The New Mortgage Rules To Protect The Borrowers And The Lenders

The Consumer Financial Protection Bureau announced the "Qualified Mortgage" rule last Thursday, January 10. The new home-lending standards are designed protect the would-be borrowers from mortgages they can't afford and in return, grant the lenders some protection against lawsuits by borrowers who claim they shouldn't have been granted a mortgage in the first place. The new rule will also determine what type of loans can be extended by the banks and to whom. The new rule is a result of the 2010 Dodd-Frank Act, which is meant to help prevent the the return of the lending practices that resulted to the crash of the housing market in 2007-2010.  The new rules will take effect in January of 2014.

The housing crisis was brought about by the banks' willingness to lend without proof of income or without regard to overall indebtedness.

The "Qualified Mortgage" rule states that a borrower's monthly debt service should not exceed 43% of pre-tax income.  This rule will protect the would-be borrowers from the mortgages they can't afford,  For more details, check out this video, http://video.cnbc.com/gallery/?play=1&video=3000140442.  People who make enough money for their daily expenses may have a hard time qualifying for a mortgage..  It means that some people living in high-cost areas will not be able to buy a house of their own.

The upfront fees cannot exceed 3% of the loan.

'Exotic' mortgages like interest-only loans that don't require principal payments, loans carrying balloon payments, loans where principal increases over time and loans with 30-year term will not be considered for the "Qualified Mortgage" rule. (Source: www.forbes.com)

If the loan meets all criteria, lenders won't have to fear a lawsuit from the borrower.

Holden Lewis, a senior mortgage analyst at Bankrate.com predicts that, "Here’s what will change as a result of this rule: The next time there’s a housing boom, this rule will prevent lenders from losing their heads and, in the heat of competition, relaxing lending standards too much."

Debra Still, chairman of the Mortgage Bankers'Association said that, "We believe the rule will effectively block the return of risky product features and inadequate documentation.  If it also provides lenders the certainty needed to originate qualified mortgages broadly across the market to creditworthy borrowers, it will have been a success."

However, the effectiveness of the new rule is yet to be seen.   For the full documentation of the new "Qualified Mortgage" rule, please refer to http://www.housingwire.com/sites/default/files/editorial/201301_cfpb_ability-to-repay-summary%283%29%281%29.pdf

Obama Signs New Bill To Avoid "Fiscal Cliff"

On January 1, both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2. (Source: National Association of Realtors). The new bill states that the tax rates would remain the same for most households and the extension of mortgage cancellation relief.

Here is the summary of Real Estate related provisions in the bill: (Source: National Association of Realtors).

• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014

• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012

• 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.

• The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

Anytime a lender cancels, or forgives a debt, that debt is considered as income to the debtor.  Thus, making that income taxable unless an exception applies. Without the extension of Mortgage Cancellation Relief, the debt forgiven will be taxable.

The Mortgage Insurance Premiums are payments for the insurance policy which compensates in case the borrower defaults on a mortgage loan. The deduction for Mortgage Insurance Premiums is considered a tax break and it is applied for mortgage insurance policies issued on or after January 1, 2007.  The deduction is extended through 2013 and made retroactive to cover 2012.

Capital Gains stays at 15% for a maximum of $400,000 (for individuals) and $450,000 (for joint filers). Beyond those amounts, any gains will be taxed at 20%. The $250/$500K exclusion for sale of principal residence remains in place.

The Estate tax will be exempted for the first $5M in individual estates and $10M for family estates.  After that the rate will be at 40%, up from 35%.

The new bill will avert the effects of "fiscal cliff".  Homeowners can still enjoy some of the tax benefits from the previous year.  Although this is a temporary fix, the new bill has put the minds of the Homeowners at ease - at least for this year.

If you have any questions, please don't hesitate to contact me.

FHA's New Loan Limits and Mortgage Standards for 2013

Effective January 1, 2013, FHA (Federal Housing Administration) has raised the loan limits for 1-4 family dwellings. See the new loan limits for Anchorage, Mat-su and Kenai Peninsula area below: 

Area	Single Family	Duplex	Tri-plex	Four-plex
Anchorage & Mat-su	$355,350	$454,900	$549,850	$683,350
Kenai Peninsula	$271,050	$347,000	$419,425	$521,250

FHA has also announced that there will be some changes in the mortgage standards. Included in those changes, borrowers with credit scores between 580 and 620 will face stricter limits on their debt-to-income ratio.  The planned changes are to be enforced in order to avoid a bailout brought about by the $16.3 billion deficit for the 2012 fiscal year.

FHA will soon require a minimum down payment of 5% for high-cost mortgages that exceed $625,500 instead of the usual LOW 3.5% down payment.

