IRS Will Send Stimulus Payments Automatically Starting in May;Eligible Taxpayers Must File a 2007 Tax Return to Receive Rebate!
IR-2008-18, Feb. 13, 2008
WASHINGTON - The Internal Revenue Service today advised taxpayers that in most cases they will not have to do anything extra this year to get the economic stimulus payments beginning in May.
"If you are eligible for a payment, all you have to do is file a 2007 tax return and the IRS will do the rest," said Acting IRS Commissioner Linda Stiff.
The IRS will use information on the 2007 tax return filed by the taxpayer to determine eligibility and calculate the amount of the stimulus payments.
The IRS will begin sending taxpayers their payments in early May after the current tax season concludes. Payments to more than 130 million taxpayers will continue over several weeks during the spring and summer. A payment schedule for taxpayers will be announced in the near future.
Stimulus payments will be direct deposited for taxpayers selecting that option when filing their 2007 tax returns. Taxpayers who have already filed with direct deposit won't need to do anything else to receive the stimulus payment. For taxpayers who haven't filed their 2007 returns yet, the IRS reminds them that direct deposit is the fastest way to get both regular refunds and stimulus payments.
Most taxpayers just need to file a 2007 tax return as usual. No other action, extra form or call is necessary. This Web site will be the best information source for all updates and taxpayer questions.
In most cases, the payment will equal the amount of tax liability on the tax return, with a maximum amount of $600 for individuals ($1,200 for taxpayers who file a joint return).
The law also allows for payments for select taxpayers who have no tax liability, such as low-income workers or those who receive Social Security benefits or veterans' disability compensation, pension or survivors' benefits received from the Department of Veterans Affairs in 2007. These taxpayers will be eligible to receive a payment of $300 ($600 on a joint return) if they had at least $3,000 of qualifying income.
Qualifying income includes Social Security benefits, certain Railroad Retirement benefits, certain veterans' benefits and earned income, such as income from wages, salaries, tips and self-employment. While these people may not be normally required to file a tax return because they do not meet the filing requirement, the IRS emphasizes they must file a 2007 return in order to receive a payment.
Recipients of Social Security, certain Railroad Retirement and certain veterans' benefits should report their 2007 benefits on Line 14a of Form 1040A or Line 20a of Form 1040. Taxpayers who already have filed but failed to report these benefits can file an amended return by using Form 1040X. The IRS is working with the Social Security Administration and Department of Veterans Affairs to ensure that recipients are aware of this issue.
"Some people receiving Social Security and veterans' benefits may not realize they will need to file a tax return to get the stimulus payment," Stiff said. "To reach these people, the IRS and Treasury will work closely with the Department of Veterans Affairs, the Social Security Administration and key beneficiary groups on outreach efforts."
Eligible taxpayers who qualify for a payment will receive an additional $300 for each child who qualifies for the child tax credit.
Payments to higher income taxpayers will be reduced by 5 percent of the amount of adjusted gross income above $75,000 for individuals and $150,000 for those filing jointly.
Taxpayers must have valid Social Security Numbers to qualify for the stimulus payment. If married filing jointly, both taxpayers must have a valid Social Security Number. And, children must have valid Social Security Numbers to be eligible as qualifying children.
Taxpayers who file their tax returns using an Individual Taxpayer Identification Number issued by the IRS or any number issued by the IRS are ineligible. Also ineligible are individuals who can be claimed as dependents on someone else's return, or taxpayers who file Form 1040-NR, 1040-PR or 1040-SS.
To accommodate taxpayers who file tax returns later in the year, the IRS will continue sending payments until December 31, 2008. The IRS also cautions taxpayers that if they file their 2007 tax return and then move their residence that they should file a change of address card with the U.S. Postal Service.
The IRS will mail two informational notices to taxpayers advising them of the stimulus payments. However, taxpayers should be alert for tax rebate scams such as telephone calls or e-mails claiming to be from the IRS and asking for sensitive financial information. The IRS will not call or e-mail taxpayers about these payments nor will it ask for financial information. Scam e-mails and information about scam calls should be forwarded to phishing@irs.gov.
