October 2007

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Home Base
A publication of the American Homeowners Grassroots Alliance and the American Homeowners Foundation   www.americanhomeowners.org

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October 2007      


In this issue of Home Base:

Congress Readies Mortgage Market Remedies
 
Home Selling Tips for Slow Markets

AHGA Pushes Telenvironmental Solutions

Easy Ways to Reduce Home Energy Costs

Prospects for Healthcare Savings Improving

Steps Underway to Improve Mortgage Disclosures and Lending Practices
 


Congress Readies Mortgage Market Remedies

The Capitol hill progress comes on top of Administration steps to help the real estate market.

President Bush has announced a number of steps to strengthen the deteriorating real estate market, and Congress is working on more ambitious efforts. Administrative changes announced in August will allow the Federal Housing Administration to guarantee mortgages for some delinquent homeowners. It is intended to help owner-occupants who are 90 days or more behind in payments by letting them refinance at more favorable rates than are currently available. To offset the higher risks, the FHA will begin charging "risk-based" mortgage insurance premiums. Current FHA premiums are 1.5% of the mortgage, and the new rates would vary but could be as high as borrowers 2.2% for the riskiest borrowers. The Bush administration is also supporting legislation that would eliminate FHA’s required 3% down payment and increase maximum size of FHA insured loans from the current $362,790 to $417,000.

In September the Office of Federal Housing Enterprise Oversight modified rules governing Fannie Mae and Freddie Mac lending programs. The changes will allow them to buy more subprime loans thereby aiding mortgage market liquidity and helping more homeowners avoid foreclosure. The Administration also supports temporarily increasing the maximum size of Fannie and Freddie’s loans, currently $417,000, if it is tied to increased regulation of the companies.

The American Homeowners Grassroots Alliance, many other consumer groups and real estate organizations believe more aggressive action is needed, and many members of Congress agree. Senator Charles Schumer has introduced legislation that would allow Fannie and Freddie to buy an additional $145 billion in mortgages, a substantial increase over the amount proposed by the Administration. Fannie and Freddie would be required to use half the authorization to refinance ARMs of borrowers with interest rate reset dates between June 2005 and December 2009, and who can meet Fannie and Freddie's underwriting standards. Similar counterpart legislation in the House, sponsored by Financial Services Committee Chairman Barney Frank includes a provision that would create a new National Housing Trust Fund to underwrite affordable housing programs.

Legislation to expand the FHA lending program is even further along in the process. In September the House of Representatives approved a bill that would eliminate minimum FHA down payment requirements and increase loan limits in expensive real estate markets well above current limits. It also would provide revenue for a new National Housing Trust Fund, allows the Secretary of Housing and Urban Development to increase FHA mortgage ceilings by another $100,000 if necessary, and allows FHA to back 40 year mortgages. The Senate Banking Committee also passed a slightly less generous FHA reform bill in September. Prospects for passage of a Senate FHA reform bill appear good, and if the House and Senate can work out their differences, the legislation could be on the President’s desk before the year is out.

Other legislation that will help beleaguered homeowners is also in process. In late September the House Ways and Means Committee passed the Mortgage Cancellation Tax Relief Act, H.R. 3648. The Administration also supports the measure. The bill forgives income taxes due on mortgage amounts that have been forgiven or loan losses on foreclosures, and also extends the deductibility for private mortgage insurance payments, set to expire at the end of this year, for another seven years. Due to declining home values many homeowners owe more on their mortgage than the home is worth, and do not have enough money to make up the difference if they sell their homes. Lenders who foreclose on those homeowners know they will lose money on the loans. Under current law the lenders’ losses are also considered taxable income for the foreclosed homeowner. In light of the time and expense involved in a foreclosure, some lenders are willing to forgive a part of the mortgage debt to encourage the homeowner to sell the home at a loss, which also makes it possible for the homeowner to avoid the severe credit blemish (and probable bankruptcy) of a foreclosure. This provision would eliminate the dilemma for those homeowners who would find themselves still with significant tax liabilities to IRS as a result and no way to pay it.

