"The FIRPTA Fix"--HERA of 2008

What this fix means under the Housing and Economic Recovery Act, much to the relief of sellers everywhere, is that the seller is no longer required to provide the seller's Social Security number to the buyer in order to fulfill the IRS requirements when selling property. The new option is to provide that on a form to escrow or "qualified substitute" who in turn povides a statement to the buyer. This, by the way, comes under the Foreign Investment in Real Property Tax Act, otherwise known as "FIRPTA", and sometimes I find it searched for as "ferpta" (just a little side note if you want to find it under the right acronym). Although California buyers are currently required to sign a Realtor-based FIRPTA form saying the seller's Social Security number will in no way be misused or abused, obviously there is less exposure by only providing it to the qualified 3rd party, or escrow officer.

Per California Association of Realtors: "The federal withholding law is now similar to California's Franchise Tax Board (FTB) policy which allows the escrow officer to remove the seller's tax ID number from the buyer's copy of the California withholding tax statement, but not other copies."

Key Provisions in New Housing Bill

Trying to follow this new law? Like the thread under this little reader, it will take time to unwind and fully realize the impact on buyers, lenders and current homeowners.

The Republicans most in favor of this new law were those whose districts are most impacted by high foreclosures and vacancy rates. Most of the Democrats were happy. It's been a controversial bill, and there are still doubts and disagreements by many as to its complete effectiveness. (Here's a housing example from right here in the Long Beach area: Yesterday, in a comparable market analysis for a specific downtown property, on one street in 90802 there were 20 condos listed under $300,00, 15 of which were listed as vacant. )

Signed this morning without the usual Congressional member representation at the meeting (the President was not originally in favor of it), the Federal Housing and Economic Recovery Act of 2008 includes:

New permanent higher cap on loans that can be purchased by Fannie Mae or Freddie Mac--$625,500 (that up from the previous limit, down from the 2008 temporary loan limit). The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an area’s median home price, up to $625,500. The new FHA loan limit will be the greater of $271,050 or 115 percent of an area’s median home price, up to $625,500. Both new loan limits will be effective at the expiration of the economic stimulus limits on December 31, 2008.

• New independent agency will regulate the two entities which now own more than half of the nation's $12 trillion of residential mortgage debt.


• Truth-in-lending requirements that explain a borrower's refinanced mortgage, new purchase mortgage, or home equity line of credit purchase.


• The FHA may now insure the full value of a home on a reserve mortgage, up to $625,000.


• Homeowner access to HUD home finance counseling services.


• Program to help refinance current eligible homeowners into 30-year, fixed rate mortgages--lenders may have to accept a lower loan amount.


• Community Development Block Grant funds to help rehabilitate foreclosed homes in areas of high foreclosures.


• Tax benefit of $7500 or 10% of home's purchase price, whichever is less, for first time homebuyer with $75,000 in adjusted gross income or $150,000 for couples filing jointly. The refund serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years.


• Starting October 1, forbid the FHA from insuring mortgages where a seller contributes to the buyer's down payment (seller-assisted programs such as the HART and Nehemiah programs). Down-payment assistance from family, employers and other nonprofits is still allowed.

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So You Want to Pay Off Your Mortgage Faster?

Like these guys, we would all like to find a way to save money. But what will it cost?

Today I received a nice letter from my mortgage lender inviting me to pay off my loan 61 months sooner by making payments twice a month. I would save thousands of dollars in interest. I couldn't agree more. All I have to do is enroll in a special plan where half of my regular monthly payment would be taken directly from my account, for a total of 26 drafts a year, which would be sent to my mortgage lender. On the second page of the mailer, there's a nice chart showing my remaining balance for the next 29 years, the new plan balance, and the equity growth I would gain each succeeding year until the entire balance would be paid off at the end of year 24.

But--couldn't you just pay more principal when you want to? Why does this plan want $375.00 from me to set up automatic withdrawals? First of all, you don't have to pay anything extra to pay down your principal, and second of all, $375.00? Didn't that used to cost $150.00 or so for those who were actually willing to pay for the service? That's probably because the people at the outside insurance agency which sets it up want their cut, too.

Paying principal down is good, but right now, I need that $375.00 for gas. I can just write in an extra amount in the principal column on the monthly statement for free.

