Letters From the Home Front
By Kris Berg, Wednesday, February 25, 2009. Inman News
It's the debate that "just won't go away," I read.
"Hmm," I think. What could that be? Is it the debate about how we got to a place where millions of people have lost their homes and many more will likely fall victim to foreclosure in the coming year?
Maybe it is the conversation about how lenders are pricing their foreclosure inventory using the dartboard and dreidel method of valuation, dragging an entire market into the abyss in the process. (In the case of a tie, the Ouija board shall dictate.)
Maybe it's the discussion on industry standards and ethics -- the one that challenges the theory that a home purchase or sale can easily be orchestrated while working the night shift at Jim's Pizza Emporium.
No, the real debate involves my tax return. I simply make too much.
If we are to be fair, this is not a new argument. I have been bilking the consumer for years -- in my case, 12 years. And what a fun and frolicking 12 years it has been.
Through up and down markets, through thick and thin, I have enjoyed the "freedom" that is a real estate career. I have been able to take calls and make calls from my daughters' birthday parties and field trips.
I was able to take time off to see my oldest receive her high school diploma and then spend the after-party crouched behind a parked car listening to a client counsel me. "I know you are busy with your daughter's school thingy, but I have left three messages in the past two quarks, and I need to know if you received the inspection report."
During the boom years, I made too much because homes sold quickly, forgetting for a moment that representing a buyer required us to set up encampments in our idling cars so we could beat the sign installer to the door with the offer, a process we would repeat 11 times before hitting pay dirt.
During the transition years, I made too much because, even though selling a home involved more heavy lifting, sellers were starting to see their net sheets shrinking and felt we should all toss a few coins in the jar. Today, I make too much because, well, it's just fun to say so I suppose.
It's the debate that won't go away.
Maybe it's just me, but all of this outrage where my paycheck is concerned is starting to feel a little manufactured. I am here to tell you there is no need. I have enough outrage to go around.
Suddenly, we are concerned that my compensation might not benefit the consumer. Last time I checked, the consumer had an unlimited number of choices regarding agents, services and fee structures.
You want a flat fee? Those models exist. If you want to pay $500 or $5,000, there is someone who will gladly take the job. If you want to employ Aunt Margaret to represent you in exchange for a testimonial letter and a Bundt cake at closing, she just might bite.
You can pay 1 percent or 20 percent, or you can pay as you go. You can even do it yourself. The world is full of choices. What I charge is what I am worth, and what you charge is what you think you are worth. The debate is lost on me.
If, as an agent, you think you are overpaid, then you are. Change your model and charge less. And if we are running out of controversy, maybe we should move on to more pressing issues like customer service, industry standards, and ethics -- and something about the other agent who won't return my phone calls when I have a offer to present because I am not a buyer waiving a checkbook above my head.
For me, I charge what I am worth, but I make far less than I am worth. When a client was recently laid off one week before closing, I was laid off, except he had severance pay and now qualifies for unemployment benefits. I enjoy neither. I suspect many of you, like me, have spent six months with a buyer who decides not to buy.
Many of us have spent our weekends running the Chamber of Commerce shuttle tours for people expecting to relocate and then decide not to accept the job offer or don't get the job offer. We routinely find that we have spent weeks or months promoting a listing and generating an offer only to learn that the seller "needs" to get a little more, even though the number on the purchase agreement looks suspiciously like the one we suggested should be reasonably expected when we initially met to get things rolling.
Deaths, births, divorces, marriages, employment, unemployment, and change of heart: Stuff happens. And when it does, we haven't worked for free; we have worked at a loss.
Yesterday, I called in sick. Well, that's not entirely true. I delivered the message in person, on all fours and looking like I had been whopped repeatedly with an ugly stick, as I met with two clients to get contracts signed and another to attend a final walk-through.
You see, I am paid only for delivering the goods and, more importantly, my clients aren't buying or selling a pair of shoes. We are talking about a financially enormous, highly stressful, life-changing event. There are no sick days.
I take vacations. They involve enough electronics and power cords to stock a small trade show. Did you know that your cell phone works on the beaches of St. John? I do.
It was a $1,000 lesson learned while trying to negotiate a purchase agreement on the behalf of a client who was quite irritated that a trip I had booked six months prior happened to coincide with a buyer's decision to make an offer on their home. Of course we do get "paid vacations." This is what we call the vacations we take while we are paying another agent to cover our business.
I also get paid health insurance. It's paid by me, in gold bullion, and I have had three carriers in as many years because it seems that a member organization numbering in the millions cannot find an insurer willing to make a long-term commitment to my well-being.
As an independent contractor, I pay Social Security and then I get to pay it again -- the employer's share. I pay board dues and lockbox and license fees. I pay for the business trappings that result in my garage frequently being confused with a Staples distribution center, while my home office looks like the clearance aisle at Best Buy.
I pay for my own pension plan. The latter is whatever I can sock away depending on the winds. This year, it is sorely underfunded, which is probably a good thing considering what the stock market has done.
My job is flexible, though. It is so flexible that I can work all seven days. Escrow companies, photographers, print shops and the county recorder are open weekdays.
Our clients are open on weekends -- and in the evenings after 7 p.m., because that is when the baby sleeps. During my free time, I blow off steam with a legal brief, a good article on housing trends, or a class on new disclosure laws.
What I am selling is a service, but it is the product that drives my income, and I do not control its production. I live on a cash-flow rollercoaster that involves very high "highs" and excruciatingly low "lows."
For all of my exceptional efforts, selfless heroics and best intentions, one terrorist event or economic recession can change my pay scale, as can the occasional change of heart or mind, and I rarely get my 30 days' notice.
"But representing the sale of a condo is no more or less difficult than representing the sale of Belarus!" you say. Sometimes that's true and sometimes not.
Yet, percentage-based pay systems are not foreign to us. Try charging the same flat sales tax on a Hummer that you do on a pair of Rollerblade skates and see what a big round of applause you get.
And there are losses. Because we at least strive to be for-profit businesses, the losses have to be considered in the fees we charge. Not fair? When you buy that pair of shoes you are paying in part for the guy who shoplifted his, much like the price of the steak at the store reflects all of the steaks that were not purchased and had to be tossed out.
Consumers should pay up-front, then. Only they won't. It is much more appealing to play with house money, which brings us to the subject of risk. I incur it all. There is risk every time I pay thousands to market a home only to find that the seller has changed his mind and every time I write the fifth offer for a buyer client to learn they that aren't having fun anymore or that her brother just got his license. And there is risk every time I walk into the office that a frivolous lawsuit will be waiting for me.
If I sound angry about the work, I am not, because I have defined my own scope. What I am angry about is that my income is even up for debate. This business of bilking the customer, while fun and sometimes extremely rewarding, is costly. I have paid dearly with time, money and sacrifices in my personal life. So I charge what I am worth, as should you.
Oh, and I wouldn't worry too much about the consumer where our fees are concerned. He has plenty of choices, and I respect him enough to know he will weigh his options and make the decision that is in his best interests given his particular circumstances. Respecting the customer -- now that might be a topic worth debating.
Kris Berg is broker-owner of San Diego Castles Realty. She also writes a consumer-focused real estate blog, The San Diego Home Blog
Thursday, February 26, 2009
Understanding Your Credit
And Making The Most Of It. (Part 1)
Where do we begin? For most consumers, the world of credit is confusing and at times, seems almost without common sense. Credit plays an important role in your life. It affects the purchases you make and much more. Here are the basics, simply explained. Paying your bills on time is the single most important contributor to having good credit. No matter what the minimum payment is, it is critical that you always make all payments on time. Whether the minimum payment is $10 or $1,000, paying it late will negatively affect your credit. What does "late" really mean? Here's an example: Let's assume your latest monthly statement says a payment is due on the 1st of the month. There is almost always a grace period, which can be around 10 days. If you make the payment after the grace period, your credit provider will likely charge you a late fee. Does this hurt your overall credit or "credit score"? No. Even though they charged you a late fee, as long as you get your payment and late fee to the creditor within 30 days of the due date, which began on the 1st of the month, your credit will not get "dinged". In other words, no negatives. Creditors regularly supply your credit history to outside credit reporting agencies, also known as credit bureaus.
There are 3 main credit reporting agencies/credit bureaus, which are Experian (formerly TRW), Equifax and TransUnion. They are companies that collect (and sell) information about how people handle their credit. Their credit reports list how individuals manage their debts, make payments, how much untapped credit they have available and whether they have applied for any loans or other financing. The reports are made available to authorized individuals and creditors. Sometimes unauthorized individuals gain access to your information. We'll save that for a later date.
What is a credit score? The most well known type of credit score is the Fair Isaac or FICO score. Each of the 3 main agencies determine their own score and can provide it within their credit report. It is a number ranging from 300 to 900 which reflects the credit worthiness of the borrower. A credit score is primarily determined by the timeliness of past loan payments and balances owed in relation to the maximum credit limits available. Huh? What was that second part again? Let's say you have a credit card with a maximum credit limit of $4000. Owing less than 50% of that limit is a good thing. Owing any more will negatively affect your credit score. So, in this case, it is better to spread your debt around various other credit cards you have, rather than to have that one big balance. Keeping your credit cards with less than 50% of the limit is always a good idea, especially if you are planning to obtain more credit in the near future.
Most mortgage lenders will want to see all 3 reports and all 3 scores. If a single person is applying for a mortgage, lenders will typically use the middle number of the 3 scores. So, if your scores are 650, 698 and 735, they will grant you credit based on 698. With a married couple, they use the middle score of the greater income earner. The national credit score average is 678.
As always, if you need help or advice, just email Adam Ford of Mortgage Advisors Group at AdamFord@skylinefinancialcorp.com. More to come later!
[Adam Ford sent me this article for inclusion in The Real Blog]
Where do we begin? For most consumers, the world of credit is confusing and at times, seems almost without common sense. Credit plays an important role in your life. It affects the purchases you make and much more. Here are the basics, simply explained. Paying your bills on time is the single most important contributor to having good credit. No matter what the minimum payment is, it is critical that you always make all payments on time. Whether the minimum payment is $10 or $1,000, paying it late will negatively affect your credit. What does "late" really mean? Here's an example: Let's assume your latest monthly statement says a payment is due on the 1st of the month. There is almost always a grace period, which can be around 10 days. If you make the payment after the grace period, your credit provider will likely charge you a late fee. Does this hurt your overall credit or "credit score"? No. Even though they charged you a late fee, as long as you get your payment and late fee to the creditor within 30 days of the due date, which began on the 1st of the month, your credit will not get "dinged". In other words, no negatives. Creditors regularly supply your credit history to outside credit reporting agencies, also known as credit bureaus.
There are 3 main credit reporting agencies/credit bureaus, which are Experian (formerly TRW), Equifax and TransUnion. They are companies that collect (and sell) information about how people handle their credit. Their credit reports list how individuals manage their debts, make payments, how much untapped credit they have available and whether they have applied for any loans or other financing. The reports are made available to authorized individuals and creditors. Sometimes unauthorized individuals gain access to your information. We'll save that for a later date.
