HVCC – Petition to Overturn Delivered to Cuomo Today

The HVCC should take another blow today as a petition to overturn it signed by more than 120,000 individuals will be delivered to Attorney General Cuomo’s office today.  We all know the problems this bill has caused, i would just like to list a couple that i am aware of:

1. Purchase contracts expiring because the HVCC conduit not forwarding appraisal orders timely enough
2. Clients having to pay for, four and in some cases five different appraisal invoices because they are not transferable
3. Big Banks charging $750 – $1,000 as an application fee to help cover the cost of the appraisal that used to cost $350 – $450
4. Closing Costs have increased by as much as 35%, due to multiple appraisals
5. Appraiser being underpaid for the same work or more

I hope that this law will be overturned.  If you have been affected by the HVCC sign any petition you can. 

The following is a great article for background as to why the HVCC came into existence.  Click the lick and read on.

http://www.appraisalpress.com/news/articles/hvcc_the_cure_is_worse_than_the_disease/

Understanding How a Short Sale May Affect Your Credit Score

Understanding How a Short Sale May Affect Your Credit Score

I receive calls weekly asking me what affect a short sale or foreclosure (or deed-in-lieu of foreclosure) will have on an individual’s credit. Unfortunately we hear such a variety of conflicting information; it’s hard to know who to believe or who is even handing out relevant advice.  What I will show you is the basics that the credit agencies have given out to date.

Short Sale Affect on FICO Scores

In the world of credit scoring, there are three major credit events that will severely impact your score, and they all carry an equal weight. They are listed as:

1. Serious delinquency
2. Derogatory public record
3. Collection filed

A homeowner in default (behind on payments) is technically in collection.

Facts about Short Sales and Credit Ratings

1. Credit preservation advantage for a short sale over foreclosure is limited if you have missed two mortgage payments in a row or more prior to the short sale finalizing.
2. The two largest mortgage investors, Fannie Mae and Freddie Mac — with few exceptions – will not lend again for four years (foreclosure) and two years (short sale).
3. Consumer’s credit score will take a hit until a consumer can re-establish good credit behaviors to supplant the foreclosure or short sale over a period of time.

The Rest of the Story…

The term Short Sale has become much more popular term this year due to the mortgage and credit meltdown. Short Sale is defined as selling your home for less than you owe the lien holder.  Many have questioned if this term Short Sale actually appears on a credit report, well it does not.  The most important concept to research and study is how the mortgage loan will be closed and reported in your credit history, before you agree to the terms your lender has to offer.

When you pay less than originally agreed on any loan or credit card, this will always impact your credit report negatively.  It is rare for a lender to report the mortgage as paid (or paid in full), and forgive the remaining amount owed on the loan. If that were to happen and assuming you had made all payments on time, your credit score would not be impacted.

Most often, however, a short sale is reported as settled (or settled for less), simply defined as you reaching an agreement to pay back only a portion of your outstanding balance.  The remainder is written off (or charged off) as a loss by your creditor.  Settled accounts much like charged off accounts, will be very negative, and even more so with a mortgage involved.

Previous to 2008, the remaining balance was considered as income for which you would owe taxes, and would report as a capital gain. Due to the number of mortgage crises this year, the IRS amended the tax code temporarily to waive this tax, and provide some comfort to those that are struggling.  As IRS codes will always be changing verify that is still true when filing your 2009 taxes.

When one decides to Short Sell it is usually to end the pain, the consequences in terms of negative impact on your credit if it was something you  could not control, learn from it and move on; take the time to start rebuilding your credit, which will be done through positive credit management. 

Buying a Home after a Short Sale

A foreclosure will remain on your credit report in the public records section for up to 10 years. You will notice that there is no question about a short sale.  If you have gone 120 days late on your mortgage, and your home was not foreclosed on, make sure you retain all the paper work.  As you try to take out a loan in the future you will need to provide proof that you sold the home rather than had it foreclosed on.  This is done via your closing statement or HUD-1.  The mortgage application under Section VIII currently asks the following questions:

1. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years? (Y/N)
2. Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment? (Y/N)

Actually, the decision makers in the mortgage industry know that a short sale is no different than a foreclosure or deed-in-lieu.  In all cases, the debt was settled for less than was owed.

