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Last Thursday, the Consumer Financial Protection Bureau (CFPB) released the “qualified mortgage” rule setting guidelines to ensure that home loans will be given only to qualified borrowers who can repay them, thus protecting consumers from predatory lending. Lenders who follow these rules in making a loan will be protected from liability.
While the QRM (qualified residential mortgage) overseen by the Federal Reserve has not yet been announced, the National Association of REALTORS® applauds the CFPB for creating a broadly defined Qualified Mortgage rule that establishes strong consumer protections while ensuring continued access to safe, affordable mortgage credit.
Under the new guidelines, which take effect on January 2014, lenders must obtain and verify an applicant’s financial information, including employment status, income, assets, debts, and credit history. Borrowers must have enough income or assets to repay the loans. Interest-only and undocumented income mortgages, including loans in excess of 30 years or in which the principal increases over time, will no longer be allowed.
Under the “ability to repay” rule set by the new guidelines, lenders will be required to look at a borrower’s ability to repay over the long term by looking at a borrower’s current income and assets, employment status, credit history, the mortgage monthly payment, other payments like property taxes and other debt obligations. A borrower’s total debt obligations, including the mortgage and other loan obligations is limited to 43 percent of the borrower’s monthly income.
There is no minimum down payment requirement for qualified mortgages. Earlier proposals of a down payment of as much as 20 percent in order to qualify for a mortgage raised concerns that such a requirement would disqualify potential borrowers from owning a home.
Banks are not required to follow either the QM or QRM rules; however, they probably will. By following the QM guidelines, lenders get a measure of protection from litigation. By following the QRM guidelines not yet announced, banks will be able to sell their loans to Fannie Mae and Freddie Mac.
NAR urges regulators to mirror the forthcoming Qualified Residential Mortgage rule after the QM rule to ensure affordable credit remains available to qualified borrowers.
In order to conform state law to the federal law that recently passed extending mortgage debt forgiveness, the California Association of REALTORS® (C.A.R.) is sponsoring Senate Bill 30, so California homeowners on the brink of foreclosure can get much-needed debt relief.
One of the major successes Congress reached in the “fiscal cliff” negotiations was the extension of the Mortgage Forgiveness Debt Relief Act for another year. The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction) or foreclosure.
While debt relief has been extended at the federal level, the state exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income for now. SB 30 (Calderon, D-Montebello) will extend the sunset date in California law to January 1, 2014. Upon its passage, the measure will be retroactive to January 1, 2013.
SILVAR will be offering the class CRS 200: Business and Marketing for the Residential Specialist on February 12 and 13, 8:30 a.m. to 5 p.m. at SILVAR. REALTORS® who take this two-day course can earn 16 education credits toward a Certified Residential Specialist® designation. This course also can count as an elective toward a Certified International Property Specialist (CIPS) designation.
SILVAR is offering an early bird registration price of $250, if you register before January 31. After January 31, cost is $300. SILVAR Class Pass and member discount applies. Members may call SILVAR at (408) 200-0100 for details.
The CRS 200 course will be taught by Mark Given, a certified instructor for The Council of Residential Specialists (CRS). Given is a Ninja Selling Master Instructor, and has been a GRI Instructor for many states. He is author of the CRS elective “Going Green” course. He has served as a keynote speaker for private companies and state conventions, taught at the National Association of REALTORS® Convention and Mid-year meetings and is a practicing REALTOR® in Roanoke Rapids, NC.
The Certified Residential Specialist® (CRS) is the professional designation offered by the Council of Residential Specialists. The highest designation awarded to sales associates in the residential sales field, the CRS designation recognizes professional accomplishments in both experience and education.
With the CRS designation, you will be able to:
• Differentiate yourself as part of an elite group (3 percent of all REALTORS® hold the CRS designation).
• Increase your earning potential.
• Take advantage of a strong referral network.
• Attend specialized conferences and meetings.
• Have access to current industry news and information.
