Calculating the Annual Percentage Rate

The New York Times’ Lynnley Browning is a little off his fine writing in this article dealing with the annual percentage rate calculations required by lenders.

THE lending industry has tried to make it easier for borrowers to understand the true cost of a mortgage by disclosing both its interest rate and its annual percentage rate, or A.P.R. But consumers may often wonder which figure they should focus on when buying or refinancing a property.

This is the first mistake in Browning’s report. It was not the lending industry that focused on making a loan’s true cost understandable, it was the folks in Washington, D.C. who promulgated the Truth-in-Lending Act.

The answer, many mortgage experts say, may seem counter intuitive: while the A.P.R. is popularly seen as providing a more complete picture of what you are actually paying each month, it often omits some costs.

Yes, that’s true, but what is overlooked is the underlying premise of the APR—that all lenders will have to calculate the APR the same way. There never was a promise that consumers would have to do some homework in figuring out which loan was best for them.

“When someone calls for a quote, we always give the interest rate, not the A.P.R.,” said Melissa Cohn, the president of the Manhattan Mortgage Company, a brokerage firm. “The A.P.R. is not all-inclusive.”

Whoa, if they did that in print, it would be a violation of Federal law.

When you read the full report you will see that the argument is being made for the further dumbing down of the loan process by including ALL costs in the APR calculation. In reality that sounds like a plan that would work, but by lumping in costs that are fixed in the marketplace, such as, mortgage tax in NY, and those that vary by company, for example, credit checks, you create a scene that is ripe for errors.

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The curse of water damage - Battling Mold Infestations

This article by Jonathan Vatner in the New York Times is worth reproducing in full. Here it is:

TOXIC mold continues to be a problem in New York City. Last year the Department of Housing Preservation and Development issued 14,290 violations for mold in residential buildings.

It’s not just older buildings that can be infested with the greenish-black mold called Stachybotrys chartarum, which, along with other molds, is linked with illness of the respiratory tract; some think it causes immunological and neurological problems, too. Of the roughly 500 mold cases in the city investigated each year by Microecologies, a company that identifies and seeks to resolve indoor environmental problems, one-fourth are in buildings less than five years old, where incorrectly installed plumbing or insulation has caused water damage.

“We’re talking about multimillion-dollar condos,” said Bill Sothern, a certified industrial hygienist at Microecologies. “Brand-new!”

One defense against infestations is mold-resistant drywall, usually installed in places prone to water damage or leaks, like bathrooms and kitchens, or near heating and air-conditioning units. These products — trade names include DensArmor Plus from Georgia-Pacific, Gold Bond XP from National Gypsum and Fiberock from USG — typically include specially formulated paper or fiberglass coatings. They are not much more expensive than traditional drywall, which is paper-faced gypsum board. But using them during construction can save millions in remediation down the line.

To be on the safe side, the developers of one new building, the Laureate, a 76-unit condominium at West 76th Street and Broadway, decided to use mold-resistant drywall even in areas not prone to water damage. The brand they chose was Mold Defense by Lafarge.

“It’s a culmination of industry practice over the last seven or eight years,” said James Davidson, a principal in SLCE Architects, which designed the Laureate, “using mold-resistant Sheetrock not only in the wet areas where you’d expect moisture but also in standard partitions where you don’t expect moisture to be present.”

Though mold-resistant drywall isn’t especially expensive, installing it everywhere in the building added up: The Laureate’s developer, the Stahl Organization, paid a total of more than $150,000 extra.

The building industry may soon adopt mold-resistant drywall as a standard. Last year the Green Codes Task Force, an assemblage of architects, developers and other building experts, released a set of 111 guidelines for making New York’s building codes more environmentally sound, one of which is a proposal to require mold-resistant gypsum board and cement board — even more unfriendly to mold — in areas prone to wetness. Thirteen of those guidelines have been enacted by the City Council; the mold proposal, also known as HT 7, is under consideration.

“This is a very low-cost proposal with substantial health benefits,” said Russell Unger, the executive director of the Urban Green Council and the chairman of the steering committee for the Green Codes Task Force. “Mold is not just unsightly; it can be a serious health hazard.”

