Low down payment FHA condo mortgages coming back?

Kenneth R. Harney on Oct 7, 2016

WASHINGTON – For many condominium buyers and sellers across the country, the Obama administration delivered what seemed like encouraging news last week- The Federal Housing Administration, once the primary source of mortgage financing for moderate-income and first-time condo buyers, is coming back, big time.

But the real story was more complex.

Under new reform proposals, FHA plans to loosen some of its controversial and strict eligibility rules that have caused condo associations nationwide to abandon the program. It also wants to revive so-called “spot loans” – mortgages for individual units in condo buildings that haven’t received blanket certifications from the agency. That change alone could open up low-down-payment financing for millennials, minorities and others in many of the estimated 150,000-plus condo projects in the United States. The Community Associations Institute estimates that just 14,000 condo projects nationwide – less than 10 percent of the total – are now certified for FHA-insured mortgages.

The proposals would also throw a lifeline to senior owners of condo units who need a reverse mortgage to supplement their retirement income. Since FHA’s reverse mortgage program accounts for an estimated 90 percent-plus of all reverse mortgages, the recent inability of seniors living in uncertified condo buildings to obtain reverse mortgages has effectively denied them funds they’d otherwise be able to access.

To real estate professionals such as Norva Madden, an agent with Long & Foster Real Estate in the Maryland suburbs of Washington D.C., reopening FHA financing to more condo projects – after nearly eight years of rules that scared them away – can’t come soon enough. She’s had multiple, well-qualified buyers eager to buy condo units in the affordable $155,000-$160,000 range walk out the door when they discovered they couldn’t use FHA financing because the building where they hoped to live had left the federal program. Rather than selling quickly for close to list prices, units in non-certified buildings often languish on the market for 90 to 180 days, she said, and then sell below the asking price. In one recent case, an elderly owner was forced to sell her two-bedroom condo to a low-ball bidder for $13,000 less than she could have otherwise obtained from FHA-qualified buyers.

Lack of FHA certification “puts a hardship on the sellers” in middle-income buildings, Madden told me – it costs them real money.

But the new proposals may not be as favorable to sellers and buyers as they appear at first glance. A key test of eligibility for FHA is a building’s percentage of owner occupants versus renters. In recent years, FHA has required that at least 50 percent of a building be owner-occupied to qualify. Housing industry critics have said that’s too high and excludes too many financially sound, well-managed projects. This past summer, Congress passed a bill by unanimous votes in both chambers requiring FHA to drop the threshold to 35 percent within 90 days or provide justification for anything higher.

Here’s the sticky wicket- In its proposal Sept. 27, the agency didn’t address that mandate but offered a starkly different approach. It plans to select limits from an owner-occupancy range between 25 percent and 75 percent, and vary them whenever it chooses by issuing a “notice.” FHA said the current 50 percent limit “has worked” but did not explain what that meant. The congressional deadline for compliance with the 35 percent requirement is near the end of October. Whether the agency intends to stick with its current rule or accept Congress’s more lenient standard is unclear. But under FHA’s proposal, the mandatory owner occupancy percentage could be raised to more than double what Congress directed or it could be 10 percentage points less.

One long-time expert in the field, Chris Gardner, president of FHA Pros LLC, a Northridge, California-based national consulting firm that helps condo associations obtain certifications from FHA, had mixed feelings about what the agency is up to.

If it follows through on its spot loan proposal, he says, it will be a “landmark” decision because it “will make so many more purchases happen” in projects currently lacking certification.

But Gardner is concerned about FHA’s proposed range of 25 percent to 75 percent on owner occupancy. It might be “intended to give [FHA] flexibility without having to involve Congress,” he said. But it might also be “an attempt to bypass Congress.”

Bottom line- Don’t bank on any immediate changes until FHA announces final rules. If the agency is playing a runaround game, it’s up against the wrong opponent- a Congress that is determined to revive the affordable condo market.

Does the value of your home affect how you vote?

Kenneth R. Harney on Sep 30, 2016

WASHINGTON – Do home values have any significance when it comes to presidential elections? Not directly. But indirectly they are manifestations of economic growth, unemployment rates, incomes, household formations, population inflows and outflows, along with historical patterns of land use and restrictions on building.

Almost certainly home values – and the rate at which they appreciate – have some subtle impact on homeowners’ outlooks- If your property value is falling or mired in negative equity, you’re probably less likely to have positive feelings about the current state of the economy and prospects for immediate improvements. If your home value has been steadily rising, you might be feeling a little better about your personal finances, more satisfied with economic trends and more sanguine about where things are headed.

