May 29, 2020

Mortgages: Reducing Refinancing Expenses

The state charges a recording tax on new mortgage debt. The rate varies by county, with the minimum being 1.05 percent of the loan amount. The rate is highest in New York City, where borrowers pay 1.8 percent of the loan amount for mortgages under $500,000, and 1.925 percent above that amount.

A city resident borrowing $600,000, for example, would be charged around $11,500 for the recording tax.

But fortunately, homeowners aren’t required to pay the tax again when they refinance. “The borrower already paid the tax on the existing mortgage and is entitled by statute to an exemption from payment of the tax with respect to an existing principal balance a second time,” said Guy Arad, a lawyer with Adam Leitman Bailey in Manhattan.

Still, borrowers who choose to switch lenders when refinancing sometimes get stuck paying it anyway.

Here’s why: in order to skip the tax when switching lenders, borrowers must arrange for their existing lender to assign, or transfer, the mortgage to the new lender. The new lender then recasts the old mortgage to meet the new terms. But lenders don’t always agree to do what’s known as an assignment — a 1989 amendment to state law gives them discretion to reject such requests, according to Douglas Wasser, a Manhattan real estate lawyer.

“The resulting cost to borrowers can be thousands of dollars in taxes which could otherwise be easily avoided,” Mr. Wasser said. “I’ve personally seen borrower frustration on this issue many times.”

Rolan Shnayder, a partner and the director of new-development lending for H.O.M.E. Mortgage Bankers in Manhattan, says this problem arises “all the time.” In his opinion, some banks refuse to do transfers to encourage customers to refinance with them. “Even if their bank is offering the best interest rate, what if the borrower just doesn’t want to deal with their bank anymore, or wants to transfer to a different lender because they have other business there?” Mr. Shnayder said. “There are a lot of customers who wish they’d known their lender wouldn’t do an assignment before they signed their mortgage.”

The assignment process (a Consolidation, Extension and Modification Agreement) requires more time and paperwork than the usual practice of just paying off the old mortgage. And both the old and new lenders must be represented at the closing table, Mr. Wasser said.

Borrowers will likely have to pay extra legal fees, along with the old lender’s assignment fee. Those fees should be weighed against the tax savings.

“I tell clients, if the mortgage tax savings are less than a couple of thousand dollars, the time, effort, aggravation and cost may not be worth the result,” Mr. Wasser said.

Also, borrowers should be aware that if their new loan is larger than the outstanding debt on the previous loan, they will be taxed on the difference. For example, if the unpaid balance on an old loan is $300,000, and the new loan is for $500,000, the borrower will be taxed on $200,000 in new mortgage debt.

Mr. Wasser recommends that borrowers always ask what a lender’s policy is on transfers before signing on. “An educated borrower,” he said, “might know that uncooperative lenders should be avoided.”

Article source:

You’re the Boss Blog: What Business Owners Get Wrong When Looking for Capital

Searching for Capital

A broker assesses the small-business lending market.

The life of a small-business owner or entrepreneur can be chaotic. We live from priority to priority, crisis to crisis. There are only 24 hours in a day and only so many hours to sleep. Believe it or not, I still haven’t changed the phone system in our office that I posted about months ago. I have given up on it for now, moved on to higher priorities. As owners, we concentrate on pleasing our customers and whatever urgent issues arise during the day, and we let other issues — even important ones, sometimes — take a back seat.

That’s why I’m sympathetic to business owners who are too caught up in the day-to-day crush to do a good job of looking for capital. Whether small-business owners are looking for debt or equity, and regardless of how far along they are in their business, the process can be exhausting. And while phone systems are fairly easily to replace, a mistake with a debt or equity round can be devastating,

The best advice that I think I can give anyone in the hunt for money is to get organized early, do your research, identify your targets for financing, and pursue them in a focused and methodical way. As small-business owners and entrepreneurs, we often try throwing as much as we can against the wall to see what sticks. But when it comes to looking for money, this approach can consume time and is unlikely to end happily. Still, I see it all of the time.

Imagine a biotechnology company that spends six months trying to pitch pretty much every Internet investor in the country. Or the owner of a start-up who networks only with lenders who require companies to be profitable and to have been in business for at least two years? Imagine a loan application submitted with financial statements that have fundamental mistakes in them or are months behind. Or consider a business plan to raise investment money that was too poorly written to be understood. I know it sounds silly, but again, I see these kinds of mistakes all of the time.

