Homebuyer Tax Credit 2009 Forms and Rules Now in Place

________________________________________ The Treasury Department has moved at record speed to implement one piece of the new American Recovery and Reinvestment Act of 2009 Act. The Treasury Department and the Internal Revenue Service which will manage it announced on Wednesday that forms and regulations are already in place for homebuyers who wish to claim the first-time credit enabled under the act. The credit is available to homebuyers who purchase a home before December 1, 2009. In an effort to make the effects of the credit felt quickly in the economy, homebuyers can claim the credit either on their 2009 tax return or immediately on the 2008 return due by April 15, 2009. The tax credit represents 10 percent of the purchase price of a home up to a maximum of $8,000 or $4,000 for married taxpayers filing separate returns. The $7,500 credit that was authorized under earlier legislation last year was actually a 15 year loan; the new tax credit does not have to be repaid by the homeowner under ordinary circumstances. The credit does have to be repaid if the homeowner sells the home in less than 36 months or if the home ceases to be his principal residence during that time. For the purpose of this credit, a first time homeowner is defined as one who has not owned a home for the 36 months ending on the date of purchase. The credit is available to taxpayers with adjusted gross incomes up to $75,000 or $150,000 for married taxpayers filing jointly. Above those income levels the credit is phased out gradually. Homeowners who purchased a house between April 8 and December 31, 2008 are not eligible for the new credit. They are covered by the earlier legislation and can claim the $7,500 repayable credit. Forms and instructions for claiming the credit on 2008 tax returns are available at www.irs.gov. The form number is 5405.

NEW Mortgage Fraud: The Short Sale Scheme

Don’t Allow yourself to be involved in Short Sale FRAUD!

Some homeowners, faced with the prospect of losing their homes, are attempting to sell their properties prior to default. One method that is quickly growing in popularity as an alternative to foreclosure is the short sale.

In a short sale transaction, the amount owed on the property exceeds the property’s actual value, and in most cases, the homeowner is unable and/or unwilling to continue making the loan payments. In the current market, short sales have become more attractive to the lender due to decreasing property values.

As more and more financial institutions and their loan servicing partners consider alternatives to foreclosure, the sale of the property prior to completion of the foreclosure sale is a viable option towards mitigating losses. As the real estate market looks for price clarity in down markets, there are some new schemes to defraud banks.

Short sale for profit is becoming increasingly easier to detect.

Fidelity National Financials monthly newsletter ‘Fraud Insights’ cites a recent example involving a property where the husband and wife held the title. They proceeded to deed the property to their trust and a relative, who also served as their attorney, and signed the deed using a Power of Attorney. The title company handling the closing asked to see a copy of the trust and discovered it was a land trust. Land trusts were no longer valid in the seller’s state. Attached to the trust document was also an “Assignment of Beneficial Interest” that assigned beneficial interest of the property to the attorney’s firm.

This scenario sent up red flags for the title agent working on the transaction. The agent also received two settlement statements, which per the attorney’s company, were to be used in two separate closings; one for the amount agreed upon by the lender for the SHORT SALE to the seller’s trust, and the other for an increased amount, which would be given to the actual buyer.

Unbeknownst to the lender, the property was being sold for a higher price than initially agreed upon with the borrower. The attorney’s company stood to make a five figure profit once both transactions were completed. In the end, the title company decided not to insure or participate in closing the deal.

While this case may seem easy to spot, not all companies are as diligent and key documents often slip through the cracks. These types of cases are happening more often, and the fraudulent acts go undetected. When fraud is committed successfully, the industry as a whole is affected.

Short sales are an effective way for lenders to mitigate losses and maximize payment on most of the debt owed on a defaulted mortgage. Communication between all parties involved in the transaction is the best method to ensure fraud schemes are caught in the early stages of the transaction. You do not want to be prosecuted for Fraud and loose your home, too.

When loan servicers and sellers enlist the services of an asset management company, they get the expertise that comes with the management company’s frequent exposure to REO sales. Asset management companies will play an important role in handling the increasing volume of short sale offers, often recognizing the signs of fraud, and when appropriate, declining closing when it appears the lender may be at risk.

