Ask anyone to describe their image of a real estate agent and what do you hear?  I laugh when I hear big hair – the 1980’s; Cadillac, Realtor® car, Country Club lunches…because of course, the Realtor® belongs to a country club!  Oh and money… overflowing the pockets!

Real estate agents are not Realtors® but Realtors® are real estate agents.  Realtors® subscribe to the Code of Ethics of the National Association of Realtors® (NAR Code of Ethics http://www.realtor.org/policy/code-of-ethics-and-professional-standards ) and real estate agents do not.  There is a higher standard of care for clients when using a Realtor®.  Make sure your agent subscribes to a local Board of Realtors® because it offers you, the consumer, a higher standard of care.

When buying or selling what is probably your greatest asset, be sure you are dealing with a reputable person.  Generally that person will be a Realtor®.  He/she can guide you through the morass of paperwork and explain all that you are signing and why.  If that person shoves paper at you and doesn’t explain what you are signing, then you should not sign!  Ask to see the Code of Ethics.

Advanced designations are one way to cull Realtors®.  Beyond the normal continuing education units your agent must attend, that person understands the importance of knowledge which he/she can impart to the client and use to represent the client in a more professional manner.

Usually these designations are classes the agent must pay for out of his/her own pocket, take time to attend, and usually pass a test at the completion.   If your agent has a group of alphabets after his name, those are the designations.  Some are more prestigious than others.  Ask what these letters mean.

As the market begins to heat up, more and more people will go into real estate.  There is a perception that real estate is an easy career and the agent can make a huge income and just look at houses all day with people.  This is a myth!  Ask any successful Realtor®, the reality is far different!

So ask too, how long have you been in the market?  Remember, you are the employer and the Realtor is your employee.®

   The new Mortgage Disclosure Improvement Act (MDIA) promulgated by the federal government is not much of a change for lenders who were ethical and disclosed costs initially;  but for those unscrupulous lenders who performed “bait and switch” during the home buying heyday, lamentations are rampant.

   “The purpose of the new Mortgage Disclosure Improvement Act is to insure buyers are fully aware of closing costs and interest rates which they will be charged on their mortgage loan,” said Courtney Walker, Vice President of Nova Home Loans.  “They don’t get to the closing table and are surprised by the numbers”, Walker continued.

   Within three days of applying for a loan, a full cost disclosure must be given to the applicant.  The cost disclosure must be given before any fees are collected, with the exception of any fee charged for pulling the consumer’s credit report, according to the amendment to Regulation Z, Truth in Lending.  Closing cannot take place for seven days unless specifically requested for an emergency.

   In the heyday, reputable lenders provided cost estimate sheets for their clients with the closing costs and loan costs spelled out, including the interest rate.  Good Realtors helped clients by providing clients with names of honest lenders and kept an eye on closing costs, making sure there were no pre payment penalties or other charges unless the client understood the terms of the loan. 

   This legislation comes as a result of the numbers of people who said they did not understand the terms of their loan and the loan costs, such as the option arm loans or the first 80% fixed rate loan with an adjustable rate for the second loan. 

    “The point of the MDIA is that whenever closing costs or interest rates change, the APR reflects these changes in the closing costs and interest rate.”  Walker gave the following example:  A person is offered a fixed rate and the APR is stated, and then offered a 2% rate with a $10,000 up front charge.  How does that person know which loan to choose?  “How are they going to compare an apple with an orange?  The APR will help do that”, Walker said.

   Under the new legislation, if the APR moves 1/8 of a point either up or down, the lender must redisclose to the client “to insure that the buyer is fully aware”.  The borrower must be given a reasonable amount of time to review the new numbers.   “The buyer must receive, review and acknowledge in writing the new disclosure”  and if the new numbers are not approved, then the buyer must change courses. 

    Escrow fees are included in the APR so it is important that the Title Company named in the buyer contract documents is not changed.  Title companies in the Phoenix area charge different rates than the title companies here in Tucson.  For people purchasing foreclosure or short sale properties, any costs the buyer pays, such as allowable seller closing costs, must be included in the APR. 

