Friday, August 31, 2012

Recovery hinges on home prices

It is high summer, a scorcher, even mad dogs looking for shade. It's supposed to be a nothing-happening time. However, the anxious suspense in markets is as high and hot as the sun.
Everyone knows that the U.S. economy has lost momentum. Federal Reserve Chair Ben Bernanke on Tuesday twice in one page used "decelerated," followed by "... the generally disappointing tone of recently incoming data." Everyone expects that the Fed will do something, but nobody knows what or when, possibly not the chairman.
Bernanke vaguely mentioned use of the Fed's balance sheet -- "QE3" the shorthand for a third round of "quantitative easing" -- but no one outside the Fed can tell if action is held up by internal politics (resistance by the regional-Fed hardheads), or by doubts of QE effectiveness, or by desire to keep powder dry for something more troublesome than a slow patch.
The primary purpose of QE has been to knock down long-term rates, but markets have already done that, the 10-year T-note to 1.46 percent, and mortgages to 3.5 percent (if someone answers the phone). The secondary purpose has been to encourage risk-taking by investors and lubricate lending, but credit is choked by regulation and post-Bubble over-reaction. Bernanke: "…Prospective homebuyers cannot obtain mortgages due to tight lending standards." In the Fed's most-recent meeting minutes, the only group agreement in 12 pages was the plaintive wish for new ideas to help the economy.
The Fed should hold something in reserve to meet two contingencies: a failure to defer the fiscal cliff now five months away, and/or a euro collapse. The fiscal cliff is actually nearer by. We are only three months from election. President Obama has been unable to make a deal with the current Congress; whether he is re-elected or the lamest of ducks, Congress will remain the same until January.
Europe is like watching the Liar on "Saturday Night Live." Day after day after day after day, leadership says everything is fine, going according to plan. Right. This week Finland's short-term sovereigns went to negative yield, and Spain's 10s rose to 7.2 percent. Marker: For the moment French debt is still receiving flight-to-quality cash, its five-year down to 0.86 percent. When markets realize that French banks, budget, economy and trade deficit are in sum no better shape than Italy, and French yields begin to rise ...
On to something understandable: U.S. housing. For once, the National Association of REALTORS® has properly explained the drop in June sales of existing homes, down 5.4 percent from May, up 4.5 percent from June 2011. The primary reason: a scarcity of the cheapest distressed inventory, the darling of cash-paying investors. Listed inventory is down 24 percent versus last year.
Does this pattern mean anything? For the economy, or housing in general?
No. Not yet.
Listed inventory is merely apparent supply. The shadow supply lies offshore like ocean swells not yet formed into waves. The most deeply distressed inventory, not yet seized in foreclosure, let alone listed, seems to be down from 4.5 million homes to 4 million but replenished by constant inflow of new delinquency in shaky-economy feedback.
Some especially favored local markets -- like mine in Boulder, like Saudi Dakota, and San Francisco and any of the other IT paradises -- are doing remarkably well. The rest of the country ... how can the inventory/sales ratio fall so far and prices not rise? Because we still have at least 15 percent of homes underwater, most owners still making payments; many new sales merely recognizing the pre-existing loss, hardly encouraging to sellers or buyers.
Supply-and-demand thinking by finance types when the "bubble" blew was wrong then, and still is. Prices crashed far below "clearing prices" and resulted in more sellers and fewer buyers; now it will take quite a while to work off immense but latent inventory.
Media also focus on sales of new homes. Although rising a little, they are not particularly useful, except to the stock prices of builders. The gross domestic product (GDP) contribution of new construction even in good times is low single digit. For a better economy we need home prices to rise. That will repair household balance sheets, and every percentage point of home price gains will mean fewer homes underwater. And for that, as ever since 2007, we need credit.
Supply vs. sales today is a statistical curiosity. Watch prices. Prices, prices, prices.

