New Homeowners Benefit by Empowered Living Program

We are looking for individuals that have the desire to own a home but due to a lack of down-payment, credit concerns or just plain fear, have not been able to purchase their first home. Purchasing a home is the first step to economic empowerment and we have created an initiative called "Empowered Living," which is designed to breakdown barriers to homeownership in association with our strategic partners.

Through the Lone Tree office of Cherry Creek Mortgage Company - The James Holmes Lending Team, we provide a gateway to access a wide variety of first time buyer programs, which will provide our buyers with as much as $25,000 to be used for down-payment and closing cost. The James Holmes Lending Team is a lending partner for the Douglas County Housing Partnership program among other programs. We will in effect become the coach for the first-time buyer and provide education, mentorship, access to the MLS system to access properties, provide discounts and incentives from our builders and related partners.

Many renters can buy a home with little or no major increase in their total monthly payment obligation once the tax savings from owning a home are figured into the equation. If you pay $900 per month for rent over the next two years you will have paid $21,600 toward your landlords mortgage. We would like to help you convert those funds into equity in a home of your own.

If you would like to know more or schedule a private consultation, please visit my website at http://www.privatemortgagebanking.net/ and either email James Holmes directly at 303.840.2319

Real Estate Today! Radio Show Commentary from 02-24-2007

The Real Estate Today Team has launched an initiative we call "Empowered Living," designed to identify, coach and create a minimum of 100 first-time home buyers in Colorado by the conclusion of 2007. In addition to assisting the buyer with the selection of the best valued home available, we will also provide access to a variety of down-payment assistance programs including grants and low interest loans with payments deferred for up to five years. I would like for anyone who is currently renting and wishes to achieve the dream of home ownership to contact me at http://www.realestatetodayshow.com/ or contact my office at 303-840-2319.

We have developed a valuable resource for fix and flip investors. Please contact us and request your free "Fix and Flip Investor Resource Guide."

We have a free resource to allow individuals to access all of the available listings in the Multi List System (MLS) using a private password protected website. To register, log on to http://www.RKYMTNMLS.com/.

I admit that I am a fan of real estate reality television and I think the programs on both A&E and TLC serve to show what is possible and the potential pit falls when flipping real estate. I had the honor of welcoming David Montelongo of Montelongo House Buyers and the hit reality television show “Flip this House” as a guest on our radio broadcast the Real Estate Today Show. I think that the Montelongos represent what is possible in a very entertaining way; they have a wonderful family story. Needless to say, David’s appearance on our program was greatly anticipated.

David shared ten tips for becoming a successful real estate investor and provided me with permission to post these on my blog.

Here are David’s Tips:

1. Forge strong relationships with foreclosure agents so that when a new listing comes up you’re the first to hear about it.

2. Create a power network of fellow investors, a TRIBE, if a deal doesn't work for you, it may work for someone else in your network.

3. Try not to see other investors as competition, but as allies. This will create opportunities to be involved in more deals.

4. Set your construction budgets early, do everything in your power to stick with your budgets.

5. There are always unforeseens give your budget a line item for cost-overruns.

6. Have your Contractor visit the property with you BEFORE you close. This will remove some of the unknowns.

7. We are all motivated, both positively and negatively. If you find your positive motivation, it will be easier to find the next deal.

8. You are the greatest asset you possess. Invest in your education. Every time I attend a RE workshop I come away with a new technique.

9. Join your local Real Estate Investor Association; this is a great resource for rehab lenders.

10. Don’t be afraid to partner on a deal, partners can leverage each others strengths to create a win-win situation.

During my research for the show, I discovered that both David and his wife Melina share a heart to give back to the greater real estate community and they wish to share their success with others. I believe the cycle of living, learning, succeeding and giving back is the essence of significance. The response to our shoe was wonderful resulting in great questions on air from our listeners and calls from Realtor partners and several investor clients of mine who regularly listen to the program. The subject of fix and flips is a popular one on our show and the opportunity to learn from an expert was tremendous.

