The Florida Open House Weekend, April 10-11, is the last, best opportunity to secure up to $8,000 in tax credits for first-time homebuyers (up to $6,500 for move-up buyers).
According to the National Association of Home Builders, the following are top questions asked by prospective homebuyers. In all cases, buyers should check with the IRS or a qualified financial advisor for specific personal advice.
How does a homebuyer claim the tax credit?
The credit is claimed when the homebuyer files or amends his or her federal income taxes. For qualifying homes purchased in 2009 or 2010, the taxpayer must complete IRS Form 5405 and attach a copy of the settlement statement. In most cases, the settlement statement is a properly executed Form HUD-1.
In circumstances where a HUD-1 is not provided, such as purchasing a mobile home or a newly constructed home, the IRS will accept an executed retail sales contract (mobile homes) or a copy of the certificate of occupancy (new homes).
Does the homebuyer have to sell their current home in order to qualify for the $6,500repeat homebuyer tax credit?
No – a homebuyer does not need to sell their current home in order to be eligible for the repeat buyer credit. They can continue to own both homes and rent or use the former home for something else providing it no longer serves as their principal residence. The taxpayer is required to use the new home as their principal residence and live in it for at least 36 months; otherwise, they must repay the credit.
Do married couples both have to meet the eligibility requirements in order to claim the credit – even if they file taxes separately?
Both spouses must fully meet all the eligibility requirements for either the $8,000 first-time homebuyer tax credit or the $6,500 repeat buyer tax credit, regardless of whether they file joint or separate tax returns. However, if an unmarried couple purchases a home and only one person qualifies, the eligible person may claim the full credit.
Do all home purchases need to be completed by April 30, 2010, in order to be eligible for the credit?
There are two exceptions to the April 30 deadline. If the buyer enters into a binding contract by the deadline, they have until June 30, 2010, to complete the purchase. The deadline has been extended a year, to April 30, 2011, for members of the uniformed services, Foreign Service or employees of the intelligence community who have been on qualified extended duty outside the United States for at least 90 days between Jan. 1, 2009, and April 30, 2010.
For more information on the tax credit and the Florida Open House Weekend, visit Florida Realtors website at: http://www.floridarealtors.org/AboutFar/OpenHouse/index.cfm
© 2010 Florida Realtors®
Tuesday, March 30, 2010
Answers to questions about new mortgage aid plan
The Obama administration on Friday announced a major reworking of its troubled $75 billion plan to prevent foreclosures. The revamped program is now designed to aid jobless homeowners and people who owe more on their mortgages than their homes are worth.
Here’s a look at the details:
Q. How many homeowners will this help?
A. The effort is designed to enable the government to reach its original goal of helping 3 million to 4 million homeowners avoid foreclosure by the end of 2012. That benchmark has so far proved impossible to approach. Only 170,000 homeowners have completed loan modifications, out of 1.1 million who began the government’s Home Affordable Modification Program (HAMP) since it started last year.
Q. How many borrowers are in trouble?
A. About 6 million homeowners have missed at least two months of payments. And experts warn that 10 million to 12 million borrowers are in danger of foreclosure over the next three years. A growing risk is among homeowners who are “under water”: They owe more on their loans than their homes are worth.
Q. How does the new plan work?
A. Borrowers will get help in three ways: Jobless homeowners can get a three-to-six-month break on their mortgage payments. Banks will get financial incentives to reduce mortgage balances for under-water borrowers. And lenders can offer refinanced loans backed by the Federal Housing Administration to these borrowers.
Q. When will all these programs be available?
A. Government officials didn’t specify but said they should become available in the coming months.
Q. I’m unemployed. How do I get help?
A. That piece of the program is designed to give homeowners more time to find a job. Borrowers will have three to six months in which they’ll have to spend no more than 31 percent of their monthly income on their mortgages. If you do find a job during that time, you will be evaluated for a loan modification that could permanently reduce your payments. To qualify, you need to live in your home, have a mortgage below $729,750 and receive unemployment benefits.
Q. What happens if I don’t get a job after the time is up?
A. Lenders will encourage you to consider a short sale, in which you sell your home for less than the mortgage amount. Another option is a deed-in-lieu of foreclosure, in which you agree to hand back the property to your lender.
Q. I owe more on my mortgage than my house is worth. Will this help me?
A. Maybe. The program depends on the willingness of mortgage companies to participate. Their track record has been shaky at best.
Q. How does it work?
A. Mortgage companies that already participate in the government’s foreclosure prevention program will have to consider reducing the mortgage amount for borrowers who owe at least 15 percent more than their home’s current value. Those reductions will happen gradually over three years and apply only if you miss no payments. Those companies will receive expanded incentives to do so.
Q. What kind of incentives?
A. For every dollar of principal the lender reduces, they will receive a subsidy of 10 to 21 cents. The larger subsidies will help reduce principal of borrowers who are less under water.
Q. How do I qualify?
A: You must have a mortgage of less than $729,750. You also must show that you are in financial trouble. And you have to be spending at least 31 percent of your pretax income on your mortgage payment.
Q. So how do I apply?
A. Call the company that sends your mortgage bill, also known as your mortgage servicer, to see if you qualify. If you can’t get hold of someone, try a nonprofit housing counselor. NeighborWorks America runs a national network of foreclosure counseling agencies. Try: http://www.findaforeclosurecounselor.org/
Q. How does the refinancing program work?
A. Some borrowers will be able to refinance into loans backed by the Federal Housing Administration, which insures loans against default. The FHA will get $14 billion in incentive money from the federal bailout fund to make this happen. Lenders will have to reduce the homeowners’ primary mortgages by at least 10 percent.
Q. How do I qualify?
A. Homeowners must not have missed any payments on their home loans, must live in their home as a primary residence and must provide proof of income.
Q. How do I apply for the FHA plan?
A. You don’t. It’s voluntary for mortgage companies. They’ll evaluate whether they want to offer this option to homeowners.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer
Here’s a look at the details:
Q. How many homeowners will this help?
A. The effort is designed to enable the government to reach its original goal of helping 3 million to 4 million homeowners avoid foreclosure by the end of 2012. That benchmark has so far proved impossible to approach. Only 170,000 homeowners have completed loan modifications, out of 1.1 million who began the government’s Home Affordable Modification Program (HAMP) since it started last year.
Q. How many borrowers are in trouble?
A. About 6 million homeowners have missed at least two months of payments. And experts warn that 10 million to 12 million borrowers are in danger of foreclosure over the next three years. A growing risk is among homeowners who are “under water”: They owe more on their loans than their homes are worth.
Q. How does the new plan work?
A. Borrowers will get help in three ways: Jobless homeowners can get a three-to-six-month break on their mortgage payments. Banks will get financial incentives to reduce mortgage balances for under-water borrowers. And lenders can offer refinanced loans backed by the Federal Housing Administration to these borrowers.
Q. When will all these programs be available?
A. Government officials didn’t specify but said they should become available in the coming months.
Q. I’m unemployed. How do I get help?
A. That piece of the program is designed to give homeowners more time to find a job. Borrowers will have three to six months in which they’ll have to spend no more than 31 percent of their monthly income on their mortgages. If you do find a job during that time, you will be evaluated for a loan modification that could permanently reduce your payments. To qualify, you need to live in your home, have a mortgage below $729,750 and receive unemployment benefits.
Q. What happens if I don’t get a job after the time is up?
A. Lenders will encourage you to consider a short sale, in which you sell your home for less than the mortgage amount. Another option is a deed-in-lieu of foreclosure, in which you agree to hand back the property to your lender.
Q. I owe more on my mortgage than my house is worth. Will this help me?
A. Maybe. The program depends on the willingness of mortgage companies to participate. Their track record has been shaky at best.
Q. How does it work?
A. Mortgage companies that already participate in the government’s foreclosure prevention program will have to consider reducing the mortgage amount for borrowers who owe at least 15 percent more than their home’s current value. Those reductions will happen gradually over three years and apply only if you miss no payments. Those companies will receive expanded incentives to do so.
Q. What kind of incentives?
A. For every dollar of principal the lender reduces, they will receive a subsidy of 10 to 21 cents. The larger subsidies will help reduce principal of borrowers who are less under water.
Q. How do I qualify?
A: You must have a mortgage of less than $729,750. You also must show that you are in financial trouble. And you have to be spending at least 31 percent of your pretax income on your mortgage payment.
Q. So how do I apply?
A. Call the company that sends your mortgage bill, also known as your mortgage servicer, to see if you qualify. If you can’t get hold of someone, try a nonprofit housing counselor. NeighborWorks America runs a national network of foreclosure counseling agencies. Try: http://www.findaforeclosurecounselor.org/
Q. How does the refinancing program work?
A. Some borrowers will be able to refinance into loans backed by the Federal Housing Administration, which insures loans against default. The FHA will get $14 billion in incentive money from the federal bailout fund to make this happen. Lenders will have to reduce the homeowners’ primary mortgages by at least 10 percent.
Q. How do I qualify?
A. Homeowners must not have missed any payments on their home loans, must live in their home as a primary residence and must provide proof of income.
Q. How do I apply for the FHA plan?
A. You don’t. It’s voluntary for mortgage companies. They’ll evaluate whether they want to offer this option to homeowners.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer
Homeowners balk as tax bills stay high
Javier Hyland was furious when he got his latest property tax bill from Miami-Dade County.
First, the county put the value of his ocean-view apartment at $417,000. He can’t see any way the place is worth more than $400,000 after a meltdown in the South Florida real estate market. Worse, the county assessed his neighbor’s bigger, nicer, newer flat at only $407,000. “Is that fair?” asks Hyland, a pricing manager for a shipping company.
The property taxes in dispute amount to just $360. But Hyland, 37, is appealing his assessment anyway, even though it will mean trudging into city offices to make his case.
He’ll probably have to stand in line: 143,000 Miami-Dade property owners appealed their property tax bills last year. And Harvey Ruvin, the county’s clerk of courts, expects a similar deluge in 2010. Property tax appeals in the county hit 104,000 in 2008 compared with an average 40,000 in normal years.
From Florida beachfronts to Nevada deserts, fed-up homeowners are challenging property tax bills that have stayed high despite the housing crisis. Retiree Carol Schneider, 63, of Ferguson, Mo., never saw herself as a tax rebel: “In the past, I just paid my taxes whether I agreed with them or not,” she says. “But the last tax bill increased so much … I decided to fight it.” She prevailed, persuading St. Louis County to cut her tax bill in half.
Angry homeowners like Schneider and Hyland say their tax assessments and tax bills haven’t come down as fast as real estate prices in the worst housing collapse since the 1930s.
They’re right: Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7 percent last year to $421.8 billion, according to the U.S. Bureau of Economic Analysis.
Property taxes have been a lifeline for flailing local governments, which collect more than 96 percent of property taxes. Toss them out, and the remaining sources of state and local tax revenue – including sales and income tax receipts – sank more than 9 percent last year from 2008.
“If you lose your job, (income tax) withholding stops. You stop buying cars and going out to restaurants,” which erodes sales tax receipts, says Donald Boyd, senior fellow at the Rockefeller Institute of Government in Albany, N.Y. “It doesn’t work that way with property taxes.”
What makes property taxes so different?
• Property taxes are often based on outdated market prices.
A lot can happen to housing prices between the time properties are assessed and the time the homeowners get their property tax bills. Some governments reassess property only every three or four years. Others wait even longer: “Utah once went 20 years without conducting meaningful reappraisals,” Federal Reserve economist Byron Lutz noted in a 2008 paper.
Overall, Lutz found that it takes three years for changes in housing prices to have an impact on property tax revenue. “The 2009 numbers reflect what was happening in city housing markets in 2007, maybe even 2006,” says Christopher Hoene, director of the National League of Cities’ Center for Research & Innovation. “They were still picking up some of the growth at the end of the boom.”
• Some local governments have raised property tax rates, offsetting falling home prices.
Some places automatically adjust tax rates to keep property tax revenue stable no matter what happens to real estate prices. Others have imposed tax increases to deal with budget shortfalls.
After years of rapid population growth, for instance, suburban Gwinnett County, Ga., raised its 2009 property tax rate by 21 percent. So, many Gwinnett County homeowners are seeing bigger tax bills, even though their home values have fallen.
Gwinnett County homeowner Scott Johnson, an executive at an Atlanta technology firm, says his home’s tax bill went up 15 percent last year, and its market value fell. “Is it any wonder that people are getting mad?” he asks. “I am going to try to appeal but don’t expect much luck.”
Gwinnett County is expecting 10,000 appeals this year, vs. 7,500 in 2009 and 5,000 in ordinary times, says county assessor Steve Pruitt.
• Most states limit how much property taxes can rise in a booming market. That keeps a house’s taxable value below its market value. In some cases, the gap remains even after housing prices have fallen. Which means some homeowners are seeing bigger tax bills for homes that are worth less than they were the last time their property taxes came due.
In 1995, for instance, Florida instituted a constitutional amendment limiting increases in the tax assessments on owner-occupied homes to no more than the consumer price inflation rate or 3 percent (whichever was lower).
After an exhilarating run-up and a gut-wrenching decline in housing prices, some homes’ taxable values are still below their market values, leaving room for higher tax bills. In Palm Beach County, for instance, 25 percent of properties will see an increase this year in their assessed values.
This at a time when existing homes in the county’s West Palm Beach and Boca Raton were selling for 4 percent less in February than they were a year earlier and 44 percent less than they were in February 2006, according to the Florida Realtors trade group.
Unsurprisingly, Palm Beach County government has been hit with a surge in property tax appeals – from 5,477 in 2006 to 14,578 last year.
“It’s very hard to explain to the average Joe,” says Tom Barnhart, Palm Beach County’s director of appraisal services.
Confusing taxes
True, property taxes are bewildering to many homeowners. There’s confusion about where the taxes are coming from: Some areas pay special property taxes for schools or other government services. There’s confusion about the dates of the assessments and the way taxes are calculated through a maze of exemptions.
“We’re still in the dark about much of this,” says Kelly Alexander, a Princeton, N.J., homeowner who is contesting her tax bill after seeing her home assessed at $1.48 million, up from $1.1 million in 2001.
There’s also confusion – and anger – over what’s needed to contest a property tax bill. In determining a home’s value, local governments often want to see what comparable homes sold for – but only from the same time period when the tax assessments were calculated. If your home was assessed in January 2009, for instance, the local tax authorities don’t care that your neighbor’s home sold for a huge discount last week. And many local governments throw out distressed sales such as foreclosure auctions.
Pete Giancola, who owns an insurance agency in Deephaven, Minn., is poised to challenge his tax assessment this year. Scott County, where he lives, has warned that property assessments and taxes are headed up. “They’re saying my property went up 6 percent.”
So Giancola has been collecting sale prices for homes near his. Unfortunately, “50 percent of the data I’m gathering is for foreclosures or short sales” – in which the proceeds fall short of what the home seller owes the bank, he says. The county won’t consider distressed sales when it weighs the appeal, he says, exasperated: “We’re in a full-blown recession, for God’s sake.”
Pete Sepp, vice president for policy and communications at the National Taxpayers Union, estimates that 2 percent to 3 percent of homeowners appeal their property taxes and that 20 percent to 40 percent of them win. “The odds of winning some kind of reduction are better than most people perceive,” Sepp says. “If they knew that the appeal process was reasonably straightforward and that they had a fighting chance of obtaining a reduction, I imagine that many more folks would investigate further.”
Lawyers benefit
Specialty firms and law offices are lining up to help them.
Madison, Wis., tax attorney Don Millis says property taxes now account for “70 percent of what I do,” up from less than half three years ago. His clients are mostly businesses fighting taxes on commercial properties, but increasingly he represents upscale homeowners, too. He sometimes finds ways to persuade tax authorities to be more flexible in accepting sales in weak real estate markets. “Like beauty,” he says, “distressed sales are in the eye of the beholder.”
Seattle entrepreneur Charlie Walsh last year started ValueAppeal, a service that lets you go online for free to see whether your local government is overtaxing your home, based on whatever criteria are used in local property tax appeals. “The rules do vary from county to county,” Walsh says. “We spend a lot of time doing the research so the customer doesn’t have to.”
The firm has so far rolled out its services in nine counties in six states, looking for those that are overtaxing their residents. It plans to cover 50 more counties by the end of the year. If you have a case, ValueAppeal charges $99 for a report you can use to contest the tax bill. You get your money back if the appeal fails.
The tax appeals are putting strains on local governments already coping with a weak economy, dwindling overall tax revenue and budget cuts. Clark County, Nev., which includes Las Vegas, expects property tax appeals to reduce revenue by about $150 million in the next fiscal year, which starts July 1.