Wednesday, August 29, 2012

HARP refinancings take off

As mortgage rates continued to hit new depths, the number of refinancings completed through the Obama administration's mortgage refinance program more than doubled year over year in May, according to a monthlyreport from the Federal Housing Finance Agency.
Last fall, the FHFA, which regulates government-sponsored enterprises Fannie Mae and Freddie Mac,announced several changes to the Home Affordable Refinance Program (HARP) in an effort to boost participation.
The changes included lifting the previous 125 percent loan-to-value (LTV) cap on HARP refinancings, and releasing lenders who sign off on a refinanced loan from some legal liabilities associated with the original loan.
The new HARP guidelines also eliminated some risk-based fees if homeowners refinanced into shorter-term mortgages that would get them out from negative equity situations more quickly.
HARP refinancings rose to 67,456 in May from 25,475 in May 2011. More than two-thirds of those refinancings were to borrowers with LTVs of 80 to 105 percent, meaning they either had equity in their homes or were only slightly "underwater."
But nearly a third of HARP refinancings were granted to borrowers above the 105 percent LTV threshold, meaning they owed considerably more on their mortgage than their home was worth.
The program completed more refinancings of underwater mortgages in the first five months of this year -- 78,273 -- than in all of 2011 (59,991).
Source: FHFA 
Underwater borrowers also increasingly chose shorter-term 15- and 20-year mortgages: 19 percent chose such mortgages in May, compared with 10 percent in 2011 overall.
Source: FHFA  
HARP refinancings accounted for 20 percent of all refinancings, the greatest proportion since the program's inception in 2009. Since then, HARP has completed a total of 1.3 million refinancings, or about 11 percent of Fannie Mae and Freddie Mac loans refinanced during that period.
HARP refinancings accounted for more than 40 percent of May refinancings in four states with high foreclosure rates: Nevada, Arizona, Michigan and Florida.
Source: FHFA   
Some foreclosure-ridden states also had high shares of HARP refinancings to underwater borrowers. In Nevada, Arizona, Florida, Idaho and California, underwater borrowers accounted for at least 42 percent of all HARP refinancings in May.
Source: FHFA   
In order to qualify for HARP, loans must be owned or guaranteed by Fannie Mae or Freddie Mac and must have been sold to the GSEs on or before May 31, 2009. Borrowers must have a loan-to-value ratio above 80 percent and must be current on their mortgage payments at the time of the refinance. Borrowers may have had one late payment in the 12 months prior to the refinance, but not in the six months before the refinance. 

Monday, August 27, 2012

Can I trust my home inspector?

DEAR BARRY: Before I bought my home, I hired a professional home inspector, but he did not do a very thorough job. This week I asked him to show proof that he is in good standing as a member of the American Society of Home Inspectors (ASHI). But he has refused to provide any documentation. Do I have any recourse against this inspector? --Andrew
DEAR ANDREW: If the home inspector claims to be a member of ASHI, you can verify this by visiting the association's website at www.ashi.com. Click on "Find an Inspector" and type in his name. He either is or is not a member. However, home inspector associations such as ASHI do very little in the way of policing the professionalism of members. Unless someone fails to pay dues or does not participate in ongoing education, it is unlikely that the membership status would be adversely affected.
The main issue is whether your inspector performed a thorough inspection. If there were defects that he did not report, he should respond to your concerns. If he is dodging you, that is a more serious issue than whether he is a member of an association. If the inspection was substandard, the inspector should respond to your concerns by reinspecting the issues at hand. If he is unwilling to stand behind his work, you probably should have another inspection by someone who is truly qualified. A second inspection report can be used to support a case against the first inspector.
DEAR BARRY: The house we are planning to buy has wetness on the foundation stem wall in the garage. The seller says this problem has come and gone for three or four years. She has had a plumbing company check it and they couldn't find a leak. The wet area has white chalky residue when it dries, and we believe this is soap residue. What are the dangers of mold forming in this area? --J.C.
DEAR J.C.: Mold does not grow unless it has some form of organic material for food. Concrete is a barren mixture of minerals on which mold growth is unlikely. Nevertheless, there is a moisture problem that should be evaluated and corrected.
The two most likely sources for the moisture would be a plumbing leak or faulty groundwater drainage. The fact that the wetness comes and goes indicates that ground drainage is the problem, assuming that the wetness coincides with wet and dry seasons. To determine whether ground drainage is the issue, the property should be inspected by a geotechnical engineer. A qualified engineer can determine the direction of groundwater movement and recommend specific ways to correct faulty drainage.
The white chalky substance on the concrete is probably not soap residue but a substance known as efflorescence, a formation of mineral salts that typically appears on concrete surfaces whenever there is prolonged water seepage.

