ACT ON THAT!

BofA Offers Up to $30K to Owners for Short Sales

In an effort to curb foreclosures, Bank of America is offering some of its defaulting home owners relocation assistance of anywhere from $2,500 to as much as $30,000 if they agree to complete a short sale. Bank of America and other banks increasingly are becoming more willing to complete short sales than in the past, seeing it as a much less expensive alternative than if a home owner falls into foreclosure. With a short sale, banks are able to get ownership of the property more quickly, which tends to allow banks to keep the homes in better condition for resale and avoid costly other fees. Also, studies have shown that short sale properties tend to sell for more than properties in foreclosure. As such, more banks have tried out special offers to struggling home owners to get them to pursue a short sale over foreclosure. Bank of America first began piloting its short sale relocation program in Florida last year, offering up to $20,000 to home owners who agreed to complete a short sale. JPMorgan Chase piloted a program that offered some home owners up to $35,000 to complete a short sale. Bank of America has now rolled out the program nationally. To participate, home owners must get preapproval on the sales price of the home. The sale also must close by Sept. 26, 2013. "This program can help customers make a planned transition from ownership when home retention options have been exhausted or they have made a decision not to keep the home," says Bob Hora, a Bank of America executive. Source: “Bank of America Offering up to $30,000 for Short Sales,” CNNMoney (May 15, 2012) and Bank of America

Bernanke: Mortgages Still too Difficult to Get

Even creditworthy borrowers are finding it difficult to get a mortgage nowadays and it’s unlikely banks will ease their standards anytime soon, Federal Reserve Chairman Ben Bernanke told a banking conference in Chicago Thursday. 

While banks have made huge strides in improving their balance sheets and overall lending (such as for credit cards and auto loans), banks continue to be extra cautious when it comes to issuing new mortgages, he said. Even borrowers coming with a 20 percent down payment on a home purchase may face hurdles unless they have stellar credit, he said. 

"A return to pre-crisis lending standards wouldn't be appropriate," Bernanke said in referencing how banks prior to the housing crisis were issuing mortgages with little or no documentation for jobs or incomes. "However, current standards may be limiting or preventing lending to many creditworthy borrowers."

The challenges of getting a mortgage have been cited by real estate professionals and economists as one of the biggest obstacles standing in the way of a full housing recovery. 

An estimated 10 to 20 percent of creditworthy home buyers are being locked out of the housing market because of tightened credit conditions, U.S. Housing Secretary Shaun Donovan told Reuters.

Source: “Credit Easing in U.S., Fed Chairman Says,” The New York Times (May 10, 2012) and “Bernanke: Even Worthy Borrowers Can’t get Mortgages,” Reuters News (May 10, 2012)

 

More Kids Turn to Parents for Mortgage Help

DAILY REAL ESTATE NEWS | THURSDAY, OCTOBER 06, 2011

The “bank of mom and dad” is increasingly becoming an option for young adults who otherwise may not have been able to afford or qualify for a mortgage for a new home. Even though mortgage rates are at record lows, tight credit standards have prevented many young adults from taking advantage of those rates.

Parents who no longer want to risk their money in the stock market, therefore, are turning to financing their childrens’ mortgages, USA Today reports. This "is an opportunity to create a win-win," Timothy Burke, chief executive of National Family Mortgage, a company that offers intrafamily loan services, told USA Today. 

The children are able to avoid paying closing costs, appraisal fees, and other expenses that are generally charged by a lender and they’re usually able to get an even lower interest rate on the loan. Meanwhile, the parents are finding the interest rate charged on the intrafamily loans still offer them higher returns than they’d be able to earn on other investments.

National Family Mortgage say they’ve helped families finance more than $12 million in loans, anywhere from an $18,500 down payment to a $1.17 million refinancing. Burke told USA Today that another perk of intrafamily loans is that it sometimes allow clients to make all-cash offers on a home too, which has become more important in making competitive offers when bidding on foreclosed properties. 