“There’s a disconnect between values and taxes at this point,” says Rocky Steele, assistant director of assessment services in Clark County. “Values went off the planet” a few years ago. “You’d see signs advertising houses ‘from the $150s,’ and they’d paint that out and say, ‘the $250s,’ and then paint that out and say, ‘from the $350s.’ “
In 2005, the Nevada Legislature imposed limits protecting property owners from big tax increases, creating a gap between taxable and market values. Then Las Vegas housing prices went into a free fall – but some still haven’t fallen enough to close the gap and cut homeowners’ tax bills.
Overall, the gap between assessed and real values is now closing. And soon state governments will likely see property tax revenue begin to shrink. Fitch Ratings, which analyzes government debt, predicts “weakness in property tax revenues for at least the next two years.”
But for now, property taxes seem to defy gravity. And taxpayers across the country are hopping mad about it.
Source: FAR
First, the county put the value of his ocean-view apartment at $417,000. He can’t see any way the place is worth more than $400,000 after a meltdown in the South Florida real estate market. Worse, the county assessed his neighbor’s bigger, nicer, newer flat at only $407,000. “Is that fair?” asks Hyland, a pricing manager for a shipping company.
The property taxes in dispute amount to just $360. But Hyland, 37, is appealing his assessment anyway, even though it will mean trudging into city offices to make his case.
He’ll probably have to stand in line: 143,000 Miami-Dade property owners appealed their property tax bills last year. And Harvey Ruvin, the county’s clerk of courts, expects a similar deluge in 2010. Property tax appeals in the county hit 104,000 in 2008 compared with an average 40,000 in normal years.
From Florida beachfronts to Nevada deserts, fed-up homeowners are challenging property tax bills that have stayed high despite the housing crisis. Retiree Carol Schneider, 63, of Ferguson, Mo., never saw herself as a tax rebel: “In the past, I just paid my taxes whether I agreed with them or not,” she says. “But the last tax bill increased so much … I decided to fight it.” She prevailed, persuading St. Louis County to cut her tax bill in half.
Angry homeowners like Schneider and Hyland say their tax assessments and tax bills haven’t come down as fast as real estate prices in the worst housing collapse since the 1930s.
They’re right: Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7 percent last year to $421.8 billion, according to the U.S. Bureau of Economic Analysis.
Property taxes have been a lifeline for flailing local governments, which collect more than 96 percent of property taxes. Toss them out, and the remaining sources of state and local tax revenue – including sales and income tax receipts – sank more than 9 percent last year from 2008.
“If you lose your job, (income tax) withholding stops. You stop buying cars and going out to restaurants,” which erodes sales tax receipts, says Donald Boyd, senior fellow at the Rockefeller Institute of Government in Albany, N.Y. “It doesn’t work that way with property taxes.”
What makes property taxes so different?
• Property taxes are often based on outdated market prices.
A lot can happen to housing prices between the time properties are assessed and the time the homeowners get their property tax bills. Some governments reassess property only every three or four years. Others wait even longer: “Utah once went 20 years without conducting meaningful reappraisals,” Federal Reserve economist Byron Lutz noted in a 2008 paper.
Overall, Lutz found that it takes three years for changes in housing prices to have an impact on property tax revenue. “The 2009 numbers reflect what was happening in city housing markets in 2007, maybe even 2006,” says Christopher Hoene, director of the National League of Cities’ Center for Research & Innovation. “They were still picking up some of the growth at the end of the boom.”
• Some local governments have raised property tax rates, offsetting falling home prices.
Some places automatically adjust tax rates to keep property tax revenue stable no matter what happens to real estate prices. Others have imposed tax increases to deal with budget shortfalls.
After years of rapid population growth, for instance, suburban Gwinnett County, Ga., raised its 2009 property tax rate by 21 percent. So, many Gwinnett County homeowners are seeing bigger tax bills, even though their home values have fallen.
Gwinnett County homeowner Scott Johnson, an executive at an Atlanta technology firm, says his home’s tax bill went up 15 percent last year, and its market value fell. “Is it any wonder that people are getting mad?” he asks. “I am going to try to appeal but don’t expect much luck.”
Gwinnett County is expecting 10,000 appeals this year, vs. 7,500 in 2009 and 5,000 in ordinary times, says county assessor Steve Pruitt.
• Most states limit how much property taxes can rise in a booming market. That keeps a house’s taxable value below its market value. In some cases, the gap remains even after housing prices have fallen. Which means some homeowners are seeing bigger tax bills for homes that are worth less than they were the last time their property taxes came due.
In 1995, for instance, Florida instituted a constitutional amendment limiting increases in the tax assessments on owner-occupied homes to no more than the consumer price inflation rate or 3 percent (whichever was lower).
After an exhilarating run-up and a gut-wrenching decline in housing prices, some homes’ taxable values are still below their market values, leaving room for higher tax bills. In Palm Beach County, for instance, 25 percent of properties will see an increase this year in their assessed values.
This at a time when existing homes in the county’s West Palm Beach and Boca Raton were selling for 4 percent less in February than they were a year earlier and 44 percent less than they were in February 2006, according to the Florida Realtors trade group.
Unsurprisingly, Palm Beach County government has been hit with a surge in property tax appeals – from 5,477 in 2006 to 14,578 last year.
“It’s very hard to explain to the average Joe,” says Tom Barnhart, Palm Beach County’s director of appraisal services.
Confusing taxes
True, property taxes are bewildering to many homeowners. There’s confusion about where the taxes are coming from: Some areas pay special property taxes for schools or other government services. There’s confusion about the dates of the assessments and the way taxes are calculated through a maze of exemptions.
“We’re still in the dark about much of this,” says Kelly Alexander, a Princeton, N.J., homeowner who is contesting her tax bill after seeing her home assessed at $1.48 million, up from $1.1 million in 2001.
There’s also confusion – and anger – over what’s needed to contest a property tax bill. In determining a home’s value, local governments often want to see what comparable homes sold for – but only from the same time period when the tax assessments were calculated. If your home was assessed in January 2009, for instance, the local tax authorities don’t care that your neighbor’s home sold for a huge discount last week. And many local governments throw out distressed sales such as foreclosure auctions.
Pete Giancola, who owns an insurance agency in Deephaven, Minn., is poised to challenge his tax assessment this year. Scott County, where he lives, has warned that property assessments and taxes are headed up. “They’re saying my property went up 6 percent.”
So Giancola has been collecting sale prices for homes near his. Unfortunately, “50 percent of the data I’m gathering is for foreclosures or short sales” – in which the proceeds fall short of what the home seller owes the bank, he says. The county won’t consider distressed sales when it weighs the appeal, he says, exasperated: “We’re in a full-blown recession, for God’s sake.”
Pete Sepp, vice president for policy and communications at the National Taxpayers Union, estimates that 2 percent to 3 percent of homeowners appeal their property taxes and that 20 percent to 40 percent of them win. “The odds of winning some kind of reduction are better than most people perceive,” Sepp says. “If they knew that the appeal process was reasonably straightforward and that they had a fighting chance of obtaining a reduction, I imagine that many more folks would investigate further.”
Lawyers benefit
Specialty firms and law offices are lining up to help them.
Madison, Wis., tax attorney Don Millis says property taxes now account for “70 percent of what I do,” up from less than half three years ago. His clients are mostly businesses fighting taxes on commercial properties, but increasingly he represents upscale homeowners, too. He sometimes finds ways to persuade tax authorities to be more flexible in accepting sales in weak real estate markets. “Like beauty,” he says, “distressed sales are in the eye of the beholder.”
Seattle entrepreneur Charlie Walsh last year started ValueAppeal, a service that lets you go online for free to see whether your local government is overtaxing your home, based on whatever criteria are used in local property tax appeals. “The rules do vary from county to county,” Walsh says. “We spend a lot of time doing the research so the customer doesn’t have to.”
The firm has so far rolled out its services in nine counties in six states, looking for those that are overtaxing their residents. It plans to cover 50 more counties by the end of the year. If you have a case, ValueAppeal charges $99 for a report you can use to contest the tax bill. You get your money back if the appeal fails.
The tax appeals are putting strains on local governments already coping with a weak economy, dwindling overall tax revenue and budget cuts. Clark County, Nev., which includes Las Vegas, expects property tax appeals to reduce revenue by about $150 million in the next fiscal year, which starts July 1.
“There’s a disconnect between values and taxes at this point,” says Rocky Steele, assistant director of assessment services in Clark County. “Values went off the planet” a few years ago. “You’d see signs advertising houses ‘from the $150s,’ and they’d paint that out and say, ‘the $250s,’ and then paint that out and say, ‘from the $350s.’ “
In 2005, the Nevada Legislature imposed limits protecting property owners from big tax increases, creating a gap between taxable and market values. Then Las Vegas housing prices went into a free fall – but some still haven’t fallen enough to close the gap and cut homeowners’ tax bills.
Overall, the gap between assessed and real values is now closing. And soon state governments will likely see property tax revenue begin to shrink. Fitch Ratings, which analyzes government debt, predicts “weakness in property tax revenues for at least the next two years.”
But for now, property taxes seem to defy gravity. And taxpayers across the country are hopping mad about it.
Source: FAR
Monday, March 29, 2010
Timeshare resales run into trouble
Five years ago, Sheila Newman and her family bought two timeshares, hoping they would enjoy years of vacations in Florida’s panhandle and Myrtle Beach, S.C.
Instead, it became difficult to take a vacation at all. So Newman listed her properties on a timeshare sales website. Two Florida companies called, offering ready-to-deal buyers. All Newman had to do was send them a check.
Six months later, Newman is out the money – and still owns both of her timeshares.
Consumer protection agencies say Newman’s experience is becoming all too common. In 2009, complaints about timeshare resale companies overtook the former No. 1 complaint – mortgage-related concerns – reported to the Florida attorney general.
“Something needs to be done to these people,” said Newman, 56. “It’s just a mess.”
The number of complaints in 2009 – some 2,719 – is more than double the number filed in 2008.
That has led Florida, along with several other states, to declare war on the timeshare resale industry. The Florida attorney general’s office said it is investigating 17 companies, has sued three others and reached settlements with seven more for about $1.6 million in customer refunds. The office expects to investigate more companies this year.
Timeshares – vacation properties bought typically to be used at least a week each year – are concentrated in Florida. About a quarter of the timeshare resorts in the United States are in the Sunshine State, according to the American Resort Development Association. In 2008, they generated $3.4 billion in sales in Florida alone.
The recession hit the industry hard, said Howard Nusbaum, president and CEO of the association. After 20 years of double-digit growth, sales of new properties hit a wall in 2008.
Adding to the glut of available units, current owners who can no longer afford payments and fees are trying to sell their properties. So just as with other types of real estate, supply now far outweighs demand.
The most common complaints about resale companies are that sellers paid a fee based on the premise that a buyer has already been lined up for a particular timeshare, but the unit is never sold, consumers’ money is never refunded – despite promises that it would be if a timeshare doesn’t sell, and companies simply disappear after charging customers’ credit cards.
In 2009, attorneys general in Arkansas, Massachusetts, North Carolina and Oklahoma issued their own warnings about the timeshare resale industry.
Several companies subpoenaed by the attorney general could not be reached or had disconnected phone numbers.
Owners could use traditional real estate agents to sell their timeshares, but the commissions are often too low to make it worth the agents’ while, said Brian Rogers, creator and operator of Orange Park-based Timeshare Users Group, which has a website where sellers can list their timeshares themselves for a $15 annual fee.
Online, he said, “There are hundreds of timeshares on sale for $1 – and a lot of those don’t get bids. It’s amazing to think 10 or 20 years ago somebody paid $20,000 or $30,000 for that property.”
When desperate sellers – identified by their listings on the Web or in classified ads – get calls from companies that say they have a buyer lined up and all the owner needs to do is provide their credit card number to pay a fee for the sale, sellers bite, Rogers said.
“There’s this beacon of light on the phone,” he said. “It’s hard to say no to that.”
Exacerbating the problem: Many owners are seniors who bought their properties long ago and can no longer travel to use them. Older sellers are more vulnerable to scams and less likely to research the companies that offer to sell their timeshares, he said.
That’s what happened to Allison Reuter of Grand Rapids, Mich. Soon after she and her husband decided to sell their timeshare, they were contacted by Premier Timeshare Solutions of Palm Beach Gardens.
Like Newman, the Reuters were told a buyer was ready and waiting. Premier, which has been graded F by the Better Business Bureau, said it needed just $2,000 to get the process started.
“We decided to spend the money because they already had a buyer in place,” said Reuter, an attorney whose husband, a car salesman, lost his job in the midst of the recession. The payments had simply become too much.
“We were going to make a profit. If we didn’t sell within four months they would refund the fee. We thought we’d win no matter what.”
But Reuter said she hasn’t heard from the company for a few months, after her husband turned down Premier’s request for more money.
What’s worse, some companies call and offer to help an owner who has been scammed – only to scam the seller a second time, Rogers said, because one company has closed and reopened with a new name – and their old customer list.
In Florida, timeshare resellers in Florida must be licensed as real estate brokers, said Jennifer Meale, spokeswoman for the state’s Division of Business and Professional Regulation.
But some companies work around that, Nusbaum said.
“Because of the Internet we have a lot of people who are not saying ‘I’m not selling a timeshare. I’m just listing it.’” In addition, he said, the secondary market for timeshares isn’t regulated the same way as the primary market is. His organization has drafted laws and rules that states could enact to curb fraud.
“Our vision is a healthy secondary market where there is transparency, where consumers are treated with respect and expectations are met, and fraud is the exception,” he said. “Unfortunately, today we have the opposite.”
Copyright © 2010 The Miami Herald, Nirvi Shah.
Instead, it became difficult to take a vacation at all. So Newman listed her properties on a timeshare sales website. Two Florida companies called, offering ready-to-deal buyers. All Newman had to do was send them a check.
Six months later, Newman is out the money – and still owns both of her timeshares.
Consumer protection agencies say Newman’s experience is becoming all too common. In 2009, complaints about timeshare resale companies overtook the former No. 1 complaint – mortgage-related concerns – reported to the Florida attorney general.
“Something needs to be done to these people,” said Newman, 56. “It’s just a mess.”
The number of complaints in 2009 – some 2,719 – is more than double the number filed in 2008.
That has led Florida, along with several other states, to declare war on the timeshare resale industry. The Florida attorney general’s office said it is investigating 17 companies, has sued three others and reached settlements with seven more for about $1.6 million in customer refunds. The office expects to investigate more companies this year.
Timeshares – vacation properties bought typically to be used at least a week each year – are concentrated in Florida. About a quarter of the timeshare resorts in the United States are in the Sunshine State, according to the American Resort Development Association. In 2008, they generated $3.4 billion in sales in Florida alone.
The recession hit the industry hard, said Howard Nusbaum, president and CEO of the association. After 20 years of double-digit growth, sales of new properties hit a wall in 2008.
Adding to the glut of available units, current owners who can no longer afford payments and fees are trying to sell their properties. So just as with other types of real estate, supply now far outweighs demand.
The most common complaints about resale companies are that sellers paid a fee based on the premise that a buyer has already been lined up for a particular timeshare, but the unit is never sold, consumers’ money is never refunded – despite promises that it would be if a timeshare doesn’t sell, and companies simply disappear after charging customers’ credit cards.
In 2009, attorneys general in Arkansas, Massachusetts, North Carolina and Oklahoma issued their own warnings about the timeshare resale industry.
Several companies subpoenaed by the attorney general could not be reached or had disconnected phone numbers.
Owners could use traditional real estate agents to sell their timeshares, but the commissions are often too low to make it worth the agents’ while, said Brian Rogers, creator and operator of Orange Park-based Timeshare Users Group, which has a website where sellers can list their timeshares themselves for a $15 annual fee.
Online, he said, “There are hundreds of timeshares on sale for $1 – and a lot of those don’t get bids. It’s amazing to think 10 or 20 years ago somebody paid $20,000 or $30,000 for that property.”
When desperate sellers – identified by their listings on the Web or in classified ads – get calls from companies that say they have a buyer lined up and all the owner needs to do is provide their credit card number to pay a fee for the sale, sellers bite, Rogers said.
“There’s this beacon of light on the phone,” he said. “It’s hard to say no to that.”
Exacerbating the problem: Many owners are seniors who bought their properties long ago and can no longer travel to use them. Older sellers are more vulnerable to scams and less likely to research the companies that offer to sell their timeshares, he said.
That’s what happened to Allison Reuter of Grand Rapids, Mich. Soon after she and her husband decided to sell their timeshare, they were contacted by Premier Timeshare Solutions of Palm Beach Gardens.
Like Newman, the Reuters were told a buyer was ready and waiting. Premier, which has been graded F by the Better Business Bureau, said it needed just $2,000 to get the process started.
“We decided to spend the money because they already had a buyer in place,” said Reuter, an attorney whose husband, a car salesman, lost his job in the midst of the recession. The payments had simply become too much.
