Fed plans new rules to protect future homebuyers

By JEANNINE AVERSA, AP Economics Writer

WASHINGTON - The Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, its most sweeping response to a housing crisis that has propelled foreclosures to record highs.

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Fed Chairman Ben Bernanke spoke of the much-awaited rules in a broader speech Tuesday about the challenges confronting policymakers in trying to stabilize a shaky U.S. financial system. To that end, Bernanke said the Fed may give squeezed Wall Street firms more time to tap the central bank's emergency loan program.

To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers - those with spotty credit or low incomes - who were hardest hit by the housing and credit debacles.

The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.

Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

"These new rules ... will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending," Bernanke said.

Consumer groups have complained that the proposed rules aren't strong enough, while mortgage lenders worry that they are too tough and could crimp customers' choices.

In an extraordinary action aimed at averting a financial catastrophe, the Fed in March agreed to let investment houses go to the Fed - on a temporary basis - for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed's decision to act - temporarily at least - as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.

Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.

Bernanke, in appearances on Capitol Hill has said he doesn't believe taxpayers will suffer any losses.

In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn't intervene, he said, problems in financial markets would have snowballed, imperiling the country.

"Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy," Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.

The Fed's consideration of giving Wall Street firms more time to tap the Fed's emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.

Policymakers - in the White House, in Congress and other federal agencies - will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.

Although those efforts are already under way and will be the focus of a House Financial Services Committee hearing Thursday, it will fall to the next president and next Congress to settle them. Both Bernanke and Treasury Secretary Henry Paulson are scheduled to testify at Thursday's hearing.

The Bush administration has proposed revamping the nation's financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.

The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.

Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.

Bernanke recommended that Congress give a regulator the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC's oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.

Six Secrets of Internet Home Buying

By Luke Mullins Posted May 6, 2008

With the worst housing slump in a generation slashing home prices across the country, the dynamics of the market have shifted squarely in favor of buyers. And as the real estate industry grows increasingly Web-savvy, house hunters can now scour through neighborhoods, inspect front porches, and even peek inside bedrooms from the comfort of their desktops. But while this surge of new information can help you find that perfect home, it can also-at times-make the whole process overwhelming. Here are six ways to ensure that your online real estate search is as efficient and effective as possible.

(Gregor Schuster/Iconica/Getty Images)

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• What Fed Moves Mean For Mortgage Rates
• 5 Tips for Selling a House in a Slow Market

1. Know when to say when. There are plenty of ways to waste time on the Internet. When it comes to home buying, searching through properties you admire-but can't afford-tops the list. So before you grab for that mouse, contact a lender and get preapproved for a mortgage. That way you'll know exactly what you can afford. "It's not difficult," says Elizabeth Deal, senior vice president of ICBA Mortgage, a subsidiary of the trade group Independent Community Bankers of America. After contacting a lender, prospective home buyers will typically be asked to provide information about their income and debts, Deal says. (In some cases, lenders will want to see a credit report as well.) From that information, the lender will be able to issue a letter outlining the price range that the buyer can afford. The whole process can take as little as a half-hour, Deal says.

2. Find the right tools... Real estate search engines are getting better and better. Pat Kitano, a cofounder of Domus Consulting Group, which works with real estate brokerage firms on technology marketing strategies, calls Trulia.com "the most complete national site." Kitano also recommends DotHomes. Jay Thompson, of Thompson's Realty in Arizona, suggests using Zillow.com or Realtor.com, the official site of the National Association of Realtors. Realtor.com "has probably the most listings of any national site," Thompson says. "Just about anything that is on a local [multiple listing service] will be on realtor.com." But rather than limit your search to national search engines, Thompson says, it's a good idea to visit the Web sites of real estate agents and brokers in the market that you are considering as well.

3. ...and put them in a belt. Instead of trying to pinpoint the one "best" search engine, home buyers should put together a list of resources and use them in tandem. After all, no single search engine can provide a complete picture of the entire housing market. But by using several as a group, prospective home buyers can get a much better look at the inventory. "A consumer has to go to multiple sites to figure out the whole landscape," Kitano says

4. Don't forget the indies. The majority of Internet search tools enable users to look through homes that are being sold through agents. But if you use those exclusively, you will miss the sizable chunk of homes being sold independently. "Agents list about 77 to 78 percent of the homes on the market, so there is another 22 to 23 percent of homes that 10 to 15 years ago people wouldn't be able to find," says Greg Healy, vice president of operations at ForSaleByOwner.com, which markets the homes of sellers who are looking to cut out the agent and save on commission. "Using sites that are not agent-related is really critical."

Joshua Dorkin, the founder and CEO of BiggerPockets.com, a real estate networking and information site, says that Craigslist is a great way to find non-agent-affiliated listings that might not show up on mainstream real estate search engines. "It's the classified powerhouse of the world now," Dorkin says.