The crash of the mortgage market was helped by “Exotic” Loan Programs provided by Alternate Loan & Sub Prime Lenders. Borrowers were able to obtain loans they could not afford with terms that the market could not sustain

Given the increasing number of short sale transactions in many markets, preventing fraud is the next step on the road to price clarity and the return of liquidity in the credit markets.

HomeSaver Advance Program to Assist Delinquent Homeowners

HomeSaver Advance, a part FNMA’s larger HomeStay initiative, is not for everyone, but for some borrowers, especially those who have been derailed by temporary events such as a medical emergency, it could be an excellent solution. HomeSaver Advance is designed for the borrower who is otherwise capable of meeting his obligations and will be able to resume timely payments once the arrearage is brought current. Under the program Fannie Mae authorizes its servicers to offer an unsecured personal loan that will enable a qualified borrower to cure the payment default on a Fannie Mae owned or securitized loan. The personal loan has fewer up-front costs and can be put in place more quickly than many other options. HomeSaver provides funds to pay past due balances of principal, interest, taxes, insurance (PITI), and up to six months (in some cases 12 months) of home owner association (HOA) fees. Escrow advances and advances for (servicers') attorney fees can also be covered. Late fees and some other costs are not eligible. The advance requires the borrower to sign a promissory note for the funds, payable over 15 years at a fixed interest rate of 5 percent. No payments are required for the first six months nor does interest accrue during that period so the advance is amortized over 14.5 years. There is a $600 workout fee paid to the servicer. We assume this is a cost to the borrower. Delinquent home-owners can borrow the lesser of $15,000 or 15 percent of the original unpaid balance. The cash after fees is applied directly to the arrearage. The homeowner never receives any money in hand. Mike Quinn, Senior Vice President for Single-Family Credit Risk Management said in a corporation press release that "HomeSaver Advance will help Fannie Mae streamline its loss mitigation efforts and offer loan servicers a new way to cope with a delinquent loan. Our research shows that most borrowers become delinquent because of a temporary life event or hardship. This loan can offer these borrowers another alternative, and help prevent a temporary setback from becoming a foreclosure." The corporation is undertaking the program in anticipation that it will reduce the number of delinquent loans it purchases from its mortgage-backed securities trusts and the fair value losses it would suffer in connection with these purchases. HomeSaver Advance should be available to all Fannie Mae Servicers by April 15, 2008.

Will FHA Loan Limits Increase, too? YES on 6MAR 08

6MAR08 just in! Unbelievable NEW LOAN LIMITS go to www.HUD.gov to look up your County Loan Limit.
Everybody keeps asking if FHA loan limits were increased with the Economic Stimulus Act, and if so, by how much? The President signed the final version of the Stimulus Act on Feb. 13, and yes, FHA maximum loan limits are increased! There's a lot of confusion and misinformation out there, mainly because there's a lot that we don't know yet.
But there is plenty that we do know, and it is great news. We are only going over the single-family provision of the Act, of which we do know:
FHA maximum loan limits are increased
The increase is for FHA loans that are approved on or before Dec. 31, 2008.
$271,050 is the new FHA floor, which is based on 65% of Freddie Mac current limits. The previous floor was $200,160, which was based on 48% of Freddie Mac limits.
The new limits will the lesser of
125% of the area median price; or
$729,750, which is 175% of 2008 Freddie Mac limits
HUD has 30 days after enactment to define the area median prices in the country and publish the new loan limits. (Mid March 2008?)
This means that all FHA limits will be increased by something. The areas with low median prices will go to $271,050. The areas with high area median prices can go as high as $729,750. But until we know what HUD will use for area median prices, we won't know what any of the exact amounts are.
If we were to speculate, and assume that HUD uses the same area median prices that they have been using all along for FHA loans, we can surmise some of the new limits. This is because current maximum loan amounts that lie between the FHA floor and the FHA ceiling are based on 95% of the area median price. To figure out what 125% of median is: (a) divide the current maximum loan amount by 95% to arrive at the median; then (b) multiply times 125% to arrive at the new figure.
For example, in Richmond, VA - Chesterfield County MSA, the current limits are $261,725. Divide that number by 95% and you arrive at $275,500. as the area median price. Multiply $275,500 by 125% for the new maximum loan amount of $344,375. This formula only works for areas that are between the floor and the ceiling.
Also keep in mind that the formula still assumes that HUD will use the same area median prices that they've used all along. If HUD redefines the Areas, this calculation will not work!
The Happy Fact is, all FHA limits across the nation are going up, and it looks like they will all be going up by 30% or more! The way that we see it, this is lots better than the Fannie and Freddie increases. AND a lot better, for lenders and brokers who are FHA approved.

