Tag Archives: CUBE

Buying after Bankruptcy

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Realtor.com quoted me in Buying a House After Bankruptcy? How Long to Wait and What to Do. It opens,

Buying a house after bankruptcy may sound like an impossible feat. Blame it on all those Monopoly games, but bankruptcy has a very bad rap, painting the filer as someone who should never be loaned money. The reality is that of the 800,000 Americans who file for bankruptcy every year, most are well-intentioned, responsible people to whom life threw a curveball that made them struggle to pay off past debts.

Sometimes filing for bankruptcy is the only way out of a crushing financial situation, and taking this step can really help these cash-strapped individuals get back on their feet. And yes, many go on to eventually buy a home. Only how?

Being aware of what a lender expects post-bankruptcy will help you navigate the mortgage application process efficiently and effectively. Here are the steps on buying a house after bankruptcy, and the top things you need to know.

Types of bankruptcy: The best and the worst

There are two ways to file for bankruptcy: Chapter 7 and Chapter 13. With Chapter 7, filers are typically released from their obligation to pay back unsecured debt—think credit cards, medical bills, or loans extended without collateral. Chapter 13 filers have to pay back their debt, only it’s reorganized to come up with a new repayment schedule that makes monthly payments more affordable.

Since Chapter 13 filers are still paying back their debts, mortgage lenders generally look more favorably on these consumers than those who file for Chapter 7, says David Carey, vice president and residential lending manager at New York’s Tompkins Mahopac Bank.

How long after bankruptcy should you wait before buying a house?

Most people applying for a loan will need to wait two years after bankruptcy before lenders will consider their application. That said, it could be up to a four-year ban, depending on the individual and type of loan. This is because lenders have different “seasoning” requirements, which is a specified amount of time that needs to pass.

Fannie Mae, for example, has a minimum two-year ban on borrowers who have filed for bankruptcy, says David Reiss, professor of law and academic programs director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. The FHA, on the other hand, has a minimum one-year ban in place after a bankruptcy. The time is measured starting from the date of discharge or dismissal of the bankruptcy action. Generally the more time that passes, the less risky a once-bankrupt borrower looks in the eyes of a lender.

Understanding Private Mortgage Insurance (PMI)

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photo by David Hilowitz

LendingTree quoted me in Guide to Understanding Private Mortgage Insurance (That’s PMI). It opens,

Part I: Basics of private mortgage insurance (PMI)

What is PMI?

If you’ve ever purchased a home without a large down payment, you may have faced the possibility of paying PMI, or private mortgage insurance. This financial product is a type of loan insurance typically bought by consumers when they purchase a house. However, the premiums paid toward PMI aren’t intended to protect the consumer. Rather, they provide protection for the lender, in case you stop making payments on your home loan.

As the Consumer Financial Protection Bureau (CFPB) notes, PMI is typically arranged by your lender during the home loan process and comes into play when you have a conventional loan and put down less than 20 percent of the property’s purchase price. However, private mortgage insurance is not just associated with home purchases; it can also be required when a consumer refinances his or her home and has less than 20 percent equity in it.

Generally speaking, PMI can be paid in three different ways — as a monthly premium, a one-time upfront premium or a mix of monthly premiums with an upfront fee.

There are also ways to avoid paying PMI altogether, which we’ll address later in this guide.

PMI versus MIP: What’s the difference?

While PMI is private mortgage insurance consumers buy to insure their conventional home loans, the similarly named MIP –  that’s mortgage insurance premium — is mortgage insurance you buy when you take out an FHA home loan.

MIP works kind of like PMI, in that it’s required for FHA (Federal Housing Administration) loans with a down payment of less than 20 percent of the purchase price. With MIP, you pay both an upfront assessment at the time of closing and an annual premium that is calculated every year and paid within your monthly mortgage premiums.

Generally speaking, the upfront component of MIP is equal to 1.75 percent of the base loan amount. The annual MIP premiums, on the other hand, are based on the amount of money you owe each year.

The biggest difference between PMI and MIP is this: PMI can be canceled after a homeowner achieves at least 20 percent equity in his/her property, whereas homeowners paying MIP in conjunction with a FHA loan that originated after June 13, 2013, cannot cancel this coverage until their mortgage is paid in full. You can also get out from under MIP by refinancing your FHA loan into a new, conventional loan. However, you’ll need to leave at least 20 percent equity in your home to avoid having to pay private mortgage insurance on the refi.