The number of first-time home buyers receiving loan help has steadily been growing. For example, in 2010, 9 percent of first-time home buyers had received a loan from a relative or friend. In 2009, that number was 6 percent, according to research by the National Association of REALTORS®.

However, some parents who want to help their children with buying a home may find it a better route to get a mortgage on their own, buy the home, and then just rent it back to their children, some housing experts say. Parents who finance a child’s mortgage or help with the down payment need to make sure they follow IRS guidelines, particularly in avoiding problems with gift taxes. 

Source: “More Parents Finance Their Kids’ Mortgages,” USA Today (Oct. 5, 2011)

It's Your Money Why Not Keep It?

The economic realities of the past few years have taught people some valuable lessons. One of which is: It's not what you make, it's what you keep, that counts.

If you discovered that someone was stealing from you, how quickly would you act to stop them from doing it again? Would you act today, in a week, a month, or not at all? The odds are you would act sooner rather than later.

So here's a question for you to consider. Is your current loan stealing money from you? Recent estimates in the news have indicated anywhere from 30-50% of people could benefit from refinancing and lowering their interest rate and/or monthly payments on their home loan. According to multiple sources, home loan rates dropped to their lowest levels ever reported on July 1.

This month, I turn to contributing editor and national mortgage expert, Jim Sahnger, for a different perspective on why people should think more about acting now to save money. Read on as Jim shares a personal story about this important topic.

How Much is Too Much? 
Last summer, I was reviewing one of my online bank accounts and was a little perplexed. Not only was my balance lower than I expected, but many of the charges just didn't seem to register in my mind with anything I had purchased. At first glance, I saw that a few hundred dollars had been taken from my account.

Yep, you guessed it. Someone had gained access to my debit card information and went on a little spending spree. The first thing I did was check to see if I had lost the card but I still had it. The card was right in my money clip where it always was. I'm still not sure where or how the information was swiped.

Before even totaling the amount of the theft, though, I immediately called the bank and moved to have the account closed and the card shut off to eliminate any potential further loss. To say the least, I was mad and nothing was going to stop me from putting into place an immediate plan of action to keep what was mine.

When I finally discovered that someone had been popping my account for money, the toll was north of $2,000 even though I had only immediately recognized a few hundred dollars missing. In contrast to some stories, the thief did not run out and buy large ticket items. Instead, the thief tapped the account on multiple occasions, typically in amounts smaller than $100, apparently not to set off any alarms.

The scheme worked. The hits occurred over a 7-10 day period and actually funded what appeared to be a little road trip from South Florida to Maryland, covering fuel, meals and other things.

In many ways, I suppose you could say I was lucky. First and foremost, my bank made me whole. It took over a week but I was able to recover what was stolen from my account. Don't get me wrong, I was still out nearly 15-20 hours of time, but I did not bounce any checks, face embarrassing denials at cash registers, or any other potential issues from this.

But my eyes were opened to something. When someone steals from you, self-preservation kicks in and you act quickly to stop it. Procrastination is tossed aside and unless you have something that you simply cannot miss, you will drop most anything on your schedule to deal with the issue at hand.

Save It or Lose It. It's Still Your Wallet Getting Lighter 
Whether you are overpaying several thousand dollars a year for something or someone swipes cash from your wallet, the end result is the same. You are still out of the money.

The difference is that when someone reaches into your wallet, you experience and recognize the loss right away and consequently will react to stop it. But when you are overpaying for your mortgage, you are already in the habit of signing the check each month. To save money, you have to recognize that a change will put money into your pocket.

Regardless of when you last obtained a mortgage, the odds are you could put more money in your pocket, either today or over time.

On a $300,000 mortgage, a payment savings of $224 a month returns a savings of nearly $20,000 over five years and over $42,000 at 10 years when that difference is invested back into the loan. This is a lot of money and the savings differences are for loans involving a rate of 5.875% compared to 4.75%.

