 Aloha and welcome to Condo Insider. Every Thursday from 3 to 3.30 we talk about issues affecting condo associations. More than 37% of our population lives in a condo and this is our show to talk about hot topics. I do want to invite you at any time to call our hotline 415-871-2474 if you want to ask a question. Today we have with us a very good friend of mine, an expert in the mortgage business, specifically in the condo business as well, Laura Maryfield from Guild Mortgage who's going to talk to us about issues for buying and selling a condo in a condo association. So welcome to the show Laura. Tell us a little bit about you, you're in your background. Let's see, I'm originally from California. I've been in Hawaii for the past well well over 20 years. I've been in the mortgage business for since 2008. And you work for Guild Mortgage? And who are they and what do they do? Are they a big company, a little company? Well big and little is subjective. But Guild Mortgage, we've been around for the past 50 years. We have offices throughout the islands. We have offices throughout the mainland. So a lot, a lot of production. So you work for them and you're a mortgage broker. Would that be the right term? Yes. Okay, what is the mortgage broker? Are they licensed or actually what does the mortgage broker do? I think the most important thing that the mortgage broker does is that they get you the loan. So you can get into your new property or you can save money on your existing property. But we have the opportunity to use many different funding sources. So for example, we get to send loans to US Bank to Chase, to Mutual of Omaha. So we have a number of different funding sources and depending on the individual buyer, we just try to find the best fit for the buyer or the borrower. So you get multiple banks in the sense you have more than one resource and Guild itself is not a lender, it's not loaning the money or do they do that? Well we have our own line that we use and we usually just sell to Fannie or Freddie and then we service to ourselves. I mean we do the servicing. So people that do loans, a lot of my clients do what's called conventional loans. They will give us 20% down or 5% down whatever it is and I will do the loan through Guild mortgage with Fannie and Freddie backing or one or the other and so every month you'll get a bill from Guild mortgage. For people who don't know, we talk about Fannie and Freddie, it's an FHA mortgage, right? That's just two. What is Fannie and Freddie? Oh, they're all different. So Fannie and Freddie are conventional mortgages. FHA is more government type of loan. So less down, you can do less down with that. There's more regulations. I know we're going to talk later on about the new bill that Obama just signed. So is FHA more like a guarantee of a through another bank? I mean or is FHA government guaranteed? Guaranteed. So they're not coming up with the money per se. They're just an FHA mortgage and using a traditional lender or a lender and they're guaranteed in case something goes wrong and the mortgage goes into the fall. Right. So we do all the guidelines and we underwrite the borrower based on FHA guidelines or based on Fannie guidelines or based on Freddie guidelines or based on portfolio guidelines. So there's 20 million different kinds of loans out there but basically it's either going to be government, conventional or portfolio and government is FHA. So are there any 0% interest, zero point loans and you don't have to pay back until you die? No. Okay. So how do you see the mortgage market right now? I mean how do you generally characterize the market in general terms? The mortgage market. So it's very busy. Interest rates are very low. There's a lot of people that are refinancing right now. They're pulling out cash. They're buying investment properties. There's a lot of people that are buying their first time homes because now they can afford it. So interest rates are very low and people are taking advantage of that. So I know this is hard to say because you're not a realtor but in general terms you see the market is hot. I mean people are buying it is more demand than supply or is the vice versa them in your opinion only is a softening. How do you see the market? Okay. So we do a lot of sales. A lot of purchases for people. Yes, I'm not a realtor but I can tell you that when we do a pre-approval for somebody, let's say John Smith wants to buy this condo, he's always in competition. There's always multiple offers and the realtors are taking in multiple offers and the sellers are choosing between you know five, six, seven different borrowers. So in that sense I would say the real estate market is very hot right now. Would you say those offers are exceeding the listing price or they below the listing price? Majority of the time we're going over listing price. Majority of the time. Well and that's just maybe my clients and it depends on what the price range is because if you're looking at you know maybe a 300, 400,000 dollar condo majority of those are going over because it's a very hot area but you know two million and three million they might not be going over they might be room for negotiation there. Is that true generally speaking of new developer projects like Kakako or is it? Kakako sold out. Really? All the clients that I have that I've bought have been in buildings that have all sold out so I think there might be some available still I don't know. Well why do you think that is? Just Hawaii's hot and the money is cheaper. Do you have enough feeling why it's so hot? You mean Kakako or Hawaii? Hawaii. I think Hawaii because well