March 29, 2024

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: http://www.nytimes.com/2013/05/26/realestate/reducing-refinancing-expenses.html?partner=rss&emc=rss

Mortgages: The Seller Chooses a Lender

Some sellers are finding lenders willing to provide financing for an eventual sale even before they put their condos or co-ops on the market; they then add language to the sales contract requiring buyers at least to obtain preapproval from the seller’s preferred lender.

The advance legwork can save sellers’ wasting time on buyers who can’t find financing on their own, said Rolan Shnayder, a partner and the director of new development lending for H.O.M.E. Mortgage Bankers in Manhattan. “Never is there going to be the excuse that I went to the bank and I was a great credit risk but they wouldn’t approve the building.”

The strategy is akin to a developer’s tactic of working with a preferred lender on a new condo offering. It cropped up in resales as banks became more careful about the types of buildings they would finance.

For sellers, “it’s not enough for the purchaser to be credit-worthy,” said Neil Garfinkel, a Manhattan real estate lawyer. “You have to make sure the building is warrantable.”

A warrantable building is one eligible for backing by Fannie Mae. Under Fannie’s guidelines, a building is nonwarrantable if one entity owns more than 10 percent of the units, or fewer than 70 percent are owner occupied, Mr. Shnayder said.

Also, the maximum allowable commercial space in a building is no more than 20 percent. And the building ownership must be putting in reserve at least 10 percent of yearly maintenance. “Newer buildings have that 10 percent in the budget,” he said, “but a lot of the older ones don’t.”

Being nonwarrantable doesn’t make a building “bad,” Mr. Garfinkel said. It just means it doesn’t fit the Fannie Mae criteria. He advises sellers to determine whether their building is warrantable before listing a unit. If it is not, then sellers should ask their real estate agent or other professional to recommend other potential lenders.

With a lender in place, the seller can add language to the sales contract that requires buyers to be preapproved by that lender. The buyer can still apply for a mortgage with another lender, but if that doesn’t work, “they agree to apply to this source which we know will lend in this building,” Mr. Garfinkel said.

A fair deal for buyers? Mr. Shnayder maintains that having a lender in place that has already approved the building can save a buyer time and the frustration of dealing with management companies.

But Daniel Gershburg, a real estate lawyer who frequently represents clients buying in new buildings in Brooklyn, warns that merely being preapproved does not guarantee that your mortgage application will sail through the process.

In working with developers’ preferred lenders, for example, he has seen applications held up long enough that his clients’ rate locks expire, costing them additional fees. “Once you’re at the whim of this lender, if they don’t follow through, there’s nothing you can do,” he said.

Jason Auerbach, a divisional manager of First Choice Loan Services, also notes that a preferred lender evaluating a buyer for preapproval is not allowed to share the buyer’s personal financial information with the seller. “The mortgage banker or broker has a fiduciary responsibility to their client,” he said, “not the seller.”

Article source: http://www.nytimes.com/2013/04/28/realestate/the-seller-chooses-a-lender.html?partner=rss&emc=rss

Mortgages: When Real Estate Agents Make Referrals

That may or may not be a good choice. Either way, you have a right to be informed of any business relationship between the real estate agent and the mortgage broker.

A federal law passed in 1974, and updated with new rules in January 2010, prohibits referral fees, sharing fees (known as “fee splitting”), or giving anything of value, in any mortgage that could end up being sold to Fannie Mae or Freddie Mac, or being underwritten or guaranteed by other federal agencies. Called the Real Estate Settlement Procedures Act, or Respa, the law also requires disclosures of affiliated or shared ownership businesses and a good-faith estimate on closing costs.

“If that real estate agent refers to me, it’s a violation of Respa for me to even take that real estate agent out to lunch,” said Irene Amato, the president of the A.S.A.P. Mortgage Corporation, a mortgage broker in Cortland Manor, N.Y.

When you receive a recommendation for mortgage bankers or brokers, you still need to do your homework, Ms. Amato said. Ask if the real estate and mortgage companies are affiliated. Meet the brokers or bankers in person, if possible, and ask about their professional background and credentials. Find out whether they handle mostly sales and mortgage originations or have broader experience and knowledge of underwriting and mortgage programs, Ms. Amato said. “What are they going to do for the borrower different than someone else?”

Consider, too, how much experience your real estate agent has. “If they don’t have much, what can you expect?” said Mark Yecies, a co-owner of SunQuest Funding in Cranford, N.J.

Although it is illegal to pay for referrals, that doesn’t stop them from being made — sometimes for old friends, experienced professionals or related companies.

It’s worthwhile to know why the referral is being made. Is it because the company is affiliated to the agency? Or because the mortgage professional has a great track record of closing deals? These are important questions, said Gene Tricozzi, the president of the Northern Funding Corporation in Clifton Park, N.Y., and a past president of the New York Association of Mortgage Brokers.

When he is referred to a potential customer, Mr. Tricozzi said, he sees it as a “pat on the back” and an endorsement of his expertise.

Sometimes, though, as Mr. Yecies pointed out, real estate companies that run in-house mortgage brokerages are trying for a second profit center on one purchase, and thereby keep independent mortgage brokers out of the running.

“The buyer is immediately shepherded into the financial-services side of the business,” and sometimes made to feel as if he or she must use that vendor, he said.

“Sometimes people are not getting a competitive rate,” he added. Other times, they may end up with a house above their price range. Ask yourself, he said, “whose best interests are really being protected?”

That said, there can be advantages to the “one-stop shopping” approach, said George S. Wonica, a real estate broker and a mortgage originator at Wonica Realtors Appraisers on Staten Island.

Because he knows the client already, he said, he feels the all-in-one business can create “seamless information” and an easier time of getting the mortgage. “A lot of our customers feel it’s very comfortable” to work with someone they already know, he added.

John J. Vento, a certified public accountant and financial planner who owns Comprehensive Wealth Management on Staten Island, suggests borrowers “make sure the mortgage broker is working as your broker and looking out for your best interest.”

Article source: http://feeds.nytimes.com/click.phdo?i=52e6598217970d0f0c9ad3b3cdd70e5b