Which types of home loans require PMI? MIP?

If you’re thinking of buying a home and wondering if you’ll be on the hook for PMI or MIP, it’s important to understand different scenarios in which these extra charges may apply.

Here are the two main loan situations where you’ll absolutely need to pay mortgage insurance:

  • FHA loans with less than 20 percent down – If you’re taking out a FHA loan to purchase a home, you may only be required to come up with a 3.5 percent down payment. You will, however, be required to pay both upfront and annual mortgage insurance premium (MIP).
  • Conventional loans with less than 20 percent down – If you’re taking out a conventional home loan and have less than 20 percent of the home’s purchase price to put down, you’ll need to pay PMI.

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Part V: Frequently asked questions (FAQs)

Before you decide whether to pay PMI – or whether you should try to avoid it – it pays to learn all you can about this insurance product. Consider these frequently asked questions and their answers as you continue your path toward homeownership.

Q. Is PMI tax-deductible?

According to David Reiss, professor of law and academic program director for the Center for Urban Business Entrepreneurship at Brooklyn Law School, PMI may be tax-deductible but it all depends on your situation. “The deduction phases out at higher income levels,” he says.

According to IRS.gov, the deduction for PMI starts phasing out once your adjusted gross income exceeds $100,000 and phases out completely once it exceeds $109,000 (or $54,500 if married filing separately).

Equifax and Your Mortgage

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image by Mark Warner

HouseLoan.com quoted me in How Will The Equifax Data Breach Affect Your Ability To Get A Mortgage? It opens,

Like throwing a stone into a pond, the Equifax data breach has long-lasting repercussions. Already, because of what’s being considered one of the largest data breaches in recent history, 143 million consumers may be affected. Data compromised in the breach has the potential to impact any form of credit taken out in the U.S. — including mortgages, credit cards, and car loans.

WHAT ARE THE CONSEQUENCES OF THE EQUIFAX DATA BREACH?

The credit-reporting agency Equifax recently revealed that a data breach lasting from mid-May through July 2017 gave hackers access to their consumers’ names, Social Security numbers, addresses, birth dates, and, for some, driver’s license numbers. The Federal Trade Commission confirms that credit card numbers were stolen from an estimated 209,000 people and documents with personally identifying information for roughly 182,000 others. Hackers also accessed personal data for customers in the UK and Canada. Equifax says their agency didn’t discover the breach until July 29, 2017, after most of the damage was done.

Anyone who may be affected by the breach is encouraged to act fast, Lisa Lindsay, executive director of the collaborative group Private Risk Management Association (PRMA), which aims to raise awareness and educate agents and brokers, says. “Consumers will need to evaluate what they want to do next with regards to protection and what risk management options they want to take. Such as purchasing cyber and fraud insurance. Those impacted by the breach could be at risk for additional attacks.”

HOW WILL THE DATA BREACH AFFECT GETTING A MORTGAGE?

Buying a house may be the biggest financial decision you make. The last thing that you need is a credit setback — or disaster. Megan Zavieh, a Georgia attorney-at-law, explains that the full ramifications of the data breach have yet to be known because we don’t know who accessed private data or what they may ultimately do with it. But, she says, it could impact homebuyers significantly.

“If someone uses personal data to open new credit lines or take other typical identity theft actions, homebuyers could be in for a terrible surprise when they complete their home loan applications. Often, credit report correction following identity theft is a long process. And it could well prevent loans from closing if borrowers had identities stolen after the Equifax breach,” Zavieh says.

ADDING TO THE POST-EQUIFAX FRENZY, MANY PEOPLE ARE SEEKING TO FREEZE THEIR CREDIT IN THE WAKE OF THE BREACH.

David Reiss, Professor of Law and Academic Program Director of CUBE, The Center for Urban Business Entrepreneurship at Brooklyn Law School, says, “Those who are looking to refinance their mortgage or purchase a new home should be aware of how a credit freeze affects them. When they are ready to take the plunge and apply, they will need to contact the credit rating agencies where they had placed a freeze and lift the freeze temporarily.” Just as importantly, Reiss reminds buyers to put the freeze back in place after completing the mortgage process.