“We were going to make a profit. If we didn’t sell within four months they would refund the fee. We thought we’d win no matter what.”
But Reuter said she hasn’t heard from the company for a few months, after her husband turned down Premier’s request for more money.
What’s worse, some companies call and offer to help an owner who has been scammed – only to scam the seller a second time, Rogers said, because one company has closed and reopened with a new name – and their old customer list.
In Florida, timeshare resellers in Florida must be licensed as real estate brokers, said Jennifer Meale, spokeswoman for the state’s Division of Business and Professional Regulation.
But some companies work around that, Nusbaum said.
“Because of the Internet we have a lot of people who are not saying ‘I’m not selling a timeshare. I’m just listing it.’” In addition, he said, the secondary market for timeshares isn’t regulated the same way as the primary market is. His organization has drafted laws and rules that states could enact to curb fraud.
“Our vision is a healthy secondary market where there is transparency, where consumers are treated with respect and expectations are met, and fraud is the exception,” he said. “Unfortunately, today we have the opposite.”
Copyright © 2010 The Miami Herald, Nirvi Shah.
Flood insurance on hiatus
The Senate adjourned last week without approving H.R. 4851, which would have extended a number of programs, including the National Flood Insurance Program (NFIP).
Authority for the NFIP expired at midnight on Sunday, March 28. That change impacts all home closings that require a flood policy, unless the policy was issued before Sunday.
Homeowners who hold flood insurance policies still have coverage; but NFIP cannot issue new policies, increase coverage on existing policies or issue renewal policies. Once Congress authorizes the program again, however, it’s expected to make it retroactive.
“This is now the third time in recent months that the National Flood Insurance Program has been allowed to lapse, and each time for reasons that have little or nothing to do with the program itself,” National Association of Mutual Insurance Companies’ spokesman Matt Brady says. Brady notes that this lapse, like the others before it, will have a “serious impact” on homebuyers in flood zones who hope to close on a home during the inactive period.
Efforts to reach a bipartisan flood agreement last week in the U.S. House and Senate failed over discussions on how to pay for the broader bill, which included other programs. While passage is still not assured the week of April 12, a procedural motion has been filed in the Senate setting up a vote.
The National Association of Realtors® says it has stressed the importance of the NFIP program to Congress, and NFIP’s role in the real estate market. NAR hopes to not only see the program extended in April, but to also forge a long-term solution that extends the program as long as possible.
According to a letter from U.S. Department of Homeland Security Division Director Dennis L. Kuhns, Bulletin W-09068 – “Recommendations/Guidance for Possible NFIP Authority Lapse and Hiatus, issued Oct. 27, 2009 – should be used as a reference on how the program operates during a hiatus.
The Bulletin can be downloaded (PDF format) at: http://www.nfipiservice.com/stakeholder/pdf/bulletin/w-09068.pdf
© 2010 Florida Realtors®
Authority for the NFIP expired at midnight on Sunday, March 28. That change impacts all home closings that require a flood policy, unless the policy was issued before Sunday.
Homeowners who hold flood insurance policies still have coverage; but NFIP cannot issue new policies, increase coverage on existing policies or issue renewal policies. Once Congress authorizes the program again, however, it’s expected to make it retroactive.
“This is now the third time in recent months that the National Flood Insurance Program has been allowed to lapse, and each time for reasons that have little or nothing to do with the program itself,” National Association of Mutual Insurance Companies’ spokesman Matt Brady says. Brady notes that this lapse, like the others before it, will have a “serious impact” on homebuyers in flood zones who hope to close on a home during the inactive period.
Efforts to reach a bipartisan flood agreement last week in the U.S. House and Senate failed over discussions on how to pay for the broader bill, which included other programs. While passage is still not assured the week of April 12, a procedural motion has been filed in the Senate setting up a vote.
The National Association of Realtors® says it has stressed the importance of the NFIP program to Congress, and NFIP’s role in the real estate market. NAR hopes to not only see the program extended in April, but to also forge a long-term solution that extends the program as long as possible.
According to a letter from U.S. Department of Homeland Security Division Director Dennis L. Kuhns, Bulletin W-09068 – “Recommendations/Guidance for Possible NFIP Authority Lapse and Hiatus, issued Oct. 27, 2009 – should be used as a reference on how the program operates during a hiatus.
The Bulletin can be downloaded (PDF format) at: http://www.nfipiservice.com/stakeholder/pdf/bulletin/w-09068.pdf
© 2010 Florida Realtors®
Friday, March 26, 2010
BofA to start reducing mortgage principal
Bank of America Corp. is giving some of its most troubled mortgage borrowers relief from the threat of foreclosure.
The bank, the largest mortgage servicer in the country, said Wednesday it will forgive up to 30 percent of some customers’ total mortgage balances. The homeowners must have missed at least two months of mortgage payments and owe at least 20 percent more than their home is currently worth.
The plan is the newest provision of an agreement the Charlotte, N.C.-based bank reached 18 months ago with state attorneys general to settle charges over high-risk loans made by Countrywide Financial Corp.
The loans were made before Bank of America acquired the mortgage lender in mid-2008. The bank has since stopped making those loans.
Although the motivation for Bank of America’s announcement was to resolve legal problems, it has the potential of putting pressure on other banks to also forgive principal on loans that are in danger of failing. Bank of America is the nation’s largest bank, and it’s among the first to take a systematic approach to reducing mortgage principal when home values drop well below the amount owed.
The Treasury Department, which already has a mortgage modification program, is developing similar plans for principal reductions at other mortgage servicers, according to industry officials speaking on condition of anonymity because they were not authorized to discuss the conversations. They said an announcement could come in the next few months.
“They’re talking about doing something and talking seriously about it,” Julia Gordon, senior policy counsel at the Center for Responsible Lending, a consumer group, said of Treasury officials. “I think the concern now is fairness and making sure that the public understands the importance of principal reductions toward stabilizing the housing market and helping everybody.”
Bank of America estimates that about 45,000 customers will qualify for its plan. The offer will cut total reduced principal by about $3 billion.
Some banks said they have already reduced principal on some mortgages. Wells Fargo & Co. said Wednesday it has modified more than 52,000 adjustable-rate mortgages that it inherited through its acquisition of Wachovia Corp. in late 2008. As of the fourth quarter, the bank also had reduced the principal on those mortgages by more than $2.6 billion.
Citigroup Inc. would not say whether it planned a similar program, but it did issue a statement that said in part, “Citi does reduce principal for borrowers on a case-by-case basis after other options to address affordability are exhausted.”
A spokeswoman from JPMorgan Chase & Co. declined to comment on whether it planned a similar program.
Millions of homes have gone into foreclosure since the housing market collapsed in late 2007. The loans affected by Bank of America’s announcement include certain subprime and option adjustable rate mortgages. Option ARMs allow borrowers to start with minimal monthly payments that actually increase the loan’s balance.
The borrowers who can take advantage of the Bank of America program must also qualify for the Obama administration’s $75 billion mortgage loan modification program.
The program announced Wednesday could lower the bank’s earnings, which have already been hurt by consumers’ continuing defaults on mortgage and credit card loans. Bank of America was among the hardest hit by the credit crisis and recession.
It’s not clear how big a financial hit Bank of America will take by reducing mortgages. But the move will likely be less costly than having homeowners walk out on their mortgages or opt to do a short sale, banking analyst Bert Ely said. A short sale happens when a seller owes more than the house is worth, and the lender is willing to accept less than the mortgage balance.
“This is about loss minimization,” Ely said. “There’s going to be losses (for Bank of America). The question is what’s the easiest way out.”
The plan does carry risks. For starters, borrowers who aren’t 60 days behind on their mortgages may stop making payments so they can qualify. The more borrowers who try to qualify, the bigger the potential loss for Bank of America. The bank will also have to absorb the costs of renegotiating the loans.
Even so, “the move helps create the best prospect of avoiding a further downward home price spiral, which would result in even deeper losses” for the bank, said Howard Glaser, a mortgage industry consultant, in an e-mail.
Investors appeared pleased with the news, and sent Bank of America shares up 44 cents, or 2.6 percent, to close Wednesday at $17.57.
According to new plan, which begins in May, Bank of America will first offer to set aside a portion of the principal balance, interest free. That principal can be forgiven over five years, if homeowners don’t miss any payments. The maximum decrease in principal will be 30 percent.
The forgiveness allows a homeowner to bring a mortgage balance back down to 100 percent of the home’s value, the bank said.
Glaser said that if the Obama administration launches a similar effort for the entire industry, that would be a “major shift in loan modification efforts.”
Lenders including Bank of America have been criticized for not helping enough borrowers to complete the Obama administration’s $75 billion mortgage modification program, which is widely viewed as a disappointment. Only 170,000 homeowners have completed the program so far.
As of last month, Bank of America had completed modifications for about 22,000 homeowners, or about 8 percent of those signed up. That compares with about 12 percent for Wells Fargo and 11 percent for both JPMorgan Chase and Citigroup.
The mortgage modification program does not address the problems of borrowers who are considered underwater, or owing more than their homes are worth.
The Treasury Department estimates that 1.5 million to 2 million homeowners will complete the program by the end of 2012, about half of the original goal. A report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
Copyright © 2010 The Associated Press, Ieva M. Augstums, AP business writer.
The bank, the largest mortgage servicer in the country, said Wednesday it will forgive up to 30 percent of some customers’ total mortgage balances. The homeowners must have missed at least two months of mortgage payments and owe at least 20 percent more than their home is currently worth.
The plan is the newest provision of an agreement the Charlotte, N.C.-based bank reached 18 months ago with state attorneys general to settle charges over high-risk loans made by Countrywide Financial Corp.
The loans were made before Bank of America acquired the mortgage lender in mid-2008. The bank has since stopped making those loans.
Although the motivation for Bank of America’s announcement was to resolve legal problems, it has the potential of putting pressure on other banks to also forgive principal on loans that are in danger of failing. Bank of America is the nation’s largest bank, and it’s among the first to take a systematic approach to reducing mortgage principal when home values drop well below the amount owed.
The Treasury Department, which already has a mortgage modification program, is developing similar plans for principal reductions at other mortgage servicers, according to industry officials speaking on condition of anonymity because they were not authorized to discuss the conversations. They said an announcement could come in the next few months.
“They’re talking about doing something and talking seriously about it,” Julia Gordon, senior policy counsel at the Center for Responsible Lending, a consumer group, said of Treasury officials. “I think the concern now is fairness and making sure that the public understands the importance of principal reductions toward stabilizing the housing market and helping everybody.”
Bank of America estimates that about 45,000 customers will qualify for its plan. The offer will cut total reduced principal by about $3 billion.
Some banks said they have already reduced principal on some mortgages. Wells Fargo & Co. said Wednesday it has modified more than 52,000 adjustable-rate mortgages that it inherited through its acquisition of Wachovia Corp. in late 2008. As of the fourth quarter, the bank also had reduced the principal on those mortgages by more than $2.6 billion.
Citigroup Inc. would not say whether it planned a similar program, but it did issue a statement that said in part, “Citi does reduce principal for borrowers on a case-by-case basis after other options to address affordability are exhausted.”
A spokeswoman from JPMorgan Chase & Co. declined to comment on whether it planned a similar program.
Millions of homes have gone into foreclosure since the housing market collapsed in late 2007. The loans affected by Bank of America’s announcement include certain subprime and option adjustable rate mortgages. Option ARMs allow borrowers to start with minimal monthly payments that actually increase the loan’s balance.
The borrowers who can take advantage of the Bank of America program must also qualify for the Obama administration’s $75 billion mortgage loan modification program.
The program announced Wednesday could lower the bank’s earnings, which have already been hurt by consumers’ continuing defaults on mortgage and credit card loans. Bank of America was among the hardest hit by the credit crisis and recession.
It’s not clear how big a financial hit Bank of America will take by reducing mortgages. But the move will likely be less costly than having homeowners walk out on their mortgages or opt to do a short sale, banking analyst Bert Ely said. A short sale happens when a seller owes more than the house is worth, and the lender is willing to accept less than the mortgage balance.
“This is about loss minimization,” Ely said. “There’s going to be losses (for Bank of America). The question is what’s the easiest way out.”
The plan does carry risks. For starters, borrowers who aren’t 60 days behind on their mortgages may stop making payments so they can qualify. The more borrowers who try to qualify, the bigger the potential loss for Bank of America. The bank will also have to absorb the costs of renegotiating the loans.
Even so, “the move helps create the best prospect of avoiding a further downward home price spiral, which would result in even deeper losses” for the bank, said Howard Glaser, a mortgage industry consultant, in an e-mail.
Investors appeared pleased with the news, and sent Bank of America shares up 44 cents, or 2.6 percent, to close Wednesday at $17.57.
According to new plan, which begins in May, Bank of America will first offer to set aside a portion of the principal balance, interest free. That principal can be forgiven over five years, if homeowners don’t miss any payments. The maximum decrease in principal will be 30 percent.
The forgiveness allows a homeowner to bring a mortgage balance back down to 100 percent of the home’s value, the bank said.
Glaser said that if the Obama administration launches a similar effort for the entire industry, that would be a “major shift in loan modification efforts.”
Lenders including Bank of America have been criticized for not helping enough borrowers to complete the Obama administration’s $75 billion mortgage modification program, which is widely viewed as a disappointment. Only 170,000 homeowners have completed the program so far.
As of last month, Bank of America had completed modifications for about 22,000 homeowners, or about 8 percent of those signed up. That compares with about 12 percent for Wells Fargo and 11 percent for both JPMorgan Chase and Citigroup.
The mortgage modification program does not address the problems of borrowers who are considered underwater, or owing more than their homes are worth.
The Treasury Department estimates that 1.5 million to 2 million homeowners will complete the program by the end of 2012, about half of the original goal. A report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
Copyright © 2010 The Associated Press, Ieva M. Augstums, AP business writer.
HUD clarifies realty add-on fees or transaction fees
A 2009 U.S. District Court decision indicated that add-on fees – commonly known as transaction fees – not accompanied by specific services violate federal law. As a result, many large real estate brokers altered their commission rate and fee procedures.
The Department of Housing and Urban Development (HUD) recently clarified the government’s position on add-on fees. General counsel Helen Kanovsky emphasized that federal law under the Real Estate Settlement Procedure Act (RESPA) regulates how the commission should be disclosed – but it does not prescribe how a real estate agent or broker determines the charge for his/her services.
The commission may be disclosed as a flat fee, a percentage of the sales price, or a combination of the two.
On the revised HUD-1 settlement sheet, commissions are now reported as dollar amounts rather than percentages in the 700 series. If the total charges disclosed in the 700-series exceed the amount of commission in the listing or buyer brokerage agreement, then HUD can review those charges to determine whether additional services were provided for the excess amount charged.
Any charge for which no, or nominal, services were performed, or that duplicates other fees, violates RESPA.
Experts say small and midsize brokerages unaware of the court decision should review their commission policies now to avoid legal trouble.
Still have questions? Call Florida Realtors Legal Hotline at 407)-438-1409. The hotline is an included member benefit, except for the cost of a long-distance call.
© 2010 Florida Realtors®
The Department of Housing and Urban Development (HUD) recently clarified the government’s position on add-on fees. General counsel Helen Kanovsky emphasized that federal law under the Real Estate Settlement Procedure Act (RESPA) regulates how the commission should be disclosed – but it does not prescribe how a real estate agent or broker determines the charge for his/her services.
The commission may be disclosed as a flat fee, a percentage of the sales price, or a combination of the two.
On the revised HUD-1 settlement sheet, commissions are now reported as dollar amounts rather than percentages in the 700 series. If the total charges disclosed in the 700-series exceed the amount of commission in the listing or buyer brokerage agreement, then HUD can review those charges to determine whether additional services were provided for the excess amount charged.
Any charge for which no, or nominal, services were performed, or that duplicates other fees, violates RESPA.
Experts say small and midsize brokerages unaware of the court decision should review their commission policies now to avoid legal trouble.
Still have questions? Call Florida Realtors Legal Hotline at 407)-438-1409. The hotline is an included member benefit, except for the cost of a long-distance call.
© 2010 Florida Realtors®
Government unveils plan to shrink some home loans
After months of criticism that it hasn’t done enough to prevent foreclosures, the Obama administration is announcing a plan to reduce the amount some troubled borrowers owe on their home loans.
The multifaceted effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.
That would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. But it could spark criticism that the government is shouldering too much risk by taking on bad loans made during the housing boom. In addition, their existing mortgage companies will be able to receive incentives to lower their principal balances.
The program also includes assistance to help unemployed homeowners keep paying their mortgages.
But the administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.
A Treasury Department document said, “investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes.”
“Some people simply will not be able to afford to stay in their homes because they bought more than they could afford,” the document said.
