John's Blog

Challenging Property Tax Valuations

John Gay (Bank of America Home Loans) — Fri, 13 Mar 2009 07:06:45 -0500

Hoping for lower property tax bills in 2009 as a result of declining property values? Chances are very slim that hope will become reality unless property owners take some affirmative action. Any taxpayer has the right to appeal a property tax assessment.

Taxpayers may appeal issues concerning valuation of the property, uniformity of assessment with other properties, and taxability of the property. However, by law, you are not eligible to appeal the fair market value, uniformity, or taxability of your property unless you receive an assessment notice from the tax assessor. Your tax bill is not an assessment notice. Generally, the tax assessor does not reassess the value of your property every year and thus will not send out assessment notices each year.

In order to make sure the tax assessor sends you an assessment notice, file a real property tax return. You are generally not required to file a real property tax return each year. In most counties in Georgia, property tax returns can be filed between January 1st and April 1st.

When you file a property tax return, you declare what value you think the property is worth. Fair market value is defined as being the amount a willing buyer and willing seller would agree on in an arms-length transaction. To file the return, you should file Form PT-50R with the tax commissioner or the tax assessor in the county where the property is located. This form may be found at the county tax assessor's office or at: http://www.etax.dor.ga.gov/ptd/adm/forms/pt50r/index.aspx. The tax assessor will send you an assessment notice if the assessor does not agree with your valuation of the property. You will have the burden of proof regarding the value of your property if you choose to appeal this assessment. A recent appraisal would likely be the best evidence you could provide to help prove the actual fair market value of your property.

A recent appraisal may also help you make the decision of whether or not it is worth the time, effort, and expense to challenge the property tax assessment. The amount you will save in property taxes by having the valuation of your property lowered depends on the millage rate in your county. Generally, for every $10,000 decrease in the fair market value of your property the resulting tax savings is likely to be around $100 - $200 (1-2% of the decrease in fair market value).

To appeal the tax assessor's valuation of the fair market value of your property you must file an appeal in writing to the tax assessor's office within 45 days of receiving an assessment notice. In a few counties, the deadline is 30 days. The board of assessors will then review the appeal and either make no change to the valuation or change the valuation and send you a second notice. If the board of assessors makes no change to its valuation of the property, the appeal will go to the board of equalization to be considered. You will receive a second notice if the board of assessors changes its valuation of the property. You will have 21 days from the second notice to appeal the new valuation. Any appeal of the board of assessors will be heard by the board of equalization, or at the option of the taxpayer, can be submitted to arbitration.

A taxpayer that still does not agree with the decision of the board of equalization or the arbitrator may appeal the decision to the superior court of the county where the property is located. An appeal to the superior court must be filed within 30 days from the date on which the decision of the county board of equalization is mailed or within 30 days from the date on which the arbitration decision is rendered. A taxpayer, in addition to interest, will be awarded litigation expenses and reasonable attorney's fees if the superior court's final determination of value on appeal is 80 percent or less of the valuation set by the county board of equalization for commercial property, or 85 percent or less of the valuation set by the county board of tax assessors as to other property.

There is always a possibility that the taxpayer could lose the appeal or that the tax is increased. In the event the final determination of value is greater than the valuation set by the county board of equalization, the taxpayer will be liable for the increase taxes for the year in question plus interest; however, the interest will be capped at $150.00.

For more information on filing property tax returns and appealing property taxes, please contact your friendly neighborhood real estate attorney.

Details on the $7500 Tax Credit

John Gay (Bank of America Home Loans) — Thu, 25 Sep 2008 08:02:12 -0500

We have had a lot of questions regarding the Housing and Economic Recovery Act of 2008 offering a $7500 tax credit for first time homebuyers. Please see the quick overview of bullet points and the q & a's below for a great way to reference the tax credit to your clients. First time home buyer pre-applications are up and this should help motivate them in the market place, as well.

· The credit is available for homes purchased on or after April 9, 2008 and before July 1, 2009

· The maximum credit amount is $7,500

· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit

· The tax credit works like an interest-free loan

· A "first-time home buyer" is a buyer who has not owned a principal residence during the three-year period

· You claim the tax credit on your federal income tax return

· Any home purchased by an eligible first-time home buyer will qualify

1. Who is eligible to claim the $7,500 tax credit?

First time home buyers purchasing any kind of home-new or resale-are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

2. What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

4. What types of homes will qualify for the tax credit?

Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

5. Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

6. What is "modified adjusted gross income"?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

8. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Here's another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

9. Does the credit amount differ based on tax filing status?

No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?

In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

11. I heard that the tax credit is refundable. What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

12. What is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer's tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

No. The tax credit cannot be combined with the MRB home buyer program.

14. I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit?

No. You can claim only one.

15. I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

16. Does the credit have to be paid back to the government? If so, what are the payback provisions?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

17. Why must the money be repaid?

Congress's intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

18. Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

19. If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

20. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

21. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Helping to understand why we are struggling today.