you live in Hawaii don't you love it here? Never move. I know I wouldn't leave either I love it here I've been here for 20 something years and I think the only way to make it is to own property and so property values go up but once you have the ability to buy you know 3% down or you know 0% down there are places in EVA that you could if you have VA loan there's 0% down so once you have the money to buy I think you've got to and so the market has been going up and it just stabilizes you. Well it's approaches from two different points of view. Number one if you have a buyer who wants to buy a condo let's talk about like the condo itself what kind of documents the lender's looking at as far as to qualify that purchase or and then let's talk about some of the mortgage opportunities as far as different products and mortgages so focusing on the condo for a second when a lender is looking at approving a buyer for a condo besides personal credit which I'm sure they're looking at and what would you say the minimum credit score is today for is there a minimum credit score? I think it's probably about 620. 620. Everybody has their thresholds for us at Guild at 620. 620 and so when they aren't looking at the condo itself the association what is the lender typically looking at? If we're looking at the condo it really depends as an owner-occupant you know one of the big things that we're going to talk about is owner occupancy how much how many percent of the building is occupied by owners or second-home owners versus investors right as a lender we like to lend in buildings that have over 51 percent right more owners more second homes and there are tenants so but if you're buying as an owner occupant so I'm gonna live in this property there's no owner occupancy ratio right but there are a couple of red flags so you there can't be any litigation no construction litigation there can't be more than 15 20 percent commercial space there can't be more than 15 percent delinquencies so if you have any of those red flags oh one more and no one entity can own more than 10 percent of the building so if there's a hundred units a hundred units and somebody owns 11 of them we're not going to lend in that building so that wouldn't necessarily be true for a brand new project where the developer owns no more than 10 percent right because he's obviously trying to sell them all and he made temporarily owned a hundred percent right so that wouldn't that that rule wouldn't apply to new construction with the developer the 10 percent rule right but when you're buying new construction they always will tell you how much is sold to owner occupants how much a second home and how much is investment so the people really know how much his owner occupants second home was we're just they're going on the good faith of what they're told because I know as a management company we had a hard time determining after a buyer bought it what he did with it he could say I bought it for a second home out of my family come there you know or that type of thing or they but they truly might be occasionally running it out to somebody else so we really know is that how do they really know I think it's hard to tell but I think certain places I think I can Maui right you have to fill out that questionnaire every year if you're renting it or if you're not renting it and it has to do with taxes you know if you're gonna pay your transit transient tax but the majority of the management companies that I've spoken to go by the property and the address of the billing so if the address of the billing goes off site they're considering it an investment if the address of the billing goes on site then they're considering it owner occupant so we've had struggles where we've needed more second home owner occupant ratio and we've had to go to the property manager and ask them okay are all of these you know 50 units really truly investments or is is somebody son or somebody's cousin or somebody living their part time that's related so explain the difference to me I know that President Obama just signed the new bill that basically said for FHA mortgages is 30% owner-occupant for an FHA mortgage and you're saying 50.1 or majority 51% have to be owner-occupant what's the difference okay so the new law actually opens up a lot because I don't know if you realize this or not but a lot of the buildings that used to be FHA approved fell off the FHA approved lift they've a lot of them have expired because you need that 51% and they couldn't do it because they were all you they might have been at 48% or 49% or 35% and once you fall off you you've got to reapply with all of your documents to get FHA and what interesting things about that this comes up all the time on the management side in your opinion do you think it's important that the Association the Board of Directors of the Association goes and re-qualifies with the FHA okay so in my personal opinion I have not been using the FHA loan FHA was designed so that you could put minimal down three and a half percent and the government will guarantee it right we have other loan programs now that you could put down 3% and you know the banks will guarantee it so when I have to when I lay out FHA with another 3% loan in front of my clients we've been going with just a straight 3% because they're not there's not a lot of condos to choose from the market is very small you have to have a condo that's approved that's an FHA approved condo to use the FHA program if I just go straight 3% with a different conventional program they can shop anywhere they want to as long as they're going to owner occupy it there's no owner