Act Now. How Much Money Are You Losing? 
You never know what lies in wait until you investigate your options. It's possible you could save money in your monthly payment, pay off your loan years ahead of what's currently scheduled, or a combination of the two. You don't want to find out too late that your existing loan has been and will be robbing you of money every month.

Call me at 888-971-TEAM x 2 to see what you can do to put some money back in your pocket.

The Pain of Payday Loans

Payday loans are short-term cash loans with very high interest rates. They’re usually used by people who have little access to credit because they may have few assets and aren’t able to secure other options with lower interest rates. Payday lending operations charge high interest rates, and do nothing to encourage savings or asset accumulation. Legislation of payday lenders varies widely from state to state, with several states declaring them illegal. Wikipedia tells us that some impose strict usury limits instead, limiting the nominal annual percentage rate (APR) that any lender can charge and others have very few restrictions on payday lenders.

The key to understanding the true cost of payday loans is the concept of compound interest. The example given in The Kansas City Star was of a single mother who used a payday loan to borrow $300 for a trip to the dentist. When she couldn’t pay the loan two weeks later, she extended it and paid $50 twice a month for almost four months ($50 x 2 months = $100 a month… x 4 months = $400) and still owed the entire principle amount.  If she paid it off at that point, she would be paying back $700 on a $300 loan. That’s 233%. But she didn’t pay it off then.

The article that used that example was from Accumulating Money.com, and they say that the average loan term is about two-weeks and loans cost on average 470% annual interest (APR). Finance charges normally range from $15 to $30 to borrow $100. For two-week loans, these finance charges result in interest rates from 390% to 780% APR. Shorter term loans can have even higher APRs.

Though the Truth in Lending Act says the cost of payday loans must be disclosed to the consumer, the finance charge in dollars probably seems small and easily paid, and the annual percentage rate or APR may mean little, since most borrowers aren’t planning to be paying for a year.

At the end of 2006, The Center for Responsible Lending reported about 25,000 payday loan outlets in the United States and now there are internet payday lending sites too.

How The New Short Sale Rules Work

When the new short sale rules from the Treasury Department take effect in April 2010, my client may be able to qualify if they meet the following conditions: • The property is their principal residence • They are delinquent on their mortgage or close to it • The loan was made before Jan. 1, 2009, and is less than $729,750 • The homeowner’s total monthly mortgage payment exceeds 31% of before tax income • The loan is not a Fannie Mae or Freddie Mac loan. Fannie Mae and Freddie Mac are expected to release their own separate foreclosure avoidance guidelines.

According to the Treasury rules, borrowers must first attempt to qualify for the HAMP foreclosure modification plan, and then other possible alternatives, before pursuing the Home Affordable Foreclosure Alternatives (HAFA) short sale plan. Borrowers may qualify for HAFA if: • They do not qualify for a Trial Period Plan • They do not successfully complete a Trial Period Plan • They are delinquent on a HAMP modification by missing at least two consecutive payments • They request a short sale or Deed-In-Lease (DIL)

Don’t assume that even if you meet all of these qualifications, you’re automatically good for a short sale. The HAFA rules specifically give the power of approval to the lender, who can make the decision based on a number of criteria, including the potential loss of value on the mortgage, and conditions of the local market. However, loan servicers don’t get all the cards. Another new rule prohibits them from requiring a reduction in commission for the sale, up to 6 percent, which is good news for REALTORS. Most importantly, lenders are forbidden from pursuing the borrower for any portion of the first mortgage debt. No cash, promissory note, or deficit contribution is allowed under any circumstances. According to Ray Mathoda, AssetPlan USA president and former IndyMac chief administrative officer, this change is necessary to protect homeowners from thinking they are clear of a debt, only to find that “the lien-holder released them from a lien [in a short sale], but then sold the debt to a collection agency.”