John Gay (Bank of America Home Loans) — Tue, 23 Sep 2008 07:30:39 -0500

Back in the early 1990's, Congress started pushing Fannie Mae, Freddie Mac, and other lenders of mortgages to give out more loans to people who normally wouldn't qualify for a loan. This allowed more people to go out and buy a home, increasing the demand for homes. Since the demand was so great it created a market for new homes and drove up prices of existing homes. This also caused a lot of people to go into the housing market to "Flip" a house or take out a loan based on the "increase" of their homes value.

The banker and Wall Street types then took those mortgages, broke them up and started trading them.

The problem started as the economy slowed down, people started to default on the loans they got but normally wouldn't qualify for. The owners of the mortgages suddenly had an asset it had to write down or write off completely and where stuck with a very non-liquid asset that they put up for sale. The banks also stopped lending to protect themselves. Since a lot of people could no longer qualify for a loan, there were a lot fewer buyers and a lot more houses for sale causing the housing prices to drop. All those people who bought into a house to flip it or took out another loan on their house, suddenly were stuck with a debt they couldn't pay, since the asset they had just bought dropped in value by 20% and they couldn't afford to make up the difference. The banks had to write these assets off.

As these mortgages went bad, the investment firms that had been banking on them, suddenly realized that a good portion of their assets where gone and they couldn't cover their liabilities and were going to go under.

So now the federal government is stepping in and saying "OK, we're going to buy up all of those bad assets you bought and allow you to become solvent again." The question now is how much does the government buy them for? Face value? Do the firms have to take at least a 25% loss?

While it might be a popular idea to just let these firms fail, it would have a tremendous impact on Main Street, USA. The average person would not qualify for a loan. Home ownership would plummet. With no buyers, the biggest asset's, most homeowner's have, their house, value would drop. It would also effect how likely a bank would be to give out other loans for things like start up businesses, cars, boats, etc. Then those industries would start to suffer from a slow down and would have to start laying people off, etc. The ripple effect would continue and our economy would really tank.

So while this is expensive now, it is cheaper than the alternative.

That is just how I see it.

Seller funded DPA's are gone. Here are some alternatives!

John Gay (Bank of America Home Loans) — Mon, 08 Sep 2008 07:29:25 -0500

Secondary financing through a family member:

Did 'ya know that an immediate family member can loan the Down Payment and other costs of closing to the buyer-borrower? The combined amount of financing (the 1st and the 2nd) cannot exceed 100% of the lesser of the Appraised Value or Sales Price, plus normal cc's, pp's, and discount points. No cash-back to the borrower of any amount is permitted on the HUD-1. An executed copy of the document outlining the terms of the secondary financing must be part of the lender file; however, it does not have to be recorded. It's also OK if it IS recorded (i.e., secured against the property); when it IS secured/recorded, only the family-member provider(s) may be the note holder. (FHA absolutely will not allow a non-family member as a note holder, neither at loan closing nor arranged to occur anytime during the mortgage's life cycle. And the definition of family member is more "narrow" than the usual definition -- here, it includes only a parent, child or grandparent of the mortgagor or the mortgagor's spouse.) If periodic payments are to be made on the secondary financing, then the monthly amount must be included in the borrower's DTI calc. The funds lent by the family member can be borrowed from an acceptable source; however, our buyer-borrower cannot be a co-obligor on any note used to secure the money (that is subsequently lent for the DP).

Sale of personal property:

We must see evidence that the item(s) has been sold, AND we must be provided with a satisfactory estimate of the items' worth. We will use the lesser of the estimate of value or the actual sales price as the allowed asset amount to close. Examples of personal property items include: Cars, recreation vehicles, collections (coin, stamp, baseball, etc). Please don't even try to use furniture, clothing, etc.

Cash saved at home (aka cash-on-hand; mattress money):

Borrower's who can demonstrate to us an ability to save money outside of a financial institution can use that money for their DP and costs to close. However, CAUTION -- if they DO have checking and/or savings accounts, we are less likely to allow money from under the mattress. We must determine the reasonableness that this money was judiciously saved based on the borrower's income, the period of time the funds were saved, overall spending habits, and use of financial institutions in general. We must also verify the actual money by seeing it either properly deposited into a financial account or given to the title company in anticipation of closing.

Certain borrowed funds:

Did 'ya know that there are SOME circumstances when the borrower can borrow funds for his/her DP (and cc's, pp's and discount points)? Like when the funds are fully secured by existing marketable assets .... such as stocks, bonds, autos, real estate (other than the subject property). And when secured signature loans, cash-value of life insurance policies, or loans from 401(K)s are used for the DP, we do not need to count their monthly repayment in the borrower's DTI calc. CAUTION, though -- when using such funds TO close, they cannot also be used in any comp factor count or reserves (when required). Proof of borrower funds of this nature must be provided by an independent third party ... NEVER can the seller, the RE agent/broker, or the lender provide this proof. (Note: The borrower cannot pay for his DP and costs to close with a credit card -- at most, he/she can pay for the credit report and appraisal with a credit card, but that's it.)

FHA Continuing to gain marketshare!

John Gay (Bank of America Home Loans) — Tue, 02 Sep 2008 10:17:02 -0500

With the basic elimination of sub prime and ALT A loans, FHA loans have regained popularity over the past several months and should continue to gain share in the coming months. FHA loans were once the "king" of loans during much of the 1980's into the early 1990's. FHA loans fell out of favor during the 1990's with therise of interest only, 80/20 and sub prime loans that allowed true 100% financing.

