John Beckett's Real Estate Blog

Some homeowners who are “underwater,” or owe more on their mortgage than the home’s current value, are turning to “strategic defaults” in which they simply walk away from mortgage debt. But financial experts warn the cost of skipping out on mortgage debt can be high. The American Bankers Association recently informed homeowners about the consequences of strategic default, including the possibility of the bank obtaining a judgment to pursue the homeowner’s assets, such as bank accounts, cars and investments.  Here are four dangers of which homeowners should be aware and more information on the strategic-default environment.

1. Wrecked credit

Regardless of whether a foreclosure is because of a strategic default or other circumstances, it damages a consumer’s credit score. “A foreclosure is one of the stronger predictors of future credit risk,” says Craig Watts, public-affairs director of FICO, a credit-rating company. Foreclosures remain on a credit report for as long as seven years, with the impact gradually lessening over time. Watts says FICO scores “generally begin to recover after a couple of years,” assuming the consumer stays current on all payments and other credit accounts. He says the impact of a foreclosure on a credit score depends on other factors in the borrower’s credit history. The ABA says a foreclosure drops a FICO score by 100 to 400 points.

2. Difficulty getting new mortgage

A voluntary foreclosure also can affect a homeowner’s ability to qualify for a new mortgage for years to come. Peter Fredman, a Berkeley, Calif., consumer attorney, says Fannie Mae and Freddie Mac will not approve a mortgage for four years after foreclosure, while the ABA says it can take three to seven years to qualify for a new mortgage. In addition, Fannie Mae this past summer announced a tough new sanction on people who deliberately default on their mortgages. These borrowers will be ineligible for a new Fannie-backed mortgage for seven years after the foreclosure date.

3. Taxes still due

Tax liability is another potential danger of defaulting. Although the Mortgage Forgiveness Debt Relief Act of 2007 offers protection from federal taxes after a foreclosure through 2012, state taxes still may be due on unpaid debt.

4. Deficiency judgment

A lender can also pursue the remaining debt from an unpaid loan by obtaining a deficiency judgment against the delinquent borrower, or it may work with a collection agency to recoup losses. Ethical questions also surround strategic defaults. A survey by Trulia.com and RealtyTrac found that 59% of homeowners would not consider defaulting, no matter how much their mortgage was underwater, although the other 41% of homeowners said they would consider a default.

Less risky in some states

Despite the potential negative consequences of a strategic default, the move is less risky in some states than in others. “The first question for anyone considering a strategic default is whether the homeowners will be liable for the debt anyway,” Fredman says. “Each state has different rules.” Nonrecourse laws protect homeowners in some states. According to research from the Federal Reserve Bank of Atlanta, the 11 nonrecourse states are Alaska, Arizona, California, Iowa, Minnesota, Montana, North Carolina, North Dakota, Oregon, Washington and Wisconsin. When a borrower defaults in one of these states, the lender can take the home through a foreclosure but has no right to any other borrower assets. Home-equity loans are ineligible for this protection unless they were used as part of the home purchase. In some areas, lenders are so overwhelmed with defaulting customers that homeowners can live in their homes for free for a year or longer before the foreclosure is complete. The average length of time from default to eviction is 400 days in California, Fredman says.

Price of freedom

The potential consequences of strategic default cannot deter some homeowners from taking the plunge, says Frank Pallotta, executive vice president and managing director of the Loan Value Group in Rumson, N.J. “While everyone understands the credit-score impact of a strategic default, most borrowers don’t seem to care,” Pallotta says. “They think a 200-point hit on their credit score cannot offset the benefit of living for as long as 18 months rent- and mortgage-free. They see strategic default as a form of financial freedom, especially if they live in a nonrecourse state and know someone who has done this.” Fredman, who developed the Should I Pay or Should I Go online calculator to help consumers evaluate a strategic default, says homeowners considering a strategic default should research tax laws and state regulations about loan defaults. Even nonrecourse states’ laws can affect defaulting borrowers, he says. “I also think everyone should consult an attorney and probably an accountant, too, because the relative cost of these professionals is not nearly as high as the potential cost of making a mistake,” he says.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=25923795

Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you’re looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal. Here are five fees to watch out for and how to avoid paying them:

Application fees

Just because an ad says “no application fee” doesn’t mean there’s no fee at the time you submit a mortgage application. Each lender gives different names to its fees, which makes it hard to comparison-shop. Fees paid outside of closing — meaning at the time you submit loan paperwork — typically include an application fee (an average of $252, according to HSH Associates, a mortgage-information company in Pompton Plains, N.J.), an upfront property appraisal ($331) and a credit check ($33). They may be listed separately or lumped together as a “document-processing fee.” To avoid overpaying, ask lenders for a good-faith estimate of mortgage costs. Though lenders are under no obligation to provide one, most will.