Understand Your Credit Scores and Win the Game

I cannot over stress the importance of monitoring your credit scores annually to ensure that you pay the lowest rates on home mortgages, auto loans, credit card debts, and safeguard yourself against identity theft. In times past credit scores where used most often to develop your risk profile in consideration for a loan and to set interest rates. Today, property insurance carriers and life insurance carriers consider credit scores when setting premiums and this trend is evolving into a variety of industries.

A consumer’s credit history is archived by three service providers; Equifax, Experian, and Trans Union and their databases are often consolidated into a single report by third party credit agencies. The report is generally referred to as a credit report and it includes a credit score issued by each service provider. The scores range from 350-850 and are graded based on a set of criteria which includes payment history, account balances as compared to credit limits, amount of recently accumulated credit and inquires, among others factors.

The following generally outlines how a variety of traits within your profile may affect your credit scores and risk profile: Length of Credit History 15%, Payment History 35%, Credit Balances Owed 30%, and Recently Obtained Credit 10%. According to Colorado based Advantaged Credit of Colorado an example of a consumer’s favorable profile would include two installment loans, three revolving accounts with balances, balances on revolving debt below 30% of the high credit limit, no collections, no public records (judgments or liens), no foreclosures, no late payments.

My advice would be to obtain a copy of your credit report annually. This can be done by contacting each of the three credit service providers directly, or by accessing free online resources such as http://www.annualcreditreport.com/ . Once you have obtained your report, review it carefully for discrepancies including inquires made against your credit files. Report inaccurate information directly to the associated credit service providers; keep in mind that the information retained by the three providers may vary and the data is often 30-60 days delayed, so some information such as account balances may not be accurate. The law provides consumer protection and false information must be removed by the reporting entity.

Bottom Line: To safeguard yourself against identity theft or credit fraud review your credit report annually, immediately report any discrepancy; ask your property and casualty insurance agent if you are eligible for premium discounts for high credit scores. It is also important to make lenders aware that you understand that interest rates are a reflection of risk and that your good credit should be rewarded with the appropriate interest rates. If you have legitimate credit problems, seek the advice of a qualified credit consultant and develop a strategy to restore your credit profile. Beware of anyone who promises that they can remove negative information from your report for a fee, legitimate information cannot be removed and you will be disappointed.

Resources: Here is the contact information for the three credit service providers: Equifax 1-800-685-1111 http://www.equifax.com/, Experian 1-888-397-3742 http://www.experian.com/, and Trans Union 1-877-322-8228 http://www.transunion.com/

Green is Becoming the Color of Real Estate

The environmentally conscious are gaining allies in residential construction from the efforts of Built Green Colorado; which is administered by the Home Builders Association of Metro Denver with the support of the Governor's Office of Energy Management and Conservation, Colorado Association of Home Builders and E-Star Colorado among others. The designation "Built Green" is issued to builders who chose from a list of more that 200 building features in 22 categories; including materials, resource conservation, energy efficiency and conservation of resources. Builders must obtain a minimum number of points accumulated by the inclusion of building features in order to register their project as a Built Green Community.

There are six primary benefits derived from the Built Green program: 1. Better Energy Efficiency. 2. Improved Durability and Reduced Maintenance. 3. Healthier Indoor Air. 4. Reduced Water Usage (this is critical in Douglas County). 5. Preservation of Natural Resources. 6. Pollution Reduction.

Special financing known as "Green Mortgages," are available to finance the purchase of a new Built Green home as well as to cover the cost of improvements to an existing home. As a result of energy savings the total housing cost resulting from these mortgage products are lower than the cost without special financing. Not all lenders offer Green Mortgages, so it is important to identify a lender familiar with these programs. I have estimated that a client utilizing our Green Mortgage product can achieve a savings of $45 per month on a $250,000 purchase price. The homebuyer could purchase an additional $7,500 in home value for the same payment by using the Green Mortgage program.

One example of a Built Green Community is the Highlands at Stonegate located at the southwest corner of C-470 and Jordan Road in Parker. The community is comprised of nearly 450 contemporary designed units containing a number of environmentally friendly features and building materials. Communities like the Highlands at Stonegate represent a tremendous value and appeal to buyers who recognize the benefits to the environment.