US Home Appreciation Rates

How fast do homes appreciate historically in the US?

I had only found census data back to 1954 and some limited data for previous decades. I used some historical data that can be found to calculate annual home appreciation at 4.51% from 1960-2009 and dating back to the 1920’s homes have historically appreciated around 4.12% annually.

That data seems to point to appreciation between 1890 to 1930 period being really low which makes the overall averages less.

The data shows home appreciation for specific historical periods as follows :

If we divide the data to before WWII and after:

Or the past 100 years, 1909 to 2009: 3.43%

If you break the information down into decade chunks we will be able to see a few interesting points:

Note that these numbers are all calculated using simple math and do not account for any inflationary adjustment.

So what does all this new data tell me? First it seems the long term historical home price appreciation is 3-4% range rather than 5%. The data from the range of 1890 to 1920 is much less relevant in today’s market. During that time period we were still transitioning in the world and it was a much different place. I think the past 30 years is much more realistic of history if we’re going to use it as a platform to try to predict what may happen in the future.

Ins and Outs of Title Insurance

Recently I have had multiple clients inquire about Title Insurance and if they could make a claim against it to recoup some of the value they have lost as property values have gone down.   I am going to give a brief run down as to what it is and hopefully shed some light on the subject.  This is a longer article, but worth the read to understand Title Insurance

What Is Title Insurance?

Title insurance is protection against loss arising from problems connected to the title to your specific property.  Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more than that. There could be a weak link at some point in that chain that can emerge to cause financial trouble. For example, someone along the way may have forged a signature in transferring title. Someone may have sold a property that was part of an estate plan outside of the estate.  Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems for the current owner.

Is Purchasing Title Insurance Mandatory?

It is if you need a mortgage, all current mortgage lenders require such protection for the amount equal to and occasionally great than the loan amount.   The policy lasts until the loan is refinanced or the property is sold.   As with mortgage insurance, it protects the lender but you pay the premium, which is a onetime upfront payment.

Does Title Insurance Cover Me?

The required insurance protects the lender up to the amount of the mortgage, but it doesn’t protect your equity in the property.  For that you need an owner’s title policy equal to the full value of the home.  In many areas, sellers pay for owner policies as part of their obligation to deliver good title to the buyer.  It does not cover you in the event your property value goes down and you would like to file a claim for lost equity.  In other areas, borrowers must buy it as an add-on to the lender policy.  It is advisable to do this because the additional cost above the cost of the lender policy is relatively small for the additional coverage.

Doesn’t the Lender Policy Protect Me Indirectly?

No, title policies are indemnity policies, they protect against loss, and a lender policy would only cover the lender’s loss.  The fact that the insurer issued a policy to the lender indicates that the title has been searched and nothing inappropriate has been found at the time the policy is issued, but no search is 100% dependable. That is why an insurance policy is issued.

When Does Title Insurance Protection Begin and End?

With the exception noted later, title insurance only protects against losses from claims that arise prior to the date of the policy.  Coverage ends on the day the policy is issued and extends backward in time for an indefinite period. This is the biggest difference between this type of insurance and all other insurances that we purchase throughout our lives, which protect against losses resulting from events that occur after the policy is issued, for a certain time periods into the future.

For How Long is the Property Owner Purchasing the Title Insurance Covered?

Indefinitely. The owner’s protection lasts as long as the owner or any heirs have an interest in or any obligation with regard to the property. When they sell or refinance, however, the new lender will require the purchaser to obtain a new policy. That protects the lender against any liens or other claims against the property that may have arisen since the date of the previous policy.

For example, if the contractor failed to pay for the new roof and the roofer places a lien on your home, you are not protected by your title policy; the lien was placed after the date of the policy. You will probably be required to get the lien removed before you can sell or refinance the property.  If the lien hasn’t been removed and a search has failed to uncover it, the new lender will be protected by a new policy.

