When transfer tax becomes controversial

The legislative process encourages discourse for proposed legislation.  The result is a bill that is passed or defeated.  Regardless, proposed housing market and real estate legislation is not typically exciting; and in fact the minutia of the bill can be downright boring and/or confusing.  However, there are occasions when proposed legislation has the potential to affect home owners and buyers such that it can create a brouhaha.

First, let’s review a few bills passed by the Maryland General Assembly: The first has to do with agency.  Currently, “licensees” are required to provide the Maryland Real Estate Commission’s Understanding Whom Real Estate Agents Represent at the time of first face to face meeting and is a notice to the consumer.  The disclosure explains seller’s agents, agents who represent the buyer, and dual agents.  For many home buyers, the first face to face meeting of an agent is at an open house, and are supposed to be given the disclosure by the agent sitting at the open house regardless if the buyer has an agent or not.  The new law is to simplify the disclosure, eliminating redundant notices and allowing agents at open houses to post who they represent instead of the asking every visitor to sign the disclosure.

Another change is how agents recommend service providers.  The current requirement is for agents to check the licensing status of all recommended service providers, ensuring that the provider is currently licensed in Maryland.  The new law will only require agents to annually check home improvement licenses of recommended contractors.

The General Assembly also passed legislation that will require home sellers throughout the state to disclose deferred water and sewer charges. Additionally, legislation was passed that adds requirements to the state brokerage licensing exemption for attorneys.

Still with me?  Good.  Local residents should be aware of the Montgomery County Council’s attempt to fast track a bill to increase the county’s recordation tax on real estate transactions.  On April 14th, Expedited Bill 15-16, Recordation Tax – Rates – Allocations – Amendments was introduced by Council President Nancy Floreen.  Recordation tax is collected when a home is sold, and when a home owner refinances a mortgage.  If passed, it will become effective July 1st 2016 (which is about 2 months from now!).

The Greater Capital Area Association of Realtors® issued an April 18th press release opposing the bill, stating that it unfairly targets home buyers and home owners by increasing a tax that is already among the highest in the state.

In an April 12th memorandum to Councilmembers (page 7 of pdf) Councilmember Floreen stated: “While nobody likes the idea of increasing taxes of any kind, our needs are great, and this tax is less likely to affect those Montgomery County residents who are struggling most. On the up side, it will generate millions of dollars to support our desperate need for new schools and educational facility improvements. What’s more, a portion of the recordation tax is earmarked for affordable housing.”

Although aspirations for certain projects may be well intentioned, Councilmember Floreen should consider that further burdening home buyers in an already high cost area for real estate could impact homeownership and make “affordable housing” less affordable.  Furthermore, the average Montgomery County home owner refinancing their mortgage may not be struggling, but they are trying to get by the best they can in a high cost of living area.

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

The housing solution trap

When we’re feeling pain or anguish, immediate relief is often sought. So, it would make sense that, when we’re feeling pinched financially, a short term money fix might help. However, quick fixes don’t always address the underlying issues that precipitated or contribute to the problem.

According to recent reports, Americans are increasingly “feeling” the pain as the economy continues to stagger amid volatile financial markets and gloomy housing reports. The Misery Index, which can be construed as a quantitative measure of “pain” associated with an economy, was recently reported to have risen to its highest levels in 28 years. (Introduced in the 1960’s, the Misery Index is found by adding the unemployment rate to the rate of inflation. Obviously, the lower the index – the better.)

So it should come as no surprise that as the push for a jobs bill continues the focus has once again turned to the housing market. This week, the Federal Housing Finance Agency (FHFA.gov) announced that the Home Affordable Refinance Program (HARP) will be “enhanced” to accommodate more under-water home owners.

When the program was initiated in 2009, the intention was to assist the refinancing of home owners whose home values declined. It was estimated that it would assist millions of home owners. However, as has been widely reported recently, only about 900,000 home owners have been helped; and of those home owners, about 72,000 are under-water.

Seeking immediate relief for home owners, HARP’s eligibility requirements have become the center of attention. This week’s announcement to remove the “impediments” to refinancing is expected to increase the pool of home owners seeking refinancing of underwater mortgages.