What is a credit score? The most well known type of credit score is the Fair Isaac or FICO score. Each of the 3 main agencies determine their own score and can provide it within their credit report. It is a number ranging from 300 to 900 which reflects the credit worthiness of the borrower. A credit score is primarily determined by the timeliness of past loan payments and balances owed in relation to the maximum credit limits available. Huh? What was that second part again? Let's say you have a credit card with a maximum credit limit of $4000. Owing less than 50% of that limit is a good thing. Owing any more will negatively affect your credit score. So, in this case, it is better to spread your debt around various other credit cards you have, rather than to have that one big balance. Keeping your credit cards with less than 50% of the limit is always a good idea, especially if you are planning to obtain more credit in the near future.
Most mortgage lenders will want to see all 3 reports and all 3 scores. If a single person is applying for a mortgage, lenders will typically use the middle number of the 3 scores. So, if your scores are 650, 698 and 735, they will grant you credit based on 698. With a married couple, they use the middle score of the greater income earner. The national credit score average is 678.
As always, if you need help or advice, just email Adam Ford of Mortgage Advisors Group at AdamFord@skylinefinancialcorp.com. More to come later!
[Adam Ford sent me this article for inclusion in The Real Blog]
Saturday, February 21, 2009
NAR Proud of New Housing Bill
National Association of Realtors President Charles McMillan sent this to the Realtors:
For nearly four months, NAR has been working to deliver to you and to our nation a comprehensive plan to stabilize the housing market.
This week, we saw countless hours of hard work pay off – in a MAJOR way – when the federal government implemented NAR's recommendations to stimulate housing with the signing of the American Recovery and Reinvestment Act of 2009.
This bold and unprecedented move to help housing did not happen by chance. Just a few months ago, the auto industry had Congress' ear. Yet, thanks to countless meetings, letters, phone calls, and public pressure that we – the REALTORS® of America – placed on lawmakers in Washington, D.C., housing emerged as the top priority in the new Administration and in Congress. While some of the items in the Act are controversial and are currently being debated, most of our top priorities were addressed.
Thanks to all of our hard work, America’s homebuyers and homeowners will soon have:
Lower interest rates for home mortgages;
A greater ability to get financing through FHA, Fannie Mae and Freddie Mac in high-cost areas;
A true tax credit incentive to buy a home NOW; and
Foreclosure mitigation and short-sale standards.
As a direct result of NAR's advocacy, we hope REALTORS® will see an increase in home sales this year. NAR also continues to make significant progress on our efforts to unclog the pipeline for foreclosures and to address administrative problems with short sales.
Such significant movement on these critical issues is rare. For more information and details on these new laws and programs, visit the Unlock America's Economy Page on Realtor.org:
http://www.realtor.org/government_affairs/gapublic/gses_conservatorship?LID=RONav0023
For nearly four months, NAR has been working to deliver to you and to our nation a comprehensive plan to stabilize the housing market.
This week, we saw countless hours of hard work pay off – in a MAJOR way – when the federal government implemented NAR's recommendations to stimulate housing with the signing of the American Recovery and Reinvestment Act of 2009.
This bold and unprecedented move to help housing did not happen by chance. Just a few months ago, the auto industry had Congress' ear. Yet, thanks to countless meetings, letters, phone calls, and public pressure that we – the REALTORS® of America – placed on lawmakers in Washington, D.C., housing emerged as the top priority in the new Administration and in Congress. While some of the items in the Act are controversial and are currently being debated, most of our top priorities were addressed.
Thanks to all of our hard work, America’s homebuyers and homeowners will soon have:
Lower interest rates for home mortgages;
A greater ability to get financing through FHA, Fannie Mae and Freddie Mac in high-cost areas;
A true tax credit incentive to buy a home NOW; and
Foreclosure mitigation and short-sale standards.
As a direct result of NAR's advocacy, we hope REALTORS® will see an increase in home sales this year. NAR also continues to make significant progress on our efforts to unclog the pipeline for foreclosures and to address administrative problems with short sales.
Such significant movement on these critical issues is rare. For more information and details on these new laws and programs, visit the Unlock America's Economy Page on Realtor.org:
http://www.realtor.org/government_affairs/gapublic/gses_conservatorship?LID=RONav0023
Wednesday, February 18, 2009
Home Foreclosure and Debt Cancellation Info from the IRS
Update Dec. 11, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More details. Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form
Updated with FAQs at bottom — Feb. 28, 2008
Updated with new link — Dec. 11, 2008
IR-2008-17, Feb. 12, 2008
WASHINGTON — Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this Web site.
“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”
The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.
The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).
The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.
Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.
The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).
Note: Legislation enacted in October 2008 extended this relief through 2012. Thus this relief now applies to debt forgiven in calendar years 2007 through 2012.
Related Items:
Frequently asked questions on the Mortgage Forgiveness Debt Relief Act
Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness
1099-C
Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments
MORE AT http://www.irs.gov/irs/article/0,,id=179073,00.html
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More details. Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form
Updated with FAQs at bottom — Feb. 28, 2008
Updated with new link — Dec. 11, 2008
IR-2008-17, Feb. 12, 2008
WASHINGTON — Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this Web site.
“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”
The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.
The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).
The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.
Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.
The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).
Note: Legislation enacted in October 2008 extended this relief through 2012. Thus this relief now applies to debt forgiven in calendar years 2007 through 2012.
Related Items:
Frequently asked questions on the Mortgage Forgiveness Debt Relief Act
Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness
1099-C
Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments
MORE AT http://www.irs.gov/irs/article/0,,id=179073,00.html
FNMA Announces New Policy For Renters In REO Properties
On January 13 Fannie Mae released an announcement describing a new policy that will allow qualified renters to remain in Fannie Mae-owned foreclosure properties. Formally known as the National Real Estate Owned Rental Policy, it is meant to address the difficulties faced by tenants who – often through no fault of their own – face serious disruptions in their lives because the owner of the property in which they live has been foreclosed upon.
Said Michael Williams, chief operating officer of Fannie Mae, “This policy will allow qualified renters to remain in Fannie Mae-owned properties should they choose to do so, mitigate the disruption of personal lives that foreclosures can cause, and help bring a measure of stability to communities impacted by high foreclosure rates.”
The policy applies to renters who occupy the property at the time of foreclosure or deed-in-lieu of foreclosure. It will not apply to the borrowers who are losing the property, nor to their immediate families. The type of property occupied may be single-family homes, condos, co-ops, manufactured housing, or one-to-four unit buildings. The only requirement is that the property is a Fannie Mae REO, and that it conforms to all applicable local and state requirements for a rental property.
Key features of the new policy are as follows:
After the foreclosure is complete, renters will be offered the opportunity to either accept an incentive payment to vacate the property (“Cash for Keys”) or they may sign a new month-to-month rental agreement with Fannie Mae.
Fannie Mae will not require payment histories or credit checks.
Renters will be charged market rents. This may require a local rent survey for comparison purposes. Fannie Mae will “review each instance where the market rate may require a tenant to pay additional rent and will work to reach an equitable solution.”
No security deposit will be required. On the other hand, the announcement is silent on Fannie Mae’s possible obligations if an unreturned security deposit had been paid to the foreclosed- upon former owner.
The property will be for sale, and may undergo repair or rehab work, during the term of the tenancy. “If the property sells, the lease will transfer to the new owner.”
The property will be managed by a real estate broker and/or a property management company.
Whether the new Fannie Mae policy will be a good thing is yet to be determined. Having lost many, many millions of dollars, Fannie Mae has already demonstrated that it was not particularly good at its core business. There is little reason to think that it will be good at the landlord business either. Even with property management companies, someone has to manage the property managers.
Already, one can see that the policy may not be particularly good for many tenants. Suppose you had begun a one-year lease in September, and now, in January, the property has been foreclosed upon. Fannie Mae offers you a month-to-month tenancy while the property is for sale. You still might have to move before school is out.
Nor does it look terribly attractive on the buyer side. A prospective owner-occupant doesn’t want a tenant in possession when he closes escrow. And neither he nor an investor buyer can be very positive about taking a property where the tenant occupant has paid no security deposit.
It’s a nice idea, but the new Fannie Mae policy is probably going to require some refinement.
January 2009
Said Michael Williams, chief operating officer of Fannie Mae, “This policy will allow qualified renters to remain in Fannie Mae-owned properties should they choose to do so, mitigate the disruption of personal lives that foreclosures can cause, and help bring a measure of stability to communities impacted by high foreclosure rates.”
The policy applies to renters who occupy the property at the time of foreclosure or deed-in-lieu of foreclosure. It will not apply to the borrowers who are losing the property, nor to their immediate families. The type of property occupied may be single-family homes, condos, co-ops, manufactured housing, or one-to-four unit buildings. The only requirement is that the property is a Fannie Mae REO, and that it conforms to all applicable local and state requirements for a rental property.
Key features of the new policy are as follows:
After the foreclosure is complete, renters will be offered the opportunity to either accept an incentive payment to vacate the property (“Cash for Keys”) or they may sign a new month-to-month rental agreement with Fannie Mae.
Fannie Mae will not require payment histories or credit checks.
Renters will be charged market rents. This may require a local rent survey for comparison purposes. Fannie Mae will “review each instance where the market rate may require a tenant to pay additional rent and will work to reach an equitable solution.”
No security deposit will be required. On the other hand, the announcement is silent on Fannie Mae’s possible obligations if an unreturned security deposit had been paid to the foreclosed- upon former owner.
The property will be for sale, and may undergo repair or rehab work, during the term of the tenancy. “If the property sells, the lease will transfer to the new owner.”
The property will be managed by a real estate broker and/or a property management company.
Whether the new Fannie Mae policy will be a good thing is yet to be determined. Having lost many, many millions of dollars, Fannie Mae has already demonstrated that it was not particularly good at its core business. There is little reason to think that it will be good at the landlord business either. Even with property management companies, someone has to manage the property managers.
Already, one can see that the policy may not be particularly good for many tenants. Suppose you had begun a one-year lease in September, and now, in January, the property has been foreclosed upon. Fannie Mae offers you a month-to-month tenancy while the property is for sale. You still might have to move before school is out.
Nor does it look terribly attractive on the buyer side. A prospective owner-occupant doesn’t want a tenant in possession when he closes escrow. And neither he nor an investor buyer can be very positive about taking a property where the tenant occupant has paid no security deposit.
It’s a nice idea, but the new Fannie Mae policy is probably going to require some refinement.
January 2009
Obama's Housing Plan Gets Mixed Reviews
February 18, 2009, 9:42 am
Interesting plan, but as the sheriff said to the captain in Jaws: we're going to need a bigger boat.
Please read the whole article and then go to the Wall Street Journal website on the article and read the comments. You think you have some problems with this plan? Read the comments! People are angry!
Click for the article and comments.
Obama’s Plan Aimed at Helping Troubled Homeowners
Here’s the summary of the Obama administration’s plan aimed at helping Distressed Homeowners
Homeowner Affordability and Stability Plan
Executive Summary
The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.
· Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
· Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
· Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.
1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affortdable
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rages by Strengthening Confidence in Fannie Mae and Freddie Mac.
The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:
1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:
o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
· Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
· No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
· Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
· Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
· Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
§ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
§ “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
§ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
§ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
§ Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
· Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
· Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
§ Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
§ Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
§ Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
§ Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
· Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
o Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
o Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
· Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
· Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
· Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
· No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
Interesting plan, but as the sheriff said to the captain in Jaws: we're going to need a bigger boat.
Please read the whole article and then go to the Wall Street Journal website on the article and read the comments. You think you have some problems with this plan? Read the comments! People are angry!
Click for the article and comments.
Obama’s Plan Aimed at Helping Troubled Homeowners
Here’s the summary of the Obama administration’s plan aimed at helping Distressed Homeowners
Homeowner Affordability and Stability Plan
Executive Summary
The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.
· Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
· Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
· Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.
1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affortdable
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rages by Strengthening Confidence in Fannie Mae and Freddie Mac.
The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:
1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:
o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
· Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
· No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
· Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
· Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
· Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
§ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
§ “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
§ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
§ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
§ Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
· Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
· Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
§ Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
§ Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
§ Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
§ Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
· Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
o Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
o Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
· Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
· Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
· Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
· No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
Sunday, February 15, 2009
First Time Home Buyer Tax Credit Information
Information about first time home buyer tax credits as amended by the American Recovery and Reinvestment Act of 2009 (HR 1).
Please consult your tax advisor / accountant to determine whether you are eligible for this tax credit before making any decisions or changes to your tax status. This website is for information only and should be verified by a tax professional.
The 3 changes to the first-time home buyers tax credit program include:
Tax credit has been increased to $8,000.
Homes have to be purchased between January 1, 2009 and December 31, 2009
No repayment/recapture clause for homes sold after 36 months of occupancy and ownership.
The Tax Credit is for home buyers (either spouse if filing jointly) who have NOT owned a principle residence during the three-year period prior to the purchase. Ownership of vacation property or rental property does not disqualify home buyers from this program.
The maximum credit is $8,000 or 10% of the home purchase, whichever is less.
The credit is available for homes purchased on or after January 1, 2009 and before December 31, 2009.
To qualify for the full tax credit, married couples' modified adjusted gross income (MAGI) should be under $150,000 and single filers' MAGI should be less than $75,000. Partial tax credits may be available for married couples with MAGI incomes of over $150,000 but under $170,000 and single filers with incomes over $75,000 but under $95,000. If married couples who qualify for the first-time tax credit file separately, they would both claim 5% of the home purchase or $4,000 each (whichever is less) on their tax returns.
Home buyers who qualify for this program, but who do not intend to purchase a home till the end of 2009, may elect to alter their tax withholdings (up to the amount of the of the tax credit) in order to save up money for a down payment. However, if the purchase of the home does not occur, the taxes must be repaid to the IRS.
There is no recapture or repayment clause IF the home is owned for at least 36 months.
The effective date of purchase for new construction (even if buyer owns title to the lot) is the date the owner first occupies the house. So even if construction began in 2008, as long as the home and buyers qualify for the tax credit, they will be eligible if they take possession any time during 2009. However, new construction bought from the builder is only eligible if the settlement date (closing) takes place between January 1, 2009 and December 31, 2009.
The law allows taxpayers to elect to treat qualified 2009 purchases as a 2008 purchase so that they can receive the tax credit on their 2008 tax returns.
The full amount of the eligible tax credit is refunded to the buyer, regardless of whether the buyer has paid an equivalent amount in taxes.
The American Recovery and Reinvestment Act of 2009
Please consult your tax advisor / accountant to determine whether you are eligible for this tax credit before making any decisions or changes to your tax status. This website is for information only and should be verified by a tax professional.
The 3 changes to the first-time home buyers tax credit program include:
Tax credit has been increased to $8,000.
Homes have to be purchased between January 1, 2009 and December 31, 2009
No repayment/recapture clause for homes sold after 36 months of occupancy and ownership.
The Tax Credit is for home buyers (either spouse if filing jointly) who have NOT owned a principle residence during the three-year period prior to the purchase. Ownership of vacation property or rental property does not disqualify home buyers from this program.
The maximum credit is $8,000 or 10% of the home purchase, whichever is less.
The credit is available for homes purchased on or after January 1, 2009 and before December 31, 2009.
To qualify for the full tax credit, married couples' modified adjusted gross income (MAGI) should be under $150,000 and single filers' MAGI should be less than $75,000. Partial tax credits may be available for married couples with MAGI incomes of over $150,000 but under $170,000 and single filers with incomes over $75,000 but under $95,000. If married couples who qualify for the first-time tax credit file separately, they would both claim 5% of the home purchase or $4,000 each (whichever is less) on their tax returns.
Home buyers who qualify for this program, but who do not intend to purchase a home till the end of 2009, may elect to alter their tax withholdings (up to the amount of the of the tax credit) in order to save up money for a down payment. However, if the purchase of the home does not occur, the taxes must be repaid to the IRS.
There is no recapture or repayment clause IF the home is owned for at least 36 months.
The effective date of purchase for new construction (even if buyer owns title to the lot) is the date the owner first occupies the house. So even if construction began in 2008, as long as the home and buyers qualify for the tax credit, they will be eligible if they take possession any time during 2009. However, new construction bought from the builder is only eligible if the settlement date (closing) takes place between January 1, 2009 and December 31, 2009.
The law allows taxpayers to elect to treat qualified 2009 purchases as a 2008 purchase so that they can receive the tax credit on their 2008 tax returns.
The full amount of the eligible tax credit is refunded to the buyer, regardless of whether the buyer has paid an equivalent amount in taxes.
The American Recovery and Reinvestment Act of 2009
Thursday, February 12, 2009
Affordability More than Doubles
Affordability More than Doubles
Lower resale prices and recent declines in the mortgage interest rate are prompting more people to jump into a market that is dramatically more inviting for entry-level buyers.
A study conducted recently found that the percentage of households that could afford to buy an entry level home in California stood at 53 percent in the third quarter of 2008.
That's more than double for the same period from a year ago when only 24 percent of households could qualify.
The First-Time Buyer Housing Affordability Index study conducted by the California Association of Realtors found that the minimum household income needed to purchase an entry-level home at $287,760 in California in the third quarter of 2008 was $56,100, based on an adjustable interest rate of 5.91 percent and assuming a 10 percent down payment.
First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,870 for the third quarter of 2008.
At $56,100, the minimum qualifying income was 44 percent lower than a year earlier when households needed $100,500 to qualify for a loan on an entry-level home.
Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California households, where the median household income is $59,160.
The Index also rose 5 percentage points in the third quarter of this year compared to the second quarter of 2008, due to an 11.9 percent decrease in the entry-level median home price.
At 73 percent, the High Desert region was the most affordable area in the state.
The San Francisco Bay Area region was the least affordable in the state at 35 percent, followed by the San Luis Obispo County region at 38 percent.
In Los Angeles County the index stood at 42 percent, up from 20 percent a year ago.
The L.A. entry-level price of $332,680 requires a minimum-qualifying income of $64,8000 and comes with a monthly loan payment of $2,160.
Lower resale prices and recent declines in the mortgage interest rate are prompting more people to jump into a market that is dramatically more inviting for entry-level buyers.
A study conducted recently found that the percentage of households that could afford to buy an entry level home in California stood at 53 percent in the third quarter of 2008.
That's more than double for the same period from a year ago when only 24 percent of households could qualify.
The First-Time Buyer Housing Affordability Index study conducted by the California Association of Realtors found that the minimum household income needed to purchase an entry-level home at $287,760 in California in the third quarter of 2008 was $56,100, based on an adjustable interest rate of 5.91 percent and assuming a 10 percent down payment.
First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,870 for the third quarter of 2008.
At $56,100, the minimum qualifying income was 44 percent lower than a year earlier when households needed $100,500 to qualify for a loan on an entry-level home.
Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California households, where the median household income is $59,160.
The Index also rose 5 percentage points in the third quarter of this year compared to the second quarter of 2008, due to an 11.9 percent decrease in the entry-level median home price.
At 73 percent, the High Desert region was the most affordable area in the state.
The San Francisco Bay Area region was the least affordable in the state at 35 percent, followed by the San Luis Obispo County region at 38 percent.
In Los Angeles County the index stood at 42 percent, up from 20 percent a year ago.
The L.A. entry-level price of $332,680 requires a minimum-qualifying income of $64,8000 and comes with a monthly loan payment of $2,160.
Tuesday, February 10, 2009
Good News for Investors
To speed recovery of the housing market, Fannie Mae in March will begin purchasing and guaranteeing mortgages for borrowers carrying loans on as many as nine other properties, up from the current limit of three. However, the number of months of reserve payments that must be held by investors will rise to six in June from two currently. "One of the things that leads the economy out of a housing crisis is when prices get cheap enough that investors start moving in and buying things," says Joe Garrett of the Berkeley, Calif.-based consulting firm Garrett, Watts & Co.
Thursday, February 05, 2009
Local property tax scam targets underwater homeowners
Company charges for free tax reassessment filing
By Josh Premako
Signal Senior Writer
jpremako@the-signal.com
661-259-1234 x519
Posted: Feb. 5, 2009 12:52 a.m.
Local residents might have noticed an official-looking letter in their mail lately, touting a rate of $179 to file a homeowner's property tax reassessment form.
Of course, they could just opt to download the one-page form off the Los Angeles County Web site and file it for free.
Los Angeles-based Property Tax Reassessment mailed the two-page letters that looks very much like a bill.
The company advertises a filing fee of $179, or $209 after Feb. 26.
"Right now, the scams out there are rampant," said City Councilman Bob Kellar, who is a real estate agent. "They're taking advantage of people."
If homeowners have questions about lowering their property tax by proving their home's value has decreased, Kellar advised they speak with a real estate agent or the county assessor's office.
A Property Tax Assessment customer service representative named Thomas said Wednesday the company serves, "pretty much California."
"Some people don't have time. We're just offering a service," said the representative, who didn't give his last name.
A man who said he was a supervisor refused to answer any further questions and said all media inquiries must be submitted by mail.
The company notes in the fine print of the letter that, "Property Tax Reassessment is not a government agency."
The Los Angeles County Assessor's Office provides the reassessment form for free, requiring the homeowner to provide two recent homes sales, preferably in their neighborhood.
"There's no benefit (in paying)," said Rayleen, an intermediate assessor who asked her last name not be used. "They could do this for free."
She said what Property Tax Reassessment does is not illegal but certainly unnecessary.
On the county form, a homeowner must list two recent comparable home sales that were less than the current assessed value of their home.
Property tax bills are sent out in October.
For information about property tax reassessment, or to download the necessary form visit www.assessor.lacounty.gov.
jpremako@the-signal.com
By Josh Premako
Signal Senior Writer
jpremako@the-signal.com
661-259-1234 x519
Posted: Feb. 5, 2009 12:52 a.m.
Local residents might have noticed an official-looking letter in their mail lately, touting a rate of $179 to file a homeowner's property tax reassessment form.
