Tag Archives: House

Return to the Great Recession?

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US News & World Report quoted me in What Happens if Trump Dismantles the Financial Regulations of the Great Recession? It opens,

On Feb. 3, 2017, President Donald Trump signed two executive orders that will affect the financial sector. That change will come to consumers is undeniable. But exactly what change is coming is, naturally, up for debate.

One of the orders requires the Treasury secretary to review the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010 and designed to address some of the shortcomings in the financial system that led to the Great Recession. The other executive action mandates that the Labor Department review its Department of Labor Fiduciary Rule and look at its probable economic impact. As it stands now, the fiduciary rule is supposed to be phased in from April 10, 2017 to Jan. 1, 2018. The rule requires financial professionals who work with retirement plans or provide retirement planning advice to act in a way that’s only based on the client’s best interests.

What do these executive orders portend for consumers? Nobody knows, but what follows are some educated guesses – with best-case and worst-case outcomes.

How the housing market might be affected. There’s potential good news and bad news here, according to Francesco D’Acunto, a finance assistant professor at the University of Maryland. In a study performed by D’Acunto and faculty colleague Alberto Rossi, in the wake of Dodd-Frank, banks decreased mortgage lending to middle class families by about 15 percent in 2014.

“Title XIV, which regulates the mortgage market, could be in for a full-scale renovation that might ultimately improve the fortunes of potential homebuyers from the middle class,” D’Acunto says.

So if you’ve been having trouble getting a mortgage for a house, you may have less trouble – provided you find a reputable lender. Because the downside, according to D’Acunto, is that “such a move risks bringing a return of predatory behavior in lending and mortgage cross-selling, especially by large banks and by non-bank mortgage originators.”

To avoid that, D’Acunto hopes that Congress intervenes “surgically on Title XIV” and only reduces the regulatory costs imposed by the new Qualified Mortgage classification. Created by the Consumer Financial Protection Bureau, the Qualified Mortgage category of loans includes features designed to make it more likely that a consumer will be able to pay it back.

But if they don’t intervene with the careful attention to detail D’Acunto advises, then expect “big changes, most of them negative,” says David Reiss, a Brooklyn Law School professor whose specialty is in real estate finance.

Potential best-case scenario: After being denied a mortgage for some time, you finally get your house.

Potential worst-case scenario: Because you were steered to a high-interest loan you can’t afford, you lose your house.

How credit cards, auto loans and student loans might be affected. There has been a lot of talk that the CFPB could be a casualty in the executive order that asks the Treasury secretary to review Dodd-Frank. But will it be ripped to shreds or have its power diminished?

The latter seems to already be happening. For instance, lawmakers, led by Sen. David Perdue (R-Ga.), are in the midst of trying to repeal a rule that is scheduled to go into effect this fall. The rule, among other things, would mandate prepaid-card companies to disclose detailed information about their fees, make it easier to access account information and would curb a consumer’s losses if the cards are lost or stolen.

A little weakening might not be so bad, Reiss says. He thinks the CFPB has tightened “the credit box too much, meaning that some people who could manage more credit are not getting access to it.”

But he also thinks if the CFPB were dismantled, the negatives would far outweigh the positives.

Potential best-case scenario: Easier access to loans and more choices. And for some consumers who can now get that car or credit card, their quality of life improves.

Potential worst-case scenario: Thanks to that easier access, some consumers end up stuck with high-interest loans with a lot of hidden fees and rue the day they applied for them.

Negotiating Real Estate Fees

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office-negotiationPolicyGenius quoted me in 5 Mortgage Loan Fees and Rates You Should Always Negotiate. It opens,

When it comes to making major purchases or financial decisions, we always hear that mantra, “Everything is negotiable.” You can haggle with the salesman when shopping for a new car, or with the hiring manager at a new job over your starting salary. It’s even possible to negotiate your tuition rates as a college student.

But a lot of the costs associated with buying a house can be difficult to negotiate down, according to mortgage advisor and author Casey Fleming.

“Appraisal, underwriter and processor are chosen by the lender, and the variation in fees is quite small,” he says. “Escrow and title services are typically chosen by the real estate agent of the seller in most areas, so the buyer has little say in what those fees will be.”

There’s also not much way around paying private mortgage insurance — you’ll need no less than a 20% down payment to avoid it.

But, you don’t need to let the non-negotiable items prevent you from bargaining for a better deal on other house-hunting costs. Here are a few fees and costs worth negotiating:

Real estate broker’s fees and commissions

From the outset, consider negotiating your real estate broker’s fees, according to Prof. David Reiss of the Brooklyn Law School, who teaches real estate finance and community development. “If 6% is standard in your community, you can look for brokers who will sell your home for 5% or less,” he says. “Be careful how low to go though, because you want your broker to be motivated enough to sell your property.”

Reiss notes that to gain the most advantage in negotiating their fees, your broker’s listing agreement should outline all the services they’ll provide you regarding advertisements, showing, and the plan in place to buy or sell the property in question.