One of the biggest mistakes that we see is that owners try to raise too much money. They think about how much money they need for the next several years — instead of what they need to make real progress this year. At this point, we often advise owners to go take a cold shower and call us in the morning. If you’re looking for a loan, you need sufficient collateral and cash flow to cover the debt.

The market for capital is inefficient, and in many cases results in gridlock for entrepreneurs, lenders, and investors. The smartest thing owners can do is to make sure they understand how the process works. You should figure out how much money you need and what the best loan or equity solution will be for you. Find an adviser or mentor you trust, one who has been around the block before. Understand what documents your lender or investor will demand, and make sure you have them together before you begin your search. Check your personal and business credit scores, and make sure they are in order.

Remember that when you’re speaking to a potential investor or lender, you’re entering a two-way partnership. They are investing or lending in order to make money. Just as they are interviewing you, you should do the same. How many investments have they made in the last year? If it’s a loan officer you’re talking to, how many loans have they made? What is their personal approval rate in the organization? Who will be making the final decision, and how much influence will they have?

I can’t speak for the investment community, but I can assure you that in the lending community there are thousands of loan officers sitting in bank branches across the country, wanting to keep busy so they can protect their jobs. The more applications that they have open at once, the busier they seem. Don’t put yourself, and your dreams, at their mercy. A properly structured loan or investment in your company can make all the difference to you and your future.

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

Article source:

Cyprus Agrees to Euro Zone Bailout Package

BRUSSELS — Cyprus reached a long-awaited bailout agreement early Saturday worth $13 billion, or 10 billion euros, that puts some of the burden for shoring up the island’s beleaguered economy on its bank depositors.

The most contentious issue in months of negotiations was whether to force Cypriot depositors to take losses in order to make the country’s debt more manageable. The Cypriot authorities had sought to head off any such initiatives on the grounds that they would do lasting damage to their financial services sector.

In the early hours of Saturday morning, after 10 hours of talks, finance ministers from euro area countries, the International Monetary Fund and the European Central Bank agreed on terms that include a one-time tax of 9.9 percent on Cypriot bank deposits of more than $130,000, or 100,000 euros, and a tax of 6.75 percent on smaller deposits, European Union officials said.

“It’s not a pleasant outcome especially for the people involved,” Michalis Sarris, the Cypriot finance minister, told reporters. “But we believe it is something that, compared with other possible outcomes, is the least onerous,” he said.

“This is a once and for all levy,” Mr. Sarris added, saying it should ensure no further flight of depositors from Cypriot banks. The measure should “remove any doubt about the future” for Cypriot depositors, he said.

Cypriot authorities had begun to monitor deposit outflows from Cypriot lenders to watch for signs of a bank run ahead of Tuesday when the levy is expected to be imposed, E.U. officials said.

Jeroen Dijsselbloem, the president of the group of euro area ministers, told a separate news conference that lenders had reached “a political agreement” to aid Cyprus. The challenges to reaching a deal were “of an exceptional nature,” he said.

The latest bailout for the euro zone broke new ground by requiring haircuts, or losses for all Cypriot bank depositors. A previous bailout for Greece required a significant haircut for holders of Greek bonds in early 2012 – something that European Union officials said at the time would be a one-of-a-kind measure.

Mr. Dijsselbloem declined to rule out taxes on depositors in other countries besides Cyprus in the future, but he insisted that such a measure was not being considered.

Going into the meeting, finance ministers sought to limit the overall costs of the rescue plan while Christine Lagarde, the managing director of the I.M.F., pushed for a deal that is generous enough to enable Cyprus eventually to pay the money back.

The Cypriot authorities wanted a plan that ensures that the island remains attractive to investors, who include many Russians with large deposits in the country’s banks.

Under the deal, depositors would be compensated with shares in the banks, giving some “upside potential” to the measure, Mr. Sarris said.

Ahead of the meeting, Ms. Lagarde was blunt about the need for ministers to agree to a realistic package of measures. “All I know is that we don’t want a Band-Aid,” she said. “We want something that lasts, something that is durable and that will be sustainable.”

Ms. Lagarde told the news conference after the meeting that she would recommend that the I.M.F. make a contribution to the package for Cyprus. She said the size of that contribution still needed to be determined.

The key to a breakthrough was finding a way to bring down the bailout package, originally estimated at 17 billion euros ($22.2 billion), which represents almost as much as Cyprus’s gross domestic product, which is about $23 billion, or 18 billion euros.

