Edina, Minnesota
Let's talk about the Twin Cities Real Estate Market. I will post helpful links and answer questions about real estate or mortgages. I live and work in Minnesota, so some of my ideas may focus specifically on Minnesota real estate or mortgage regulations applicable to our state.
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Apr. 15, 2008
GOVERNOR PAWLENTY ANNOUNCES ADDITIONAL ACTIONS TO ASSIST HOMEOWNERS FACING FORECLOSURE
~ Includes Foreclosure Counseling Workshops, funding for mediation, lender compact ~
Saint Paul –
"With additional help, the American dream of home ownership can be kept alive for more families facing foreclosure," Governor Pawlenty said. "Foreclosures continue to hit families and our state’s economy hard. We are hopeful that connecting more homeowners with counselors and providing a neutral third-party in some cases will help keep more homeowners in their homes, without negatively impacting the availability of credit in Minnesota."
Actions announced by Governor Pawlenty today include:
• Expanded Foreclosure Counseling Workshops to be held around the state
• Creation of the Minnesota Foreclosure Prevention Compact
• Mediation funding to assist homeowners when counseling is unsuccessful
• New Commerce Department assistance hotline for counselors
To provide Minnesota homeowners with additional tools to prevent foreclosure, Governor Tim Pawlenty today announced expanded foreclosure counseling workshops to be held around the state, creation of a compact with lenders to reduce foreclosures, and state funding for voluntary third-party mediation when counseling is unsuccessful.
Expanded Foreclosure Counseling Workshops to be held around the state
Governor Pawlenty announced a series of expanded mortgage Foreclosure Counseling Workshops around the state that bring lenders and borrowers together in one location. These workshops, sponsored by the Minnesota Home Ownership Center, will be greatly enhanced with additional lender participation. Lenders are being contacted directly by Department of Commerce to participate in these events.
Mortgage lenders and servicers will meet directly with homeowners to review their individual situation, and when possible, modify the terms of the loans in an effort to prevent foreclosure.
The first four expanded workshops will be held:
Tuesday, April 22, 4:30-8:30 p.m.
Minneapolis Urban League, 2100 Plymouth Avenue North, Minneapolis
Tuesday, May 13, 4:30-8:30 p.m.
Anoka County Technical College, 1355 West Highway 10, Anoka
Tuesday, May 20, 4:30-8:30 p.m.
Buffalo Discovery Center, 301 NE Second Avenue, Buffalo
Thursday, June 5, 4:30-8:30 p.m.
Eagan Community Center, 1501 Central Parkway, Eagan
Additional workshops in St. Cloud, Rochester and Duluth are being planned. More information is available at www.hocmn.org.
At Foreclosure Counseling Workshops, homeowners can ask questions and receive free and confidential advice from non-profit foreclosure counselors and mortgage lenders. The events are free and open to the public. There is no registration required and homeowners may stop by any time during the "open-house" style events.
Lenders and servicers asked to sign Minnesota Foreclosure Prevention Compact
Governor Pawlenty is asking lenders and servicers to sign a compact and agree to efforts to reduce foreclosures in Minnesota. The Department of Commerce has been meeting with lenders and servicers regarding the compact. Principles of the Minnesota Foreclosure Prevention Compact include:
• Work with mortgage foreclosure prevention counselors, and when necessary, participate in voluntary mediation.
• Participate in all Foreclosure Counseling Workshops in Minnesota.
• Engage in a substantial and large-scale loan modification effort for subprime mortgages and adjustable rate mortgage resets.
• Identify, evaluate and make good faith attempts to contact at-risk or defaulting borrowers as soon as possible.
• Modify loans to the extent permissible within existing fiduciary, contractual or other legal obligations and in accordance with prudent mortgage lending and servicing practices.
• Report progress to the Minnesota Department of Commerce.
Mediation funding to assist homeowners when counseling is unsuccessful
Because there are times when counseling cannot resolve issues surrounding a possible foreclosure, Governor Pawlenty has directed Minnesota Housing and the Department of Commerce to work with the Minnesota Homeownership Center and lenders to provide access to mediators when housing counselors and lenders believe it would be effective in keeping families in their homes.
