Mortgage modification future

mortgage modification
Mortgage Relief (infographic from HARP.gov)

CoreLogic’s (corlogic.com) latest monthly foreclosure report indicated a continued downward trend.  In fact, July’s national foreclosure inventory rate of 0.91% was the 57th consecutive month (almost 5 years) with a lower number of foreclosures nationwide.  Even the current 2.9% national rate of home owners considered “seriously delinquent” is also lower from last July.  (Maryland’s foreclosure inventory and seriously delinquent rates are higher than the national average at 1.2% and 4.1% respectively.) All thanks to mortgage modification and foreclosure alternatives.

Frank Nothaft, chief economist at CoreLogic, contributed the decline of foreclosure inventory to a combination of loan modification, foreclosures, and a strong housing market.  Additionally, he stated that “The U.S. Treasury’s making home affordable program has contributed to the decline through permanent modifications, forbearance and foreclosure alternatives which have assisted 2.5 million home owners with first mortgages at risk since 2009.”

In the immediate aftershock of the foreclosure and subsequent financial crises, which began almost nine years ago, the government stepped in to help out at risk home owners.  The rollout of HAFA, HARP, and HAMP was bumpy and it took time for the programs to work efficiently.  Of course, these programs were not intended to continue on forever, and in fact were supposed to end several years ago.  Fortunately, Congress, the Treasury and the FHFA have recognized the need for continued assistance and extended the programs.  Providing foreclosure alternatives and mortgage modification reduces vacant homes, bolsters communities, and helps maintain a healthy housing market.

Although these mortgage assistance programs were intended to be temporary, it’s clear that a permanent solution is necessary.  The notion that a foreclosure crisis won’t or can’t happen again is naïve.  Historically, housing downturns and recessions are cyclical.  And when an economic decline occurs, a home owner assistance program should be available to provide borrowers with alternatives to foreclosure.

The Federal Housing Finance Agency (FHFA.gov) announced in an August 25th press release that HARP will be extended through September 2017.  But that will be the end of Home Affordable Refinance Program (HARP) as we know it, because a new program is slated to begin October 2017.  The new program is to be a streamlined version that will also allow those whose mortgages exceed Fannie and Freddie’s loan limits to refinance.

FHFA stated that specifics for the HARP replacement will be released as the rollout date approaches.  However, it is anticipated that the program will not require a minimum credit score; will not place limits on the borrower’s debt-to-income ratio; nor will it limit the mortgage to a maximum loan-to-value.  And unlike many refinance programs, an appraisal may not be required.  And improving from the HARP program, there won’t be cut off dates, and borrowers can use the program multiple times.

The Home Affordable Modification Program (HAMP) unfortunately is slated to conclude at the end of the year without a viable replacement.  However, the Mortgage Bankers Association have stepped in to create a streamlined solution to fill the gap.  A September 23rd press release (MBA.org) announced its successor to HAMP: “One Mod: Principles for Post-HAMP Loan Modifications.”

J. David Motley, CMB Vice-Chairman of the Mortgage Bankers Association, stated, “With Treasury’s HAMP program soon coming to an end, we all recognized that investors, borrowers, and servicers need a replacement program that provides clarity and simplicity to homeowners experiencing difficulty maintaining their mortgage paymentsOne Mod could meet that challenge by providing affordable and sustainable payment structures that improve the likelihood of success for participating borrowers.

Copyright © Dan Krell

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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.

Radon is everywhere – testing is not

Radon is everywhere
Radon is everywhere (infographic from inhabitat.com)

Montgomery County MD is implementing two controversial bills. New county recordation tax rates. And – Radon is everywhere, but new law falls short to protect county residents.

Effective September 1st, increased recordation tax will be collected in Montgomery County.  The rate for the first $500,000 will be $8.90 per $1,000.  The rate for any amount exceeding $500,000 will be $13.50 per $1,000.  The individual primary residence exemption is also increased from $50,000 to $100,000.   Read more about the controversy here.