Of course, they could just opt to download the one-page form off the Los Angeles County Web site and file it for free.
Los Angeles-based Property Tax Reassessment mailed the two-page letters that looks very much like a bill.
The company advertises a filing fee of $179, or $209 after Feb. 26.
"Right now, the scams out there are rampant," said City Councilman Bob Kellar, who is a real estate agent. "They're taking advantage of people."
If homeowners have questions about lowering their property tax by proving their home's value has decreased, Kellar advised they speak with a real estate agent or the county assessor's office.
A Property Tax Assessment customer service representative named Thomas said Wednesday the company serves, "pretty much California."
"Some people don't have time. We're just offering a service," said the representative, who didn't give his last name.
A man who said he was a supervisor refused to answer any further questions and said all media inquiries must be submitted by mail.
The company notes in the fine print of the letter that, "Property Tax Reassessment is not a government agency."
The Los Angeles County Assessor's Office provides the reassessment form for free, requiring the homeowner to provide two recent homes sales, preferably in their neighborhood.
"There's no benefit (in paying)," said Rayleen, an intermediate assessor who asked her last name not be used. "They could do this for free."
She said what Property Tax Reassessment does is not illegal but certainly unnecessary.
On the county form, a homeowner must list two recent comparable home sales that were less than the current assessed value of their home.
Property tax bills are sent out in October.
For information about property tax reassessment, or to download the necessary form visit www.assessor.lacounty.gov.
jpremako@the-signal.com
Wednesday, February 04, 2009
SCV Sheriff's Launch Vacant House Check Program
During these challenging economic times and the downturn in the housing and real estate markets we may see an increase in the number of vacant houses and other structures throughout the Santa Clarita Valley. If not maintained, secured, and frequently checked, some of these vacant structures can become a haven for those intent on wrong doing. These vacant properties can lead to incidents of trespassing, vandalism, unlawful parties or gatherings, arson, drug use, and other illegal or nuisance related activities that can further reduce property values and challenge the peace, serenity, and safety of our neighborhoods.
As part of our forward-thinking approach towards best protecting our community, the Santa Clarita Valley Sheriff Station's Crime Prevention Unit, in direct partnership with the City of Santa Clarita and County of Los Angeles, has developed and launched a new "Vacant House Check" program. Although we also want property owners and agents to pay extra attention to these types of properties, the new program puts in place a system where deputies, volunteers on patrol, reserve deputies, and other station staff members can work directly with them. The personnel will randomly check vacant properties including houses, condominiums, businesses, or other structures, submitted by you throughout the Santa Clarita Valley.
If you are aware of a vacant or abandoned structure in your neighborhood or business community that appears to be run-down or attracting a criminal element, simply fill out the form at the following link: www.scvsheriff.com/vacanthouse/. Provide as much information as you can about the property and they will check it out. Working together during challenging times we can make a difference.
As part of our forward-thinking approach towards best protecting our community, the Santa Clarita Valley Sheriff Station's Crime Prevention Unit, in direct partnership with the City of Santa Clarita and County of Los Angeles, has developed and launched a new "Vacant House Check" program. Although we also want property owners and agents to pay extra attention to these types of properties, the new program puts in place a system where deputies, volunteers on patrol, reserve deputies, and other station staff members can work directly with them. The personnel will randomly check vacant properties including houses, condominiums, businesses, or other structures, submitted by you throughout the Santa Clarita Valley.
If you are aware of a vacant or abandoned structure in your neighborhood or business community that appears to be run-down or attracting a criminal element, simply fill out the form at the following link: www.scvsheriff.com/vacanthouse/. Provide as much information as you can about the property and they will check it out. Working together during challenging times we can make a difference.
Tuesday, January 27, 2009
Is now the time to buy a home?
Is now the time to buy a home? It depends on...
A simple question -- Is now the time to buy a home? -- generated heated debate at a recent dinner party, an argument that made attacks by political candidates appear tame.
"You'd be a ... fool to buy now!" one woman said, noting that resale prices are soft and falling, foreclosures and short sales are still emerging, and the national economy is on less than stable ground.
"You'd be a ... fool NOT to buy now!" another speaker growled, stating that prices are already at their lowest in decades, the selection of homes for sale is stunning, it's best to act while others are still waiting, and, despite popular belief, home loans, especially for first-time buyers, are available at low interest rates, albeit for individuals with a modest down payment and a solid credit history.
Eventually, a consensus emerged: Both positions were correct, because the answer boiled down to two words: "It depends."
It depends on: Where you want to buy? How long will you stay in the house? What is your annual income? Is your job stable? Is a work-related move likely anytime soon? Do you have a decent FICO credit score and a good credit history? How big a loan can you obtain? What is the interest rate? What is the list price of the house? Is the sale the result of a foreclosure? How much of a down payment do you have? What are you currently paying per month in rent? Do you believe home prices will rise or fall over the coming years and by what percentage rate up or down? What's happening in the local market? Are there many foreclosed properties on the market, like in areas of the Inland Empire, or relatively few by comparison, such as here in the San Fernando and Santa Clarita Valleys?
And, perhaps most importantly, what are your genuine housing needs -- are you a single renter with no imperative to move, does your family of five require room to grow, or is the nest empty and you’d like to downsize to a smaller house?
The list of questions went on and on with each raising valid points on both sides of the debate. Eventually, there was agreement on several additional points:
For example, all markets recover; Southern California will continue to lure new residents; and, there are not enough existing houses to satisfy burgeoning demand. That weighed the argument more in favor of buying, but then the debate shifted to timing, and prices, and home loans, and interest rates.
Renters currently paying a low monthly rent and of the belief that home resale prices will fall farther for months to come saw little advantage in buying now. But other renters who pay a high monthly rent and were optimistic about the market, argued in favor of capturing today's low prices, decent interest rates, and wide selection of homes listed for sale.
They wanted to get into the market before the herd returned and prices started marching up again. Plus, efforts to revive the national economy and stabilize the housing market already are yielding programs and once-in-a-lifetime opportunities that may vanish once recovery is underway.
If a renter today captured a home at a favorable price of say $300,000 with appreciation of a modest 3 percent annually, within three to four years the benefits of buying would totally outweigh any perceived benefit of renting. The sooner that houses start appreciating and the higher the rate of appreciation, the sooner that buying would make sense.
Unlike other investments, any return on a home purchase requires a relatively small initial investment. Few buyers plop down cash to pay the full cost of a $200,000 house, while most make a down payment of as little as 3.5 percent on up to 20%, again depending on individual circumstances. A 3.5% down payment of $7,100 on a $200,000 condominium would require a 5% loan of $192,900 with good credit. Principal and interest payments would equal $1,031.00 taxes (and home owners dues if a condo) would average about $400.00 per month. After tax benefits ownership is less than rent and you can upgrade and improve your own home.
If the home increased in value by 5 percent during the first year -- either due to true appreciation or simply because the purchase price was significantly below market -- that means the buyer earned $10,000 on an investment of $7,100. In that instance, the annual "return on investment" would be a whopping 141 percent.
Of course, owners must make mortgage payments and must pay property taxes, along with other costs of home ownership. However, since the interest on a mortgage and property taxes are both tax deductible, the government is essentially subsidizing a portion of the home purchase.
Is it likely that renters could find a safer, better investment elsewhere? It depends, although real estate has always fared well over the years. And in the long haul real estate has out performed nearly all other investment vehicles.
If a renter today captured a home at an extremely favorable price of say $300,000 with only 3.5% or $10,500 down, and appreciation of a modest 3 percent annually, within three to four years the benefits of buying would totally outweigh any perceived benefit of renting. The sooner that houses start appreciating and the higher the rate of appreciation, the sooner that buying would make sense.
But it always came back to the particulars of each prospective buyer's situation. It always came back to "It depends" and for the real answer each individual needs to seek expert advice from me your local Realtor and your accountant.
[Thanks, David!]
A simple question -- Is now the time to buy a home? -- generated heated debate at a recent dinner party, an argument that made attacks by political candidates appear tame.
"You'd be a ... fool to buy now!" one woman said, noting that resale prices are soft and falling, foreclosures and short sales are still emerging, and the national economy is on less than stable ground.
"You'd be a ... fool NOT to buy now!" another speaker growled, stating that prices are already at their lowest in decades, the selection of homes for sale is stunning, it's best to act while others are still waiting, and, despite popular belief, home loans, especially for first-time buyers, are available at low interest rates, albeit for individuals with a modest down payment and a solid credit history.
Eventually, a consensus emerged: Both positions were correct, because the answer boiled down to two words: "It depends."
It depends on: Where you want to buy? How long will you stay in the house? What is your annual income? Is your job stable? Is a work-related move likely anytime soon? Do you have a decent FICO credit score and a good credit history? How big a loan can you obtain? What is the interest rate? What is the list price of the house? Is the sale the result of a foreclosure? How much of a down payment do you have? What are you currently paying per month in rent? Do you believe home prices will rise or fall over the coming years and by what percentage rate up or down? What's happening in the local market? Are there many foreclosed properties on the market, like in areas of the Inland Empire, or relatively few by comparison, such as here in the San Fernando and Santa Clarita Valleys?
And, perhaps most importantly, what are your genuine housing needs -- are you a single renter with no imperative to move, does your family of five require room to grow, or is the nest empty and you’d like to downsize to a smaller house?
The list of questions went on and on with each raising valid points on both sides of the debate. Eventually, there was agreement on several additional points:
For example, all markets recover; Southern California will continue to lure new residents; and, there are not enough existing houses to satisfy burgeoning demand. That weighed the argument more in favor of buying, but then the debate shifted to timing, and prices, and home loans, and interest rates.
Renters currently paying a low monthly rent and of the belief that home resale prices will fall farther for months to come saw little advantage in buying now. But other renters who pay a high monthly rent and were optimistic about the market, argued in favor of capturing today's low prices, decent interest rates, and wide selection of homes listed for sale.
They wanted to get into the market before the herd returned and prices started marching up again. Plus, efforts to revive the national economy and stabilize the housing market already are yielding programs and once-in-a-lifetime opportunities that may vanish once recovery is underway.
If a renter today captured a home at a favorable price of say $300,000 with appreciation of a modest 3 percent annually, within three to four years the benefits of buying would totally outweigh any perceived benefit of renting. The sooner that houses start appreciating and the higher the rate of appreciation, the sooner that buying would make sense.
Unlike other investments, any return on a home purchase requires a relatively small initial investment. Few buyers plop down cash to pay the full cost of a $200,000 house, while most make a down payment of as little as 3.5 percent on up to 20%, again depending on individual circumstances. A 3.5% down payment of $7,100 on a $200,000 condominium would require a 5% loan of $192,900 with good credit. Principal and interest payments would equal $1,031.00 taxes (and home owners dues if a condo) would average about $400.00 per month. After tax benefits ownership is less than rent and you can upgrade and improve your own home.
If the home increased in value by 5 percent during the first year -- either due to true appreciation or simply because the purchase price was significantly below market -- that means the buyer earned $10,000 on an investment of $7,100. In that instance, the annual "return on investment" would be a whopping 141 percent.