Lenders and counselors have indicated that on occasion their efforts could benefit from the perspective of a neutral third party with mediation skills.
Mediators will be paid for by the state through grants from Minnesota Housing.
Earlier this month, Governor Pawlenty announced a $4.3 million federal grant, the second-largest such grant made to any state, to expand foreclosure prevention counseling in the state. With this funding, 37 additional counselors are being added to the statewide counseling network, for a total of 76 counselors.
Department of Commerce establishes Minnesota Foreclosure Hotline for counselors
At Governor Pawlenty’s direction, the Minnesota Department of Commerce has established a hotline for loan counselors if they experience problems contacting or negotiating with lenders. The department will then be able to contact the lender or servicers to ensure they are responding and acting in good faith.
The counselor hotline number is (651) 296-2569. This number should only be used by counselors and mediators, not individual homeowners.
Homeowners facing foreclosure are encouraged to call the Minnesota Foreclosure Hotline toll-free at
"The last thing your lender wants is for you to fall into foreclosure," said Minnesota Commerce Commissioner Glenn Wilson. "If you are behind on your mortgage and fear foreclosure, call your lender immediately for help or call the Minnesota Foreclosure Hotline."
Foreclosures typically occur due to unemployment or other loss of income. However, the increase in foreclosures beginning in 2006 is related to an increase in subprime loans and other non-traditional loans. Additional causes include flattening housing values, home equity cash-outs, and buyers assuming too much risk.
According to the nonprofit Housing Link, there were an estimated 20,573 foreclosures in Minnesota in 2007 – an 84% increase from 2006. Housing Link is projecting between 29,000 and 37,000 foreclosures in 2008. The figures are based on sheriffs’ sales of foreclosed properties.
1-866-462-6466 for information on counseling and other resources.
Pawlenty Administration’s ongoing efforts to curb foreclosures
Today’s announcement continues efforts by the Pawlenty Administration to address foreclosures and predatory lending practices in the state:
• Earlier this month, Governor Pawlenty announced a $4.3 million federal grant, the second-largest such grant made to any state, to expand foreclosure prevention counseling in the state. With this funding, 37 additional counselors are being added to the statewide counseling network, for a total of 76 counselors. It is estimated that this will result in 7,500 foreclosures being prevented this year.
• Also this month, Governor Pawlenty announced that Marquette Financial Companies provided a $500,000 grant to Minnesota Housing for foreclosure prevention deferred loans in the Twin Cities metropolitan area. These loans will be offered to homeowners who, with a modest amount of additional assistance, will be able to bring delinquent loans to current status over the long term.
• Minnesota mortgage laws were strengthened in 2007, significantly increasing the net worth requirements for mortgage originators operating as Minnesota corporations, requiring training for loan officers, and making mortgage fraud a specific crime in Minnesota. Minnesota law also now requires originators to verify a borrower’s ability to repay a loan and prohibits negatively amortizing loans, churning, subprime prepayment penalties, and partial payment quotes. These are among the toughest such laws in the nation.
• The Pawlenty Administration requested, and the legislature agreed, to add additional investigators at the Department of Commerce. The department assigned three additional investigators to respond to the increasing volume of cases and complexity of housing and lending fraud. For FY07 and the first half of FY08, the Minnesota Department of Commerce has taken 220 enforcement actions and imposed $678,850 in civil penalties in real estate or mortgage related cases.
• Minnesota’s ongoing commitment to foreclosure prevention includes a broad partnership that provides funding for a statewide network of counselors and state funding for foreclosure prevention loans of up to $5,500. Governor Pawlenty has proposed this year to increase the maximum size of these loans to $10,000 each. These efforts received an appropriation of $1.7 million in FY 2008-09.
• In 2007, Minnesota Housing made its largest single funding award ever of $11 million dollars to fund an effort in Minneapolis to acquire, rehabilitate, and re-market foreclosed and other vacant and boarded properties. A similar award of $500,000 was provided for a similar pilot program in Saint Paul.
