Homebuyer Credit Expanded and Extended
The Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts.
Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
The new law also:
For 2009 Home Purchases
The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home on or before April 30, 2010 and close on the home by June 30, 2010. For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.
First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.
General Information
Homebuyers who purchased a home in 2008, 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:
The credit is claimed using Form 5405, which you file with your original or amended tax return.
O‘Neill Mortgage Associates; information from IRS.gov, First-Time Homebuyer Credit
"Once again, we come to the Holiday Season..." Writer and humorist Dave Barry finished that sentence by describing the holiday season as a "time that each of us observes, in his own way, by going to the mall of his choice."
With those words in mind, the articles below are filled with tips to help make sure the upcoming holiday season is as happy for your wallet as it is for your family and friends. For instance, the first article provides simple steps and tips for 1) budgeting for the holidays. In addition, the second article describes how you can get 2) more money out of your paycheck to pay for the holidays, instead of charging your purchases and waiting for a tax refund to pay them off.
As always, please forward these articles on to your friends, coworkers and family members to help them plan for the upcoming holiday season. And if you need any help or advice, please call or email any time.
1) Budgeting for the Holidays
It's hard to believe, but Thanksgiving is here. That means, the holiday shopping season is right around the corner. That's why now is the perfect time to start planning for your holiday budget. By formulating a plan now, you'll achieve more than just the happiest of holidays. You'll ensure that the New Year will begin without worries of too little cash flow or too much debt.
Learn from the Past
The best place to begin when it comes to planning for this year's holiday spending is to examine what you did last year. Dig up the credit card receipts and checkbook registers, and add up how much money you spent. You'll also want to take notes regarding where you spent it. Don't forget to include money used to purchase gift-wrapping supplies, cards, postage, holiday entertainment costs, special-occasion clothing, and even food expenses that you incurred while you were out shopping all day in town.
Now that the numbers are in front of you, it's time to form an opinion. How do you feel about last year's spending? Did you spend a realistic and appropriate amount, or did you go overboard? Try to be objective. This analysis will serve as the backbone of your plan.
Look at the Present...(Pun Intended)
Financially speaking, how have you fared this year compared to last year? Be sure to look at any changes in income as well as expenses. If your finances haven't changed and you're happy with last year's spending, then you're starting off in very good shape. If your overall financial status has declined, or if you were less-than-pleased with last year's performance, then you've got some work to do.
Begin by looking at the number of purchases you made a year ago. Which ones would you make again and which ones have you scratching your head? It may be time to reduce your gift-buying list or change the amount you spend on each purchase. The obvious way to accomplish this is to be less extravagant with your selections. A less obvious but often effective approach is to research your potential purchases. Sometimes you end up paying extra for the convenience of one-stop shopping, so look through the newspaper to find which stores are offering deals. Then look on the Internet to see if you can beat their prices by purchasing online. This practice will cut down on last-minute shopping, which can be an expensive proposition.
Look Toward the Future
So, you've figured out how many purchases you need to make as well as which ones need scaling back in terms of price. Now it's time to create a budget. Once again, there is no magic formula. Creating a budget and sticking to it requires two main things: common sense and commitment. Let's take a closer look.
A budget should always be based on the money you have, not the money you can borrow. If you are still paying off charges from last year, then you need to avoid using credit cards to make gift purchases this year. The amount of money you decide to allocate toward holiday spending should be based solely on what you've saved or what you will save from now until the time you start shopping.
When drafting your budget, start by creating a list of recipients, along with columns for the gifts you intend to buy and the dollar amounts you expect to spend. As you make purchases, keep track of the results. If you overspend on one gift, it is imperative that you make it up somewhere else. Your diligence is one of the keys to staying within your budget.
It's also important that you watch out for potential pitfalls, including impulse shopping. Getting into the spirit of the holidays is one thing, but spending frivolously based upon a last minute decision is something else. You've got a list, and your job is to stick to it!
One final thing that may need an adjustment is your overall philosophy. It's easy to look at the budget you've created as a restriction. After all, it's nothing more than a set of rules. The flip side is that these rules are there for your protection. Sticking to them will not only help you feel comfortable about your finances before and after the holidays, it will free you from the stress that comes from accumulated debt.
When you look at it this way, a budget can be downright liberating. Give yourself the gift of a financially stress free holiday, by planning in advance.