FHA loans made up close in excess of 40% of all loan volume during the 1980's and early 1990's but fell to less than 6% of all loans originated in the U.S. by the mid 2000's. Agents and loan officers chose the easy route with minimal documentation and simpler appraisal requirements.

Today, FHA loans now account for over 35% of all loans originated in U.S. as their guidelines have come more in line with conventional guidelines. However, they have also taken over much of the share that once was garnered by their conventional brethren. FHA still allows for 100% gift funds, credit scores below 620 and even below 600 in some cases with no real differences in interest rate. FHA allow for 6% seller contribution which can be used to buy down the borrower's start rate as well as pay some of not most of their closing cost. FHA also has some attractive ARM programs which have only 1% annual adjustment caps. My personal favorite today is the 5 year ARM that current starts below 6% and if you add a
2/1 buy down your borrower could have a starting rate of BELOW 4% with positive amortization.
Today, a borrower could have a start rate of 3.875% year 1, 4.875% year 2 and 5.875% for years 3-5!!! The worse your borrower could be at in conventional year 6 is 6.875%.!!! Why would you take a fixed ratetoday!!! The average for the next 6 years , worse case, is 5.542%!!! FHA loans have a streamline refinance clause that allows borrowers to refinance with little documentation to a lower payment as long as they have made their current payment on time.

Rumor has it that Atlanta's generous FHA loan amount might be lowered by January 1 to under $320,000. Now is the time for potential buyers in the mid $300K range to act and take advantage of all that FHA loans have to offer to them. Home prices are at their lowest levels in years, start rates at 3.875% or lower, marginal credit OK, 100% gifts OK, and mid $300K loan limits....can their be a more perfect time to buy!!

Sluggish Economy to say the least

John Gay (Bank of America Home Loans) — Tue, 19 Aug 2008 06:56:56 -0500

There are many questions out there now regarding our economy and the housing market. The first question that comes to mind is why are gas prices still hovering around $4 per gallon??? Oil prices (the per barrel price) has now fallen in excess of 20% over the past 30 days. At the very least, prices at the pump should have fallen by over 80 cents per gallon!!!

But, as you know, this has not happened. Funny the way this gas price thing works....they are very quick to jump the price but it takes much longer to bring it back down. The price of gasoline is very important if our economy is to recover any time soon. With very few exceptions, our Country is dependant on their automobiles and have very few alternatives when it comes to driving to work. The pain of paying close to $4 per gallon for gas erodes income that could be spent on other goods and services or even housing payments. The average person is now paying at least twice as much for gas than they did just 18 months ago and this is adding to our slumping economy. So, when will we see prices at the pump drop back below $3 per gallon???

The next question is why is housing sales continuing to fall??? We still have rates in the mid 6% (a number that ignited the housing market in the 90's). Housing prices have fallen across the Country by an average of 20% and more in many areas. Unemployment has risen lately but not at a rapid pace. So, rates are low, prices have fallen and employment is somewhat stable....why the fall in sales???

It would seem to me that housing should begin to pick up some steam given the facts above. The problem lies somewhat in oil prices but mostly on consumer confidence and the outlook for the economy over the next several years. Some economist are predicting an extended recession and some are even using the "D" word...possible Depression for our economy. Headlines like these do not instill confident in the potential home buyer which will continue to leave many on the sidelines waiting for a sign of recovery.

The answer is that our economy and housing will not recover until the American public regains their confidence in our economy. Most of the pieces are in place for this recovery to begin...except for the most important piece...the American public......

33% of Homes Today are Upside Down!

John Gay (Bank of America Home Loans) — Wed, 13 Aug 2008 08:08:21 -0500

According to a report from Bloomberg and Zillow.com, an internet provider of home valuations, 1/3rd of all homes purchased in the last 5 years are now "upside" down interms of their mortgage amount against their current value.

Home prices continue to fall across the Country as the housing crisis is showing little signs of recovery. Many are now projecting that the housing slow down will not see a meaningful correction until sometime late in 2009 and possibly as far our as 2010 as more and more inventory is being placed on the market due to rising foreclosures from both home homeowners and builders. Interest rates have not helped this situation as mortgage rates have remained relatively steady for the past year despite massive interest rate cuts by the Federal Reserve.

The other contributing factor to the mortgage meltdown has been radical changes in mortgage guidelines nationwide. The days of 100% financing are virtually gone and will be almost totally eliminated by the new HUD guidelines set to go in place on October 1st. 95% loan to values are becoming increasingly difficult to find as FNMA and FHLMC continue to tighten their guidelines due to increasing defaults. The combination of stagnant rates, lower loan to values and ever tightening credit guidelines are squeezing out a large portion of potential homebuyers... specifically first time homebuyers. The ironic part of all of this is that this is probably the best home buying opportunity we have seen in over 25 years assuming you don't
have a home to sell and can meet all of the new guidelines. Housing prices have plummeted making housing more affordable now than in recent history. In some areas, housing prices have fallen more
than 30% and rates have remained stable.

