With all the bad press out there regarding subprime lending, I have had many realtors wondering "what's going to happen with Countrywide?" I have been saying over the past year, that the market change and poor lending practices will weed out the bad players in real estate. In the long run, Countrywide will come out just fine. I read this article in CNN Money the other day that was really good.
http://money.cnn.com/2007/03/23/markets/spotlight_cfc/index.htm
Monday, March 26, 2007
Wednesday, February 28, 2007
A Funny About Taxes
I got this emailed to me today and thought it was timely and very funny!
Subject: TAXES
Let's put tax cuts in terms everyone can understand.
Suppose that every day, ten men go out for beer and the bill for all ten
comes to $100. If they paid their bill the way we pay our taxes, it
would go something
like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy
with the arrangement, until on day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce
the cost of your daily beer by $20."Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the
first four men were unaffected. They would still drink for free. But
what about the other six men - the paying customers? How could they
divide
the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted
that from everybody's share, then the fifth man and the sixth man would
each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each
man's bill by roughly the same amount, and he proceeded to work out the
amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued
to drink for free. But once outside the restaurant, the men began to
compare their savings.
"I only got a dollar out of the $20,"declared the sixth man. He pointed
to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar,
too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back
when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get
anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine
sat down and had beers without him. But when it came time to pay the
bill, they discovered something important. They didn't have enough money
between
all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our
tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction. Tax them too much, attack them for being
wealthy, and they just may not show up anymore. In fact, they might
start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
Universityof Georgia
Subject: TAXES
Let's put tax cuts in terms everyone can understand.
Suppose that every day, ten men go out for beer and the bill for all ten
comes to $100. If they paid their bill the way we pay our taxes, it
would go something
like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy
with the arrangement, until on day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce
the cost of your daily beer by $20."Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the
first four men were unaffected. They would still drink for free. But
what about the other six men - the paying customers? How could they
divide
the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted
that from everybody's share, then the fifth man and the sixth man would
each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each
man's bill by roughly the same amount, and he proceeded to work out the
amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued
to drink for free. But once outside the restaurant, the men began to
compare their savings.
"I only got a dollar out of the $20,"declared the sixth man. He pointed
to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar,
too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back
when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get
anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine
sat down and had beers without him. But when it came time to pay the
bill, they discovered something important. They didn't have enough money
between
all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our
tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction. Tax them too much, attack them for being
wealthy, and they just may not show up anymore. In fact, they might
start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
Universityof Georgia
Tuesday, February 27, 2007
Seller Concession vs. Seller Contribution-What can the seller really pay for?
Sales Concession (seller concession)- Cash or items of value, such as give-aways, passed to the purchaser by the seller to encourage the buyer to purchase the property.
They may include vacations, automobiles, golf carts, furniture, gift cards, memberships in sports clubs, etc.
Typically these items do not stay with the home.
Sales Concessions must be deducted from the lesser of the sales price or the appraised value before determining the loan amount.
Financing Contribution (seller contribution)- Closing costs associated with a home purchase paid by the borrower are considered contributions if they are paid by another party.
They may include interest rate buy downs, escrow set ups (pre-paids), survey, tax transfers, and title fees.
Common Allowed Contributions:
Interest rate buy downs
HOA dues (New Const. may be allowed more than a Resell)
Origination fees/discount points
Title fees
Appraisal fee
Tax transfers
Lender fees (underwriting, processing, etc)
Escrow set up fees( insurance, prepaid interest, etc.)
Basically, normal closing costs paid by the buyer
The maximum allowable contribution depends on:
Proposed occupancy-see below
LTV (Loan to Value)-1st mortgage vs. purchase Loan Program being used
In general for owner occupied and 2nd home purchases, the maximum contribution is between 3% and 9% of the purchase price.
6% is the most common allowed contribution.
Financing contributions are allowed up to 2% for investment purchases.
FHA programs allow for a 6% seller contribution
4 Types of funds needed at closing:
1. Down Payment
Based on what program the buyer chooses or what program they qualify for. Lenders typically require two months asset accounts to verify the borrower has enough liquid funds to bring to closing.
Allowed sources for deposits / funds to close:
Payroll
The sale of investments ( with paper trail)
Tax refunds
Proceeds from sale of home (HUDs)
Common types of sources that are not allowed:
Cash on hand
Gambling winnings
Cash advances
The sale of undocumented personal property
Gift Funds
For conventional loans: the borrower must generally still make the required minimum cash down payment of 5% from his or her own funds. If the down payment is 20% or more, the entire down payment may be a gift.
FHA loans: 3% or more gift funds are allowed
Generally, a borrower can use funds obtained as a gift (or grant) to satisfy part of the cash requirement for the down payment and closing only if the donor is a relative (the borrower's spouse, child or dependent or any other individual related to the borrower by blood, marriage, adoption, or legal guardianship), domestic partner, fiancé, a church, municipality, or nonprofit organization. A gift letter will need to be completed on the lender’s form.
2. Prepaids
These are typically the same regardless of the lender the buyer selects.