5. Be alert. Some online real estate resources now offer e-mail alerts or RSS feeds that provide instant notification of new listings and other information of interest to prospective home buyers. Sign up! This is a great way to stay on top of the changing real estate market as your home search progresses. "Rather than actually pulling the information from a particular source, you want that information pushed to you," says Douglas de Jager, cofounder of DotHomes. "It saves you time."

6. Find a good blog. Few resources allow home buyers to take the pulse of the national and local markets like real estate blogs. "Real estate bloggers know in real time what is going on in the market," Kitano says. Like anything else on the Internet, some blogs are better than others. Shop around. Use your favorite search engine to find a couple of blogs that cover real estate in the markets you are interested in, bookmark them and click through them every day. (Pay special attention to the blogs with the most comments and postings.) By and large, the real estate blogging community understands the dynamics of today's housing market in the way few others do. They've emerged as an important voice on housing issues and a wonderful resource for prospective home buyers.

Investor Report: Section 1031

by Kenneth R. Harney

Here's some great news for the thousands of real estate investors and brokers who use "Section 1031" (ten thirty-one) tax-deferred real exchanges every year: Congress has backed off its latest plan to narrow the definition of "like kind" for real estate swaps.

That's important because under current tax law, real estate investors have broad flexibility in choosing properties and structuring exchanges. For example, they can exchange a rental house for farmland, an apartment building for a commercial shopping strip. They can even exchange office buildings for mineral rights.

San Antonio Botanical Garden

Given the tight statutory timetables to choose qualified properties for exchanges, that flexibility can be crucial.

Other types of investment assets, by contrast, get much stricter treatment under the tax code -- and that difference in treatment opens the door to periodic attempts by green-eyeshade tax reformers on Capitol Hill to raise federal revenues by cutting down the number of eligible real estate exchanges.

If you could only swap a rental condo for another rental condo, cornfields for cornfields or commercial buildings for commercial buildings, there'd be a lot fewer exchanges every year -- and probably a lot more IRS audits of taxpayers to make sure the properties swapped met all the "like kind" requirements.

So when tax reformers tucked away a tiny, technical amendment deep inside the massive federal farm bill pending in Congress, they apparently hoped they could sneak it through with nobody looking. But instead, alarm bells went off among real estate lobbyists who get paid to read through thousand-page bills like the farm legislation to make sure there are no unpleasant surprises lurking for real estate.

That's precisely what they found. The tax reformers had inserted a provision that would have only affected only certain agricultural property exchanges by narrowing the window for what constitutes "like kind."

But any restriction on "like kind" for real estate would be the proverbial "camel's nose in the tent." It would open the door to still further revenue-driven restrictions that could seriously limit the utility of tax-deferred exchanges for all real estate owners.

Linda Goold, chief tax lobbyist for the National Association of Realtors and a leader in the effort to get the 1031 amendment dropped from the final legislation approved by Congress, confirmed the successful deletion. In comments to Realty Times earlier this week, she said:

"Yes, we killed that obnoxious farm bill 1031 provision. (And) it felt good, I might add."

Real estate investors nationwide should share that sentiment.

Published: June 6, 2008

Trust Deeds, Mortgages, Contracts, Warranty Deeds: What are They?

by Clifford Hockley

Charles was confused. He was trying to buy a four-plex, but just did not understand the real estate jargon.

Deeds, trust deed, contacts, mortgages all were words he thought he knew, but in the end really did not understand.

He was sitting in his real estate broker's office embarrassed that he did not understand, when the broker Mimi, said to him,"You know, the language of real estate can be very confusing. I have prepared a short summary of terms that might be helpful to you as we move forward with this transaction.

Instantly Charles glazed look disappeared. "You have a tool for me? Great!" he exclaimed. "I really am stymied by the words and I really like the four-plex and want to buy it."

Mimi pulled out her glossary and shared it with Charles.

"First of all there is a distinction to be made between financing instruments and ownership instruments," she commented.

Financing Instruments

Mortgage

A mortgage is a document created whereby one party pledges to another party as a security for obligations owed to that party. A promissory note is normally executed at the same time as a mortgage. The note creates the obligation to repay the loan in accordance with its terms and is secured by the mortgage. The elements essential to the existence of a mortgage are the obligation to pay (or perform) and a pledge of the property (as security) for that obligation. If foreclosed upon involves a judicial foreclosure

What's a trust deed?

A trust deed (also called a deed of trust) isn't like the other types of Deeds; It's a version of a mortgage, commonly used in some states (California, for example). It's not used to transfer property. And if foreclosed on involves a non-judicial foreclosure.

A trust deed transfers title of land to a "trustee," usually a trust or title company, which holds the land as security for a loan. When the loan is paid off, title is transferred to the borrower. The trustee has no powers unless the borrower defaults on the loan; then the trustee can sell the property and pay the lender back from the proceeds, without first going to court. After the property has been sold on the courthouse steps there may be a right of redemption, especially for homeowners.