Saturday, August 25, 2012

Rising home prices bring 700,000 homeowners above water

Rising home prices helped more than 700,000 homeowners regain equity in their homes during first quarter, but 11.4 million borrowers still owed more on their mortgage than their homes were worth, according to the latestreport from data aggregator CoreLogic.

The number of U.S homeowners with negative equity declined by 6 percent in the first quarter compared to the fourth quarter, leaving 23.7 percent of all homes with mortgages underwater. That's down from 25.2 percent in the fourth quarter.

When the 2.3 million borrowers with less than 5 percent equity, which CoreLogic calls "near-negative equity," are included, 28.5 percent of mortgaged homes were either underwater or nearly underwater in the first quarter, down from 30.1 percent.

All told, negative equity nationwide totaled $691 billion in the first quarter, down from $742 billion the previous quarter. The decrease was largely due to home-price increases, CoreLogic said.

"In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share," said Mark Fleming, chief economist for CoreLogic, in a statement.

"This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest-hit markets. While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk."

Some 1.9 million borrowers were only 5 percent upside down in the first quarter, meaning further price appreciation could move them into positive territory.

Among states, Nevada had the highest share of mortgaged loans in negative equity (61 percent) followed by Florida (45 percent), Arizona (43 percent), Georgia (37 percent) and Michigan (35 percent), CoreLogic said.

Negative equity is concentrated at the low end of the market, CoreLogic said. Among homes under $200,000, 31 percent were upside down, compared with 15.9 percent among homes worth more than $200,000.

The majority of the underwater homeowners -- 6.9 million -- had only a first mortgage with no home equity loans, and owed an average of $212,000 on their mortgages with negative equity averaging $47,000.

While 19 percent of these borrowers were underwater in the first quarter, the negative equity share among borrowers with both first liens and second liens was more than twice that, 39 percent. Those 4.5 million borrowers owed an average of $299,000 and were underwater by an average of $82,000.

Starting with this report, CoreLogic revised the methodology it uses to calculate negative equity and has therefore revised its historical data for both the nation and states.

Below are revised figures beginning with the third quarter of 2009.

Revised National Negative Equity
Time periodNegative equity loan count (in millions)Negative equity share
Q1 201211.423.7%
Q4 201112.125.2%
Q3 201111.424.1%
Q2 201111.524.5%
Q1 201111.524.7%
Q4 201011.725.1%
Q3 201011.424.5%
Q2 201011.524.9%
Q1 201011.925.6%
Q4 200911.925.7%
Q3 200911.124.3%
Source: CoreLogic

Thursday, August 23, 2012

Common Ways of Holding Title

This important question is one California real property purchasers ask their real estate, escrow and title professionals every day. Unfortunately, though these professionals may identify the many methods of owning property, they may not recommend a specific form of ownership, as doing so would constitute practicing law.

Because real property is among the most valuable of assets, the question of how parties take ownership of their property is of great importance.  The form of ownership taken - the vesting of title - will determine who may sign various documents involving the property and future rights of the parties to the transaction.  These rights involve such matters as: real property taxes, income taxes, inheritance and gift taxes, transferability of title and exposure to creditor's claims.  Also, how title is vested can have significant probate implications in the event of death.

The California Land Title Association (CLTA) advises those purchasing real property to give careful consideration to the manner in which title will be held.  Buyers may wish to consult legal counsel to determine the most advantageous form of ownership for their particular situation, especially in cases of multiple owners of a single property.

The CLTA has provided the following definitions of common vestings as an informational overview only.  Consumers should not rely on these as legal definitions.  The Association urges real property purchasers to carefully consider their titling decision prior to closing, and to seek counsel should they be unfamiliar with the most suitable ownership choice for their particular situation.

Note: Under current law, California recognizes same sex relationships that are legally performed or entered into in other states and other countries.  This recognition includes same sex marriages and other types of legal unions that are similar to registered domestic partnership status.  If  same sex couples are married in another jurisdiction caution should be used in the use of the term "marriage."  Under California law the term "marriage" is currently prohibited for same sex marriages performed on or after November 5, 2008. (See, Family Code § 308 c).

Although this Series will use the title "registered domestic partner" in examples, the term "domestic partnership" will be used to include both California registered domestic partnerships and all non-marital legal unions that are recognized in California (i.e. Civil Unions, etc.).