The deal that emerged on Saturday morning was for a bailout of up to 10 billion euros, Mr. Dijsselbloem said.

Cyprus asked for the bailout in June last year. But talks faltered when the former president Demetris Christofias, a Communist, balked at measures like privatizations. The talks sped up after the election last month of Nicos Anastasiades of the Democratic Rally, a center-right party, to the presidency.

Some of the other elements of the deal involved Cyprus raising its low corporate tax rate to 12.5 percent from 10 percent, privatizing state assets and overhauling its banks to ensure that they are not havens for money laundering.

Russia also was expected to contribute to the arrangement, perhaps by agreeing to lower the interest rate on a loan worth 2.5 billion euros it has already made to Cyprus.

Article source:

Bucks Blog: New Mortgage Rules Left Out Down Payments

A home for sale in Denver.Associated PressA home for sale in Denver.

New rules announced Thursday by the federal Consumer Financial Protection Bureau aim to shield borrowers from the risky sorts of mortgages that helped cause the recent financial crisis.

Under the rules, which take effect in January of next year, lenders cannot make so-called  “no documentation” loans or offer deceptively low “teaser” interest rates, and they must take substantial steps to make sure that the borrower can afford to repay the loan.

The new rules, however, don’t address the contentious matter of whether borrowers should be required to make a minimum down payment when taking out a mortgage. The consumer agency focused instead on making sure that lenders conduct thorough vetting, or “underwriting,” to make sure consumers have the financial capacity to handle the mortgage payments.

But new down payment requirements are still possible, as part of yet more mortgage rules that are expected to be issued by a broader team of  federal regulators. This group, including the Federal Reserve, the Federal Deposit Insurance Commission, the Department of Housing and Urban Development and the Federal Housing Finance Agency, is developing rules to help manage lender risk, by making sure lenders and borrowers, respectively, have the right incentives to make and repay sound home loans.

One way to give borrowers “skin in the game,” as the saying goes, is to demand a significant down payment. Proposals have been floated for requirements of 10 percent or as much as 20 percent. The idea is that if borrowers have a fair amount of their own money invested, they’ll be less likely to walk away from a loan.

But an array of groups, including the Center for Responsible Lending as well as lenders and real estate industry groups, oppose rigid down payment requirements, on the ground that they may bar otherwise credit-worthy borrowers from getting mortgages. The center prefers a focus on underwriting, like the approach taken by the consumer agency with its new rules.

Kathleen Day, a spokeswoman for the center, says ideally the rules issued by the Federal Reserve and the other regulators will be the same as the consumer agency’s rules. (In a confusing bit of terminology, the consumer bureau’s rules refer to loans that meet its new standards as “qualified mortgages,” or Q.M., while the agencies addressing lender risk use the term “qualified residential mortgages,” or Q.R.M.)

A spokesman for the Federal Reserve was unable to give a date for when its rules will be finalized.

Do you think a minimum mortgage down payment is a good idea?

Article source:

Bucks Blog: Why Credit Scores Aren’t Always What They Seem

When consumers buy access to their credit score, there’s a good chance they’re not seeing the same score a lender sees, the Consumer Financial Protection Bureau reports.

Specifically, one in five consumers who pays for a score from one of the major credit bureaus will probably receive a meaningfully different score than the one a lender will use to make a decision about lending the consumer money, the agency says.

That’s because the scores sold to consumers are not necessarily generated by the scoring models used to create scores sold to lenders — usually, some version of the FICO score, created by the company of the same name. Rather, consumers may be sold “educational” scores, created by using different models.

Even if consumers buy a FICO score — like those at the Web site, which offers scores generated by credit data from the TransUnion and Equifax credit agencies — and go to a lender that uses FICO scores, the purchased score still may not be the one that particular creditor uses. That’s because there are many different versions of the FICO score, depending on various factors, like the type of credit a consumer is applying for, the version of FICO’s model the lender is using and the credit bureau the lender uses.

For its analysis, the agency looked at credit scores generated from 200,000 randomly selected credit files at each of the three major credit bureaus: TransUnion, Equifax and Experian.

For a majority of consumers, the agency found, the scores produced by different scoring models provided similar information about the relative creditworthiness of the consumers. But for a substantial minority, different scoring models gave meaningfully different results.