• In 2007, the Minnesota Department of Commerce, with the support of the Minnesota Association of Realtors, transferred $500,000 to Minnesota Housing from the Real Estate Education, Research and Recovery Fund which is funded by real estate license fees. Minnesota Housing awarded the grants to the Minnesota Home Ownership Center and the Minneapolis Urban League for an early intervention foreclosure initiative for at-risk homeowners in targeted areas.
• In November 2007, Governor Pawlenty announced state funding for early intervention efforts and foreclosure prevention counseling. The Minnesota Housing award to the Greater Minnesota Housing Fund of $1 million was part of a response to a predicted 3-5 year situation. Another $800,000 in private, philanthropic and local funds were also committed to the effort. The funding doubled the number of
foreclosure prevention counselors from 18 to 37 statewide and effectively tripled the number of households that can be served.
The Minnesota Department of Commerce also reminds borrowers to beware of predatory lending practices. Homeowners who choose to refinance their mortgage should deal with a Minnesota licensed mortgage originator; check the department’s website at www.commerce.state.mn.us to
check the licensing status. Also, call the Minnesota Department of Commerce at (651) 296-2488 or 1-800-657-3602 to report suspected mortgage fraud. To contact a foreclosure prevention counselor, call the Home Ownership Center at (651) 659-9336 or (866) 462-6466. They will identify a counselor in a specific area of the state. The web site is www.hocmn.org
Mar. 26, 2008
The Naked Truth About Real Estate Investing-The Reality Of Buying Rental Property Fully Exposed!
You have heard of Robert Kiyosaki, Donald Trump, and Carlton Sheets to name just a few of the late night TV real estate gurus. Each of these individuals have produced excellent products-books, tapes, and seminars that teach about investing in real estate. If you haven't bought their products-you should. These experts have all been successful buying and selling real estate throughout their own careers and have valuable information to share.
At the same time, not every best selling author is in the trenches on a daily basis helping others buy and sell property on a one-on-one basis. Successful investing in rental real estate demands that you adapt quickly to the current environment. Successful investors need to have their finger on the pulse of the marketplace at all times. Too often real estate investing has been made to look too easy and somewhat hands off. The truth is the exact opposite. People need to know that not everyone can succeed at buying and selling property. False expectations will almost always lead to failure. Investors need to hear an accurate and truthful summary of what is involved in owing rental property. It was the need for more truthful and realistic information that led to the creation of this new book.
The new book "Reality Based" Real Estate Investing by John Mazzara seeks to shortcut an investor's learning curve and provide a more realistic or "Reality Based" view on building wealth through real estate. John is a real estate broker associate with RE/MAX Associates Plus in Edina, Minnesota and owner of Venture Development-Minnesota's premier mortgage broker. John is an active real estate investor in the Twin Cities, MN. John was recently quoted in Investors Business Daily for his opinion about the current foreclosure and short sale situation as it pertains to existing homeowners. John's book brings 23 years of real life experiences from the trenches. He shares successes AND failures throughout the pages of this book. You will be entertained while you learn. The analysis of today's marketplace opportunities are specific to Minneapolis/St Paul and the Twin Cities metro area. The balance of the book is all about strategies and concepts that are without boundaries. This book will be of value to investors everywhere, regardless of where they live. After reading the book you will be able to determine whether or not you should become a real estate investor.
Unlike many books on the subject of investing in investment property, John doesn't tell you it's easy. In fact, he outlines the hard work and gives you a realistic summary of what to expect and what to watch out for. John shares what he perceives are the opportunities for investing in real estate TODAY. Topics covered in the book include: goal setting, tax strategies, holding period options, analysis of a property as an investment, correct property selection, geographic and demographic concerns, lease considerations, 1031 exchanging, insurance policies, options for taking title, appropriate mortgage financing, and the next steps necessary to make it all happen. In essence, you have a blueprint with reference material that can be use again and again over time.
The goal of owning real estate is to build long term wealth. We live in interesting times where our country and economy are at a crossroads. Think about the perfect storm for qualified buyers: price compression, fear, and tight mortgage loan financing. I encourage you to review this book as I believe it will prove to be a valuable resource. Let "Reality Based" Real Estate Investing serve as one of your guides on the journey towards financial independence through investing in real estate. Carpe diem!