The yield-spread premium

One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments — referred to as the yield-spread premium — from lenders. Even a slight difference in rate — say, 6.779% instead of 6.495% — amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac’s MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.

Risk-adjusted rates

Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously — such as Florida or Las Vegas — and you can expect a higher rate. The good news is that each lender gives different weight to individual risk factors. So make sure to collect bids from various lenders.

Down-payment penalties

The days of zero down on a mortgage are over. Without a down payment of at least 20%, prospective homebuyers will undoubtedly get hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.) Also, if buyers can’t put 20% down, they’ll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.

Closing costs

The way closing fees are disclosed is, frankly, quite bad. That’s problematic, considering closing fees amount to 2% to 5% of a home’s price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer. Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees. Here’s how to keep these fees under control:

• Lender fees. Ask which expenses go into each fee, and challenge anything that seems unnecessary or inflated, such as overly high charges for faxing documents or overnight delivery. Be particularly cautious about fees prorated based on the closing date. Such fees are easily miscalculated, especially if the closing date changes.

• Third-party fees. Home-buyers also have to deal with title insurance companies, surveyors and inspectors, all of whom have their own fees. Comparison-shop at other local companies to ensure you’re getting a competitive bid. If you find a better rate, ask the lender to use that vendor instead.

This story was reported and written by By Kelli B. Grant for SmartMoney. Published Oct. 2, 2008

Here are the companies hiring in September:

Aflac
Industry: Sales
Number of openings: 500
Sample job titles: Sales associates
Location: Nationwide

Allied Cash Advance
Industry: Credit union, finance, banking
Number of openings: 78
Sample job titles: Brand manager, district manager, customer service representative, branch team members, branch assistant manager
Location: California, Colorado, Indiana, Louisiana, Michigan, New Mexico, Texas, Virginia, Florida

City National Bank
Industry: Banking, financial services
Number of openings: 141
Sample job titles: Financial sales advisors, relationship managers, residential lending officers, senior mortgage loan underwriters, operations supervisors, policy and procedures supervisors
Location: California, New York

Davaco Inc.
Industry: Retail, restaurant contract services
Number of openings: 500
Sample job titles: Finish-out installers and lead installers, product merchandisers
Locations: Nationwide

Dollar Tree, Inc.
Industry: Retail
Number of openings: 1300
Sample job titles: Assistant store managers, store managers, distribution center associates
Locations: National

Edward Jones
Industry: Financial investments
Number of openings: 400
Sample job titles: Financial advisors, branch office administrators
Location: Nationwide

Oldcastle
Industry: Sales, construction, manufacturing
Number of openings: 500
Sample job titles: Outside sales, plant engineer, skilled labor
Location: Nationwide

Orkin Pest Control
Industry: Pest Control
Number of openings: 138
Sample job titles: Pest control specialist, national accounts sales director, security analyst, network engineer, branch manager trainee, administrative assistant, outbound sales specialist
Location: Nationwide

Securitas Security Services USA Inc.
Industry: Security guard
Number of openings: 300
Sample job titles: Security officer, supervisor, EMT
Location: Nationwide

UPS
Industry: Sales, warehouse and transportation
Number of openings: 500
Sample job titles: Package handler, driver, accounting, inside sales, mechanic, outside sales
Location: 50

Waggoner’s Trucking
Industry: Transportation
Number of openings: 100
Sample job title: Truck driver
Location: Nationwide

More at: http://msn.careerbuilder.com/

The proliferation of services that help homebuyers and sellers complete their own real-estate transactions is relatively recent, and it may have you wondering whether using a real-estate agent is becoming a relic of a bygone era. While doing the work yourself can save you the significant commissions that many real-estate agents command, for many, flying solo may not be the way to go — and could end up being more costly than a commission in the long run. Buying or selling a home is a major financial and emotional undertaking. Find out why you shouldn’t discard the notion of hiring an agent just yet.