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Money in the Wind--No More Seller-Assisted Down Payment Programs

The House of Representatives has voted, with the Senate soon to follow, giving $300 billion in assistance to FNMA and Freddie Mac.

The legislation passed yesterday by the House would authorize Paulson to bail out Fannie and Freddie while placing few restrictions on them. Fannie and Freddie debt totals about $5 trillion, which would cause world-wide catastrophe if they failed, and the projected $25 billion cost to U.S. taxpayers over the next two years may not happen anyway, per the Congressional Budget Office, only a 50% chance, if you want to take comfort in that. Lawmakers said they expected the Senate to approve the measure later this week, and the White House said President George W. Bush would sign it into law.

Included in this is the elimination of seller-assisted down payment programs such as the HART, AmeriDream, and Nehemiah programs. These programs allowed a process where the seller could contribute to a 3rd party non-profit entity funds which were then sent over to the buyer via escrow, who could apply them for his/her down payment. These "seller-assisted" programs are now blamed for the loss of $4.6 billion in FHA's funding reserves, to the current level of $16.4 billion. Traditionally, down payment funds are from the buyer's own sources, but in these particular programs sellers were allowed to help the buyer who had little or no money. When buyers have less money in the deal, they are considered at much higher risk of loan default, and in still current down payment programs, a requirement is for the buyer to have a minimum of 1% of their own funds contributing to the purchase.

The current temporary loan limit of $729,000 would be changed to a permanent level of $625,000 for conventional and FHA loans, and allows a tax refund for first-time homebuyers of up to 10% of the home's purchase price, but no more than $7500, but the refund is basically a tax-free loan which must be paid back over 15 years.

There is much more to this proposal, which will probably be signed into law by President Bush who has dropped his opposition to it, and made effective possibly October 1.

How this bill can help you. Here's some of what homeowners need to know. Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 40% of their gross monthly income on all household debt to be eligible for the program. Click on the article to read more about eligibility for this FHA program which, if passed, will be available through FHA approved lenders.

Please contact me for more information.

Julia Huntsman, Broker Associate, e-PRO®, REALTOR®
All California Brokerage, Inc.
562-896-2609
mailto:ocean@surfside.net
http://www.juliahuntsman.com

http://www.longbeachrealestate.listingbook.com

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Luxury Home on Rivo Alto Canal, Naples Island

Facing Rivo Alto Canal, custom home built in 1989 on two lots, 700 sq. ft. 4-car garage (not tandem), and two boat docks. Kitchen has walk-in pantry, wine refrigerator and adjacent informal dining with water view, rooftop deck, two fireplaces, large formal dining room, plus family room. Large upper master faces canal--great opportunity for the buyer looking for a larger home on Naples Island! Many more amenities. Click on photo for more details, or for a showing.


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Quote for the Week: Buy Now If You See the Home You Want

"The plain fact is that you don't know when real estate will be at bottom until it's too late. If you see a home you love, buy it now if you plan to be in it a long time. And know that the headline writers want to whip you up and make you crazy about the economy. They sell fear. Stay calm and stay well to do." Ben Stein "Don't Panic - Buy Index Funds and Real Estate"

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New California Law Requiring Notice from Lenders

New law in California requiring lenders to contact homeowners 30 days prior to filing a Notice of Default (NOD), so don't overlook your mail, especially when it comes from your mortgage lender:

"FORECLOSURE RELIEF BILL BECOMES LAW This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available at http://www.leginfo.ca.gov/.

- Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower's financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender's declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.

- Maintenance of Vacant Properties: Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.

- 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant's right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address." per California Association of Realtors

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If You're Waiting For Prices to Come Down ....

Last Wednesday the Federal Reserve decided to leave the federal funds rate alone, for the time being.

"The Fed is in a quandary. The economy has slowed, led by a decline in home sales and rising inflation, stemming primarily from increasing energy prices. The Fed's primary role in relation to the economy is to combat inflation and preserve economic growth. To combat inflation, the Fed will ultimately have to increase interest rates in coming months. What Does This Mean to You?"

Here's what my colleagues at You Should Own have to say:

"If you're looking to buy a house, consider these key points:

• Home prices in some areas are at five-year lows, while personal incomes in that same period have increased.
• Homes are more affordable for many right now, particularly first-time home buyers.
• Sellers are extremely motivated and many buyers in our area have benefited from the unbelievable deals that exist today.
• Experts foresee a strong rebound in home prices when the economy
  begins to recover, according to a new report from the Joint Center for Housing
  Studies.
• That means buyers today will be sitting on valuable properties tomorrow."