Feb. 25, 2008
Then senate is going to have an accelerated hearing on this Tuesday. The ramifications for our industry are huge.
A cram down is where a judge can literally "cram down" new terms on an existing mortgage. The investor or owner of the mortgage has to live with it. The bankruptcy judge can force this upon the investor. During the Saving and Loan crisis of 1990 and 1991 this was done with some commercial loans in various parts of the country. The bankruptcy cram down bill S2636 is being put forth by Democrat Harry Reid.
I have to write this today to warn us all about the repercussions of America's willingness of not allowing people to fail. It is with much dismay and consternation that I see bills like this being proposed in congress that allow judges to determine the interest rate and repayment amount on a mortgage. This is simply WRONG. I don't want anybody to lose their house. At the same time, a contract was made between and investor and borrower. That contract has remedies for non payment. If the lender wants to do their own modification to the note, let it be their decision. If they want to take the property back in foreclosure, let it be their decision.
Put yourself in the shoes of the lender or investor. If any bankruptcy judge could modify a mortgage note and deprive you of your rights as an investor, would you EVER buy or invest in a pool of mortgages again? The answer is NO you wouldn't. If the investors completely leave the mortgage market, rates will need to rise to attract them back, and high loan to value mortgages will become non existent. This will worsen the housing crisis because the cost for everyone will be higher and options will be fewer.
We need more mortgage programs, not less. We can't deprive the investors of their rights. Remember there is plenty of blame to go around in this mortgage foreclosure crisis mess of today. It is easy to pass the buck and blame the investors and banks as that relieves people of any personal responsibility.
We must let the free market work. If we change the rules during game, we have a new game, and nobody will play in that game. The recent Mortgage Debt Forgiveness Act was supposed to help people work out payment solutions with their lender and not incur a 1099c for debt relief. Instead, I have witnessed in the last week alone, four individuals make the decision to go into foreclosure and live 6 months free during their redemption period. Instead of stem foreclosures, it actually encourages it by making it penalty free.
Visit our online Twin Cities real estate site at http://www.selling.mn and our Minnesota mortgage site at http://www.ventureloanapp.com
Feb. 13, 2008
Unless you are in the mortgage industry, you probably haven't heard about the Mortgage Insurance Industry is experiencing HUGE losses. Public company MGIC Investment Corp-symbol MTG just announced today that they lost 1.5 BILLION DOLLARS LAST QUARTER ALONE. PMI Group-symbol PMI and Radian Group Inc-RDN might be next. They haven't announced their earnings yet. Since they are all in the same business it might be a logical inference to assume they will be announcing less than positive news.
What PMI did do this week is send out a letter to mortgage broker clients like myself with a guideline change effective for March 1st. Basically, they are not going to be insuring the all the same loan programs at the higher loan to value 100% limit that they once did. They are also raising their cost of insurance. What does this mean to a consumer? YOU need to buy now before the programs change. Most companies will allow you to close on an older approved program at the lesser cost mortgage insurance, as long as you are approved with a mortgage certificate by a certain date. PMI told me when I called them that I needed to have my client's mortgage insurance certificate in hand by March 1st. Some area of the country are also being designated as declining areas, this too is a reason the insurance companies are stopping to provide insurance for high loan to value loans. If you are a first time buyer-it's time to take action.
The higher cost of MI and greater down payment requirements are defensive measures put in place because of all the foreclosures and defaults in mortgage loans. I can't blame the mortgage insurance companies, in fact I commend them for being proactive and protecting their business. At the same time, if you are a buyer who needs the maximum amount of financing-such as 100%-you might not be able to get it. Not all programs are affected by this change and not all mortgage insurance companies have changed their guidelines-YET. The window of opportunity is here and now. This lack of liquidity will remove more potential buyers from the real estate marketplace and make the inventory of unsold homes that much worse. That in turn will put more pricing pressure on the existing inventory of homes. What a viscous cycle.