Credit Reporting Complaints

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photo by Erin Stevenson O'Connor

The Huffington Post quoted me in The Real Reason Everyone Complains About Credit Reporting Agencies. It opens,

The most complained-about financial institutions aren’t banks or credit card companies. They’re credit reporting agencies — and by a wide margin.

In fact, the big three credit agencies topped the latest Consumer Financial Protection Bureau (CFPB) monthly report. Equifax attracted an average of 1,470 complaints during a three-month period from May to July. Experian took second place with 1,272 complaints, and TransUnion had 1,202 complaints. As a category, all of the credit reporting agencies are up by about 30 percent from the same period a year ago.

By comparison, the most complained about bank, Citibank, had only an average of 922 complaints during the same period.

So why all the gripes? To answer that question, you have to take a closer look at a society that’s heavily dependent on credit and at the companies that determine how much credit each member of society gets. But the answer also reveals a broken system and a few workarounds that could help you avoid becoming another statistic.

The CFPB did not respond to a request for a comment about its complaint data. Neither did two credit reporting agencies, Experian and TransUnion. Equifax deferred to the Consumer Data Industry Association (CDIA), the trade association for the credit reporting industry.

Decoding the numbers

A CDIA representative suggested the government’s complaint numbers are inflated because they fail to distinguish between complaints and “innocuous” disputes.

“For example, consumers who are reviewing their credit reports for the first time might question an item they don’t recognize or understand and then lodge a complaint,” says Bill Mashek, the CDIA spokesman. “A consumer might also lodge a complaint against one of the credit reporting agencies when their issue is actually with another entity such as a lender.”

The credit agencies also say the government fails to verify any of the complaints; it simply reports them. And it has no way of weeding out potential errors, such as when consumers question an item they don’t recognize or understand on their credit report.

Consumers have a different perspective. They’re people like Peter Hoagland, a consultant from Warrenton, Va., whose homeowner insurance bill rose unexpectedly this year. He hadn’t made any claims, but soon discovered the reason: His credit rating insurance score taken a hit. He contacted his credit reporting agency. ” I could find no one to give me a credible explanation,” he says.

Hoagland contacted his insurance company and explained the problem, but the company stuck with its rate increase anyway.

“It feels to me that insurance companies are using these ratings as contrived reasons to raise rates,” he says. “They can’t cite claims I have made or increased risk with my home. So they hide behind these dubious insurance score ratings as justification to raise rates.”

It’s complicated

David Reiss, a professor at Brooklyn Law School
, says stories like Hoagland’s are common because credit scores affect almost everyone. They’re also difficult to explain.

“The credit reporting agencies have a big impact on whether someone can get a mortgage to buy a house as well as on setting the interest rate that they will ultimately pay,” he says. “At the same time, they often act in mysterious ways in terms of what they include and do not include on their reports.”

Can Seniors Get Mortgages? Should They?

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photo by Bill Branson

TheStreet.com quoted me in Can Seniors Get Home Mortgages? Should They? It reads, in part,

Senior citizens can and are getting approved for mortgages, and we are not talking reverse mortgages or home equity lines of credit, but – in many cases – 30-year fixed loans. Even when the borrower might be 85 and the actuarial probability of making it to the end of the loan term is nil.

The federal government is blunt: age cannot be used to discriminate against applicants for home loans. Capacity to repay is a factor – for seniors and every other borrower – but a lender cannot turn down an applicant just because he is 65…or 75…or 85. And loans are getting made.

Which raises the other question: is it wise for the borrower? Bankers can take care of themselves, but seniors need to ask: should I be borrowing a lot of money on a house at my age?

In Vancouver, Wash., Dick Kuiper – who said he is “approaching 70,” as is his wife – “just purchased a new home last year and got a 30 year mortgage at just under 3%, and we both believe this was a brilliant move.”

“We first made sure we made a large enough down payment so we would always have positive equity in the home,” Kuiper elaborates. “With that calculated, we looked at the alternatives, either pay in cash – which would naturally come out of our savings – or take out a mortgage. We looked at what we could get by putting the same amount of money into a retirement annuity with a downside guarantee. That annuity pays a minimum of 5% for life and currently is paying in the 8% to 9% range. Do the math. We’d be crazy to pay cash for the house.”

Kuiper’s right. For his wife and him, it made no sense to pay cash for a house – not when mortgage rates are breathtakingly low.

Case closed? Not at all.

Ash Toumayants, founder of financial advisors Strong Tower Associates in State College, Pa., said that in his experience few seniors ever want another mortgage in retirement after they settled up on their first one. “Most are excited when they pay it off and don’t want another one,” Toumayants says.

Another fact: to get a mortgage, a senior has to demonstrate to a lender a capacity to repay. Age cannot be used against a senior, but lack of cashflow can. And many seniors just have sizable trouble qualifying for a mortgage. “The trick is whether they have enough income to qualify or not,” said Casey Fleming, a mortgage expert in Northern California who said that he right now is working on a loan for an 85-year-old client.