2)
Don't Wait for a Tax Refund To Pay for the Holidays...
Get More Money Out of Your Paycheck to Pay for the Holidays
This time of year, millions of Americans find themselves wondering how they're going to pay for all of the items on their holiday shopping lists. Perhaps you're considering charging your purchases on a credit card and then paying that card off with your tax return. But wouldn't it be nice if you had that money already? Sure, you could go to a service that gives you money now for the refund check you're expecting... but the fees involved can take a hefty chunk out of your refund.
More Money in Your Wallet Each Week
When you think about it, getting a refund check means that you let the IRS use your money throughout the year without paying you any interest. Wouldn't you rather have the money during the year yourself?
Here's how you do it. The IRS allows you to increase the number of dependants on your W-4 withholding form, meaning that less will be withheld for taxes from each paycheck. In the past, if you claimed greater than nine dependants, an explanation and approval may have been required. But the IRS has lifted this restriction, allowing you to voluntarily increase your dependents claimed. This lets you have more money in each paycheck instead of "loaning" the money to the IRS and having to wait for a refund.
But don't go overboard. You should only lessen the periodic tax withholding to match the expected refund. This way you are taking your refund as you go; instead of letting the IRS hold on to it.
The IRS Actually Makes It Easy to Calculate!
The IRS offers a nifty IRS Withholding Calculator for free, which lets you see how a change in withholding will affect your paycheck.
Take advantage of this calculator today to see how changes can impact your take-home pay.
Remember, before you make any changes, you want to be sure you are balancing the amounts carefully and correctly, so it's always a good idea to check with your tax professional.
O'Neill Mortgage Associates
To those of you who have contacted our office about a refinance, but were unable to proceed due to the value of your home in relation to your mortgage balance or your inability to qualify under today’s much tougher underwriting rules, the new administration has created some hope for a lower mortgage payment. Understand that any special help requires proof that you are having difficulties or could, if your loan adjusts. Use the links below or copy & paste the following web address into your browser to see if you fit into the program parameters.
http://www.makinghomeaffordable.gov/
Section I - The program is for PRIMARY RESIDENCES, ONLY and you must be current on your loan payments
Both these programs are summarized along with providing information about the next step, by copying & pasting the following web address into your browser http://www.makinghomeaffordable.gov/docs/borrower_qa.pdf
Section II –INVESTMENT PROPERTY is not currently covered by the administration plan and will require a private loan modification effort. THE FOLLOWING WOULD ALSO APPLY IF YOUR LOAN SERVICER IS NOT PARTICIPATING IN SECTION I, ABOVE OR YOUR LOAN IS NOT A FANNIE/FREDDIE SPONSORED LOAN. This also falls into two categories and you MAY be in arrears on your payments.
We will endeavor to keep you informed as additional information is made available.
© Shaun O'Neill, 3/28/09
Many communities have initiated incentives to spur home buying. For example, the City of Phoenix has a no-monthly-payment, $15k down payment/closing costs loan program. The $15k is paid back upon sale or refinance of the single-family home or condo. The funds are available on foreclosed properties that are now owned by financial institutions as a result of a foreclosure. There are a few stipulations.
The simplified highlights of those stipulations are:
Purchase contract must contain four contingencies:
Homebuyer Education and Credit Assessment
It’s a start and for a new homeowner, it may make that purchase possible!
© Shaun O'Neill, 3/19/09
If you are a first time home buyer, you may be eligible for a tax credit in 2009. The new stimulus bill, the American Recovery and Reinvestment Act, signed by President Barack Obama on February 17, 2009, updates the previous First Time Home Buyer Credit of 2008.
Some important changes include:
The income restrictions are based on the Adjusted Gross Income (AGI) on your tax return.
Income restrictions include:
The 2009 First-Time Homebuyer Tax Credit is claimed on IRS Form 5405 and filed with your 2009 federal tax return.
Tax forms can be found at http://www.irs.gov
There are some who believe that selecting an Option ARM mortgage has created a negative equity problem for them. Even the "experts" in Washington are ill-informed. Here are the facts....
Your decision to employ an Option ARM mortgage was based on a modest appreciation of 2.2-2.4% per year and the fact that you had better uses for the cash flow savings that the loan placed in your pocket. All good and logical decisions in normal markets.
So NOW what?