Since 1977, the Council of Residential Specialists has been conferring the CRS designation on agents who meet its stringent requirements. In 2010, CRS Designees earned nearly three times more than those REALTORS® who serve as sales agents.
To find out more about earning a CRS designation, visit https://crs.com/
On January 1 both the U.S. Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed by President Barack Obama.
Below is a National Association of REALTORS® summary of real estate related provisions in the bill:
Real Estate Tax Extenders
• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014.
• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012.
• 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
• 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
Permanent Repeal of Pease Limitations for 99% of Taxpayers
Under the agreement, so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. These thresholds have been increased and are indexed for inflation and will rise over time. Under the formula, the amount of adjusted gross income above the threshold is multiplied by three percent. That amount is then used to reduce the total value of the filer’s itemized deductions. The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.
These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.
Capital Gains
Capital Gains rate stays at 15 percent for those in the top rate of $400,000 (individual) and $450,000 (joint) return. After that, any gains above those amounts will be taxed at 20 percent. The $250,000/$500,000 exclusion for sale of principle residence remains in place.
Estate Tax
The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax. After that the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.
REALTORS® want to ensure the nation’s 75 million homeowners continue to receive the mortgage interest deduction as it is today. It’s a very important benefit for all homeowners, especially the middle class homeowners. On Wednesday, the California Association of REALTORS® placed an open letter advertisement in California’s six largest daily newspapers, calling on President Obama and Congress to preserve the mortgage interest deduction in its entirety during their “fiscal cliff” discussions.
The letter was placed in a full-page ad in the Los Angeles Times, San Francisco Chronicle, San Jose Mercury News, Sacramento Bee, U-T San Diego, and the Orange County Register, and states any proposal that eliminates or attempts to alter in any way the mortgage interest deduction undermines a century-old commitment to the American Dream of homeownership.
The letter also asks the public to visit www.KeepTheMID.com to learn how they can contact their Member of Congress and ask them to protect the mortgage interest deduction. View the open letter.
The Silicon Valley Association of REALTORS® is asking the public to call their Member of Congress directly and urge them to preserve the mortgage interest deduction (MID).
Congress, as part of negotiations on avoiding the “fiscal cliff,” has made direct references to “closing loopholes” and “limiting deductions” as a way to raise revenues. Clearly, the MID is high on this list of revenue raisers. Losing the MID will disproportionately affect the middle class because a larger proportion of the middle class takes the deduction.
The MID benefits primarily middle- and lower-income families. According to the IRS, more than 70 percent of the mortgage interest payments claimed as deductions is on returns filed by people with incomes between $60,000 to $200,000. Only about 1.4 percent of the total is claimed by taxpayers earning $1 million or more.
In California, 89 percent of those who took the MID earned less than $200,000. Losing the deduction would cost the average California taxpayer over $3,900.
Congress may decide to reduce or limit the MID at any time, which is why it is vital that you call your Member of Congress TODAY and ask that they preserve the mortgage interest deduction. Limiting the MID impacts ALL homeowners, not just those who take the deduction, by decreasing the value of all housing. The MID facilitates homeownership by reducing the carrying costs of owning a home. This makes a real difference to hardworking families. Homeowners already pay 80 to 90 percent of U.S. federal income tax, and this share could rise to 95 percent if the MID is eliminated.
REALTORS® urge all homeowners, including family, friends, colleagues and clients to get involved by calling Congress and ask that the MID be preserved. The public may reach Congress by calling 202-224-3121 Monday-Friday, from 9 a.m. – 6 p.m., Eastern time. The Capitol switchboard operator will help callers identify their member of Congress and connect them.
The National Association of REALTORS® (NAR) is urging REALTORS® to contact their representatives in Congress and tell them to extend the Mortgage Forgiveness Tax Relief. The Silicon Valley Association of REALTORS® (SILVAR) is asking its members to answer NAR’s Call for Action because it is crucial to the continuation of a housing recovery that Congress extend this tax relief to distressed homeowners.