    If the market moves tremendously, and interest rates go down, redisclosure is mandated, even if to the borrower’s advantage.  Lenders cannot collect upfront fees from borrowers at the time of application.   These include appraisal fees and lock in fees. 

    Lock in fees are relatively new and are similar to earnest money, Walker said.  The purpose of up front lock in fees is because investors (of the loans which the borrower is applying) are beginning to penalize lenders for not delivering on loans for which borrowers apply.  This is often due to borrowers shopping rates.  “Time, money, and effort is put into getting a loan approved” Walker said, and the lock in fee shows good faith on the part of the borrower.  The fee is remitted at the close of escrow as a credit on the closing statement.

    The new requirements do not add time to the loan process, Walker said.  “Nova underwrites locally, draws the docs locally, and funds from its own money,” she added.  “Even with FHA and VA loans, we have basically a 30 day turn around time”.

    Some lenders are recommending a 45 day closing time, so that if a contract is written August 1, closing should be stated September 15.    A Realtor who works closely with the lender is your best advisor, knowing the turn around times of lenders is even more important, and it underscores the need to use local lenders.

Resources:

Nova Home Loans    http://www.lancedickson.com

Federal Reserve Board Press Release

 http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm

Federal Register:  http://edocket.access.gpo.gov/2009/pdf/E9-11567.pdf

The path taken by people trying to get out from under negative equity or mounting bills is littered once again with potential legal problems for Realtors, buyers, and sellers.  The passage of the Arizona Senate Bill 1271 emphasizes the need for people to seek legal counsel when contemplating a foreclosure or short sale.

The Arizona Association of Realtors  (AAR) requested that Governor Jan Brewer amend the call for a Special Session of the Legislature to review the issues resulting from the passage of Senate Bill 1271, otherwise known as the Anti Deficiency legislation.

This bill states that within 90 days of the sale of property under a trust deed, “an action may be maintained to recover a deficiency judgment against any person directly, indirectly, or contingently liable on the contract for which the trust deed was given as security…”

This does not apply to any property 2 ½ acres or less used as a one family or single two family dwelling by the trustor  for at least six months and for which has a certificate of occupancy was issued

The legislation continues that the deficiency judgment will be for an amount equal to the amount owned to the beneficiary as of the date of the sale, as determined by a court.  This can be for the difference in the fair market value, less the amount of liens owed, and includes any interest which may be incurred. 

The party seeking remediation must act within the 90 day period, and if no action is pursued, the proceeds of the sale are considered full payment of debt.

In the letter to Governor Brewer, Tom Farley, CEO and Cheif Lobbyist for the AAR,  points out this bill applies people with second homes, rental property, and family owned property.  Developers, Farley said, are not protected . The statute points to the “subtle difference” in the property “being utilized as a one or two family dwelling”  which is how the existing statute reads, rather than the amended version which specifies “the focus is on the trustor themselves utililizing the property instead of the property being utilized”.

Farley’s letter came as a result of researching case law and the consequences of this bill.  He substantiates the letter with case law from various jurisdictions.  Lenders receiving Troubled Asset Relief Funds (TARP) are authorized to seek deficiency judgments against property owners after foreclosure.  Deficiency judgments allow for the judgment creditor to garnish the wages of the judgment debtor, employ collection agencies, garnish non earnings such as bank deposits, take non-exempt property and sell it at a public auction to satisfy the debt, and place a judgment lien on real property owned or later acquired by the judgment debtor.

The legislation came as a result of lobbying from the Arizona Bankers Association.  Arizona is one of the highest foreclosure/short sale states and Arizona bankers would like to recover some portion of the millions of dollars lost.  The bill, as of this writing, is scheduled to go into effect September 30, 2009.  Unless rewritten in the special session, the courts may be filled with lenders seeking deficiency judgments against former homeowners, which will create another series of problems including a rush to file for Bankruptcy on the part of judgment debtor.