Of course, owners must make mortgage payments and must pay property taxes, along with other costs of home ownership. However, since the interest on a mortgage and property taxes are both tax deductible, the government is essentially subsidizing a portion of the home purchase.
Is it likely that renters could find a safer, better investment elsewhere? It depends, although real estate has always fared well over the years. And in the long haul real estate has out performed nearly all other investment vehicles.
If a renter today captured a home at an extremely favorable price of say $300,000 with only 3.5% or $10,500 down, and appreciation of a modest 3 percent annually, within three to four years the benefits of buying would totally outweigh any perceived benefit of renting. The sooner that houses start appreciating and the higher the rate of appreciation, the sooner that buying would make sense.
But it always came back to the particulars of each prospective buyer's situation. It always came back to "It depends" and for the real answer each individual needs to seek expert advice from me your local Realtor and your accountant.
[Thanks, David!]
Buyer's Market: Dive In!
A great opportunity awaits buyers in 2009. The perfect combination of lower prices, lower interest rates, and substantial inventory has come together to create values that we may never see again. Prices are down 25 to 40% from their high in the summer of 2005. Fixed interest rates have fallen below 5% on conforming-rate loans. Additionally, the moratorium that Congress imposed on lender foreclosures over the holidays will gradually be adding to the already ample inventory in 2009. These changes can create a dramatic benefit for a buyer.
Let’s compare buying the same home in 2005 versus 2009 with a similar loan program. Assume the purchase price of a home in 2005 was $800,000, with a 20% down payment. The interest rate for a 30-year, fixed, jumbo loan would have been 6.5%. The monthly payment for principal and interest would have been $3,467 per month. The same home today, down 33% in value, would be $536,000 . The interest rate, with a 20% down payment, would be 4.75% for a conforming, 30-year, fixed-rate loan. The monthly principal and interest payment would be $1,698. The 2009 monthly payment is less than half of the 2005 payment. If you were to stay in the home for 30 years and pay off the loan, you would actually pay $636,840 less in principal and interest, compared to a 2005 purchase. Oh, by the way, the down payment in 2005 would be $160,000, while in 2009, it would only be $108,000...and yes, the property taxes would be 33% less, too.
Let’s compare buying the same home in 2005 versus 2009 with a similar loan program. Assume the purchase price of a home in 2005 was $800,000, with a 20% down payment. The interest rate for a 30-year, fixed, jumbo loan would have been 6.5%. The monthly payment for principal and interest would have been $3,467 per month. The same home today, down 33% in value, would be $536,000 . The interest rate, with a 20% down payment, would be 4.75% for a conforming, 30-year, fixed-rate loan. The monthly principal and interest payment would be $1,698. The 2009 monthly payment is less than half of the 2005 payment. If you were to stay in the home for 30 years and pay off the loan, you would actually pay $636,840 less in principal and interest, compared to a 2005 purchase. Oh, by the way, the down payment in 2005 would be $160,000, while in 2009, it would only be $108,000...and yes, the property taxes would be 33% less, too.
Friday, January 16, 2009
10 Cities Boasting Mini Sales Booms
10 Cities Boasting Mini Sales Booms
Some cities that were hardest hit by the real downturn are experiencing mini sales booms.
Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.
Motivated buyers accounted for 64 percent of Las Vegas sales in October, says Radar Logic, a derivatives firm. That’s the highest rate in the country.
"There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic. "And there are now bidding wars taking place over homes in foreclosure."
Phoenix and San Diego are reporting similar experiences.
"We're clearing out the bad news," says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives.
"By the end of 2010 – that's where we're calling the bottom in the forward market. You're going to get a small price appreciation in 2011," says Patten. "It's not like the turn is 10 percent per year, it'll be something like 3 percent or 4 percent."
Here are the cities where experts say it makes the most sense to buy now.
1. Las Vegas
2. Sacramento, Calif.
3. San Diego, Calif.
4. Los Angeles
5. Detroit
6. Phoenix
7. San Francisco
8. Washington, D.C.
9. San Jose
10. Atlanta
Source: Forbes, Matt Woolsey (01/12/09)
Some cities that were hardest hit by the real downturn are experiencing mini sales booms.
Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.
Motivated buyers accounted for 64 percent of Las Vegas sales in October, says Radar Logic, a derivatives firm. That’s the highest rate in the country.
"There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic. "And there are now bidding wars taking place over homes in foreclosure."
Phoenix and San Diego are reporting similar experiences.
"We're clearing out the bad news," says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives.
"By the end of 2010 – that's where we're calling the bottom in the forward market. You're going to get a small price appreciation in 2011," says Patten. "It's not like the turn is 10 percent per year, it'll be something like 3 percent or 4 percent."
Here are the cities where experts say it makes the most sense to buy now.
1. Las Vegas
2. Sacramento, Calif.
3. San Diego, Calif.
4. Los Angeles
5. Detroit
6. Phoenix
7. San Francisco
8. Washington, D.C.
9. San Jose
10. Atlanta
Source: Forbes, Matt Woolsey (01/12/09)
Tuesday, January 13, 2009
Foreclosure Evictions in the City of LA
The HCED committee of Los Angeles city council met December 10, to approve the ordinance provided by the City Attorney's office as a result of discussion in the November 2008's meeting (November 21,2008). The plight of renters of foreclosed properties being evicted has concerned the city council. The city council has extended the RSO regulating evictions to cover foreclosed residential rental property of all types.
Details of the Ordinance:
A bank will NOT be able to evict a tenant from a foreclosed rental property in the city of Los Angeles including, single family dwellings, guest rooms, suites, mobile homes, RVs, new construction, condominiums or multifamily. It does not include hospitals, convents and educational institutions.
Once the property has been sold to non-bank entity the tenant can be given a 60 day notice of eviction but will not receive relocation if the unit was not originally under rent control. Residents of rent controlled units receive existing relocation fees.
This ordinance will sunset in one year. Review in 6 months.
Tenancy must be in existence on the date that a property is foreclosed and does not cover a tenancy created after the foreclosure date. This item is at the discretion of the council.
A posting of renters' rights in foreclosure is required to be posted at rental units in the entry or a communal area, if not a fine of $250.00 will result.
A buyer closing escrow on any multifamily building in the city of Los Angeles must notify the city of the transaction, a penalty of $250.00 will result for those that do not comply.
Items added at the meeting by the LAHD 12/10/08
Position of the Association of Realtors:
In an attempt to protect innocent residents from the foreclosure crisis the city has suggested a temporary measure to alleviate the impact on renters in the city.
The Association recognizes the city's motives, but would like to bring the following implications of the ordinance to the notice of the city council:
1) The payment of utilities (multi-family) and maintenance of the units may create a problem and result in blight and/or termination of the services for the tenants.
2) Occupation of a unit, preventing the refurbishment and showing of the unit, may result in a delayed sale. A longer time period on the market and the resulting reduced sales price may exacerbate the housing problems in the area contributing to blight.
3) Lenders may create restrictions on future mortgage products in the city of Los Angeles making renting a home more difficult or expensive for a borrower thus decreasing the rental housing stock in the city or making loans less affordable and decreasing the private property rights of the owner.
Details of the Ordinance:
A bank will NOT be able to evict a tenant from a foreclosed rental property in the city of Los Angeles including, single family dwellings, guest rooms, suites, mobile homes, RVs, new construction, condominiums or multifamily. It does not include hospitals, convents and educational institutions.
Once the property has been sold to non-bank entity the tenant can be given a 60 day notice of eviction but will not receive relocation if the unit was not originally under rent control. Residents of rent controlled units receive existing relocation fees.
This ordinance will sunset in one year. Review in 6 months.
Tenancy must be in existence on the date that a property is foreclosed and does not cover a tenancy created after the foreclosure date. This item is at the discretion of the council.
A posting of renters' rights in foreclosure is required to be posted at rental units in the entry or a communal area, if not a fine of $250.00 will result.
A buyer closing escrow on any multifamily building in the city of Los Angeles must notify the city of the transaction, a penalty of $250.00 will result for those that do not comply.
Items added at the meeting by the LAHD 12/10/08
Position of the Association of Realtors:
In an attempt to protect innocent residents from the foreclosure crisis the city has suggested a temporary measure to alleviate the impact on renters in the city.
The Association recognizes the city's motives, but would like to bring the following implications of the ordinance to the notice of the city council:
1) The payment of utilities (multi-family) and maintenance of the units may create a problem and result in blight and/or termination of the services for the tenants.
2) Occupation of a unit, preventing the refurbishment and showing of the unit, may result in a delayed sale. A longer time period on the market and the resulting reduced sales price may exacerbate the housing problems in the area contributing to blight.
3) Lenders may create restrictions on future mortgage products in the city of Los Angeles making renting a home more difficult or expensive for a borrower thus decreasing the rental housing stock in the city or making loans less affordable and decreasing the private property rights of the owner.
How Do You Determine A Home's Value?
Determining a home's value is not an exact science and it's never a fixed number. Very few people outside of the real estate business can accurately come up with a value. Why? Homeowner's think their house is always "the best". Appraisers look at a home based primarily on statistical data. Buyers and Realtors have their own views. Depending on who you are, you may give more weight to different factors. So, will you have a wide variety of opinions? You bet. These are some of the factors to consider:
1 The home's square footage
2 Quality of construction
3 Home design, general appeal, amenities
4 The home's floor plan
5 Proximity to transportation, schools and shopping
6 Lot size, topography, landscaping, view
7 In the case of a purchase transaction, what a seller and buyer negotiate also contributes to the value
8 And of course, the most recent sales of similar properties nearby
Thanks to Adam Ford of Mortgage Advisors Group for the above article.
Adam can be reached at 661-254-3744, adam@adamford.net
1 The home's square footage
2 Quality of construction
3 Home design, general appeal, amenities
4 The home's floor plan
5 Proximity to transportation, schools and shopping
6 Lot size, topography, landscaping, view
7 In the case of a purchase transaction, what a seller and buyer negotiate also contributes to the value
8 And of course, the most recent sales of similar properties nearby
Thanks to Adam Ford of Mortgage Advisors Group for the above article.
Adam can be reached at 661-254-3744, adam@adamford.net
Monday, January 05, 2009
New Laws affecting real estate for 2009
With the housing market taking center stage among the nation's concerns, both Congress and California's State Legislature have enacted significant new laws affecting REALTORS® and their clients and customers. Highlights of some of the new laws are summarized below.
To view the full text of a California legislative bill, go to www.leginfo.ca.gov
Emergency Economic Stabilization Act May Help Homeowners: Enacted on October 3, 2008, this historic federal legislation earmarks $700 billion for the Treasury Secretary to purchase troubled assets from financial institutions. The Secretary and other federal agencies are also charged with the task of mitigating foreclosures for mortgages and mortgage-back securities and encouraging loan modifications. Furthermore, this law strengthens the FHA-insured refinance loans for troubled mortgages under the HOPE for Homeowners program, including authority for the program's board of directors to increase the maximum loan amount above 90% of the appraised value. This bill also extends the tax exemption for debt forgiveness on home loans under the Mortgage Forgiveness Debt Relief Act of 2007 from December 31, 2009 to December 31, 2012. Source: H.R. 1424.