Those old enough to remember the environmental friendly homes of the 1970's will recall seven foot tall solar panels on roof tops and walls manufactured from old car tires; this in no way is representative of the Built Green home of today. The majority of features are not noticeable to the untrained eye; engineered lumber, low-e windows, fiber-cement siding, energy efficient appliances, and xeri-scaping all contribute to a beautiful and efficient alternative to traditional construction materials.

As consumers become more conscious about greenhouse gas emissions and the effect of global warming on our environment, many industries including the automobile industry and public utilities are seeking ways to satisfy the demands of the public for responsible management of our natural resources. Built Green Colorado has taken a key leadership role within the new homebuilder community in Colorado and residential communities throughout the state are seeing green.

Prepare Yourself To Obtain The Mortgage That Is Best For You

As we welcome a new year filled with endless possibilities to achieve your financial goals and chart a course for long term financial health; one of the most important pillars to consider when laying your foundation is the role that real estate will play in accomplishing your objectives. If you are a homeowner, the task of managing your equity includes an occasional review of the structure of your mortgage to ensure that your loan addresses present needs and maximizes your opportunity to grow the equity in your home. If you are in the market for a new home mortgage, there are practical considerations to take into account when considering who you should trust as an advisor and ultimately which loan program is right for you. Here is a practical guide to ensure that you make smart financial decisions.

Understand Your Time Horizon

The term of the loan product you chose should be directly tied to the length of time you intend to own the property. For example, one of my clients was working as a resident at CU Medical Center and there was little doubt that he would be relocating upon graduation from the program. The young couple came to me prepared to sign a 30 year mortgage as this is what their parents had recommended. The time horizon for my clients was a maximum of three years and a three year ARM was a more appropriate choice for them resulting in a significantly reduced interest rate and substantial interest savings. Simply stated, if you are planning to move in the next three to five years a thirty-year fixed mortgage would likely not provide you with the lowest possible costs.

Understand Your Risk Tolerance

Everyone has a tolerance for risk and your ability to live with your mortgage and sleep well at night requires that you understand where you are on the risk scale. I have clients that are willing to trade the volatility of adjustable rates for the periodic advantage of a lower initial rate, the idea of a thirty-year mortgage is completely foreign to someone with this profile. By contrast, I have clients who would be best served having an adjustable rate mortgage, but could not bare the uncertainty of knowing what their payment will be for the next 30 years regardless of their true intention to remain in the property.

Understand Your Credit Profile

Credit profile is comprised of two important factors, credit scores as reported by Trans Union, Equifax and Experian, and your capacity to repay the debt. Credit scores range from 360–850 and take into account a number of factors including payment history, account balances, age of accounts and inquiries. Generally speaking higher credit scores result in lower interest rates and better terms. Borrowers should strive to maintain credit scores of 620 or higher. Capacity is a measure of your ability to repay the debt as determined by your verifiable or stated debt to income ratio, typically not to exceed thirty-six percent of your gross income. This is a guideline and other factors such as high credit scores may allow you to stretch to fifty percent. To determine your debt to income ratio take your total monthly payments on your mortgages and consumer debt such as credit cards, car loans, etc. and divide the total into your gross monthly income.

Understand How Technology Can Work For You

The internet has changed the way we receive and process information becoming a useful tool for researching a home mortgage. Consumers should be very careful when using the internet as more than a research tool when acquiring a mortgage; surveys indicate low satisfaction rates among consumers who obtain a mortgage over the internet. The most effective strategy combines the information gathering utility of the internet with the personal consultation of a competent mortgage professional. The most advanced mortgage lenders utilize their websites as a resource tool for their clients and provide personalized service to ensure client satisfaction.

Another significant change has been the development of automated underwriting tools which allows lenders to weigh a borrower’s total risk profile against program guidelines making it easier for a larger range of applicants to qualify for a mortgage.

Understand That Interest Rate Is a Function of Risk

The interest rate a lender charges a borrower is directly related to the risk associated in making a loan to that specific borrower. It is not reasonable to expect a lender to provide a borrower with poor credit scores the same interest rate as someone with an excellent payment history. Be realistic about your qualifications and if you believe you are not receiving the rate you deserve ask your lender to provide you with a complete explanation of how your interest rate has been determined. In addition to explaining your credit profile, your lender should also explain the adjustments made to the final interest rate.