If Congress does not extend the Mortgage Forgiveness Debt Relief Act of 2007 by the end of this year, homeowners will have to pay income tax on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction. Homeowners should not be forced to pay a tax on money they have already lost with cash they never received.
Despite many positive signs of recovery, the U.S. real estate market is still fragile. Over a quarter of all transactions still involve distressed properties. Without an extension, families engaged in loan modifications, short sales, or foreclosures will face a big tax bill, according to NAR.
The Issue Brief about the Mortgage Cancellation Tax Relief NAR has produced will provide more information on why it is important for Congress to extend the tax relief as soon as possible.
California REALTORS® this week strongly objected to the bulk foreclosure sale program and called for a change of leadership at the Federal Housing Finance Agency (FHFA), the agency which initiated the pilot program and oversees mortgage giants Fannie Mae and Freddie Mac.
The California Association of REALTORS® (C.A.R.) released a statement on Monday objecting to the recent REO bulk sale transaction between Fannie Mae, the FHFA and Colony Capital. Colony Capital, a Santa Monica real estate investment company, has purchased 970 foreclosed homes in California, Arizona and Nevada at auction from Fannie Mae for $176 million.
C.A.R. president LeFrancis Arnold called the recent purchase of California properties “another gift to Wall Street at the expense of taxpayers.”
According to the C.A.R. statement, “The implementation of the ill-conceived program highlights the failure of FHFA to appropriately address this issue despite C.A.R. and others outlining alternatives. The botched execution of the REO bulk sales, and Home Affordable Foreclosure Alternatives (HAFA) and Home Affordable Refinance Program (HARP) under FHFA’s oversight and leadership has demonstrated a lack of understanding of the housing market. Given these and other missteps, C.A.R. believes it is time for a change in leadership at the FHFA.”
The bulk foreclosure sale is a pilot program of the FHFA intended to help clear the large numbers of foreclosed homes on the books of Fannie Mae and Freddie Mac. The National Association of REALTORS® has objected to the program. California and Florida REALTORS® have also deemed the program unnecessary since housing inventory in their markets is now at an all-time low, prices are rising, and demand for homes is up.
C.A.R. data indicates the median home price in the Inland Empire is up 15 percent from $172,000 in February 2012 to $198,270 in September, and unsold inventory is down from 5.3 months to 3.8 months during the same period. The median home price in Los Angeles has risen 37 percent from $272,920 in February 2012 to $373,020 in September, and inventory is down from 5.7 months to 3.7 months.
Although Silicon Valley properties are not included in the bulk sales program, Suzanne Yost, president of the Silicon Valley Association of REALTORS®, said the region is also experiencing a shortage of inventory. She noted the housing market has greatly improved statewide and buyers are having a difficult time getting into the market because there are not enough homes to meet demand.
“By going forward with bulk sales of foreclosed properties, investors will be buying homes and holding them until prices appreciate further. These are homes that are affordable now for first-time buyers but may not be when prices have gone up. It is sad that FHFA is choosing to support investors instead of people that want a home to own and live in,” said Yost.
Along with the 970 properties in California, Arizona and Nevada bought by Colony Capital, the first round of bulk single-family home sales included 699 Florida properties sold to Pacifica Companies LLC and 94 Chicago properties purchased by The Cogsville Group.
The latest California Association of REALTORS® Lender Satisfaction Survey report says lenders have made some progress in their short sale processes from a year ago. Sixty-four percent of California REALTORS® said they still experienced difficulty in closing short sales, down from 77 percent in August 2011 and 70 percent in 2010. The percentage of REALTORS® who reported short sales as “extremely difficult,” dropped from 56 percent in 2011 to 34 percent in 2012.
C.A.R.’s Lender Performance Index (LPI), which measures REALTORS®’ lender satisfaction levels, rose to 23 in 2012, up from 17 in 2011 and 16 in 2010. The increase in the LPI is positive, but the index is still below the median of 50.