occupancy ratio required at all so that works for an owner occupant if you were an investor would that make you want to lean more towards FHA because of the theoretical issue of the 30 versus 50% owner occupancy well okay so I told you there's 50 there's 20 million loan programs out there but FHA is for owner occupants so if we're going to go investor you're going to have to go a different route anyways right so and the investors you have to have 51% owner occupancy otherwise the loan program is not efficient unless it's much more expensive yes it's very expensive it's very expensive so if you're going to buy as an investor in a condo you want to be prepared to put down 2025 percent and you want to be prepared to only look at condos that have 51% owner occupancy so assuming you have good credit 620 or more and assuming you have that's that's marginal credit large uh-huh good credit like excellent credit is 740 and above so if you have anything between 740 and 850 you're gonna get the same interest rate so anything above 740 is fine okay well we're gonna take a short break because I got some really I got some really tough questions for you but we'll come back in one minute thank you for watching condo insider hey everybody my name is David Chang and I am the new host of the show the art of thinking smart I'm really excited to be able to give you the smart edge in all aspects of your life can have awesome guests some of my great mentors in the business military political nonprofit you name it so we look forward to seeing you every other Thursday at 10 a.m. on think tech Hawaii and also on a blog art of thinking smart calm look forward to seeing you there hello I'm Marianne Sasaki welcome to think tech Hawaii where some of the most interesting conversations in Honolulu go on I have a show on Wednesdays from one to two called life in the law where we discuss legal issues politics governmental topics and a whole host of issues I hope you'll join me hi I'm Chris Ethan with the economy and you and I'd like to invite you each week to come watch my show each Wednesday at 3 p.m. welcome back to condo insider we're talking with Laura Merrill field of guild mortgage about the challenges for condo association buyers and sellers and selling their unit and getting a mortgage and the issues that affects to associations so as we were talking we were talking about qualifying a person for a mortgage into the lender looks at certain aspects of the association itself and you mentioned for example that they have to be 50% owner occupied for a conventional mortgage they need 20 to 25% down and and I called a good credit you said that's fair credit but let's just say they have that fair credit or better to get the loan what they look for with regard to the budget the association's budget its reserve study how does the lender look at that aspect of the of you know approving an association or a buyer by looking at the project itself so there's there's two different kinds of approvals that they do and again if you're buying as a second home or you're buying as an owner occupant they can do what's called a streamline review they ask some basic questions and that's it you know what's the owner occupancy ratio but again it doesn't matter if it's 51% or if it's 3% if an owner occupant is buying it it doesn't matter they'll ask about litigation if there's litigation they'll ask about how many people how many entities is there any entity that owns more than 10% of the building and and then commercial space and delinquencies is there more than 15% delinquencies so if we can pass just the basic questions that then it'll get approved but when we're talking about approvals for a full approval for an investor then they're gonna look at the budget then they're gonna look through the minutes then they're gonna look they're gonna do a deeper look into the project because the project because it's gonna be owned by an investor and we want to make sure that the condominium can withstand the test of time because as a buyer right they the thought process is as a buyer if I own two homes an investment home and a personal home where I live in if something goes wrong with my personal life I'm gonna stop paying on this investment property and if I stop paying the bank I'm gonna probably stop paying my maintenance fees can the association as a whole keep turning the lights on pay the insurance pay the security guards all of that stuff that it needs to do if it has and how does the reserve study itself I mean there's been discussions about under these types of mortgages or some minimum contribution to reserves that you made like 10% is that true and talk about more about that that's that's been a big thorn in a lot of people's sides because I think in Hawaii we have special laws we have a lot of condominiums compared to say Texas right where they have lots more single family homes so the way FHA works is you must put 10% into the reserves every year so if you bring in a million dollars you know you have to put aside a hundred thousand dollars towards you know the upkeep of the elevators the upkeep of the you know the windows and the grounds and all of the things that you need to do all the time to maintain the building as I kind of set in stone I'm in the sense you know having a reserve specialist designation and probably understand that more than I need to you could make an argument in association because they have huge amounts of money doesn't need to put 10% in because they've been very diligent and had good success in the past is that like set in concrete or or if you had a good story to tell about why you're