The extension of the tax deduction for private mortgage insurance is a boon for buyers. By improving housing affordability it will encourage more first time buyers to become homeowners and help move-up buyers as well, both of which will also help stabilize home values. Because of congressional budgetary rules requiring revenue neutrality, the bill also includes restrictions on other real estate tax deductions to make up the loss in tax revenues as a result of the changes. To get those revenues the bill would increase taxes on profits from the sale of second homes. Currently they are subject to the same capital gains tax exclusion as current homes ($250,000 for singles, $500,000 for couples), providing the owner had used it as a principle residence for two of the previous five years. This enables homeowners with second homes to avoid those taxes if they convert the second home to a principle residence for two years before they sell it. The bill would limit the amount of the exclusion to the portion of the time, during the entire term of ownership, that the homeowner used the second home as a principle residence. Profits above that amount would be subject to the capital gains tax rate.

AHGA supports all of these efforts because it believes that they are necessary to stop, or at least reduce, further declines in home values. “A majority of housing experts now believe further declines in home values will occur in 2008 as a result of the large number of adjustable mortgages that will reset next year” noted AHGA President Bruce Hahn. “That huge loss of home equity will reduce the net worth of all homeowners, including those who didn’t finance their homes through risky mortgages. We don’t like the way the Ways and Means proposal treats owners of second homes, and it could also have a minor impact on home values in resort areas. Fortunately owners of second homes will also benefit because they and all other homeowners will preserve most or all of the home equity in their primary residence if these proposals are enacted,” he added.

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Home Selling Tips for Slow Markets

Many homes are languishing on the market, and home sellers mustn’t skip any opportunities to improve their salability.

Sellers
should always consider cost effec
tive steps to increase the selling price and improve the likelihood of home sales. With the inventory of homes for sale now at record levels, those steps are even more important, especially since many of those home sellers are under severe financial pressure as a result of adjustable mortgage rate increases and/or declining values in their area.

Some of the techniques that are used inf
requently in sellers markets can make a big difference in today’s buyers markets. For example if you are moving out of the area or have your heart set on a nicer home, offering a lease option will expand the pool of potential buyers. It can offset other substantial costs in many cases, such as the carrying costs of an unoccupied home. Under a lease option the buyer can pick the home they want and will have the chance to save more money for a down payment. They are usually structured so the seller ends up with more money at the end of the lease than they otherwise would have received in rent if the buyer does not exercise the option. Conversely the buyer usually gets at least a partial credit of their monthly rent towards the down payment if they do buy your home, so their net rental costs are reduced. There are also significant risks involved, so home sellers need to do research and get expert advice before they decide on this alternative.

Partial owner financing is another alternative that can help you sell your home in slow markets. For example, offering to accept part of a down payment in the form of a note due at some future date can also make it possible for a cash-strapped but otherwise qualified buyer to purchase your home. It can also be a win-win – an example would be if you need to save for college tuition and you can get higher rates on that note than you can get from the bank, and it comes due before they start their freshman college year. Keep in mind that if a foreclosure is necessary the entire primary mortgage must be paid off first (that’s why these notes are called “seconds”). For that reason the value of the home and the buyers equity when the note comes due are important things for sellers to consider.

Other steps sellers can take to increase affordability for buyers include assistance with their closing costs, paying to reduce (buy down) their mortgage rate, and offering a bonus or higher than normal commission to the buyers agent to entice those buyers agents to try harder to convince the buyers to pick your home. Many buyers agents won’t be swayed by that temptation because they respect their fiduciary duty to put the buyer’s interests above their own. However, the comments of many participants in real estate agent blogs make it clear that the share of the real estate commission set aside for the buyers agents determines which homes they tell their clients about and how hard they promote them. Often there may be a particular expressed concern of a potential buyer (such as a perceived need to repaint the house, etc.) that if addressed can pave the way to a sale if you can solve it.