SOLE OWNERSHIP
Sole ownership may be described as ownership by an individual or other entity capable of acquiring title.  Examples of common vesting cases of sole ownership are:

1. A Single Man or Woman, an Unmarried Man or Woman or a Widow or Widower:
A man or woman who is not legally married or in a domestic partnership.  For example:  Bruce Buyer, a single man.

2.  A Married Man or Woman as His or Her Sole and Separate Property:
A married man or woman who wishes to acquire title in his or her name alone.

The title company insuring title will require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property.  This establishes that both spouses want title to the property to be granted to one spouse as that spouse's sole and separate property.  The same rules will apply for same sex married couples.  For example:  Bruce Buyer, a married man, as his sole and separate property.

3.  A Domestic Partner as His or Her Sole and Separate Property:
A domestic partner who wishes to acquire title in his or her name alone.
The title company insuring title will require the domestic partner of the person acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property.  This establishes that both domestic partners want title to the property to be granted to one partner as that person's sole and separate property.  For example:  Bruce Buyer, a registered domestic partner, as his sole and separate property.

CO-OWNERSHIP
Title to property owned by two or more persons may be vested in the following forms:

1.  Community Property:
A form of vesting title to property owned together by married persons or by domestic partners.  Community property is distinguished from separate property, which is property acquired before marriage or before a domestic partnership by separate gift or bequest, after legal separation, or which is agreed in writing to be owned by one spouse or domestic partner.

In California, real property conveyed to a married person, or to a domestic partner is presumed to be community property, unless otherwise stated (i.e. property acquired as separate property by gift, bequest or agreement).  Since all such property is owned equally, both parties must sign all agreements and documents transferring the property or using it as security for a loan.  Each owner has the right to dispose of his/her one half of the community property by will.  For example:  Bruce Buyer and Barbara Buyer, husband and wife, as community property, or Sally Smith and Jane Smith, registered domestic partners  as community property.  Another example for same sex couples:  Sally Smith and Jane Smith, spouses, as community property. 

2.  Community Property with Right of Survivorship:
A form of vesting title to property owned together by spouses or by domestic partners.  This form of holding title shares many of the characteristics of community property but adds the benefit of the right of survivorship similar to title held in joint tenancy.  There may be tax benefits for holding title in this manner.  On the death of an owner, the decedent's interest ends and the survivor owns all interests in the property.  For example:  Bruce Buyer and Barbara Buyer, husband and wife, as community property with right of survivorship, or John Buyer and Bill Buyer, spouses,  as community property with right of survivorship.  Another example for same sex couples:  Sally Smith and Jane Smith, registered domestic partners, as community property with right of survivorship.

3.  Joint Tenancy:
A form of vesting title to property owned by two or more persons, who may or may not be married or domestic partners, in equal interests, subject to the right of survivorship in the surviving joint tenant(s).  Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate.  When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s).  Therefore, joint tenancy property is not subject to disposition by will.  For example:  Bruce Buyer, a married man and George Buyer, a single man, as joint tenants.
Note:  If a married person enters into a joint tenancy that does not include their spouse, the title company insuring title may require the spouse of the married man or woman acquiring title to specifically consent to the joint tenancy.  The same rules will apply for same sex married couples and domestic partners. 

4.    Tenancy in Common:
A form of vesting title to property owned by any two or more individuals in undivided fractional interests.  These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses.  Each co-tenant may sell, lease or will to his/her heir that share of the property belonging to him/her.  For example: Bruce Buyer, a single man, as to an undivided 3/4 interest and Penny Purchaser, a single woman, as to an undivided 1/4 interest.

Other ways of vesting title include as:

1.    A Corporation*:
A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders.

2.     A Partnership*:
A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act.  A partnership may hold title to real property in the name of the partnership.

3.     Trustees of a Trust*:
A Trust is an arrangement whereby legal title to property is transferred by a grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries.  A trust is generally not an entity that can hold title in its own name.  Instead title is often vested in the trustee of the trust.  For example:  Bruce Buyer trustee of the Buyer Family Trust. 

4.       Limited Liability Companies (LLC)*:
This form of ownership is a legal entity and is similar to both the corporation and the partnership.  The operating agreement will determine how the LLC functions and is taxed.  Like the corporation its existence is separate from its owners.
*In cases of corporate, partnership, LLC or trust ownership - required documents may include corporate articles and bylaws, partnership agreements, LLC operating agreements and trust agreements and/or certificates.