still fully funded for your reserves that you would you should be qualified okay so let's go back to there's 20 million different loan programs so some of them it's gonna be fine but FHA I've never had an exception when we send the package in the whole package has to go into FHA and it goes to California and they take you know three four weeks to approve it when we've had less than 10% going in it's been denied and so it's been a matter of having the board meet again and redo the budget and I do want to give you a fair warning because if we have enough time at the end of the show I'm gonna ask you to list the 20 million different types of there's a lot there's a lot but FHA I've never seen an exception on owner occupancy about the budget are they're looking at your one-day delinquent or is it over 30 days or what is the delinquent is there a threshold of the length of 30 day it's 30 I mean I'm not an attorney and I don't have it memorized but I believe it's it's either 30 or 60 day delinquencies and it's if it's more than 15% of the total of the total right because I could tell you from a practical experience you have people who could pay theoretically one day late right so they have a $10 late fee on their ledger so when you run the report at the end of the month the pure numbers of how many people at that moment time have a delinquency might be higher when you add up maybe 10 or 15 people it's not more than $100 on late fees you know I would assume they're using some common sense when they're looking at this to and not just going off a statistical number that's the number well that's really if it if it's bigger than the 15% and we have to dig deeper into it then that becomes an issue with the lender and the property manager right because how are they reporting it is it 15% of the owners you know it are they waiting are they looking at the 60-day timetable or what are they looking at because sometimes they it's just a matter of when they run the report yeah well I can just have an experience that they you know management companies are handling thousands of transactions electronically and so you can have a moment you run that report and they just the grace period's just ended and so you have 10 or 20 people with 10 bucks or $25 depending what the late fee is on the report where in reality there's only two or three of the whole project that have a consistent delinquency and maintenance fees and so normally when you run the report you get to report it is what it is but I would assume a lender is purging that out to some degree to look at that and and trying to put some common sense to it that the real delinquencies are really these three units out of a hundred and these other things were just administrative charges most management companies won't even deal with adjusting that late fee for a couple months until they see how it sorts out you know because what happens is the owner paid the maintenance fee a day or too late then they get the bill within the prior months 25 and so it follows like 60 days you know and right right and of course then you have the owner who calls and said my dog died and I had to go to the barium in Tucson Arizona and I forgot about my maintenance fee and I have a good record I've never missed before I want you to waive it and and most management companies will do that as a courtesy because late fees aren't really designed to penalize people but associations are zero-based budget they have to have their fees paid so they can pay electricity pay the gardener pay the insurance and so they don't really have the latitude of letting people be delinquent you know with respect for that on the litigation side there's some review of that to the extent you could have litigation from an old homeowner just saying that they don't like a particular rule and the house rules versus somebody wanted a dog yeah they got the dog got so many tickets yeah so they yes you get some quote litigation on those types of minor issues versus what I would consider a major like construction defect or the guy who fixed the spalling did a bad job you know something that has more meat to it in my opinion do they look at that kind of that way of course of course so it's always a question is there any litigation on the project it's on that R105C and if the answer is yes we always get a copy of the complaint it could be a civil complaint which we won't be able to get a copy of but that doesn't affect lendability right it could be but if it's a construction defect if it something that has to do with structural health and safety then it could be a problem so we need a copy of it we need to know if it's in mediation already if it's in arbitration what's happening with it will the insurance cover it if it's found to be the association's issue will the insurance cover it so it's a flag that doesn't mean it's a kiss of death right right it's a red flag it's going to be something that you have to be able to rationalize and justify a properly but you have to think as a buyer right you're a buyer you're going to buy into this unit and in the association there is a construction defect something's wrong with the windows let's say right you're suing the developer right now you can buy the insurance is going to take care of the good portion of it but if if we lose if the association loses and that they have to pay for all the fixing what's going to happen to the maintenance fees if it was already at 600 and it has to go up can you as a buyer afford to pay 700 or 800 or $900 because you lost the litigation let me give you an example it kind of based on the fact but around everything off so the