Is there any good news??? The answer is yes!!! but it will take some time. This is not the first time we have seen guidelines tighten sharply and then retrace themselves...we saw this in the mid 90's which lead to the housing boom that started in 1996 and lasted for almost 10 years. Hopefully our industry will think with their heads this time and not with their wallets...

Good Riddance to 2007

John Gay (Bank of America Home Loans) — Fri, 28 Dec 2007 08:12:24 -0600

There are not many in the mortgage or real estate industry that would say 2007 was a good year. Many, myself included, could not see this year end any sooner. 2007 brought a complete collapse of the mortgage industry with over 200 major lenders nationwide "tapping out" for good.

Guidelines have reverted back to the early 90's and 100% financing is almost a fading memory even with full documentation! 2007 was a culmination of an industry, the mortgage market, that simply lost all rationality and is now paying the price for their mistakes.

This storm will continue through at least the first quarter of 2008 and will more than likely continue for the most of 2008 as more and more homes are dumped on the market due to increasing foreclosures creating the perfect buying opportunity for buyers.

There will be a turnaround it always does. When the turnaround occurs is anybody's guess. The silver lining to this storm is that interest rates should decline in 2008 and prices will also fall setting us up for a perfect buyers market.

Hopefully the mortgage industry will learn from this disaster and will not repeat the same mistakes which have gotten us to this point.

I hope you all have a prosperous and a happy New Year!

Mortgage Industry Collapse Beginning To Have Effect On Economy

John Gay (Bank of America Home Loans) — Tue, 27 Nov 2007 10:12:37 -0600

While many mortgage bankers wish that the collapse in this sector was over, it appears that we will have some more pain to endure. Many are now projecting that the mortgage and real estate sector won't show signs of recovery until possibly this time next year and some are calling for a recovery as late as 2009.

The housing recession is now listed as the worst in over 16 years. Foreclosures are at a record pace which is adding even more inventory to an already over supplied market which is driving housing prices down across the nation. Once thriving subdivisions are now "shells" of what they once were due to the rise in foreclosures. In the Atlanta area, almost 50% of one subdivision was foreclosed last week.

Falling home prices are now placing pressures on local and state governments as property taxes are falling with the fall in housing prices. Many local governments derive most of their revenue from property taxes to support their initiatives. Some cities across the nation maybe looking at a reduction of up to 20% in their tax revenue!

Is there any good news? There is no question we are in a "buyers market". Rates are now below 6% and prices have dropped in many areas making many homes even more affordable. The drop in prices will find a bottom and I believe we are approaching that level now.

Mini Refi Boom?

John Gay (Bank of America Home Loans) — Fri, 14 Sep 2007 08:25:08 -0500

Many believe that the FED will cut rates by as much as .50% next week. If these cuts materialize over the coming months look for refinance volume to begin to pick up as 30 yr fixed rates will once again slip below 6% which should spark a nice refinance rally before the end of the year.

Unfortunately the same cannot be said about the home sales market as many potential buyers are being shut out of the game due to tighter credit guidelines and those who can buy are sitting on the fence to see how low home prices will fall.

While refinances should begin to pick up assuming the FED does act the housing sector will take a bit longer to recover and will most likely need to see 30 year fixed rates below 5.50% before any meaningful recovery begins to develop.

Have we seen the end of non profit down payment assistance?

John Gay (Bank of America Home Loans) — Wed, 25 Jul 2007 09:51:05 -0500

Based on the below referenced article it appears that the NAR doesn't support non profit organizations such as Nehemiah & Home Ownership Providers from providing down payment assistance to potential home buyers.

http://www.realtor.org/fedistrk.nsf/currwklyrpt/government+affairs+weekly#report_4_07_23_2007

NAR Submits Comments on HUD Proposed Standards for Mortgagor's Downpayment Assistance

On July 17, 2007, NAR submitted comments to HUD on Standards for Mortgagor's Investment in Mortgaged Property, 72 Federal Register 91, 27048-27051. NAR supports downpayment assistance programs to help borrowers purchase a home. Downpayment programs take many different forms. For example, NAR has been a strong supporter of the American Dream Downpayment Initiative (ADDI). Another way buyers receive downpayment assistance is through the help of non-profit organizations. Certain non-profits have raised concern because they were taking contributions from property sellers, subtracting a fee, and then granting the remaining money to buyers of the same property. In essence these non-profits created a "seller-funded" downpayment program, which NAR believes can result in home price inflation and risks for increased delinquency and foreclosure. In an effort to preserve qualified downpayment programs, NAR strongly urges HUD to construe the limits on non-profit downpayment assistance as narrowly as possible.

Identity Theft

John Gay (Bank of America Home Loans) — Thu, 12 Jul 2007 09:14:24 -0500

How do you find out if your identity was stolen?

Unfortunately, many consumers learn their identity has been stolen after some damage has been done.

You man find out when bill collection agencies contact you for overdue debts you never incurred.
You may find out when you apply for a mortgage or car loan and learn that problems with your credit history are holding up the loan.
You may find out when you get something in the mail about an apartment you never rented, a house you never bought, or a job you never held.

What personal information should I monitor regularly?

Early detection of a potential identity theft can make a big difference. Keep an eye out for any suspicious activity by routinely monitoring:

Your financial statements. Monitor your financial accounts and billing statements regularly, looking closely for changes you did not make.