The Wall Street Journal reports that FHA will be replacing it's popular reverse-mortgage option with the Home Equity Conversion Mortgage (HECM) saver which enables older homeowners to withdraw some of the equity in their home in the form of monthly payments for life or a fixed term, or in a lump sum, or through a line of credit.  Furthermore, the HECM mortgage can be used to purchase a primary home when the borrower is 62 years of age or older and is able to use cash in hand, money from the sale of assets or money from an allowable FHA funding source to pay the difference between the reverse mortgage and the sales price plus closing costs for the property. (Source: www.hud.gov)

Next year, FHA also plans to raise the annual insurance premium paid by borrowers.

Without the plans, the agency may require a taxpayer bailout next year for the first time in its 78-year history.  There will be more programs that will be put in place to avoid the bailout.

For more information, please don't hesitate to contact me.

Flipping Homes - A Profitable Business!

Flipping homes is turning out to be a  profitable business again according to Washington Post.  Research firm Realty Trac has reported 100,000 flipped homes during the first half of 2012, a 25% increase from the same period in year 2011.  Gross profit averaged almost $30,000 per property.

House flipping is not as easy as it seems. According to Mike LaCava, founder of House Flipping School, "You gotta be careful, really do your research and know what you're doing". Because choosing a property in wrong location, or spending too much on repairs, or choosing the wrong general contractor can cost you a lot of money or worst, a property that nobody wants.

Here are some tips on how to have a successful "flip":

1. Find a home with potential. House flippers usually find deteriorated properties in auctions or through other realtors.

2. Do your calculations. Flippers can only earn a profit when the selling price is higher than the original purchase price + repairs.  It's smart to add 10% buffer for miscellaneous costs, which may include attorney fees, taxes and commissions. Make sure to make a research on the market rate of the house within the location of the property. An accurate prediction of the repair costs is also very important!

3. Ask for professional help. If you do not any experience in making a house repair, it's better to seek the help of an expert. You might end up with a bigger costs if you attempt to do it yourself and besides it will be much faster if you ask a professional. Remember, flipping means disposing your property at the quickest possible time at a higher profit. Ask your Realtor for a list of professionals who can help you make the repair.  They can also help you calculate the after repair value of your property.

4. Design for buyers. Keep your colors neutral.  Installing a higher-quality cabinets, or a built-in wine cooler can make your home stand out from the others.

5. Make sure that your home is ready before putting it on the market. Wait until all the repairs are completed before putting the property up for sale. If you put it in the market too soon, then you will be getting design requests from buyers who have not closed on the property yet.

6. Get a pre-qualified buyer. Make sure that your potential buyer is qualified to purchase the property.  If he/she is not yet qualified, the buying process may take longer and you will incur higher carrying costs eating up your profit.

It's best to consult with your realtor to help you in the entire " house flipping" process. Your realtor will make sure that you get the best deal in the market.  

Fiscal Cliff Impacts on Housing

With 3 weeks left in the year 2012, the government has yet to reach an agreement to avoid the negative effects of the so-called "fiscal cliff". Without a fiscal cliff barrier, households might have to pay thousands of dollars extra taxes.

According to Investopedia, "fiscal cliff" means a combination of expiring tax cuts and across-the board government spending cuts scheduled to become effective by December 31, 2012. 

In 2010, the government has extended the George W Bush era tax cuts for 2 years. It means that tax breaks on income, capital gains, dividends and estates will come to an end by 31st of December this year. If you remember, in 2011, the government has set up $1.2 trillion in spending cuts to occur within a span of 9 years, starting January 2013.  Last year, they extended a two percentage point reduction in the payroll tax until December 31.

If the fiscal cliff proceeds as planned, there will be a MAJOR impact on our rather already shaky economy which might include going back to official recession; cut in household incomes; increased in unemployment rates and decreased in consumer and investor confidence. 

Lawrence Yun, chief economist of the National Association of Realtors (NAR) says, "If the cliff was to be realized come January 1st and we do go into a recession, job losses could hamper the housing recovery."  "The stability of people's jobs does impact their confidence to spend moving forward," adds Mark Cole, executive vice president of CredAbility, an Atlanta, Ga.-based non-profit that offers credit and housing counseling services. Cole says American families are hesitant about taking on a new debt. They would rather choose home rentals over home purchases. There will be a continuous growth on the booming rental market if the government will fail to find a resolution on the "fiscal cliff". According to NAR, rents are expected to increase an average of 4% in 2013.

Barry Hersh, a professor at New York University's Schack Institute of Real Estate notes that the commercial real estate will also suffer, since retail and office space are directly impacted by the consumer's spending.