With this in mind, I asked the housing analytics experts at Trulia, the online real estate data and sales information site, to do a purely statistical study of housing value trends in this election year’s battleground or swing states, plus all the traditional red (typically Republican) and blue (typically Democratic) states. The red and blue breakdowns were based on results from the past four presidential elections. Battleground states were based on recent polls taken before the first presidential debate. Values and appreciation were measured from January 2012 through July of this year.

So what did researchers find?

- There are drastic differences in median home values that set apart red states from blue states – maybe more than you knew. Of the top 10 highest-cost states, nine are solidly blue. Just one – Alaska – trends red. The six states with the lowest median homes values – West Virginia ($99,800), Oklahoma ($113, 400), Mississippi ($114,500), Arkansas ($114,700), Indiana ($116, 700), and Kansas ($120,800) – are all red. The $367,100 separation between the median price in the most costly mainland blue state (California at $466,900) and West Virginia is chasmic, as are the differences in underlying economic conditions. (Reliably blue Hawaii has the highest median, $565,900.)

- Battleground states (Florida, North Carolina, Ohio, Arizona, Nevada, Pennsylvania, New Hampshire and Georgia) are a mixed bag. Their relatively moderate home values generally resemble red states more than blue, but their recent jumps in annual appreciation rates, taken as a weighted average, are higher than either reds or blues. As of July, the appreciation rate for homes in battleground states was 6.4 percent, while in red states it was 5.23 percent and in blue states 5.14 percent.

- This year’s battleground states have experienced significantly different housing value patterns during the post-recession period. Though they are all seeing positive appreciation this year, they have radically contrasting recent histories. Nevada, Florida and Arizona were hotbeds of hyperinflation and toxic mortgage practices during the boom years, and all three suffered horrendous depreciation and foreclosure losses during the bust and recession. But since 2012, they have roared back. In January 2012, the median Nevada house was worth $122,800. As of this past July, that had grown to $218,400. In January 2012, the median Arizona house was valued at $136,500. Last July that had grown to $208,400. Florida has seen similar increases – a $126,300 post-recession median in early 2012, compared with $191,300 this year.

Several swing states, however, haven’t rebounded as energetically as the others because of economic issues. North Carolina, where recent polls indicate an exceptionally tight race, had a median value of $137,500 at the beginning of 2012; today it’s $153,300. Pennsylvania came out of the recession with a $143,600 median value; by mid-year 2016, that had grown to just $154,500. Ohio’s median has moved from $107,200 four years ago to $121,600 this year.

So what do we glean from these housing numbers? Certainly there are no predictions here about how homeowners will vote. Housing is just one element in an economic backdrop, not a key causative factor in voting behavior. But it cannot be totally ignored. Felipe Chacon, a housing data analyst with Trulia, commented in an interview that “if you’re hearing doom and gloom and you’re in a swing state that’s been doing relatively well recently,” maybe you are marginally less likely to believe the doom and gloom.

On the other hand, if you’re a homeowner in a traditionally blue state like Maine, where employment and income growth have lagged behind national averages and median home values have plunged from $180,400 at the start of 2012 to $134,500 as of July, you might be more open to messages that major changes in economic policies are needed.

Appraisal delays gumming up home sales

Kenneth R. Harney on Sep 16, 2016

WASHINGTON – There’s trouble brewing in appraiserville – and it’s beginning to cost some unsuspecting home buyers money. If you’re planning to buy in the coming months, be aware.

The problem is part work overload, part resentment over fees. In many markets, diminishing numbers of experienced appraisers are available – or willing – to handle requests for their work on tight timetables and at fees that are sometimes lower than they earned a decade or more ago.

The net result- The system is getting gummed up. Scheduled home sale settlements are being delayed because banks and appraisal management companies can’t find appraisers who’ll do valuations on timetables needed for closing dates in realty contracts. A recent survey of agents by the National Association of Realtors found that appraisal problems were connected with 27 percent of delayed home sale closings, up from 16 percent earlier this year.

In some cases, panicked lenders and management companies are offering appraisers fat bonuses and “rush fees” just to complete valuations to meet deadlines. The extra charges can range anywhere from $200 to $1,000 or more, turning $500 appraisals into $1,200 or $1,500 expenses that typically get paid by home buyers.

Take this example provided to me by a mortgage broker in the Seattle area. Matt Culp, owner of Bainbridge Lending Group LLC, says clients who urgently needed to close on a newly built house – and to move out of their rented dwelling – were squeezed into paying $2,000 for an appraisal that normally would cost $625.

An appraisal management company had said that the quickest the valuation could be delivered was Oct. 6, weeks after their hoped-for closing date. Waiting that long, however, would have cost the borrowers their favorable rate lock and forced them to pay another month’s rent. But when Culp inquired about a rush fee, the appraiser agreed to a $2,000 total fee – $1,375 more than the earlier quote. For the extra money, the appraiser would put Culp’s clients at the top of the to-do list. The buyers agreed. The extra $1,375, charged to the borrowers’ credit card in advance of any work performed, was “extortion,” Culp told me. But it was less expensive than the alternatives.