Credit Counselors & Short Sales May Bail Out Mortgagors

Here is basic information regarding people who do legitimately seek to rescue homeowners who are delinquent on their payments. The first of these are credit counselors. These are organizations, usually non-profits, who represent borrowers in negotiating with their mortgage companies. It is a confusing process and the people who work for these agencies are knowledgeable about the process. BUT, again there are a lot of profiteers out their operating under the guise of helpers who seek only to help themselves. For a list of legitimate credit counselors visit the following websites: • Neighborhood Works America • Department of Housing and Urban Development • Department of Justice The second group is a subset of the group we have been warning about; persons or companies that seek to purchase your property to get a deal. The trick is that some of these buyers are actually legitimate. They try to purchase distressed properties through what is called a short sale; i.e., to convince the mortgage company to settle the debt and release the mortgage for less than is owed on the loan. This is tricky is several ways. First of all, it may be hard to tell the honest foreclosure investor from the scam artist, second, mortgage companies are not often eager to participate in a short sale, and even if they are so inclined the process can be cumbersome and, particularly now, time consuming as loss mitigation specialists are buried in short sale requests. Some of these short sale investors are very skilled at working through the process with mortgage companies, others may not know the ropes any better than the homeowner who is being foreclosed, and some will utilize a third-party service that, for a hefty fee, negotiates with the mortgage lender. In the latter case the investor may request a good-faith payment from the homeowner to test his sincerity and insure his cooperation before paying the third party. This should not be a large amount, perhaps $200 or $300. Every mortgage lender has its own process for handling requests for short-sales, but in general it works like this. The homeowner receives an offer to purchase, usually below both market value and the mortgage balance. The homeowner should check the would-be purchasers references (other homeowners who have sold to the investor or perhaps references from the Better Business Bureau or the purchaser's bank.) The first document in the process is a signed purchase agreement clearly stating the offer. The homeowner is generally not permitted to pull any money out of a short sale and lenders will often refuse to pay a real estate commission but some experienced investors will sign a side deal to purchase personal property such as appliances or window treatments or will pay moving expenses to help the homeowner get started again. Once the lender is approached with the offer it is going to require most if not all of the following from the homeowner. • A "hardship" letter which details why the homeowner is unable to continue making his mortgage payments or pay the loan in full. • An authorization to release information so that the purchaser can negotiate directly with the lender to purchase the house; • A financial statement detailing assets, income, and liabilities; • The last two years federal tax returns; • The last two pay stubs for each signer of the mortgage; • The last two bank statements • A copy of the listing agreement and/or sales flyers and ads if the house has been for sale. Some lenders will insist that the house be on the market for a period of time before they will consider a short sale. • If there is a second mortgage involved, a letter from the junior mortgagee agreeing to the short sale (the junior lender will typically not receive any proceeds from the sale.) The lender will commission a BPO or broker's price opinion which is cheaper and less thorough than an appraisal in order to determine the fairness of the offering price. Most lenders will not deal with a partial short sale package and will refuse to even look at a package that is not complete. Most will, once they receive a complete package, put the actual foreclosure on a temporary hold however some refuse to stop the process so the homeowner would be wise to move as quickly as possible to assemble the relevant information and get a hearing from the lender. We have anecdotal information that some loss mitigation specialists are coping with up to ten times the normal number of short sale requests so the process may take a while. And there are some other caveats. A completed foreclosure will wipe out all liens that are secondary to the first mortgage - i.e. home equity lines, second mortgages, condo fees in those state that do not grant condo loans super-lien status. A short sale does not do this. We are hearing stories of second mortgage lien holders insisting on receiving payments on those mortgages even after the sale is complete. Also, unless pending federal relief legislation is enacted, the homeowner will receive a 1099 form from the lender for the amount of the debt that is forgiven in the short sale. Federal taxes will be due on this amount which is considered "other income." So why even bother going through the aggravation of a short sale? First of all, while having a delinquent loan will definitely impact your credit report and score it will not do so as much damage as a completed foreclosure. Second, the short-sale usually prevents the lender from proceeding against the homeowner in court to obtain a judgment for any deficiency after the property is sold at foreclosure auction (something to look for in the agreement.) Last, if the short sale package is submitted before the foreclosure is initiated it may keep the borrowers name out of the paper which can be humiliating.