Great Deals in Housing But Also Potential Speed Bumps Ahead Great Deals in Housing - But Also Potential Speed Bumps Ahead

If you were offered the chance to buy dollars for $0.70 a piece, how many would you buy? When you compare today's home loan rates to the average in effect for the last 10 years, that is approximately what you are paying. And given lower home prices, there has never been a better opportunity to buy a home than today.

Learn why buying now is still a great decision and what you need to look at in your market to gain confidence. We will also share with you a new potential pitfall to the mortgage process to prevent your mortgage application from blowing up just prior to closing.

Home Affordability: The Key to Your Market

Mark Zandi, Chief Economist for Moody's Analytics stated recently in an audio interview with MarketWatch Radio that he has never seen a better time to buy a home, with low interest rates and affordability being one key component.

When people decide to buy a home, the monthly payment is a crucial factor. Affordability is a function of home price, interest rate and down payment.

Conservative underwriting for mortgage payments state that borrowers should allocate no more than approximately 30% of their income for a house payment. Looked at from another perspective, this means if your monthly income is $4,000, you should keep your mortgage payment under $1,200 a month.

You also want to keep in mind that your total monthly debt payments should not exceed 41% of your income. While exceptions will sometimes allow you to exceed that number, you don't want to be stressed out, feel like you're married to your home or miss out on opportunities for investments in a 401K or retirement account.

That said, many experts have said that when median home prices exceed median incomes by three times in a market, then that market could be viewed as a high cost market. As an example, median household income in the U.S. is approximately $51,233 and the median home price in the U.S., according to the most recent statistics released from the National Association of Realtors, is $173,100.

Based on this one statistic, it could be reasoned that housing overall may be somewhat unaffordable. However, you also have to take into consideration what the monthly payment would be based on existing interest rates.

Assuming a homebuyer puts 10% down on a median home price, the monthly payment, assuming the cost of property taxes and insurance at 1% and .5% respectively, would be 28.9% of income, well within reason.

Another consideration should be the cost of renting a home when compared to a house payment for the same type of home. When the cost to rent is similar to the monthly cost to own or more, housing may well be affordable for that particular market.

Sahnger offered this comparison for homes in an area where he works. "When preparing to speak at a housing rally in South Florida, I went online to look at what types of homes were on Craigslist for $1,000 a month to rent. I found one home that offered 1,300 square feet, no garage and no pool where a home with a similar mortgage payment offered nearly 2,000 square feet of living area, a pool and two car garage in a nicer area." This is certainly one example where the cost to own is less than the cost to rent.

One other factor Sahnger mentions is that when the tax deductible portion of the payment is taken into consideration, the after tax mortgage payment was approximately 15% less, making the cost to own even more affordable when compared to renting.

Credit Reports: When One May Not Be Enough

Effective June 1, Fannie Mae has instructed lenders that they should adopt a new policy that could involve a second review of an applicant's credit report just prior to closing. When reviewing defaulted loan files, they have determined that the credit profile of a borrower may have changed from the time of the initial review of the credit report and at the time of closing.

The potential impact to a borrower who has utilized credit to make significant purchases after the initial credit report could include a delay in closing, increase of closing costs and/or interest rate or a decreased loan amount. In the worst case scenario, it could even result in a loan being denied, even after an original approval had been granted.

In order to eliminate any possibility of potential problems before closing, anyone in the application process should use credit sparingly and make sure they adhere to the tips provided below by credit expert, Linda Ferrari of Credit Resource Corp. For more tips on what you should not do regarding credit during the mortgage application process, contact us at 888-971-8326 x 2.

Top 5 Tips for Preserving Your Credit and Mortgage Application

1. Don't do anything that causes a red flag to be raised by the scoring system. 
2. Don't apply for new credit of any kind.
3. Don't pay off collections or charge offs.
4. Don't max out or over charge on your credit accounts.
5. Don't consolidate your debt onto one or two credit cards.

This list is not comprehensive but does give you a peek into situations that could create issues and could also be contrary to some ideas you have read previously.