Will Title Insurance Protect Me After I Purchased the Property Against False Claims That Arise?

The standard policy does not, which is a significant weakness. Many events beyond your control can reduce the value of your house after you buy it.  If it is a newly-constructed house, sub-contractors claiming they had not been paid by the builder may place a lien on the house. Identity theft can result in a new mortgage you know nothing about.  A neighbor could build on your land without your knowledge, thereby adversely possessing and possibly eventually taking your land.  Or you may suddenly be told that you must correct a zoning violation of the previous owner.

To deal with these issues, a new policy with expanded coverage has been developed, referred to as the ALTA Homeowner’s Policy, which is becoming more of the standard requirement for lenders.

If The Value of My Property Increases Does My Title Insurance Coverage Rise To The New Value?

No, but coverage under the ALTA policy referred to above increases by 10% a year for the first 5 years after issuance, to 150% of the initial amount. You can buy additional coverage as a rider to the policy.

If your policy does not have such a rider and your property has appreciated sharply in value, you may be able to purchase additional coverage on the same policy by paying an incremental fee. The fee should be modest due to the fact that no new title search is involved. The coverage will only apply to title defects that existed prior to the original date of the policy. To extend the coverage to events that may have clouded the title since the original policy, you would need to take out a new policy with a new search and pay the full rate.

Why Do I Need to Purchase a New Policy When I Refinance?

You don’t need a new owner’s policy, but the lender will require you to purchase a new lender policy. Even if you refinance, the lender’s policy terminates when you pay off the mortgage. Furthermore, the lender is concerned about title issues that may have arisen since you purchased the property, such as the lien mentioned in an earlier question.  A new title search will uncover any liens, and the new lender will require you to pay the liens off as a condition of the new financing terms.  Title Insurers generally offer discounts on policies taken out within short periods after the preceding policy.  In some cases, discounts are available as far out as 6 years from the date of the previous policy.  You will need to ask for it, to make sure you receive any discount.

Does Title Insurance Guarantee Me That I Will Be Able to Sell My Property If An Unforeseen Claim Arises?

No. Title insurance does not prevent loss of marketability due to a title claim, any more than flood insurance prevents a flood.  If a claim does arise, you probably won’t be able to sell your property until the claim is settled by the title insurance company.  Understand that your interest and the interest on the title company may not instantly line up.  They will want to minimize the claim or drag it out; you will want it settled immediately.  You will need to probably spend time negotiating through that process.

Why Are There Such Large Variations in the Cost of Title Insurance in Different Parts of the Country?

One major reason is that the services covered by the title insurance premium vary so much in different parts of the country.  In some areas, the premium covers not only protection against loss but also the costs of search and examination, as well as closing services.  In other areas, the premium covers protection only, and borrowers pay for the other related services separately.

To complicate it further, in some states the charges for title-related services are paid to title insurance companies, which perform the functions but charge separately for them. In other states, borrowers may pay attorneys or independent companies called abstractors or escrow companies.

Of course, what matters to the borrower is the sum total of all title-related charges. These also differ from one area to another in response to a variety of factors.  All 50 states have 50 different regulatory agencies, which affect the charges.

Does a Borrower Have the Right to Purchase Title Insurance on Her Own?

Yes, although few exercise it. Most leave it up to one of the professionals with whom they deal with– real estate agent, lender or attorney – to select the carrier. This means that competition among title insurers is largely directed toward these professionals who can direct business rather than toward borrowers. This has began to change with the development of the internet, however, and one new insurer has emerged to market directly to borrowers. See Buying Title Insurance on the Web: Entitle Direct.

Does It Pay To Shop Around For These Service Providers?

Maybe. It is difficult to generalize because market conditions vary state by state, and sometimes within states.  I would certainly shop in states that do not regulate title insurance rates.  It is a good idea to ask an informed but neutral local third party whether it pays to shop in the area where your property is located.

Is Any Portion Of Title Insurance Premiums Deductible?

Under existing tax laws, they are not.  That could change at some point as mortgage insurance was not deductible and in some case it is now deductible.