Here’s another example, this time from the perspective of an appraisal management company. Brian C. Coester, CEO of Coester Valuation Management Services in Rockville, Maryland, said a lender in Nashville recently was willing to pay appraisers $1,100 for work that normally would have cost less than half of that, but still had difficulty finding takers. Coester’s firm, like other management companies, helps lenders link up with appraisers around the country. For its services, it takes a piece of the appraisal fee.

Appraisers have complained for several years that management companies are themselves a big part of the problem because they pay low fees to the appraiser and pocket 25 percent to 30 percent or more of what home buyers are charged. Plus they have unreasonable expectations about how quickly appraisers can churn out reports. Management company executives like Coester deny they underpay appraisers and instead suggest that there is an underlying “shortage” of appraisers caused in part by the aging of members of the profession, tougher qualifications and regulations, and by fewer new recruits coming in to replace them.

The Appraisal Institute, the profession’s largest trade group, confirms that there are fewer appraisers active today than in previous years – the ranks are down by 22 percent since 2007 to a total of 76,800 as of last December 31. But J. Scott Robinson, president of the group, told me one of the key reasons for the dwindling numbers is that management companies and lenders aren’t paying adequate fees to retain experienced appraisers or attract newcomers.

Jonathan Miller, a prominent New York-based appraiser, wrote in a recent blog that “there is no shortage of appraisers. There is a shortage of appraisers willing to work for half the market rate” – which is what he believes many appraisers get when they work for management companies as opposed to directly dealing with banks.

Whatever the causes – whether there is a true “shortage” or simply fewer appraisers willing to work for low net compensation – appraisal delays, combined with requests for “rush fees,” are realities in the marketplace. When setting contract deadlines for your closing, ask your real estate agent about conditions in your area. The more realistic the settlement date, the lower the likelihood you’ll be charged extra to get the work done.

Buyers are willing to pay extra for ‘smart homes’

Kenneth R. Harney, August 24,2016

Could “smart home” technology – features such as network-connected thermostats, security devices, appliances and lighting – help you sell your home faster and for more?

Probably so, according to recent consumer polling data plus anecdotal reports from appraisers and realty agents. The key, though, is that the smart products need to be installed before you list your house, because most buyers in 2016 don’t want to have to install them on their own. They want things pretty much turnkey.

The latest in an ongoing series of research projects by Coldwell Banker Real Estate found that 71 percent of buyers out of a sample of 1,250 American adults want a “move-in ready” house, and that 57 percent of those buyers looking at older houses would consider them updated – and more appealing as move-in ready – if they have smart home features already in place. Fifty-four percent say that if they had to choose between identical houses, one with smart home tech, the other without, they’d buy the smart home. Sixty-one percent of millennials would favor smart tech homes, as would 59 percent of parents with children living in the house.

A massive survey of nearly 22,000 home shoppers by John Burns Real Estate Consulting earlier this year found that not only do prospective buyers rank smart technology high when they evaluate housing options, but they’re prepared to pay thousands of dollars for it. Sixty-five percent said they’d be willing to spend more for smart home technology packages, and well over half would pay extra for interior and exterior security cameras, network connected appliances, smart doorbells that send owners text alerts enabling them to check front-door security cameras, smart air filtration vents and a variety of other high-tech items.

Appraisers also are acknowledging the value of smart home technology and making what they call “adjustments” when they compare tech-enabled homes with similar, but tech-deficient, houses in the area. “Absolutely,” said Richmond, Va., appraiser Pat Turner in an interview. “Smart home technology can definitely add to market value. If you have the data showing that houses with smart technology sell for more, then you’ve got to” acknowledge that fact in some way in the appraisal report, he said.

For example, if local homebuilders show him that a house without significant smart technology sells for $200,000 but an otherwise similar higher tech house sells for $206,000, he has market data that allows him to make dollar adjustments (up or down) on other, comparable houses he appraises.

Danny Hertzberg, a Coldwell Banker agent in Miami, says from his perspective “a majority” of active buyers in the market not only prefer smart home technology “but they’re expecting it and asking for it.”

A few years ago, interest in home technology was confined primarily to the upscale, more expensive segments of the market, said Hertzberg. “Now it’s at every price point, whether in the center city or in the suburbs,” new construction and renovations alike. Even in houses built in the 1920s and 1930s, sellers are incorporating smart home packages into their renovations to appeal to today’s buyers. “It helps you stand out,” Hertzberg said. It gives you an edge over competing properties and it usually cuts the time needed to sell, he said.