Great Opportunities When Offered Should Be Acted Upon

The one key component in home affordability that is at greatest risk today is interest rates. Many experts have stated that interest rates should be higher than their current levels, in some cases a lot higher.

One point to remember is that every 1% increase in interest rates decreases the buying power of an individual by 10% in home price. This means that if you qualify for a home priced at $200,000 today and interest rates increase 1%, the amount you could qualify for would be reduced to approximately $180,000 to maintain the same payment.

If you could benefit from moving to a new home, don't let this opportunity pass you by. Home prices are increasing in most markets and combined with the risk of increasing interest rates, your time to get the home you want could pass you by.

For those people who haven't refinanced in the last 18 months, calling your mortgage professional 888-971-8326 x 2 could provide you with the opportunity to either cut your mortgage payment or save a lot of money by reducing the term of your mortgage to a 15 or 20 year fixed rate.

Call 888-971-8326 x 2 TODAY!!!

Dave Ramsey's Seven Baby Steps

Dave Ramsey’s 7 Baby Steps

• Step 1 – $1,000 to start an Emergency Fund: Before you even get started on the rest of the plan, you need to save up a little bit of cash just in case small emergencies happen.  Things like flat tires, doctor visits, and flying somewhere for a funeral will usually be covered by this small emergency fund.
• Step 2 – Pay off all debt using the Debt Snowball:  You list your debts from smallest to largest.  Pay the minimums on all of your debts.   With any leftover money you may have you pay extra on your smallest debt until it is paid off.  You then roll that amount over to the next smallest debt.
• Step 3 – 3 to 6 months of expenses in savings:  Save up 3-6 months of expenses in case of extreme misfortune like a job loss, illness or other long term problem.
• Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement:  Save for your retirement.
• Step 5 - College funding for children: After saving for retirement you can save for your children’s education and college expenses.
• Step 6 – Pay off home early:  Make extra payments on the mortgage to pay it off early.
• Step 7 – Build wealth and give! (Invest in mutual funds and real estate):  Continue building wealth through mutual funds and real estate, and give, give give!

So those are the 7 Baby Steps.  Pretty simple, yet effective.  Even though it may seem like common sense to a lot of people, a lot of times people just don’t think about doing these things if they haven’t actually been  told how to do them.  So let’s get started.

Baby Step 0:  Getting Started, Making A Decision To Change

Before I even get into the 7 Baby Steps, I think it’s important to start out by talking about just how key it is that you sit down, talk with your significant other (if you have one), and actually make a decision that you want to change.

A lot of people talk about how to change, but never touch on the fact that if you or your spouse isn’t ready to change, it isn’t going to happen.  You have to want to change.

I know for my wife and I there wasn’t one moment where we decided that we wanted to change, it was just a gradual realization that we weren’t spending our money as wisely as we should, that we were accepting too much debt as a part of our financial plan, and that we craved the freedom of not carrying any kind of debt.  We wanted to be free!

Getting to the point where you want to change might mean that you’ve hit bottom and declared bankruptcy, or it might just mean that you’re sick of not saving enough towards retirement. It’s a different point for  everyone.   But when you get there you’ll know.

No More Debt

Once you’ve made a decision to change, you need to be able to begin the change immediately and make a decision as a family that you aren’t going to incur any more consumer debt. Credit cards and home equity lines of credit are off limits now. No more high interest auto loans! If you want a new TV or a new kitchen countertops, you’re going to have to save for them.  No more store credit cards to buy clothing at ridiculous interest rates!

Cut up your credit cards, and draw a line in the sand. No more debt!

Cash for Clunker Appliances

The fridge on its last legs? Uncle Sam wants you to replace it with a new, energy efficient model – and will give you money to do so.

Cash rebates for clunker vehicles were such a smash hit, the government is at it again – this time offering you cash for your worn-out household appliances.