During the time when you’re buying a home and the freeze is lifted, you can place a 90-day fraud alert on your credit. Reiss explains that this should limit lenders from granting credit under your name without first verifying that you are the one who applied for the loan.

Obamas Buy Their Rental

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2011 portrait by Pete Souza of the Obama family

Realtor.com quoted me in Former President Obama Finally Buys the DC Home He’s Renting: 6 Smart Reasons Why. It reads, in part,

Former President Barack Obama has decided that buying beats renting. The former first family have surprised many by purchasing the Washington, DC, house they’ve been leasing and living in since January, coughing up $8.1 million to call the place their own.

After vacating the White House, the Obamas had moved into the 6,441-square-foot, nine-bedroom, 8.5-bath mansion, located at 2446 Belmont Road NW in the tony neighborhood of Kalorama. The neighborhood has since become the place for the new political elite, with Jared Kushner and Ivanka Trump moving into a luxe rental a couple of blocks away, and Secretary of State Rex Tillerson snapping up a $5.6 million Colonial Revival down the street.

The reason the Obamas decided to stick around DC in the first place was so their younger daughter, Sasha, then a freshman at posh Sidwell Friends, could finish up high school there. With only three years to go, renting seemed to make sense so that the Obamas could easily pick up and move once she’s done.

But apparently, there’s been a big change of heart. Why?

On its surface, their decision seems a bit puzzling, given Sasha now has only two–and-a-half years to go. In real estate, the general rule is that it makes sense to buy a home only if you plan to stay put for five years, because this allows time for your house to appreciate, which helps you recoup hefty closing costs.

“People who sell after a year or two of ownership will often find that they have lost money on their purchase,” explains David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

Nonetheless, real estate agents and other experts we spoke to say there could be plenty of reasons it’s smarter for the Obamas to buy rather than rent, even for this short span of time. Here are a few possibilities to ponder.

Reason No. 1: They’re making a commitment to DC

As presidential spokesman Kevin Lewis explained in a statement, “Given that President and Mrs. Obama will be in Washington for at least another two and a half years, it made sense for them to buy a home rather than continuing to rent property.”

Granted, you can read a whole lot into that “at least” if you want. After all, as Atlanta Realtor® Bruce Ailion explains, “Many buyers think they will only be in a property for two to three years and end up living there three to seven years. That is common.”

And it might be an indicator that our former commander in chief isn’t ready to shed the political life quite yet.

“Perhaps they want to keep a foothold in Washington, DC, for other reasons with regard to political advocacy and involvement,” says Florida Realtor Cara Ameer.

Reason No. 2: In certain markets, 2.5 years is long enough to make a profit

While 2.5 years might not be long enough to profit on a home in general, that rule varies widely by neighborhood, based on rent levels, home prices—and how quickly both are going up. And this is one hot neighborhood.

It isn’t known exactly what the Obamas were paying in monthly rent, but estimates hover at around $22,000. It’s entirely possible that the former first couple did the math and determined that buying made far more financial sense, and that mortgage payments would be less of a monthly nut. (To find out what’s best for you, you can crunch the numbers in an online rent vs. buy calculator.)

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Reason No. 5: This home will sell for a premium—he’s a former president, after all!

“It was always a little perplexing why the Obamas would ever rent if they planned to stay for anything longer than a year,” contends Washington, DC, real estate agent Rachel Valentino.

Her reason: “While they’re buying at market value, they can eventually financially benefit on the back end, where a buyer will pay significantly more for the celebrity factor. We aren’t Southern California, where every house has that star appeal. So, I can only imagine what a buyer will eventually pay to own a piece of history.”

Reason No. 6: Profits aren’t everything

“One lesson we can draw from this story is that buying a home should not always be seen as a financial transaction,” says Reiss. “Sometimes we buy a home because it’s best for our family at a particular time. Sometimes we buy a home because we fall in love with it. And sometimes those are the best reasons of all to buy a home, profits be damned.”

Gen Z Eying Real Estate Trends

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The Washington Post along with its content partner National Association of Realtors quoted me in Eye on the Future. It reads, in part,

The suburbs as we know them are in flux. Many of the country’s bedroom communities have traditionally been known for their single-family homes and a lack of walkable public spaces. That’s changing as condos, sprawling townhome complexes and apartment buildings now dot areas where single-family homes would have been built.  Developers are building walkable public spaces to accommodate young families leaving cities but still seeking urban-like amenities.