The use of mold-resistant drywall alone is not enough to ensure that a home will be mold-free. The exterior needs to be impermeable; all the building materials need to remain dry during the construction process; and condensation should not form inside the walls.

Before closing on any apartment, whether a resale or new construction, potential buyers should ask questions about mold, Mr. Sothern said.

In addition to ascertaining the kind of drywall, buyers should ask what the heating and air-conditioning equipment is insulated with — especially when the building isn’t brand-new. “Fiberglass often gets extraordinarily moldy after about 10 years,” Mr. Sothern said.

He also recommended examining the perimeter of the apartment for wetness. If condensation is forming inside the windows, or if moisture is getting in around windows and doors, that should be a red flag. Also check for warping on the floor at the edges of the unit, and any musty smells.

Another option to consider is paying for a home inspection. Microecologies charges $475 and up for an inspection, including a written report.

“So many mold problems are hidden from plain view,” Mr. Sothern said.

The on-line version can be found here.
Pretty scary, don't you think.

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 next generation: Imagining Life without Fannie and Freddie

From the New York Times’ Gretchen Morgenson.

KUDOS to Treasury and the Department of Housing and Urban Development for some straight talk about the nation’s broken mortgage system.

A report to Congress from those departments, published on Friday, provided some long-awaited analysis by the Obama administration about what went wrong in housing finance — and how to fix it.

 The report, entitled “Reforming America’s Housing Finance Market,” zeros in on the perverse incentives created by the nation’s mortgage complex during the years leading up to the panic of 2008. The Treasury’s recommendation that we wind down Fannie Mae and Freddie Mac and let the private mortgage market step in is spot on.

So what’s next?

Still, it is not clear that such moves, sensible though they are, will be enough to prevent taxpayers from having to bail out institutions that back mortgages in the future. That is because the debate over how to put the Treasury’s ideas into effect will soon become a brawl. Powerful participants are already working overtime to keep taxpayers on the hook.

The opponents to reform: the Mortgage Bankers Association, the Financial Services Roundtable and the Center for American Progress. They are urging the creation of a new federally-related entity.

Taxpayers surely do not want to create new government-sponsored enterprises that may later fail. So why not work toward a system where the government is solely the home lender of last resort? That way, the private market could operate in good times; the government would step in only if the market froze up.

Friday’s report seems to be leading in this direction. But it supplies no road map to a government system that provides a catastrophic insurance program only for those times when the private market is not working.

There is much to hash out if we are to build an effective housing finance system in America. Being truthful about what went wrong in the past, the report paves the way for a meaningful discussion. But we must also be sure that the solutions do not bring us back to where we began. That is where the real fight will be fought.

Read the full article.   What do you think?

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

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Fairfield, NJ 07004

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

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

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Sign of the times - mortgage assistance and income taxes

From Bankrate.com. The question and its answer - Is mortgage payment help taxable?
By George Saenz

Dear Tax Talk,

I am receiving money from my mortgage lender as part of a job loss mortgage protection insurance program. Are these payments taxable and if so, how would I report them?  -- Karen

Dear Karen,

I'm sure you had enough bad news when you lost your job. However, more bad news is that the mortgage assistance payments are considered other income by the Internal Revenue Service. The good news is that you can still deduct your mortgage interest as long as you itemize your deductions on Schedule A.

According to IRS Publication 525, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability or unemployment. Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year.

I don't see that there would be any distinction between credit card and mortgage insurance that would change the tax consequences. However, unlike credit cards, the interest on your mortgage is tax deductible.

Read more: Is mortgage payment help taxable?

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

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Fairfield, NJ 07004

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

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FDIC bank closures - and they're off!

The FDIC hit the ground running this year by closing three more banks, bringing the total this year to 14.

The failed banks, so-called community banks, are located in Georgia and Illinois, but have a message that resonates across the country.

Community banks get their money locally, and lend locally.  When they venture into commercial loans, which tend to be larger, they enter dangerous ground because a problem with a commercial loan translates into a large hit on the bank's books.
Read the full report from the New York Times, Regulators close three banks

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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