Archives

December 2006

Happy New Year from…Uncle Sam?

Posted at 12:15 PM, Dec. 28, 2006

That's right. Contrary to his usual habit of dipping into your pocket, Uncle Sam has a gift for you in 2007 if you buy or refinance a home. For the first time, mortgage insurance premiums will be tax deductible. This means that, for some people, getting mortgage insurance could be cheaper than using a piggyback loan to cover the downpayment.

According to an article on Seattlepi.com, "… lenders consider you a riskier borrower if you make a down payment of less than 20 percent." Historically, people have had the choice of paying for that risk by taking a piggyback loan or buying mortgage insurance.  Since mortgage insurance has been a non-deductible expense, most people took the loan. That got them into the house, but also burdened them with a higher total loan and less equity. 

As one of its last acts, the 109^th Congress passed the bill that creates the deduction for mortgage insurance, and the President signed the billed into law. This new legislation is welcomed by The Mortgage Insurance Companies of America (MICA), a trade association. MICA Executive Vice President Suzanne Hutchinson said, "We are pleased that policymakers have recognized mortgage insurance as a cost of finance just like mortgage interest. Mortgage insurance plays a crucial role in maintaining the stability and continued health of the mortgage finance system. In today’s climate of steadily rising interest rates and slowing home price appreciation, an insured loan is often the most borrower-friendly alternative."

 There are some restrictions, of course, but they won't block many homeowners from taking the deduction. The limits include:

·        You can only take the deduction for mortgages that are closed in 2007. This means that only new loans or loans refinanced in 2007   qualify.

 ·        There are income limits. You can get the full deduction if your adjusted gross income is $100,000 or less, and you must itemize to get the deduction.

 ·        This is for one year only. If Congress wants to extend the deduction beyond 2007, it will have to pass further legislation.

Of course, you should always talk to your tax/financial advisor before making a decision that affects your tax liability, including the choice of a piggyback loan vs. private mortgage insurance.

The bottom line, according to the Seattlepi.com article is this:  "Don't get a piggyback loan without taking a serious look at mortgage insurance, because mortgage insurance is likely to be cheaper in the long run, and it might even cost less in the short run."

 Cheaper in the long run and might cost less in the short run – now that's a Happy New Year, thanks to your good old Uncle Sam. 

Links:

http://seattlepi.nwsource.com/business/296168_real16.html

http://www.micanews.com/press/press_releases/pr.cfv?ID=106

Your 401(k) – What's New

Posted at 8:57 PM, Dec. 20, 2006

In 2006 some large companies put in place a new policy – each employee hired was automatically signed up for the company 401(k) plan with 3% of their pay being set aside in a 401(k) investment account.  Employees could opt-out, but if they did not take the time to say "No, thanks," they were in.

Uncle Sam took a look at the practice and said, "OK by me," or official IRS words to that effect.  As reported on the website of Cooley Godward Kronish LLP, "The IRS recently ruled that a 401(k) plan may require mandatory 401(k) contributions to be withheld from eligible employees' compensation, if the employer gives appropriate notice to its employees and the employees have an opportunity to 'elect out' of the mandatory contributions."

So now folks will have help saving for retirement in the most painless way possible…the money is deducted before taxes so they never see it, and, contributions grow tax free until withdrawal. When you consider that many companies have a policy of matching employee contributions, a 401(k) can be the best way to save for your future. 

And if that future – in the near future – includes buying a home?  A 401(k) can help there, too.  The IRS says, "… depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan…."  You will need to talk to the administrator to find out how your plan works. Generally, you pay interest on the loan but you pay it to yourself – the interest goes back into your account and replaces the earnings you might otherwise get on the investments.  Provided you pay back the loan, the money you borrow is not taxable. 

With automatic investment, and help buying that first home, a 401(k) account could be the best decision you don't make all year!

Now this is important:  Always talk to your tax/financial advisor before taking a loan from your 401(k), or before making any change in your retirement planning.  This article is not intended to give any legal, financial, or tax advice, and does not cover all possible restrictions or regulations related to 401(k) plans or other investments.  Always speak with your investment and/or tax advisor before making any decision based on information in this, or any other, source.

Joeann Fossland, Web Women Giving Circle Founder Interviews with Michael Trust on the Coachadelic Whistle-Stop Blog Tour

Posted at 12:01 AM, Dec. 19, 2006

Joeann Fossland, Web Women Giving Circle founder, stopped by today for an interview with me. Here's what Joeann had to say.