This information was taken from the IRS website
Showing posts with label finances. Show all posts
Showing posts with label finances. Show all posts
Tuesday, February 26, 2008
Tuesday, February 19, 2008
NAR's Economist's Commentary!
Refueling the Housing Bubble?
By NAR Chief Economist Lawrence Yun
The Federal Reserve has been aggressively cutting rates recently and the question is being raised about parallels to the past. Back in 2001, in the aftermath of the internet stock bubble collapse and the September 11 terrorist attacks, Alan Greenspan — then the Fed chairman — made deep cuts in interest rates in order to stave off a possible economic recession. Many also blame Mr. Greenspan for having fueled the housing market bubble and subsequent collapse by keeping the rates too low for too long.
Now in early 2008, with the economy possibly heading into a recession — as evidenced by the GDP growth rate slowing from 4.1% in third quarter to 0.6% in the fourth quarter — the current Fed Chair, Ben Bernanke, has been following a very similar step of sharply cutting fed funds rates in order to revive economic growth — partly by making home buying financially enticing. Though there is never a direct correction between the Fed funds rate and mortgage rates, which are outside of the Fed's control and determined by the global bond market, the current 30-year mortgage rates have come down to essentially 45-year low levels. Aside from a few months in 2003, mortgage rates have never been this low since the early 1960s. A drop in the average mortgage rate from nearly 7% in mid-2005 to the current 5.7% would reduce monthly mortgage payments from $1330 to $1160 on a $200,000 mortgage. The average savings would be $340 per month or $4,000 per year on a $400,000 mortgage.
Therefore, could the Fed be simply refueling the bubble by dangling financial incentives to buy a home? Well, let's replay the key factors related to the recent bubble-collapse and see whether the same behavioral patterns will reemerge. Keep in mind that there are significant local market variations, but the markets that had the huge swings followed the below pattern:
The Fed started cutting rates from 2001 — with the Fed funds rate eventually reaching 1% by mid-2003.
The mortgage rate fell to 5.5% by the summer of 2003 from 8% in 2000. ARMS rates fell from 7% to 3.5% over the same period.
Housing demand rose with existing and new home sales hitting successive high marks in 2003, 2004, and 2005. Inventory fell as a result.
Home prices accelerated. For example, in the D.C. region home prices more than doubled from $204,000 to $426,000 from 2001 to 2005. Homeowners' net worth leapt by over $200,000 as a result — a figure many would considered good lifetime savings.
Given the general weakness in the stock market and relative "easy" wealth gains for real estate owners — there was an increasing view of homeownership and real estate as a financial play rather than in terms of family and housing needs considerations.
Housing demand ran exceptionally high, but the demand could only be realized if people could get the financing.
Global capital providers were chasing after high yields and were eager to provide the financing because…
Ratings agencies gave their blessing on subprime products, giving the impression that these were 'safe' alternatives.
Moody's, Standard & Poor's, and other ratings agency raked in revenue by giving out top Triple-A ratings (an inherent conflict of interest exists when ratings agencies get their revenue from mortgage underwriters/securitizers… rather like a professor who gives out a lot of "A" grades will draw more tuition paying students to his class).
With funding plentiful, subprime and no documentation loans proliferated — if you had a heartbeat, you could get a loan.
Housing demand was further pushed higher as herds of house-flippers entered the market, and home prices accelerated in those markets. Prices grew by leaps and bounds in markets of around 70% in short two years — places like Las Vegas, Miami, and Phoenix, and Sacramento.
Inventories were pushed down to exceptionally low levels and homebuilders could not keep up with demand.
From late 2004, the Fed began to tighten and mortgage rates climb in 2005.
Housing demand naturally fell off.
Inventory quickly built — from a combination of lower demand, builders continuing to build at a high pace, and some speculators/flippers realizing that the period of easy price gains was coming to an end.