Consider Adjustable Rate Mortgages as an Option

With rates as low as they are, why would I ever consider taking an adjustable rate mortgage?

This is a question I am asked almost daily, in the next couple minutes as you read this I wish to help you understand why adjustable rates are valid options for many Americans.  We have to first provide some structure and some historical background for context to this discussion.  The average loan right now last less than 4.5 years and we are living in our homes less than 7 years.  Yet we hold this fear that we have allowed the media to continue to spread that if we do anything other than a fixed rate mortgage we will lose our home.  I am suggesting for some there may be a better way, if we will slow down and think for ourselves we will be make educated decisions, rather than guess.

In every country besides the United States of America adjustable rate mortgage is the norm.  We are the only country that has a system (Fannie Mae / Freddie Mac) that allows for a fixed rate mortgage.

That being said lets walk through with what is an Adjustable Rate Mortgage (ARM).  ARMs as defined by multiple sources are mortgage loans where the interest rate on the note is periodically adjusted based on a variety of elements.  The interest rate, and your payments, is periodically adjusted up or down as the index changes do to the economy or other outside influences.  Those elements are the index it is based off of, the margin the banks charges and the interest rate caps associated with each loan.

ARM Indexes

While you can’t dictate which index a lender uses, you can choose a loan and lender based on the index that will apply to the loan. Ask the lender how each index used has performed in the past. Your goal is to find an ARM that is linked to an index that has remained fairly stable over many years.

Among the most common indices are the rates on 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).   When you are comparing lenders, consider both the index and the margin being offered.

It is easy to track the historical average of any index you are being quoted, don’t just take the word of the loan officer.  Go to google.com, type in history average for xyz index and you will get all kinds of information.

Margin

Think of the margin as the lender’s markup. It is an interest rate that represents the lender’s cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. The margin stays the same during the life of your home loan.

Interest Rate Caps

Rate caps limit how much interest you can be charged. There are two types of interest rate caps associated with ARMs.  Periodic caps limit the amount your interest rate can increase from one adjustment period to the next.  Overall caps limit how much the interest rate can increase over the life of the loan. Overall caps have been required by law since 1987.

Okay now we have some context for what is an ARM and how they move, lets me answer the question we started with, “If my payments can go up, why should I take out an ARM?”

The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which your payment will be cheaper for the same amount financed; providing you with additional financial stability.

Let me asked a question that most of us do not slow down enough to think about, how long do you plan to own this house? Rate increases in the future whatever the possibility are not as much of a factor if you plan to sell the home within in the next few years.

Are there other lift changing events that may happen in the next few years? Do you expect your income to increase? If so, the extra funds might cover the higher payments that result from rate increases or you may decide to buy a different home.  As well there are additional questions you need to ask yourself and ask your lender to decide if it is a valid option for you or not.

The Bottom Line

Do not be afraid to explore all of your options, do not use an ARM to buy more house than you can afford.  That is exactly the wrong reason to take out this type of loan. This is what led to some of the financial troubles our country has been involved in.  Some Lenders and Realtors will give you that idea; it makes them more money the more you borrow.  Take the monthly payment savings and invest it or apply it as additional principal payments.  Use these programs to financially benefit yourself and your family.

Real Estate Purchase Contract

Talking Credit – Give Yourself a Chance to Have a Great Future

Improving your credit score is like preparing to run a marathon; one cannot just show up the day of the event and expect to run.   When running a long race the athlete will have spent a lot of time, energy and a diet of a healthy variety of food in order to be ready.   So it is with your credit; you will need time to clean it up or improve it, energy spent keeping it up and need to understand the varieties of credit that can be used to improve or maintain your credit score.

One of the greatest assets you can have can also be one of your most bitter enemies; your credit score can either improve or detract from your quality of life.  Banks and Financial Institutions are becoming stricter than ever when it comes to your credit score.  The rate you pay for credit cards, insurance premiums, as well as auto and homes loans are all impacted by your credit score.  Building up the strength of your credit score is more than just paying your bills on time. 