A meaningful difference, the agency said, means the consumer would probably qualify for better or worse credit offers than those they would expect to get based on the score they bought. As a result, the bureau concluded, consumers shouldn’t rely exclusively on those scores to gauge how a lender would evaluate their creditworthiness.

The report stopped short of saying that credit scores bought by consumers were worthless. But it’s hard to see why you should pay for a score if you can’t be certain that it’s the one a lender would use. After all, isn’t that why you want to see it in the first place?

The agency recommended that firms selling scores make consumers aware that the scores they buy may vary substantially from scores used by creditors. And it’s possible the agency will recommend changes in the way scores are marketed to consumers, when it assumes regulatory authority over the credit bureaus this month.

For now, the agency advises consumers to be aware that multiple versions of credit scores exist. And they should periodically review their credit reports, which provide the raw data used to produce credit scores, and dispute any errors.

John Ulzheimer, a credit expert, said the agency’s report suggested that scores being sold to consumers were a “fairly good approximation” of their FICO score, but were “clearly not good enough.”

Chi Chi Wu, a lawyer with the National Consumer Law Center, said in a statement that the “obvious policy solution” was for Congress to grant consumers the right to a free annual copy of the score most widely used by lenders. Right now, consumers can get a free copy annually of their credit report — on which credit scores are based — but not of their credit score.

Do you think a free annual peek at your basic FICO credit score would be beneficial?

Article source:

Bucks Blog: Forced-Placed Insurance Can Cost Consumers a Bundle

Paul Sullivan writes this week in his Wealth Matters column about force-placed insurance — something that most homeowners don’t know about until their mortgage lender sends them a letter telling them they need it. If the homeowners don’t act quickly, the lender will buy the insurance for them, almost always at a price that’s a lot higher than the market rate.

Experts told Paul that homeowners should immediately deal with the initial letter from a lender saying that insurance is needed. Once the force-placed insurance is imposed, it is much harder, they say, to fight the lender.

While there are no figures on how many times lenders are imposing force-placed insurance, lawyers say they suspect the numbers are higher in the last couple of years.

Have you had any experience with this kind of insurance? Tell us about it below.

Article source:

Bucks Blog: Friday Reading: Heart Attacks Uncommon During Marathons

January 13

Friday Reading: Heart Attacks Uncommon During Marathons

Heart attacks are uncommon during marathons, Google’s new search results raise privacy concerns, some student lenders face scrutiny and other consumer-focused news from The New York Times.

Article source:

As European Nations Teeter, Only Lenders Get Central Bank’s Help

Since the beginning of the financial crisis, the E.C.B. has been lending euro area banks as much money as they want, trying to maintain the liquidity — or continual flow of money — that is the lifeblood of the global financial system.

But because the bank has refused to offer the same easy lending service to countries like Italy and Spain, it is not confronting the euro area’s most fundamental problem. And so, the governments saddled with debt are having to pay high prices to borrow money on the open market.

Investors pushed up interest rates on Italy’s debt to record-high levels last week during the political crisis there. And even Monday, after the supposedly calming effect of a new, technocratic prime minister in Rome, lenders were demanding that Italy pay interest rates at levels high enough to eventually bankrupt the country.

In an auction of five-year bonds, Italy had to pay a rate of 6.29 percent, compared with 5.32 percent at a similar auction a month ago.

And Italy’s 10-year bonds, which crested well above 7 percent last week in the secondary market, were still dangerously high Monday, at 6.77 percent — more than three times what Germany must pay on comparable bonds. In a further sign of investor anxiety about the weaker links in the euro chain, Spanish 10-year bond yields rose above 6 percent for the first time since August.

It is an atmosphere of mistrust reminiscent of the aftermath of the Lehman Brothers collapse in 2008. European banks are demanding higher interest rates for the overnight lending to one another that is essential to keep money circulating.

Some, fearing other banks’ vulnerability to the debt of Italy, Spain and other beleaguered countries, are refusing to make such loans at all. That is why the E.C.B. has been willing to lend to the banks as needed.

But the biggest fear — the one implicit in all the talk of “contagion” and a potential “Lehman moment” — is not that any one bank will succumb to a liquidity crisis. It is that an entire country might do so, if it can no longer obtain the credit it requires to stay in business.

And at least so far, the E.C.B. has not done the one thing that could help calm that fear: declare that it stands ready to be the de facto lender of last resort to national governments.

If the fear that sent Italy’s borrowing costs to record highs last week becomes a chronic condition, Italy could lose the liquidity it needs to keep paying the holders of its €1.9 trillion, or $2.6 trillion, debt. That would be the Italy Moment — the point at which Rome’s liquidity problem would quickly become everyone else’s.