Remember:
How title is vested has important legal consequences and tax consequences.  The tax consequences may be different for same sex legally related couples.  You may wish to consult an attorney or tax advisor to determine the most advantageous form of ownership for your particular situation.
--------------
FOOTNOTE (1): Note: Registered domestic partnership status is not limited to same sex couples. 

Tuesday, August 21, 2012

2 options for sellers who can't stand neighbor's blight

Q: We are getting ready to sell, but the property next door is a junkyard with wrecked cars and trash of all kinds. The county has come out, but nothing much gets done. Do we have any options here? --Teresa P.

A: How frustrating! First, know that you are not overestimating how important the neighboring property's appearance can be to the sale of your home. This is more true now than it ever has been, as today's buyers often view listings on satellite maps and applications like Google Maps' Street Views, which allows them to basically "drive" up and down the street from homes they plan to go see and rule them out on the basis of neighboring homes, before they ever get in the car.
Second, also be aware that you may not be able to fully remedy the situation. You didn't mention what the ownership status of the property is, meaning whether someone actively owns it and lives there in that state, or whether the property is bank-owned or otherwise abandoned. And you did mention that the property is located in a county jurisdiction, implying that it's outside of city limits -- the fact may be that the owners are within their rights to have abandoned/junk vehicles on their property, and that there's not much you can do about it.
As I see it, here are the two major options you have:
1. Be the squeaky wheel with your local government. Basically, keep calling them. And be compelling -- if the place is a health hazard, or you see kids playing on the wrecked cars or vermin scurrying about, say so.
Don't allow them to think this is just an issue of you wanting to get rid of an eyesore.
Studies have shown that blighted properties like this create a habitat for crime and health hazards. So, get very explicit about all the hazards this property's condition is creating AND about what precisely must be done to remedy it, from issuing citations to the owner to a list of cleanup tasks the county can do, like removing cars or debris.
Write and call your county office that has come out before, but also the county public health office, sheriff and any other agency that seems relevant -- including your county commissioner or other elected official. Beware: You will get turned down and passed on before you get listened to. But if you're willing to make the investment in being the squeaky wheel, you might also, eventually, get some grease.
2. Offer to help the owners. It might actually be in your best interests to offer to help the owners have the place cleaned up, either engaging a salvage company that can junk the cars and paying for the place to be cleaned and landscaped or enlisting help from neighbors to do the work yourselves. (Chances are good you're not the only one who is distressed by the state of the place.)
With abandoned or foreclosed properties, I've seen desperate neighbors simply take things into their own hands, go in there and clean the place up; I can't advise you to do this, as it is not your property, and you could potentially have a real problem if you or someone else were injured during the course of the cleanup.
However, if the property has an active or present owner, you'll want to be even more careful about trespassing on it or going there to clean it up yourself or with your neighbors. Often, these sorts of situations arise where the property owner is elderly and afraid, emotionally disturbed or is simply on the defense after years of neighborly scorn for the state of the property.
Take some cookies, knock softly and be very kind if and when you approach a neighbor to offer this sort of help. If you find a salvage yard that will tow the cars and pay the owners for the metal, tell the owners so. Get creative about how you can turn this into a win-win situation, but be safe if and when you actually approach them. They might reject your advances, but they might also see it as the chance they've been waiting for to finally get their property and their life under control.