Michael: Hello, Joeann, thank you for stopping by today. I appreciate your time as I know you are on the Coachadelic Whistle-Stop Blog Tour and have other blogs to visit. Let me get started...

Michael:  We are out of time for today.  Thank you for stopping by and I look forward to being on the next tour.

Study Shows Women Are Targeted for Subprime Lending

Posted at 10:51 AM, Dec. 14, 2006

The full study is here: http://www.consumerfed.org/pdfs/WomenPrimeTargetsStudy120606.pdf

As professionals in the real estate industry, we know, home buyers without sufficient income, poor or no credit history must often resort to subprime loans. With the growing subprime loan market, which has matured from “…5 percent [of all loans issued] in 1994 to 20 percent in 2004”, mortgage applicants who do not qualify for prime rate loans, will often qualify for subprime rates as they are considered a risk. 

The Consumer Federation of America, study goes on to state that, “Women are more likely to receive subprime mortgages than men…”, however, “These gender disparities exist across mortgage product lines. Women with the highest incomes have the highest disparities relative to men with similar incomes than women at lower income levels.” 

One of many interesting observations of this study, and I encourage my readers to read this in greater detail, is that, “Although lenders attribute subprime lending to borrower credit risk, in general women and men have similar credit profiles. On average, women have slightly higher credit scores than men. Credit-rating company Experian reports that women have slightly higher credit scores than men (682 compared to 675) and have similar credit usage rates (about 24 percent each).”

In 2005, the study found that even though the prime mortgage rate averaged 5.87 percent, one third of women, in their quest for homeownership, signed mortgage papers with interest rates over 7.66 percent as compared with twenty-five percent of men.

Interestingly, 26 percent of all mortgages issued in 2005 were subprime loans.

The subprime gender gap has become is ever more important as women become more active in the mortgage market. A home buying explosion of single, career-minded women during the recent housing boom, prompted by marrying later, divorce, rising rent costs, being head of households and viewing homeownership as an investment in her future, has increased “…the share of single women home buyers [which] has doubled from about one in ten 15 years ago to about one in five homebuyers in 2003.  More than half (53 percent) of women headed households are homeowners up from just below half (48 percent) in the early 1980s.  The number of single women homeowners grew by four million between 1994 and 2002 from 13.9 million to 17.5 million.” 

Additionally, automated underwriting processes have helped women to obtain mortgages (subprime or otherwise) as these processes place them in a lesser non-discriminatory pool of applicants when previous mortgage applications might have been rejected by largely male loan officers.  These “…automated underwriting [methods] used more objective formulas that are less likely to take gender-related factors into account.”

The study goes onto say that, “Over the life of the mortgage, subprime borrowers can pay between $85,000 thousand to $186,000 more in interest than average borrowers. The prevalence of subprime loans among women borrowers diminishes their ability to fully utilize homeownership as a pathway to build wealth.”

Historically, many barriers for female homeownership have existed for decades.  “Women heads of households with one child have one-fifth the wealth ($10,320) of women-headed households.  Women with two children are worth about a tenth ($5,720) of all women, and women with three children earn even less ($3,150).”  Before 1968’s Fair Housing Act, single women were considered poor credit risks. “Until 1974, when the Equal Credit Opportunity Act became law, most women needed a co-signer to become mortgage borrowers, married women often could not obtain credit in their own names, single women couldn’t get loans because they were thought to be somehow less reliable than other applicants, and, divorced or widowed women found it extremely difficult to obtain credit because their previous credit history was obtained in their husbands’ names and was not taken into consideration when they sought credit in their own names.”  It has only been about 15 years since the Federal Housing Administration permitted women to use child support payments as income to qualify for a mortgage.  And still today, older women are often targeted by predatory mortgagors through home improvement scams, which can eat through home equity and life savings. 

The study also reveals interesting data regarding women borrowers within the Latino and African American communities.  For example, “African American women were 8.5 percent more likely to receive high-cost subprime loans than African American men; Latino women were 19.3 percent more likely to receive high cost subprime loans than Latino men; and white women were 30.8 percent more likely to receive high-cost subprime mortgages than white men. African American women were more than four and a half times as likely to receive high-cost subprime purchase mortgages as white men and Latino women were more than two and a half times as likely to receive high-cost subprime mortgages as white men.”