Rising inventory held back price gains.
Price stagnation no longer permitted mortgage refinancing. Flippers/speculators started carrying burdensome mortgage costs — some begin to simply walk away — pushing inventory higher.
Non-flippers — primary homeowners, who took out subprime loans, also faced the same price stagnation, but also the resetting higher interest rates. Refinancing is not possible and some have been forced to foreclose
More and more flippers/speculators and homeowners are unable to carry the high resetting interest rates and simply walk away. Lenders begin to write-down loan losses.
After the fact and very late, the ratings agencies stated that subprime loans are no longer Triple-A quality.
Global capital providers stopped funding subprime loans and the subprime market came to a halt.
Global capital providers, having been burned, also stop funding any U.S. mortgages other than those with Fannie and Freddie backing. The jumbo loan market, therefore, struggles.
From mid-2007, a lack of market liquidity and economic slowdown forces the Fed to cut rates.
Conforming mortgage rates again fall to historic lows, but not jumbo loan rates.
The Fed has been and is further ready to make deeper cuts.
Going back to our earlier question: is the current action by the Fed simply trying to replay the same volatile game? The answer is an unambiguous NO. The same game is played out because the global capital providers will not be taken for fools again. After being burned, German mutual funds or the Chinese government or the Florida's teacher pension fund will no longer buy toxic subprime loans. Without the loans, homebuyers simply cannot enter the marketplace independent of their desires. We are back to the careful underwriting standards of verifying people's income, requiring escrow accounts, and back to thoroughly checking borrower's ability to repay the loan.
However, the current low interest rate policies of the Fed are a big help to housing because low rates can begin to furnish genuine potential homebuyers with the financial capacity to think seriously about becoming a homeowner. Furthermore, the rate cut is lessening the degree of forthcoming ARM resets, thereby lessening the burden the current subprime loan borrower faces. So the current policy of Ben Bernanke will help stabilize the housing market.
The Federal Reserve, however, should be mindful to not lower the fed funds rate too greatly. Inflation is expected to head lower in 2008 but too much money can fuel inflationary pressures. If that happens, 30-year mortgage rates will RISE, and therefore, choke off any housing recovery. A careful balance must be taken regarding how low to bring down the fed funds rate.
Though some in the blogosphere have figured Alan Greenspan as one of the key persons to blame for the current housing mess, I do not blame Mr. Greenspan. I believe there is plenty of blame to go around due to other factors. Global capital providers misunderstood and were simply not careful about purchasing securities composed on little income documentation and of risky-borrowers. Mortgage originators just originated loans to anyone including to suspicious borrowers because they had no skin in the game (see the recent academic article on this topic by a group of professors from the University of Chicago). There were also many books about how to endlessly profit from real estate. Consumers — particularly the flippers/speculators — also need to bear some of the blame.
But the biggest blame in my view goes to Moody's and Standard & Poor's — the rating agencies. If they had properly assessed the risk as is their job, then global capital would have never reached subprime homebuyers and flippers. The housing boom would have stopped dead in its tracks. We do not yet know how much of the ratings firms' assessment were clouded by their financial interest in giving out easy Triple-A grades. Many workers at Moody's and Standard & Poor's took home hefty bonus checks when revenue skyrocketed from providing high ratings.
It is also fine for people to point the finger at me. In a fast changing market conditions, I too have been off on my forecast. I knew that the boom was clearly unsustainable and I made the forecast in early 2007 that home prices were likely to experience a price decline on a national level for the first time since the Great Depression. The national median home price indeed fell by 1.4%. I believe I downgraded my forecast for ten or so straight months in 2007 as it was strongly pointed out to me. At the same time, the Blue Chip consensus forecast, comprised of about top 50 private forecasters, including forecasts by Merrill Lynch, Goldman Sachs, UCLA, and the like — had also downgraded the housing forecast by more than 20 straight months. Forecasting is never perfect. Forecasts are bound to be off but the forecaster's job is to make the best prognosis given the available information at the time. The readers should always view any forecast with caveat emptor.