Your credit reports. Credit reports contain information about you, including what accounts you have and how you pay your bills. The law requires each of the major nationwide consumer reporting agencies to provide you with a free copy of your credit report, at your request, every 12 months. If an identity thief is opening accounts in your name, these accounts are likely to show up on your credit report. To find out, order a copy of your credit reports.

Once you get your reports, review them carefully. Look for inquiries from companies you haven't contacted, accounts you didn't open, and debts on your accounts that you can't explain. Check that information, like your Social Security number, address(es), name or initials, and employers are correct. If you find fraudulent or inaccurate information, get it removed. Continue to check your credit reports periodically, especially for the first year after you discover the identity theft, to make sure no new fraudulent activity has occurred.

How do I get my FREE annual credit report?

An amendment to the federal Fair Credit Reporting Act (FCRA) requires each of the three major repositories to provide you with a free copy of your credit report, at your request, once every 12 months.

To order your free annual credit report visit www.annualcreditreport.com, call toll free 877.322.8228, or complete the Annual Credit Report Request Form and mail to: Annual Credit Report Request Service, PO Box 105281, Atlanta, GA 30348-5281. You can print the form from www.ftc.gov/credit. Do not contact the three nationwide consumer reporting agencies individually; they provide free annual credit reports only through www.annualcreditreport.com, 877.322.8228, and Annual Credit Report Request Service.

Under federal law, you're entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance or employment, and you request your report within 60 days of receiving notice of action. The notice will give you the name, address and phone number of the consumer reporting company that supplied the information about you. You're also entitled to one free report a year if you're unemployed and plan to look for a job within 60 days; you're on welfare; or your report is inaccurate because of fraud.

To buy a copy of your report, contact:

Equifax - 800.685.1111 or www.equifax.com

Experian - 888.397.3742 or www.experian.com

TransUnion - 800.916.8800 or www.transunion.com

Rates move to their highest level in the past 4 months!

John Gay (Bank of America Home Loans) — Mon, 21 May 2007 13:24:36 -0500

The 10 year treasury broke through the 4.80% level today! The push to higher rate levels is being fueled not so much of a pending FED hike but more of a lack of confidence in a potential FED cut later in the year. Stable employment continued doubts of inflation are the main reasons.

We have to believe the rise in rates will be temporary with the rise in oil costs. This rise in oil prices should quickly affect the spending habits of the average consumer as more and more of their disposable income goes into their gas tank and not retailers. The "trickle down" effect may take as much as two to three months before we see any tangible signs in consumer spending slowing.

We should see little relief in rates this week with little economic news and the market preparing for Memorial Day Weekend.

Rates move higher on higher than expected employment data

John Gay (Bank of America Home Loans) — Mon, 09 Apr 2007 07:28:27 -0500

Friday's employment data sent shock waves throughout the credit markets with rates across the curve moving sharply higher in abbreviated trading due to the Easter Holiday.

Non Farm payrolls rose by an unexpected 180,000 and the unemployment rate actually fell to 4.4% when most market participants were expecting that the unemployment rates was to rise to 4.6%. Rates soared to their highest point since early January.

The move in rates on Friday once again has placed the yield curve nearly flat to possibly inverted.

Floating rates is NOT advised at this time as the market is more than likely in for a bumpy ride this week.

New Home Sales Tumble

John Gay (Bank of America Home Loans) — Tue, 27 Mar 2007 14:53:36 -0500

New home sales fell 3.9% last month despite predictions of a 6% increase! These are the lowest levels in almost 7 years. Unsold new home inventory has now risen to over 8 months and there are now expectations that this number will grow over the next several months due to the recent sub prime problems.

The median home price fell by .3%. Don't look for a rebound in 2007. We might not see a recovery until possibly sometime in 2008.

So, what does this mean for homebuyers? Most likely a great opportunity to purchase a new home. The combination of lower housing prices couple with lower interest rates will most certainly make many more homes affordable to people who once could not afford them.

Yes, credit guidelines have and will continue to tighten over the next several months due to the fall out from the sub prime market, but the true "core" buyers should see little effect by these changes and once they realize this and see the opportunities that this market have truly presented them...they will return!

If you carefully look at the facts this might be the best opportunity for a home purchase that we have seen in the past 5 years!

How is your credit score determined?

John Gay (Bank of America Home Loans) — Mon, 12 Mar 2007 07:14:49 -0500

This past weekend I did my semi annual checkup of our credit. I went to one of my favorite FREE websites and pulled a FREE copy of our credit report from http://www.annualcreditreport.com/. Keep in mind, you DON'T get your credit score for free. There is a charge of $7.50 I believe for each repository.

There were no errors and thank goodness there was no irregular activity!

Anyway, I was scrolling through the different repositories (Equifax, TransUnion & Experian) and something caught my eye. It was nothing eye opening as much as a refresher of what is considered Low Risk credit score and a High Risk credit score.

Here was a breakdown as given by TransUnion.