1. Better access/more convenience

A real-estate agent’s full-time job is to act as a liaison between buyers and sellers. This means that he or she will have easy access to all other properties listed by other agents and will know what needs to be done to get a deal together. For example, if you are looking to buy a home, a real-estate agent will track down homes that meet your criteria, get in touch with sellers’ agents and make appointments for you to view the homes. If you are buying on your own, you will have to play this telephone tag yourself. This may be especially difficult if you’re shopping for homes that are for sale by owner. Similarly, if you are looking to sell your home yourself, you will have to solicit calls from interested parties, answer questions and make appointments. Keep in mind that potential buyers are likely to move on if you tend to be busy or don’t respond quickly enough. Alternatively, you may find yourself making an appointment and rushing home, only to find that no one shows up.

2. Negotiating is tricky business

Many people don’t like the idea of doing a real-estate deal through an agent and think that direct negotiation between buyers and sellers is more transparent and allows the parties to look after their own interests better. This is probably true — assuming that both the buyer and seller are reasonable people who are able to get along. Unfortunately, this isn’t always an easy relationship. What if you, as a buyer, like a home but despise its wood-paneled walls, shag carpet and lurid orange kitchen? If you are working with an agent, you can express your contempt for the current owner’s decorating skills and rant about how much it’ll cost you to upgrade the home without insulting the owner. For all you know, the owner’s late mother may have lovingly chosen the décor. Your real-estate agent can convey your concerns to the seller’s agent. Acting as a messenger, the agent may be in a better position to negotiate a discount without ruffling the homeowner’s feathers. A real-estate agent can also play the “bad guy” in a transaction, preventing the bad blood between a buyer and seller that can kill a deal. Keep in mind that sellers can reject a potential buyer’s offer for any reason — including just because they hate his or her guts. An agent can help by speaking for you in tough transactions and smoothing things over to keep them from getting too personal. This can put you in a better position to get the house you want. The same is true for the seller, who can benefit from a hard-nosed real-estate agent who will represent his or her interests without turning off potential buyers who want to niggle about the price.

3. Contracts can be hard to handle

If you decide to buy or sell a home, the offer-to-purchase contract is there to protect you and ensure that you are able to back out of the deal if certain conditions aren’t met. For example, if you plan to buy a home with a mortgage but you fail to make financing one of the conditions of the sale — and you aren’t approved for the mortgage — you can lose your deposit on the home and could even be sued by the seller for failing to fulfill your end of the contract. (Keep in mind that the details of any contract may vary based on state law.) An experienced real-estate agent deals with the same contracts and conditions on a regular basis and is familiar with which conditions should be used, when they can be removed safely and how to use the contract to protect you, whether you’re buying or selling your home.

4. Real-estate agents can’t lie

Well, OK, actually they can. But because they are licensed professionals, there are more repercussions if they do than for a private buyer or seller. If you are working with a licensed real-estate agent under an agency agreement, such as a conventional, full-service commission agreement in which the agent agrees to represent you, your agent will be bound by law to a fiduciary relationship. In other words, the agent is bound by law to act in his clients’ best interest, not his own. In addition, most real-estate agents rely on referrals and repeat business to build the kind of client base they’ll need to survive in the business. This means that doing what’s best for their clients should be as important to them as any individual sale. Finally, if you do find that your agent has gotten away with lying to you, you will have more avenues for recourse, such as through your agent’s broker or professional association or possibly even in court if you can prove that your agent has failed to uphold his fiduciary duties. When a buyer and seller work together directly, they can — and should — seek legal counsel, but because each is expected to act in his or her best interest, there isn’t much you can do if you find out later that you’ve been duped about multiple offers or the home’s condition. And having a lawyer on retainer any time you want to talk about potentially buying or selling a house could cost far more than an agent’s commissions by the time the transaction is complete.

5.  Not everyone can save money

Many people eschew using a real-estate agent in order to save money, but keep in mind that it is unlikely that both the buyer and seller will reap the benefits of not having to pay commissions. For example, if you are selling your home on your own, you will price it based on the sale prices of other comparable properties in your area. Many of these properties will be sold with the help of an agent. This means that the seller gets to keep the percentage of the home’s sale price that might otherwise be paid to the real-estate agent. However, buyers who are looking to purchase a home sold by owners may also believe they can save some money on the home by not having an agent involved. They might even expect it and make an offer accordingly. However, unless buyer and seller agree to split the savings, they can’t both save the commission.