Recordation tax is an excise tax that is collected for the “privilege” of recording an instrument in the land records.  Of course, transfer tax is collected when a home is sold; and is also collected when a mortgage is refinanced.

Effective October 1st radon testing is compulsory for homes that are sold in Montgomery County MD (however, the law lists exemptions).  The seller must test, or allow the buyer to test radon levels in the home.  The radon test must not be older than one year from the closing date.  Both the buyer and seller must receive the radon report.  If radon levels are above the EPA recommended action level of 4 picocuries per liter, then an estimate must be obtained from a licensed contractor to reduce level to 2 picocuries per liter.  Read more about the controversy here.

Radon is a toxic, radioactive gas that is formed by the natural breakdown of radium.  Radon seeks its way to the surface as an odorless, colorless, and tasteless gas.  A 1999 National Academy of Sciences report (The Biological Effects of Ionizing Radiation, The Health Effects to Indoor Radon) indicated that radon causes up to 22,000 lung cancer deaths per year.  As there are no immediate symptoms of radon exposure, the only way to know if a building has high levels of this gas is to test for it.

Radon is everywhere, but testing is not.  Although the radon testing law is well intentioned, it misses the mark on comprehensive radon testing, education and awareness.

First, the law may unintentionally provide a false sense of security to home buyers. By requiring the test by the sale, it suggests to home buyers that the initial radon test (when the home is purchased) is the only test needed.  In fact, the EPA recommends radon testing every two years.  Homes with low radon levels may change over time to have increased levels, and vice versa.  Additionally, the self-testing conducted by home owners may not be accurate (or worse, may be intentionally erroneous). Consequentially, home buyers should hire a qualified expert to test the home regardless of home seller provided test results.

Second, it must be asked as to why only require testing for single family home sales?  Radon is everywhere.  The radon law should have been more comprehensive to also include radon testing every two years for single family rental units, schools, and public buildings.

And finally, the law should have provided for consumer education much like the EPA lead paint pamphlet (Protect Your Family From Lead In Your Home) that is required for home sales and rentals.  Likewise, why not provide to consumers the EPA pamphlet “Home Buyer’s and Seller’s Guide to Radon” (epa.gov/sites/production/files/2015-05/documents/hmbuygud.pdf)?

Copyright © Dan Krell

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Home owner savvy

Home owner savvy
Home maintenance schedule (from homezada.com)

The playwright Oscar Wilde must have been fond of the idiom “nowadays people know the price of everything and the value of nothing,” because he used it in back to back works; first in The Picture of Dorian Gray, and then a variation in Lady Windermere’s Fan.  Today, corrupted forms of Wilde’s phrase are wrongly attributed or misquoted – but the point is well made.  More psychologist then poet, Wilde seemed to characterize a core consumer behavioral trait of seeking short term gain vs long term value – which applies to home owner savvy!

Consumers in the 19th century were much like consumers today, such that they sought out to get a bargain; often times overlooking the costs from which it comes by.  And what may have been in Wilde’s time a conflation of price and value, is still common today – especially for home owners.  While many home owners pride themselves on their frugality in home maintenance, they don’t realize the consequences of their poor choices when it comes time to sell their home.  Home owner savvy is also knowing about value.

Today’s home owner’s frugality comes honestly as a result of the great recession.  A McKinsey Global Institute consumer sentiment survey from a year and half ago sums it up in the title: America the frugal: US Consumer Sentiment Survey (Martinez, Motiwala, and Sher; mckinsey.com; December 2014).  Martinez, Motiwala, and Sher wrote in their economic analysis that “…Multiple years of austerity have left consumers with altered views about spending. Almost 40 percent say they will probably never go back to their prerecession approach to buying…

While looking to spend less on maintenance and home repairs, home owners often ignore the effects of their thriftiness on the long term maintenance costs of their home.  Trying to spend less often means becoming reactive to maintenance issues, instead of proactive.  Reactive maintenance typically means that the plumbing, electrical, or roof issue the owner is repairing, may have been an ongoing problem that may have also affected other systems of the home.  However, proactive home maintenance is an ongoing process that can prevent minor problems from becoming costly major issues and is home owner savvy.