But here’s an issue that’s beginning to bubble up- Now that the term “smart home” has become a hot marketing buzzword, is it subject to the same sort of overuse and hyperbole as the term “green”? Precisely what constitutes a “smart home” anyway? If you’ve got a Nest thermostat and some security gizmos, is that enough to make you “smart?”

No way. This past spring, CNET, the online consumer technology news site, partnered with Coldwell Banker to develop an industry standard- A true smart home should be equipped with “network-connected products (via Wi-Fi, Bluetooth or similar protocols) for controlling, automating and optimizing functions such as temperature, lighting, security, safety or entertainment, either remotely by a phone, tablet, computer or a separate system within the home itself.”

The baseline requirements- It’s got to have a smart security feature that either controls access or monitors the property or a smart temperature feature. Plus it should have at least two additional features from this list- smart refrigerators/washers/dryers; smart TVs and streaming services; smart HVAC system, fans or vents; smart outdoor plant sensors and watering systems; smart fire/carbon monoxide detectors and night lights; smart security locks, alarm systems or cameras; smart thermostats.

Now you know.

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A new homeowner ‘marriage penalty’ in the tax code?

Kenneth R. Harney on Aug 19, 2016

WASHINGTON Does the federal tax code now favor unmarried partners when it comes to deducting mortgage interest on jointly owned houses with super-sized mortgages? Can certain co-owners save big money on taxes by staying single, rather than getting married?

In the wake of a little-publicized move by the IRS earlier this month, the answer appears to be yes for potentially significant numbers of co-owners of houses with jumbo loans.

Under Section 163 of the Internal Revenue Code, taxpayers can write off interest paid on up to $1 million of what the law calls acquisition indebtedness and on up to $100,000 of home equity indebtedness. You can deduct mortgage interest on both your primary home and a second home up to a combined limit of $1.1 million of debt. If youre married but filing your taxes separately from your spouse, the law limits the mortgage amounts you can deduct interest against to half of that -$500,000 in acquisition indebtedness and $50,000 in home equity indebtedness.

But what if youre single, living together with a partner and sharing the mortgage costs? Should you qualify to write off interest paid on up to $1.1 million of mortgage debt apiece, for a total of up to $2.2 million? Could you get a splashier tax benefit if youre unmarried but co-paying on a high-balance mortgage or mortgages?

In the past, the IRS has said no, when you jointly own one or more residences and youre not married, the maximum mortgage amount on which you can write off interest is the statutory limit of $1.1 million. When Congress set the $1.1 million ceiling back in the late 1980s, there was no mention of double-dip benefits for unmarried co-owners.

But in 2012, an unmarried couple in California who jointly owned two expensive houses with big mortgages (one in Beverly Hills, a second in Rancho Mirage) challenged the IRSs interpretation in U.S. Tax Court. They argued that each unmarried partner should be entitled to the full $1.1 million in debt allowed for interest deductions. The combined amount of debt on their two homes exceeded $2.2 million.

The Tax Court disagreed. The partners then appealed that decision to the U.S. Court of Appeals for the Ninth Circuit, which reversed the Tax Court, ruling that the limit should be on a per-taxpayer basis meaning up to $1.1 million per unmarried co-owner.

That raised the question- How will the IRS handle this issue? Will it restrict it in some way or allow it to take effect nationwide? Now the agency has come out with its answer- We are going to acquiesce in the appellate courts decision, the IRS said. Were going to allow qualified unmarried co-owners to go beyond the $1.1 million mortgage cap all the way up to a ceiling of $2.2 million.

How big a deal is this? Obviously its limited to a relatively elite economic group people who have mortgage debt in excess of $1.1 million. And its limited to co-owners or buyers of expensive homes who choose not to be married but to share the mortgage expenses.

No one knows how many taxpayers across the country fit these descriptions, but some tax experts say its a much larger number than you might guess. Susan Berson, a tax attorney in Kansas City, Missouri, says single professionals with super-jumbo mortgages – doctors, lawyers, business executives, investors, recently divorced individuals and others – should carefully review whether remaining unmarried brings financial benefits of potentially claiming the deductions subject to the increased limit.

Plus, Berson told me in an interview, she is advising clients

to look back at their recent annual tax filings. Some may be able to request refunds.

Anson H. Asbury, a tax attorney in Atlanta, says professionals in high-cost markets such as Washington D.C., New York, Los Angles, San Francisco, San Diego and pricey neighborhoods elsewhere around the country are likely to be the biggest beneficiaries of the revised IRS policy.

Ed Zollars, a CPA in Phoenix, says in some of these markets its almost trivial to be over the $1.1 million mortgage debt limit. In San Francisco and New York it will be easy for single professionals living together and sharing costs to double their mortgage interest deductions under the new policy, saving tens of thousands of dollars a year.

Where it works, he said in an interview, it works a lot.

That may be so, but isnt this still another marriage penalty in the federal tax code? Sure looks like it.