HARP’s initial eligibility requirements included: having a mortgage guaranteed by Fannie Mar or Freddie Mac; the mortgage must not be an FHA, VA, or USDA loan; mortgage payments are current and payments must not have been more than 30 days late in the last year; the first mortgage amount must not exceed 125% of the home’s value; the refinance should improve the long-term affordability of the mortgage; and you’re able to make the new payments.

The new HARP guidelines announced by FHFA this week include lowering or eliminating certain borrower fees, removing the 125% loan to value ceiling, and extending the program to December 31, 2013.

In addition to helping already stressed home owners, it is expected that the money saved on mortgages will be pumped back into the economy. However, critics say that the revised guidelines will do little, if anything, to address the wider problem that exists in the housing market. Additionally, some critics point to the added burden on an already troubled Fannie Mae and Freddie Mac.

So, if the recent adjustment to HARP won’t do much for the housing market, as critics point out; what is the solution? Short term fixes may immediately reduce the pain. However, there should be little doubt that housing and employment are closely linked. Aside from monetary policy that might focus on flattening inflation; addressing long term sustainable economic growth, along with an expansion of permanent full time employment is the key to reviving the housing market.

Nothing feels better than taking pain away quickly and effortlessly. However, like many deep seated problems, the solution may very well lie in a long term plan that may require feeling some pain along the way.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws.

Should you refinance your mortgage?

Have you refinanced your mortgage yet? Many home owners have recently taken advantage of some of the lowest mortgage interest rates we’ve seen in two generations. If you haven’t refinanced yet, it may not be too late. However before you run off to your local bank to sign mortgage documents, consider what you want to achieve and if it will benefit you.

Of course lowering your mortgage interest rate is a good thing, right? However you should also consider the mortgage terms and the cost of refinancing. Besides lowering the interest rate, you could refinance your mortgage to shorten the duration, change the mortgage type, cash-out on your home’s equity, or a combination of any of the above. These days, however, many homeowners are just hoping to capitalize on lower interest rates to reduce their monthly payments.

If you want to shorten the duration of your mortgage by refinancing your 30 year mortgage to 15 years, don’t expect to lower your monthly payment. Although mortgages with a shorter duration typically have lower interest rates, the monthly payment can be higher than a longer duration mortgage of the same type and amount because the amortization period is shortened.

If you want to change the type of mortgage you have, consider the advantages and drawbacks of various programs that may be available. There are many types of mortgages; some are considered to be risky or advantageous depending on prevailing markets and your personal financial situation. Not for every home owner, mortgage types such as the balloon mortgage, reverse mortgage, or the many configurations of hybrid mortgages offer the mortgage holder specific benefits and risks. Home owners with these types of mortgages may refinance more often because of changing markets and financial conditions.

Although it’s not in vogue these days, cash-out refinances are still offered by some lenders to pay down debt, home renovations, or any other sensible reason you could use cash. If you are seeking to cash-out equity in your home, be prepared for stricter underwriting to make for a rigorous mortgage process. Depending on the lender and program underwriting requirements, you may also be required to document the purpose for the cash.

Although mortgage refinancing has recently been appealing due to very low interest rates, many home owners are having trouble qualifying. Remember that just because you may have qualified for a mortgage in the past, changes to your finances and credit history as well as changes in the mortgage industry could affect your ability to refinance. Another qualifying issue to consider is the loan-to value of the refinance, since many homes across the country have recently depreciated in value.

Even obtaining a FHA or VA streamline refinance has become increasingly difficult for some home owners. Once considered a “fast-track” refinance option, obtaining these streamline refinances have become more difficult in the last year because of changes to lender underwriting requirements.

If you’re still thinking about refinancing, compare rates as well as lender fees and mortgage terms. Determine if the cost of the refinance merits the advantages, as well as if there are alternatives. The Federal Reserve Board (federalreserve.gov/pubs/refinancings), the Federal Trade Commission (ftc.gov), Fannie Mae (fanniemae.com) and Freddie Mac (freddiemac.com) offer consumer resources to help you understand the benefits, drawbacks, and considerations of mortgage refinancing.

By Dan Krell
Copyright © 2010

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.