Debt Relief Income Exempt from State Income Tax: Starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now applies to state income taxes to a limited extent. Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012. Under the new California law, the maximum qualifying debt is only $800,000, not $2 million, and the maximum exclusion is $250,000. Moreover, the California law only applies to a debt discharged in 2007 or 2008. Senate Bill 1055.
Pool Drains Must Be Properly Covered: As a red alert for apartment and condo managers, all U.S. "public pools and spas" as defined must be equipped with anti-entrapment drain covers by December 19, 2008. The suction from pool and spa drains can be so strong as to entrap children, and cause injuries or drowning deaths. Under the new federal Virginia Graeme Baker Pool and Spa Safety Act, a "public pool or spa" includes pools and spas open to the public, as well as those open exclusively to residents of multi-unit apartment buildings or multi-family residential areas (such as condominiums). The new law requires, among other things, that drain covers for pools and spas conform to the performance standard of ASME/ANSI A112.19.8-2007 and that single main drains be equipped with anti-entrapment devices as specified. For more information, visit the Web site of the U.S. Consumer Product Safety Commission (CPSC), which includes a list of manufacturers, given the uncertainty as to whether the supply of compliant drain covers is adequate. Source: S. 1771.
Tenant Victimized by Domestic Violence Can Terminate Tenancy: Beginning on September 27, 2008, a tenant can terminate a tenancy upon giving a 30-day written notice to terminate, if the notice also informs the landlord that the tenant or a household member has been a victim of domestic violence, sexual assault, or stalking as defined. The tenant must attach to the notice a copy of a temporary restraining order, emergency protective order, or police report issued within the last 60 days. The tenant is also entitled to a proration of the last month's rent if, within those last 30 days, the tenant vacates and the landlord re-rents the premises to a new tenant. This law will sunset on January 1, 2012. Assembly Bill 2052.
Landlords and REO Lenders Must Take Charge of Abandoned Animals: Effective January 1, 2009, any person or private entity with whom a live animal has been "involuntarily deposited" must take charge of it, if able to do so, and immediately notify animal control officials to retrieve the animal. An "involuntary deposit" includes the abandonment of a live animal on a property that has been vacated upon, or immediately preceding, the termination of a lease or foreclosure of the property. The animal control officers who respond can secure a lien to recover the rescue cost, but this law imposes no other liability upon a depositary who complies with these rules. Assembly Bill 2949.
Smoke Detector and Water Heater Bracing for Manufactured Homes: Starting January 1, 2009, all used mobile homes and manufactured homes that are sold must have an operable smoke alarm in each sleeping room (whereas prior law only required one smoke detector per manufactured home). If the manufactured home was manufactured on or after September 16, 2002, the smoke alarm must comply with the federal Manufactured Housing Construction and Safety Standards Act. If the manufactured home was manufactured before September 16, 2002, the smoke alarm (which can be battery-powered) must be installed in terms of its listing and installation requirements. A seller satisfies the above requirements by signing a declaration, within 45 days before transfer of title, that the smoke alarms are properly installed and operable. For a manufactured home manufactured before September 16, 2002, the seller must provide the buyer with the manufacturer's information on the operation, testing, and proper maintenance of the smoke alarms. An agent is not liable for any error, inaccuracy, or omission in any required disclosures that the agent did not know was false. The California Department of Housing and Community Development (HCD) may establish new rules as needed to clarify or implement the smoke alarm requirements. This law also requires all replacement fuel-gas-burning water heaters in existing mobile homes and manufactured homes that are offered for sale or lease to be seismically braced, anchored or strapped in accordance with rules and standards to be established by the HCD by July 1, 2009. Assembly Bill 2050.
No Text Messaging While Driving: Commencing January 1, 2009, a person driving a motor vehicle is prohibited from writing, sending, or reading a text message, instant message, or e-mail from an electronic wireless communication device. However, a person may read, select, or enter a name or phone number in a wireless device to make or receive a phone call. A violation of this law is an infraction punishable by a base fine of $20 for the first offense and $50 for each subsequent offense. Senate Bill 1613.
Other Significant Laws: Some of the other new laws of interest: an increase in the fine for acting as a licensee without a license from $10,000 to $20,000 (Senate Bill 1448).
Realegal® is published by the CALIFORNIA ASSOCIATION OF REALTORS®, a trade association representing nearly 200,000 REALTORS® statewide.
To view the full text of a California legislative bill, go to www.leginfo.ca.gov
Emergency Economic Stabilization Act May Help Homeowners: Enacted on October 3, 2008, this historic federal legislation earmarks $700 billion for the Treasury Secretary to purchase troubled assets from financial institutions. The Secretary and other federal agencies are also charged with the task of mitigating foreclosures for mortgages and mortgage-back securities and encouraging loan modifications. Furthermore, this law strengthens the FHA-insured refinance loans for troubled mortgages under the HOPE for Homeowners program, including authority for the program's board of directors to increase the maximum loan amount above 90% of the appraised value. This bill also extends the tax exemption for debt forgiveness on home loans under the Mortgage Forgiveness Debt Relief Act of 2007 from December 31, 2009 to December 31, 2012. Source: H.R. 1424.
Debt Relief Income Exempt from State Income Tax: Starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now applies to state income taxes to a limited extent. Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012. Under the new California law, the maximum qualifying debt is only $800,000, not $2 million, and the maximum exclusion is $250,000. Moreover, the California law only applies to a debt discharged in 2007 or 2008. Senate Bill 1055.
Pool Drains Must Be Properly Covered: As a red alert for apartment and condo managers, all U.S. "public pools and spas" as defined must be equipped with anti-entrapment drain covers by December 19, 2008. The suction from pool and spa drains can be so strong as to entrap children, and cause injuries or drowning deaths. Under the new federal Virginia Graeme Baker Pool and Spa Safety Act, a "public pool or spa" includes pools and spas open to the public, as well as those open exclusively to residents of multi-unit apartment buildings or multi-family residential areas (such as condominiums). The new law requires, among other things, that drain covers for pools and spas conform to the performance standard of ASME/ANSI A112.19.8-2007 and that single main drains be equipped with anti-entrapment devices as specified. For more information, visit the Web site of the U.S. Consumer Product Safety Commission (CPSC), which includes a list of manufacturers, given the uncertainty as to whether the supply of compliant drain covers is adequate. Source: S. 1771.
Tenant Victimized by Domestic Violence Can Terminate Tenancy: Beginning on September 27, 2008, a tenant can terminate a tenancy upon giving a 30-day written notice to terminate, if the notice also informs the landlord that the tenant or a household member has been a victim of domestic violence, sexual assault, or stalking as defined. The tenant must attach to the notice a copy of a temporary restraining order, emergency protective order, or police report issued within the last 60 days. The tenant is also entitled to a proration of the last month's rent if, within those last 30 days, the tenant vacates and the landlord re-rents the premises to a new tenant. This law will sunset on January 1, 2012. Assembly Bill 2052.
Landlords and REO Lenders Must Take Charge of Abandoned Animals: Effective January 1, 2009, any person or private entity with whom a live animal has been "involuntarily deposited" must take charge of it, if able to do so, and immediately notify animal control officials to retrieve the animal. An "involuntary deposit" includes the abandonment of a live animal on a property that has been vacated upon, or immediately preceding, the termination of a lease or foreclosure of the property. The animal control officers who respond can secure a lien to recover the rescue cost, but this law imposes no other liability upon a depositary who complies with these rules. Assembly Bill 2949.
Smoke Detector and Water Heater Bracing for Manufactured Homes: Starting January 1, 2009, all used mobile homes and manufactured homes that are sold must have an operable smoke alarm in each sleeping room (whereas prior law only required one smoke detector per manufactured home). If the manufactured home was manufactured on or after September 16, 2002, the smoke alarm must comply with the federal Manufactured Housing Construction and Safety Standards Act. If the manufactured home was manufactured before September 16, 2002, the smoke alarm (which can be battery-powered) must be installed in terms of its listing and installation requirements. A seller satisfies the above requirements by signing a declaration, within 45 days before transfer of title, that the smoke alarms are properly installed and operable. For a manufactured home manufactured before September 16, 2002, the seller must provide the buyer with the manufacturer's information on the operation, testing, and proper maintenance of the smoke alarms. An agent is not liable for any error, inaccuracy, or omission in any required disclosures that the agent did not know was false. The California Department of Housing and Community Development (HCD) may establish new rules as needed to clarify or implement the smoke alarm requirements. This law also requires all replacement fuel-gas-burning water heaters in existing mobile homes and manufactured homes that are offered for sale or lease to be seismically braced, anchored or strapped in accordance with rules and standards to be established by the HCD by July 1, 2009. Assembly Bill 2050.
No Text Messaging While Driving: Commencing January 1, 2009, a person driving a motor vehicle is prohibited from writing, sending, or reading a text message, instant message, or e-mail from an electronic wireless communication device. However, a person may read, select, or enter a name or phone number in a wireless device to make or receive a phone call. A violation of this law is an infraction punishable by a base fine of $20 for the first offense and $50 for each subsequent offense. Senate Bill 1613.
Other Significant Laws: Some of the other new laws of interest: an increase in the fine for acting as a licensee without a license from $10,000 to $20,000 (Senate Bill 1448).
Realegal® is published by the CALIFORNIA ASSOCIATION OF REALTORS®, a trade association representing nearly 200,000 REALTORS® statewide.
Monday, December 01, 2008
Are Lower Mortgage Rates the Answer?
In the long run, it's falling home prices that will get the economy moving again.
By JUNE FLETCHER
from the Wall Street Journal
On Tuesday, the government announced an $800 billion plan to stimulate the economy by buying $600 billion worth of mortgage-backed assets and $200 billion in consumer-debt securities. The intent is to make it easier for consumers to buy cars, pay for college tuition and get credit cards. Mortgage interest rates fell about a half-percentage point on the news. (See "Fed Aid Sets Off a Rush to Refinance")
Will the effort finally get the economy moving again? Frankly, I doubt it.
Lower mortgage rates can help people buy housing, but only if they feel secure enough in their jobs, and confident enough in their financial future to take the plunge. Given that consumers are drowning in debt -- especially housing debt -- fearful of layoffs, and waiting for housing prices to hit bottom, it's unlikely that they'll react to this initiative with a spending spree.
Consumers don't react to debt like companies, though the government is behaving like they do. Giving companies better access to credit allows them to meet payrolls while they adjust their production and expenses in response to tighter economic condition. But families who can't pay their bills can't lay off a spouse and kids. For them, debt grows from burdensome to monstrous as interest charges accumulate. Eventually, the load becomes overwhelming.