Mark Zandi, chief economist at Moody’s Analytics, estimated the plan could help between 1 million and 1.5 million homeowners avoid foreclosure. That compares to 4.5 million that are already in foreclosure proceedings or 90 days delinquent on their mortgages, he said. There are another 10 million homeowners who owe more than their homes are worth, Zandi estimates.
“The changes are wide-ranging and significant and have the real potential for bringing the foreclosure crisis to a much quicker end,” Zandi said.
The plan is the latest effort by the Obama administration to tackle the foreclosure crisis that has continued to grow under its watch. Home foreclosures have soared despite the administration’s effort to prevent foreclosures, a complex and problem-plagued endeavor involving more than 100 mortgage companies. Only 170,000 homeowners have completed that process out of 1.1 million who began it over the past year.
“We remain dubious about government mortgage modification efforts,” wrote Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group. “So far none have lived up to expectations and we see little reason to believe the latest effort will turn out any different.”
The plan announced Friday will also require the mortgage companies participating in the administration’s existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.
It also includes three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans – a problem that has blocked many loan modifications.
The four big holders of second mortgages – Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. – have now joined the government’s program to modify second mortgages. That program was delayed for months but with Citi on board, the major players in the industry are now on board.
Critics have complained that the Obama administration has done little until now to encourage banks to cut borrowers’ principal balances on their primary loans. Nearly one in every three homeowners with a mortgage is “underwater” – they owe more than their property is worth – according to Moody’s Economy.com.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer
The multifaceted effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.
That would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. But it could spark criticism that the government is shouldering too much risk by taking on bad loans made during the housing boom. In addition, their existing mortgage companies will be able to receive incentives to lower their principal balances.
The program also includes assistance to help unemployed homeowners keep paying their mortgages.
But the administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.
A Treasury Department document said, “investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes.”
“Some people simply will not be able to afford to stay in their homes because they bought more than they could afford,” the document said.
Mark Zandi, chief economist at Moody’s Analytics, estimated the plan could help between 1 million and 1.5 million homeowners avoid foreclosure. That compares to 4.5 million that are already in foreclosure proceedings or 90 days delinquent on their mortgages, he said. There are another 10 million homeowners who owe more than their homes are worth, Zandi estimates.
“The changes are wide-ranging and significant and have the real potential for bringing the foreclosure crisis to a much quicker end,” Zandi said.
The plan is the latest effort by the Obama administration to tackle the foreclosure crisis that has continued to grow under its watch. Home foreclosures have soared despite the administration’s effort to prevent foreclosures, a complex and problem-plagued endeavor involving more than 100 mortgage companies. Only 170,000 homeowners have completed that process out of 1.1 million who began it over the past year.
“We remain dubious about government mortgage modification efforts,” wrote Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group. “So far none have lived up to expectations and we see little reason to believe the latest effort will turn out any different.”
The plan announced Friday will also require the mortgage companies participating in the administration’s existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.
It also includes three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans – a problem that has blocked many loan modifications.
The four big holders of second mortgages – Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. – have now joined the government’s program to modify second mortgages. That program was delayed for months but with Citi on board, the major players in the industry are now on board.
Critics have complained that the Obama administration has done little until now to encourage banks to cut borrowers’ principal balances on their primary loans. Nearly one in every three homeowners with a mortgage is “underwater” – they owe more than their property is worth – according to Moody’s Economy.com.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer
Geithner backs reshaping of Fannie and Freddie
A government watchdog is criticizing the Obama administration for establishing a “meaningless” goal for its flagship mortgage assistance program.
The report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says the Obama administration is measuring the performance of the program by a questionable standard.
At the program’s launch in February 2009, Obama officials said it would help 3 million to 4 million homeowners. But with only 170,000 borrowers completing the program so far, administration officials now emphasize that the plan’s goal is to merely offer help to those millions.
“Defining success by how many offers are given can reasonably be perceived as essentially meaningless,” Barofsky wrote. Instead, the program’s goal “must relate to how many people are helped to avoid foreclosure.”
Herbert Allison, an assistant Treasury secretary, acknowledged in a letter written in response to the report that officials’ statements about the plan’s goals “have not always been precise.” But he argued that offers of help is a meaningful measurement because some borrowers who don’t qualify for the government program will still be able to avoid foreclosure.
The Obama program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. The government has set aside $75 billion in subsidies to entice mortgage companies to participate. More than 100 have signed up.
To complete the program, homeowners need to complete a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
But getting banks and homeowners to complete the process has been tough. Barofsky said in his report that an unnamed Treasury official estimated that 1.5 million to 2 million homeowners would complete the program by the end of 2012.
That, Barofsky noted, “may only be a small fraction of the foreclosures that will occur in that period.”
The report is strongly critical of the government in other areas. Barofsky noted that numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
In response, Allison noted that the program “is the largest, most complex mortgage modification program of its kind” and said there was little precedent for how to design such an endeavor.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer.
The report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says the Obama administration is measuring the performance of the program by a questionable standard.
At the program’s launch in February 2009, Obama officials said it would help 3 million to 4 million homeowners. But with only 170,000 borrowers completing the program so far, administration officials now emphasize that the plan’s goal is to merely offer help to those millions.
“Defining success by how many offers are given can reasonably be perceived as essentially meaningless,” Barofsky wrote. Instead, the program’s goal “must relate to how many people are helped to avoid foreclosure.”
Herbert Allison, an assistant Treasury secretary, acknowledged in a letter written in response to the report that officials’ statements about the plan’s goals “have not always been precise.” But he argued that offers of help is a meaningful measurement because some borrowers who don’t qualify for the government program will still be able to avoid foreclosure.
The Obama program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. The government has set aside $75 billion in subsidies to entice mortgage companies to participate. More than 100 have signed up.
To complete the program, homeowners need to complete a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
But getting banks and homeowners to complete the process has been tough. Barofsky said in his report that an unnamed Treasury official estimated that 1.5 million to 2 million homeowners would complete the program by the end of 2012.
That, Barofsky noted, “may only be a small fraction of the foreclosures that will occur in that period.”
The report is strongly critical of the government in other areas. Barofsky noted that numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
In response, Allison noted that the program “is the largest, most complex mortgage modification program of its kind” and said there was little precedent for how to design such an endeavor.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer.
Watchdog report criticizes federal mortgage plan
A government watchdog is criticizing the Obama administration for establishing a “meaningless” goal for its flagship mortgage assistance program.
The report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says the Obama administration is measuring the performance of the program by a questionable standard.
At the program’s launch in February 2009, Obama officials said it would help 3 million to 4 million homeowners. But with only 170,000 borrowers completing the program so far, administration officials now emphasize that the plan’s goal is to merely offer help to those millions.
“Defining success by how many offers are given can reasonably be perceived as essentially meaningless,” Barofsky wrote. Instead, the program’s goal “must relate to how many people are helped to avoid foreclosure.”
Herbert Allison, an assistant Treasury secretary, acknowledged in a letter written in response to the report that officials’ statements about the plan’s goals “have not always been precise.” But he argued that offers of help is a meaningful measurement because some borrowers who don’t qualify for the government program will still be able to avoid foreclosure.
The Obama program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. The government has set aside $75 billion in subsidies to entice mortgage companies to participate. More than 100 have signed up.
To complete the program, homeowners need to complete a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
But getting banks and homeowners to complete the process has been tough. Barofsky said in his report that an unnamed Treasury official estimated that 1.5 million to 2 million homeowners would complete the program by the end of 2012.
That, Barofsky noted, “may only be a small fraction of the foreclosures that will occur in that period.”
The report is strongly critical of the government in other areas. Barofsky noted that numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
In response, Allison noted that the program “is the largest, most complex mortgage modification program of its kind” and said there was little precedent for how to design such an endeavor.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer.
The report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says the Obama administration is measuring the performance of the program by a questionable standard.
At the program’s launch in February 2009, Obama officials said it would help 3 million to 4 million homeowners. But with only 170,000 borrowers completing the program so far, administration officials now emphasize that the plan’s goal is to merely offer help to those millions.
“Defining success by how many offers are given can reasonably be perceived as essentially meaningless,” Barofsky wrote. Instead, the program’s goal “must relate to how many people are helped to avoid foreclosure.”
Herbert Allison, an assistant Treasury secretary, acknowledged in a letter written in response to the report that officials’ statements about the plan’s goals “have not always been precise.” But he argued that offers of help is a meaningful measurement because some borrowers who don’t qualify for the government program will still be able to avoid foreclosure.
The Obama program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. The government has set aside $75 billion in subsidies to entice mortgage companies to participate. More than 100 have signed up.
To complete the program, homeowners need to complete a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
But getting banks and homeowners to complete the process has been tough. Barofsky said in his report that an unnamed Treasury official estimated that 1.5 million to 2 million homeowners would complete the program by the end of 2012.
That, Barofsky noted, “may only be a small fraction of the foreclosures that will occur in that period.”
The report is strongly critical of the government in other areas. Barofsky noted that numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
In response, Allison noted that the program “is the largest, most complex mortgage modification program of its kind” and said there was little precedent for how to design such an endeavor.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer.
Tuesday, March 23, 2010
McCollum warns of ‘massive’ commercial foreclosures
March 23, 2010 – Attorney General Bill McCollum wrote to legislative leaders on Friday urging them to take note of the potential for “massive” foreclosures on commercial real estate, as more than $1 trillion in commercial real estate loans from Florida’s most recent big boom all reach the end of their terms about the same time.
“As I learn more about the potential for massive commercial real property mortgage foreclosures, I am convinced that swift legislative remedial action this session would avert some of the more devastating consequences of such foreclosures,” McCollum wrote. “As one of the largest markets in the nation for commercial real estate loans, Florida faces a significant risk of financial loss.”
McCollum urged lawmakers to look at some of the actions other large states have taken, including the passage of laws that require that all claims be consolidated into a single action, or prohibit certain lawsuits that seek to hit up borrowers personally before proceeding against the borrower’s collateral.
Source: News Service of Florida
“As I learn more about the potential for massive commercial real property mortgage foreclosures, I am convinced that swift legislative remedial action this session would avert some of the more devastating consequences of such foreclosures,” McCollum wrote. “As one of the largest markets in the nation for commercial real estate loans, Florida faces a significant risk of financial loss.”
McCollum urged lawmakers to look at some of the actions other large states have taken, including the passage of laws that require that all claims be consolidated into a single action, or prohibit certain lawsuits that seek to hit up borrowers personally before proceeding against the borrower’s collateral.
Source: News Service of Florida
Monday, March 22, 2010
Self-employed hitting roadblocks with new rules
Self-employed and seasonal workers historically have struggled to meet eligibility criteria for loans. Their plight has worsened of late, however, now that changes to Fannie Mae and Freddie Mac rules governing “no doc” and “no ratio” loans have kicked in.
Under the revised guidelines, self-employed individuals, 1099 filers, and new business owners must compile two full years of tax returns before qualifying for a mortgage backed by the firms.
“In years past, we were allowed to go to a website and get an average of what someone in their career would make, so it was stated income based on some statistics, but not any more,” explains Fort Worth-area Realtor Suzy Britz. “It’s a problem. And it’s been a problem. As soon as the stated income programs went away, some definite doors were shut on these people.”
Some hurt their chances of qualifying even more by writing off as many business expenses as possible, which lowers adjusted income. The National Association of Realtors says self-employed borrowers should avoid taking every deduction possible, expect to make a 20 percent downpayment and have a stellar credit score.
Source: Fort Worth Business Press 03/22/10) Howe, Aleshia
© Copyright 2010 INFORMATION, INC. Bethesda, MD
Under the revised guidelines, self-employed individuals, 1099 filers, and new business owners must compile two full years of tax returns before qualifying for a mortgage backed by the firms.
“In years past, we were allowed to go to a website and get an average of what someone in their career would make, so it was stated income based on some statistics, but not any more,” explains Fort Worth-area Realtor Suzy Britz. “It’s a problem. And it’s been a problem. As soon as the stated income programs went away, some definite doors were shut on these people.”
Some hurt their chances of qualifying even more by writing off as many business expenses as possible, which lowers adjusted income. The National Association of Realtors says self-employed borrowers should avoid taking every deduction possible, expect to make a 20 percent downpayment and have a stellar credit score.
Source: Fort Worth Business Press 03/22/10) Howe, Aleshia
© Copyright 2010 INFORMATION, INC. Bethesda, MD
Credit scores can drop after getting loan help
Some homeowners who sign up for the government’s mortgage assistance program are getting a nasty surprise: Lower credit scores.
For borrowers who are making their payments on time but are on the verge of default, the Obama administration’s loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.
Housing counselors say it’s unfair, especially because the news often comes as a surprise to homeowners.
“Why should people’s credit be hurt even worse when they’re trying to do the right thing?” said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.
And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.
“It’s a feeling of being duped,” she said.
Still, the impact is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That’s due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner’s’ credit by 150 points or more on a scale of 300 to 850.
To enroll in the Obama administration’s $75 billion “Making Home Affordable” program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus – Experian, Equifax and TransUnion.
For delinquent borrowers, the damage was done when they fell behind on their loans.
But for homeowners who are having financial troubles but managing to pay their bills, a request for a loan modification is the first sign of difficulty. And that means a sharp drop in the borrower’s credit score.
The credit rating industry defends the practice. People who sign up for loan modifications would not be asking for help unless they were having severe money troubles, said Norm Magnuson, spokesman for the Consumer Data Industry Association, a trade group in Washington that represents the credit bureaus.
“The consumer is going into the program because they’re in a financial bind,” he said. “Other lenders would need to be aware of that.”
The Obama administration acknowledges that enrolling in the program can hurt credit scores. But Meg Reilly, a Treasury Department spokeswoman, said that foreclosure “brings far more serious financial consequences for borrowers and their families.”
The credit score issue is an unexpected consequence of the program that has been plagued with problems and disappointing results since its launch last year. Only about 170,000 homeowners had completed the process as of February. Hundreds of thousands more are still in limbo.
Jim Owens, 46, of Harrisburg, Ore., was accepted on a trial basis for the Obama plan last year.
He and his family were in bad financial shape. They were barely able to pay the mortgage and utility bills.
The main reason: After being laid off and unemployed for six months, he took a job as maintenance director at a retirement home. But it paid only around $25,000 yearly, about $10,000 less than his former job in a city public works department.
He and his wife were also struggling with debt, after taking out a second mortgage four years ago to pay off debt and medical bills.
Late last year, he was searching for a used sport-utility vehicle. He got a 30-day approval for $2,000 car loan.
But that time ran out before he found a car, so he had to reapply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied.
“I should have been told,” that this might happen, Owens said. “Without credit, you can’t do a whole lot in life.”
A Citi spokesman, Mark Rodgers, said the company follows the Treasury Department’s guidelines for reporting to credit bureaus. “We do not determine credit scores,” said Rodgers, who declined to comment on Owens’ case.
The impact is worse for borrowers who enroll in the Obama program and are then ruled ineligible.
If homeowners do manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower’s credit score. Over time, they can see their score increase.
“The best way to build credit back is to continue to pay bills as agreed, to use credit wisely,” said Tom Quinn, vice president of scoring solutions at Fair Isaac Corp., which designed the well-known FICO score system. “As time goes on, the score gradually increases.”
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer
For borrowers who are making their payments on time but are on the verge of default, the Obama administration’s loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.
Housing counselors say it’s unfair, especially because the news often comes as a surprise to homeowners.
“Why should people’s credit be hurt even worse when they’re trying to do the right thing?” said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.
And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.
“It’s a feeling of being duped,” she said.
Still, the impact is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That’s due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner’s’ credit by 150 points or more on a scale of 300 to 850.
To enroll in the Obama administration’s $75 billion “Making Home Affordable” program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus – Experian, Equifax and TransUnion.
For delinquent borrowers, the damage was done when they fell behind on their loans.
But for homeowners who are having financial troubles but managing to pay their bills, a request for a loan modification is the first sign of difficulty. And that means a sharp drop in the borrower’s credit score.
The credit rating industry defends the practice. People who sign up for loan modifications would not be asking for help unless they were having severe money troubles, said Norm Magnuson, spokesman for the Consumer Data Industry Association, a trade group in Washington that represents the credit bureaus.
“The consumer is going into the program because they’re in a financial bind,” he said. “Other lenders would need to be aware of that.”
The Obama administration acknowledges that enrolling in the program can hurt credit scores. But Meg Reilly, a Treasury Department spokeswoman, said that foreclosure “brings far more serious financial consequences for borrowers and their families.”
The credit score issue is an unexpected consequence of the program that has been plagued with problems and disappointing results since its launch last year. Only about 170,000 homeowners had completed the process as of February. Hundreds of thousands more are still in limbo.
Jim Owens, 46, of Harrisburg, Ore., was accepted on a trial basis for the Obama plan last year.
He and his family were in bad financial shape. They were barely able to pay the mortgage and utility bills.
