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.
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 effective 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 infrequently 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).
top
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.
top
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.
top
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.
top
 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.
top
|
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.
|