But back to the original question: Will we experience a re-emergence of a housing boom from the current easy money policy by the Fed? The answer is no because as Abraham Lincoln said — fool me once, shame on you. Fool me twice, shame on me. It will be impossible to part global capital providers' money with another foolish investment.
By NAR Chief Economist Lawrence Yun
The Federal Reserve has been aggressively cutting rates recently and the question is being raised about parallels to the past. Back in 2001, in the aftermath of the internet stock bubble collapse and the September 11 terrorist attacks, Alan Greenspan — then the Fed chairman — made deep cuts in interest rates in order to stave off a possible economic recession. Many also blame Mr. Greenspan for having fueled the housing market bubble and subsequent collapse by keeping the rates too low for too long.
Now in early 2008, with the economy possibly heading into a recession — as evidenced by the GDP growth rate slowing from 4.1% in third quarter to 0.6% in the fourth quarter — the current Fed Chair, Ben Bernanke, has been following a very similar step of sharply cutting fed funds rates in order to revive economic growth — partly by making home buying financially enticing. Though there is never a direct correction between the Fed funds rate and mortgage rates, which are outside of the Fed's control and determined by the global bond market, the current 30-year mortgage rates have come down to essentially 45-year low levels. Aside from a few months in 2003, mortgage rates have never been this low since the early 1960s. A drop in the average mortgage rate from nearly 7% in mid-2005 to the current 5.7% would reduce monthly mortgage payments from $1330 to $1160 on a $200,000 mortgage. The average savings would be $340 per month or $4,000 per year on a $400,000 mortgage.
Therefore, could the Fed be simply refueling the bubble by dangling financial incentives to buy a home? Well, let's replay the key factors related to the recent bubble-collapse and see whether the same behavioral patterns will reemerge. Keep in mind that there are significant local market variations, but the markets that had the huge swings followed the below pattern:
The Fed started cutting rates from 2001 — with the Fed funds rate eventually reaching 1% by mid-2003.
The mortgage rate fell to 5.5% by the summer of 2003 from 8% in 2000. ARMS rates fell from 7% to 3.5% over the same period.
Housing demand rose with existing and new home sales hitting successive high marks in 2003, 2004, and 2005. Inventory fell as a result.
Home prices accelerated. For example, in the D.C. region home prices more than doubled from $204,000 to $426,000 from 2001 to 2005. Homeowners' net worth leapt by over $200,000 as a result — a figure many would considered good lifetime savings.
Given the general weakness in the stock market and relative "easy" wealth gains for real estate owners — there was an increasing view of homeownership and real estate as a financial play rather than in terms of family and housing needs considerations.
Housing demand ran exceptionally high, but the demand could only be realized if people could get the financing.
Global capital providers were chasing after high yields and were eager to provide the financing because…
Ratings agencies gave their blessing on subprime products, giving the impression that these were 'safe' alternatives.
Moody's, Standard & Poor's, and other ratings agency raked in revenue by giving out top Triple-A ratings (an inherent conflict of interest exists when ratings agencies get their revenue from mortgage underwriters/securitizers… rather like a professor who gives out a lot of "A" grades will draw more tuition paying students to his class).
With funding plentiful, subprime and no documentation loans proliferated — if you had a heartbeat, you could get a loan.
Housing demand was further pushed higher as herds of house-flippers entered the market, and home prices accelerated in those markets. Prices grew by leaps and bounds in markets of around 70% in short two years — places like Las Vegas, Miami, and Phoenix, and Sacramento.
Inventories were pushed down to exceptionally low levels and homebuilders could not keep up with demand.
From late 2004, the Fed began to tighten and mortgage rates climb in 2005.
Housing demand naturally fell off.
Inventory quickly built — from a combination of lower demand, builders continuing to build at a high pace, and some speculators/flippers realizing that the period of easy price gains was coming to an end.