 One of the most common credit scores used today is the FICO score, created by the Fair Isaac Corporation.   The credit score ranges from 350 to a high of 850, the higher the score the lower the interest rate you will pay on borrowed money, which will save you thousands of dollars over your life.  The current magic number is 720, but is currently moving up to 740.  Almost half of Americans maintain a score above 720.   As your score moves farther below 720, interest rates may begin to rise.  If you are below 580 you may not be able to take out a mortgage even if you have one currently.

Many think that the credit scoring models are an exact science unfortunately people need to gain understanding of the moving pieces associated with credit scoring as it is more of an art form.  Each credit bureau has its own proprietary formula.  While we do not know the exact formula we do know the following.

Five Credit Elements

1.   Payment History

Paying your bills on time makes up 35% of your score, we can call this your track record.   If you pay your payments a few days late and incur a late fee, this will not impact your score.  It a good rule of thumb to pay them on time or early if at all possible.  If a payment reports “late” on your credit that means the specific account is 30 days or more past its due date.  The more “lates” you have on your credit report the lower your score will go.  If a bill becomes 60, 90, 120 days late, the score quickly decreases.

If you have “late” payments currently reporting on your credit, understand the more time that passes between the last reported “late” the better.  The mortgage industry still has two major thresholds one at 12 months and the other at 24 months.   As each milestone is achieved better financing options become available to you.  Mortgage “lates” are much more serious than an auto payment or credit card payment being “late” and will have a larger impact than on your credit score.  If you are ever in a spot where you need to choose between making your mortgage payment and making your credit card payment, you should always choose to make your mortgage payment.

2.    Amount Owed

How much you owe is a 30% factor of your score.   Many think if they owe less they will have a better score.  This is not always the case; the part of your score is determined by a balancing act between your types of credit you use (mortgage, car loans and credit cards), how much you owe, and how much you have available.   Having too many credit cards could have a negative impact on your score, as well as not having more than one credit card.   Having a credit card that has a large available limit can improve your score.  This rule can also apply to home equity lines of credit for limits that are less than $35,000.  If you have lots of credit available to you use it but never maintain high balances.  The closer your balance is to approaching your limit the lower your score can go. 

 3.   Credit Type

The different types of accounts that you use make up this part of your score.  Many people do not want to use credit cards again if they had trouble in the past.  That is absolutely the wrong thing to do, you need to learn how to use credit properly and take control of your budget.

 4.   Credit Maturity

How long your individual credit accounts have been maintained is 15% of your score.   The longer you have had credit is one element, as well as how long have you had each individual account.   The longer the individual accounts have been established the stronger your score will be.  If you have old accounts that you have not used in the last 6 months the account will become inactive.  Should this occur it is not giving you the maximum points that might be available to you in this section. 

 5.   New Credit

Credit that is less than 24 months old makes up the last 10% of your score.  Doing the credit rollover game, rolling balances from one card to the next is not a good idea.  It will start to show a shallow credit report and impact the Payment History section of your score.

 Now that you know what it is that makes up your score, there are two last ideas I need to share with you.   The National Association of State Public Interest Research Groups, states that 79% of all credit reports contain errors.  It is worth your time to check your credit at least once a year.  If you find something that is wrong, take it on as your second job to clean it up.  Remember the score you have will determine what you pay over your lifetime in interest. 

 The second idea is identity theft is becoming more prevalent, I suggest you sign up for a protection plan such as www.lifelock.com.    For the limited cost it will allow to not have to worry about your credit being messed up for years to come.

Mortgage Bonds – Changing Interest Rates

The Federal Reserve recently said that it plans to continue purchasing large quantities of Mortgage Backed Securities to provide support to the mortgage and housing markets, and “it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant”.

The concern as always is that the media will spin these comments – telling consumers their own version of reality – something along the lines of this: “Good news, the Fed’s words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the Fall”…thereby creating another round of folks hitting the “snooze bar” on moving forward with a refinance or purchase, which looks to be a very costly strategy potentially for borrowers.