Low Risk
Medium - Low Risk
Medium Risk
Medium - High Risk
High Risk

726-830
700-725
626-699
551-625
330-550

Bernanke Kills Rate Rally

John Gay (Bank of America Home Loans) — Thu, 01 Mar 2007 07:33:48 -0600

After a nice rally which pushed the 10 year treasury yields close to the 4.50% range, Federal Reserve Chairman Bernanke basically threw ice water on the rally yesterday. Bernanke gave testimony to the House Budget Committee, "there is a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year". "My view is that taking all new data into account, that there is really no material change in our expectations for the US Economy going forward."

Bernanke's comments came despite several key economic indicators showing just the opposite. New home sales plunged in January falling 16.6%, the largest drop since 1994!

Hold onto your hats, could be another wild ride today. The Personal Consumption Index is being released this morning at 830am.

Lowest rates of the year!

John Gay (Bank of America Home Loans) — Tue, 27 Feb 2007 06:44:56 -0600

We finished yesterday at the lowest levels we have seen this year with the 10 yr treasury flirting with breaking below the 4.60% level for the first time sicne the Christmas time frame. The question is whether the "bull" is ready to take a break or is he still on the move...Today, could give us some answers.

Paydown your Mortgage or Invest?

John Gay (Bank of America Home Loans) — Fri, 23 Feb 2007 06:59:26 -0600

For years I had applied extra money to the principal balance of our mortgage because I held on to the notion that I wanted to be debt free as fast as possible. Keep in mind I had moved so many times over the previous 15 years (7) that I never stood a chance of ever paying off those mortgages. I have lived at my current residence for the past 6 years! Being a military brat I had been accustomed to moving that I never knew the joy of living in one place longer than 2 years.

About 5 years ago a friend of mine, whom is not a financial planner, advised me that I was making a foolish mistake by applying additional money to the principal each month and not investing the money. He spent 15 minutes of his time explaining why and ever since then I have never looked back.

Let's take me as an example. I had been applying an extra $250 each month to our mortgage in hopes that I would have our mortgage paid off by the time I retired. I'm currently 42 and I figure like the rest of us I would have to work until I was 65. So I have 23 years left to prepare myself for retirement. Keep in mind I have been contributing to my employer's 401k religiously and have a pension coming from a previous job. So I figured that I was well ahead of the game.

My friend said "John, why don't you take that extra $250 per month and invest in an Roth IRA?" So we did the math. Now, for arguments sake, let's just say that I invested $3000 for the next 23 years in that Roth IRA, how much money would I have? Again assuming a minimal return of 9% each year in addition to the annual contribution of $3000 I could have $227,369 tax free!

So I said but what about my mortgage balance? Again, we sat down in front of my computer and pulled up an amortization schedule online. How much would I still owe on my mortgage if I didn't apply any money to the principal? Again, to my surprise I would owe less than $65,000 on our mortgage by the time we retired.

It was a no brainer for me. I could take the tax free money from the Roth IRA and payoff the mortgage balance at retirement, $162,000, and still have plenty left over for the Safari to Africa and the BMW of my dreams!

What about you?

One of my favorite websites is www.dinkytown.net. It's full of calculators, mortgage, retirement, personal finance, investment, taxes, credit card debt, etc.... Go for a ride and see if it's in your best interest to payoff that mortgage or invest the money?

Sub Prime Lenders Take A Beating.....

John Gay (Bank of America Home Loans) — Thu, 22 Feb 2007 06:33:34 -0600

Sub prime and Alt A lenders may have seen its "hey day" as loans made to borrowers with low credit scores, stated income loans, and investor property loans are coming back to haunt them.

Novastar, a leading sub prime lender, announced yesterday that they may not make a taxable profit from 2007 to 2011 due to losses experienced in the sub prime and Alt A lending area.

Wells Fargo, the nations leading sub prime lender, stated that they will be cutting 300 jobs in their sub prime area and that volume would likely drop in after tightening their credit policies in this area.

Foreclosures in the sub prime and Alt A area of the mortgage business are prompting most if not all lenders in this space to tighten their credit policies.

The effect on "A" paper may be the elimination of the 80/20 or "piggyback" loan. Look for the resurgence of PMI. This may not be such a bad thing as PMI is now tax deductible with household income of $110,000 or less.

The next several months could be very interesting in the mortgage business. Let's see how the mortgage industry adapts to the mounting losses due to higher than normal foreclosures.

Rates tick higher!

John Gay (Bank of America Home Loans) — Wed, 21 Feb 2007 08:21:41 -0600

Unfortunately the CPI came in higher than expected yesterday and with Oil Prices rising as well this is not a good combination for the outlook of lower rates in the future!

Fed Governor Bies released a statement yesterday that the housing slump will take close to two years to filter through and recovery in the housing market could take longer than expected. :(

Agents having difficulty moving your listings?

John Gay (Bank of America Home Loans) — Tue, 20 Feb 2007 07:12:05 -0600

Here's a crash course in Marketing.

Marketing is about buying brain cells. Your marketing strategies must be unique so they stand out and are remembered.
Effective marketing strategies identify the need (or pain) of the customer, and are geared toward meeting that need or resolving that pain.
People are intrigued by and attracted to "exclusive" information. Marketing strategies that focus on an exclusive angle are infinitely more successful than those that don't.
Everyone wants a good deal, no matter how much money they have.
Scarcity is a key to marketing success. This is why limited time offer have always been used successfully in marketing. We don't want to miss out on a great deal.
Know your prospect! This may sound obvious, but it is often the most overlooked of the six rules. Too many marketing campaigns are simply "shotgun" approaches as opposed to being laser focused on the most likely prospects.