Sunday, August 19, 2012

Appraisal fee can be challenged

By Benny Kass
Inman News®

DEAR BENNY: I have a question regarding a refinance. We had several unsuccessful attempts with two mortgage brokers because our house is located in a risky ZIP code and the appraiser said that he was unable to get two comps to complete the deal. Finally, we found another bank who said "no problem" right off the bat.
Well, it's been almost three months now and we've turned in all necessary papers and have an 800-plus credit rating and we're still waiting. But that's not the problem.
Here is my concern: When we applied, we paid a $400 appraisal charge. That is fair given an appraiser was actually doing something. There was no walk-through inspection (which is OK by me) and only a drive-by according to the bank, and the home value was done electronically. All the calculations seemed to be acceptable by the bank for the refi to go through, but why are we being charged $400 for this? There was no outside appraiser.
I asked for a copy of our appraisal and was told there is none, only the value amount could be told. Shouldn't the bank just say that it will cost $400 for a refi -- take it or leave it? Do we have any recourse? --Christine
DEAR CHRISTINE: This is a very common problem not only with appraisers but with other charges imposed by mortgage lenders. I recall several years ago when lenders were sued for charging upwards of $75 for a credit report, which cost them (if at all) less than $20 only. From my experience, most lenders no longer pad the credit report charge.
Under federal law, you are entitled to receive a copy of the appraisal for which you were charged. If the lender has advised you that there is no such document, it is my opinion that you should demand a refund for the $400.
While no one likes to file suit, you should consider filing a lawsuit in your local small claims court. I suspect -- but cannot guarantee -- that the lender will quickly refund your $400, rather than spend the time and the money defending its position.
My experience with small claims courts is that most of the staff are very helpful and will provide you forms and guidance as to how to file.
DEAR BENNY: I had my home built in 2011. I closed on it on March 2 of that year. There were no liens on the home at the time of closing. The sod and sprinkler system was not put in yet so the bank held back the money to pay them when we had it all installed. At closing the bank paid the builder, and the money held back was paid to them also when the work was complete.
Come August 2011, I got a call from the sprinkler system company and they said they never received payment and were putting a lien on my property. Come to find out the builder went bankrupt and never paid anyone that did work on my home. I had the drywall, insulation and the painter all say they we going to put a lien on my property. But the only one that did was the sprinkler system company. Why is it that they can put a lien on my property and not go after the builder who received the money and signed off at closing that everything was free and clear? Isn't that fraud?
In the past year the interest rate dropped so I refinanced my home at a cheaper rate, but I had to pay the lien off in order for the other title company to refinance my home. What is the title insurance company supposed to be good for? Why do I get stuck with this since I already paid for it when the work was done? I can't help if the builder goes bankrupt and takes the money and doesn't pay any subcontractors. With all the papers to sign at closing there must be something to protect the homeowner from things happening like this? Please let me know if there is something I can do. Or do I need to take legal action about this? --Frank
DEAR FRANK: Unfortunately, in many states, mechanic's liens can be placed on property after a homeowner takes title. You made two mistakes: First, you should have confirmed at settlement (called escrow in the West) that the title insurance policy you paid for would cover future mechanic's liens. Second, you should have consulted an attorney when you first learned of the lien.
Because the filing of a lien is so different from state to state, I cannot give you specific advice. My bottom-line advice, however, is that when you go to closing -- especially on a newly built house -- have an attorney represent you so that all legal questions will be resolved before you leave the settlement table.
DEAR BENNY: My mom passed away and left the house to my sister and me. We are in the process of having the deed put in our names. There was a home equity loan on the house for about $40,000. When my mom passed away the bank closed the account and we cannot use it. There is a monthly fee that continues to be deducted from the checking account that my sister and I are now on. We would like to get the line of credit reopened in our names so we can keep the house afloat for another year until the market turns around. Does the bank have to grant us the line of credit? Are there any other options to make some cash available? --Virginia
DEAR VIRGINIA: I would have to review the terms and conditions of the home equity line. Under federal law, a lender cannot stop an assumption when the property is transferred as a result of the borrower's death. Typically, banks include what is known as a "due on sale" clause in loan documents, and the bank cannot call the loan just because your mother died. However, their loan documents may allow them to freeze the loan.
You indicate that you want to have a line of credit. Did your mother use up the entire $40,000 line or is there still money available to tap into? If the latter, then you could go to another bank and ask for a line of credit. The new line would pay off the existing line, and any balance could be used for your purposes.
But if there is no more money available on the loan, you should consider going to another bank, and see if you can borrow more than $40,000, so that the existing line can be paid off in full.
Assuming your credit is acceptable, I would contact the bank and see if you can convince them to allow you to continue the line in your names.
DEAR BENNY: I would like to add my daughter's name to the deeds of properties that I own. What is the process and the cost involved in doing this and how should it be worded so that she owns the property free and clear once I am deceased? --D.K.
DEAR D.K.: I know that I have answered this question many times, but for the benefit of new readers, let me repeat my concerns. Bottom line: In most cases, you are doing a disservice to your children if you put them on title with you.
Let me explain. Let's say you bought your home years ago for $100,000 and it is now worth $300,000. If you die today, your daughter will inherit the house and take advantage of the "stepped-up" basis. That means that her tax basis is the value on the date of death, in our example $300,000. Ignoring for this discussion inheritance and estate tax issues, if she sells the property immediately for $300,000, she will have made no gain and thus will not have to pay any capital gains tax.
On the other hand, if you gift her half of the house, her basis is yours. Now you die and the property is worth $300,000. Her basis is $50,000 from the gift and $150,000 stepped up from your death for a total of $200,000. If she sells now, she has made a gain of $100,000 and will have to pay capital gains tax.
To understand this in simple -- nonlegal -- language, the tax basis of the person who gifts property (giftor) becomes the tax basis of the giftee. If you really want your daughter on title, why not sell her half of the property. Then her basis will be what she paid for it.
I don't believe this makes sense. But talk with your financial advisers for your specific situation.