Option ARM loans typically have "recast" points of 115% of the original loan amount OR 5 years, whichever comes first. At that point the loan will become fully amortizing, something that the markets have never caused in the past. O'Neill Mortgage Associates has developed a proprietary application that will allow us to project your recast point. Send us a mortgage statement via fax or email and we'll be glad to send you your projected recast point.
All of our research to date illustrates that the typical recast will occur between 54 & 60 months in the life of the loan. At that point most Option ARMs will become amortizing over the remaining months of a 360 month term. Bottom-line...expect a payment that will increase 25% or more. The alternatives... 1) refinance, assuming that your loan does not exceed 105% of the value of your home, the loan balance on your home does not exceed $417,000 AND you can qualify under today's much more stringent underwriting requirements at a higher payment OR 2) negotiate a loan modification with the lender.
© Shaun O'Neill, 10/27/08
Did you know that the major credit bureaus sell your personal information? It's true! Known as "trigger leads", the files of borrowers applying for a home loan are immediately flagged, packaged and sold by the credit bureaus to the highest bidders. For typically $25 to $100, your name and certain specifics about your credit report, including your address, phone number, mortgage history, and even your FICO score range, are sold to "call center" mortgage companies which then blindly solicit your business. This results in numerous unwanted phone calls and junk mail offers which are in no way associated with your selected real estate professional or O'Neill Mortgage Associates.
Unfortunately, no legislation presently exists to prevent the credit bureaus from profiting at your expense. As a trigger lead, you are simply at the mercy of firms and individuals, who, because they were not recommended by someone you know & trust, can only provide you with too-good-to-be-true offers to entice you. They may even attempt to discredit the professionals that you know and trust or were recommended to you.
Don't be misled! There are only a limited number of financial sources where lenders may secure their funds and it's very unlikely that you will find an unbelievably low rate without an unbelievably high cost.
That's why, we always encourage our clients to opt out of credit bureau solicitations by visiting www.optoutprescreen.com.
This is the simplest way to avoid this annoyance. As you embark on what could be the largest financial transaction of your life, it's important to have a mortgage professional at O’Neill Mortgage Associates on your side. They have a long-term relationship and your best interests at heart.
If you'd like more information on trigger leads, credit reports, please don't hesitate to call any one of the mortgage professionals at O’Neill Mortgage Associates.
© Shaun O'Neill, 8/30/08
Your 20’s – 100% in stock
Your 30’s – 80-90% in stock, 10-20% in bonds
Your 40’s – 70-80% in stock, 20-30% in bonds
Your 50’s – 60-70% in stock, 30-40% in bonds
Your 60’s and Beyond – 50-30% in stock, 50-70% in bonds
© O’Neill Mortgage Associates with credit to:
Factory Built Bulletin and Jim Cramer’s, “Stay Mad for Life”
It's surprising how many consumers make the same credit scoring mistakes over and over again. In an effort to educate consumers on credit and credit scoring, we've compiled the most common credit scoring mistakes into a list that defines each mistake and explains why they are bad and how to avoid them:
Credit Mistake #1: Closing Credit Cards Accounts
This is probably THE biggest credit mistake that consumers make. What you may find surprising is that closing credit card accounts can hurt your credit score almost as badly as missing a payment.
Not only is this the number one on the top credit scoring mistakes, it's also number one on the list of credit myths.
Ironically, most consumers make this mistake based on poor advice from a mortgage lender as a strategy for improving their credit scores. A word of advice people, when you're dealing with something as sensitive as your credit and credit scores, make sure you do your homework before trusting some of these so called ''industry experts'' before following through with their advice.
There are two important reasons why you should not close credit card accounts:
Eventually, the accounts will fall off of your credit reports - The information in your credit reports are subject to certain rules in regards to how long it can remain in the report. In most cases, credit information will remain in your credit reports for seven years from the account's DLA or date of last activity.
When an account is open, the DLA will continue to update each month and the open account will never reach that seven-year mark.
If you close the account, the DLA will stop updating and the clock will start ticking. Eventually the account will be completely removed from your credit reports.
Why would this be a bad thing?
It's simple - you never want to get rid of old, positive information in your credit reports. This information actually helps your credit scores.
Credit scores want to see this positive account information. They want to see your long, perfect history of making your payments on time because this information significantly helps your credit scores.