The $300-million federal program – administered through the states – will provide consumers with a cash rebate of up to 15% of the cost of each new Energy Star-rated refrigerator, freezer, dishwasher, clothes washer, water heater and room air conditioner. Expect rebates to run from $100 to $250, depending on the cost of the appliance.

But wait – there's more. The program also covers central AC/heating systems, providing rebates of up to $1,500 for Energy Star-rated replacement systems plus a federal income tax credit of up to $1,500 on purchases made by the end of this year.

Though a few states – Iowa, Kansas, Minnesota and Rhode Island – have jumped the gun and already have the incentives in play, most other states will launch the program later this month. States' shares of the federal program are based on population. California will receive the top amount: $35.3 million; Wyoming, the smallest: $511,000.

Based on early results in the four front-runner states, the appliance program will be as wildly popular with consumers as the cash-for-clunker car program was.

Appliance manufacturers and retailers are excited, eager for the sales boost the program will provide. The rebates should push sales of appliances to $22 billion this year – up 10% over last year, when sales bottomed at around $20 billion – though that's still down 15% from the record hit during the housing boom in 2005.

General Electric, Westinghouse, Whirlpool, Maytag, Trane, Carrier, Viking and other manufacturers, as well as national chain and independent retailers, hope that many consumers in need of one appliance will decide to spring for another as well, since the government is paying part of the tab. Many retailers are also planning discount tie-in promotions, offering big savings on related merchandise – such as outdoor gas grills and riding lawn mowers – that's not eligible for the federal rebates.

Is there a catch? Only a small one, but it shouldn't cause anyone any grief. Uncle Sam wants proof that an old appliance is being recycled before paying the rebate on the replacement. But reputable installers will be happy to haul your old appliance away for recycling at little or no charge after they set up your new one.

Reprinted with permission. All Contents © 2010 The Kiplinger Washington Editors. www.kiplinger.com By Jim Ostroff

What Will You Do With Your Tax Refund?

That big check you get in the mailbox after April 15 is your fun money, right? It's your free gift from your kind Uncle Sam, who has so thoughtfully given you this chance to go on vacation or have fun at the mall.

Not really.

That check is the repayment of interest-free loan that you gave to the government last year. It's your money, just like your monthly paycheck. And the only difference is that it comes in one lump sum after you file your tax return, with US Treasury written across the top.

Since it's your money, here are some suggestions on what you can do with the refund to make it meaningful in your financial life.

First of all, set aside a portion of the refund check, perhaps 20 percent, for your own immediate personal pleasure. Spend some time planning how you will spend this small windfall, and really enjoy the process. Buy an experience that you will always remember or something beautiful or useful for yourself.

Then, get down to business.

If you have credit card debt, this tax refund can be just the thing you need to jump start a debt reduction plan. Use your refund check to pay down the credit card with the highest interest rate. At the same time, sit down and create a plan to reduce your debt. This is a wonderful time to discuss debt and savings with your entire family, and teach your children the value of planning for the future and financial independence. 

If you are not in debt, you can use this money to set up a cash emergency fund, a special fund of cash set aside for genuine emergencies. This is not the money to tap when you need a new couch or you're dying for a weekend away. This is money for a time when you need to pay for something you or your family really needs. The security provided by this treasure-trove of money is invaluable.

If you already have money set aside, use the refund to increase your retirement plan contribution at work. Depending on your salary and your company's policies, you can increase your contribution by the entire refund for one paycheck and then decrease it for the next, or slowly set aside an amount equivalent to the tax refund you received.

If you don't have a retirement plan at work or you are already contributing the maximum, use your tax refund to contribute to a Roth or traditional IRA. As long as your income is below the limitations ($110,000 if single, $160,000 on a joint return) you can contribute to a Roth IRA. Otherwise, contribute to a traditional IRA or invest in mutual funds.

If you are already saving plenty and have everything you need, consider giving your refund to charity. This money will help further your beliefs, and you will have a great time choosing the charities that deserve your generosity.

By Ginita Wall, CPA, CFP