Many of these solutions cost money, of course, but the costs can also be built into the selling price. Sellers need to determine the amount they need to net from the sale. If you take any of these steps, and can still make your net, they are worth the effort if they make the sale possible. There are many other steps that home sellers should take to enhance their home’s salability. For a summary go to AHF’s free Top Ten Home Sellers Tips. Also consider further research for more ideas. The American Homeowners Foundation’s and other real estate websites, libraries, and bookstores have many other resources (The Foundation’s popular book How To Sell Your Home Fast! is one of them).

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AHGA Pushes Telenvironmental Solutions

Want to reduce pollution and traffic jams? Become a "telenvironmentalist" and work from home.

One of the biggest workplace shifts is in workplace locations, which are rapidly moving from office buildings to home offices. According to IDC, a national research firm, there are between 34.3 million and 36.6 million home office households in the United States alone. At least 18 million are home-based businesses according to U.S. Census figures. The balance are telecommuting employees of businesses of all sizes or governments at all levels. A recent survey of members of the American Institute of Architects revealed that home offices are the most popular special function room of home buyers for the third year in a row.

The shift to teleworking is helping reduce environmental pollution and global warming. A recent Consumer Electronics Association study determined that a full time telecommuter who lives 22 miles from their company’s office would save 320 gallons of gasoline and reduce CO2 emissions by 4.5 to 6 tons per year. At $3.00 per gallon gasoline prices they would also save homeowners about $1,000 in cash, not including savings in automobile maintenance costs and depreciation resulting from the extra 10,000+ miles they run up annually commuting in the vehicle.
Those individuals don’t contribute to rush hour traffic congestion, which waste the gas and add to the pollution from every vehicle standing or creeping in the traffic jams. They also reduce the maintenance burden on the transportation infrastructure and they defer the need to build out new roads and other transportation infrastructure.

Similar savings result for smart homeowners who shop online. A click of the mouse uses a lot less gas than a trip to the mall, and the mail carrier and FedEx/UPS trucks delivering the goods will be coming down your street anyway. Both online shopping and teleworking also save a lot of time, a precious commodity for all of us in our society where long working hours (Americans work more hours than any other society), leaves too little time for personal relationships and other interests.

For that reason AHGA believes that the U.S. needs to develop a coordinated set of policies to encourage greater adoption of teleworking and the use of Internet commerce. While the federal government has adopted worthy policies to encourage teleworking (7% of federal workers now telecommute), the few proposals to encourage the same thing in the private sector are receiving scant attention. Even worse, some proposals are discouraging both teleworking and Internet commerce.

On November 1, 2007 the Internet Tax Fairness Act will expire. This law prevents states and localities from imposing new taxes on Internet access and forbids all multiple and discriminatory taxes on electronic commerce. AHGA has been urging Congress to support a clean bill to extend the Internet tax moratorium.

Associations representing state government interests have been pushing for legislation to require Internet sellers to collect and remit sales taxes for state and local governments in every other state. There are thousands of local governments, all with different tax rates and this would be a burdensome on small home-based Internet vendors, including millions of eBay power sellers. It would also be an impossible task for millions more homeowners who have their yard sales on eBay and craigslist.

In the early days of Internet commerce, traditional brick and mortar retailers had a legitimate concern about the advantages held by Internet vendors who didn’t collect sales tax. Today the cost of marketing over the Internet has dropped dramatically. Almost all brick and mortar retailers, large and small, have their own ecommerce sites. As a result the remaining support for the “Streamlined Sales Tax Initiative” comes from state governments’ desire for more tax revenues. This comes even as tax revenues at the state and local level have risen faster than inflation in recent years (thanks in no small part to home appreciation and commensurate growth in real estate tax revenues).