Republicans want to cut spending to avoid raising taxes, while Democrats want a combination of tax cuts and tax increases.  Both have agreed that any resolution will include increased revenue but they disagree on where the revenue will come from.

In a Bloomberg article dated December 4, 2012, President Obama wants $1.6 trillion in tax increases over the next decade. He has proposed $600 billion in spending cuts, about $350 billion of which would come from health-care programs. He also counts the $1 trillion in spending cuts Congress passed in 2011, $800 billion in savings from winding down the wars in Iraq and Afghanistan and $600 billion in interest savings, according to senior administration officials. Leaving aside the administration’s call for measures to boost short-term economic growth, which could take the form of tax cuts or spending increases, this would result in $2.4 trillion in spending cuts and $1.6 trillion in higher taxes.

Without the resolution, short-term fiscal cliff impact on the economy will be avoided. The policies from 2012 will be continued. The extension of Bush-era tax cuts will still take effect; the automatic spending cuts will be revoked; the Medicare reimbursement rates will be kept at the current rate.  However, the public debt rises from 69% in 2011 to 100% by year 2021. 

Waiver for "90-day Anti-Flipping" Rule Extended Until 2014

FHA has extended the temporary waiver for "90-day anti-flipping" rule until 2014.

In 2003, FHA had imposed the 90-day standard holding rule for properties to avoid fraud by teams of mortgage loan officers, realtors, and appraisers. The flips (or selling the properties in less than 90 days for a profit) resulted to significant losses to FHA's insurance fund. 

Starting 2010, FHA has waived the "90-day anti-flipping" rule and has been extending it annually since 2011. For this year, the agency has opted for 2-years extension. FHA says that they have made the 2-year term extension in order "to provide greater levels of certainty" for the lenders and buyers.  The waiver will allow the sellers to resell their properties quicker.  FHA firmly believes that the waiver will result to stability in real estate prices. According to FHA records, the agency has successfully insured mortgages on 62,250 homes worth $11 billion, where the seller had held the property for less than 90 days.

Among the key requirements that will continue during the latest waiver: (Source: fha.gov)

All transactions must be arm's-length, with no identity interest between the buyer and seller or other participants. Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never acquired legal title.) There should be no "pattern" of previous flips of the property during the 12 months preceding the transaction.

In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be documentation showing the renovations and repairs that justify the markedly higher resale price. A second appraisal may be used to substantiate the increase in value, but the second appraiser must be selected from FHA's roster. When no significant renovations occur and the price is 20 percent higher than acquisition, the appraiser must provide "appropriate explanation" for the sudden increase.

Inspections are required of all the key components of the building structure and systems when price jumps exceed 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or "health and safety" defects, repairs must be completed before the closing and a final inspection performed to ensure that the repairs have been made.

The new extension of the "90-day anti-flipping" rule will definitely benefit the single-family investors! This is because the longer a home is held, the more expensive it is to the investor, so investors aim to sell the properties at the shortest possible time.  If you are interested in investing in real estate, please visit www.anchoragehomedeals.com.

Selling Your Home During the Holidays

 The holiday season is definitely the busiest time of the year! There are gatherings left and right. Families are travelling together to visit loved ones. Children are back from school for the holidays. 

Many sellers take their homes off the market during Christmas and New Year to enjoy the holiday season. Taking the home off the market will allow the owners to use the house as a venue for parties and family gatherings.

Selling a home during the holidays can be challenging. There must be a balance between family time, showings and open houses.  Many sellers do not realize that Realtors and buyers are happy to schedule a showing around parties and family gatherings at this time of the year.

If your home is for sale, consider allowing other family members to host your family gatherings, so your house will be available for showings. You can also plan a family activity while your home is being shown. Maybe watch a holiday movie or get an ice cream or a yogurt. 

Homes can be more attractive during the holidays. It doesn't have to be over the top decoration, maybe a basket of candy canes near the door, holiday background music or just a simple light displays to window areas can make a simple house look very beautiful. Christmas trees, wrapped presents, candles can add a nice touch but it should be kept minimal and elegant.  If you are unsure on how to decorate your home, you may refer to home decor magazines for pictures and examples.

Great photos are the key to catch the eye of the potential buyer.  Take some photos with your holiday decorations but also make sure to include photos without the decorations. This will allow the buyer to imagine how their future home would look like after the holiday season.

The best part about selling during the holiday season is that there is less competition. While other sellers took their homes off the market during the holidays, your home will be the most attractive home on the block.  The holiday season can be a wonderful time for families, but with few compromises, you can make a sale during the busiest time of the year.