“We are approaching the point where the E.C.B. has to show its hand and accept its role as a lender of last resort,” analysts at Credit Suisse said in a note to clients Friday. “The question is how much further turmoil is required for it to do so.”

Mario Draghi, the new president of the E.C.B., has insisted that European countries must help themselves, by cutting spending and taking steps to make their economies more competitive.

Jens Weidmann, president of the German Bundesbank and an influential member of the E.C.B.’s governing council, went further Monday, saying it would be illegal to use the central bank to solve government budget problems.

“The increasing demand being placed on monetary policy is dangerous,” Mr. Weidmann told an audience of bankers in Frankfurt. “Monetary policy cannot and may not solve the solvency problems of governments and banks.”

In any case, Italy is strong enough to solve its own problems, Mr. Weidmann said: “What’s needed is the political will.”

What the markets want to hear, though, is not only prescriptions for long-term overhauls but also assurances that the E.C.B. will do whatever it takes to prevent a near-term panic.

Article source:

Economix Blog: Median Payments for Mortgages and Rent Converge



Dollars to doughnuts.

For years my colleague David Leonhardt has been helping people calculate whether it makes more sense to rent or buy a home, based on the relative costs of each decision. This week, the economists at Capital Economics noticed an interesting phenomenon related to this tradeoff. For the first time in three decades, the median monthly mortgage payment is about the same as the median rental payment:

Source: Capital Economics, Thomson Reuters

Of course, this chart is a little bit misleading because it excludes many of the upfront expenses of buying a home, like a down payment and closing costs. Perhaps more important, not everyone has the option to buy.

Credit conditions are still significantly tighter than they were a few years ago, despite the Federal Reserve’s efforts to loosen credit markets. Many lenders now require a credit score of 700 as opposed to 650, the previous standard. Capital Economics estimates that that requirement alone has shut 13 million households out of the mortgage market.

Article source:

Bucks Blog: Getting Cash in Exchange for a Short Sale

A short sale home in Nevada.BloombergA short-sale home in Nevada.

To avoid further clogging the already sluggish home foreclosure pipeline, some lenders have been offering cash incentives to strapped homeowners at risk of foreclosure to complete short sales and move out of their homes.

Chase, for instance, has been quietly offering as much as $35,000 to homeowners who are “upside down” on their loans — meaning, they owe more than the home is currently worth. In a short sale, the lender allows the sale of the home for less than the loan amount and often relieves the borrower of any further obligation.

The incentives began late last year and are available nationally, a Chase spokesman said. Why would the bank want to pay more money to a homeowner who hasn’t been keeping up with the mortgage payments? It generally wraps up the transaction much more quickly, and leaves the home in better shape for resale. “A short sale generally produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” the Chase spokesman said in an e-mail. Chase has completed more than 140,000 shorts sales since the start of 2009. The program is continuing.

Wells Fargo also offers relocation incentives for short sales as well as “deed in lieu of foreclosure” transactions in some markets with extended foreclosure timelines, like Florida. The payments apply only to first-lien loans that Wells holds for its own portfolio (rather than loans it merely services for others), a spokesman said. The amount varies, based on factors like the loan balance and appraised value of the home, but can be as much as $20,000.

It doesn’t appear likely that the need for short sales will end anytime soon. The outlook for home prices remains glum, with a drop of 2.5 percent expected this year followed by meager growth for several years thereafter, according to a recent report from MacroMarkets LLC.

Incentives offered in California (where there are a lot of loans made by the failed lender Washington Mutual, which was subsumed by Chase) apparently depend on various factors, agents say. Daniel Klein, a real estate broker and entrepreneur, said his firm had one client with a $300,000 loan who received a $20,000 incentive for a short sale, and another client with a $500,000 loan who received $10,000.

The funds can be used by the borrower to cover expenses, like moving costs.

The programs were started after a government program, known as HAFA (for Home Affordable Foreclosure Alternatives), began in early 2010. That program provides up to $3,000 in borrower relocation assistance for short sales. That program is available through the end of next year.

Despite the incentives, Mr. Klein said, some borrowers prefer to take their chances and stay in the home. The lengthy foreclosure process in some areas appears to have made some people complacent about the prospect of eviction.

Have you been offered a cash incentive for a short sale? Did you take it?

Article source: