Gary Giffin

Make the Home Buyer Tax Credit More Easily Available at Closing

RISMEDIA, By Ken TrepetaOctober 7, 2009—The first-time home buyer’s tax credit cannot be directly used for down payment at the closing table due to federal tax law. In order to claim tax credit, one must meet certain criteria. Since the first-time home buyer tax credit eligibility is contingent upon acquiring the home, it is impossible for one to receive the credit directly before closing on the home. NAR worked with Members of Congress to find a way to “monetize” the credit directly at the closing table. After weeks of work, the result was that because of the structure of the tax code and tax credits in general, it is somewhere in between impractical and impossible to make a tax credit directly available at the closing table. However, it is not impossible to leverage the anticipated credit for down payment assistance.

The principal way to use the anticipated credit for a down payment is through a bridge loan secured from a state housing finance agency (HFA) or other eligible agency. The HFA gives the bridge loan at closing and the buyer promises to repay. Ostensibly, the repayment should occur upon receipt of the tax refund. However, it is difficult to make this a certainty under existing law. Existing law does not allow for the assignment of a tax refund. If it did, HFA’s could require assignment, ensuring the loan gets repaid promptly.

NAR is urging Congress to extend and expand the credit. It may also be possible to correct one or both of the issues above, and NAR is exploring that with Members of Congress. Congress could create an exception to the assignment provision. This would allow HFAs to require an assignment of a refund made up of the tax credit. Congress could also mandate that refunds from amended returns be eligible for direct deposit, but this is less likely. This is a more difficult issue because the IRS needs to build capacity to do this and, at present, can only handle direct deposits from regularly filed tax returns. So, while it can be done, it would likely take too much time to implement.

Finally, some take issue with making the anticipated credit proceeds available at the closing table, especially when it is being used to cover the 3.5% cash requirement on an FHA loan. They compare this to seller-funded down payment assistance associated with higher default rates and other negative consequences. It is different in very important ways:

1. While the bridge loan is available at closing, it is not being provided via an interested party such as the seller.

2. While the buyer is not using their own cash at closing, they are obligated to pay the bridge loan back with the credit, meaning it is, in essence, “their money” being put on the line for down payment. Minor adjustments to tax refund policy noted above could make this even clearer.

3. The involvement of the HFA means there is yet another layer of scrutiny on the buyer’s ability to afford the home they are purchasing. This is in sharp contrast to seller-funded down payment where third parties with an interest in closing the deal would receive funds from the seller, subtract a fee, and then provide the cash at the table.

4. The most perverse element of seller-funded downpayment is not present, the pressure to increase the sales price of the property in order to cover the seller contribution to down payment.

NAR is making a strong push to extend and expand the credit before it expires on November 30, 2009. In so doing, we hope to make the credit more effective as a down payment assistance tool as well.

Ken Trepeta is the Director of NAR Real Estate Services.

More San Diego Real Estate articles at Gary Giffin web www.GaryGiffin.com or search for San Diego Real Estate at Gary Giffin MLS search www.SanDiegoHomeSold.com

RISMEDIA, October 6, 2009—In September 2009, more renters took the plunge to become homeowners but fewer current homeowners opted to move up to more desirable homes or neighborhoods even though these homeowners acknowledge home prices are a good value, according to a new survey commissioned by Relocation.com.

Seventy percent of respondents said homes are more affordable today than in recent months. Further, 69% indicated they believe the economy is improving with 19%- the largest proportion—citing declining home values as a primary reason for this improvement. But Americans are still cautious: only 26% of survey respondents took advantage of these more affordable prices to move to a bigger house or neighborhood, down 24 percentage points from June.

And while the Relocation.com survey found that the number of homeowners moving to a new home remained the same as it had in an earlier survey conducted in June, the number of renters finally moving from the sidelines to purchase a home increased by 3 percentage points in September. Moving due to job loss or foreclosure stabilized at 7%.