Testifying before the Senate on July 28, Harvard law professor Elizabeth Warren noted that the situation for the middle class has worsened during this decade. She explained that, adjusted for inflation, median household income fell $1,175 from 2000 to 2007, while expenses increased $4,655, pushed primarily by higher costs for mortgages, gas, health insurance and food, in that order. Families with children have borne an additional $3,180 in expenses for day care, after-school care and college tuition. To help cope with these rising costs, families turned to home equity lines of credit and refinancing -- effectively sucking the equity out of their homes -- as well as credit card debt. Nearly 44% of American households now carry a balance on their credit cards, she testified; to retire it, a family earning the median income of $48,201 would have to turn over every paycheck for nearly three months.
Foreclosure or bankruptcy will take a toll on a certain portion of these families, even though, as Ms. Warren points out in her book "The Two-Income Trap" (Basic Books: 2003), that's something most people desperately try to avoid. After studying 2,200 families that had filed for bankruptcy, she found that families that fail financially are most likely to be ones with children, who are struggling to buy and maintain homes in decent school districts, not flippers or status-seekers out to make a quick buck. For every family that officially declares bankruptcy, she writes, there are seven more whose debt loads suggest that they ought to file. But they don't, given the stigma that financial failure still holds in society.
Many Americans are so indebted that a job loss, illness or divorce inevitably pushes them over the financial precipice These days, I'm inundated with pleas for help from readers who were coping with their bills until they were blindsided by bad luck, like the Utah real estate agent who was hit with both diabetes and a falling home-sale market that destroyed her business, or the California man who got behind on mortgage payments after a heart attack, or the Massachusetts woman who lost a high-paying job and took on a lower-paying one that forces her to choose between going without food and heat and paying her mortgage. These readers aren't trying to game the system; they're trying to find ways to hold on to their homes, and failing that, their dignity.
While emergency relief measures and loan modifications may help the hardest cases, there's clearly not enough money in the federal budget to help everyone. Temporary stimulus measures like mortgage rate cuts and easier access to credit are limited, too, since they only work when people feel rich enough to buy something. Ultimately, it will take more permanent solutions, like the proposal recently unveiled by President-elect Barack Obama to boost job growth, to restore confidence enough to get the economy moving again.
In the meantime, expect some relief in the form of more affordable home prices, which continue to fall even with massive government intervention: In the third quarter, they declined a record 16.6% from a year earlier, according to the latest home price index by Standard & Poor's/Case-Shiller. As painful as this deflation is to those who are forced to sell, in the long run, lower home prices will help family budgets to come into balance, and personal debt levels to become more manageable. That will help the economy far more than trying to entice tapped-out consumers to buy bigger houses and more stuff.
Write to June Fletcher at fletcher.june@gmail.com
http://online.wsj.com/article/SB122770741433659553.html?mod=djempersonal
[The local real estate community tends to reject this common sense approach, saying that lower interest rates are indeed the answer to the problem. Some of these other Realtors need to get slapped back to reality... interest rates were too low for too long, and were combined with easy money and non-existent lending standards Those circumstances are exactly how we ended up in this mess. Here at the SCV Home Team we take a realist position. It doesn't make us that popular with some of our fellow associates, or with some of the sellers of real property. As we have said before, reality bites. We recognize reality, and go forward. So for the buyers in this market... opportunity awaits!! Home prices have fallen quite a bit and there are some terrific deals to be made! Give us a call at 661-290-3750 and let's be a buyer in this market!]
By JUNE FLETCHER
from the Wall Street Journal
On Tuesday, the government announced an $800 billion plan to stimulate the economy by buying $600 billion worth of mortgage-backed assets and $200 billion in consumer-debt securities. The intent is to make it easier for consumers to buy cars, pay for college tuition and get credit cards. Mortgage interest rates fell about a half-percentage point on the news. (See "Fed Aid Sets Off a Rush to Refinance")
Will the effort finally get the economy moving again? Frankly, I doubt it.
Lower mortgage rates can help people buy housing, but only if they feel secure enough in their jobs, and confident enough in their financial future to take the plunge. Given that consumers are drowning in debt -- especially housing debt -- fearful of layoffs, and waiting for housing prices to hit bottom, it's unlikely that they'll react to this initiative with a spending spree.
Consumers don't react to debt like companies, though the government is behaving like they do. Giving companies better access to credit allows them to meet payrolls while they adjust their production and expenses in response to tighter economic condition. But families who can't pay their bills can't lay off a spouse and kids. For them, debt grows from burdensome to monstrous as interest charges accumulate. Eventually, the load becomes overwhelming.
Testifying before the Senate on July 28, Harvard law professor Elizabeth Warren noted that the situation for the middle class has worsened during this decade. She explained that, adjusted for inflation, median household income fell $1,175 from 2000 to 2007, while expenses increased $4,655, pushed primarily by higher costs for mortgages, gas, health insurance and food, in that order. Families with children have borne an additional $3,180 in expenses for day care, after-school care and college tuition. To help cope with these rising costs, families turned to home equity lines of credit and refinancing -- effectively sucking the equity out of their homes -- as well as credit card debt. Nearly 44% of American households now carry a balance on their credit cards, she testified; to retire it, a family earning the median income of $48,201 would have to turn over every paycheck for nearly three months.
Foreclosure or bankruptcy will take a toll on a certain portion of these families, even though, as Ms. Warren points out in her book "The Two-Income Trap" (Basic Books: 2003), that's something most people desperately try to avoid. After studying 2,200 families that had filed for bankruptcy, she found that families that fail financially are most likely to be ones with children, who are struggling to buy and maintain homes in decent school districts, not flippers or status-seekers out to make a quick buck. For every family that officially declares bankruptcy, she writes, there are seven more whose debt loads suggest that they ought to file. But they don't, given the stigma that financial failure still holds in society.
Many Americans are so indebted that a job loss, illness or divorce inevitably pushes them over the financial precipice These days, I'm inundated with pleas for help from readers who were coping with their bills until they were blindsided by bad luck, like the Utah real estate agent who was hit with both diabetes and a falling home-sale market that destroyed her business, or the California man who got behind on mortgage payments after a heart attack, or the Massachusetts woman who lost a high-paying job and took on a lower-paying one that forces her to choose between going without food and heat and paying her mortgage. These readers aren't trying to game the system; they're trying to find ways to hold on to their homes, and failing that, their dignity.
While emergency relief measures and loan modifications may help the hardest cases, there's clearly not enough money in the federal budget to help everyone. Temporary stimulus measures like mortgage rate cuts and easier access to credit are limited, too, since they only work when people feel rich enough to buy something. Ultimately, it will take more permanent solutions, like the proposal recently unveiled by President-elect Barack Obama to boost job growth, to restore confidence enough to get the economy moving again.
In the meantime, expect some relief in the form of more affordable home prices, which continue to fall even with massive government intervention: In the third quarter, they declined a record 16.6% from a year earlier, according to the latest home price index by Standard & Poor's/Case-Shiller. As painful as this deflation is to those who are forced to sell, in the long run, lower home prices will help family budgets to come into balance, and personal debt levels to become more manageable. That will help the economy far more than trying to entice tapped-out consumers to buy bigger houses and more stuff.
Write to June Fletcher at fletcher.june@gmail.com
http://online.wsj.com/article/SB122770741433659553.html?mod=djempersonal
[The local real estate community tends to reject this common sense approach, saying that lower interest rates are indeed the answer to the problem. Some of these other Realtors need to get slapped back to reality... interest rates were too low for too long, and were combined with easy money and non-existent lending standards Those circumstances are exactly how we ended up in this mess. Here at the SCV Home Team we take a realist position. It doesn't make us that popular with some of our fellow associates, or with some of the sellers of real property. As we have said before, reality bites. We recognize reality, and go forward. So for the buyers in this market... opportunity awaits!! Home prices have fallen quite a bit and there are some terrific deals to be made! Give us a call at 661-290-3750 and let's be a buyer in this market!]
Friday, November 21, 2008
Only One Person Knows a Home's Value: Its Buyer
House-Price Index Readings Can Be Inflated, Built on Shaky Foundations and Far From the Right Neighborhood
The Wall Street Journal Online
By CARL BIALIK
http://online.wsj.com/article/SB122722235538745845.html?mod=djempersonal
The good news is your home may be worth more than the rock-bottom price that your neighbors' houses fetched. The bad news: No one but you might think so.
The one point of widespread agreement in the real-estate industry is that there is no single accurate index of home prices. They are all over the map, cover different sets of homes and may exclude parts of the country or be unduly influenced by the mix of homes sold in a given month.
A sold sign is displayed in the yard of a house in Clarksville, Tenn., in October.
As the home market surged earlier this decade, the two leading indicators of home prices diverged. One didn't count homes sold with exotic or subprime mortgages, which fueled much of the bubble. These same properties are often the ones going on the auction block today at severe discounts, pulling the other home-price index down -- some say to unrealistic lows.
To address these discrepancies, indexes are going increasingly local. Other, less-well-known measures of home prices -- some of them available only to paying customers -- are adjusting to exclude homes sold by banks.
Sales of foreclosures and other distressed properties accounted for 35% to 40% of transactions in the third quarter, the National Association of Realtors said this week. The discount on such properties, often sold by banks that need to clear inventory quickly, can be 30% to 40% compared with similar properties sold by the resident, according to Damien Weldon, a vice president of credit-risk products and analytics at First American CoreLogic. The company's Loan Performance division is producing a new index without these discounted sales, a distinction that was "not important a few years ago, but now it's very important," Mr. Weldon says.
Behind the Home-Price Indexes
The numbers from home-price indexes are widely watched. The Federal Reserve uses them to measure the value of housing stock. Banks use them to determine whether mortgages are underwater and to estimate the value of homes they will have to sell after foreclosure.
But the indexes may be leading everyone astray. Just as respondents to election surveys are meant to stand in for the broader electorate, the homes being sold need to represent all homes. The problem is, producers of these price measures aren't sure that sale prices reflect the values of houses not on the market.
"People put all their eggs in the sales-price basket," says Andrew Leventis, a senior economist with the Federal Housing Finance Agency, which produces a home-price index.
"Whether the transaction pool is reflective of the entire housing stock -- nobody addresses that problem," adds Karl Case, professor of economics at Wellesley College and co-creator of the Case-Shiller Index, a competitor to the federal government's measure.
The Case-Shiller index includes properties that had subprime loans attached.
"That's the stuff that went down most substantially, and that's probably the stuff that went up most substantially," Prof. Case says.
The federal index, though, doesn't include such properties, instead accounting only for properties with financing from mortgage giants Fannie Mae or Freddie Mac. For that reason, many prefer Case-Shiller.
"I believe S&P Case-Shiller for the areas it covers," says Thomas Lawler, a housing economist in Leesburg, Va.
Case-Shiller has shown a steeper decline in markets with many distressed sales. The second-quarter year-over-year declines in San Francisco, Phoenix and Las Vegas ranged from 23% to 28%, according to Case-Shiller. But the federal gauge recorded declines of only 5.8%, 11% and 18%, respectively.
Not everyone thinks the Case-Shiller index is useful. Richard A. Smith, chief executive of real-estate broker Realogy Corp., says the index omits 13 states. "Case-Shiller as a broad index is inaccurate," Mr. Smith says.