Rising inventory held back price gains.
Price stagnation no longer permitted mortgage refinancing. Flippers/speculators started carrying burdensome mortgage costs — some begin to simply walk away — pushing inventory higher.
Non-flippers — primary homeowners, who took out subprime loans, also faced the same price stagnation, but also the resetting higher interest rates. Refinancing is not possible and some have been forced to foreclose
More and more flippers/speculators and homeowners are unable to carry the high resetting interest rates and simply walk away. Lenders begin to write-down loan losses.
After the fact and very late, the ratings agencies stated that subprime loans are no longer Triple-A quality.
Global capital providers stopped funding subprime loans and the subprime market came to a halt.
Global capital providers, having been burned, also stop funding any U.S. mortgages other than those with Fannie and Freddie backing. The jumbo loan market, therefore, struggles.
From mid-2007, a lack of market liquidity and economic slowdown forces the Fed to cut rates.
Conforming mortgage rates again fall to historic lows, but not jumbo loan rates.
The Fed has been and is further ready to make deeper cuts.
Going back to our earlier question: is the current action by the Fed simply trying to replay the same volatile game? The answer is an unambiguous NO. The same game is played out because the global capital providers will not be taken for fools again. After being burned, German mutual funds or the Chinese government or the Florida's teacher pension fund will no longer buy toxic subprime loans. Without the loans, homebuyers simply cannot enter the marketplace independent of their desires. We are back to the careful underwriting standards of verifying people's income, requiring escrow accounts, and back to thoroughly checking borrower's ability to repay the loan.
However, the current low interest rate policies of the Fed are a big help to housing because low rates can begin to furnish genuine potential homebuyers with the financial capacity to think seriously about becoming a homeowner. Furthermore, the rate cut is lessening the degree of forthcoming ARM resets, thereby lessening the burden the current subprime loan borrower faces. So the current policy of Ben Bernanke will help stabilize the housing market.
The Federal Reserve, however, should be mindful to not lower the fed funds rate too greatly. Inflation is expected to head lower in 2008 but too much money can fuel inflationary pressures. If that happens, 30-year mortgage rates will RISE, and therefore, choke off any housing recovery. A careful balance must be taken regarding how low to bring down the fed funds rate.
Though some in the blogosphere have figured Alan Greenspan as one of the key persons to blame for the current housing mess, I do not blame Mr. Greenspan. I believe there is plenty of blame to go around due to other factors. Global capital providers misunderstood and were simply not careful about purchasing securities composed on little income documentation and of risky-borrowers. Mortgage originators just originated loans to anyone including to suspicious borrowers because they had no skin in the game (see the recent academic article on this topic by a group of professors from the University of Chicago). There were also many books about how to endlessly profit from real estate. Consumers — particularly the flippers/speculators — also need to bear some of the blame.
But the biggest blame in my view goes to Moody's and Standard & Poor's — the rating agencies. If they had properly assessed the risk as is their job, then global capital would have never reached subprime homebuyers and flippers. The housing boom would have stopped dead in its tracks. We do not yet know how much of the ratings firms' assessment were clouded by their financial interest in giving out easy Triple-A grades. Many workers at Moody's and Standard & Poor's took home hefty bonus checks when revenue skyrocketed from providing high ratings.
It is also fine for people to point the finger at me. In a fast changing market conditions, I too have been off on my forecast. I knew that the boom was clearly unsustainable and I made the forecast in early 2007 that home prices were likely to experience a price decline on a national level for the first time since the Great Depression. The national median home price indeed fell by 1.4%. I believe I downgraded my forecast for ten or so straight months in 2007 as it was strongly pointed out to me. At the same time, the Blue Chip consensus forecast, comprised of about top 50 private forecasters, including forecasts by Merrill Lynch, Goldman Sachs, UCLA, and the like — had also downgraded the housing forecast by more than 20 straight months. Forecasting is never perfect. Forecasts are bound to be off but the forecaster's job is to make the best prognosis given the available information at the time. The readers should always view any forecast with caveat emptor.