Brian Koss, executive vice president of Mortgage Network, an independent mortgage lender in the eastern U.S., elaborated: “For seniors thinking about getting a mortgage, it’s all about income flow. If you have a consistent source of income, and a mortgage payment that fits that income, it makes sense. Something else to consider: if you have income, you have taxes and a need for a tax deduction. With a mortgage, you can write off the interest.”

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But then there is an ugly issue to confront. Is the senior arriving at this purchase decision on his own steam? Brooklyn Law professor David Reiss explained why that needs to be asked. “Seniors should discuss big financial moves with someone whose judgment they trust (and who does not stand to benefit from the decision). Elder financial abuse is rampant.”

Reiss added: “What has changed in their financial profile that is leading them to do this? Is someone – a relative, a new friend – egging them on or leading them through the process?” Reiss is right in the caution, and that’s a concern that has to be satisfied.

When Should Millennials Buy?

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photo by Richard Foster

SelfLender’s personal finance blog quoted me in When Should You Start Worrying About Buying A House? It opens,

If you’re a young person, then you’re probably already familiar with the fact that younger generations are more hesitant to purchase a home than previous generations.

Times are much different than when your parents were worrying about buying a house for the first time. In the “olden days,” the traditional life plan was set in stone: get married, buy a house, raise a family.

Fortunately (or unfortunately), young people aren’t jumping into homeownership within the same timeline as the generations before did, which is causing a stir amongst the real estate and financial industries.

What’s more bothersome is that many young people are having trouble gauging when they should actually start worrying about becoming a homeowner.

The answer is: it depends.

Figuring out when to buy a house is different for everyone. There is no set age that signals the right time. There are, however, financial and lifestyle signals that will help you make an educated decision on when you should, if at all, purchase a home.

The following is our rough guide to figuring out if homeownership is right for you or if you should continue renting.

Homeownership is Long Term

Purchasing a home is not for everyone. Especially for people who like to move and travel. Unless you’re able to pay for your house outright in cash, then purchasing a home might not be a good idea for someone who has been known to move around frequently.

Lauryn Williams, four-time Olympian and owner of Worth-winning.com, a financial planning company for young professionals and professional athletes, says that millennials love traveling and moving around. Just take a browse through Instagram and count the amount of selfies in exotic locations.

“My tip would be not to buy a home, because it seems to be ‘the next logical’ step in life,” says Williams. “Think about your lifestyle and whether homeownership is truly for you.”

You need to think long term about whether or not you’ll be in the same place that you’re buying your house.

Maybe you don’t travel much, but is your current job security good enough to keep you in one location for more than a few years? What if you get a better job offer that would require you to move?

The traditional career path in America is to graduate school, find a company and stay with that company for your entire life, which is not the case today. Millennials are more likely to switch jobs than previous generations.

“When people are thinking about settling down for five or more years in one location, they should start to seriously think about owning over renting,” says David Reiss, a Professor of Law at Brooklyn Law School.

Calculating Closing Costs

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image by www.lumaxart.com/

Realtor.com quoted me in How Much Are Closing Costs? What Home Buyers and Sellers Can Expect. It reads, in part,

Closing costs are the fees paid to third parties that help facilitate the sale of a home, and they vary widely by location. But as a rule, you can estimate that they typically total 2% to 7% of the home’s purchase price. So on a $250,000 home, your closing costs would amount to anywhere from $5,000 to $17,500. Yep that’s one heck of a wide range. More on that below.

Both buyers and sellers typically pitch in on closing costs, but buyers shoulder the lion’s share of the load (3% to 4% of the home’s price) compared with sellers (1% to 3%). And while some closing costs must be paid before the home is officially sold (e.g., the home inspection fee when the service is rendered), most are paid at the end when you close on the home and the keys exchange hands.

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Why Closing Costs Vary

The reason for the huge disparity in closing costs boils down to the fact that different states and municipalities have different legal requirements—and fees—for the sale of a home.

“If you live in a jurisdiction with high title insurance premiums and property transfer taxes, they can really add up,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “New York City, for instance, has something called a mansion tax, which adds a 1% tax to sales that exceed $1 million. And then there are the surprise expenses that can crop up like so-called ‘flip taxes’ that condos charge sellers.”

To estimate your closing costs, plug your numbers into an online closing costs calculator, or ask your Realtor, lender, or mortgage broker for a more accurate estimate. Then, at least three days before closing, the lender is required by federal law to send buyers a closing disclosure that outlines those costs once again. (Meanwhile sellers should receive similar documents from their Realtor outlining their own costs.)

Word to the wise: “Before you close, make sure to review these documents to see if the numbers line up to what you were originally quoted,” says Ameer. Errors can and do creep in, and since you’re already ponying up so much cash, it pays, literally, to eyeball those numbers one last time before the big day.