Deficiency Judgments - Are permitted in Oregon.

A deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage or deed of trust secures

Generally, a deficiency judgment may not be obtained using the non-judicial foreclosure process when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage or deed of trust secures. A deficiency judgment can be obtained in judicial foreclosure sale, unless the property had been abandoned for the preceding six (6) months prior to the foreclosure judgment or decree that would preclude any deficiency.

The Differences between a trust deed and a mortgage

The basic difference between the mortgage as a security instrument and a Deed of Trust is that in a Deed of Trust there are three parties involved, the borrower, the lender, and a trustee, whereas in a mortgage document there are only two parties involved, the borrower and the lender.

In a Deed of Trust, the borrower conveys title to a trustee who will hold title to the property for the benefit of the lender. The title remains in trust until the loan is paid. Often a title company, escrow company or bank, is listed as the trustee on the Deed of Trust. When the loan has been paid, the trustee will issue a release deed or trustee's reconveyance deed. This deed of reconveyance should be recorded at the county recorder's office, to make public notice that the loan has been paid off and that the lender's interest in the property has ended. Occasionally the recording of a reconveyance deed is forgotten. Typically this is discovered when the property is sold.

Another difference between a mortgage and a deed of trust is the manner in which foreclosure proceedings take place. State law will determine the method of foreclosure which must be used. Generally, the rules when using a Deed of Trust allow for a faster foreclosure time than with a judicial foreclosure required with a mortgage. Under a Deed of Trust, when the borrower defaults on the loan, the lender delivers the Deed of Trust to the trustee, who then is instructed to sell the property.

Right of redemption - After the foreclosure the person that owes the money (and owned the property) may have a right to redeem their property. This right is different in every state and must be researched on a case by case basis. A good resource for this is www.foreclosure.com.

Oregon for example, has a post-sale statutory right of redemption for judicial foreclosures, which would allow a party whose property has been foreclosed to reclaim that property 180 days after the sale by making payment in full of the sum of the unpaid loan plus costs and by submitting notice to the Sheriff not more than 30 and not less than 2 days in advance of the redemption.

Washington has a no post-sale statutory right of redemption for non-judicial foreclosures. For judicial foreclosures, there is a one-year right of redemption and a residential owner may remain in possession of the property during the redemption period.

When is seller financing used?

If a seller owns a property that is free and clear of any debt, or if the existing loan allows a "wrap" a seller might offer a buyer a Land Sales contract, also called an installment sales contract. This is easier and quicker than applying for a loan with a bank, or credit union. Typically there is no appraisal and no loan costs. In this financing the Seller of the property also becomes the banker.

Under a land sales contract, the seller retains the legal title to the property, while permitting the buyer to take possession of it for most purposes other than legal ownership. The sale price is typically amortized over 30 years and paid in periodic installments, and often includes a balloon payment after a mutually agreed upon time. At that time the loan is either paid off or refinanced.

When the full purchase price has been paid, the seller is obligated to deliver legal title to the property to the buyer. The legal status of land contracts varies from region to region, and the deal terms vary from contract to contract. There is more freedom to define payback terms and prepayment penalties for example in land sales contracts.

Ownership instruments

On the other hand we have Ownership deeds that convey the ownership of a property rather than financing. These deeds vary from state to state and application to application. Below summarized are the key generally accepted deeds.

General Warranty Deed

The seller or grantor conveys the property with certain covenants or warranties. The grantor is legally bound by these warranties. Whether expressly written into the deed, or implied by certain statutory words, basic warranties include:

Covenant of Seisin - Seisin means possession, and the grantor warrants that they own the property and have the legal right to convey it. (Seisin is the possession of such an estate in land as was anciently thought worthy to be held by a free man from Wikipedia)

Covenant against encumbrances -

The Grantor warrants that the property is free of any liens or encumbrances unless they're specifically stated in the deed. Covenant of quiet enjoyment-The buyer is guaranteed that the title will be good against third parties attempting to establish title to the property. Covenant of further assurance- The Grantor promises, in order to make the title good, they will deliver any document or instrument necessary.

The covenants or warranties in a general warranty deed do not cover just the period of ownership of this grantor.

They extend back to the origin of the property. Each grantor of a general warranty deed in the title chain would be liable for title problems before and through their ownership

Statutory warranty deed

The special warranty deed is not nearly as protective of the buyer as is the general warranty deed. The grantor of a special warranty deed conveys the property with two warranties: The grantor warrants that they have received title. The grantor warrants, unless noted specifically in the deed, that the property was not encumbered during their period of ownership.

The grantor of the special warranty deed, in effect, only warrants the title against their own actions or omissions. They warrant nothing prior to their taking title. If specifically stated in the deed, other warranties can be conveyed. Special warranty deeds are frequently used by executors and trustees.

For obvious reasons, most transfers are accomplished using the special warranty deed.