But back to the original question: Will we experience a re-emergence of a housing boom from the current easy money policy by the Fed? The answer is no because as Abraham Lincoln said — fool me once, shame on you. Fool me twice, shame on me. It will be impossible to part global capital providers' money with another foolish investment.
Monday, February 18, 2008
Lenders singling out Specific Counties!
San Francisco Chronicle
Kenneth Harney
Sunday, February 3, 2008
(02-03) 04:00 PST Washington -- Critics call it the new redlining: Many of the country's largest mortgage lenders are imposing loan restrictions in entire counties or ZIP codes that they rank as risky or "declining."
On Jan. 25, Countrywide Bank sent mortgage brokers a list that categorized hundreds of counties as "soft markets" with rankings from 1 to 5, in ascending order of perceived risk. In areas rated in categories 4 and 5 - roughly 100 counties in metropolitan areas nationwide - Countrywide said it will now require 5 percent larger down payments from most applicants. If a loan program previously allowed a minimum 5 percent down payment, now applicants will be required to come up with 10 percent to qualify.
An additional 970-plus counties are rated more-moderate risks, in categories 1 to 3, with 5 percent down payment increases if an appraisal report indicates there is an "oversupply" of houses for sale or a marketing time of more than six months.
Other national lenders have distributed their own proprietary "declining markets" lists. GMAC-ResCap of Minneapolis even has a Web site allowing loan officers to type in a ZIP code and instantaneously learn whether the company ranks the area a D, C or lower risk. Although the public is not supposed to see the site, one mortgage company executive provided me with an access link.
In late January, a ZIP code for McLean, Va., - a high-income, high-cost residential community and home of mortgage investment giant Freddie Mac - was rated a high-risk D. The upscale residential neighborhood in northwest Washington, D.C., where Fannie Mae, another mortgage investor, has its headquarters was rated at an elevated risk of C.
Ironically, restrictions imposed by Fannie Mae late last year have prompted lenders to compile area by area risk ratings and impose down payment penalties. In a notice to lenders on Dec. 5, Fannie Mae said all loans delivered after Jan. 15 of this year on properties located within "declining" areas would be subject to 5 percent higher down payment requirements. The company's own electronic underwriting system had begun flagging selected markets as high risk in summer. Fannie Mae also strongly encouraged lenders to use "supplemental" data sources to come up with their own risk-ratings by market area.
Critics say that imposing higher down payment standards or other penalties for applicants in an entire county, metropolitan area or ZIP code is unfair to homeowners and buyers whose properties are located in sub-markets or neighborhoods within those jurisdictions that may not be declining in value, or not by enough to justify punitive underwriting requirements.
Ted Grose, president of 1st Mortgage Advisors Inc. in Los Angeles, said labeling entire counties as "declining" is "ridiculous - it totally fails to distinguish between areas where prices are rising or relatively stable, and other neighborhoods or communities where they are not."
David Berenbaum, executive vice president of the National Community Reinvestment Coalition, a consumer advocacy group active in litigation against subprime mortgage companies, said that "sound underwriting has nothing to do with geography. It is based on the income and qualifications of the applicant, and the valuation of the property by a professional appraiser."
"Anything else," said Berenbaum, "runs afoul" of federal fair lending and civil rights statutes. "It is redlining."
Paul Skeens, head broker for Carteret Mortgage Corp. in Waldorf, Md., said he had observed that lenders' county and ZIP code designations "have their heaviest impacts on areas with high proportions of minority groups and people with moderate incomes who bought houses" with low and no-down payment programs during the first half of the decade.
Labeling these areas as "declining" and then imposing higher down-payment requirements "becomes a self-fulfilling prophecy," said Skeens. "People can't buy there because they need more cash up front, the houses don't sell, and prices go down."