This information significantly helps your credit scores so why would you ever want that history to disappear? You wouldn't! Here's an analogy for you: let's say you made straight A's in high school. What if the record of that perfect scholastic accomplishment were permanently deleted seven years after you graduated? Would you ever want that history deleted? Of course you wouldn't. The same is true for the credit reporting environment.
So, what should you do with old credit cards that you don't use any longer?
What you don't want to do is to let the account become inactive. When this happens, the credit card companies aren't generating any revenue for your account.
Eventually they'll close the unused account because you're more of a liability than an asset. You can prevent this from happening by using the card every few months for low dollar purchases like dinner or a tank of gas.
When the bill comes in, just pay it in full. If you do this, it will ensure that the account will never be closed and you'll always get credit for your good payment history.
You could cause a spike in your revolving utilization and tank your scores - The percentage of your available credit in comparison to the debt you owe is a very important factor in calculating your credit scores.
This is often called "revolving utilization," or your debt-to-limit ratio.
For example, if you have an open credit card with a $1,000 credit limit and a $500 balance then you are using 50% of your available credit. This means that you are 50% utilized on this particular credit card.
Now lets add a second credit card to the mix.
Let's say you have another open, but unused credit card account with a $1,000 limit and a $0 balance. This would put your total revolving utilization at 25% because you have $2,000 in available credit limits and $500 in total balances.
If you divide your total balances by your total credit limits, you'll get your total aggregate revolving utilization: $500 divided by $2000 equals .25 or 25%.
So how will closing unused credit cards hurt your credit score? When you close an account, the amount of available credit decreases, which could result in a higher revolving utilization and lower your score.
Let's use the example from above and close the second unused credit card account. When you close the account, you remove it from any utilization calculation and now you're stuck with one open credit card account with a $1,000 limit and a $500 balance.
This caused your utilization to go from 25% to 50%.
Remember, you divide the total balance by the total available limit so $500 divided by $1,000 is .50 or 50%. As this percentage increases, your credit score decreases.
When you're talking about several unused credit cards with high limits, you can just imagine what closing credit card accounts could do. I've seen consumers go from a 10% utilization to almost 100% utilization because they closed all of their credit card accounts except the one they were currently using.
Big mistake.
Credit Mistake #2: Missing Payments
It doesn't take a credit scoring expert to tell you that missing payments is a bad thing. The only reason I made missing payments second to closing credit card accounts is because this one is a no brainer.
It shouldn't take a credit expert to tell you that missing payments is bad. Common sense should tell you that missing payments is bad. Credit scores are designed to predict how likely you are to miss payments in the future.
This means that they look at your credit history to view how you've managed all of your credit obligations.
Missed payments is the most powerful predictor of future late payments. The FICO score evaluates previous late payments in three different layers:
How Severe - How severe is the late payment? It doesn't take a statistician to tell you that a 30-day late isn't as bad as a 90-day late. The more severe the late payment, the more damaging it is going to be to your credit scores.
Consumers who have missed payments by a few weeks and then bring their accounts current score much better than consumers that have gone 90+ days past due. In fact, a 90-day past due is the threshold that will wreak havoc on your scores.
If you are unable to avoid a late payment, the next best option is to get those accounts current as quickly as you can.
How Recent - How long ago did the late payment occur?
If you've read some of my previous articles on credit scoring, you'll know that the last twenty-four months of your credit history are critical because the FICO score places more emphasis on your recent credit patterns.
This means that a late payment six months ago is going to carry much more weight than a late payment from four years ago. To recover from late payments it's important that you get current and stay current.
How Frequent - How often have the late payments occurred? Consumers that miss payments frequently are penalized much more severely than those that have missed a payment here or there in their past.
If you have a tendency to make late payments your credit scores will reflect your bad habits. Make your payments on time and you'll never have to worry about losing points in this category.
Credit Mistake #3: Settling Accounts
One of the most common mistakes consumers make is assuming that 'settling' with a lender is a great way to save a little cash.
Unfortunately, they don't realize what that a ''settled'' indicator in their credit reports is actually derogatory.
"Settling" is a term used in the consumer credit industry that means accepting less than the amount you owe on an account. For example, if you owe a credit card company $5,000 but you can't pay them the full amount then they will likely make you a deal for less than that full amount. They have "settled" for less than the full amount, which is likely much less than you contractually owe them.
This may seem like a good idea because you save quite a bit of money but as far as the credit scoring models are concerned, this is just as negative as other severe late payments.