The main reason: After being laid off and unemployed for six months, he took a job as maintenance director at a retirement home. But it paid only around $25,000 yearly, about $10,000 less than his former job in a city public works department.
He and his wife were also struggling with debt, after taking out a second mortgage four years ago to pay off debt and medical bills.
Late last year, he was searching for a used sport-utility vehicle. He got a 30-day approval for $2,000 car loan.
But that time ran out before he found a car, so he had to reapply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied.
“I should have been told,” that this might happen, Owens said. “Without credit, you can’t do a whole lot in life.”
A Citi spokesman, Mark Rodgers, said the company follows the Treasury Department’s guidelines for reporting to credit bureaus. “We do not determine credit scores,” said Rodgers, who declined to comment on Owens’ case.
The impact is worse for borrowers who enroll in the Obama program and are then ruled ineligible.
If homeowners do manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower’s credit score. Over time, they can see their score increase.
“The best way to build credit back is to continue to pay bills as agreed, to use credit wisely,” said Tom Quinn, vice president of scoring solutions at Fair Isaac Corp., which designed the well-known FICO score system. “As time goes on, the score gradually increases.”
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer
Redrawn FEMA maps cause abrupt changes in flood insurance costs
Across the United States, thousands of property owners will soon be forced to buy flood insurance because new federal flood-risk maps suddenly put them in flood zones.
The revisions have unleashed outcries as some dispute the reality of the new boundaries and the true risk of flood damage. The changes, made by the Federal Emergency Management Agency, or FEMA, can cost a property owner from hundreds to thousands of dollars each year.
“It’s a bad thing for the building,” said Andrew Gittleman, vice president of Gittleman Management. His firm manages the 53-unit Great Northern Lofts in St. Paul’s Lowertown, one of four historic buildings newly included in the map.
“It’s like Tuesday you’re not in a flood plain, and on Wednesday you are,” he said. “There’s no way it’s in a flood plain.” The new designation means a $10,000 yearly insurance policy, which will be spread across the condo owners, Gittleman said.
Redefining how far floodwaters reach has broad implications for property and business owners, local governments, developers and others. The maps are used to determine insurance rates, who is required to buy insurance, and to guide local governments with flood plain and development policies. That’s why FEMA embarked on a $1 billion effort in 2004 to update old maps using new technology. The maps are being updated county by county across the country.
It’s a mixed blessing.
“There’s going to be more people finding out they need flood insurance,” said Ceil Strauss, flood plain manager for the Minnesota Department of Natural Resources. “There’s actually quite a few that are finding out they won’t need it any more, or that they’re not in the flood plain.”
The map revisions have been a mixed bag. Some communities have complained about inaccurate maps. Others howled when FEMA said flood-protection systems weren’t up to snuff and redrew maps ignoring them, putting thousands of properties in hazard areas that had previously been considered protected.
Elsewhere, property owners rejoiced because the revised maps showed their properties weren’t at risk and ended the need for insurance.
“A central part of our commitment to protect lives and property is to ensure that people are aware of the natural hazards and risks that exist in their communities,” said FEMA spokeswoman Cat Langel. “FEMA works closely with local communities during this collaborative process to ensure that any verifiable data that will strengthen the flood maps is included and incorporated.”
The maps, called Flood Insurance Rate Maps, or FIRMS, depict areas at various risks of flooding, with special attention on special hazard areas that would be affected by floods that have a 1 percent chance every year of happening, or 100-year floods.
Floods are the most common natural disaster and have caused about $24 billion in damage across the United States over the past decade. Congress established the National Flood Insurance Program in 1968 as a way to offer protection to property owners in exchange for local governments taking actions to reduce the risks of damage to property. Those actions include limiting development in highly flood-prone areas.
The government backs the insurance program, but people purchase policies from private agents. Standard homeowner insurance policies don’t cover flood losses. Cost of insurance depends mainly on a property’s potential for flooding and the amount of coverage. Homeowners who don’t live in a flood plain can insure their house ($250,000) and its contents ($100,000) for an annual premium of $388. For some structures in high-risk areas, the cost can range up to thousands of dollars.
Any property owner living in a community in the program can buy flood insurance, but structures in the 100-year flood plain having federally regulated mortgages – the vast majority of them are required to have it. According to FEMA, structures located in the flood plain have a 26 percent chance of sustaining flood damage during the term of a 30-year mortgage.
After FEMA makes revisions, local governments must adopt them into flood plain-management ordinances if they want to remain in the program. If a community chooses not to participate, then insurance is no longer available.
Copyright © 2010 Star Tribune (Minneapolis).
The revisions have unleashed outcries as some dispute the reality of the new boundaries and the true risk of flood damage. The changes, made by the Federal Emergency Management Agency, or FEMA, can cost a property owner from hundreds to thousands of dollars each year.
“It’s a bad thing for the building,” said Andrew Gittleman, vice president of Gittleman Management. His firm manages the 53-unit Great Northern Lofts in St. Paul’s Lowertown, one of four historic buildings newly included in the map.
“It’s like Tuesday you’re not in a flood plain, and on Wednesday you are,” he said. “There’s no way it’s in a flood plain.” The new designation means a $10,000 yearly insurance policy, which will be spread across the condo owners, Gittleman said.
Redefining how far floodwaters reach has broad implications for property and business owners, local governments, developers and others. The maps are used to determine insurance rates, who is required to buy insurance, and to guide local governments with flood plain and development policies. That’s why FEMA embarked on a $1 billion effort in 2004 to update old maps using new technology. The maps are being updated county by county across the country.
It’s a mixed blessing.
“There’s going to be more people finding out they need flood insurance,” said Ceil Strauss, flood plain manager for the Minnesota Department of Natural Resources. “There’s actually quite a few that are finding out they won’t need it any more, or that they’re not in the flood plain.”
The map revisions have been a mixed bag. Some communities have complained about inaccurate maps. Others howled when FEMA said flood-protection systems weren’t up to snuff and redrew maps ignoring them, putting thousands of properties in hazard areas that had previously been considered protected.
Elsewhere, property owners rejoiced because the revised maps showed their properties weren’t at risk and ended the need for insurance.
“A central part of our commitment to protect lives and property is to ensure that people are aware of the natural hazards and risks that exist in their communities,” said FEMA spokeswoman Cat Langel. “FEMA works closely with local communities during this collaborative process to ensure that any verifiable data that will strengthen the flood maps is included and incorporated.”
The maps, called Flood Insurance Rate Maps, or FIRMS, depict areas at various risks of flooding, with special attention on special hazard areas that would be affected by floods that have a 1 percent chance every year of happening, or 100-year floods.
Floods are the most common natural disaster and have caused about $24 billion in damage across the United States over the past decade. Congress established the National Flood Insurance Program in 1968 as a way to offer protection to property owners in exchange for local governments taking actions to reduce the risks of damage to property. Those actions include limiting development in highly flood-prone areas.
The government backs the insurance program, but people purchase policies from private agents. Standard homeowner insurance policies don’t cover flood losses. Cost of insurance depends mainly on a property’s potential for flooding and the amount of coverage. Homeowners who don’t live in a flood plain can insure their house ($250,000) and its contents ($100,000) for an annual premium of $388. For some structures in high-risk areas, the cost can range up to thousands of dollars.
Any property owner living in a community in the program can buy flood insurance, but structures in the 100-year flood plain having federally regulated mortgages – the vast majority of them are required to have it. According to FEMA, structures located in the flood plain have a 26 percent chance of sustaining flood damage during the term of a 30-year mortgage.
After FEMA makes revisions, local governments must adopt them into flood plain-management ordinances if they want to remain in the program. If a community chooses not to participate, then insurance is no longer available.
Copyright © 2010 Star Tribune (Minneapolis).
Redrawn FEMA maps cause abrupt changes in flood insurance costs
Across the United States, thousands of property owners will soon be forced to buy flood insurance because new federal flood-risk maps suddenly put them in flood zones.
The revisions have unleashed outcries as some dispute the reality of the new boundaries and the true risk of flood damage. The changes, made by the Federal Emergency Management Agency, or FEMA, can cost a property owner from hundreds to thousands of dollars each year.
“It’s a bad thing for the building,” said Andrew Gittleman, vice president of Gittleman Management. His firm manages the 53-unit Great Northern Lofts in St. Paul’s Lowertown, one of four historic buildings newly included in the map.
“It’s like Tuesday you’re not in a flood plain, and on Wednesday you are,” he said. “There’s no way it’s in a flood plain.” The new designation means a $10,000 yearly insurance policy, which will be spread across the condo owners, Gittleman said.
Redefining how far floodwaters reach has broad implications for property and business owners, local governments, developers and others. The maps are used to determine insurance rates, who is required to buy insurance, and to guide local governments with flood plain and development policies. That’s why FEMA embarked on a $1 billion effort in 2004 to update old maps using new technology. The maps are being updated county by county across the country.
It’s a mixed blessing.
“There’s going to be more people finding out they need flood insurance,” said Ceil Strauss, flood plain manager for the Minnesota Department of Natural Resources. “There’s actually quite a few that are finding out they won’t need it any more, or that they’re not in the flood plain.”
The map revisions have been a mixed bag. Some communities have complained about inaccurate maps. Others howled when FEMA said flood-protection systems weren’t up to snuff and redrew maps ignoring them, putting thousands of properties in hazard areas that had previously been considered protected.
Elsewhere, property owners rejoiced because the revised maps showed their properties weren’t at risk and ended the need for insurance.
“A central part of our commitment to protect lives and property is to ensure that people are aware of the natural hazards and risks that exist in their communities,” said FEMA spokeswoman Cat Langel. “FEMA works closely with local communities during this collaborative process to ensure that any verifiable data that will strengthen the flood maps is included and incorporated.”
The maps, called Flood Insurance Rate Maps, or FIRMS, depict areas at various risks of flooding, with special attention on special hazard areas that would be affected by floods that have a 1 percent chance every year of happening, or 100-year floods.
Floods are the most common natural disaster and have caused about $24 billion in damage across the United States over the past decade. Congress established the National Flood Insurance Program in 1968 as a way to offer protection to property owners in exchange for local governments taking actions to reduce the risks of damage to property. Those actions include limiting development in highly flood-prone areas.
The government backs the insurance program, but people purchase policies from private agents. Standard homeowner insurance policies don’t cover flood losses. Cost of insurance depends mainly on a property’s potential for flooding and the amount of coverage. Homeowners who don’t live in a flood plain can insure their house ($250,000) and its contents ($100,000) for an annual premium of $388. For some structures in high-risk areas, the cost can range up to thousands of dollars.
Any property owner living in a community in the program can buy flood insurance, but structures in the 100-year flood plain having federally regulated mortgages – the vast majority of them are required to have it. According to FEMA, structures located in the flood plain have a 26 percent chance of sustaining flood damage during the term of a 30-year mortgage.
After FEMA makes revisions, local governments must adopt them into flood plain-management ordinances if they want to remain in the program. If a community chooses not to participate, then insurance is no longer available.
Copyright © 2010 Star Tribune (Minneapolis).
The revisions have unleashed outcries as some dispute the reality of the new boundaries and the true risk of flood damage. The changes, made by the Federal Emergency Management Agency, or FEMA, can cost a property owner from hundreds to thousands of dollars each year.
“It’s a bad thing for the building,” said Andrew Gittleman, vice president of Gittleman Management. His firm manages the 53-unit Great Northern Lofts in St. Paul’s Lowertown, one of four historic buildings newly included in the map.
“It’s like Tuesday you’re not in a flood plain, and on Wednesday you are,” he said. “There’s no way it’s in a flood plain.” The new designation means a $10,000 yearly insurance policy, which will be spread across the condo owners, Gittleman said.
Redefining how far floodwaters reach has broad implications for property and business owners, local governments, developers and others. The maps are used to determine insurance rates, who is required to buy insurance, and to guide local governments with flood plain and development policies. That’s why FEMA embarked on a $1 billion effort in 2004 to update old maps using new technology. The maps are being updated county by county across the country.
It’s a mixed blessing.
“There’s going to be more people finding out they need flood insurance,” said Ceil Strauss, flood plain manager for the Minnesota Department of Natural Resources. “There’s actually quite a few that are finding out they won’t need it any more, or that they’re not in the flood plain.”
The map revisions have been a mixed bag. Some communities have complained about inaccurate maps. Others howled when FEMA said flood-protection systems weren’t up to snuff and redrew maps ignoring them, putting thousands of properties in hazard areas that had previously been considered protected.
Elsewhere, property owners rejoiced because the revised maps showed their properties weren’t at risk and ended the need for insurance.
“A central part of our commitment to protect lives and property is to ensure that people are aware of the natural hazards and risks that exist in their communities,” said FEMA spokeswoman Cat Langel. “FEMA works closely with local communities during this collaborative process to ensure that any verifiable data that will strengthen the flood maps is included and incorporated.”
The maps, called Flood Insurance Rate Maps, or FIRMS, depict areas at various risks of flooding, with special attention on special hazard areas that would be affected by floods that have a 1 percent chance every year of happening, or 100-year floods.
Floods are the most common natural disaster and have caused about $24 billion in damage across the United States over the past decade. Congress established the National Flood Insurance Program in 1968 as a way to offer protection to property owners in exchange for local governments taking actions to reduce the risks of damage to property. Those actions include limiting development in highly flood-prone areas.
The government backs the insurance program, but people purchase policies from private agents. Standard homeowner insurance policies don’t cover flood losses. Cost of insurance depends mainly on a property’s potential for flooding and the amount of coverage. Homeowners who don’t live in a flood plain can insure their house ($250,000) and its contents ($100,000) for an annual premium of $388. For some structures in high-risk areas, the cost can range up to thousands of dollars.
Any property owner living in a community in the program can buy flood insurance, but structures in the 100-year flood plain having federally regulated mortgages – the vast majority of them are required to have it. According to FEMA, structures located in the flood plain have a 26 percent chance of sustaining flood damage during the term of a 30-year mortgage.
After FEMA makes revisions, local governments must adopt them into flood plain-management ordinances if they want to remain in the program. If a community chooses not to participate, then insurance is no longer available.
Copyright © 2010 Star Tribune (Minneapolis).
Friday, March 19, 2010
Fannie Mae: Drop in home sales underscores fragile recovery
Housing activity is expected to rebound later this year but at a slower pace than previously projected, according to the March 2010 Economic Outlook released today by Fannie Mae’s Economics & Mortgage Market Analysis Group.
The report says the drop in new and existing home sales disappointed analysts, but the setback is viewed as temporary with gains expected in the second quarter and trending up on a sustainable basis by year-end.
The outlook continues to call for moderate economic growth of 3 percent for 2010 as the labor market appears poised to create jobs, the service sector shows improvement, and consumer spending joins in as part of the economic storyline. Consumer spending grew a solid 0.3 percent in January, suggesting a pickup in the first quarter despite the possibility of a slow down in February.
“The recent growth in consumer spending is a positive sign for first quarter gains,” says Fannie Mae Chief Economist Doug Duncan. “However, anxiety over job and income prospects continues to weigh on consumer confidence which will likely lead to moderate spending growth in the coming quarters. Strengthening growth in the service sector and more favorable financial conditions overall keep us optimistic that we are moving forward with the recovery, albeit at a lower trajectory than previously forecast.”
The Economic Outlook includes interest rates, the housing market, the mortgage market, and the overall economic climate. To read the full March 2010 Economic Outlook, visit the Economics & Mortgage Market Analysis site at http://www.fanniemae.com.
© 2010 Florida Realtors®
The report says the drop in new and existing home sales disappointed analysts, but the setback is viewed as temporary with gains expected in the second quarter and trending up on a sustainable basis by year-end.
The outlook continues to call for moderate economic growth of 3 percent for 2010 as the labor market appears poised to create jobs, the service sector shows improvement, and consumer spending joins in as part of the economic storyline. Consumer spending grew a solid 0.3 percent in January, suggesting a pickup in the first quarter despite the possibility of a slow down in February.
“The recent growth in consumer spending is a positive sign for first quarter gains,” says Fannie Mae Chief Economist Doug Duncan. “However, anxiety over job and income prospects continues to weigh on consumer confidence which will likely lead to moderate spending growth in the coming quarters. Strengthening growth in the service sector and more favorable financial conditions overall keep us optimistic that we are moving forward with the recovery, albeit at a lower trajectory than previously forecast.”
The Economic Outlook includes interest rates, the housing market, the mortgage market, and the overall economic climate. To read the full March 2010 Economic Outlook, visit the Economics & Mortgage Market Analysis site at http://www.fanniemae.com.
© 2010 Florida Realtors®
Years after loan default, homeowners may still owe
Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars – and a collection agency is coming after them to get it. That’s because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in some states have years to make a claim.
If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.
“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.