TransUnion has MODEL to find Authorized User Abuse - BE AWARE!

Artificially boosting one's credit score is a common fraud trend in the mortgage industry. In order to help the industry determine the difference between the legitimate use of an authorized user trade line and provide a substantial risk assessment when the practice is being abused, Trans Union a Chicago-based provider of credit and information management is delivering a service to mitigate authorized user abuse. TransUnion, after working with several major mortgage lending institutions, has developed a customized service that enables lenders to identify consumers who may have added authorized user accounts to artificially inflate their credit report and standing. Based upon this analysis, TransUnion developed a set of highly predictive credit characteristics. Through a combination of these credit characteristics, TransUnion can help lenders identify consumers who may have significantly improved their credit profile by adding authorized user accounts to their credit file. TransUnion's service can immediately assist lenders in improving their assessment of credit applicants and collection practices on recently approved loans. This analytic approach was applied to nearly two million approved mortgage applicants in which TransUnion examined the extent authorized user accounts were being used to potentially "boost" credit scores. Taking a look at mortgage approvals during a three month period from July through September 2006, TransUnion recognized that approximately 50% of this loan pool was potentially impacted by this practice. By deploying a combination of "authorized user" and "non-authorized user" credit characteristics, TransUnion will notify financial institutions of potential artificial score inflation. The service is customized according to a lender's specific credit criteria and risk threshold and is available online or in batch delivery. Once these questionable authorized user trade lines have been identified by the customer, TransUnion's real estate division can initiate modifications to the TransUnion credit file that allows customers to obtain a rescored TransUnion credit report absent the authorized user trades. Add to that TransUnion's ability to monitor and trend market activity as it relates to this abusive practice and the benefits of the service to price mortgage loans based on real risk versus an inflated value becomes even more appealing. "The practice of artificially boosting one's credit score is not just limited to the mortgage industry and the practice is not going to go away for quite some time," said Dina Anderson, senior director, analytic and decisioning services. "The key is to help the industry and our customers determine the difference between a legitimate use of an authorized user trade line and provide a meaningful risk assessment when the practice is being abused." TransUnion's analysis concluded that the vast majority of the newly approved mortgages were legitimate users of authorized trade lines. By using a newly created set of credit characteristics focused on this industrywide issue with an advanced analytic platform, TransUnion was able to identify small, manageable pockets of consumers that were up to 70 times more likely to exhibit suspicious authorized user account patterns. These high-risk consumers demonstrated a significant, recent change in their credit profile and subsequent credit score by adding authorized user accounts to their respective credit history. In addition to its tailored approach, all of the TransUnion developed risk models, including VantageScore, a new scoring model, do not take into account authorized user trade lines when calculating a risk score. "As the market adapts over the next several years in terms of the way it manages the risk of the authorized user practice, VantageScore and TransUnion's custom authorized user [service] provides lenders with an immediately available solution to more accurately assess the credit risk of a consumer with authorized user accounts," Ms. Anderson added. Before you consider paying a huge fee to rent someone elses "Good Credit" know the Mortgage lenders are looking and may choose to decline your mortgage loan application.

Pay Attention When Buying a FLIP!