The only way to avoid the damage to your credit scores is to arrange a deal with the lender to report the account as ''paid in full'' as opposed to ''settled''. If they don't agree then it's in your best interest to figure out how to pay them in full or else be prepared to suffer the damage to your credit for the next seven years.
It's also important to understand that if the account has already made it to the collection phase, the damage is already severe and settling won't really make a difference. Settling is only an option if the account has already made it to a severe delinquency state.
Credit Mistake #4: High Revolving Utilization on Your Credit Cards
Most consumers believe that making your payments on time is all it takes to have good credit and earn great credit scores.
What they don't realize is that almost a third of your score is determined by how much you owe on your credit card accounts. If you have high balances on your credit card accounts, you're credit scores could be severely impacted by your revolving utilization.
In order to score the most possible points in this category, I advise keeping your revolving utilization at 10% or less.
Don't be fooled when you hear some of these celebrity experts telling you that 50%, 30% or even 25% is best.
While 30% is considerably better than 50%, 10% or less is ideal. The lower the utilization percentage, the better your score will be.
Credit Mistake #5: Applying for Credit Excessively
Whenever you apply for credit your application gives the lender permission to access your credit reports. When they pull your credit reports, it automatically posts an inquiry in your credit record. This inquiry is a record of who pulled your credit report and the date it occurred.
Credit scoring models use inquires to determine if and when you shop for credit. Statistics show that consumers who have more inquiries are higher credit risks than those with fewer inquiries.
It is for this reason that the more inquiries you have, the more points you lose in the credit score calculation.
The exact point value of inquiries is a much argued topic and is impossible to give an exact point value because it really depends on all of the other information included in your individual credit file as well as the fact that the algorithim that is used by each credit bureau is proprietary.
The best strategy would be to only apply for credit when you absolutely need to.
This means that you should avoid those in store offers of "10% off" in exchange for applying for a store credit card. This may sound like a great idea but the reality is that while you may save a few bucks on your purchase, those inquiries could end up costing you a lower credit score which could result in higher interest rates on auto or mortgage loans in the future.
There you have it. Now that you know the top credit mistakes, you can avoid them and you'll be way ahead of other consumers.
content credit to Edward Jamison, esq.
Does this scenario sound familiar? Your latest credit card statement comes in the mail, and there's an error. You know that it needs to be dealt with, but for some reason you keep putting it off. Then it hits you. The reason for your procrastination is that you just cannot bear the thought of calling "customer service". Just the idea of facing a telephone maze of pressing buttons and repeating personal information over and over again is so daunting, so loathsome, you actually consider just paying the charge.The good news is your days of wallowing through the Dante's Inferno of customer service phone systems are over. Thanks to a computer programmer/blogger named Paul English, you can now talk to a real human being in a fraction of the time. You see, Paul and his Internet friends have taken the time to compile a list of some major companies along with shortcuts you can use to reach an operator on their systems. Here are some examples:
America Online® - Don't press or say anythingBank of America - Press 00 at each prompt Citibank - Press 0# 0# 0# 0# 0# 0# eBay® - Press 0 after each of the first two prompts
e*Trade - Press # # # #FedEx® - Say "agent" at each promptMasterCard® - Press 000 at each prompt
To see Paul's entire list of company phone numbers and instructions, simply log on to www.gethuman.com and click on the "Database" link. You may even want to create a bookmark to the website on your computer both at home and at work.Mr. English is completely dedicated to the customer service cause. Along with publishing this potentially time-saving information, Paul provides the ability to rate a company's customer service and allows anyone with information about bypassing customer service phone menus to contribute what they know. Both features can be found by clicking on the "Sitemap" link on the website. Companies are constantly changing their phone systems, so Paul's list is always in flux. Lucky for us, the most current information is only an Internet connection away.
Reprinted from LandAmerica email 5/21/08
No income is required to qualify for a reverse mortgage! And no payments are ever made!
No mortgage payments are ever required of the borrower! So, “no credit” is ok! And “bad credit” is ok too!
In a reverse mortgage, interest accrues, and is added to the balance to be paid-off. No monthly principle or interest payments are ever made. Therefore, the borrower borrows “x” today, and when they pass, “x+ accrued interest” is what is paid-off by the heirs.
The heirs do this by either buying the home with cash, buying it with a forward mortgage, or by selling the home. Some programs may also have life insurance and/or annuity investments attached. And remember, the home still has at least 15% equity in it, making a sale easier!