In an interview, Brian Robinett, chief credit and operations officer for wholesale lending at Countrywide, vigorously rejected the criticism. Countrywide's risk-ranking list distributed Jan. 25, he said, is based on comprehensive data on prices, sales and other indicators spanning 12 to 18 months.
"It would be hard to make the case (of redlining) against" the company's ratings. After all, according to Robinett, a wide variety of property types, income levels and ethnic groups are "equally affected" by every risk ranking. He cited the Los Angeles area as an example, with "Beverly Hills on one extreme" and lower-income, more heavily minority communities within the county on the other.
The takeaway for the time being on this issue: If a major lender has tagged your ZIP code, county or entire metropolitan area with a scarlet letter - and they exist in virtually every state, including many in places generally assumed to have relatively healthy market conditions - you're going to need more cash up front. That will be the case even if the area risk designation has no real applicability to the house you hope to buy or finance.
Bay Area 'soft' markets
Countrywide Financial gave the following ratings to the nine Bay Area counties. The numbers mean the lender will likely require a larger down payment in Alameda, Contra Costa, Sonoma and Solano counties.
County Level
San Francisco 2
San Mateo 2
Santa Clara 2
Alameda 4
Contra Costa 4
Napa 3
Sonoma 4
Solano 4
Marin 2
E-mail Ken Harney at kenharney@earthlink.net.
This article appeared on page K - 8 of the San Francisco Chronicle
Kenneth Harney
Sunday, February 3, 2008
(02-03) 04:00 PST Washington -- Critics call it the new redlining: Many of the country's largest mortgage lenders are imposing loan restrictions in entire counties or ZIP codes that they rank as risky or "declining."
On Jan. 25, Countrywide Bank sent mortgage brokers a list that categorized hundreds of counties as "soft markets" with rankings from 1 to 5, in ascending order of perceived risk. In areas rated in categories 4 and 5 - roughly 100 counties in metropolitan areas nationwide - Countrywide said it will now require 5 percent larger down payments from most applicants. If a loan program previously allowed a minimum 5 percent down payment, now applicants will be required to come up with 10 percent to qualify.
An additional 970-plus counties are rated more-moderate risks, in categories 1 to 3, with 5 percent down payment increases if an appraisal report indicates there is an "oversupply" of houses for sale or a marketing time of more than six months.
Other national lenders have distributed their own proprietary "declining markets" lists. GMAC-ResCap of Minneapolis even has a Web site allowing loan officers to type in a ZIP code and instantaneously learn whether the company ranks the area a D, C or lower risk. Although the public is not supposed to see the site, one mortgage company executive provided me with an access link.
In late January, a ZIP code for McLean, Va., - a high-income, high-cost residential community and home of mortgage investment giant Freddie Mac - was rated a high-risk D. The upscale residential neighborhood in northwest Washington, D.C., where Fannie Mae, another mortgage investor, has its headquarters was rated at an elevated risk of C.
Ironically, restrictions imposed by Fannie Mae late last year have prompted lenders to compile area by area risk ratings and impose down payment penalties. In a notice to lenders on Dec. 5, Fannie Mae said all loans delivered after Jan. 15 of this year on properties located within "declining" areas would be subject to 5 percent higher down payment requirements. The company's own electronic underwriting system had begun flagging selected markets as high risk in summer. Fannie Mae also strongly encouraged lenders to use "supplemental" data sources to come up with their own risk-ratings by market area.
Critics say that imposing higher down payment standards or other penalties for applicants in an entire county, metropolitan area or ZIP code is unfair to homeowners and buyers whose properties are located in sub-markets or neighborhoods within those jurisdictions that may not be declining in value, or not by enough to justify punitive underwriting requirements.
Ted Grose, president of 1st Mortgage Advisors Inc. in Los Angeles, said labeling entire counties as "declining" is "ridiculous - it totally fails to distinguish between areas where prices are rising or relatively stable, and other neighborhoods or communities where they are not."