Resources:

Text of SB 1271:

http://www.azleg.gov/legtext/49leg/1r/bills/sb1271s.pdf

Arizona Association Realtors:

http://aarnews.com/

http://aarnews.com/?s=SB+1271&x=26&y=9 

Other Blogs about SB 1271:

http://en.wordpress.com/tag/sb-1271/

 ” What’s old is new and what’s new is old.”  That adage stands today.   As we all know, no more NINJA loans, no income, no jobs, no assets.  And sometimes the old fashioned way is the best. 

      Putting 3.5% down on an FHA loan after January 1 is prudent.  And conventional loans with 5% or more down, is also prudent.  Where else could you purchase something costing $350,000 with no money down?  It makes no sense.

     But in 1999 Congress repealed Glass Steagall through the passage of the Gramm-Leach-Bliley Act.  This permitted commercial banks and investment banks to compete. 

   Congress deserves to take it’s lumps.  The repeal of the Glass Steagall Act at the end of the Clinton administration combined with the loosening of terms and government encouragement to banks to make  unworthy loans through the Community Revnvestment Act, lead us to this debacle. 

    Money was loose and abundant.  And builders took advantage of this free for all, as did lenders, Realtors, investors in housing stocks, investors in property… anyone who thought they might make a buck. If you could fog a mirror, you could buy a house!

    But now, returning to saner times, people are lamenting the lack of easy money.  But in the 1990’s, people needed a down payment, and they needed closing costs to purchase a house.  In some areas of the country, there are 40 and 50 year mortgages…years ago, a 20 year mortgage was considered long. 

    If people have a vested interest in their home, chances are they will work hard to keep it and they will make their purchasing priorities accordingly.  But if I have no vested interest in my home, why should I deprive myself of something I want in order to make a mortgage payment? 

    That simplifies the problem, I know.  We have 80-20 loans out there with adjustable rates…there are rates resetting at much higher rates…and I know the forclosure rates are at their peaks.  There is plenty of blame everyplace…some of which should be laid at the doorstep of Congress. 

     Let’s hope this financial mess ushers in a period of stability where people begin to count their pennies again before making huge purchases.  And maybe some reflection for all those people who tried to make a fast buck…and some consideration of business ethics and the fact we are dealing with people’s lives and the lives of their families…and maybe…just maybe…some reflection about self responsiblity. 

    It’s a blame game alright, but ultimately, the person responsible is oneself.  

    Resources:

http://my.opera.com/richardinbellingham/blog/show.dml/1796860

http://thestrangedeathofliberalamerica.com/bill-clinton-glass-steagall-and-the-current-financial-and-mortgage-crisis-part-two-of-an-indepth-investigative-report.html

http://www.dealwatchblog.com/post/2008/09/17/Lawyers-say-repeal-of-Glass-Steagall-isnt-to-blame-for-Wall-Street-woes.aspx

http://en.wikipedia.org/wiki/Glass-Steagall_Act

http://mises.org/story/2963

http://www.federalreserve.gov/dcca/cra/

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

http://www.ffiec.gov/cra/

http://mises.org/story/2963

     I picked up the Arizona Daily Star this morning and read the headline “Tucson May Charge Fee on New Home Sales”,  had a gut reaction, hastily poured my cup of coffee, then sat down to read the article so as not to prejudge.

    A 1% (One Per Cent) transfer fee on all new home sales is being proposed by  two city Council  members, Regina Romero and Karin Uhlich.   The purpose is that the city’s housing trust fund,  be “used to pay for such things as home repairs and down payment assistance for low-income residents”, according to Rob O’Dell, who wrote the front page article.  

                      ” The new fee, recommended for approval by a council subcommittee on Sept. 15, would apply to any house or condomium unit where a builder has entered into a development agreement with the city.”

according to O’Dell’s article.