All borrowers on title at the time of closing must be 62 years old or older. Reverse mortgages are a safe, government regulated program, and a senior can never lose their home.
Many heirs prefer their family members use the captive equity in their home for living expenses. And, about 50% of the time, the heirs are the ones who ask for information on a reverse mortgage! Remember, the heirs get the property back, with equity still in it! And they may elect to keep the property in the family, by purchasing the home with a forward mortgage, or with cash from a life insurance policy or other source. And reverse mortgages are understanding of a family member’s passing, and do allow adequate time to complete any financing needed for the heirs to purchase the home.
Borrowers can elect a lump sum, a line of credit, a monthly income check, or any combination of the three! The money they receive is not taxable, and will not reduce their Social Security, pension, and Medicare benefits! Remember, it’s not “income,” it’s their captive equity in their principle residence!
Borrowers can obtain a reverse mortgage, even when already owing as much as 85% of the value of their home. A reverse mortgage can be used to pay-off an existing forward mortgage, and erase their existing monthly mortgage payments!
© Shaun O'Neill, 5/21/08
I. Access To Your Credit Reports
We, at OMA, are frequently asked about the “free” credit report services. The fact is that none of these services are free past an introductory period except for the FTC’s provision that every consumer may receive a free credit report from the credit bureaus once per year. And although the FTC mandated credit report does not provide scores since that’s not its purpose, it does give you an opportunity to review your credit for errors, omissions and fraud being perpetrated in your name.
To maximize your bureau access, we recommend to our clients that they request one bureau every four months in alphabetical order of the bureau: January, Equifax; May, Experian and September, TransUnion. This provides not one review of your bureau; rather it provides three on a regular basis.
This is better than finding out twelve months too late that your identity has been stolen. Here’s the website link to a truly free credit bureau: https://www.annualcreditreport.com/cra/index.jsp. Because this consumer version does not have a credit score, rather just a credit history, here's a credit score estimator: http://www.myfico.com/ficocreditscoreestimator/?AID=10436269&PID=1360000
II. Identifying and Perhaps Preventing Scams
There are at least three websites that, to varying degrees, can help you debunk an urban legend or a scam solicitation. They are: Snopes.com; Scamorama.com & Scambusters.com. Try them out with the very next email that you receive about George Carlin’s last quote or an investment opportunity in Nigeria!
By our own statistics, fully 75% of all homeowners are having difficulty illustrating adequate equity in their home to allow a refinance of even their existing balance. Easily 50% of those who had positive equity two years ago have little or none today and very few Arizona homeowners are in a position to extract cash from their homes for debt consolidation or home remodeling.
Here’s a press release from Zillow.com (a residential valuation website) that vividly illustrates the home valuation issue as well as adding a new dimension to slow home sales…unrealistic expectations.
Zillow: Homeowners' Perceptions UnrealisticU.S. homeowners' perceptions about the value of their homes remained unrealistically bullish in the first quarter, as nearly three-quarters said they believed the value had increased or held steady over the previous year, according to a recent Zillow survey. Zillow.com, an online real estate community based in Seattle, said 72% of the homeowners surveyed expressed such a view despite the fact that 75% of U.S. homes had declined in value over the previous year. "While we assume there's a fair bit of owner denial reflected in these results, we also believe a large portion of the population simply isn't paying close attention to their housing market because they're not currently looking to sell or finance," said Stan Humphries, vice president of data and analytics at Zillow.com. "But even among those who say they're planning home-related activities this year, confidence appears strong despite continuing declines." The survey was conducted by Harris Interactive. Zillow can be found online at http://www.zillow.com.
© Shaun O'Neill, 5/9/08
O’Neill Mortgage Associates has a unique PURCHASE-ONLY program that could be a solution for home buyers looking to move up or for those seeking that first home…
MAKING DREAMS INTO REALITY LOAN OMA Dreams Into Reality.pdf
This program is designed to assist folks who have RELATIVELY modest incomes and to assist in developing less populated areas, so there ARE income and geographic restrictions. Please contact an OMA representative via email or phone to determine eligibility.