First year of insurance
Escrow account set up (2 to 3 months reserves for taxes, insurance, and PMI)
Upfront HOA Dues
Prepaid interest (depending on the date of closing)
3. Closing Costs
Closing costs vary greatly between lenders. They include common 3rd party fees like the appraisal, credit report, title fees, state tax, recording fees, etc.
Common Lender Fees may include underwriting, processing, doc prep, origination, discount points, admin fee. Competitive “lender fees” should be $200 to $500 in total.
4. Reserves
Reserves are not needed at closing, but need to be verified in acceptable asset accounts on top of down payment and closing costs requirements.
Accounts do not need to be liquid – 401k, Kapers, IRAs, etc. are allowed ( usually 70% of the value)
Depends on loan program the borrower is selecting.
Reserve requirements required by lender will typically range from 0 to 6 months.
Gift funds are generally not allowed for reserves
Please email me anytime you have questions at Jon_Platz@Countrywide.com
Private Mortgage Insurance
PMI (Private Mortgage Insurance) is insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default. A lender requires PMI if the borrowers first loan amount is over 80% LTV (loan to value.) For example if someone purchases a home for $100,000 and borrows over $80,000 on the first loan, he or she will pay PMI. With traditional PMI, the monthly mortgage insurance payment is added to the payment every month.
A Borrower may request the PMI to be cancelled when:
•1. The balance of the loan is first scheduled to reach 80% of the original value of the property.
•2. The date the principal balance of the loan actually reaches 80% of the original value of the property. This is shown with an appraisal from the lenders certified appraisal companies.
PMI will automatically terminate when:
•1. The principal balance of the loan is first scheduled to reach 78% of the original value of the property. On 30 year FHA loans, the borrower must pay the annual mortgage insurance premiums for at least 5 years even if they obtain 20% equity within the 5 years.
In order to cancel PMI, the borrower must not have made any payments 60 or more days late within the most recent 2 years and no payments 30 or more days late within the most recent 1 year. No tax liens are allowed on the property.
PMI Tax Deductible? Congress passed the Tax Relief and Healthcare Act in 2006 which recommends that PMI be tax deductible. It states that PMI will be treated as fully tax deductible for taxpayers that have adjusted gross incomes of less than $100,000 ($50,000 in the case of a married individual filing a separate return.) The taxable amount is reduced by 10% for every $1000 over $100,000 of adjusted gross income. So, if the adjusted gross income is $110,000 or more, PMI is not tax deductible.
This bill states that the tax deductibility is only applicable to mortgage insurance contracts written after January 1, 2007 and does not apply to PMI accrued or paid after December 31, 2007.
The IRS will interpret this bill and put together a tax code defining and stating the regulations of how the tax deductions may be applied. You may view IRS regulations at http://www.irs.gov/ As of today, there are no regulations pertaining to PMI tax deductions described in the website.
It is important to note that until the IRS interprets this bill and forms its regulations; no one will know exactly how the rules and guidelines will work. It is also very important to understand that even if 2007 PMI is tax deductible, it may not be deductible in 2008 or beyond. The borrower must choose his or her loan program based on their overall needs, not just on tax deductibility! And it is always advisable to instruct the borrower to consult his/her tax accountant.
A Borrower may request the PMI to be cancelled when:
•1. The balance of the loan is first scheduled to reach 80% of the original value of the property.
•2. The date the principal balance of the loan actually reaches 80% of the original value of the property. This is shown with an appraisal from the lenders certified appraisal companies.
PMI will automatically terminate when:
•1. The principal balance of the loan is first scheduled to reach 78% of the original value of the property. On 30 year FHA loans, the borrower must pay the annual mortgage insurance premiums for at least 5 years even if they obtain 20% equity within the 5 years.
In order to cancel PMI, the borrower must not have made any payments 60 or more days late within the most recent 2 years and no payments 30 or more days late within the most recent 1 year. No tax liens are allowed on the property.
PMI Tax Deductible? Congress passed the Tax Relief and Healthcare Act in 2006 which recommends that PMI be tax deductible. It states that PMI will be treated as fully tax deductible for taxpayers that have adjusted gross incomes of less than $100,000 ($50,000 in the case of a married individual filing a separate return.) The taxable amount is reduced by 10% for every $1000 over $100,000 of adjusted gross income. So, if the adjusted gross income is $110,000 or more, PMI is not tax deductible.
This bill states that the tax deductibility is only applicable to mortgage insurance contracts written after January 1, 2007 and does not apply to PMI accrued or paid after December 31, 2007.
The IRS will interpret this bill and put together a tax code defining and stating the regulations of how the tax deductions may be applied. You may view IRS regulations at http://www.irs.gov/ As of today, there are no regulations pertaining to PMI tax deductions described in the website.
It is important to note that until the IRS interprets this bill and forms its regulations; no one will know exactly how the rules and guidelines will work. It is also very important to understand that even if 2007 PMI is tax deductible, it may not be deductible in 2008 or beyond. The borrower must choose his or her loan program based on their overall needs, not just on tax deductibility! And it is always advisable to instruct the borrower to consult his/her tax accountant.
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