David Berenbaum, executive vice president of the National Community Reinvestment Coalition, a consumer advocacy group active in litigation against subprime mortgage companies, said that "sound underwriting has nothing to do with geography. It is based on the income and qualifications of the applicant, and the valuation of the property by a professional appraiser."
"Anything else," said Berenbaum, "runs afoul" of federal fair lending and civil rights statutes. "It is redlining."
Paul Skeens, head broker for Carteret Mortgage Corp. in Waldorf, Md., said he had observed that lenders' county and ZIP code designations "have their heaviest impacts on areas with high proportions of minority groups and people with moderate incomes who bought houses" with low and no-down payment programs during the first half of the decade.
Labeling these areas as "declining" and then imposing higher down-payment requirements "becomes a self-fulfilling prophecy," said Skeens. "People can't buy there because they need more cash up front, the houses don't sell, and prices go down."
In an interview, Brian Robinett, chief credit and operations officer for wholesale lending at Countrywide, vigorously rejected the criticism. Countrywide's risk-ranking list distributed Jan. 25, he said, is based on comprehensive data on prices, sales and other indicators spanning 12 to 18 months.
"It would be hard to make the case (of redlining) against" the company's ratings. After all, according to Robinett, a wide variety of property types, income levels and ethnic groups are "equally affected" by every risk ranking. He cited the Los Angeles area as an example, with "Beverly Hills on one extreme" and lower-income, more heavily minority communities within the county on the other.
The takeaway for the time being on this issue: If a major lender has tagged your ZIP code, county or entire metropolitan area with a scarlet letter - and they exist in virtually every state, including many in places generally assumed to have relatively healthy market conditions - you're going to need more cash up front. That will be the case even if the area risk designation has no real applicability to the house you hope to buy or finance.
Bay Area 'soft' markets
Countrywide Financial gave the following ratings to the nine Bay Area counties. The numbers mean the lender will likely require a larger down payment in Alameda, Contra Costa, Sonoma and Solano counties.
County Level
San Francisco 2
San Mateo 2
Santa Clara 2
Alameda 4
Contra Costa 4
Napa 3
Sonoma 4
Solano 4
Marin 2
E-mail Ken Harney at kenharney@earthlink.net.
This article appeared on page K - 8 of the San Francisco Chronicle
Sunday, February 17, 2008
Economic Stimulus
President Approves Higher Loan Limits: On Wednesday (2/13), President Bush signed the economic stimulus package that includes a temporary increase in the conforming loan limits for mortgages backed by the GSEs (Fannie Mae and Freddie Mac) and the FHA. The new loan limits could rise to $729,750 in high-cost regions.
According to NAR, more than 85,000 REALTORS® contacted their senators urging them to support the increased loan limits and to pass the stimulus package.
REALTOR® Impact: Higher loan limits will have a direct positive impact on REALTORS®. The policy change will allow more buyers (both first-time and move-up buyers) to access loans with lower interest rates. Currently, most home buyers in high-cost regions (such as the SF Bay Area) must finance their purchases with non-conforming "jumbo" loans. The interest rates on these loans can be up to one percentage point higher than those that fall within the current $417,000 limit. Higher rates mean higher payments which could keep potential buyers out of the market. Lower raters will make access to capital easier and provide the incentive for buyers to get off the fence and into real estate.
Next Steps: We may see new loan products as soon as late April or early May. According to sources at C.A.R., the Secretary of the U.S. Department of Housing and Urban Development will have up to 30 days to finalize the actual amount of the regional loan limits. Once the limits are set, Fannie Mae and Freddie Mac will need to update their procedures to reflect the changes. Shifting from a national loan limit to region limits is a major change for both Fannie Mae and Freddie Mac. Regardless, our sources tell us that both GSEs want to implement the new limits as soon as possible.
CAR is not sure when the FHA will respond. However, they may be able to implement the new limits quicker than the GSEs.
This report is compliments of Bay East's Governent Affairs Director David Stark!
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