Quit claim deed

The quit claim deed is the least protective deed for the buyer. Basically, it only conveys whatever rights or interests the grantor has in the property. It provides no warranties or covenants to the buyer. If the grantor has good title, the quitclaim deed is as effective as a general warranty deed, but with none of the guarantees. Quitclaim deeds are frequently used to cure defects in the title. Quitclaim deeds are also frequently used to transfer property between family members also.

Bargain and sale deed

This deed does not warrant against any encumbrances. It does imply that the grantor holds title to the property. Since it does not warrant good title from the grantor, the grantee could be in trouble if title defects appear at a later date. This type of deed is used frequently in tax sales and for foreclosure actions. As with the special warranty deed, other warranties can be conveyed in a bargain and sale deed if they are specifically stated.

Sheriff's deed

A document giving ownership rights in property to a buyer at a sheriff's sale (a sale held by a sheriff to pay a court judgment against the owner of the property). A deed given at a sheriff's sale in the foreclosure of a mortgage. The giving of said deed begins a statutory redemption period.

A Trustee's deed

A trustee's deed is a deed to be executed by a person serving as a trustee in their appointed capacity. A trustee's deed is often used, for example, by a trustee in bankruptcy to sell real property of the debtor.

Conclusion

After Mimi finished her review of the glossary, Charles visibly relaxed. "Thank you Mimi," he murmured. "O.K. lets get down to business and write the offer. Please be sure to specify that we want to use a special warranty deed in our transaction and let's see if the seller will carry a land sales contract."

Mimi smiled to herself. It looked like she had gained Charlie's confidence and that they were well on their way to completing a real estate transaction with the writing of a purchase and sale agreement for the four-plex.

Published: May 22, 2008

Clifford A. Hockley is the President of Bluestone & Hockley Real Estate Services, one of the larger brokerage and property management companies in Portland, Oregon.

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Real Estate Outlook: Index Says Positive Growth Underway

by Kenneth R. Harney

You might not hear much about them on TV or in the papers, but there are some economic signs popping up right now that are -- at the VERY least -- encouraging for housing and real estate.

Take the gold standard of all forward indicators for the U.S. economy -- the Conference Board's "Index of Leading Indicators," which is based on a broad survey of industry data and predicts economic activity three to six months down the road.

The latest Conference Board index registered its first increase in six months. Now I know that all we hear about these days is recession: it's either already here or it's about to happen.

But the index suggests that there should be positive growth underway in the second half of the year, if not sooner.

Buttressing that forecast is a new report from the National Bureau of Economic Research which found that industrial production in the U.S. showed an unexpected uptick in March.

Here are some other noteworthy developments this past week:

• Applications for mortgages to buy houses were up again, it was the second straight week, according to the Mortgage Bankers Association of America's national survey. Applications for FHA loans to buy houses jumped by three and a half percent -- and conventional purchase applications rose 2.1 percent.

• The federal government reported that house prices nationwide stopped their slide between January and February -- and actually increased by six tenths of one percent.

• Interest rates remain well under 6 percent, according to the Mortgage Bankers, with 30-year fixed rate loans last week averaging 5.74 percent and 15-year loans at 5.27 percent. The Federal Reserve is likely to knock another quarter percent off short term rates next week.

• Freddie Mac announced plans to pump up to 15 billion dollars into the "jumbo conforming" loan market -- those are for high cost areas that really need some stimulus right now, like California.

Now, we're the first to admit that these positive-sounding economic developments are not ballgame-changers for real estate.

We've still got lots of housing inventory to sell before calling an end to the down cycle -- and total sales dipped 2 percent in March, according to the National Association of Realtors.

We're still dealing with a lack of confidence on the part of some consumers who are afraid that maybe prices still have a ways to fall.

But here's the point: It's undeniable that there are some glimmers out there that the underlying economy and financing marketplace, which after all are what support real estate activity, finally may be headed in a positive direction.

Published: April 24, 2008

Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate

Date: February 14, 2008

RE: Implementation of the Two Mortgage Provisions in the Stimulus Bill

On February 13, 2008, the President signed the stimulus bill, H.R. 5140. This is the first in a series of memorandums discussing the implementation of the two mortgage related provisions included in the signed measure. The bill provides temporary increases to both the Federal Housing Administration (FHA) and government sponsored enterprises (GSE) mortgage limits until December 31, 2008. NAR will provide updated information on these provisions as it becomes available.

• Raises the base FHA loan limit ("floor") to $271,050 (65 percent of the current GSE limit of $417,000),

• Sets the base GSE loan limit ("floor") at $417,000.

• Raises the maximum FHA loan limit from $362,750 to $729,750 (175 percent of the Fannie/Freddie (GSE) floor of $417,000)

• For all areas where the FHA limit exceeds $417,000, the GSE limit will be the same as the FHA limit. So, for example, if the FHA limit is $590,000, the GSE limit will also be $590,000.