We have been in this business since 1986. We've seen something similar in the real estate and mortgage markets back in 1989-1991 during the Resolution Trust days and the first Gulf War. This time it seems a little more severe in nature. If you are contemplating buying, NOW really is the time to buy, especially if you need underwriting flexibility or a low down payment program. Visit my Minnesota real estate site to begin an online search for a new home.
Jan. 21, 2008
Minnesota mortgage broker makes an attempt at explaining complex economic variables.
I am writing this tonight to make you aware of a HUGE opportunity that I perceive in the mortgage market to refinance. This is called turning a lemon into lemonade. You might have noticed that the DOW backed off it's high of about 14K to about 12K as of Friday January 18th. So while we are all losing a ton of money in the market, we can take solace that the trade-off may be a lower cost of borrowing on our debt instruments. If you have an adjustable rate loan, think about turning it into a fixed rate soon. In the past week, I've seen rates drop almost 1/2 percent on 30 year fixed rate loans. In Minnesota, depending on your loan to value, property type, and credit score it may be possible to obtain a 30 year fixed rate mortgage as low at 5.375%. Maybe this will be the catalyst to kick start renters into becoming buyers.
Today was Martin Luther King day, so the US markets were closed. In Asia and Europe today, stock markets had a one day drop that we haven't seen since 9/11. What does this mean for tomorrow? FEAR is in the air. The future markets are indicating that the US stock market will follow suit, and drop precipitously. This of course may or may not occur, as I am writing in advance of tomorrow. I won't give you advice on what to do in the stock market, other than to indicate that I'm staying the course with my portfolio. Eventually GREED will return to the market. When that happens, money will flow out of treasuries and mortgages and into the stock market. When this happens, mortgage rates will increase. See how the pendulum of fear and greed rule the financial markets?
Let me attempt an explain of the economics behind the recent mortgage rate drops. We are seeing the affect of huge stock market volatility. When investors fear the market, they take flight to the 10 year US Treasury notes. This is a typical benchmark of which mortgages are priced off of. So, if there is more demand for the safety of bonds and mortgages, the price of these debt instruments will generally go up, which means their yield will go down. When yields drop, so do the interest rates on the pricing of new debt instruments. So, the offset to stock market volatility can be lower mortgage rates. Will this be the silver lining to our current economic problems? Trillions of dollars of Adjustable rate mortgages NOW have the opportunity to convert their mortgages to fixed rates that are very close to the initial rate on their ARM. This means the payments might not be that different from which they have become accustomed. This should help slow the rate of foreclosures as their home remains as affordable as it was when they bought it.
There are variables to consider too-the federal reserve "imminent" rate cut and the stimulus package that was just proposed. The rate cut will lower the cost of lines of credit, credit cards and other variable rate debt tied to indexes affected by the rate cut. This will put more money in the pocket of the consumer and hopefully the economy, which in turn reduces the chances of a recession. The collective effect should act as a multiplyer, i.e exponential effect.
Approximately one month ago we had the Mortgage Forgiveness Act of 2007. Most recently we have the proposed stimulus package and yet another rate cut. The government is trying. For some it's not enough. For others it's too little too late, and for others it's too much. Regardless of where you sit on that spectrum, action is being put into place. Let things play themselves out. Remember a rate cut, new tax law or stimulus package take time to reverberate throughout the economy. It won't be immediate. At the same time, I highly recommend you grab this window of opportunity and get a low interest rate on your mortgage if you can. Visit us online at http://www.ventureloanapp.com
Jan. 20, 2008
What’s positive about being foreclosed upon or selling your home for less than you owe? Well, for most people, not much. Yes, you are relieved of an onerous mortgage loan and you are now free to find housing that is more affordable within your budget. But not everyone fully understands the lingering effects of a foreclosure as it pertains to the mortgage debt forgiveness. This applies to foreclosures, short sales and a deed in lieu of foreclosure.