Flips. You can almost spot them from the listing sheet. They tend to be among the smaller homes in an area and the listing sheet highlights the fact of new carpet, new appliances, and/or fresh paint. Sometimes a major selling point is that a buyer can "rent to own." And the houses are almost always vacant. These are all symptomatic of an investor owned home that was bought with the idea of doing a quick fix up before reselling or "flipping" the property. Some investors buy a house and rent it out in its original condition for a year or two before doing a rehab, others buy with the idea of being in and out of the property in three or four months with a substantial profit so you can't always identify a flip from property deeds or sales history. But, if the deed tells you the house was purchased only months earlier you know for sure. Flips are beginning to crowd the market as home sales slow. Investors who mistimed the market are finding that it is taking much longer than they planned to resell their property. Some who bought with the idea of renting for a few years to allow some natural appreciation are seeing their adjustable rate mortgages resetting to levels incompatible with the local rental market. Many investors who read too many books, watched too many infomercials about getting rich in real estate or watch the numerous house flipping TV shows went into the process with insufficient capital and are now trying to get out with their shirts still on their back. So why should a buyer care if it is a flip? Several reasons. First of all, from the perspective of a bargain hunter, a "motivated" seller is sometimes a fairly desperate seller. Aided by a little research a flip could be a bargain buy. The necessary research is not complicated. A trip to the county land office, registry of deeds, or wherever real estate documents are recorded and kept in your locality will give you all the information you need. The deed will tell you when the house was purchased, by whom, and for how much. The "by whom" can tell you a lot. Is the house owned by an individual or a company? If it is a construction company they will have a quite different expense ratio for any work they did on the property than will a non-builder. If it is one of those companies that advertise they buy houses, they may have deep pockets that will make them poor candidates for a cutthroat negotiation. With the Internet and Google you can usually find out a lot about any individual or company recorded on the deed. The deed will also provide clues about the owner's financial condition. Mechanics and tax liens will show up on record as will any foreclosure activity or bankruptcy. In the latter two instances you will have a heads up that you may not be dealing directly with the owner in any negotiation but with the bank or the courts. Another recorded document is the mortgage. From this document you can derive the amount the buyer put down - don't be surprised to find it was zero - and the terms of the mortgage; whether it is a fixed rate or adjustable, what the rate and payment is, and, if it is an adjustable, when and by what index and margin it will adjust. Armed with this information you will be better prepared to make an offer. But there are reasons to beware of flips. While it is unlikely that an innocent bystander would be dragged in, there are networks of con artists who buy and flip properties repeatedly, escalating the price each time and pulling cash from each transactions. These criminals usually disappear once they have driven the price up past any realistic number, sticking the bank with the property and the debt. However, the expression "quick and dirty" might have been invented to describe some of the methods used in turning properties around for resale. Not to say that all or even most investor rehabs are shoddy, but it is something to bear in mind if you are interested in buying a home you suspect may be a flip. This is the time for a really thorough home inspection. Pay extra if necessary to have the inspector crawl through the attic, basement, and crawl spaces. You want to know one important thing. Did the seller merely put lipstick on a pig? Have problems been repaired or just covered up? New spray paint made especially for the purpose do a good but temporary job of covering scarred and stained laminate countertops but those stains will be back within months. Wallpaper can camouflage crumbling plaster or water stains from ice dams or leaking siding. Insist that the inspector pull the electric box to check for problems (corroded connections, aluminum wiring). Ask if he seems any evidence of water intrusion in the basement or attic or if there is any sign of insect or fire damage. If necessary call out a separate expert to check the condition and efficiency of heating and air conditioning systems. Are the appliances new? If so are they of reasonable quality and with a factory warranty? If they are not new, are the heating elements working; the dishwasher tub relatively rust free; is the energy rating one that won't break the bank? Carpeting and resilient floor coverings can be new and still be a piece of garbage. Cheap carpeting will not hold up and will be unpleasant to walk on barefoot or for a baby to crawl on. Inexpensive vinyl floor coverings do not always adhere properly, may tear easily, and often quickly lose shine and stain resistance. There is nothing intrinsically wrong with a flip. Many investors do a fine job of returning distressed properties to useful life and there are many good deals out there right now. Just know what you are buying, go for a bargain if that appears appropriate, and don't be blown away by a slick job of cosmetic repair.