 Another wave of change is expected in the next five to 10 years. That’s when members of Generation Z-those born on the heels of millennials-will become homeowners. Experts say they’ll transform areas that are sandwiched between major cities and suburbs into districts with an urban feel and amenities, without the hefty price tags major metros demand.

That transformation is already starting to happen. “Many of our ‘suburbs’ are actually neighborhoods in Los Angeles, particularly the San Fernando Valley,” said Kathryn Bishop, a real estate agent with Keller Williams Realty in Studio City, Calif. and member of the National Association of Realtors. “In the Valley, many neighborhoods have become mini ‘cores.’ Sherman Oaks, Encino and Woodland Hills have office towers, good restaurants and night-life business creating their own city areas.”

It’s no surprise that the younger generation needs to find an alternative to the sky-high costs of urban living. The Economic Policy Institute noted in 2016 that folks who live in San Francisco face a cost of living that’s 52.9 percent above the national average. For New Yorkers, living costs were 49.4 percent higher. The country’s least-affordable place to live was Washington D.C., where residents faced costs 63.5 percent higher than the national average.

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“Since the financial crisis there has been an increase in multigenerational households, driven in large part by financial limitations and insecurity as well as by marital status and educational attainment,” said David Reiss, professor of law and research director at he Center for Urban Business Entrepreneurship at Brooklyn Law School.  “Young adults are more likely to live at their parent’s home in recent years than they have been for more than a century.”

Renovating Among The Stars

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Justin Theroux, photo by David Shankbone

Realtor.com quoted me in Justin Theroux’s Renovation Drama: What Went Wrong? It opens,

Actor Justin Theroux might have many admirers (including his wife, Jennifer Aniston), but apparently the “Leftovers” hunk inspires more than his share of haters, too—including his Manhattan neighbor Norman Resnicow. Apparently their feud started two years ago, when Theroux decided to renovate his apartment; Resnicow lives one floor down.

As anyone who’s lived under, next to, or anywhere near a demolition site knows, home renovations can get noisy—which is why Resnicow, a lawyer, felt it within his rights to ask Theroux to do the neighborly thing and install soundproofing to muffle the ruckus. There was just one problem: According to the New York Post, the requested soundproofing would cost a whopping $30,000 and make it difficult for Theroux to preserve the original flooring in his place, which he was keen to do. So he refused.

That’s when things got ugly. According to a lawsuit filed by Theroux, Resnicow embarked on a “targeted and malicious years-long harassment campaign” to derail those renovations and just make life unpleasant for the actor.

Here’s how the suit lays it out:

  • Resnicow accused Theroux’s contractors of damaging the marble in the building’s entranceway, and demanded they make repairs.
  • He halted Theroux’s roof deck renovations by arguing that the fence separating their portions of the deck encroached on his property.
  • Then, for good measure, he cut down the ivy lining the fence purely because he knew that the site of the foliage made Theroux happy.

Theroux now seeks $350,000 from Resnicow, alleging nuisance, trespass, and all in all “depriving Mr. Theroux of his right to use and enjoy his property.”

But Resnicow remains resolute, telling the Post, “I have acted for one purpose only, which remains to assure my and my wife’s health and safety.”

How to balance renovations with neighbor relations

As Theroux’s predicament makes painfully clear, few issues can ruin a neighborly relationship like noise—particularly if you live in an apartment building or other tight quarters. Problem is, homeowners also have a right to make home improvements. So at what point does reasonable renovation ruckus become so loud it’s a legitimate nuisance? That depends, for starters, on where you live, as noise ordinances and other regulations vary by area.

New York City’s Noise Code prohibits construction noise that “exceeds the ambient sounds level by more than 10 decibels as measured from 15 feet from the source.” (And in case you have no clue how to figure that out, the city uses devices called sound meters; you can also download sound meter apps to take your own measurements.) Volume levels aside, most areas have limits on when you can hammer away; in New York, work is typically limited to 7 a.m. to 6 p.m., Monday through Friday.