Homebuilder confidence rises

John Gay (Bank of America Home Loans) — Fri, 16 Feb 2007 06:51:06 -0600

Homebuilder confidence soared last month with the index rising to its highest point since June of last year. The National Homebuilder index rose to 40 last month after falling to a reading of 30 in September of last year. Even though the index continues to show signs of recovery in the housing market, an index reading below 50 is still an indication of "poor" conditions in the housing sector.

The interest rate market is now positioning itself for the possibility of no changes by the FED for the entire year. Given the current level of interest rates...I could live with that!!! The market will close early today and will remain closed until next Tuesday.

HomeBanc recognized as Organization of the Year

John Gay (Bank of America Home Loans) — Tue, 13 Feb 2007 07:08:07 -0600

The Atlanta-based Turknett Leadership Group honored HomeBanc last week as Organization/Company of the Year at the Fourth Annual Turknett Leadership Character Awards event here in Atlanta.

Turknett specializes in the assessment and development of executive leadership and organization effectiveness and for the past four years, their awards have recognized some of Atlanta's top companies and most influential individuals for exceptional leadership, character and service to others. Founded in 1980, the firm is a leader in using sophisticated proprietary assessment tools and long-term, personalized coaching to develop successful leaders and organizations. The company's goal is to turn managers into great leadership and their annual awards event is designed to highlight the best-of-the-best in Atlanta.

The Turknett Group works in conjunction with the Siegel Institute for Character, Leadership & Ethics at Kennesaw State University.

2007 GAR contract changes!

John Gay (Bank of America Home Loans) — Mon, 12 Feb 2007 06:28:36 -0600

The Changes

The Purchase Price and Method of Payment:

The purchase price of the property and the method of payment are now separate paragraphs. The purchase price paragraph only states the agreed upon purchase price of the property. The method of Payment will be reviewed herein.

2. Date of Closing and Transfer of Possession (Right to Unilaterally Extend the Closing Date):

The 2006 contract provided a right for either party to extend the closing for up to seven days if the loan the buyer was seeking to obtain was unable to close by the agreed upon closing date or the seller failed to satisfy valid title objections. The 2007 GAR contract has modified this paragraph to state:

"In the event Seller fails to satisfy valid title objections or the closing attorney or Buyer's mortgage lender (including in "all cash" transactions) fail to complete their repective obligations, then the Buyer or Seller, may by unilateral notice to the other party (which notice must be received on or before the closing date) extend the closing date for 7 days or such shorter period as may be agreed to by the parties in writing".

By adding the additional language to include the closing attorney's or mortgage lender's obligations, the Buyer's right to unilaterally extend the contract has been narrowed to avoid those situations where the extension of the closing date is a result of the buyer's failure to perform their duties to obtain the loan.

Once the unilateral extension is exercised by either party, the right then expires. This language provides the right to either party to extend the contract for 7 days or another shorter period as the parties agree to in writing. It is important to note that this extension right must be exercised in writing prior to or on the date of the agreed upon closing date. It is not automatic extension and must be exercised.

3. Seller's Contributions at Closing:

The amount agreed to by the buyer and seller for the seller to contribute towards the costs to the buyer to close the transaction or obtain the loan is now a separate paragraph set apart from the financing paragraph used in the 2006 contract. By separating this paragraph from the financing portion of the contract, the confusion as to whether the seller pays closing costs in cash transactions is removed.

4. Method of Payment

This change may be one of the most controversial changes made to the new contract.

A. Purchase Subject to Financing contingency:

The 2006 Contract, afforded the buyer the right to obtain financing approval, anytime, prior to closing. The 2007 Contract now forces the parties to agree to a date by which the buyer must obtain loan approval.

"Buyer shall have _____ days from Binding Agreement Date ("Financing Contingency Period") to determine if Buyer has the ability to obtain the Loan(s)".

By adding the language to the contract, the buyer is contractually obligated to obtain financing approval by the date stipulated in the contract. As further described in this portion of the contract, the buyer's failure to perform this obligation may further obligate the buyer to the contract once the financing contingency period has expired.

The 2007 GAR contract states:

"The term "ability to obtain" as used herein shall mean that Buyer, as of the end of the Financing Contingency Period, is qualified to obtain the Loan(s) described above based upon the Lender's customary and standard underwriting criteria. If buyer does not have the ability to obtain either or both of the Loan(s) described above, Buyer shall cause a letter from the lender denying either of the Loans(s) to be delivered to Seller prior to the end of the Financing Contingency Period setting forth the Loan(s) described above for which Buyer applied and all of the reasons why Buyer does not have the ability to obtain said Loan(s)."

This places an obligation on the Buyer to obtain a letter of approval or denial from the lender within a specified period of time. The financing contingency is removed and the transaction is deemed "all cash" if (1) the buyer fails to provide the letter of denial to the seller within the Financing Contingency Period or (2) if the buyer delivers the letter required herein but the reason the buyer does not have the ability to obtain the loan is that the buyer:

•a) lack sufficient funds

•b) buyer is required to lease or sell other property as a condition of the loan; or

•c) buyer did not timely provide lender with the necessary information required by lender to determine the buyer's ability to obtain the loan.