© Shaun O'Neill, 4/12/08
As many of our clients have heard me espouse interminably, residential real estate is a long term capital investment. “Flips” and other similar short term transactions (really just speculation) shown on so much TV as a viable profit opportunity emphasize the upside, but minimize the holding costs, closing costs and taxes assessed on ordinary income. In brief, the probability of an upside result is dwarfed by the probability of a downside result in the BEST of markets!
Our current real estate market vividly illustrates the inherent risk in short term investments as the market has turned down for what could be another year or more. Regardless of the expert’s opinion on the timeline for the start of a recovery, they all agree on a l-o-n-g road back to the previous market level.
However, these are great times for long term investors who are ready to invest again. Rates are very attractive and acquisition prices are at pre-2004 level. While loan terms are more restrictive on investors, there are several options for determined individuals. Here’s an article entitled “Rental Squeeze Play” by the National Associatiion of Realtors Chief Economist Lawrence Yun. http://www.realtor.org/research/commentary_rental.html It illustrates the significant upside to a measured, professional approach to residential real estate investing. Call O’Neill Mortgage Associates for a solution that matches your objectives.
© Shaun O'Neill, 3/6/08
Although some of OMA’s clients are among those that could/may (depending on what the legislation looks like after all the political maneuvering) qualify for government mortgage intervention, I’d rather the government stimulate DEMAND, thereby benefiting everyone who owns a home. Apparently I am not alone "How to Handle Mortgage Crisis: Survey Says, ‘Don’t Help ‘Em’", however I am alone in the reasoning behind my position.
By creating demand, home values go up (basic supply & demand) allowing anyone who is qualified to refinance out of whatever mortgage loan instrument they are in. At present, we at OMA, are regularly frustrated because we may not be able to assist families in the way we would like because the valuation doesn’t exist in the property.
How do you stimulate demand? By creating more qualified buyers not less. By having more creative loan programs not less. Instead of ponying-up billions now through programs designed to help a relative few, the government could guarantee a portion (say the first 10%) of each NEW, creative loan (high loan-to-value stated loans, for example) thereby allowing more folks to qualify to purchase a home. More buyers, more demand, higher values and the folks who can and want to refinance will be able to. The government also benefits because instead of billions of direct assistance to a relative few NOW, the cost of such a program would be pushed into the future when any losses would occur. And the higher values would reduce that risk. Just a thought!
© Shaun O'Neill, 1/25/08
Last November I wrote in several forums about the oncoming financial disaster, caused by the real estate "slowdown" aided and abetted by the various well-intended government entities. I wrote that those government entities efforts were ineffective at best and that they had a history of misunderstanding the impact of their actions or lack thereof. So, with a few updates, here’s my lament, again.
None of the patch-work programs that the government has assembled will assist the current housing crisis; however they all play well at the press conference podium. Freeze the rates on a minuscule number of mortgages and it appears to benefit more homeowners than it really does. Eliminating pre-payment penalties won’t encourage investors in the very mortgages that can get us out of the worsening housing market mess. Mandate that income must be proven for a mortgage and it will only further contract the pool of potential qualified buyers.
The fact is that government “solutions” are blame-oriented, poorly researched, misguided and unfocused. None of the solutions to date will solve the problem. In fact, ask Cleveland, Ohio what happened when rates were capped by that city's council about a decade ago to “assist” home owners secure lower rates (even if they didn’t deserve them). Mortgage lenders simply packed-up and left. Also, the true value of the Truth-in-Lending document, another well-intended government achievement, remains largely a mystery to consumers and unexplained throughout the mortgage process. Government is rarely the solution source.
The opportunity to review retrospectively is the luxury of history books and Monday morning quarterbacks. It simply is not solution-oriented in what will soon be a crisis of recessionary magnitude. If they look, they would see declining market demand as well as upcoming “mergers” and “restructuring of debt” by the home builders. These are both euphemisms for being closer to breaking their loan covenants and then bankruptcy. With home building at a near standstill and no buyers for raw land at the value that the builders have on the books, they have no wiggle room. To quote Joel S. Pate, Broker Universe Newsletter, 10/29/07 on David Weekly of David Weekly Homes in Houston in 1987’s savings and loan debacle, "If you are in a market downturn, it is probably worse than you think it is and it will last longer than you think it will.” We still haven’t seen the worst. By late 2008, the credit card companies will see significantly increased delinquencies as many homeowners use their cards in lieu of home equity loans or refinances. All of this will include, as a result of well-intended government assistance, further escalating mortgage defaults.