• Increases the factor used to calculate FHA limits from 95 percent to 125 percent of area median sales price. Any area with an area median sales price above $216,840 will benefit from this change.

• Replaces the existing FHA ratios used to calculate maximum loan amounts for two-, three- and four-family units financed by FHA with the ratio used by Fannie Mae/Freddie Mac ratios to calculate their limits for two-, three- and four family unit properties.

Fannie Mae and Freddie Mac two-, three- and four family unit loan limits increase the same percentage that the single family limit increases. In 2006, for example, the GSE single family limit increased 15.95 percent and the mortgage limits for multiple units increased 15.95 percent. This change should result in significant increases in FHA limits for multi-unit properties. 2

• The Secretary of the US Department of Housing and Urban Development (HUD) will now have the discretion to raise the maximum FHA loan limit by an additional $100,000 for all properties (including 2-4 family units).

HUD is required by the law to publish the new mortgage limits by March 14, 2008. These new limits will be effective for FHA immediately upon publication. NAR developed estimates of the temporary FHA and GSE single-family loan limits. This data can be found at http://www.realtor.org/GAPublic.nsf/files/new_loan_limits.pdf/$FILE/new_loan_limits.pdf

The NAR sent a letter to HUD on February 13, 2008, urging HUD to implement the limits as quickly as possible.

The implementation schedule is complicated by the fact that Fannie Mae and Freddie Mac will be using the same limits above $417,000 and Office of Federal Housing Enterprise Oversight (OFHEO) Director James B. Lockhart, III (Fannie and Freddie's regulator) noted in a recent speech that implementation could take up to three months with an additional month for partial enactment. Mr. Lockhart offered no explanation as to what partial enactment means. NAR sent a letter to OFHEO on February 13, 2008, urging immediate adoption of the new loan limits.

To date, Fannie Mae and Freddie Mac have not indicated their implementation plans once limits are established by OFHEO.

FHA - The statute applies to "mortgages for which the mortgagee has issued credit approval for the borrower on or before December 31, 2008". We believe this means any loan which receives underwriting approval before January 1, 2009.

GSE - The statute applies to "mortgages originated during the period beginning on July 1, 2007, and ending at the end of December 31, 2008". We believe this means any loan originated before January 1, 2009. This also means that GSE can buy loans that meet the new loan limits that were originated after June 30, 2007. Consumers with existing jumbo mortgages may want to consider refinancing under the new loan limits prior to January 1, 2009.

FHA has a process by which the local area median loan limits may be challenged. If you do not believe the published loan limit accurately reflects 125 percent of your median home price, you may provide HUD with comparable home sales data 3

Unsigned letter accuses agent of mortgage fraud

Real estate agent says it may be a rival using smear tactics.

By SUSAN TAYLOR MARTIN, Times Senior Correspondent

Published November 23, 2007

Susan Taylor Martin | Times] Neighbors say this Palm Harbor home, sold by real estate agent Lori Polin last year, turned into a "crack house," with several transients arrested on drug charges. Lori Polin says her success is due to her hard work.

In 2006 - a year when most Tampa Bay real estate agents saw their business plummet - Lori Polin did remarkably well.

An agent for Re/Max International, Polin was honored at the company's convention in Atlanta last March with the Chairman's Club Award. That put her in an elite group - fewer than 1,400 of Re/Max's 120,000 agents worldwide - who had gross commissions last year of at least $500,000.

It was an impressive feat at a time when Florida home sales and prices were dropping dramatically. But now Polin, a member of the Re/Max Hall of Fame, is accused of owing at least some of her success to mortgage fraud.

In a letter to Re/Max's Denver headquarters, the Pinellas Realtor Organization and many of her fellow agents, an anonymous sender claims Polin "artificially inflated" the prices of nine homes in Tampa and North Pinellas so buyers could get larger loans.

Most of the houses were mortgaged for far more than the actual sales price, with the buyer or a third party pocketing the difference. Except for well-documented renovations, such "cash-back-at-closing" transactions can be a sign of mortgage fraud. In one transaction, $109,000 went to a construction cleanup company although there is no evidence of any construction or cleanup up since the run-down Clearwater house sold last year.

That house and the others listed by the anonymous sender are all now in foreclosure proceedings, contributing to a Florida foreclosure rate that is the nation's third highest.

"The buyers purchased multiple properties in short periods of time to avoid lenders detecting multiloan transactions and fraud," the letter charges. "Lori's contribution to this fraudulent activity has distorted property values and undermined neighborhoods."

The 48-year-old Polin said she is the innocent victim of a "smear campaign," which she says may have been started by a jealous rival.

"It's serious about these people going into foreclosure, but it has nothing to do with me except this Realtor trying to get me into trouble," Polin said. "All these deals were put together by attorneys and title companies and lenders. Nothing was inappropriate as far as what I did."

