Legislation

Lock Your Mortgage Rate: New Loan Fees Expected Within Days

Starting soon, nearly all home buyers and refinancing households throughout Indiana and nationwide will pay higher mortgage loan fees. Congress has made it law.

13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.

FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.

The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.

That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.

To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA.

Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment. 

The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.

According to the law :

• Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
• The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans

The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.

Therefore, if you’ve been shopping for a home or for mortgage rates in Valparaiso Indiana, take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.

Lock today to avoid the big fees. Save yourself money.

Flood Insurance At Risk In Latest Tea Party Showdown

We are lucky, here in Northwest Indiana, that most of us have property where we are not required to buy flood insurance. As we have written before on this site, some areas that experienced flooding in the past are now less susceptible,  thanks to levee projects and other Federally funded flood controls.

FEMA, the Federal Emergency Management Agency, who determines areas might be in flood danger, has even changed it’s Flood Insurance Rate Maps in the NWI region, relaxing and removing some homes from the designation. Within the last 10 years local communities which have experienced floods include:

• Munster Indiana,
• Highland Indiana
• Hammond, Indiana
• Griffith, Indiana
• Lake Station, Indiana
• Unincorporated Calumet Township
• Gary Indiana
• Hobart Indiana

Ogden Dunes, Indiana and Beverly Shores, Indiana have experienced erosion from Lake Michigan storms and rising water levels. Chesterton, Indiana recently had a tornado. In short, the infrastructure improvements built to handle Spring and Summer floods have reduced our collective exposure to risk on the Little Cal, but we still run risk of natural disasters. With infrastructure improvements we have less risk, greater confidence and safety.  However, we can never be so confident we can just abandon such an important program.

But it is not so simple in Washington. The government backed National Flood Insurance Program (NFIP) has long been a sort of political football. The way appropriation bills are packaged together and voted upon, this FEMA program is the red-headed-stepchild of Congressional legislation. It  has a history of lukewarm on-again-off-again support and  funding in Congress. For years it has been a patchwork of stop gap funding measures instead of an ongoing and stable program. And after the monumental showdown over the debt ceiling, at the end of September, NFIP is one of those remaining loose ends with one foot on the banana peel.  A Sept. 30 BUSINESS WEEK article suggested that a compromise was near, but that compromise only gave the program another month; and time is up once more.

Property owners pay for flood insurance. This is not a government hand-out. And the rate maps, which are frequently updated, because waterways do change over time; selecting who is required and who excluded from the requirement is always a hot topic. Since the government only underwrites the program, NFIP is supposed to be self-financed without any long-term taxpayer infusion. Only when extraordinary disasters, like Hurricane Irene occur,  do government reserves become necessary.

You might ask “why are people allowed to have a home in a flood plane at all?” and that question is part of the controversy. With global climate change, these questions will always be somewhat hypothetical. There will be owners paying for insurance who will never collect on a loss. And others, such as we recently saw with Hurricane Irene who were badly flooded while never expecting they were in danger.  I found anecdotes from owners complaining of uncertainty from changing map boundaries, 300% increases in premiums; others asking”…why should I be forced to pay for this?  I have never been flooded.” And so, like any insurance it is risk management. Your mileage will vary. There is no guarantees how it will turn out for any single property at the end of the day.

REALTOR’s would like to see better stability in the program rather than the current series of short term extensions. Ron Phipps, the National Association of  Realtor’s President put it this way:

“As the leading advocate for homeownership and housing issues, NAR strongly supports the NFIP and believes that a 5-year extension of the program’s authority to issue flood insurance is essential to a properly functioning real estate market.”

Other NAR studies estimate that  about 1,300 property transactions PER DAY will be shelved during the time of any NFIP lapse. Any real estate deal involving a mortgage (most home purchases are bought using financing)  cannot be closed without being insured. Purely private flood insurance is not available. Since Federal backing underwrites this entire insurance sector ALL the carriers provide similar coverage and rates,   According to NAR, this is the 3rd time this program has been interrupted since 2008. And the REALTOR’s believe that the public should be just as concerned about how the 9% or so of the nation’s NFIP affected homeowners who are at risk  due to partisan politics and Congressional brinksmanship.

As the budget impasse keeps Congress on a slow boil, with  politicians grumbling about eliminating not just Federal programs but entire  agencies from the US organizational chart; we need to think about those millions of homeowners who may be left without insurance.  While Northwest Indiana is not as affected as some other regions of the US, we DO have homes in flood zones. And we HAVE had floods in the past. NAR, speaking out on behalf of these owners is not asking for a hand-out. These homeowners pay dearly for their coverage and only ask for their programs’ enabling legislation to have a little stability and continuity. And personally, as a REALTOR who works with recreational and residential properties, I have witnessed first-hand the frustration and powerlessness that buyers feel when they are left hanging. It is important to have ALL our property owners able to have a level playing field, with the ability to get the insurance coverage they need. And it is irresponsible for Congress to plug up vital programs in order to flaunt a political agenda.

Please share your comments below.  Relate your  disaster tales and tell us your experiences with FEMA and NFIP.  If you feel strongly, share your views with your Congressmen.

