How Underwater Mortgages Can Float the Economy

We have previously written about the plight of homeowners whose homes are now worth less than the mortgage. Some have decided to walk away from property while others are making their mortgage payments. In the face of low mortgage interest rates, refinancing would be a good idea but with LTVs, loan to value ratios, being what they are homeowners cannot refinance.

The Federal government stepped in with a program allowing banks to make loans up to 125% of LTV, but there have been few loans made.

The Sunday New York Times carries an Op-ed on the issue written by Glenn Hubbard and Chris Mayer.

“RECENT calls for another federal stimulus package raise an important question: Before considering costly short-term measures to raise overall consumer demand, have we done enough to ensure that financial markets will work properly and lead us to recovery? For housing — the sector at the center of the crisis — the answer is no. But the good news is that it might be possible to improve the housing market and invigorate the economy in a way that won’t require a costly stimulus package.

“In a normally functioning mortgage market, almost all homeowners would have refinanced their mortgages to take advantage of low rates. Yet today, low interest rates are doing little to stimulate the housing market because of other stresses, including declines in house prices, falling household incomes and banks’ wariness of making loans.

“To change this dynamic, we propose a new program through which the federal government would direct the public and quasi-public entities that guarantee mortgages — Fannie Mae, Freddie Mac, Ginnie Mae, the Department of Veterans Affairs loan-guarantee program and the Federal Housing Administration — to make it far easier and quicker for homeowners to refinance.”

Whoa, haven’t we been down this road? But, they write,

“This program would be simple: the agencies would direct loan servicers — the middlemen who monitor and report loan payments — to send a short application to all eligible borrowers promising to allow them to refinance with minimal paperwork. Servicers would receive a fixed fee for each mortgage they refinanced, which would be rolled into the mortgage to eliminate costs to taxpayers.”

How does this work in dollars and cents?

“Consider a family that bought a home in 2006 for $225,000, taking out a $200,000 fixed-rate mortgage at the prevailing 6 percent interest rate with monthly payments of about $1,200. That home is now worth about $175,000. The family still owes $189,000 and thus cannot refinance because they are underwater.

“But under our proposal, the family would be offered a new mortgage at today’s prevailing rate of 4.3 percent. The family would see a 15 percent decline in their monthly mortgage payment, saving more than $2,000 per year. This would not only help homeowners through the current crisis, but would be the equivalent of a 26-year tax cut of more than 4 percent of income, assuming the family spends around 30 percent of income on housing.”

But prior experience has shown mortgage programs to be a bust. They know it and ask,

“What went wrong? First, the program was not widely publicized relative to the federal government’s efforts to help with more modest loan modifications. Second, the refinancings require substantial upfront costs for borrowers. Third, many borrowers — those with second liens or shaky incomes — were locked out. (About 20 percent of all borrowers with federally backed mortgages have a second lien.) Last, many borrowers do not know the current value of their homes, and are reluctant to pay to get an appraisal only to be turned down for a refinancing.

“THE program we propose addresses these issues. It would have minimal costs, which we would roll into the cost of the mortgage rather than forcing homeowners to make a big upfront payment. For mortgages with second liens, the government could request a blanket approval from all servicers to allow the new mortgages to have priority over existing second ones. It is in the interest of the servicers of second liens to allow such refinancings, because they reduce payments on the first mortgage and thus lower default risk on the second lien.”

We think the proposal is a good one, what do you think?  Read the full Op-ed.
Glenn Hubbard, the chairman of the Council of Economic Advisers under President George W. Bush and the co-author of “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity,” is the dean of the Columbia Business School, where Chris Mayer is a senior vice dean.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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Congratulations to Michael F. Brandman, Esq.

Congratulations to our long time client Michael F. Brandman, Esq. on his appointment as Chair of the Supreme Court of New Jersey District Ethics Committee for Union County, District XII.

Michael is a partner in the firm of Weiler & Brandman located in Cranford, New Jersey.

District Ethics Committees are found throughout the state.  Their purpose is to review grievance complaints filed against attorneys, conduct hearings and recommend discipline, if warranted.

Appointment to an ethics committee is an honor.  We congratulate Mike on his being named Chair!

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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Death and taxes in New Jersey

The Star Ledger’s Karin Price Mueller writes,

“Sure, the thought of dying doesn’t bring a smile or a happy dance to most. But dying and being taxed, even after you’re dead?

“Welcome to New Jersey.

“While there have been many changes to estate tax law through the years, often benefitting the so-called rich, New Jersey, as usual, rocks to its own drummer. It’s a politically charged issue, but let’s face it: Dead people can’t vote. And the state isn’t likely to give up easy revenue anytime soon.

“So don’t die in New Jersey — or at least don’t die in New Jersey without a comprehensive estate plan.”

What kind of death taxes are there? Federal and state.