For these reasons AHGA believes its time to look for new ways to encourage Internet commerce and teleworking. Many state and local governments offer sales tax holidays for back-to-school expenses. The federal government offers tax credits for the purchase of energy efficient hybrid vehicles, for energy efficient new homes and for spending to make existing homes more energy efficient. Many states offer similar programs. An appropriate next step would be for state legislators and governors to enact a permanent Internet sales tax holiday in order to reduce air pollution in their state. There would be many direct and indirect offsets to reduced sales tax revenues, such as a cleaner environment and savings on the maintenance and expansion of the state’s transportation infrastructure. Such legislation would also reflect the sentiments of most constituent homeowners and other consumers, who in public opinion surveys consistently oppose Internet taxes.

At the federal level Congress could also help by enacting legislation to encourage teleworking. Tax credits for employers and consumers for such things as computer hardware and broadband expenses would defray the costs of establishing teleworking programs and would encourage the creation of more home-based businesses. Incentives and subsidies to expand broadband access to unserved rural and underserved urban communities would also help that process. They would also open up educational and healthcare opportunities to many of those homeowners.

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Easy Ways to Reduce Home Energy Costs

Winter is coming, and there are many things you can do to save on energy costs.

There are many opportunities to save energy this winter and for many years to come. Both the American Homeowners Foundation and many other sources offer free tools and suggestions. The Foundation even offers a free Ten Minute Home Energy Audit, which helps you identify the most productive opportunities to reduce home energy costs and offers helpful energy saving suggestions. To get a copy of the free document just send an email with “free home energy audit” in the subject line to AHF@AmericanHomeowners.org.

Kiplinger’s Personal Finance recently published a list of 10 simple ways to go green without going broke:

1.) Insulate your water heater. If it was built before 2004, you can save as much as 10% on your annual water-heating bill by wrapping the tank in an insulating fireproof blanket.
2.) Tune up your furnace. Getting your furnace serviced every two years not only reduces the amount of carbon dioxide it emits, it also cuts your heating bills by up to 10%.
3.) Lower the temperature. The Alliance to Save Energy estimates that you can take 5% off your heating bill for every degree you lower your home’s temperature during the cold season.
4.) Pad those pipes. You can cut heating costs just by insulating exposed hot water pipes in your home.
5.) Weatherstrip your doors. Putting weather-stripping around your front and back doors will net you around $30 a year in energy savings.
6.) Wash your clothes in cold. That uses 50 % less energy than washing them in hot water.
7.) Don’t use permanent press. Employing the regular setting instead of the permanent press setting on you washing machine will conserve five gallons of water per load.
8.) Watch your water flow. Save a gallon of water per minute when you’re doing the dishes by restricting the water flow to a stream the width of a straw. Save another two gallons by turning off the water when you brush your teeth for two minutes.
9.) Fix that leaking faucet. That constant drip, drip, drip isn’t just grating, it’s also wasting water-  2,700 gallons a year to be exact.
10.) Check your toilet tank. If you put a drop of food coloring into your toilet bowl and it doesn’t disappear, your tank is leaking, says Clark. Get it fixed and you can salvage 200 gallons of water a day.

There are many more excellent sources of information on low cost home energy savings the Internet and in your local library. The long term savings are certainly worth a little time Googling on the net or a trip to your local library.

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Prospects for Healthcare Savings Improving

Congress has sent the President a bill to improve healthcare for children, and more legislation is on the way.

As we go to press the big question is whether President Bush will veto the reauthorization to continue and expand the State Children’s Health Insurance Program (SCHIP), which expired on October 1. The proposal would expand health care subsidies to cover 10 million children, an increase of 4 million over the number currently covered. AHGA believes it will eventually save billions of dollars by providing preventive health care to children whose parents can’t otherwise afford health insurance. Those costs are particularly burdensome for lower income homeowners, whose mortgage payments are typically higher than rent would be on homes similar to theirs.

President Bush has promised to veto the bill because of the cost, the substantial tobacco tax increases that would fund it, and its potential for replacing private insurance with government grants. He also believes that the provisions would benefit some taxpayers who can afford to pay for health insurance. While the legislation is aimed at helping families making up to double the poverty level of income ($34,340 for a family of three, or $41,300 for a family of four) although some provisions would allow income ceilings as high as $83,000 for recipients in some cases.