The phenomenon suggests an ominous, looming echo of today’s real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen the economic recovery.
“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ‘90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”
Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say nonprofit loan counselors.
“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in Carmichael, Calif. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.
“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.”
But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said. “It’s a big business and investors are coming out of the woodwork. It’s a very lucrative business,” she said.
Real estate insiders and financial players know it as “scratch and dent.” One of the biggest players in the business, Texas-based Real Time Resolutions, did not respond to an inquiry on the subject from McClatchy Newspapers. Neither did Bank of America, which holds many defaulted loans made by its Countrywide affiliate during the real estate boom.
Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about. But borrowers may be vulnerable in years ahead – generally, those who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.
In California, banks can’t collect from borrowers for primary, so-called “first-lien,” loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer. But banks also made thousands of “second-lien” loans, including those used to finance 20 percent downpayments during the housing boom. A separate category of “seconds” includes home equity loans and home equity lines of credit.
Nationally, about 3.4 percent of those loans are currently delinquent, according to Foresight. Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.
“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help. “Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.
Government forces are already moving to limit potential damage to millions now struggling with home loans. A new Obama administration short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.”
This release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program.
In California, Democratic state Sen. Ellen Corbett recently introduced SB 1178, which would expand California’s protections for some people who refinance and take on a second mortgage. People who refinance, but use the funds to improve their homes or to stay in their homes with a better interest rate, would be protected. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.
“If you refinance a property and aren’t using the money for personal reasons, you shouldn’t lose your personal protections,” said California Association of Realtors lobbyist Alex Creel. He said the idea has been around for years but has become more urgent as thousands lose income and fall into mortgage trouble.
The bill would apply to all foreclosures or short sales that occur after it becomes law. It doesn’t matter when the loan was made, Creel said. SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.
Copyright © 2010 The Sacramento Bee.
If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.
“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.
The phenomenon suggests an ominous, looming echo of today’s real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen the economic recovery.
“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ‘90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”
Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say nonprofit loan counselors.
“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in Carmichael, Calif. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.
“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.”
But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said. “It’s a big business and investors are coming out of the woodwork. It’s a very lucrative business,” she said.
Real estate insiders and financial players know it as “scratch and dent.” One of the biggest players in the business, Texas-based Real Time Resolutions, did not respond to an inquiry on the subject from McClatchy Newspapers. Neither did Bank of America, which holds many defaulted loans made by its Countrywide affiliate during the real estate boom.
Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about. But borrowers may be vulnerable in years ahead – generally, those who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.
In California, banks can’t collect from borrowers for primary, so-called “first-lien,” loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer. But banks also made thousands of “second-lien” loans, including those used to finance 20 percent downpayments during the housing boom. A separate category of “seconds” includes home equity loans and home equity lines of credit.
Nationally, about 3.4 percent of those loans are currently delinquent, according to Foresight. Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.
“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help. “Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.
Government forces are already moving to limit potential damage to millions now struggling with home loans. A new Obama administration short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.”
This release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program.
In California, Democratic state Sen. Ellen Corbett recently introduced SB 1178, which would expand California’s protections for some people who refinance and take on a second mortgage. People who refinance, but use the funds to improve their homes or to stay in their homes with a better interest rate, would be protected. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.
“If you refinance a property and aren’t using the money for personal reasons, you shouldn’t lose your personal protections,” said California Association of Realtors lobbyist Alex Creel. He said the idea has been around for years but has become more urgent as thousands lose income and fall into mortgage trouble.
The bill would apply to all foreclosures or short sales that occur after it becomes law. It doesn’t matter when the loan was made, Creel said. SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.
Copyright © 2010 The Sacramento Bee.
Required GFE form criticized as impeding new mortgages
If you’re a prospective homebuyer exploring real estate this spring, there’s plenty to learn about, from bank-owned properties to the strict criteria for getting a mortgage these days. And now the federal government has added something to the mix, aimed at helping buyers shop for loans: the revamped Good Faith Estimate (GFE).
Designed by the U.S. Department of Housing and Urban Development to help borrowers better understand the terms of their loans, the new three-page form has been a required part of the mortgage application process since Jan. 1.
In some ways, the form is doing its job, experts say – and in other ways it’s adding confusion to a process that already besieges buyers with a mind-boggling array of details.
But many in the mortgage industry – which fought against the development of the new form – say it is causing so much confusion it’s actually spawning additional, explanatory forms, causing delays in some transactions, and leaving some borrowers worried about signing papers that don’t reflect what they’ll really have to pay.
“It’s not clear. It’s not simple,” said Doug Jones, a broker at Mortgage Magic in San Jose.
“There are issues with the form – in places, it is cumbersome and confusing,” said Diane Thompson, an attorney with the National Consumer Law Center. “But it is nonetheless a dramatic improvement over where we were.”
Thompson said the good faith estimate forms that had evolved over the past 30 years “were a mess because they weren’t standardized.” Now, standardized terminology and a fuller disclosure of fees benefit borrowers, she said.
Before the form was redesigned, good faith estimates had “no teeth” to bite lenders or brokers who pumped up their fees between the time a customer applied and closed the loan, said Nina Simon, director of litigation for the Center for Responsible Lending in Washington, D.C. But the new form stipulates that some charges – such as the loan origination fee – can’t change at all after they’ve been quoted to a customer on a good faith estimate. Other charges, such as those for some title company services, can only increase 10 percent. If those fees increase more than 10 percent after the good faith estimate is issued, the lender must pay the difference.
In addition, the good faith estimate has a section written in straightforward language that spells out each loan’s basic terms. For example, one line says, “Can your interest rate rise?” Followed by check-boxes for “No” and “Yes, it can rise to a maximum of ... . The first change will be in ... .”
But mortgage brokers have developed a long list of complaints about the new form. For example, there’s nowhere to show how much the borrower will pay in pro-rated property taxes. And brokers have the incentive to inflate the estimate of their fees, because once they’ve issued the good faith estimate, they can’t boost those fees, even if subsequent changes to the loan package cut into their compensation.
But HUD, which redesigned the decades-old form in the wake of the subprime mortgage crisis, says that those who are complaining about the new procedure misunderstand its intent. A document on the HUD Web site devotes 31 pages to explaining the form.
“It’s designed to be a shopping document, to allow borrowers to be able to select the very best loan available to them,” said HUD spokesman Brian Sullivan.
Still, some borrowers end up confused, expecting a document that says “total estimated settlement charges” at the bottom will, well, provide an estimate of total settlement charges. But, because of what’s included – and omitted – from the three-page form, the amount shown on the bottom line is often significantly different from what the customer will actually have to pay to close the transaction.
For example, in the San Francisco Bay Area, the “transfer taxes” due when property changes hands are typically paid by sellers. But they must be reflected on the GFE form, and can amount to thousands of dollars, prompting some borrowers to assume the amount shown on the form is one they must pay.
When Warner de Gooijer applied for a loan to buy a home in San Jose recently, he was confounded by the huge dollar figure looming at the bottom of the good faith estimate, which must be provided to borrowers within three business days of when they apply for a mortgage. Then his loan officer explained that he wouldn’t actually have to pay the amount shown at the bottom of the good faith estimate.
“But do I trust my loan officer or the paper I’m signing?” said de Gooijer, who nervously wondered whether he’d be liable for the large amount anyway.
“The GFE is intended to help borrowers compare loans and costs for loans,” said Tracie Southerland of Opes Advisors, a mortgage lender in Palo Alto, Calif., that worked with de Gooijer. “What borrowers come to us to know is, ‘When I get to the closing table, what kind of check am I writing?’ The new GFE does not have any place that captures that.”
The change is prompting some lenders to develop new worksheets of their own, so they can show the customer what he or she might really have to fork over at closing.
“I should never have to ask a borrower to sign one thing, while on a separate sheet of paper I’m telling them what the real deal is,” said Faramarz Moeen-Ziai, mortgage banker at Bank of Commerce Mortgage in San Ramon, Calif.
Copyright © 2010 San Jose Mercury News.
Designed by the U.S. Department of Housing and Urban Development to help borrowers better understand the terms of their loans, the new three-page form has been a required part of the mortgage application process since Jan. 1.
In some ways, the form is doing its job, experts say – and in other ways it’s adding confusion to a process that already besieges buyers with a mind-boggling array of details.
But many in the mortgage industry – which fought against the development of the new form – say it is causing so much confusion it’s actually spawning additional, explanatory forms, causing delays in some transactions, and leaving some borrowers worried about signing papers that don’t reflect what they’ll really have to pay.
“It’s not clear. It’s not simple,” said Doug Jones, a broker at Mortgage Magic in San Jose.
“There are issues with the form – in places, it is cumbersome and confusing,” said Diane Thompson, an attorney with the National Consumer Law Center. “But it is nonetheless a dramatic improvement over where we were.”
Thompson said the good faith estimate forms that had evolved over the past 30 years “were a mess because they weren’t standardized.” Now, standardized terminology and a fuller disclosure of fees benefit borrowers, she said.
Before the form was redesigned, good faith estimates had “no teeth” to bite lenders or brokers who pumped up their fees between the time a customer applied and closed the loan, said Nina Simon, director of litigation for the Center for Responsible Lending in Washington, D.C. But the new form stipulates that some charges – such as the loan origination fee – can’t change at all after they’ve been quoted to a customer on a good faith estimate. Other charges, such as those for some title company services, can only increase 10 percent. If those fees increase more than 10 percent after the good faith estimate is issued, the lender must pay the difference.
In addition, the good faith estimate has a section written in straightforward language that spells out each loan’s basic terms. For example, one line says, “Can your interest rate rise?” Followed by check-boxes for “No” and “Yes, it can rise to a maximum of ... . The first change will be in ... .”
But mortgage brokers have developed a long list of complaints about the new form. For example, there’s nowhere to show how much the borrower will pay in pro-rated property taxes. And brokers have the incentive to inflate the estimate of their fees, because once they’ve issued the good faith estimate, they can’t boost those fees, even if subsequent changes to the loan package cut into their compensation.
But HUD, which redesigned the decades-old form in the wake of the subprime mortgage crisis, says that those who are complaining about the new procedure misunderstand its intent. A document on the HUD Web site devotes 31 pages to explaining the form.
“It’s designed to be a shopping document, to allow borrowers to be able to select the very best loan available to them,” said HUD spokesman Brian Sullivan.
Still, some borrowers end up confused, expecting a document that says “total estimated settlement charges” at the bottom will, well, provide an estimate of total settlement charges. But, because of what’s included – and omitted – from the three-page form, the amount shown on the bottom line is often significantly different from what the customer will actually have to pay to close the transaction.
For example, in the San Francisco Bay Area, the “transfer taxes” due when property changes hands are typically paid by sellers. But they must be reflected on the GFE form, and can amount to thousands of dollars, prompting some borrowers to assume the amount shown on the form is one they must pay.
When Warner de Gooijer applied for a loan to buy a home in San Jose recently, he was confounded by the huge dollar figure looming at the bottom of the good faith estimate, which must be provided to borrowers within three business days of when they apply for a mortgage. Then his loan officer explained that he wouldn’t actually have to pay the amount shown at the bottom of the good faith estimate.
“But do I trust my loan officer or the paper I’m signing?” said de Gooijer, who nervously wondered whether he’d be liable for the large amount anyway.
“The GFE is intended to help borrowers compare loans and costs for loans,” said Tracie Southerland of Opes Advisors, a mortgage lender in Palo Alto, Calif., that worked with de Gooijer. “What borrowers come to us to know is, ‘When I get to the closing table, what kind of check am I writing?’ The new GFE does not have any place that captures that.”
The change is prompting some lenders to develop new worksheets of their own, so they can show the customer what he or she might really have to fork over at closing.
“I should never have to ask a borrower to sign one thing, while on a separate sheet of paper I’m telling them what the real deal is,” said Faramarz Moeen-Ziai, mortgage banker at Bank of Commerce Mortgage in San Ramon, Calif.
Copyright © 2010 San Jose Mercury News.
Wells Fargo agrees to modify second mortgages
Facing criticism over the slow progress of its foreclosure-prevention efforts, the Obama administration has struck deals with two giant banks that would extend mortgage relief to homeowners with second mortgages.
Wells Fargo & Co. said Wednesday that it has agreed to modify home-equity loans in cases where borrowers have already qualified for relief under the U.S. Treasury’s mortgage-modification program. Wells Fargo joined Charlotte, N.C.-based Bank of America, which made a similar announcement in January.
Together, the two banks account for 25 percent of the second-mortgage market in the United States, according to the U.S. Treasury.
Consumer advocates say a key weakness with the government’s $50 billion foreclosure-prevention program is that mortgage modifications leave second loans unchanged. Borrowers qualifying for lower mortgage payments risk default because of large payments on a home equity loan. Some homeowners owe more on a second mortgage than the first.
The U.S. Treasury, recognizing the second-mortgage problem, last summer began urging large banks to modify those loans, too.
“Our goal is to provide another benefit to customers who may be in distress,” said Kevin Moss, the executive vice president in charge of Wells Fargo’s home equity group, which has a $124 billion home equity portfolio with 2.3 million customers. “The housing market is showing some positive signs of stabilizing in some markets, but there are still too many foreclosures, and too many people who are still struggling out there.”
The move by two giant banks may compel other lenders to follow suit, said Celia Chen, a housing economist at Moody’s Economy.com. Even so, she said, the modification program will do little to reduce foreclosures this year and may simply postpone them.
In February, about 308,000 Americans lost their homes through foreclosures, up 6 percent from a year earlier, according to RealtyTrac.
The Obama administration is under pressure to improve its Home Affordable Modification Program, or HAMP, which aims to slow the surge in foreclosures. The goal of the program is to lower the payment on a first mortgage to about 31 percent of a borrower’s gross income.
Borrowers have complained of disappearing paperwork and slow service by the banks, which have the final say over loan changes. So far, 168,708 mortgages have been permanently modified with lower payments or longer payoff periods, according to a Treasury Department report last week. That’s just a small fraction of the 3.4 million people who qualify for the program.
Extending relief to second mortgages improves the odds that borrowers will avoid default, say consumer groups. “This is a step in the right direction,” said Tara Twomey, an attorney with the National Consumer Law Center, a nonprofit advocacy group that has tracked the federal government’s mortgage-modification efforts. “It’s a recognition that people with second mortgages are struggling, too, and that ignoring seconds was problematic.”
As of Feb. 28, Wells Fargo, the nation’s largest home lender, had permanently modified 24,975 loans under the program, the most of any lender, federal data say. The San Francisco-based bank had 114,090 borrowers still in trial repayment plans and has modified more than 365,000 mortgages outside of the federal program.
Copyright © 2010 Star Tribune, Minneapolis
Wells Fargo & Co. said Wednesday that it has agreed to modify home-equity loans in cases where borrowers have already qualified for relief under the U.S. Treasury’s mortgage-modification program. Wells Fargo joined Charlotte, N.C.-based Bank of America, which made a similar announcement in January.
Together, the two banks account for 25 percent of the second-mortgage market in the United States, according to the U.S. Treasury.
Consumer advocates say a key weakness with the government’s $50 billion foreclosure-prevention program is that mortgage modifications leave second loans unchanged. Borrowers qualifying for lower mortgage payments risk default because of large payments on a home equity loan. Some homeowners owe more on a second mortgage than the first.
The U.S. Treasury, recognizing the second-mortgage problem, last summer began urging large banks to modify those loans, too.
“Our goal is to provide another benefit to customers who may be in distress,” said Kevin Moss, the executive vice president in charge of Wells Fargo’s home equity group, which has a $124 billion home equity portfolio with 2.3 million customers. “The housing market is showing some positive signs of stabilizing in some markets, but there are still too many foreclosures, and too many people who are still struggling out there.”
The move by two giant banks may compel other lenders to follow suit, said Celia Chen, a housing economist at Moody’s Economy.com. Even so, she said, the modification program will do little to reduce foreclosures this year and may simply postpone them.
In February, about 308,000 Americans lost their homes through foreclosures, up 6 percent from a year earlier, according to RealtyTrac.
The Obama administration is under pressure to improve its Home Affordable Modification Program, or HAMP, which aims to slow the surge in foreclosures. The goal of the program is to lower the payment on a first mortgage to about 31 percent of a borrower’s gross income.
Borrowers have complained of disappearing paperwork and slow service by the banks, which have the final say over loan changes. So far, 168,708 mortgages have been permanently modified with lower payments or longer payoff periods, according to a Treasury Department report last week. That’s just a small fraction of the 3.4 million people who qualify for the program.
Extending relief to second mortgages improves the odds that borrowers will avoid default, say consumer groups. “This is a step in the right direction,” said Tara Twomey, an attorney with the National Consumer Law Center, a nonprofit advocacy group that has tracked the federal government’s mortgage-modification efforts. “It’s a recognition that people with second mortgages are struggling, too, and that ignoring seconds was problematic.”