Indiana Governor Lobbies Realtors for Tax Cap Amendment

Indiana Governor Mitch Daniels came to Merrillville Indiana last week seeking support of Question 1 on the November ballot. The referendum would make the current Indiana state law regarding real estate property tax caps part of Indiana’s State Constitution and consequently almost impossible to repeal in the future.

In 2002 the State of Indiana was forced by court order to reform it’s real estate property tax structure to a “value based” system.  Under this new method the market value of a home now determines how much tax liability you pay into the county, townships and local municipal governments.

As with any change that major, it did not go smoothly and equitably at first for homeowners throughout Northwest Indiana. One complication occurred during the real estate price run-up in 2004 and 2005. As values of homes jumped up “on paper” long term homeowners found their real estate property taxes going into the stratosphere. Seniors and people on fixed incomes in Lake County Indiana and Porter County Indiana found even paid-off homes almost unaffordable due to these bloated valuations making their real estate property taxes triple and quadruple.

So the concept of capping real etate property taxes was born. In order to smooth out whipsaw swings and establish a maximum percentage the real estate property caps became Indiana State law.  Under the current law the formula’s maximum rates works like this:

• 1% Residential owner-occupied homes, primary residences
• 2% Residential property other than owner occupied (apartments, rentals, etc)
• 2% Agricultural land
• 3% Other real property (such as 2nd garages, pole barns, etc)
• 3% Personal property

Tax rates can still fluctuate up and down since the rate is a function of both the tax levy (how much governments need in revenue) and the assessed value of all the properties in those local jurisdictions. But capping the values is universally accepted as a method of holding local officials accountable to taxpayers because they can no longer live beyond their means.

Indiana Governor Daniels called the drive an “authenticate citizens movement” which lowered local taxes by 36 percent statewide.  While the proposal appears popular with Northwest Indiana voters, Daniels wants to make sure that the current law is codified into the Indiana State Constitution. He explained to the Greater Northwest Indiana Association of Realtors that homeowners “will always be vulnerable” until the caps are solidified, and went on to say “without caps there is no pressure to do what needs to be done.”

The governor also took the opportunity to compare this initiative to other items on his agenda. Claiming the State was virtually bankrupt when he assumed office, he stressed his successes in fiscal management and took credit for Indiana’s current solvency; the State’s  great business climate compared to neighboring states;  that Indiana’s property taxes are “8th lowest and going down“.  Acknowledging the necessity for “squeezing and innovation” Daniels joked to the Realtors present the real secret to his success was “we spent less money than we took in.”

Whether you are one to get involved with politics or not, this November will impact you if you currently own a home or plan on buying a home. Let your voice be heard this November and vote YES on Question 1.

New Rules for Mortgage Transfers – Are You Confused Yet

With all the media buzz about Fannie Mae and Freddie Mac reform on Capitol Hill today, you may have missed an important press release from the Federal Reserve that will affect all homeowners with a mortgage. The press release was the issuance of a final rule amending Regulation Z about the notification of mortgage loan sales or transfers.

What exactly is Regulation Z?

Regulation Z, also known as the Truth in Lending, seeks to promote the informed use of consumer credit by requiring disclosures about its costs and terms. It seems that the government solution to every issue is the big “D” word. That’s right, more disclosures.

Stop! Do you know who owns your mortgage loan right now?

Unlike the Servicing Disclosure Statement that discloses who will be collecting your payments, the new rules for mortgage transfers will help disclose the legal owners of your mortgage.

The Federal Reserve is determined to make sure that every homeowner who has a home loan (i.e. first mortgage, home equity loans and/or home equity lines of credit) on their primary residence to receive proper notification. Within 30 days of the sale or transference of your home loan, the new company who has acquired your home loan must disclose…

• New Owner’s Identity, Address and Telephone Number
• Date the Loan was Transferred
• Contact Information of the Agent Authorized to Act on Behalf of the Owner

Why would you want to know who owns your mortgage?

The Federal Reserve believes it would be in the your best interest to know the actual owners of your home loan who can handle certain issues, including payment disputes and loan modifications.

Sounds great in theory. Unfortunately, the owner of the mortgage may or may not be the servicer of the home loan. A Chinese company, for instance, may own your mortgage but your loan payments are paid to Chase.

Who do you call when you have issues or questions about your mortgage?

If you’re like the vast majority of homeowners you only deal with your loan servicer. At the end of the day, you as the homeowner simply want to know to whom do you send your payment.

Another discrepancy with the new disclosure for mortgage transfer is the fact that it DOES NOT apply to loans on second homes, vacation homes, investment properties nor business properties.

Regardless of who owns or services your home loan, the terms of the recorded note cannot change. If you would like the personal touch through the home buying process and mounds of new disclosures, contact us.

Negative Home Equity? Learn How to Refinance Now!

The Federal Housing Finance Agency has extended the government’s Home Affordable Refinance Program by 12 months.

HARP’s new end date is June 30, 2011.

Originally known as Making Home Affordable, HARP aims to help homeowners refinance their mortgage who may otherwise be ineligible because of falling home values.