It is important to understand how to best represent your client in this part of the negotiation. If you are a Buyer's agent (the selling agent) you want to either use the date of closing or a date close to the date of closing to provide your Buyer more time to get the loan financing. This would best protect your buyer from serious potential problems if a lender approves the loan during the financing contingency period and later denies the loan. However, if you are representing the seller (the listing agent) you want a date closer to the Binding Agreement Date to prevent your Seller from expending funds unnecessarily on repairs, moving, or delaying another legitimate buyer from purchasing the property.

It is also important to understand how this part of the contract correlates with the refund of earnest money deposits. For example, a Buyer is not entitled to a refund of earnest money if the buyer's letter of denial is based on lack of funds to close. It is important that the buyer understand their financial obligations when negotiating a contract.

B. Mortgage Options:

This portion of the contract has added the option for the Buyer to set out the source of the loan, whether an Institutional Lender, Seller financing, or "other"

C. Second Mortgage Options:

This second mortgage information is now listed directly in the body of the contract as opposed to the 2006 Contract which attached Second mortgage financing as an exhibit.

5. Closing Attorney

The closing attorney in the state of Georgia represents the mortgage lender at closing. The 2007 contract has sought to also define what party the closing attorney represents in a cash transaction. It further provides that if the attorney declines to represent the selected party, that party may select another closing attorney.

6. Inspection

It is the responsibility of the buyer to inspect and know of any issues regarding neighborhood conditions. The 2007 contract has expanded this duty to include the following conditions:

"Land-fills, quarries, high voltage power lines, cemeteries, airports, prisons, stadiums, odor producing factories, crime, schools serving the property, political jurisdiction maps and land use and transportation maps and plans."

7. Termites and "Defects"

It is now the responsibility of the Buyer to have the subject property inspected for termites. In the past, it was the responsibility of the buyer to provide well tests or septic system certifications when required by the lender unless otherwise agreed to by the parties for the seller to provide such letters. The 2007 GAR contract has sought to treat termites in much the same way, therefore making this a buyer requirement.

Keeping in mind that this could potentially put a monetary hardship on the buyer to resolve an issue with the home that was unforeseen, the 2007 GAR contract has expanded the definition of "defect" to include "any infestation by termites, insects or other wood destroying organisms" and further states that where a product is not in good and working order and repair to include "damage caused by termites, infiltrating pests, and any other wood destroying organisms." This assures the buyer the right to request the seller to have an active infestation or damage caused by the above to be repaired.

Although many lenders no longer require termite letters as part of the loan process, termite letters may be required when

•a) an appraiser indicates one is necessary because of possible visual infestation and or damage;

•b) the contract contains a specific provision for a termite letter to be obtained or provided; or

•c) the specific lender/loan requires a termite inspection.

This will undoubtedly require the buyer to know what the requirements of their lender are for the loan they are seeking to obtain. This is necessary to insure the right of the buyer to request repairs for termite infestation is addressed within the proper timelines.

8. Due Diligence Period and the Right to Terminate

The 2006 contract provided an option for a Right to Terminate Period. This was renamed in the 2007 contract as Due Diligence Period. By selecting this option, the parties now must also acknowledge or disclose whether the buyer is or is not under contract to purchase other property and whether the buyer shall have the right to enter into other contracts to purchase property during this time period. In previous contracts the buyer warranted that they were neither under any other contracts to purchase property nor would enter into any other contracts to purchase property during the right to terminate period.

If you are representing the seller, it is important to know whether the buyer is under contract for more than one property and whether they have the right to enter into contracts for another property.

** A buyer that is unable to obtain a letter of denial in writing from a lender would still be able to terminate contract if they have selected Due Diligence Period and their time to terminate has not passed.

9. Waiver of Rights Regarding Lead-Based Paint

The 2007 GAR contract now includes an express waiver of buyers right under federal law "to inspect and test for lead-based paint and/or lead-based paint hazards and to not be obligated under this agreement for at least 10 days from the Binding Agreement Date". This change treats lead-based paint and/or hazards like other adverse property conditions that the buyer can address during the due diligence period or during the right to request repairs.

10. Title and Surveys

The 2007 GAR contract now includes the cost of repairing the deed of conveyance and owner's affidavit as a closing cost. This makes these fees, if charged, part of the buyer's costs for closing and will not be a cost to the seller, above or in addition to, any fees the seller has agreed to pay in closing costs for the buyer. The survey section of the contract now requires the parties to the transaction to state whether a survey of the property is or is not attached to the contract.

11. Notice by email

Email has now been added as a means of giving notice, if the email address is provided in the contact information on the signature page of the contract even where the agent may know the email address of the other agent. This section has also been revised to use either the broker or agent (licensee) email or fax number.

12. Misc. Changes

All references in time shall mean the time in Georgia (paragraph 19 (e))
Entitlement to earnest money is now separated from the receipt of earnest money section (paragraphs 3 & 15)
The prorating of Taxes, utilities and Homeowner's association dues are now set out in paragraph 13.