Saturday, December 16, 2006

Mortgage Insurance Deduction

First Time Home Buyers have another incentive to buy now. The Mortgage Insurance factor for 100% mortgage loans has been reduced AND mortgage insurance will now be deductable on 1040's thanks to the 109th congress.

Basically this means that those homeowners who put down less than 20 percent of the purchase price in securing a mortgage can now deduct the cost of the private mortgage insurance (PMI) they were required to purchase to protect their mortgage lender in the event of default. This amount can now be treated as mortgage interest by itemizers when filing Schedule A of the federal tax return.

With monthly PMI payments tending to run in the vicinity of $100 or more per month this will be bit of a help to homeowners who are using all of their interest rate deduction but still owing income taxes. There was a cap in the original legislation in which the amount that could be written off begins to decline incrementally when income reaches $100K, but this seems to have disappeared in the final bill.

Passing such a bill does not mean that everything will proceed as written. The IRS will issue regulations interpreting the act and hopefully this will be done in time for the April 15 filing deadline. If you are responsible for paying PMI make sure that your tax professional is aware of this new legislation and understands how it may result in a slightly lower price tag on the bottom line of your 1040.
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Covenants and Restrictions May Restrict Options For Your Home

Just because your home is your castle doesn't mean you can build a moat! Before purchasing raw land, a home, or a condo check what you can and cannot do with it. Virtually every piece of real property has some type of restriction or covenant that may limit development or usage. Many of these are restrictions imposed by local government. For example, most communities have zoning or building regulations for setbacks, i.e. the distance that must be maintained between any structure and the property lines. If this could spell the end of your dream to add a sunroom off the side or an attached garage, better you know this up front. Communities often restrict home businesses. It is doubtful you would ever get in trouble running a website out of the family room, but a home beauty shop, real estate office, or any business that would generate unusual traffic are verboten in many areas that are residentially zoned. While it isn't common, some communities limit lot coverage or floor area ratio (FAR). This has generally been a restriction on commercial building in order to alleviate congestion and improve street level light and ventilation. However a type of FAR has been invoked recently in an attempt to control ‘mansionization’ in residential areas. You might want to know this if you envision a big addition or plan to tear down an old structure and rebuilt. These types of restrictions are generally found in local government publications such as the building code or zoning ordinance and a good real estate attorney should be very knowledgeable about them. However, the attorney you hire to review your real estate contracts and certify the title on your new property may not suspect that you plan to add a wing to or open a doggy day care in your home and thus should not be expected to warn you that you can't. Ask specifically if your plans can be accomplished without extensive and expensive legal expense or even at all. Any towns with historic districts the district commissions can be both powerful and vicious. Their mandates may allow them to control all exterior changes to the structure including new windows, siding, even paint color. Sometimes these restrictions apply beyond the actual district to homes that are visible from it. Another type of covenant may be found in your deed. Developers often put in protective covenants when building a subdivision or condominium project. People buying condos are generally aware that there will be restrictions on ownership and these are generally contained in the master deed, individual unit deeds, or both. But subsequent actions by the homeowners association (HOA) might have added others so it is important to check HOA minutes. Condo restrictions commonly include what can be done to or on the exterior of individual units but they may also impact on usage. For example balconies are a frequent target and grills, birdfeeders, or any kind of storage such as for bicycles or strollers may be forbidden. Putting in a greenhouse window or skylight, parking a boat or an RV, or buying a dog may run an owner afoul of the HOA and the latter example can be devastating if the condo owning pet owner is caught off guard. Buyers may not be aware, however, that individual subdivisions often have covenants put in place by the developer. Architectural covenants are common, perhaps requiring minimum square footage for new building or limiting new homes or renovations to a certain style or requiring that an architectural committee review all exterior changes. Subdivision covenants can require a timeline for trash barrels to be brought in from the curb or for garage doors can be open, or the kind of fences that can be erected. This is also a place where usage can be regulated, from allowable businesses to the number and type of animals that can be kept, to what can be parked in the driveway and for how long. Developers move on, and in the case of single-family developments, the HOA may do the same, no longer enforcing covenants or the additional rules and regulations they may have adopted when the subdivision was young. Under certain conditions a totally dormant HOA can arise from the dead to the dismay and sometimes-financial detriment of persons who bought into the area with no knowledge there had been such an entity. True story. In 2004 a woman bought a small vacant lot, one of the last remaining, in a 1960's development of 400 homes. No one seemed to notice the cinderblock foundation being built on the land but everyone noticed when two flatbeds moved down the street, each carrying half of a manufactured home. What ensued must have been worthy of U-Tube. It was the middle of the day but there were enough neighbors around to physically block the flatbeds, the police were called and settled everyone down, and the HOA, last heard from in the 1980s, was reestablished in less than a week. It is now an organized and highly efficient group, which has made enormous improvements to the appearance and cohesiveness of the neighborhood. But one new homeowner who had bought property weeks before this happened was told he could not build a home for his sister on a second, non-conforming lot included in his purchase. He subsequently sold at a loss and moved on. The manufactured home violated several town restrictions as well as the subdivision covenants, but once in place it is doubtful anything would have been done. These covenants and restrictions are largely a good thing. They were enacted in the first place to keep communities and neighborhoods attractive and livable (what could be worse than having your new neighbor hauling an engine at 7 a.m. in his make-shift driveway auto repair business). But before you buy, you need to make sure that what you want to do with your property can be done. If you have a plan for immediate changes, even if it seems straightforward, make it a condition of your offer so that you and your attorney have time to check out its permissibility on the site. Make sure your attorney reviews not only town ordinances (a local real estate attorney should know them by heart) but also your deed, any master deed that may apply to your condo or subdivision. As to the HOA that arises like Lazarus, there may be nothing you can do but accept it for its virtues and take the hit.