    (I would like to provide a link to this story so you, the reader, can have the opportunity to read it verbatim.  The Star, however, now requires a person to register in order to read the article.  If you want to read the article, register at:  http://www.azstarnet.com/metro/259724.php  and then pull up the article).

       This would not apply, as I read it, to development in Pima County.  

       My reaction was/is visceral.  I haven’t had such a physical reaction in months to anything.  This is being proposed by our elected officials in Tucson. 

     The Arizona Association of Realtors is working to get Proposition 100 passed by the citizens of Arizona which will prohibit, by Constitutional Amendment, a real estate transfer tax at the state level.  To do this, voters must vote YES on the Proposition.  A  copy of the proposition is at Jan Brewer’s website, Arizona Secretary of State.     

             http://www.azsos.gov/election/2008/General/ballotmeasures.htm

        Arizona, like many states, is in a budget crisis, as is the City of Tucson. Were Arizona to pass a 2% transfer tax on the sale of real property, and the City of Tucson were to pass the 1% tax, and the average price of a home in August was $238,504, the total transfer tax would amount to an additional $7155.  I think that is a lot of money!   There is nothing to prohibit the city from passing a transfer tax even if the state has a transfer tax.  

       (My cynical question is, do we mark up the price of the house by that amount so that the 3% fees can then apply to the more than $7,000 added,   and then house then becomes priced at $245,659 – and the tax is an additional $200.+.!   Does this make housing more affordable for the Average Joe?  Granted this is worse case scenario but I remember when Social Security was paid on the first $32,000 of a person’s income!)

     I understand this is not called a tax, it is called a “fee” – but it is not voluntary and therefore it is a tax!  

    Two other issues galled me when I read the proposal by Romero and Ulrich.  The huge bailout, okayed at midnight by Congressional leaders for which taxpayers are now on the hook, was partially necessitated by the lax standards and no money down mentality which had it’s origins in Lyndon Johnson’s New Society.   The guidelines of the Community Reinvestment Act, over the years, became looser and looser. Congress embraced the idea that the American Dream of homeownership should  apply to all Americans, regardless of ability to pay.   Both sides of the aisle are equally responsible.  Where else could you purchase something for $300,000 with zero down?

    The second source of irritation is the amount of money which was approved by Congress in the much touted Housing Bill which was supposed to help people in distress to prevent foreclosures.  That bill gave millions of dollars to towns and cities for the expressed purpose of low income housing, to buy up abandoned or foreclosed houses, or to build new low income housing for people within the low income, extremely low income, and very low income brackets.   I have read the nearly 700 pages of the Federal Housing Bill and have written extensively about it in this blog.  I suggest both Council people wade through that document and ask the federal government for what is Tucson’s just due.

     Affordable housing is an issue, to be sure.  Adding fees onto those people who are struggling to save ten percent to purchase a home in order to provide down payment assistance to low income residents just doesn’t resonate.  A family of four earning $60,000 and purchasing a property at the average price of a home in Tucson in August, with a 3% transfer fee -(assuming both city and state) would then fall into the low income category after than transfer fee is paid.   Other sources of revenue are proposed and listed below and I have provided resources below regarding low income housing and the income points.

Resources:

http://www.tucsoncitizen.com/daily/local/77415.php 

http://www.library.pima.gov/research/guides/helphomepurchase.cfm 

http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/ 

http://www.tucsonrealtors.org/public/fairandaffordablehousing.html 

http://www.tucsonaz.gov/csd/Housing_Programs/public%20housing%20programs10.html#TopOfPage 

http://www.tucsonaz.gov/csd/Housing_Programs/Rental/THTF%20M%20&%20C%20Subcommittee.html#TopOfPage

 From the Report of the Tucson Housing Fund Trust – January 2008

Revenue Recommendations:

The current sources of funding are not sufficient to support an ongoing meaningful effort to address housing issues in Tucson. The CAC has prepared some preliminary recommendations to the subcommittee for future funding sources to support the THTF. We are prepared to work with the Mayor and Council to obtain other community input toward successful adoption of these or other sources of revenue the Mayor and Council wish to consider more closely.

