I am your constant companion. I am your greatest helper or heaviest burden. I will push you onward or drag you down to failure. I am completely at your command. Half the things you do might just as well be turned over to me and I will be able to do them quickly and correctly.
I am easily managed - you must merely be firm with me. Show me exactly how you want something done and after a few lessons I will do it automatically.
I am the servant of all great people and, alas, of all failures, as well. Those who are great, I have made great. Those who are failures, I have made failures.
I am not a machine, though I work with all the precision of a machine plus the intelligence of a person. You may run me for ruin - it makes no difference to me.
Take me, train me, be firm with me, and I will place the world at your feet. Be easy with me and I will destroy you! What am I? A habit.
Tuesday, April 19, 2011
The Qualified Residential Mortgage
By Greg Parrish
The Federal government is in the process of changing the guidelines of purchasing residential real estate. The FHFA (Federal Housing Finance Authority) and a group of real estate industry organizations have produced white papers that speak to QRM. The Qualified Residential Mortgage has emerged from the Dodd-Frank Act like ketchup does when stepping on the packet. It’s all about “risk retention”. It will affect a broad range of asset types, but has gained the most notoriety by requiring mortgage lenders to have some “skin in the game” after the mortgage loan has closed and funded. The proposal would establish a definition for QRMs, which will incorporate such criteria as borrower credit history, payment terms, down payment for purchase mortgages, loan-to-value ratios, and debt to income ratios. All this is designed to ensure mortgage loans are of the high credit quality. QRM will affect the real estate industry in a big way. There are three aspects that warrant additional scrutiny.
1. It will require that lenders retain 5% of the purchase price if the borrower places less than 20% down
2. To obtain the best market interest rates, debt to income ratios will be kept at a mandatory cap of 28/36
3. To obtain the best market interest rates when refinancing you must have at least 25% equity in your property. If you want a cash/out refinance you must have 30% equity position.
The big exception is mortgage loans with a Federal guarantee as FHA, VA, and Fannie Mae & Freddie Mac (until they emerge from conservatorship). In today’s market, government guaranteed loans comprise virtually the entire mortgage market. So, the silver lining is that, right now, the effect will be minimal. But, when it does take effect, most likely sometime in 2012, it will impact your ability and the way you purchase real estate.
By requiring mortgage lenders to retain 5% of the loan amount after the loan closes and funds, interest rates will necessarily increase to off-set the “loss” of capital available to earn interest. Higher interest rates will make it more expensive to get a mortgage.
Capping the borrower’s debt-to-income ratios at 28/36 to obtain the best interest rate will have the effect of closing many potential homebuyers out of the market. While most would be homebuyers would love to have a debt-to-income ratio as prescribed, the reality is that most are somewhat higher. Forcing a higher interest rate on homebuyers with a debt-to-income ratio of say 29/39 is preposterous! These caps will needlessly increase the monthly mortgage costs of millions of homebuyers and make it more difficult to qualify for their mortgage, even if they had they requisite 20% down payment.
Considering just these two aspects of the Dodd/Frank Act (we haven’t even discussed how this affects refinancing or what is expected of a person’s credit report) would due such damage to our industry and the economy as a whole that to say it would screw tight the lid on coffin of the real estate industry, in my opinion, would be a massive understatement.
The conundrum is that the groups of borrowers who will be hit the hardest are the first time homebuyers and those with moderate incomes. These are precisely the groups that the Feds wanted to help purchase a home in the first place! The pendulum has swung about as far in the opposite direction as it can.
Public comments are being accepted by the Federal Reserve until June 10th, 2011.
Have you found that the value of your home has decreased—but your property taxes have not?
When property values increased, the assessor’s office was quick to raise your taxes, right?
So why are they reluctant to decrease your taxes? Because they need the money, too!
That’s why it’s not going to be easy. But there are usually laws in place when it comes to how property is valued and what steps you need to take to dispute the assessed value of your home and get your property taxes reduced.
1. Timing is Everything – After you receive your assessment notice OR tax bill, you have a certain length of time to appeal and state your case. If your taxes are paid thru your mortgage escrow account (and you don’t get a copy), call and ask for one.
2. Learn the Rules – Is there a “percentage or dollar” limit (set by law) that your tax assessor has to follow before you can appeal? What is the length of time, after you receive your notice, to dispute your taxes? What documentation do they require from you?
3. Check for Accurate Property Descriptions – Is the square footage correct? How about the number of bedrooms, baths or lot size? This alone will get your property taxes decreased.
4. Gather Information – Call your Realtor® and find out what homes have been selling for within the last 3 or 4 months. Get at least 5 comparable sales, the sales prices and when they sold. However, forget about including short sales or foreclosures—they’ll just ignore them when it comes time for your appeal. Check and see what your neighbors are paying for taxes! Yes, it’s public information.
5. Set up the Appointment—Most assessors require you to present your case in person—and will usually set up a date and time to meet. But, be prepared to WAIT for your turn to appeal.
6. Present Your Case – Practice what you’re going to say ahead of time—clearly mark the documents you are going to present. Circle the sales prices of the other sold properties. You may even want to create a separate comparison, listing all the info on one piece of paper, with the supporting documents attached.
Even if you lose, you can “appeal your appeal”! You can file a complaint with
your state’s property tax court. However, it’s easier and cheaper to find a
“Property Tax Consultant” (Google it with the name of your city or county).
They usually work on a “contingency” basis—where they will ask for ½ of your
property tax savings (for one year) if they win.
Hang in there: There is a story about a guy who had a 9pm appointment with
the local tax review board, but did not get to plead his case until 2 am.
He won a substantial decrease—because the assessor was just plain tired!