All of the transactions involved lawyer Allen Boyarksy, who bought Polin's own Oldsmar home. Polin said she didn't know that Boyarsky's law license had been suspended, that he had a history of drug arrests or that he had filed for bankruptcy protection, listing debts of $300,000.

Boyarsky, who recently started a marketing business with former Tampa Bay Buccaneer Lamar Thomas, didn't respond to requests for comment. In 2006, he was vice president of a mortgage company whose owner, Marcus Habeeb, recently closed all four of his Florida offices because mortgage fraud had become so rampant.

"The whole of Florida, all the transactions are funny," said Habeeb, who lives in New York. "All you got is fraud going on."

Some sketchy buyers

In 1997, Polin was making about $400 a month as a part-time visiting nurse. But after her divorce from her husband, a doctor, she began a real estate career that by 2003 was so successful Judge Nancy Moate agreed to a change in child support payments.

"There was a substantial increase in the wife's income," Moate said at a hearing. "Obviously she's done great."

Divorce files show Polin grossed about $120,000 in 2002, a time when Florida's real estate market was beginning to boom. But as the market began its steep slide in early 2006, she did even better.

Polin listed her house in the Multiple Listing Service, or MLS, at $544,900. But in January 2006, she raised the price to $610,000 and immediately got a contract from Boyarsky. He took out two loans, both co-signed by then-boss Habeeb.

Polin said Boyarsky paid more for the house because it included the furniture. She said she didn't question why an apparently successful lawyer needed someone to co-sign a loan.

"He brought his wife and his baby, he came in a suit and tie," Polin said. "Nothing seemed out of line."

For the rest of 2006, she continued to work with Boyarsky, who told her he represented investors. Among the deals was one involving a Tampa house whose owners had moved to Central Florida.

Iris Alfonso said her house had been on the market for months when Polin asked if she would accept a reduced price of $449,900. So Alfonso was surprised to find a contract price of $540,000.

She was surprised, too, that the buyer, Robert McCauley, agreed to let her sister stay on as a tenant at the same low rent she had been paying.

"It did make us wonder if something was going on here," Alfonso said. "Why would he be willing to take such a small amount of rent when his loan was so much higher than ours had been?"

As foreclosure notices arrived, Alfonso's brother-in-law met McCauley at a club and handed them over. McCauley, 30, was expensively dressed and driving a Cadillac Escalade. But after his arrest last July on a cocaine charge, he applied for a public defender.

He listed zero income and debts totaling $2.4-million.

Polin also was the agent on five houses bought by a young Central Florida woman and two homes sold to an Illinois man, Todd Kittel. Prices on five of the six houses were raised substantially just before they went under contract, and all six were financed for 100 percent of the new, higher amount.

One of the houses - in Palm Harbor - had been reduced to $335,000 in November 2006. Two weeks later, Polin increased the price to $425,000 and immediately got a contract from Kittel.

Utilities records show the water was turned on in Allen Boyarsky's name. Neither he nor Kittel ever moved into the house, which became a crash pad for convicted drug users and their pit bulls.

"It was the scourge of the neighborhood," said Cynthia Conciatu, who lives next door to the now-vacant house.

Kittel, whose other property is also in foreclosure, had only this comment: "I've hired a lawyer and I'm getting my life back together."

Polin defends prices

Reaction to the letter alleging Polin's involvement in possible mortgage fraud has varied.

Re/Max Mutual Realty of Clearwater, where Polin then worked, declined to comment. The Pinellas Realtor Organization said it doesn't act on anonymous complaints. But Re/Max International is "very concerned" about the allegations and is investigating, a spokesman said.

Polin, now with a Re/Max office near her Tampa home, said she could not discuss specific sales because of client confidentiality. But she said she did nothing illegal or improper by increasing prices.

"Prices are always raised and lowered in the MLS," she said. "In fact, there's a phenomenon where if you're not getting bites, you raise the price and you start getting bites."

But a prominent Pinellas real estate broker and appraiser questions such large price increases.

"People don't raise prices $100,000 in this market," said Jack Bowman, past chairman of a state board that has investigated mortgage fraud. "The market began to go south about September of 2005 and anybody who's any good knew it was going. (A price increase) is a red flag."

Polin said she stopped doing business with Boyarsky after the Pinellas Realtor Organization warned agents to be wary of 100 percent financing deals in which borrowers or third parties got cash from the loans. "If he brought clients I said, 'No, go elsewhere."'

Boyarsky worked for American Heritage Mortgage Group until the owner, Habeeb, fired him last year. "I can't prove these things, but I knew prices were escalated and money was passing hands that shouldn't be passing hands," Habeeb said.

Jail records show Boyarsky, 50, was still in the mortgage business as of last February when he was arrested on a cocaine charge. He recently moved out of the house - now in foreclosure - that he bought from Polin.