condo association and you want to buy it you're an owner occupant and the reserve study reflects that they have to replace all their cast iron pipes and they have to assess the owners $12 million of the whole all 300 owners and so the maintenance fees are going to go up from $600 to $1,000 a month and that's all disclosed is that the kiss of death or nope not at all if you can't or if I'm the borrower if I can afford the increase in maintenance fees it's fine I just have to count the liability so that's not taking that exact same example but twisting it one little bit let's just say the reserve study showed the $12 million needed for their cast iron pipes but there is no assessment there is no funding mechanism it just shows them in the hole that they don't have the $12 million to repair the building and that's going to be a problem it's going to be a problem when the underwriter looks through the budget and says we are short then it's good and then also we're looking at the minutes so it's going to be in the minutes where you know we're short how are we going to fix the elevator we know if one goes down we only have one right what's going to happen in an emergency so all these things are going to be in the minutes already so the buyer is going to see that and the underwriter is going to see that and what's going to be the solution how are we going to fix this financially is it going to be everyone's going to be assessed fifty thousand is is the condominium going to take out a loan so that the all of the owners only have to pay back that loan or does each person have to come up with their fifty thousand because that's going to be very big impact most associations will give them a choice to pay quote the fifty thousand up front which is before interest present value so that the people who have the money don't have to pay the interest and they'll give the alternative to the owners who can't to pay a monthly assessment based on association borrowing and that way people can keep their homes and the one who need the cash flow to pay it over time can do that and but the ones who have the cash can pay their share and and not be having to pay the interest on something so most of it most boards I know try to give the opportunity for both ways people people to handle the assessment but I guess I'm coming in though if I'm coming into this new situation where you have two choices to take the loan with the association or pay it in cash as a lender I have to know that the buyer can handle it either way so it has to be documented if it's not documented and I don't know what that monthly fee is going to be or that lump sum is going to be then we can't lend to that person more times than not I see that the in that situation the buyer puts in his DROA I want my present value paid off and it comes out of the equity that the seller has with the unit not always the case but predominantly that's kind of how it works so where do you think the mortgage market is going I mean it's been I don't want to call it flat but it's been fairly low up and down a little bit but for the last couple of years in my opinion so where do you how do you see the rates right now and where it's going to go and I know you can't guarantee it but you're in the business you must have a feeling about it you know well so I I think the interest rates are at all-time lows I think that if you buy a house or if you're borrowing money right now it's a great time and it might be like this for another three months six months a year I I don't know I everyone's warning like today I got a big alert on my email saying you know lock all of your borrowers tomorrow is a big you know federal speech and Yellen's gonna come out who knows what she's gonna say interest rates could go up right but they've been threatening interest rates going up for the past since 2016 October two that no we're 16 October 2014 they've been saying they're gonna go up and they've just been going like this I would say correct me if I'm wrong the rates the last year or two have gone up yeah up a half point down a half a point up a quarter point down it's been I mean actually when I look at the newspaper and I read this great headline mortgage rates rise I see it went from seven and a half to seven and you know five eight or whatever it was it or I should say three and five eighths and three and a half to three and five eight right yeah it's like a quarter of a point or eighth of a point it's gone up some nominal number that I think most consumers at that level don't really put much to it you know yeah but it's still scary everyone wants everyone wants to buy when everything's at the lowest the lowest interest rate you know they want to get the best deal on the house and you don't even know that until after rates have gone up when you're looking so your general advice is hacked now because you don't know what the future is going to be and for years has been pressure on this and whatever it may be it's I I'm I'm sure the rates are going to go up it's just a matter of when and I don't want my race to go up you know everybody else's rates go my rates can't go up but anyway I want to thank you for being on condo insider and sharing this with you today we've had Laura Maryfield here from Guild Mortgage talking about the mortgage market and the importance of condo associations making sure they have their financial act together so people can buy and sell on their property and of course the board has an obligation to protect the property so again we're on every Thursday from 3 to 3 30 and thank you for watching condo insider and thank you Laura for appearing today hello