1. Increase the Bed Tax by $1.00 per night. Dedicate this new revenue, estimated at $2 million a year, to the Trust Fund. There is a compelling argument in using revenues from visitors to support housing for Tucsonans. The employees of the hospitality industry are among many families that would benefit from the availability of more affordable housing options.

2. Pursue a change to the Model Cities Tax Code that would allow the City to implement a Residential Rental Tax on units that rent for $1,000 or more to support the THTF.

3. Request a voluntary contribution to the Trust Fund from all housing disciplines (Builders, Realtors, Lenders, Title Companies, etc.) at the closing of every home sold within the City.

4. Support state legislation that would dedicate interest earned on rental Security Deposits and earned interest on Escrow Funds from home sales within city limits to the City of Tucson Housing Trust Fund.

Program Criteria and Evaluation Considerations:

— Housing must be within the City limits
— THTF is limited to households that earn under 100% of the area income (see chart)
— Housing can be in the form of ownership or rental
— Proximity of proposed housing to employment or mass transit
— Leverage ratio of THTF funding to that of the employer’s
— Recapture policy
— Homebuyer Education/Counseling component

   I was pleased to open my e mail this morning and find a post from a gentleman who refered me to an extensive treatise on the housing bill.   There is no way that I can provide a synopsis of what the article contained, so I will reproduce the post from the gentleman along with the link to the articles.

   The point was made that the author didn’t believe that Congress people read the bill, and when I waded through the nearly 600 pages, that was my sentiment exactly.  

    His original post said:   “Don’t know your opinion of Catherin Austin Fitts, but this is one hell of a read.  She’s one fine detective.”

    The link is as follows:

            http://solari.com/archive/housing_bill/

     Much of this bill was written long ago, as far back as 2002, and like much legislation, just waiting for the appropriate time to tuck this legislation into something which seemingly is worthwhile.

     Additional comments are more than welcome!

     The Housing and Economic Recovery Act of 2008 contains goals for residential low income, very low income and housing for families residing in low income areas. These goals will be set by the Director of the Federal Housing Finance Agency within a “reasonable time table”.

    The legislation describes the goals as a percentage of single family money market mortgages financed.  Targets are determined by national housing needs, economic, housing demographics and conditions, and the peformance and efforts of the lender.   Mortgage financing of one to four owner occupied units will count towards these goals as will multifamily housing financed by tax exempt or taxable bonds if they meet certain requirements.

    Multi-family affordable housing units includes mortgages for very low family income housing and housing which is eligible for assistance from Section 42 of the Internal Revenue Service tax code.  Additionally, smaller units and those units 5 to 50 units may be eligible for up to $5,000,000.

   Owners of very low income owner occupied units cannot have income more than 50% of the median income level of the area.  The same applies to rental units with adjustments for family size.  However income must be at least 30% of the median level for the area.  Extremly low income is considered not more than 30% of the median income level of the area.

   According to the legislation, there is a duty to serve underserved markets which include; very low, low, and moderate income families.  Fannie Mae and Freddie Mac are expected to purchase securitized mortages which may not carry the same rate of return as other mortgages. 

    In an effort to provide very low, low and moderate income housing, new products are to be developed for the secondary market for manufactured housing with flexible underwriting guidelines, as well as affordable site built housing.  These guidelines will also apply to Section 8 housing, below market interest rate mortgage programs, housing for the elderly, the disabled, the homeless and rural rental housing.

     Provision is made for monitoring, enforcement and compliance of these housing goals.  The Director determines whether each enterprise (Fannie Mae, Freddie Mac, Federal Home Loan Banks and/or affiliates) have met the goals.  If not met, the Director can issue a cease and desist order, issue civil monetary penalties, or require the enterprise to submit new housing goal plans.