As for Polin, she insists her success is due solely to hard work. And she doesn't think it's a reflection on her that she sold so many houses to people who defaulted.

"How would I know what the intent of these buyers were? Look at the thousands of foreclosures out there. You can't say Realtors are responsible for that."

Times researchers Carolyn Edds and Caryn Baird contributed to this report. Susan Taylor Martin can be contacted at susan@sptimes.com.

[Last modified November 23, 2007, 00:06:56]

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Realtor Caught in Cash-Back-at-Closing's Crosshairs

by Ralph Roberts

According to Realtor Lori Polin, she was totally unaware that what she was involved with consisted of real estate and mortgage fraud. If ignorance of the law was an appropriate defense, she could be off the hook. Unfortunately it's not. According to a recent story in the St. Petersburg Times entitled "Unsigned letter accuses agent of mortgage fraud," Polin was allegedly involved in classic cash back at closing schemes.

Here's how a cash back at closing scheme works: The buyer pays more for a property than it's worth, and the seller agrees to kick back the surplus cash to the buyer at the closing. On its surface, cash back at closing seems to benefit everyone involved. The buyer pockets some extra cash. The seller unloads his house at or near the asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender stands to earn more interest over the life of the loan. Everybody wins.

Or so it seems.

Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone -- in this case, the lender, who's fooled into loaning more money than the collateral used to secure that loan is worth. If the borrower defaults on the loan (which is almost a sure thing in cash back at closing schemes), then the lender can't recover the money by selling the property.

Cash back at closing also:

• Inflates housing values, making housing less affordable

• Artificially raises property taxes

• Hurts honest real estate agents because they lose business to dishonest agents who offer cash back deals

• Stimulates foreclosure and destroys neighborhoods that begin to buckle when homeowners default on the inflated loans

With cash back at closing, what may have seemed like a win-win situation leaves plenty of losers in its wake.

According to an anonymous letter distributed to the press and many of Polin's colleagues, Polin artificially inflated the prices of nine homes in Tampa and North Pinellas, so buyers could get larger loans. In most cases, the homes were mortgaged for approximately $100,000 more than their true market value, and if the allegations prove true, then these transactions definitely fall into the category of cash back at closing. The perpetrators need to be brought to justice. The question is, did Polin do anything wrong?

Polin firmly believes she is innocent, because "All these deals were put together by attorneys and title companies and lenders." All she did was list and sell the homes. Some of the evidence, however, makes it look as though Polin could not possibly be unaware of what was going on.

In the case of Iris Alfonso, for example, Alfonso's house had been on the market for several months when Polin allegedly asked if she would accept a reduced price of $449,900. Shortly thereafter, Alfonso received a purchase contract offering her $540,000 for her home. Why would any buyer offer a seller $90,100 more than the seller was willing to accept? The only possible answer is cash back at closing.

According to Polin, she simply listed the homes for sale. What the buyer and seller agree to has nothing to do with her, according to Polin. If the reported incidents did occur, a law was clearly broken. As the FBI clearly states:

"It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution."

Whether or not Polin broke the law and is guilty of conspiring to commit fraud is up to law enforcement and the courts to decide. Whatever the outcome, this case highlights the need for real estate and mortgage fraud training in the real estate and mortgage lending industries. Attorneys and law enforcement agencies could also benefit from such training programs. Time and time again, I hear about professionals who should know better becoming involved in fraudulent transactions. Some are willing accomplices or even ringleaders. Others are unwilling accomplices or victims who are simply abused by savvy con artists. By receiving the proper training, these professionals can help defend themselves, their clients, and the housing industry from those who are committed to destroying the American Dream of homeownership.

Published: February 1, 2008

Once dubbed by TIME Magazine "the best-selling REALTOR® in America," Ralph R. Roberts, CRS, GRI is an award-winning and internationally recognized real estate agent, author, coach, and speaker. As president and CEO of Ralph Roberts Realty, Ralph has personally helped thousands of consumers realize their dream of homeownership. While selling over 10,000 homes (and buying and selling over 3,000 investment properties) throughout his 30-year career, Ralph has made the time to mentor and coach hundreds of professionals in real estate, sales, and a host of other fields. Ralph is a recognized authority on Real Estate and Mortgage Fraud; Residential Real Estate; Personal Salesmanship; and, Sales Force and Office Management, Motivation, and Design. Ralph's numerous websites, blogs, seminars, and speaking engagements engage, entertain, and educate both consumers and professionals. Ralph is also an accomplished author with several successful titles to his credit, including: Power Teams: The Complete Guide to Building and Managing a Winning Real Estate Agent Team Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons) Foreclosure Self-Defense For Dummies (John Wiley & Sons) Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan) Foreclosure Investing For Dummies (John Wiley & Sons) Advanced Selling For Dummies (John Wiley & Sons) Flipping Houses For Dummies (John Wiley & Sons) Walk Like a Giant, Sell Like a Madman (HarperCollins) Real Wealth by Investing in Real Estate (Prentice Hall/Penguin Group) Sell it Yourself (Adams Media) 52 Weeks of Sales Success (HarperCollins) To learn more about Ralph, visit AboutRalph.com or check out his daily insights on real estate and mortgage fraud prevention at FlippingFrenzy.com. You can reach Ralph at RalphRoberts@RalphRoberts.com or by calling (586) 751-0000.