Foreclosure can be one of the most devastating things a homeowner can face. At a minimum, they will end up with damaged credit. Until recently, the tax laws further penalized homeowners who were relieved of mortgage debt obligations with additional taxation. Homeowners owe taxes on the amount of the debt obligation from which they are relieved. For example, let’s look at a short sale. If a bank agreed to accept $200,000 as payment in full to satisfy a mortgage where the homeowner owed $250,000, the homeowner would owe taxes on $50,000. They were relieved of repaying $50,000 in mortgage debt. When you are relieved of debt, you are actually benefiting because you no longer have the obligation to pay it back. Hence you must pay tax on this “unrealized income” even if there was no direct corresponding benefit, such as equity proceeds from a sale. At the same time, how is the homeowner who just lost everything going to be able to pay tax on the differential of the satisfied mortgage obligation when they received no tangible proceeds from the sale?
As we have just seen, the amount of debt forgiveness is considered income. All debt forgiveness, not just mortgage debt, results in reportable taxable income. Many people who’ve walked away from their homes have found this out the hard way. Many found out at the end of the year when they opened their mail and found they’d received a 1099C. The 1099C is the IRS form that the creditor gives the debtor when they have forgiveness of debt.
Today we have a record number of foreclosures. When banks and lenders sell homes they’ve gotten back during the foreclosure process they are less concerned about the bottom line and more concerned about being rid of the collateral. This can result in spiraling downward values in areas or communities where foreclosures are high. Large numbers of foreclosures like we are currently experiencing are hurting our overall real estate market valuations.
One solution to the problem has been to encourage those homeowners in distress to work with the bank to sell the home while they continue to occupy the property. This may result in a short sale, whereby the bank agrees to accept less than is owed on the outstanding mortgage. Together, the bank and homeowner work to sell at the highest possible price given the conditions of the prevailing market. Working together allows the home to be maintained and occupied during the course of the sale. This generally is less costly to the lender and is one of the reasons why they entertain short sales.
In general, short sales are less “shocking” to the market values in comparison to a lender going through the foreclosure process and then reselling the property as an REO. This should be encouraged where possible.
Tax wise, homeowners still receive a 1099C. From a credit report perspective, the lender usually won’t report a foreclosure against the homeowner if they sell with a short sale. A short sale in that instance will be beneficial to the seller’s credit and may be helpful when the seller becomes a buyer and wants to obtain another mortgage in the future.
In Minnesota we have a unique situation regarding foreclosures. For owner occupied properties, we have a 6 month right of redemption from the date of the Sheriff’s sale. Because of the long redemption period, during which no payments are due, many in Minnesota are opting to be foreclosed upon instead so they can live in the home for free. You see this occurring most often where preservation of a one’s credit rating is no longer important to the homeowner.
To encourage lenders and homeowners to work together, the government has just created a new law. The law is H.R. 3648, entitled Mortgage Forgiveness Act of 2007 and was signed into law as of mid December 2007. Here’s what the law does: it waives taxes for debts forgiven from the beginning of 2007 to the end of 2009. This means no more 1099C, at least during this time frame.
Can you see the implications? This means that homeowners and lenders can work together to either sell or refinance the existing mortgage debt, without having to recognize the taxes due on the amount forgiven. It provides an incentive to protect your credit and work out an acceptable solution, such as a short sale. Income taxes are taken out of the equation since there isn’t anymore inherent tax liability from mortgage forgiveness.
This should slow down the foreclosure crisis and allow values to stabilize. This is a good law that should help ease the mortgage and real estate crisis we are facing today.
Dec. 24, 2007
As summarized by Loan Tool Box:
Mortgage Forgiveness Act Signed into Law
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 Yesterday, President Bush signed H.R. 3648, The Mortgage Forgiveness Act of 2007, into law, sparing homeowners the tax burden associated with canceled mortgage debt.
Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was considered taxable income. The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009. The bill also extends the tax deduction for mortgage insurance premiums through 2014.
"This is going to make a happy holiday for many homeowners," President Bush said yesterday before signing the bill in to law. During the press conference he added the following:
"When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow American families to secure lower mortgage payments without facing higher taxes."
"There's more work to be done," Bush added, saying that Congress needs to pass legislation to strengthen Freddie Mac and Fannie Mae, to modernize FHA, and to allow the government to issue tax-exempt bonds for refinancing existing home loans.
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