Conclusions:

“CFA’s HMDA (Federal Home Mortgage Disclosure Act) analysis suggests there is significant gender disparity in the pricing of mortgages between borrowers by gender, race and income. However, it should not be assumed that the gender disparities CFA found are solely attributable to higher risk factors. Freddie Mac found that one in five subprime borrowers could have qualified for a prime rate mortgage. Last year’s Federal Reserve analysis and the recent Center for Responsible Lending study provide strong indication that pricing in the subprime market is not simply a function of risk.”

“Unlawful discrimination, the prevalence of predatory lending and opportunistic pricing, differences in borrower knowledge, the existence of broad pricing discretion by loan brokers and loan officers, and the lack of consumer-friendly support systems may also account for at least some of the variation in pricing patterns.”

“There is general agreement among experts who follow homeownership trends that, over the years, HMDA reporting has helped to transform the home loan market. The new pricing data now reported under HMDA can help to make the pricing of subprime loans more transparent for consumers and increase these market efficiencies, which ultimately benefits all borrowers. Regulators, lenders, consumer and community advocates, the news media are encouraged to undertake their own research and analysis to examine local markets using HMDA data.”

This study shows why it’s important to have a Realtor® and mortgage broker who truly understands your individual needs, and who take the time to look out for your interests and not their own; and, who has the experience and knowledge to provide you with appropriate guidance when making such an important purchase and finance decision – possibly the most important one you will ever make.  At Michael Trust Realty, our hallmark is looking out for our clients’ best interests – always, all of the time, and unconditionally. We have no problem advising a client to walk away from a deal that doesn’t make sense. Perhaps that’s why our referral rate is so high. We’d be pleased to assist you with your buying or selling in the Los Angeles area and/or with referrals to trusted mortgage professionals.

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We're On Joeann Fossland's Coachadelic Whistle-Stop Tour December 19th! Join Us Here!

Posted at 8:54 AM, Dec. 14, 2006

Is Your Realtor® Tech Savvy?

Posted at 6:20 AM, Dec. 12, 2006

What's the first thing a lot of people do today? Go online, of course. Buyers can browse through hundreds of homes for sale on their Realtor's® web site, see photos and even video tours of home interiors, all without leaving the comfort of their own homes. Sellers can show their homes to more prospective buyers than they ever could have reached by the Sunday paper alone.

Top Realtors® know that using technology in many forms is key to giving customized, personal service in today's high-speed world. A good web site is a must, of course, where potential buyers can see what's available, and potential sellers can learn about the Realtor's® services. But the true value of using technology shows throughout the process. Want to see a home that's just come on the market? Your Realto®r can phone no matter where he is thanks to cell technology. Is your spouse away and you want to share a home you just saw?  Take a photo with that palm-sized digital camera, download the photo, and email your find anywhere in the world. Do you need to exchange paperwork? The offer, contract, inspection report, and many others can be emailed or faxed for next-minute delivery. 

The increasing use of technology in real estate is improving the speed and accuracy of many aspects of the business. But there remains one characteristic of a great Realtor® that technology will not change – the commitment to personal service. Computers and cell phones can simplify our lives and speed up transactions. So, yes, it's important for your Realtor® to be tech savvy. But it's even more important to always put extraordinary service first, because the human connection is still the most important part of any successful real estate experience.

It's Still True – You Get What You Pay For

Posted at 10:24 AM, Dec. 7, 2006

You go back to basics and common sense. If you buy a television and choose a no-name brand that's cheap, do you expect it to have a great picture and to last a long time? Or do you know that you are getting lesser quality? Most people recognize that you get what you pay for.

It's the same with choosing a professional Realtor® and a full-service commission. You want to sell your house quickly and for the best possible price. The more qualified buyers who see your house, the more likely you are to do just that. And finding those buyers – not just Sunday-afternoon-lookers – takes market knowledge, experience, and investment on the Realtor's® part.

A Realtor® does so much more than stick a sign in the ground and put your house on a web site. An experienced professional will help you prepare your house for sale, qualify buyers so you only have people in your house who can buy and who are seriously looking to buy, help you negotiate the best price, handle the reams of paperwork that today's real estate transactions require, make sure all the details are covered, and always be available to answer your questions and provide support throughout the process. Remember that you may sell or buy a home a few times in your life, but professional Realtors® do it many times a year. The right one can save you time, money, and a lot of headaches. 

One of the interesting things we're seeing in the current market is an increase in the number of people who choose a full-service Realtor after having gone the do-it-yourself or discount route. When there are no showings and no offers, it doesn't take long to recognize the value of an experienced professional. 

And the bottom line…when the money is in your pocket as you walk away from the settlement table is what you want and need, you know the commission is worth it.