“Although it’s too early to tell if this is a long-term trend, it’s interesting to see that renters have found reason to become homebuyers,” observed Sharon Asher, chairman and founder, Relocation.com. “We’re also interested to see that there’s been a 16% increase in respondents who said they hired a professional mover, which may be another indication of an improving economy.”

Compared to Relocation.com’s June 2009 survey, in September, more respondents said they were moving for career-related reasons—to begin college, start a new job—which is likely more due to seasonal trends than attributable to economic factors.

More value for home purchases, lower mortgage interest rates and the tax credit for new homebuyers were cited as factors responsible for respondents’ belief that the economy is starting to back away from the financial ledge.

“In past years, we’d see the number of people moving into new homes calming down toward end of year,” noted Asher. “But this year has been singular in so many ways, it’s possible we may see something different. We’ll be tracking closely to see if buyers are moving into new homes for the holidays.”

More San Diego Real Estate articles at Gary Giffin web www.GaryGiffin.com or search for San Diego Real Estate at Gary Giffin MLS search www.SanDiegoHomeSold.com

HUD Changes for Condo FHA

Did you hear about the upcoming changes from HUD in regards to approval for FHA financing on condos? They were announced this summer, but their effective date is now less than a month away. Here are some of the noteworthy provisions below, as well as a link to the webpage with a link to the official HUD letter – “Mortgage Letter 2009-19”. I hope this info is helpful. At the very least, it’s good to be informed, right?

FYI – the original effective date was 10/1/09, but it was extended to 11/2/09.

Effective 11/2/09 …

• HUD will completely wipe out their list of approved condo projects with the EXCEPTION of any condos approved on or after 9/1/08.

• HUD will no longer accept Spot Condo Approval.

• HUD condo approvals will be approved for a 2 year period. Every two years it must be re-approved.

• Condo projects will be limited to 30% FHA exposure. Not more than 30% of the entire project can have FHA financing. (In condo projects of 3 or less units, not more than one unit.)

• Land/Home will have a 30 day moratorium on HUD Condos. Only FHA loans done for condos will be those that are already on the approved list or FHA case numbers ordered prior to 11/2/09.

*Exceptions: FHA to FHA Streamline loan, and FHA/HUD REO Division Sales

http://www.hud..gov/offices/hsg/sfh/hsgsingle.cfm

More San Diego Real Estate articles at Gary Giffin web www.GaryGiffin.com or search for San Diego Real Estate at Gary Giffin MLS search www.SanDiegoHomeSold.com

Finding Your Dream Foreclosure: What to Know When You’re Buying an REO Property

RiSMEDIA, October 5, 2009—Amy hoak (MarketWatch/MCT)—Buying a foreclosure often is appealing to buyers trying to stretch their dollars. It’s finding a good one can that can be a challenge.

“The vast majority of the banks don’t want us to advertise them as ‘bank-owned’ because it comes with a negative connotation,” said Ryan Melvin, co-owner of More Realty Group in Las Vegas.

That means no sign on the front lawn indicating the home is anything other than a traditional sale. A buyer probably won’t find a property advertised as a foreclosure on marketing materials, said Melvin, who specializes in real-estate owned properties, or REOs, those that have been reclaimed by a bank, typically after an unsuccessful foreclosure auction.

Plus, in some markets, including Las Vegas, foreclosure inventory is actually down compared with last year as government programs attempt to keep owners in their homes and banks aren’t putting as many homes on the market, Melvin said. That’s making it harder for buyers to snag a foreclosure, and those paying with cash often win a bid over someone who needs financing.

If you’re considering the purchase of a home that is now owned by a bank, it’s also important to know at the outset just how much work you’re in for — and how much it is going to cost you. Many foreclosures are in various states of disrepair; some of the fixes are cosmetic, but some can be extensive.

Those looking for the best deal probably shouldn’t rule out non-foreclosure properties, either, said Mark Goldman, a mortgage broker with Cobalt Financial Corp., and a real estate lecturer at San Diego State University. Sometimes, people set their sights on bank-owned properties “like the word ‘foreclosure’ equals ‘good deal,’” he said.

And that’s not always true.

One option for finding foreclosure listings: Go straight to the bank.

Lender Web sites, such as those operated by Bank of America, Chase and Citibank, will list the properties the financial institution has reclaimed when borrowers defaulted. To find a list, simply do a Web search for REOs and the name of the lender. Contact information for the property’s listing agents is usually provided for each entry.

For a fee, other sites will hunt down properties for you. RealtyTrac.com, which helps people find foreclosure and pre-foreclosure properties, charges $49.95 a month, after a free seven-day trial. The company also recently launched BankHomesDirect.com, which charges $19.95 per month and lets people search just for REOs.

Foreclosures.com charges $49.95 per month, after a free seven-day trial.

Otherwise, you might want to enlist the help of a realty agent. Someone who works regularly with REOs might be able to track down the properties more easily than a traditional agent. Melvin is a member of the National REO Brokers Association, nrba.com, which has a searchable database of brokers on its site. There’s also the REO Network, reonetwork.com, which connects buyers with those who specialize in selling REOs.

Lenders aren’t held to the same disclosure requirements as sellers who have lived in the home, mainly because the lender hasn’t occupied the home to notice leaks or other problems. For that reason, an inspection is crucial.

“If there are lessons out of the last couple of years, it’s certainly buyer beware,” said Dan Steward, president of the home inspection firm Pillar to Post, which has a U.S. headquarters in Tampa, Fla.

“We have all heard the stories of people ripping the copper pipe and wiring out … people have literally gone to the light switch, disconnected the wire from the switch box and have pulled the wire through the drywall,” Steward said. Some have ripped out toilets and kicked in walls or left water faucets running before they left the house, often out of anger.

You don’t need to be told the toilet is gone, but an inspector can tell if there is damage 20 feet down the water line because of the way that toilet was ripped out, he said.

Other issues could pop up due to the property being vacant. Large banks will often hire a field service to cut the grass, shovel the snow and winterize a home, yet when homes aren’t occupied it’s harder to catch small problems before they become big ones.

“When we live at home or drive the car, if something is off we notice it. We notice it and we deal with it,” Steward said. When a place is unoccupied, pests could become an issue. If you were living in a home, a nest of raccoons probably wouldn’t be able to find a home in your crawlspace—not for long, anyway.

A neighborhood environmental report might also be worthwhile, he said, which could reveal if the property was the site of a drug lab, for example. When a meth lab is operating in a home, air quality issues can arise; when a home was used for growing marijuana, there is a tendency for mold problems from the high humidity, Steward said.

The time it takes to complete the sale can vary from lender to lender. In some cases, the process goes smoothly, Goldman said. Other lenders are disorganized.

“It really depends on who you’re doing business with,” Goldman said.

But for your best chance at having an offer accepted and for a quick closing process, have everything in order before making the offer, said Duane Andrews, CEO of Clear Capital, a company that provides valuation products for the mortgage and lending industries. That includes having the financing firmed up and writing a clean offer — for example, asking for new oven racks as part of the deal could peg you as a demanding buyer who will be annoying to deal with, he said.

“What this tells the seller is this guy is going to be a pain and they don’t have time for this pain,” Andrews said.

In fact, most bank-owned properties are sold “as is,” so if there is something you want fixed, it’s best to just factor that into the price you’re offering, Melvin said.

But don’t expect to bargain the listing price way down, Melvin added.

Banks typically price their properties at a 20 percent to 30 percent discount anyway, he said. If the property has been on the market for a week or two, don’t expect the bank to drop the price; if the listing is older, you might have more power, he said.

Also, don’t be surprised if the bank that is selling the property asks you to get an approval from its mortgage operation; you often don’t have to take the loan from their company, but they may want to get a closer look at your finances to make sure you’re a solid buyer, Melvin said.

Above all, make sure to follow directions when submitting the offer, he said. That likely includes having an approval letter from the bank and the correct amount of earnest money.

More San Diego Real Estate articles at Gary Giffin web www.GaryGiffin.com or search for San Diego Real Estate at Gary Giffin MLS search www.SanDiegoHomeSold.com