Much is made of the recent foreclosures and subprime loan issues that have stalled the market, but due to the overall streamlining of loan underwriting due to uniform credit scoring and automated underwriting, the largest rise in homeownership occurred between 1994 and 2001. According to Harvard's Joint Center for Housing Studies' 2008 report, unless another one million homeowners lose ownership it will not dip below the 2000 level of ownership. Even if that does occur, "once the oversupply of housing is worked off and home prices start to recover, the use of automated underwriting tools, a return to more traditional mortgage products, and the strength of underlying demand should put the number of homeowners back on the rise."

It's been noted for several years now that the formation of new households due to changes in the population will impact the demand for housing over time (including the current Harvard report), so I'm still betting that "buyers today will be sitting on valuable properties tomorrow."

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Southern California Cities in Escrow

Here's the general trend of current pending sales of several cities noted through the SoCalMLS record, first taking all residential and commercial properties at all prices, and second looking at condos and houses in escrow and listed over $750,000 (second group for some cities):

• Long Beach - 19% (approx. 576 plus 2499 active); 12% (30 pending, 213 active)


• Norwalk - 21% (approx. 134 plus 493 active)


• Cerritos - 31% (approx 65 plus 147 active); 21% (76 pending, 281 active)


• Bellflower - 20% (approx 82 plus 319 active);


• Cypress - 24% (approx. 57 plus 166 active);


• Lakewood - 29% (approx. 115 plus 283 active); 17% (2 pending, 10 active)


• Stanton - 24% (approx. 51, plus 160 active);


• Seal Beach - 18% (approx. 50 plus 221 active); 23% (10 pending, 33 active)


• Downey - 20% (approx. 135 plus 554 active); 6% (6 pending, 97 active)


• Huntington Bch - 20% (250, plus 1014 active); 21% (76 pending, 281 active)

For properties over $750,000, Downey appears to be the least successful in that market. Both Huntington Beach and Long Beach escrows range up to the $5,000,000 price.

This is an "unscientific" local market assessment to take a look at general trends in the area, with the only price breakdown for residential being over or under the $750,000 mark, a completely arbitrary price point based on my personal experience with buyer comments about their affordability.

The first-time buyers and others in the $300,000-$350,000 price range are out in full force, recognizing that with the buyer affordability index at 44% (California Association of Realtors), now is the time to buy. Sales activity is historically higher at this time of year, but my opinion is that the second half of 2008 will fare better than the first half of 2008 and all of 2007. "Short Pay" sales seem to be more than half the market in some areas, but the good news is that some banks are becoming faster and more efficient in handling their approvals and closings on these properties.

Are higher end properties over $750,000 selling slow in all areas (see Dataquick article)? Not in Seal Beach or Huntington Beach--whereas that seems to be true in Long Beach, Downey, Lakewood, with Cerritos doing better in that price range.

Many bank-owned properties right now are a poor reflection on the market, most of them are sold in poor condition with no attempt at any basic carpet and paint clean-up, a minimal cost, so those either invite lowball offers or sit longer on the market.

Yep, More News on California's Rise In Sales, and Prices

I hope all buyers are taking note of the following right now, because if this buying trend is true as a lot of recent sales indicates it is, the trickle-up effect will take place for homes in the higher price ranges.

From Associated Press today:

As foreclosures push down California housing prices, first-time home buyers surge into the market. The California median home price fell 30 percent in May, the sharpest decline in 20 years, since DataQuick Information Systems began keeping records. The drop in home prices has sparked a home-buying rally that's beginning to reverse more than two years of monthly year-over-year sales declines. "Inland markets hit hardest by foreclosures and falling prices are now the most likely to post higher sales than last year," says Andrew LePage, a DataQuick analyst. "These communities have been attracting first-time buyers, first-time move-up buyers and investors." Richard Cosner, president of Prudential California Realty, says buyers of homes whose prices have declined in the last 18 months from $400,000 to $200,000 must compete with multiple bidders. "For the first-time homebuyers and for that bottom tier of homes, we've found what the bottom of the pricing is," Cosner says.

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