As of Feb. 28, Wells Fargo, the nation’s largest home lender, had permanently modified 24,975 loans under the program, the most of any lender, federal data say. The San Francisco-based bank had 114,090 borrowers still in trial repayment plans and has modified more than 365,000 mortgages outside of the federal program.
Copyright © 2010 Star Tribune, Minneapolis
Wednesday, March 17, 2010
NAR defends broker price opinions for HAFA
A coalition led by the Appraisal Institute recently suggested that the federal government disallow broker price opinions (BPOs) for properties under the federal Home Affordable Foreclosure Alternatives (HAFA) program.
In a letter sent March 12 to U.S. Treasury Secretary Geithner and Housing and Urban Development (HUD) Secretary Donovan, the National Association of Realtors® (NAR) disputed that suggestion. Vicki Cox Golder, 2010 NAR president, supported the use of BPOs under HAFA. The letter was, in part, a response to the appraisers’ letter that said BPOs may exacerbate mortgage fraud and that real estate agents have a bias towards quick results that produce a fee without respect to other stakeholders in the real estate transaction. The coalition opposing BPOs included the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers.
In the letter, Golder recognized the need for flexibility in any mortgage modification program, and she noted the importance of the appraisal for purchase money mortgage transactions. However, she said that an appraisal may not be the best tool for other real estate transactions. BPOs are widely accepted in the real estate industry, she noted, and there is no evidence that their use results in mortgage fraud.
“BPOs are completed by licensed real estate agents with a detailed knowledge and understanding of real estate pricing and local market trends developed through active participation in the listing, negotiation and sale of properties,” Golder said. “This perspective offers a unique viewpoint that supports sound real estate decisions with accurate estimates of the value of real estate.”
NAR disputes another point made in the appraisers’ letter that suggests the use of BPOs could lead to a higher incidence of mortgage fraud. NAR says that no evidence supports that suggestion, and reminded HUD and the Treasury that all members of NAR must adhere to a strict code of ethics.
NAR also says it has concerns with an assertion that at least 23 states limit BPO use in establishing a listing price for a property, saying that is simply incorrect. In the letter, NAR encourages the Treasury and HUD to examine the relevant state statutes prior to accepting that argument at face value.
According to NAR, the use of BPOs for short sales and other purposes is clearly permissible in most, if not all, states.
In a letter sent March 12 to U.S. Treasury Secretary Geithner and Housing and Urban Development (HUD) Secretary Donovan, the National Association of Realtors® (NAR) disputed that suggestion. Vicki Cox Golder, 2010 NAR president, supported the use of BPOs under HAFA. The letter was, in part, a response to the appraisers’ letter that said BPOs may exacerbate mortgage fraud and that real estate agents have a bias towards quick results that produce a fee without respect to other stakeholders in the real estate transaction. The coalition opposing BPOs included the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers.
In the letter, Golder recognized the need for flexibility in any mortgage modification program, and she noted the importance of the appraisal for purchase money mortgage transactions. However, she said that an appraisal may not be the best tool for other real estate transactions. BPOs are widely accepted in the real estate industry, she noted, and there is no evidence that their use results in mortgage fraud.
“BPOs are completed by licensed real estate agents with a detailed knowledge and understanding of real estate pricing and local market trends developed through active participation in the listing, negotiation and sale of properties,” Golder said. “This perspective offers a unique viewpoint that supports sound real estate decisions with accurate estimates of the value of real estate.”
NAR disputes another point made in the appraisers’ letter that suggests the use of BPOs could lead to a higher incidence of mortgage fraud. NAR says that no evidence supports that suggestion, and reminded HUD and the Treasury that all members of NAR must adhere to a strict code of ethics.
NAR also says it has concerns with an assertion that at least 23 states limit BPO use in establishing a listing price for a property, saying that is simply incorrect. In the letter, NAR encourages the Treasury and HUD to examine the relevant state statutes prior to accepting that argument at face value.
According to NAR, the use of BPOs for short sales and other purposes is clearly permissible in most, if not all, states.
Getting a mortgage without perfect credit
The government keeps promoting programs designed to help existing homeowners refinance their mortgages at a lower rate, as well as get perspective buyers into homes. In other words, Uncle Sam says he’s here to help.
“Phooey,” say homeowners and prospective homeowners, who keep complaining that it is ridiculously hard to get a mortgage or refinance one.
Can both sides be right?
Unfortunately, yes. But if you are willing to do a bit more work than in the past, it is possible to lower your mortgage rate to 5 percent or arrange to buy your first home. It is clear that there is pent-up demand to do both.
Seemingly qualified buyers keep telling me they can’t get a mortgage. According to Credit Suisse (CS) and others, more than one-third of homeowners hold a 30-year conventional mortgage at 6 percent or higher. I will tell you what you need to do, but first we must understand what is going on in the marketplace.
A demanding lending landscape
Today it is unquestionably more complicated and difficult to get a home loan than it used to be. Burned by the recent housing meltdown they helped to create, lenders currently go over every requirement with a fine-tooth comb. They are looking for higher credit scores and more money down.
Still, the situation is far from hopeless: Loans at attractive rates are still available for those with less-than-perfect credit and minimal-to-no equity.
How should one negotiate the landscape? I checked with industry experts and here’s what I learned: Banks and mortgage brokers can still get you a mortgage of $417,000 or less at the best rates through Fannie Mae (FNM) and Freddie Mac (FRE) programs if you have a credit score as low as 660 and can put 20 percent down. Jumbo loans, those greater than $417,000, remain more expensive.
What about more complicated scenarios? I checked on a number of specific situations – for example, people who can put 20 percent down but have a credit score of only 630, or people who have a score of 630 and only 10 percent to put down. I found these deals can get done but, not surprisingly, you will pay an additional quarter- or half-point. This means that instead of getting a 30-year mortgage at 5 percent, you would have to pay from 5.25 percent to 5.5 percent. Not too bad.
What about tougher scenarios, such as trying to buy or refinance with average credit, but zero to negative equity? According to expert Brian Fishman of Illinois-based DB Diamond Mortgage Group, the zero-down days are over, apart from incentives such as the soon-to-expire homebuyer credits.
Refinancing is possible, however. Freddie Mac has refinance opportunities for those with mortgages of up to 105 percent of their appraised value. Fannie has them for up to 95 percent. The lower credit and low-or-zero-equity deals will cost at least a point or more above published rates. But it might get done.
Don’t assume your hands are tied
Believe it or not, even if your first and second mortgages total 125 percent of the appraised value, Fannie or Freddie may yet have programs that will refinance the first mortgage at a reasonable rate, as long as the second-mortgage holder doesn’t object. Since every scenario is different, I’m not suggesting that you refinance this type. I’m simply suggesting you weigh all reasonable options vs. assume that you have no choices.
How can you determine which opportunities are available to you and which best suit your particular circumstances? I’m still a big fan of doing homework. I recommend that you consider seeking input from multiple sources, such as your current servicer, your local bank and your mortgage broker, and your local real estate professional.
To start, I’d suggest a reputable mortgage broker. While they are being paid a commission by lenders to help place you with them, they will often get you an equal or possibly better rate by shopping for you. You are also more likely to know where you stand among the various options before you get bogged down with paperwork.
In a nutshell, if you have credit scores in the low 600s or higher, 10 percent or greater equity in your home, and you’re paying above 6 percent, you should be shopping to refinance. If you’re in the market to buy a home, set these levels as your minimum standards, understanding that the better your credit and the more you can put down, the better your chances of getting the lowest mortgage rate available.
No matter what you do, remember that you have options and should do your homework. If you find that you’re so far under water that nothing seems to make sense, maybe it’s time to seek an alternative strategy, such as a short sale.
Copyright © 2010 The McGraw-Hill Cos., Marc Roth
“Phooey,” say homeowners and prospective homeowners, who keep complaining that it is ridiculously hard to get a mortgage or refinance one.
Can both sides be right?
Unfortunately, yes. But if you are willing to do a bit more work than in the past, it is possible to lower your mortgage rate to 5 percent or arrange to buy your first home. It is clear that there is pent-up demand to do both.
Seemingly qualified buyers keep telling me they can’t get a mortgage. According to Credit Suisse (CS) and others, more than one-third of homeowners hold a 30-year conventional mortgage at 6 percent or higher. I will tell you what you need to do, but first we must understand what is going on in the marketplace.
A demanding lending landscape
Today it is unquestionably more complicated and difficult to get a home loan than it used to be. Burned by the recent housing meltdown they helped to create, lenders currently go over every requirement with a fine-tooth comb. They are looking for higher credit scores and more money down.
Still, the situation is far from hopeless: Loans at attractive rates are still available for those with less-than-perfect credit and minimal-to-no equity.
How should one negotiate the landscape? I checked with industry experts and here’s what I learned: Banks and mortgage brokers can still get you a mortgage of $417,000 or less at the best rates through Fannie Mae (FNM) and Freddie Mac (FRE) programs if you have a credit score as low as 660 and can put 20 percent down. Jumbo loans, those greater than $417,000, remain more expensive.
What about more complicated scenarios? I checked on a number of specific situations – for example, people who can put 20 percent down but have a credit score of only 630, or people who have a score of 630 and only 10 percent to put down. I found these deals can get done but, not surprisingly, you will pay an additional quarter- or half-point. This means that instead of getting a 30-year mortgage at 5 percent, you would have to pay from 5.25 percent to 5.5 percent. Not too bad.
What about tougher scenarios, such as trying to buy or refinance with average credit, but zero to negative equity? According to expert Brian Fishman of Illinois-based DB Diamond Mortgage Group, the zero-down days are over, apart from incentives such as the soon-to-expire homebuyer credits.
Refinancing is possible, however. Freddie Mac has refinance opportunities for those with mortgages of up to 105 percent of their appraised value. Fannie has them for up to 95 percent. The lower credit and low-or-zero-equity deals will cost at least a point or more above published rates. But it might get done.
Don’t assume your hands are tied
Believe it or not, even if your first and second mortgages total 125 percent of the appraised value, Fannie or Freddie may yet have programs that will refinance the first mortgage at a reasonable rate, as long as the second-mortgage holder doesn’t object. Since every scenario is different, I’m not suggesting that you refinance this type. I’m simply suggesting you weigh all reasonable options vs. assume that you have no choices.
How can you determine which opportunities are available to you and which best suit your particular circumstances? I’m still a big fan of doing homework. I recommend that you consider seeking input from multiple sources, such as your current servicer, your local bank and your mortgage broker, and your local real estate professional.
To start, I’d suggest a reputable mortgage broker. While they are being paid a commission by lenders to help place you with them, they will often get you an equal or possibly better rate by shopping for you. You are also more likely to know where you stand among the various options before you get bogged down with paperwork.
In a nutshell, if you have credit scores in the low 600s or higher, 10 percent or greater equity in your home, and you’re paying above 6 percent, you should be shopping to refinance. If you’re in the market to buy a home, set these levels as your minimum standards, understanding that the better your credit and the more you can put down, the better your chances of getting the lowest mortgage rate available.
No matter what you do, remember that you have options and should do your homework. If you find that you’re so far under water that nothing seems to make sense, maybe it’s time to seek an alternative strategy, such as a short sale.
Copyright © 2010 The McGraw-Hill Cos., Marc Roth
5 states rush plans for $1.5B in housing funds
The five states hardest hit by the foreclosure crisis have been given only weeks to plan how to spend $1.5 billion in federal funding announced by the Obama administration last month.
Guidelines issued under the U.S. Treasury Department’s Fund for Hardest Hit Housing Markets on March 5 gave housing finance agencies in California, Arizona, Florida, Nevada and Michigan just six weeks to come up with plans on how to spend their share of the money.
The rush could be problematic for the states, especially because Treasury is seeking “innovative” measures to help families facing foreclosure. But some experts have been urging the administration to try the approach, believing it will be helpful and that it can be done quickly.
“This is long overdue, allowing the use of more innovative techniques,” said Ken Rosen, a real estate professor at University of California at Berkeley’s Hass School of Business.
The guidelines give wide leeway to the state Housing Finance Agencies charged with doling out the money to design programs tailored to their region’s circumstance. The money can be spent, for example, to help families who can’t pay their mortgages because of job losses, unable to refinance because plunging home values have left them “underwater,” or to give relief from second mortgage payments.
California’s Housing Finance Agency, for example, is looking at areas of the state that have been hardest hit, like the Central Valley and Inland Empire area southeast of Los Angeles, spokesman Ken Giebel said. The agency is getting the most cash, $700 million.
It will have to start from scratch with plans on how to help unemployed homeowners, for instance, and how to get the money from the federal government to the state government to the actual underwriter.
“None of this stuff is in writing, it’s all up in the air right now,” Giebel said.
Rosen suggested allowing the value of a home that is worth less than the homeowner owed to be written off, replacing that amount with a second mortgage that wouldn’t have to be paid off unless the home rose enough in value.
The homeowner would then share in the profits, providing an incentive to stay in the home. He also said programs to allow the unemployed to forgo payments for a year, with those payments wrapped into a second mortgage, would be helpful.
“There’s a lot of innovative ideas and I’m hoping we have a lot of smart people in each state who know them; I know we do in California,” Rosen said. “So I think there’s plenty of time.”
Florida is getting the second-largest share at $418 million.
Cecka Rose Green, communications director for the Florida Housing Finance Corporation, said her agency is just starting to review the Treasury requirements, but has put a team together and is reviewing programs other agencies are using. They’re looking at plans that have helped in other states and will likely cherry-pick the best.
“I think we’re taking those important first steps but we’re not close to getting any details of a plan out,” she said Friday.
Michigan is getting $154.5 million, Nevada $103 million and Arizona $125 million.
Arizona’s housing agency is also just getting started on a proposal and hasn’t identified how it might spend the money.
“I know we have a compressed time frame, but we are still looking at a number of ideas and I don’t know what we’ll be focusing on yet,” said state Department of Housing spokeswoman Kristina Fretwell.
Like other states’ officials interviewed for this story, Fretwell said there was no doubt that Arizona would get an application in by the April 16 deadline. Treasury will then spend several weeks reviewing the proposals, with a goal of getting the first cash to homeowners by summer.
The Obama administration’s plans to aid homeowners who fall behind on their payments have been problematic. The biggest effort, the Making Home Affordable program, has helped only about 16 percent of the borrowers who signed up since its launch last year. Figures released by the Treasury Department on Friday showed that as of last month, about 170,000 homeowners had had their payments reduced permanently, of which nearly 77,000 were in the five hardest hit states. About 1.1 million have enrolled in the plan overall.
Not all academics who have studied the real estate crisis agree that spending more money trying to keep people in their homes is a smart idea.
“The solution we all know that has to be done – and this sounds harsh – the borrowers have to be allowed to move through foreclosure and the houses have to be put on the market so we can get to the bottom of this mess,” said Anthony Sanders, a real estate professor at George Mason University who has testified before Congress on the foreclosure crisis.
Sanders called the $1.5 billion both too little and too much – too little, because the housing crisis has hit so many homeowners that $1.5 billion is tiny compared to the need, and too much because it targets homeowners who really can’t afford to be in their home anyway.
He pointed to the more that 70 percent of homeowners who went back into default after government mortgage relief efforts.
He also criticized letting state housing finance agencies, which are designed to help low- and middle-income borrowers, decide how to spend the money.
“To think that state agencies, who are not very good at this, are going to come up with an innovation is just kind of wishful thinking.”
The new program announced by President Barack Obama in February is meant to get more help to states where housing prices have declined by at least 20 percent.
“The biggest reason and rationale for the timeline is the urgency of the issue,” Treasury spokeswoman Andrea Risotto said. “We want to try to get relief out to these homeowners as quickly as we can.”
On the Net:
Making Home Affordable: http://www.makinghomeaffordable.gov/
Copyright © 2010 The Associated Press, Bob Christie
Guidelines issued under the U.S. Treasury Department’s Fund for Hardest Hit Housing Markets on March 5 gave housing finance agencies in California, Arizona, Florida, Nevada and Michigan just six weeks to come up with plans on how to spend their share of the money.
The rush could be problematic for the states, especially because Treasury is seeking “innovative” measures to help families facing foreclosure. But some experts have been urging the administration to try the approach, believing it will be helpful and that it can be done quickly.
“This is long overdue, allowing the use of more innovative techniques,” said Ken Rosen, a real estate professor at University of California at Berkeley’s Hass School of Business.
The guidelines give wide leeway to the state Housing Finance Agencies charged with doling out the money to design programs tailored to their region’s circumstance. The money can be spent, for example, to help families who can’t pay their mortgages because of job losses, unable to refinance because plunging home values have left them “underwater,” or to give relief from second mortgage payments.