   For each dollar of unpaid principal balance of new total business, Fannie Mae and Freddie Mac must set aside 4.2 basis points.  (A basis point is 1/100th of a one point.)  Translated, this means that on a $100,000 unpaid balance, 4.2% must be set aside or $4.20.  A total of 65% will go to the Secretary for HUD to fund the Housing Trust Fund and 35% will go to the Capital Maget Fund.

    The purpose of the Housing Trust Fund is to increase the supply of rental housing for low, extremly low, and very low income families including homeless persons, according to the legislation.  In 2010 and subsequent years, grants to state housing finance agencies, housing community developments, and tribally designated housing entities will be awarded on a needs based formula.  A minimum of $3,000,000 will be awarded to each state.

      Grants can be used for production, preservation and rehabilitation of housing with no less than 75% of the funds going to extremly low income families and 25% going to very low income famlieis.  Down payment assistance, closing costs, and interest rate buydowns are permitted for extremely low and low income buyers.

      The Capital Magnet Fund is designed to attract private capital for increased investement in affordable housing for extremely low, very low, and low income families.  Funding may be given for community service facilities such as day care centers, workforce development centers and healthcare clinics to stablilize or revitalize low income areas or underserved rurual areas.    Provisions are made for the Secretary of the Treasury to report to Congreess and the public.

Resources: 

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

Section 8 United States Housing Act of 1937        

Section 236 of National Housing Act

Section 221 (d)(4) National Housing Act                

Section 202 of Housing Act of 1959

Cranston-Gonzalez National Affordable Housing Act    

 McKinney-Vento Homelss Assistance Act

Rural Rental Housing Program SEction 515 Housing Act of 1949

http://seattletimes.nwsource.com/html/opinion/2008082463_broder31.html

Next:  Financial Education and Counseling, HUD Employees, and Critical Capital Levels

    Congress passed the “Housing and Economic Recovery Act of 2008” and President Bush signed the legislation July 30, 2008. The bill, which can be read in it’s entirety at

  http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

  establishes the Federal Housing Finance Agency.

       The newly created agency is an independent agency of the Federal Government with authority over the Federal National Mortgage Agency (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks and Office of Finance.  The Director will be selected by the President with the consent of the Senate and serve for a five year term.

     A Federal Housing Oversight Board is created consisting of the Secretary of the Treasury, the  Secretary of the Department of Housing and Urban Development, the Chairman of the Securities and Exchange Commission, as well as the Director.  The Board reports to Congress not less than once every three months.   An Ombudsman will be appointed by the Director to hear complaints and appeals.

     Oversight guidelines and standards will be created by the new Agency including regulation of capital requirements, portfolio monitoring, reporting fraudulent loans, compensation, and golden parachutes. 

    Section 1124 increases the Fannie Mae and Freddie Mac conforming loan limits to $417,000 for a single family home, $533,850 for a two family home, $645,300 for a three family home and $801,950 for a four family home.

    Each year, housing prices will be adjusted according to an index determined by the Director of the Federal Housing Finance Agency.  If the index shows a decrease in value, no adjustment will be made. 

   In areas of higher property values, the amount will be adjusted to the lesser of 150% of the limit or an amount equal to the median price of that type of housing within that area. 

   The annual housing price index will be determined by annual housing reports which contain; demographic information, types of loans, creditworthiness of borrowers, loan to value ratios including second liens, race, gender, income levels, underserved markets,  and the purchase price of the property.  Comparision of characteristics of all loans including sub prime and jumbo loans will be included.

    The Director will report by October 30 the the Committee on Banking, Housing and Urban Affairs in the Senate and the Committe on Financial Services in the House to apprise legislators as to how Fannie Mae, Freddie Mac, the federal home banks and the Office of Finance are achieving the goals set forth by the housing goals of this legislation.

    http://www.fanniemae.com

    http://www.freddiemac.com/

Next:  Housing Goals- Low Income, Very Low Income, Families residing in Low Income Areas