The bill passed the Senate with a veto-proof majority, but the margin for passage in the house was not great enough to override a presidential veto. AHGA supports the measure and hopes that the President will reconsider his veto. With much Republican support in both the House and Senate there’s at least some hope that he will, and at least some possibility for a compromise between the current and expanded SCHIP program if he does.

Meanwhile other more modest and less controversial measures are also moving forward. The U.S. spends more than $1.6 trillion annually on health care, and that figure rises every year. This fast-growing expense—now 16 percent of GDP—has a ripple effect across our economy, tightening the budgets of homeowners, and restricting the ability of employers to create new jobs and maintain benefits to current employees.

The debate over how to reform America’s health care system will be complex. There is no single solution and any incremental improvement is worth pursuing. Among numerous proposals to advance health care programs and benefits there is currently one evolving proposal to reduce healthcare costs that currently enjoys bipartisan support. It will improve the quality of life, save lives, and help bring costs under control.

Health Information Technology (IT) takes the networking and computer technology now used in business and applies it to the practice of medicine. The same systems that run a bank’s ATM network and that monitor a retailer’s inventory can be used to give doctors, health care providers and patients themselves instant access to complete and up-to-date information on personal health history, test results and the latest and best medical research and procedures.

With complete information available whenever and wherever it is needed, doctors can produce more accurate diagnoses, and provide patients with more personalized and more effective treatment plans. Patients can view and update their own records, too, and check their care plans and prescriptions.

Health IT represents a great leap forward in safety, security and convenience. An interoperable and accessible system of medical records means that we no longer have to recount our medical history from memory to every new provider we see. Patient information will reside in a single, electronic location, with access granted only with the patient’s permission, and to only the caregivers they choose.

That access can be matched with a new, high level of electronic security in the form of firewalls, passwords and hardware and software locks. This is a profound improvement over the current system of paper-based records, which are often kept in doctor’s file cabinets and in cardboard boxes in storage spaces. The current system poses threats to privacy and record security itself. Health IT can employ technology tools to keep out unauthorized users, and will also provide an “audit trail” of who accessed the records, when they logged in, what they viewed or edited, and where they logged in from.

Nearly 100,000 people die each year due to medical errors. Many of these deaths come not from a lack of medical know-how but from a lack of communication. Health IT represents a historic opportunity to save lives. With immediate access to vital information on a patient’s allergies, test results, current treatments and prescriptions, doctors can make decisions based on complete and up-to-date facts about their patients. Health IT will end our dangerous reliance on paper files, faxes, phone calls and faulty memories.

Finally, the benefits of Health IT include billions in savings. The U.S. Department of Health and Human Services has found that the adoption of electronic medical records could reduce health spending by as much as 30 percent annually. It’s a good start on getting health care costs under control.

In order for doctors, clinics and hospitals to acquire Health IT systems, federal action is required to lower regulatory barriers, to revise laws so that they accommodate new technology, and to make permanent the government’s infrastructure that supports Health IT. Information technology is a basic part of business, industry, retail transactions, education and entertainment. We should extend its benefits to the practice of medicine, too. Legislation to effect those changes is currently being developed. It needs to be developed in a way to guarantee the protection of patient privacy, but that is doable, and the outcome will be substantial savings in medical costs for all of us.

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Steps Underway to Improve Mortgage Disclosures and Lending Practices

Times have changed, and for some reason a plan rejected three years ago that would help borrowers better understand the costs and fees associated with buying a home now has much wider support.

In 2004, the administration backed down from a plan to “simplify, improve and lower costs associated with obtaining home mortgages.” Faced with strong opposition from the mortgage lending and other elements of the housing community, and their allies in Congress, the Department of Housing and Urban Development (HUD) withdrew the proposal. In hindsight it could have reduced damage from the mortgage meltdown had it been implemented.

AHGA and many other consumer groups believe the disclosures borrowers receive regarding mortgage loans are inadequate, often confusing and too late. “Home buyers, particularly among those taking out subprime loans, all too frequently find that when they show up at the settlement table…their loan terms are different from what they understood,” according to Allen Fishbein, director of housing and credit policy at the Consumer Federation of America.