John Riha invoked Ben Franklin’s “An ounce of prevention is worth a pound of cure” when writing about home maintenance and house values (How Much Value Does Regular Maintenance Add to Your Home?; houselogic.com).  He repeats a common theme that regular preventative maintenance doesn’t only save you money down the line, but can add to a home’s sale price.  Riha quotes University of Connecticut and Syracuse University studies that implies the value of a regularly maintained home may increase by 1% a year!

Riha recommends a “proactive maintenance strategy” to help stay on top of necessary repairs and system replacements.  He suggests saving 1% to 3% of a home’s cost for regular maintenance.  To help keep it “interesting,” he suggests repairing and updating one room per year.  If you are unsure where to begin, a home inspection may help identify areas of immediate concern; as well as develop a regular maintenance schedule.  Also, keeping records of ongoing repairs and upgrades will cement in a home buyer’s mind the amount of care you had for your home.

Home owner savvy is not necessarily about being frugal with home maintenance, which is also not about knowing the price of everything; but in reality, diminish the value of their home.  Regular home maintenance can not only keep you comfortable and safe through the year, it may help you sell your home faster and for more!

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Vacation home preparation

vacation home preparation
Vacation home preparation (infographic from Tower Hill Insurance thig.com)

Summer vacation home preparation is much like preparing it for the winter or severe weather.  Much of the plan is conventional wisdom and incorporates penny pinching advice intended to prevent a potential hazard.  The goal is to anticipate and minimize problems while your away by safeguarding the home’s systems and implementing a security plan.

Many electrical items we use are considered to be “zombie” appliances; meaning they use electricity even when not in use.  Unplugging such items as the toaster, Keurig, and other small appliances that won’t be in use while you’re away will conserve energy (and may save you a few pennies).  More so, shut down (and unplug) your computers and printers to not just conserve energy, but to also thwart hackers while your away.

Some people play with their home’s thermostat to save some money.  The thought is that by setting the thermostat temperature much higher than usual, the air conditioner will not run as much (or at all).  However, if you have a basement or cellar, you might consider setting the thermostat temperature to a more reasonable temperature to prevent mold from growing in your dark and humid basement.

Some shut off the water to the house to prevent a water hazard.  However, shutting off valves at faucets, fixtures, or appliances may be a better plan if your home has a sprinkler system.  And to prevent someone taking advantage of your absence and wash a car or two in your driveway, you might also consider shutting off the valves to the exterior hose bibs.

Besides protecting your home’s systems, think about home security too!  First, refrain from posting your plans on social media.  Although you may want to inform your Facebook friends and Twitter followers of your itinerary, broadcasting vacation plans in such a way could also get the attention of a would be criminal looking for their next break-in.

Although storing your valuables in a safe place could minimize loss, consider implementing crime deterrents as well.  Installing motion activated lights on the home’s exterior may deter activity around the home at night; while electronic devices, such as the camera-doorbell, can notify you if there is any activity around the house during the day.

You may also consider implementing some common tactics to make it seem as if you never went on vacation.  Having a few lights on a timer will appear as if someone is turning lights on and off.  Besides having a neighbor pick up the mail and newspaper (many stop their paper and mail while they’re away), have them park in your driveway to make it seem as if someone is coming and going to and from the home.  Additionally, have a neighbor or friend check in on the home regularly to ensure it is secure.  Depending on the length of your vacation, they may drop in a few times, picking up any packages left at the door and adjusting the thermostat as necessary.

A summer vacation home preparation idea if your home is on the market – consider restricting showings to be by appointment only to ensure the house remains secure.  Talk to your agent about how to contact you in case of an emergency, your agent may check in on the home regularly too.  Don’t worry about missing out on a great offer on your home – if you will have email access, your agent can send you any offers and have you sign them electronically.

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When transfer tax becomes controversial

real estate
from marylandreporter.com

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.

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Copyright © Dan Krell

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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.