So what’s the real solution to the impending doom? Demand. Without demand we are in a whirlpool swirling closer to the drain. Demand will bolster the market values that have thwarted even good credit risks from refinancing. How do we create this demand? By making it easier to buy a home; not more difficult!
Picture two triangles, both the same height which represents the pricing available in the market place. The higher the tier on the triangle, the pricier the home. Both triangles illustrate that the base of the triangle represents the available buyers or the driving force of the market. However, there’s one important difference. One triangle has a base almost three times the width of the other, illustrating the housing demand present prior to mid-2006. The other since that point in time. The wider base results in a wider market throughout the triangle’s height representing the increased demand throughout the pricing tiers. What causes the demand? Buyers. How can we increase the number of buyers? Creative mortgage programs!
While it is obvious that if home buyers have increased loan programs that they can qualify for, there will be increased demand, but there are those that would say that the creative loan programs got us into our current difficulties. That’s not, however, entirely accurate. Let’s agree that increased demand will create increased sales that will then create increased valuations that will support refinances thereby eliminating the need for a patch-work quilt of limited-benefit government provided and induced programs. Now let’s see how we can create a more comprehensive, simple and urgent solution to the housing mess, because urgency is required and because we don’t want to kill demand while we attempt to cure it...
A results-driven solution is two pronged:
1. Increase demand by allowing, not eliminating, stated, 100% and other creative loan programs. A private sector (no government agency expansion), risk-based, market driven premium could be charged and as the loan is sold that premium is passed on to the buyer of the loan. It could be a meaningful amount, on a sliding percentage scale based on the loan amount and perhaps financeable. The premium would be guaranteed by the purchaser regardless of a future default or bankruptcy, thereby eliminating the ease of walking away. If the government wants to participate, allow them to guarantee a portion (the first or last 5-10%) of each "creative" loan in lieu of private sector participation, underwritten to specific criteria much like FHA. But, PLEASE have the program designed by the private sector for urgency's sake. Yes, these loans have experienced and will continue to experience a higher default rate than conventional, conforming mortgage loans. We just need to provide for that fact. It’s akin to insurance companies charging a higher premium for the inherent risk rather eliminating a high-powered car from a consumer’s potential choices. A variation of this solution is to allow the lender to secure an equity position in homes for which they have provided creative mortgages. Either way, it was the lack of acknowledgement and or lack of disclosure of that increased risk to purchasers of these mortgages as investments that created the crisis, not the mortgage programs themselves. That leads us to consumer-level accountability.
Guns don’t kill people, people kill people is the mantra of gun owners who arguably make the point that a killer will find a way. A knife, a rock, et cetera. Likewise, creative loan programs are not inherently bad; it’s who is placing consumers in them that should be held accountable. By restricting/eliminating creative loan programs that were misrepresented by loan officers or hedge funds to their respective buyers, we are merely causing the perpetrators to move onto a new angle in a new industry. My firm has seen an increase in fraud by competitors in recent months, not on non-existent creative loan programs, but on conventional, conforming loans. So, I would conclude that fraud is not the exclusive purvey of creative mortgages. It’s the individual’s ethics.
2. License loan officers nationally, no matter who they work for, bank or broker. I don’t know of an ethical loan officer who doesn’t support this in principle. Until the national broker and banker organizations can come up with a comprehensive licensing/bonding/education program, say twelve months, every loan officer has sixty days to register with a clearinghouse set-up by the organizations. Once the licensing/bonding program is in place, perhaps it’s two attributable violations as defined and investigated by those organizations and you are on to a new career. In brief, create a barrier to the ease with which loan officers come and go unimpeded. It works in the investment industry.
In conclusion, there is such an easy fix, but in a sense we need to use selective enforcement for speeders, not write everyone going down the highway a speeding ticket. It’s the difference between curing the mortgage business’ real ills versus killing the mortgage business and with it the housing industry Those Wall Street bankers and the loan officers who disproportionately benefited by playing by the then existent “rules” (or lack thereof) need to be selectively prohibited from doing so in the future. The government entities eliminating creative loan programs through regulation, legislation and press conference gloom and doom, have drastically reduced the pool of potential buyers, thwarted demand, dramatically reducing home values, increasing defaults, preventing consumers with good credit from refinancing due to stunted values and costing tens of thousands of jobs in the housing industry.
© Shaun O'Neill, 1/15/08
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