The bottom line
While there are certainly people who are qualified to sell their own homes, taking a quick look at the long list of frequently asked questions on most “for sale by owner” websites suggests the process isn’t as simple as many people assume. And when you get into a difficult situation, it can really pay to have a professional on your side.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=25368603

You’re finally wrapping up your home purchase. Congratulations. Before it’s officially yours, though, you have one last hurdle: the mysterious process known as “closing” or “settlement.” Open your wallet and hold onto your hat. “Closing costs” — the catch-all term for a host of fees, taxes and charges — can total 2% to 6% or more of your purchase price — $4,000 to $12,000 on a $200,000 mortgage. That means you’ll need to budget a chunk of money besides your down payment. Costs vary by region and by what you negotiate. Buyers usually pay most fees, but sellers may pay some, too. Buyers often get lenders to contribute, too. Be aware, however, that lenders offering a “zero-closing-cost” loan. Closing starts when you sign a purchase contract. It ends about four to eight weeks later, at a closing meeting (or conference) where you sign papers on your loan; pay fees, taxes and services to finalize the sale; and receive the keys and deed to your new home.

Who’s in charge?

A professional settlement agent orchestrates a closing. The agent files documents, pays taxes on your behalf, ensures every task is done and recorded in the time specified by law, and also may hire an appraiser, pest inspector and other professional services. The agent represents the buyer, the seller and the lender equally. In some states, the agent must be an attorney. In others, it’s an independent settlement or escrow company. (An escrow company is one licensed by the state to hold money and documents.) In many states, title companies — whose primary jobs are to make sure there are no claims on the property and to sell insurance guaranteeing that the title is clear — may be the settlement agent.

States’ requirements vary:

• In New York, only an attorney — usually a specialized “closing attorney” — oversees a closing.
• In Nevada, as in most states, title companies act as the settlement agent.
• In California and Wyoming, escrow companies are used.

The federal forms and rules used to disclose your loan costs and closing fees, however, are identical in every state:

• Your lender must give you a binding good-faith estimate, or GFE, within three business days after you apply for a loan. It shows loan costs and estimates your other closing costs. Your final origination charges and transfer taxes can’t vary from this estimate. Quotes for other services may vary by up to 10%. Bigger variations are a “tolerance violation” and the lender must credit you the difference within 30 days of your closing, says Cathy Blaszyk, vice president for lender services at Closing.com.
• At your closing, the settlement agent will give you a HUD-1 form showing your final costs.

How to shop

Closing costs vary greatly. In its 2009 survey of average total closing costs in 52 cities and states, Bankrate.com found a $1,579 difference between the highest-cost state, Texas, at $3,855, and Nevada, with the lowest average cost, $2,276. Most of these fees are negotiable, and you can shop separately for many of them. The consumer has to open their eyes, because they can save a lot of money. People spend more time shopping for a big-screen TV. Closing.com’s closing costs calculator lets you plug in home-purchase information to get numerous estimates and quotes on closing services from providers near you. By shopping aggressively, you might:

• Qualify for a better interest rate than you’d expected.
• Find that a loan offer with a higher interest rate is really the best deal when all closing costs are considered.
• Spot “junk” fees.
• Find lower rates on services such as title insurance, settlement services or inspections.
• Use these lower bids to negotiate better prices with your lender.

Start shopping for settlement services and for additional loan offers once you’ve made one mortgage-loan application. A lender must stick to its good-faith estimate for 10 days. The bank or broker can’t go back and make changes, which gives the borrower a chance to make comparisons. Don’t worry about hurting your credit score by making numerous loan applications. In “4 credit-scoring myths,” personal finance guru and MSN Money contributor Liz Pulliam Weston says that your FICO score will register multiple inquiries in a 45-day period as just one inquiry. Applying is free, except maybe for the cost of pulling your credit report — about $15, tops. Lenders can’t collect application or appraisal fees while you’re comparison shopping. Although recent changes in federal law make it harder for lenders to pad fees, you should still get expert help in reviewing offers and closing documents. The key is getting somebody who is trained and who can comprehensively look at it for you.

In advance, line up either of these:

• A real-estate attorney through the American Bar Association lawyer locator  or find referrals from a state or local bar association.
• A free, housing counselor certified by the Department of Housing and Urban Development (call 800-569-4287.

Read more at: http://realestate.msn.com/article.aspx?cp-documentid=25322086&page=2