Realty Viewpoint: Bad Builder Numbers Where They Should Be

by Blanche Evans

The Commerce Department reported that new home sales in December dropped to the lowest level in nearly 13 years.

Instead of the million or two we're used to hearing reported at year's end, new home builders only sold about 774,000 new homes in 2007. That's 26.4 percent below 2006, and the biggest year-over-year drop since 1963, when new home sales were first tracked by the government.

Prices fell dramatically in December for both the average (-11.5 percent to $267,300) and the median (10.9 percent to $219,000) price fell 10.9 the biggest drop in prices since 1970. The median is the point at which half the sales are under and half the sales are over.

Completed homes were 40 percent of the inventory on hand, which is a 26-year-high in relation to the pace of sales. There is now a 9.6 month supply of homes for sale at the December sales pace.

The National Association of Realtors had recently reported the first year in decades that the median sales price fell.

New homes costing more than $400,000 fell 50 percent from a year earlier, illustrating that the credit crunch isn't over yet for jumbo loans. And sales financed by conventional loans fell 27 percent. Home sales with VA or FHA loans fell 16 percent. Homes purchased with cash fell 24 percent.

But as bad as all that sounds, things could turn around.

Clearly buyers are waiting for prices to come down, but since December, mortgage interest rates have softened a full percentage point to near record lows. Consumers can save approximately $100 a month in payments, and qualify for homes that might have been out of reach a month ago.

The government is feverishly working on solutions that will raise the conventional loan limit from $417,000 to $625,000 which would allow more people to finance without resorting to exotic loans.

In addition, new home standing inventory has caused existing home sales to soften. If more inventory is absorbed in new homes, that improves the outlook for existing homes.

Look for a much better late winter and early spring. Home sale trends are identified over several months.

Published: January 29, 2008

Your 5-minute guide to credit cards

Credit cards do have some benefits, but it's easy to get into financial trouble if you rely on them too much. Here are more than a dozen tips for using cards wisely.

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By MSN Money staff

Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.

The No. 1 rule is: Pay off your balance every month. Otherwise, you'll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve.

Protect your good name (and score)

• Make your payments by the date -- and time -- they're due. Late fees are $29 or more. A couple of late payments will trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well. (See "7 fast fixes for your credit score.")
• Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score. (See "1 in 7 Americans carry 10 or more cards.")
• Read the fine print. Know the interest rate you will be charged, the grace period for paying your debt before interest kicks in and your credit limit. Does your company use two-cycle billing? (Better look, because two-cycle billing means you could pay interest even when you carry no balance.) Also, almost half come with a "universal default" clause, allowing an increase in your interest rate if you are late paying any other bill. (See "Credit card companies' evil tricks.")
• Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee. (Estimate your credit score.)
• Don't exceed 30% of your credit limit. Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.

The devil in the details

Credit card companies market different types of cards, featuring low interest, rewards or other benefits. Be careful about the terms, which are subject to change.

• If you're transferring a balance to a new card with lower interest, find out how much the company will charge for the transfer. Urge that it be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.
• Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions -- for instance, you have to spend a certain amount to earn the reward.

Convenience? Sometimes

If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you're liable for no more than $50 for unauthorized charges.

Other "services" offered by credit card companies have potential drawbacks.

• Contactless credit cards make it even easier to purchase items because you don't need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil. (See "New credit cards allow hands-free theft.")
• Don't use "convenience" checks your credit card company sends you unsolicited in the mail. They're costly -- with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period -- and don't provide the consumer protection you get when you make a purchase with your credit card. (See "Dangerous checks in the mail.")
• Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.
• Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.

Getting back in the game

Getting and using a credit card could be the easiest way to re-establish credit if yours has gone sour. But getting back into the credit game comes with potential hazards.

• Cards issued to those considered credit risks come with interest rates in the 18% to 22% range and low spending limits. Such cards sometimes have extra fees hidden in the fine print. (See "Credit cards for the desperate.")
• Don't take the bait when companies want to issue you one low-limit card after another. You can find yourself back in debt, paying late fees, over-limit fees and high interest rates on multiple cards.

If you've fallen off the wise-spending wagon, seek counseling from a nonprofit credit-counseling agency certified by the National Foundation for Credit Counseling.

Tired of unsolicited offers of pre-approved cards? Call 1-888-5 OPT-OUT.

If you've got a hint we haven't included or find a factual error, let us know by sending an e-mail to Five.minute@hotmail.com.

Published April 20, 2007