Friday, August 17, 2012

Valid mortgage price quotes do exist

By Jack Guttentag
Inman News®

"How many lenders must I shop to be certain I receive a competitive price?"
If you have access to valid price quotes, three is usually enough. If you don't have access to valid price quotes, you won't get a competitive price no matter how many lenders you solicit.
Valid prices are prices that the lender would be willing to commit itself to at the time the price is quoted. Differences in valid prices posted by different lenders are small, which is why you don't have to shop many lenders. The reason is that 95 percent of all new mortgages today are either sold to Fannie Mae and Freddie Mac, or insured by FHA or VA, so that the federal government assumes virtually all of the risk.
The residual risk to the originating lenders, that they might be required to buy back loans or, at an extreme, lose their right to originate, is small and does not result in large price differences between them. Some lenders are more efficient than others, but price differences from this source are also small.
The challenge faced by mortgage borrowers who want to shop is that most price quotes are not valid, and soliciting them is a waste of time. Invalid prices can be quoted to shoppers with impunity because shoppers can't say, "Yes, I'll take it," until the information upon which the price is based has been confirmed, by which time the market will have changed.
Valid mortgage price quotes meet all of the following conditions:
They come from the internal pricing system of the lender, which I call their "posted prices," with no intermediation from loan officers. Loan officers are not bound to quote posted prices, and it is common for them to quote prices below the posted price, called "lowballing," in order to induce shopping borrowers to commit to them.
They are fully adjusted for all loan features that affect the price, such as credit score, type of property, purpose of loan, down payment, etc. The list is a long one. If anything that affects the price is left out, the lender assumes whatever generates the lowest price, which may or may not hold up.
For example, many lenders price loans without asking whether the borrower wants to escrow taxes and insurance. If in fact the borrower does not want to escrow, the price will have to be raised.
They include all price components. This means not only the interest rate and points but also other lender fees that are often left out of price quotes.
They are current as of the time of the quote, not as of the day before. The borrower shopping several lenders must do so on the same day, and to be safe within the same hour of the day, since prices are sometimes adjusted during the day.
Valid price quotes are available on the Internet if you know where to look. Every mortgage lender has a website, but few provide valid prices on them. Most are designed to entice shoppers to identify themselves so that they can be contacted by a loan officer who will give them a sales pitch.
But some lenders provide valid prices on their sites while allowing shoppers to remain anonymous until such time as the shopper elects to contact the lender. These include the seven Upfront Mortgage Lenders that I identify on my website. Shopping them is doable, if a bit of a chore, because each site is programmed differently and the shopper must visit each on the same day to extract the desired price data.
Much the better way to shop is on a multilender website where the site maintains valid prices for multiple lenders, which it presents in one single format for easy comprehension and comparison. There are three of those: mortgagemarvel.com; zillow.com; and mtgprofessor.com, which is mine.
Don't confuse multilender sites with lead generation sites, such as lendingtree.com and lowermybills.com, which do business with hundreds of lenders. These sites do not collect price data from lenders. Rather, they collect financial information including Social Security numbers from shoppers, which they sell as leads to lender clients.
These lead generation sites first identify the lenders who have indicated an interest in the particulars of a lead, and they sell the lead to the three or four lenders who will pay the most for it. The shopper then gets sales pitches from three or four loan officers who are under strong pressure to lowball the price because that is often the way to win the deal.

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