“The federal estate tax exemption increased over the past decade, meaning you were able to leave more money free of federal tax as the exemption went up each year. For 2010, the tax was completely repealed, making this year a great year to die, at least federally speaking. If there’s no action in Washington for 2011, a $1 million exemption will be resurrected.

“Congress keeps dallying around the issue, so the future of the federal estate tax remains, for now, in limbo. New Jersey’s estate tax, by comparison, is pretty solid.”

While some states tied their estate taxes to the federal, New Jersey didn’t. Thus, the exemption in New Jersey has been $675,000 since 2001.

“That may sound like a lot of moola, but it’s not hard to die in New Jersey with that much in assets. Lots of state residents reach the $675,000 threshold in real estate alone. Throw in a 401(k) and a bank account or two, and you’re there. Even if you don’t have enough to owe federal estate tax, you very well may owe the tax to New Jersey.

“Here’s an example: Let’s say you die with an estate worth $950,000 in 2010 or 2011. You won’t owe any federal estate tax. But anything over $675,000 — in this case, $275,000 — would face the New Jersey estate tax. That comes to a bill of $31,800. If you instead died in a state with no state estate tax, your estate would owe nothing at all.”

Ouch, so what to do?

Ms. Price Mueller mentions a few options. Find out what they are by reading the full article.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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New Jersey makes the news, again

Is something wrong with New Jersey’s air?


It must be the air. What else could explain another breaking story about fraud by a New Jersey resident? This time to the tune of $45 million in a Ponzi scheme.

As reported in the Star Ledger, Montclair resident Antoinette Hodgson “told her alleged victims she was using their money to buy and renovate homes and then sell them for profit, authorities said.”

“But in truth, authorities say, she used money from new investors to repay older investors and spent hundreds of thousands of dollars at casinos in Atlantic City and Las Vegas. She also spent more $700,000 on a Dunkin Donuts franchise in Arizona, authorities said.”

Don't get me wrong, I love New Jersey, been here for more than 30 years and plan on staying another 30 years.

The Star Ledger article can be found here.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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The ABC's of home buying

Carla Hill, writing for Realty Times, discusses the questions and terminology confronting first time home buyers.

Here’s the full article:

As a first-time buyer, you have a lot of questions. There is terminology you don't understand. And there are expenses you need to anticipate. Here are some explanations of just that, to help you on your way to homeownership.

First, what costs should you expect? After you have become "pre-approved" for a mortgage, you will know how much you can spend (aka your "budget"). Pre-approval is done by the bank or lender who will be writing your mortgage. It is accessed by your: credit history, assets, employment history, and financial status. And it guarantees you a loan.

Being pre-approved can quicken the time it takes to close, as well as give you an advantage over buyers who are not pre-approved, should a home garner multiple offers.

Next, figure out how much money you'll need to put down. Are you looking at an FHA loan with 3.5 percent down? Or are you planning on putting 15 to 20 percent down? Financial expert Suze Orman recommends that in today's troubled market, you put at least 20 percent down on a house.

Closing costs are what are paid, well, at closing. You should expect to pay for an appraisal, title services, title insurance, transfer taxes, inspections, loan origination, private mortgage insurance, and homeowners insurance, among a host of other charges. The average closing costs are paid, yes, by the buyer. And they average around 2 to 4 percent of the total purchase price of the home. You can, of course, negotiate payment of closing costs with the seller. This is especially true in a market which favors buyers.

What is mortgage insurance? Mortgage insurance, also known as private mortgage insurance (PMI), protects your lender, should you default on your loan. And it can be required when you have made only a small downpayment. It costs around 1 percent of the total loan. According to the Federal Reserve Bank of San Francisco, "Under [The Homeowner's Protection Act of 1998], mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan."

What is escrow? With a purchase as large as this, it is important that one party doesn't run off with all the funds! This is where an escrow account comes into play. All necessary and agreed upon funds are put into a third party account. When all terms have been met, then the funds are released to the appropriate parties. [Escrows, in the sense the term is used here, is not a New Jersey custom.]

What is an offer? When you have found a home you like, you'll discuss with your agent what a reasonable price pay is. This will more than likely be less than the price the seller is asking. And it will be based on the condition of the home, the price of home's in the neighborhood, as well as current market conditions. Remember, your offer is the price you are willing to pay for the property. You have signed the offer and, if accepted, you will be expected to follow through with the purchase of this home!

What are property taxes? Welcome to homeownership! Property taxes are paid each year to your local government at the county level. Some areas of the country charge much higher taxes than others, and the price is a percentage of the value of your property. That means that more expensive the house, the more expensive the taxes.

As a first-time buyer, it is highly recommended you work with a local real estate agent. They not only can answer any questions you may have, but their wealth of knowledge and experience will help guide you in a positive direction for this important transaction.

You can read the article on-line.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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