New CHARM Booklet

New CHARM Booklet
Explains "Exotic" Adjustable Rate Loans

New CHARM Booklet to Explain Adjustable Rate Mortgage Programs

The Federal Reserve Board seldom giveth, but they did send home buyers and owners as well as real estate professionals a bit of a holiday present last week. The Board in conjunction with the Office of Thrift Supervision issued a revised version of its venerable Consumer Handbook on Adjustable-Rate Mortgages (the CHARM booklet.) Under the Board's Regulation Z, every lender must provide a copy of the CHARM booklet or a suitable substitute to every borrower who makes application for an adjustable rate mortgage. The booklet which was originally published in 1987 has been periodically updated but with the current concern about borrowers overextending themselves by choosing ARMs during a period of rising rates and putting themselves at even greater risk by picking so called exotic variations on ARMs such as interest only or option ARMs, the revised booklet is timely and one hopes also helpful. And, indeed, it is discussions of interest only and option payment mortgages that are the focus of the new CHARM booklet which describes how these loan variations work and does so quite effectively. The booklet features a Mortgage Shopping Worksheet which provides a list of the right questions to ask a lender (What is the initial rate and how long does it apply? Is there a prepayment penalty and how long does it last? And perhaps most importantly - What is the most my monthly payment can be after one, three, and five years?") There are roughly two dozen of these questions and a form to record the answers for a fixed rate mortgage and several ARMs side-by-side. The Board advises borrowers to ask the lender for help in filling the form out. We would suggest that the lender also be asked to sign it once it is completed. The definitions of ARMs and the various components such as indices, margins, caps, adjustment periods, and so forth are easy to understand and well illustrated with hypothetical cases that are clear and use numbers that are easily converted to real life situations. Sprinkled throughout the booklet are definitions and tips - hybrid ARMs, no-doc/low-doc loans, mortgage brokers v. lenders, and a considerable portion of the 37 page publication is devoted to consumer cautions - negative amortization, discounted interest rates, payment shock, graduated payment loans. There is also an end-of-book glossary for quick reference. If you are a consumer the new publication may not be available from your lender until October 1; Regulation Z allows them to use up existing stocks of the older publication until then. However, you can download (and print) a PDF version of the new booklet. Lenders, or other real estate professionals for that matter (not a bad little marketing tool for a real estate agent), can order up to 100 copies of the brochure free of charge from a regular mail address that is available at that web URL.