California’s Housing Finance Agency, for example, is looking at areas of the state that have been hardest hit, like the Central Valley and Inland Empire area southeast of Los Angeles, spokesman Ken Giebel said. The agency is getting the most cash, $700 million.
It will have to start from scratch with plans on how to help unemployed homeowners, for instance, and how to get the money from the federal government to the state government to the actual underwriter.
“None of this stuff is in writing, it’s all up in the air right now,” Giebel said.
Rosen suggested allowing the value of a home that is worth less than the homeowner owed to be written off, replacing that amount with a second mortgage that wouldn’t have to be paid off unless the home rose enough in value.
The homeowner would then share in the profits, providing an incentive to stay in the home. He also said programs to allow the unemployed to forgo payments for a year, with those payments wrapped into a second mortgage, would be helpful.
“There’s a lot of innovative ideas and I’m hoping we have a lot of smart people in each state who know them; I know we do in California,” Rosen said. “So I think there’s plenty of time.”
Florida is getting the second-largest share at $418 million.
Cecka Rose Green, communications director for the Florida Housing Finance Corporation, said her agency is just starting to review the Treasury requirements, but has put a team together and is reviewing programs other agencies are using. They’re looking at plans that have helped in other states and will likely cherry-pick the best.
“I think we’re taking those important first steps but we’re not close to getting any details of a plan out,” she said Friday.
Michigan is getting $154.5 million, Nevada $103 million and Arizona $125 million.
Arizona’s housing agency is also just getting started on a proposal and hasn’t identified how it might spend the money.
“I know we have a compressed time frame, but we are still looking at a number of ideas and I don’t know what we’ll be focusing on yet,” said state Department of Housing spokeswoman Kristina Fretwell.
Like other states’ officials interviewed for this story, Fretwell said there was no doubt that Arizona would get an application in by the April 16 deadline. Treasury will then spend several weeks reviewing the proposals, with a goal of getting the first cash to homeowners by summer.
The Obama administration’s plans to aid homeowners who fall behind on their payments have been problematic. The biggest effort, the Making Home Affordable program, has helped only about 16 percent of the borrowers who signed up since its launch last year. Figures released by the Treasury Department on Friday showed that as of last month, about 170,000 homeowners had had their payments reduced permanently, of which nearly 77,000 were in the five hardest hit states. About 1.1 million have enrolled in the plan overall.
Not all academics who have studied the real estate crisis agree that spending more money trying to keep people in their homes is a smart idea.
“The solution we all know that has to be done – and this sounds harsh – the borrowers have to be allowed to move through foreclosure and the houses have to be put on the market so we can get to the bottom of this mess,” said Anthony Sanders, a real estate professor at George Mason University who has testified before Congress on the foreclosure crisis.
Sanders called the $1.5 billion both too little and too much – too little, because the housing crisis has hit so many homeowners that $1.5 billion is tiny compared to the need, and too much because it targets homeowners who really can’t afford to be in their home anyway.
He pointed to the more that 70 percent of homeowners who went back into default after government mortgage relief efforts.
He also criticized letting state housing finance agencies, which are designed to help low- and middle-income borrowers, decide how to spend the money.
“To think that state agencies, who are not very good at this, are going to come up with an innovation is just kind of wishful thinking.”
The new program announced by President Barack Obama in February is meant to get more help to states where housing prices have declined by at least 20 percent.
“The biggest reason and rationale for the timeline is the urgency of the issue,” Treasury spokeswoman Andrea Risotto said. “We want to try to get relief out to these homeowners as quickly as we can.”
On the Net:
Making Home Affordable: http://www.makinghomeaffordable.gov/
Copyright © 2010 The Associated Press, Bob Christie
Monday, March 15, 2010
Home equity loans available again
Banks are again offering home equity loans.
Lenders are expected to make about $36 billion in new home equity loans over the next year, according to Moody’s Economy.com. That’s actually more than the $34 billion in home equity loans made in 2008.
The difference will be the way the money is spent, says Frank Nothaft, chief economist at Freddie Mac. Most of it will go for necessary home improvements.
“Consumers are better at managing their own personal balance sheet as a result of the difficult recession we went through,” Nothaft says.
Source: Bloomberg, Kathleen M. Howley, Prashant Gopal, John Gittelsohn (03/11/2010)
© Copyright 2010 INFORMATION, INC. Bethesda, MD
Lenders are expected to make about $36 billion in new home equity loans over the next year, according to Moody’s Economy.com. That’s actually more than the $34 billion in home equity loans made in 2008.
The difference will be the way the money is spent, says Frank Nothaft, chief economist at Freddie Mac. Most of it will go for necessary home improvements.
“Consumers are better at managing their own personal balance sheet as a result of the difficult recession we went through,” Nothaft says.
Source: Bloomberg, Kathleen M. Howley, Prashant Gopal, John Gittelsohn (03/11/2010)
© Copyright 2010 INFORMATION, INC. Bethesda, MD
Gov’t mortgage plan aids 16 percent of borrowers
The Obama administration’s mortgage relief plan has helped only about 16 percent of borrowers who signed up since its launch last year, while hundreds of thousands of homeowners remain in limbo.
The Treasury Department says that as of last month, about 170,000 homeowners had completed the application process and had their loan payments reduced permanently. That compares with nearly 1.1 million homeowners who have enrolled since the plan started.
The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. To complete the process, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship.
About 90,000 homeowners have dropped out so far.
Homeowners in two California metro areas – Los Angeles and Riverside – have received the most help, with a combined 18,000 homeowners receiving permanent modifications.
But only 3,900 borrowers in Las Vegas had completed the program, a dismal showing in a city hard-hit by the foreclosure crisis.
Many analysts have been warning for months that the majority of borrowers will not complete the process because they are found to be ineligible during the trial phase. Housing counselors complain that many homeowners are waiting many months for a decision.
Meg Reilly, a Treasury Department spokeswoman, said lenders are double-checking calculations on denied applications, and that has led to delays.
Nevertheless, dissatisfaction with the program is widespread. There have been behind-the-scenes talks in the nation’s capital about how to get it back on track.
The best solution, many analysts say, is an effort to reduce the outstanding balance for borrowers who owe far more on their homes than the properties are worth.
Copyright 2010 The Associated Press, Alan Zibel, AP real estate writer.
The Treasury Department says that as of last month, about 170,000 homeowners had completed the application process and had their loan payments reduced permanently. That compares with nearly 1.1 million homeowners who have enrolled since the plan started.
The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. To complete the process, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship.
About 90,000 homeowners have dropped out so far.
Homeowners in two California metro areas – Los Angeles and Riverside – have received the most help, with a combined 18,000 homeowners receiving permanent modifications.
But only 3,900 borrowers in Las Vegas had completed the program, a dismal showing in a city hard-hit by the foreclosure crisis.
Many analysts have been warning for months that the majority of borrowers will not complete the process because they are found to be ineligible during the trial phase. Housing counselors complain that many homeowners are waiting many months for a decision.
Meg Reilly, a Treasury Department spokeswoman, said lenders are double-checking calculations on denied applications, and that has led to delays.
Nevertheless, dissatisfaction with the program is widespread. There have been behind-the-scenes talks in the nation’s capital about how to get it back on track.
The best solution, many analysts say, is an effort to reduce the outstanding balance for borrowers who owe far more on their homes than the properties are worth.
Copyright 2010 The Associated Press, Alan Zibel, AP real estate writer.
Friday, March 12, 2010
Gov’t official warns on home downpayment hikes
The head of the Federal Housing Administration is warning that boosting the minimum downpayment borrowers must provide to qualify for home loans backed by the agency could threaten the housing market.
FHA commissioner David Stevens said at a House hearing Thursday that his agency would insure 300,000 fewer loans per year if the mandatory downpayment was hiked from the current level of 3.5 percent to 5 percent. That’s a 40 percent drop.
The result would a potential “double-dip in housing prices,” because fewer people would qualify for loans, Stevens told lawmakers.
The FHA does not make loans, but offers insurance against their default. It has been insuring roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.
The agency said in January it would raise fees and tighten lending standards to shore up its strapped finances in hopes of avoiding a taxpayer bailout. The government agency, which has faced rising losses from foreclosed homes, has seen its reserves sink below the minimum level required by Congress.
The agency, however, is facing pressure on both sides. Democrats fear that hiking standards too much will cut off many borrowers - particularly minorities - from being able to buy homes. Republicans, however, are pushing for even tighter standards than the agency has proposed - such as the 5 percent downpayment requirement.
“The question now is: Have we gone far enough?” said Rep Scott Garrett, R-N.J.
Under the proposed changes, many of which need to be approved by Congress, homebuyers would pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount. That’s an increase from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500.
Credit score requirements also will be hiked. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 now would need a downpayment of at least 10 percent.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer.
FHA commissioner David Stevens said at a House hearing Thursday that his agency would insure 300,000 fewer loans per year if the mandatory downpayment was hiked from the current level of 3.5 percent to 5 percent. That’s a 40 percent drop.
The result would a potential “double-dip in housing prices,” because fewer people would qualify for loans, Stevens told lawmakers.
The FHA does not make loans, but offers insurance against their default. It has been insuring roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.
The agency said in January it would raise fees and tighten lending standards to shore up its strapped finances in hopes of avoiding a taxpayer bailout. The government agency, which has faced rising losses from foreclosed homes, has seen its reserves sink below the minimum level required by Congress.
The agency, however, is facing pressure on both sides. Democrats fear that hiking standards too much will cut off many borrowers - particularly minorities - from being able to buy homes. Republicans, however, are pushing for even tighter standards than the agency has proposed - such as the 5 percent downpayment requirement.
“The question now is: Have we gone far enough?” said Rep Scott Garrett, R-N.J.
Under the proposed changes, many of which need to be approved by Congress, homebuyers would pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount. That’s an increase from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500.
Credit score requirements also will be hiked. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 now would need a downpayment of at least 10 percent.
Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer.
Government urges short sales, but experts aren’t sure they will help
With the highly touted federal mortgage-modification program falling short of its target numbers, the government has looked into alternatives to foreclosure and come up with a possible, though not original, solution: The short sale, a transaction in which the lender accepts less than the balance owed on the mortgage.
Beginning April 5, under new Treasury Department rules, short sales will be presented as the potential next step for homeowners who are rejected by or fail to make the grade for the federal Home Affordable Modification Program (HAMP).
RealtyTrac chief economist Rick Sharga suggested that offering the short-sale program is the administration’s acknowledgment that its current mortgage-modification effort “can’t solve the foreclosure problem by itself.”
Kevin Gillen, vice president of Econsult of Philadelphia, said there was both statistical and anecdotal evidence that lenders have been holding off on foreclosure proceedings. “No doubt that part of this is due to staff shortages relative to the volume of delinquencies, but it’s also due to uncertainty over near-term government policy,” he said.
Sharga sees positive elements in the new guidelines: Both homeowners and mortgage servicers will have financial incentive to participate in short sales; there are limited payouts for second lienholders, “and paperwork is standardized, which makes it easier for everyone to comply.”
The new Home Affordable Foreclosure Alternative program will run until Dec. 31, 2012. Among its provisions:
• The lender must offer a short sale in writing to the borrower within 30 days after the borrower either is ruled ineligible for mortgage modification under the HAMP program or has been ruled unable to sustain payments under a trial plan.
• A borrower may receive up to $1,500 to assist with relocation expenses.
• Incentives of $1,000 will be offered to lenders for each completed short sale. For each deed in lieu of foreclosure, in which the borrower voluntarily transfers the property to the lender, $1,000 will be paid to the lender.
• A lender with a second lien on the property will get up to $3,000 of the short-sale proceeds, or can pursue a short sale outside the program if it doesn’t agree to share.
• The lender will not be permitted to reduce the real estate agent’s commission after an offer on a property has been received.
Currently, short sales don’t make up a big piece of the real estate market, either regionally or nationwide, for a variety of reasons. One is they tend to be difficult and time-consuming.
“I handled a short sale of a condo in Bensalem (Pa.) that took a year,” said real estate broker Christopher J. Artur. Typically, there is “so much aggravation and red tape involved that some buyers get so fed up they walk away.”
Nationally, just 14 percent of all existing-home transactions in January were short sales, the National Association of Realtors says. In the Philadelphia region, they made up 6.9 percent of total homes for sale at the end of January, said Art Herling, regional vice president at Long & Foster Real Estate.
“I call short sales ‘organized chaos,’ “ said Noelle Barbone, office manager of Weichert Realtors’ Media office. Each lender works short sales differently, “at their own pace, and it depends on how behind (the homeowners) are on mortgage payments, if the house is worth less than they owe, and whether or not foreclosure paperwork has been filed.”
The new program is unlikely to make short sales easier, even as an alternative to foreclosure. “What one needs in a short sale is time,” Barbone said.
But these days, as buyers race to meet the April 30 agreement-of-sale deadline for the federal tax credit, time is money.
“I had first-time buyers this weekend with 20 percent down, and we found two houses they liked,” said Cheryl Miller of Long & Foster’s Blue Bell office. Both were short sales, however, and neither the seller nor the agent could give a definite timeline for even seeing an executed agreement of sale, she said.
“Timing is pretty critical for the first-time buyer, and viable houses that are short sales are remaining unsold” as a result, Miller said.
Sharga doesn’t think the new short-sale program will be the answer the government seeks. “While we’ll likely see an increase in the number of short sales, I doubt that the reality will live up to the hype.”
Copyright © 2010 The Philadelphia Inquirer; distributed by McClatchy-Tribune Information Services
Beginning April 5, under new Treasury Department rules, short sales will be presented as the potential next step for homeowners who are rejected by or fail to make the grade for the federal Home Affordable Modification Program (HAMP).
RealtyTrac chief economist Rick Sharga suggested that offering the short-sale program is the administration’s acknowledgment that its current mortgage-modification effort “can’t solve the foreclosure problem by itself.”
Kevin Gillen, vice president of Econsult of Philadelphia, said there was both statistical and anecdotal evidence that lenders have been holding off on foreclosure proceedings. “No doubt that part of this is due to staff shortages relative to the volume of delinquencies, but it’s also due to uncertainty over near-term government policy,” he said.
Sharga sees positive elements in the new guidelines: Both homeowners and mortgage servicers will have financial incentive to participate in short sales; there are limited payouts for second lienholders, “and paperwork is standardized, which makes it easier for everyone to comply.”
The new Home Affordable Foreclosure Alternative program will run until Dec. 31, 2012. Among its provisions:
• The lender must offer a short sale in writing to the borrower within 30 days after the borrower either is ruled ineligible for mortgage modification under the HAMP program or has been ruled unable to sustain payments under a trial plan.
• A borrower may receive up to $1,500 to assist with relocation expenses.
• Incentives of $1,000 will be offered to lenders for each completed short sale. For each deed in lieu of foreclosure, in which the borrower voluntarily transfers the property to the lender, $1,000 will be paid to the lender.
• A lender with a second lien on the property will get up to $3,000 of the short-sale proceeds, or can pursue a short sale outside the program if it doesn’t agree to share.
• The lender will not be permitted to reduce the real estate agent’s commission after an offer on a property has been received.
Currently, short sales don’t make up a big piece of the real estate market, either regionally or nationwide, for a variety of reasons. One is they tend to be difficult and time-consuming.
“I handled a short sale of a condo in Bensalem (Pa.) that took a year,” said real estate broker Christopher J. Artur. Typically, there is “so much aggravation and red tape involved that some buyers get so fed up they walk away.”
Nationally, just 14 percent of all existing-home transactions in January were short sales, the National Association of Realtors says. In the Philadelphia region, they made up 6.9 percent of total homes for sale at the end of January, said Art Herling, regional vice president at Long & Foster Real Estate.
“I call short sales ‘organized chaos,’ “ said Noelle Barbone, office manager of Weichert Realtors’ Media office. Each lender works short sales differently, “at their own pace, and it depends on how behind (the homeowners) are on mortgage payments, if the house is worth less than they owe, and whether or not foreclosure paperwork has been filed.”
The new program is unlikely to make short sales easier, even as an alternative to foreclosure. “What one needs in a short sale is time,” Barbone said.
But these days, as buyers race to meet the April 30 agreement-of-sale deadline for the federal tax credit, time is money.
“I had first-time buyers this weekend with 20 percent down, and we found two houses they liked,” said Cheryl Miller of Long & Foster’s Blue Bell office. Both were short sales, however, and neither the seller nor the agent could give a definite timeline for even seeing an executed agreement of sale, she said.
“Timing is pretty critical for the first-time buyer, and viable houses that are short sales are remaining unsold” as a result, Miller said.
Sharga doesn’t think the new short-sale program will be the answer the government seeks. “While we’ll likely see an increase in the number of short sales, I doubt that the reality will live up to the hype.”
Copyright © 2010 The Philadelphia Inquirer; distributed by McClatchy-Tribune Information Services
Subscribe to:
Posts (Atom)