There are 4 basic HARP criteria every borrower must meet:

1. The existing home loan must be guaranteed by Fannie Mae or Freddie Mac.
2. Your home must be a 1- to 4-unit property
3. You must have a perfect mortgage payment history going back 12 months. No 30-day lates allowed.
4. Your first mortgage balance must be 125% or less of your home’s market value

If you’re not sure whether Fannie Mae or Freddie Mac back your mortgage, you can look it up. Fannie’s website is http://www.fanniemae.com/loanlookup; Freddie’s is http://freddiemac.com/mymortgage.  If you don’t locate your loan on either website, your mortgage is backed by a third-party and is not HARP-eligible.

For homeowners that meet HARP’s criteria, there are some underwriting details of which to be aware.

First, if your original mortgage does not require mortgage insurance, your HARP mortgage will not require it, either — regardless of your new loan-to-value.

Second, all HARP refinances require income verification. It doesn’t matter if your original mortgage was a stated income or no income verification loan. You should expect to produce 1040s and W-2s for your HARP refinance and asset statements, too.

And, lastly, second (and third) mortgages may not be “rolled in” to a new first mortgage loan balance. Junior lien holders must agree to remain in a junior lien position, regardless of combined loan-to-value.

There is a thorough HARP FAQ section on the government’s website, but it’s for general questions only. For specific Home Affordable Refinance Program information, first make sure you’re program-eligible, then pick up the phone to call your loan officer. 

HARP is complex enough that you’ll want to talk with a human before taking a proper next step.

Contact James K Barath in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

New FHA Guidelines Will Be Tougher and More Expensive

Securing an FHA mortgage is about to get more expensive.

In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group’s portfolio risk while strengthening its overall financials.

For consumers in Northwest Indiana, the changes mean higher costs.

As listed in the official announcement, there are 3 major guideline updates for the FHA:

1. Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
2. Minimum downpayments for applicants with sub-580 FICOs are rising to 10 percent
3. Seller concessions are being limited to 3%, down from today’s allowable 6%

Furthermore, FHA has appealed Congress to raise an FHA borrowers’ monthly mortgage insurance premiums.

To read the FHA’s statement, it’s clear what the group is trying to balance.  On one side, the FHA wants to provide affordable financing to families that need it. That’s its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans.

To that end, FHA is stepping up its enforcement of “bad lenders” in hopes of stopping problems where they start.

Also in its new policies, the FHA is introducing a “termination clause”. If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages.

As a result, homebuyers in Chesterton, Crown Point, Highland, Munster, Portage, Saint John, Schererville and Valparaiso should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don’t want to do “bad loans”.  Lenders are incented to turn down at-risk applicants and, already, we’re seeing examples of this. Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum.

Some have other guideline overlays, too.

The FHA’s new guidelines don’t go into effect until spring.  So, between now and then, the old guidelines will apply.  Therefore, if you know you’re going to need an FHA home loan in the next few months in Northwest Indiana, consider moving up your time-frame.

If nothing else, you’ll save some money at closing.

Contact Benchmark Mortgage in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Congress Expands And Extends The Home Buyer Tax Credit

Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday. 

The White House says the President will sign it into law today.

The up-to-$8000 tax credit’s expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.

The program’s basic eligibility requirements remain the same:

• Buyers can’t purchase the home from a parent, spouse, or child
• Buyers can’t purchase the home from an entity in which they’re a majority owner
• Buyers can’t acquire the home by gift or inheritance
• All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however. 

For one, the definition of “first-time home buyer” has been expanded to include most homeowners with at least 5 years in their current home.  “Move-up” buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.

This means that you don’t have to be a true first-time home buyer to claim the “first-time home buyer tax credit”.

Other eligibility changes include:

• The subject property’s sales price may not exceed $800,000
• The subject property must be a primary residence
• Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer

And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction.  This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his “normal” tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.

The complete list of qualifying criteria is posted on the IRS website.  Be sure to review it with a tax professional to determine your eligibility.  Then mark your calendar for April 30, 2010.

It’s 5 months away.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Good or Bad – The New Good Faith Estimate

The First-Time Home Buyer Tax Credit: Use It By December 1, 2009 Or Lose It

The government’s First-Time Home Buyer Tax Credit expires December 1, 2009. 

If you expect to use the program in conjunction with a home purchase, therefore, you may want to consider yourself officially “on the clock”. 

Assuming a 60-day window between contract and closing, there are now 77 days left to find a home and go under contract for it.

The First-Time Home Buyer Tax Credit refunds up to $8,000 at Tax Time for qualified home buyers.  A few of the program’s qualification criteria include:

• Home buyer must not have owned a primary residence in the past 36 months
• The home may not be purchased from a family member
• The household adjusted gross income must be below $95,000 for single tax filers and $170,000 for joint tax filers

The tax credit itself is limited to $8,000 or 10% of the purchase price, whichever is less. 

Remember, though: The refund is a true tax credit — not a deduction.  This means that a taxpayer owing $8,000 to the IRS and claiming the $8,000 First-Time Home Buyer Tax Credit would owe the IRS nothing on April 15, 2010.

The complete list of qualifying criteria is posted on the IRS website.