According to the C.A.R. report, communication issues continue to be the biggest stumbling block to the process:
* Lenders’ slow response time to a short sale package, cited by 67 percent of REALTORS® in 2012, up slightly from 66 percent last year;
* Poor communication with lender representatives, cited by 55 percent of REALTORS®, unchanged from 2011;
* Repeated requests for documentation, cited by 50 percent of REALTORS®, down from 51 percent a year ago.
* Eight percent of REALTORS® reported the lender foreclosed on the home before the short sale transaction could be completed, down from 15 percent in 2011.
However, overall satisfaction in working with lenders in short sales improved, with 59 percent expressing dissatisfaction, down from 75 percent in 2011.
REALTORS® believe a more standardized process may be the best way to facilitate the sale of homes that qualify. “The Federal Housing Finance Agency’s decision to align Fannie Mae and Freddie Mac short sale guidelines will allow lenders and servicers to quickly and more easily qualify eligible borrowers for a short sale,” says Richard Miller, who is chief banking officer of Ratecomb and serves as affiliate chair of the Silicon Valley Association of REALTORS® (SILVAR). “We are seeing progress as all parties involved strive to maintain better communication and are proactive with solutions.”
SILVAR President Suzanne Yost adds, “Whether a struggling homeowner chooses the path of foreclosure or a short sale, the experience is both financially and emotionally difficult. We hope lenders will continue to make improvements so the process is both easier and quicker for homeowners.”
SILVAR REALTORS® received an upbeat message about the housing market from California Association of REALTORS® Vice President and Chief Economist Leslie Appleton-Young at Wednesday’s Los Gatos/Saratoga District tour meeting. Appleton-Young told REALTORS® the housing market is “the bright spot of the economy” and the fundamentals are sound.
“Yours is the strongest regional economy by far,” she told SILVAR REALTORS®.
Consumer confidence, though uneven, is getting better. Unemployment is heading down. The state, which lost 1.3 million jobs during the recession, has added 485,000 jobs since January 2010.
There is a shortage of inventory for various reasons. Homeowners with equity are still unwilling to sell at today’s prices. Others may want to sell but do not have enough equity in their homes for a down payment and closing costs for their next home. Then there are those who are stuck and cannot sell their home because they are underwater on their mortgage.
Appleton-Young said 29 percent of California borrowers are underwater and 4.4 percent are within 5 percent of being in negative equity. These performing loans may not be sustainable for the long-term. Despite this, Appleton-Young said it is an urban legend that lenders will flood the market with foreclosures after the election.
Mortgage rates are still at 50-year lows and the Federal Reserve has promised they will remain this way until 2015. Fifty percent of people living in the state can afford to buy a home, however many buyers can’t buy because investors are outbidding them; they are “living in the gray” due to a recent short sale, foreclosure or bankruptcy; or their credit scores are low and can’t meet lending requirements because banks continue to practice “defensive lending.”
Due to an improving economy and shortage of inventory, California home prices are snapping back slowly, said Appleton-Young. The California median home price increased 15.5 percent from August 2011 to $343,820. The statewide median home price is forecast to increase a moderate 5.7 percent to $335,000 in 2013. For this year, C.A.R. projects the California median home price will climb 10.9 percent to $317,000.
Strong demand is reflected in August 2012 home sales, which shot up 6.5 percent from August 2011. Appleton-Young said it has been a strong year without tax credits, government programs or stimulus. Of total sales of existing single-family homes in August, 62 percent of sales were traditional equity sales, 14.4 percent REOs and 23 percent short sales.
Appleton-Young projects home sales in 2012 will increase 5.1 percent from the 497,900 existing, single-family homes sold in 2011. The C.A.R. forecast sees sales in 2013 gaining 1.3 percent from this year’s sales.
“The market is working itself through,” said Appleton-Young.
Silicon Valley Association of REALTORS® says ... 