Let’s unpack two major reasons why…

First, many are waiting for 4.5%…but here’s a reason we shouldn’t look to the Fed to help make that happen with their purchasing program. Yes, the Fed has been buying Mortgage Bonds. But, those Fed purchases, are a lot of FNMA 30-yr, 5.5% and 5.0% coupons, which will not have much of a positive effect on present rates.  Only about 15% of the current purchases are in coupons at 4.5%.  What is currently impacting current rates is the movements in the stock market.  If the stock market is up rates will get worse and vice versa.

Note – there is a difference between the “coupon rate” and the interest you actually pays. When we are talking coupon rate, this is the rate that the end investor purchasing these Bonds receives. For example, a net 5.50% to the investor – or their coupon rate – has to start off as a significantly higher rate to the borrower. Why? Because the originating firm, the wholesaler, the agencies like Fannie or Freddie, and the securitizing firm on Wall Street all take a little piece. A mortgage rate of 6.125% to the borrower nets down to around a 5.50% coupon.

So with rates at present levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. This is likely a big reason why the Fed said they could continue this purchasing program beyond the current deadline if necessary. Bottom line, the Fed’s buying higher rate coupons will not necessarily get rates to 4.5%, but it should put a ceiling on how high rates can go during the near term.

Second, let’s address plain old fashioned greed.  Even though it may make sense for you to refinance right now, and save $250 per month for example, the greed factor kicks in as you fall in love with the dream of a 4.5% handle on your refinance rate…so you wait, and risk the savings of $250 per month in the hopes of gaining another $30 of savings per month.

Clearly, rates could turn higher, and this window of opportunity could pass you by entirely. But here’s the most important part: even if you are correct and are able to eventually grab that lower rate and save another $30 per month – think of what they have lost by waiting. While they delayed, you lost the savings you could have gained by taking action sooner – or in the example used, $250 – for every single month they waited. So even if they get the rate they are looking for, it could take years to make up what they lost by waiting.

Don’t be among the snoozing fools…take action right now.

Financial Tips for Couples

Financial Tips for Couples Who Need to Talk

 Tough economic times can cause a major strain on your marriage. And while we all know that communication is often the key to overcoming this challenge, discussing finances with a spouse can be extremely difficult for many people. With this in mind, here are some tips to at least get the conversation started.

 Get Out of the House – One of the worst times to discuss finances with your significant other is just after you’ve paid the bills. Let’s face it, there’s something about writing all of those checks that suddenly makes the reality of your monthly finances sink in. So, instead of approaching your spouse with statements in hand, try waiting a few hours. Think about what you want to say and how you want to say it. Then invite your partner for a walk or a cup of coffee at a local coffee house. The key here is a change of environment, a relaxed, neutral place where your partner won’t feel like he or she is being attacked.

 Give Your Partner Some Credit – If starting the conversation is hard for you, try opening with a story about your parents’ attitude and behavior towards money. This will provide an opportunity for your partner to do the same, opening the door for the discussion. Experts suggest starting off with an example of your own shortcomings and how you hope to change it. Also, offering a compliment of what he or she has been doing right is a great way to break the ice.

 Never Assume – Your goal here is to establish a common ground, to create and quantify a plan of action that will benefit you both, even a small goal that you both can work toward as a team. Because of this, you really can’t assume that your values and beliefs are absolutely correct and flawless. Be respectful and humble and listen to what your partner has to say. Most importantly, don’t blame.

 Bring in an Expert – Take the conversation to the next level. Once you’ve established a general plan, talking to a financial planner together can serve not only to ease the tension, but to solidify your common goals. Either way, keep talking, keep trying, and avoid bickering. Remember, no argument has ever decreased anyone’s monthly bills and keeping quiet has never increased anyone’s savings

Game Plan to Real Estate Investing

The following is a great article for the current economic environment, writen by Steven Marshall.  Real Estate is cheaper than it has been in a long time and interest rates have stayed steady.  Now if ever was the time, you should descide to add Real Estate to your investment portfolio.  If you are at all interested in investing in Real Estate I recommend you go out and buy Gary Keller’s bestselling book, “The Millionaire Real Estate Investor,” as soon as you can.

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