The third variable to consider is the co-op, condo, or HOA board that governs your building or community, which may place further restrictions on hours or even the type of renovations you do. Yet if a homeowner like Theroux is following these rules, odds are he’s in the clear.

“In New York City, they say ‘hell hath no fury like an attorney dealing with noisy neighbors,’ but as long as you have the proper permits, then construction noise created during normal business hours is generally allowed, with the understanding that it will only be temporary,” says Emile L’Eplattenier, a New York City real estate agent and analyst for Fit Small Business. “As long as he isn’t running afoul of his building’s rules—which is doubtful—then his neighbor has little recourse.”

Still, if you’re a homeowner about to embark on a renovation who doesn’t want to drive your neighbors nuts, what can you do? For starters, keep in mind that even if the sounds don’t ruffle you, people’s noise sensitivities can vary.

In the words of David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School, “One person’s quiet hum is another’s racket.”

Running The CFPB out of Town

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photo by Gabriel Villena Fernández

My latest column for The Hill is America’s Consumer Financial Sheriff and The Horse it Rides Are under Fire. It reads,

Notwithstanding its name, the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act, or Financial Choice Act, will be terrible for consumers. It will gut the Consumer Financial Protection Bureau and return us to the Wild West days of the early 2000s where predatory lenders could prey on the elderly and the uneducated, knowing that there was no sheriff in town to stop ‘em.

The subprime boom of the early 2000s has receded in memory the past 15 years, but a recent Supreme Court decision reminds us of what that kind of predatory behavior could look like. In Bank of America Corp. v. Miami this year, the court ruled that a municipality could sue financial institutions for violations of the Fair Housing Act arising from predatory lending.

Miami alleged that the banks’ predatory lending led to a disproportionate increase in foreclosures and vacancies which decreased property tax revenues and increased the demand for municipal services. Miami alleged that those “‘predatory’ practices included, among others, excessively high interest rates, unjustified fees, teaser low-rate loans that overstated refinancing opportunities, large prepayment penalties, and — when default loomed — unjustified refusals to refinance or modify the loans.”

The Dodd-Frank Act was intended to address just those types of abusive practices. Dodd-Frank barred many of them from much of the mortgage market through its qualified mortgage and ability-to-repay rules. More importantly, Dodd-Frank created the Consumer Financial Protection Bureau. The CFPB was designed to be an independent regulator with broad authority to police financial institutions that engaged in all sorts of consumer credit transactions. The CFPB was the new sheriff in town. And like Wyatt Earp, it has been very effective at driving the bad guys out of Dodge.

The Financial Choice Act would bring the abusive practices of the subprime boom back to life. The act would gut the CFPB. Among other things, it would make the Director removable at will, unlike other financial institution regulators. It would take away the CFPB’s supervisory function of large banks, credit unions and other consumer finance institutions. It would take away the CFPB’s power to address unfair, deceptive, and abusive acts and practices. It would restrict the CFPB from monitoring the mortgage market and thereby responding to rapidly developing abusive practices.

The impacts on consumers will be immediate and harmful. The bad guys will know that the sheriff has been undercut by its masters, its guns loaded with blanks. The bad guys will re-enter the credit market with the sorts of products that brought about the subprime crisis: teaser rates that quickly morph into unaffordable payments, high costs and fees packed into credit products, and all sorts of terms that will result in exorbitant and unsustainable credit.

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, is the chief proponent of the Financial Choice Act. Hensarling claims that Dodd-Frank and the CFPB place massive burdens on consumer credit providers. That is not the case. Interest rates remain near all-time lows. Consumer credit markets have many providers. Credit availability has eased up significantly since the financial crisis

One only needs to look at his top donors to see how the Financial Choice Act lines up with the interests of those consumer credit companies that are paying for his re-election campaign. These top donors include people affiliated to Wells Fargo, Bank of America, JPMorgan Chase, Capital One Financial, Discover Financial Services, and the American Bankers Association, among many others.

Dodd-Frank implemented regulations that work very well in the consumer credit markets. It created a regulator, the CFPB, that has been very effective at keeping the bad guys out of those markets. The Financial Choice Act will seriously weaken the CFPB. When vulnerable consumers cry out for help, Hensarling would heave the CFPB over its saddle and let its horse slowly trot it out of town.