HUD is now working on new rules, based initially on the previous proposal that should help reduce these problems in the future. Substantial changes are expected to be made to the Good Faith Estimate, which provides borrowers a list of anticipated costs such as title insurance, appraisals and other fees. The administration plans to require more details regarding mortgage-broker fees, and mortgage terms, such as prepayment penalties and the impact of interest rate increases on adjustable loans. AHGA would also like see some currently undisclosed costs/other broker compensation, such as the kickbacks mortgage brokers often get from title companies, shown as additional income to the mortgage broker as a line item on the HUD 1 form.

In addition AHGA’s feedback from homeowners suggests that many believe that mortgage brokers and lenders owe them a fiduciary duty. But mortgage brokers and lenders owe homeowners no such duty. Because there is relatively little repeat business in mortgage lending there is also relatively little incentive for them to look out for borrowers’ best interests, and therefore relatively little reason for them to not to try to maximize their compensation through as many ways as possible. For that reason HUD should require a clear strongly worded disclosure that they owe the homeowner no such duty at the first substantive meeting between mortgage lending officers and potential mortgage applicants.

Mortgage brokers and lenders -- and the media outlets that carry their ads -- have been put on notice by the Federal Trade Commission that some claims being made about mortgage loans on Web sites, newspapers and unsolicited e-mails may violate federal law.

The Federal Trade Commission has also stepped into the fray. It has sent warning letters to over 200 advertisers and media outlets regarding mortgage ads that are deceptive or in violation of the Truth In Lending Act. Targets included websites, newspapers, and direct marketers using both bulk mail and unsolicited e-mails. According to the FTC many ads promoted a rate that applied only during a loan's initial period and omitted adequate information about payment increases or balloon payments, as well as annual percentage rates (APRs) that enable homeowners to compare mortgage rates. A large share of the violations involved subprime loans and were targeted to populations of unsophisticated consumers. AHGA salutes the FTC for the effort, both because it protects the interests of homeowners and also because of the need to modify the culture in those parts of the mortgage lending community that believes that misleading consumers is a perfectly acceptable marketing tool.

Congress is also considering a number of worthy measures aimed at curbing abusive mortgage lending practices. AHGA would like Congress to establish national minimum educational standards and testing requirements for mortgage sales personnel. Unlike real estate agents, who must take courses and pass state exams as precondition for entering the profession, there are no such requirements in mortgage lending. As a result the knowledge regarding home ownership issues of the person across the table who is trying to sell you a mortgage may have been their experience last year as an aluminum siding salesman. Some Congressional proposals would impose a fiduciary duty on mortgage sales personnel, but until they are equipped with the knowledge required to give good advice to homeowners the result will likely be a lot of misplaced consumer confidence and post transaction lawsuits.

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Please take the time to contact your legislators and express your views on the policy issues covered in this month’s Home Base. It's easy - you can reach your legislators by email in a couple of mouse clicks, and you can use the content in Home Base and elsewhere on our website to help you develop your message. To look up the phone number, email, and/or postal address of your U.S. Representative or your two U.S. Senators, (or your state representative or state senator) click here. The site can look them up by zip code for you if you don’t recall their names.

Many legislators are also happy to meet personally with their constituents when they are back home on weekends or when Congress is not in session. A personal meeting is a particularly effective way to get their attention and reinforce your message, so please consider also requesting a follow up face-to-face meeting in their home state or home district offices near you when you contact them on policy issues.

Is there a policy issue that is particularly important to you which significantly impacts homeowners or home ownership? Any member may propose a position on a policy issue, so please check the American Homeowners Grassroots Alliance's 2007 Issue Guide to see whether it’s already on our list. If it isn't on the list, we invite you to send us an email and tell us why you think the American Homeowners Grassroots Alliance should be working on it.


 
 
 

Copyright 2007, American Homeowners Foundation and the American Homeowners Grassroots Alliance.