David Blitzer, chairman of the index committee at Standard & Poor's, which publishes Case-Shiller, responds that "the sampling and data collection is as good as it can be."
"One's got to be wrong," Mr. Smith said of the dueling Case-Shiller and federal indexes. "Nobody will know until the book is written."
Yet there is no surefire way to know which index got closer to the truth. Each year since 2000, the Census Bureau has asked homeowners to report the value of their home, but "it doesn't necessarily jibe with assessment records or anything like that," says Jeanne Woodward, a Census Bureau statistician.
Another potential check on values is home appraisals. But Dr. Leventis said there are two possible sources of upward bias. One is that people often choose to get their homes appraised when they figure the value has risen sharply and they can convert some of that to cash with a refinancing. Another is that appraisals tend to overstate the value of homes, perhaps because homeowners seek the most-favorable assessment.
"I really don't see a benchmark" against which to check these home-price indexes, says Lawrence Yun, chief economist of the National Association of Realtors.
His group releases its own numbers, most recently showing prices declining by 9% in the third quarter compared with a year earlier. But that measure, unlike the others, doesn't take into account a home's sales record. So instead of comparing each property's sale price to its prior sale price, the realtors group compares the price of homes sold this month with that of homes sold last month -- even if the mix of homes has changed sharply. Mr. Yun defends the measure as "very simple to understand."
Most of the numbers that get headlines are based on metropolitan areas. Yet the housing-market picture can vary dramatically within the same region. Lynn, Mass., a suburb northeast of Boston, saw prices drop 10% in the second quarter compared with a year earlier, according to Wellesley's Prof. Case. Yet in the same period prices in Cambridge, just west of the city, rose 13%.
Integrated Asset Services, or IAS, sells estimates by neighborhood. "We are a lot more granular" than Case-Shiller and the federal index, Chief Executive David McCarthy said.
Within Middlesex County, which includes Cambridge, one neighborhood was up 12% compared with a year earlier in September, while two others were down 1% and 2%, respectively.
Fiserv Inc. uses the Case-Shiller local numbers to sell estimates for a single property.
The risk when going local is that data become sparse and a few anomalous sales may throw things off -- particularly in markets where most of the sales are distressed. IAS makes estimates based on as few as 50 to 75 transactions.
None of this nuance is captured in headlines about the latest home-price-index release, Prof. Case complains. Still, he is hopeful that home-price indexes will improve. "This new criticism that these indexes are showing different things is going to lead to a lot of research," he says.
[This article points out the problem of using national or state or even county index values. In our market area, the SCV Home Team does a much more accurate analysis of home value.]
The Wall Street Journal Online
By CARL BIALIK
http://online.wsj.com/article/SB122722235538745845.html?mod=djempersonal
The good news is your home may be worth more than the rock-bottom price that your neighbors' houses fetched. The bad news: No one but you might think so.
The one point of widespread agreement in the real-estate industry is that there is no single accurate index of home prices. They are all over the map, cover different sets of homes and may exclude parts of the country or be unduly influenced by the mix of homes sold in a given month.
A sold sign is displayed in the yard of a house in Clarksville, Tenn., in October.
As the home market surged earlier this decade, the two leading indicators of home prices diverged. One didn't count homes sold with exotic or subprime mortgages, which fueled much of the bubble. These same properties are often the ones going on the auction block today at severe discounts, pulling the other home-price index down -- some say to unrealistic lows.
To address these discrepancies, indexes are going increasingly local. Other, less-well-known measures of home prices -- some of them available only to paying customers -- are adjusting to exclude homes sold by banks.
Sales of foreclosures and other distressed properties accounted for 35% to 40% of transactions in the third quarter, the National Association of Realtors said this week. The discount on such properties, often sold by banks that need to clear inventory quickly, can be 30% to 40% compared with similar properties sold by the resident, according to Damien Weldon, a vice president of credit-risk products and analytics at First American CoreLogic. The company's Loan Performance division is producing a new index without these discounted sales, a distinction that was "not important a few years ago, but now it's very important," Mr. Weldon says.
Behind the Home-Price Indexes
The numbers from home-price indexes are widely watched. The Federal Reserve uses them to measure the value of housing stock. Banks use them to determine whether mortgages are underwater and to estimate the value of homes they will have to sell after foreclosure.
But the indexes may be leading everyone astray. Just as respondents to election surveys are meant to stand in for the broader electorate, the homes being sold need to represent all homes. The problem is, producers of these price measures aren't sure that sale prices reflect the values of houses not on the market.
"People put all their eggs in the sales-price basket," says Andrew Leventis, a senior economist with the Federal Housing Finance Agency, which produces a home-price index.
"Whether the transaction pool is reflective of the entire housing stock -- nobody addresses that problem," adds Karl Case, professor of economics at Wellesley College and co-creator of the Case-Shiller Index, a competitor to the federal government's measure.
The Case-Shiller index includes properties that had subprime loans attached.
"That's the stuff that went down most substantially, and that's probably the stuff that went up most substantially," Prof. Case says.
The federal index, though, doesn't include such properties, instead accounting only for properties with financing from mortgage giants Fannie Mae or Freddie Mac. For that reason, many prefer Case-Shiller.
"I believe S&P Case-Shiller for the areas it covers," says Thomas Lawler, a housing economist in Leesburg, Va.
Case-Shiller has shown a steeper decline in markets with many distressed sales. The second-quarter year-over-year declines in San Francisco, Phoenix and Las Vegas ranged from 23% to 28%, according to Case-Shiller. But the federal gauge recorded declines of only 5.8%, 11% and 18%, respectively.
Not everyone thinks the Case-Shiller index is useful. Richard A. Smith, chief executive of real-estate broker Realogy Corp., says the index omits 13 states. "Case-Shiller as a broad index is inaccurate," Mr. Smith says.
David Blitzer, chairman of the index committee at Standard & Poor's, which publishes Case-Shiller, responds that "the sampling and data collection is as good as it can be."
"One's got to be wrong," Mr. Smith said of the dueling Case-Shiller and federal indexes. "Nobody will know until the book is written."
Yet there is no surefire way to know which index got closer to the truth. Each year since 2000, the Census Bureau has asked homeowners to report the value of their home, but "it doesn't necessarily jibe with assessment records or anything like that," says Jeanne Woodward, a Census Bureau statistician.
Another potential check on values is home appraisals. But Dr. Leventis said there are two possible sources of upward bias. One is that people often choose to get their homes appraised when they figure the value has risen sharply and they can convert some of that to cash with a refinancing. Another is that appraisals tend to overstate the value of homes, perhaps because homeowners seek the most-favorable assessment.
"I really don't see a benchmark" against which to check these home-price indexes, says Lawrence Yun, chief economist of the National Association of Realtors.
His group releases its own numbers, most recently showing prices declining by 9% in the third quarter compared with a year earlier. But that measure, unlike the others, doesn't take into account a home's sales record. So instead of comparing each property's sale price to its prior sale price, the realtors group compares the price of homes sold this month with that of homes sold last month -- even if the mix of homes has changed sharply. Mr. Yun defends the measure as "very simple to understand."
Most of the numbers that get headlines are based on metropolitan areas. Yet the housing-market picture can vary dramatically within the same region. Lynn, Mass., a suburb northeast of Boston, saw prices drop 10% in the second quarter compared with a year earlier, according to Wellesley's Prof. Case. Yet in the same period prices in Cambridge, just west of the city, rose 13%.
Integrated Asset Services, or IAS, sells estimates by neighborhood. "We are a lot more granular" than Case-Shiller and the federal index, Chief Executive David McCarthy said.
Within Middlesex County, which includes Cambridge, one neighborhood was up 12% compared with a year earlier in September, while two others were down 1% and 2%, respectively.
Fiserv Inc. uses the Case-Shiller local numbers to sell estimates for a single property.
The risk when going local is that data become sparse and a few anomalous sales may throw things off -- particularly in markets where most of the sales are distressed. IAS makes estimates based on as few as 50 to 75 transactions.
None of this nuance is captured in headlines about the latest home-price-index release, Prof. Case complains. Still, he is hopeful that home-price indexes will improve. "This new criticism that these indexes are showing different things is going to lead to a lot of research," he says.
[This article points out the problem of using national or state or even county index values. In our market area, the SCV Home Team does a much more accurate analysis of home value.]
Tuesday, November 11, 2008
“New” 2009 conforming loan limit unchanged from $417,000; high-cost areas now max out at $625,500
“New” 2009 conforming loan limit unchanged from $417,000; high-cost areas now max out at $625,500
LOS ANGELES (Nov. 7) –The Federal Housing Finance Agency (FHFA) today announced that the “new” conforming loan limit for 2009 will remain at $417,000 for most areas in the U.S., unchanged since 2006. Loan limits for high-cost areas, including California, are capped at $625,500, down from the previous $729,750 limit. Loan limits for many areas of the state do not reach this lower threshold and are dramatically reduced from 2008.
"Although price declines mean that the total number of homes eligible for conforming financing has increased, we’re disappointed that the $729,750 limit stipulated in the Economic Stimulus Act of 2008 signed in February was not made permanent,” said C.A.R. President William E. Brown. “The reduction in the loan limit to $625,500 will negatively impact both the interest rates and the availability of funds for jumbo mortgages.
“We hope Congress will make the $729,750 limit permanent before the end of the year as one of the provisions in an economic stimulus package,” he said.
The conforming loan limit determines the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan, increasing the monthly payment and negatively impacting affordability for households in California.
In California, the new conforming loan limits for metropolitan areas range from $474,950 in the Sacramento-Arden-Arcade-Roseville metropolitan area, covering El Dorado, Placer, Sacramento and Yolo counties; to $625,500 in the Los Angeles-Long Beach-Santa Ana metropolitan area.
LOS ANGELES (Nov. 7) –The Federal Housing Finance Agency (FHFA) today announced that the “new” conforming loan limit for 2009 will remain at $417,000 for most areas in the U.S., unchanged since 2006. Loan limits for high-cost areas, including California, are capped at $625,500, down from the previous $729,750 limit. Loan limits for many areas of the state do not reach this lower threshold and are dramatically reduced from 2008.
"Although price declines mean that the total number of homes eligible for conforming financing has increased, we’re disappointed that the $729,750 limit stipulated in the Economic Stimulus Act of 2008 signed in February was not made permanent,” said C.A.R. President William E. Brown. “The reduction in the loan limit to $625,500 will negatively impact both the interest rates and the availability of funds for jumbo mortgages.
“We hope Congress will make the $729,750 limit permanent before the end of the year as one of the provisions in an economic stimulus package,” he said.
The conforming loan limit determines the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan, increasing the monthly payment and negatively impacting affordability for households in California.
In California, the new conforming loan limits for metropolitan areas range from $474,950 in the Sacramento-Arden-Arcade-Roseville metropolitan area, covering El Dorado, Placer, Sacramento and Yolo counties; to $625,500 in the Los Angeles-Long Beach-Santa Ana metropolitan area.
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