agencies have put pressure on condominium associations to bring their financial houses in order.  Condominium boards need to establish adequate reserves, comply with collection policies to reduce delinquency rates and to apply sound, audited bookkeeping. 

Failure to comply will eliminate the possibility of FHA and Fannie Mae financing.  Before investing in a condominium association, make sure the association c0mplies with the FHA terms.