Understand Your Options Concerning Interest Rates and Loan Fees

A borrower who is shopping for the best mortgage rate can easily be seduced by low rate offers that are accompanied by low Annual Percentage Rates known as APR. Federal Law requires that APR be disclosed in addition to the actual interest rate when pricing a mortgage. Although disclosure of APR is intended to provide the borrower with enough information to make an informed decision; the reality is that APR may not be the best way to compare options when shopping for a mortgage and can mislead a borrower resulting in costly errors.

Consider buying down the interest rate by paying points (equal to a percent of the loan amount) and explore a no costs loan, whereby the total costs of the loan are factored into the interest rate. In order to determine if either choice is right for you, know your time horizon and be clear about your objectives. A competent mortgage professional can walk you through the evaluation process and provide you with a written comparison of loan programs and pricing structures.

Understand Potential Pitfalls and Protect Yourself

Prime loan programs also known as “A Paper” loans typically do not include a pre-payment penalty, by contrast the majority of sub-prime mortgage programs have associated prepayment penalties. In the event that the mortgage balance is dramatically reduced or paid in full prior to the end of the prepayment phase, a significant penalty can be charged to the borrower. A typical prepayment penalty is equal to six months interest on 80% of the principal balance for a period of one to five years. A prepayment penalty could in effect lock a borrower in to a loan program eliminating the option of refinancing in the near future.

Beware of loan program with extremely low initial interest rates, not everyone will win the lottery and the day will come when the interest on the fully indexed rate will come due. Loan programs tied to monthly adjustable indexes and programs that allow a monthly payment less than the interest due will cause negative amortization, which results in an increasing loan balance and loss of equity.

The Bottom Line

By understanding your unique qualifications, doing your homework and seeking the advice of a qualified mortgage lender, you can successfully navigate the waters and obtain the loan that is best for you.

Mortgage Underwriting Guidelines Will Tighten in 2007

Colorado was identified as the number one State in the Country for foreclosures; however, the foreclosure problem exists in most major markets across the Country and the Office of Federal Housing Enterprise Oversight is suggesting immediate action. The agency has issued a directive to Fannie Mae and Freddie Mac to tighten underwriting practices for several nontraditional mortgages. Both Fannie Mae and Freddie Mac operate under a unique public/private partnership as a quasi-governmental agencies.

The agencies are to follow the guidelines issued in October by federal bank regulators covering higher risk mortgages which allowed for deferred interest or principal payments such as MTA loans and other non-traditional mortgages.

Bottom Line: As mortgage lenders and secondary market makers feel the pinch from increased foreclosures, most lenders will either tighten guideline or in some cases no longer offer certain types of mortgage programs. This change placing added importance for consumers to seek the advice of a qualified mortgage consultant.

Real Estate Community Regulate Thyself

In 2006, the Rocky Mountain News has published an occasional series on Colorado’s foreclosure crisis. Chapters have shined an unfavorable spotlight on every aspect of the real estate industry; builders, Realtors, mortgage lenders and title companies. The common thread in every case is the lack of professionalism by the service providers who received commissions and fees establishing a fiduciary responsibility to the consumer. It is clear that in the great majority of foreclosure cases chronicled, the desire to close the transaction outweighed the concern for the best interest of the buyer and the real estate community as a whole.

It is time for the collective real estate industry to practice self regulation or suffer under the weight of bureaucratic efforts to stem the tide of fraud which has resulted in our status as the number one state for foreclosures throughout much of 2006. The new mortgage broker licensing law will only result in the most egregious of offenders; those convicted of a felony within the past five years to be removed from the industry. There are loop holes in the legislation and as the law is remiss by not requiring education or experience standards, no guaranty exist that the registered mortgage broker is competent to work in the mortgage industry.

The Colorado Mortgage Lenders Association (CMLA) has been a leader in self regulation among mortgage professionals. Mortgage bankers and brokers who carry the CML (Certified Mortgage Lender) credential have demonstrated through education and documented industry experience that they are qualified to consult consumers and originate mortgage loans. Mortgage originators that carry the CML designation also have agreed to a code of ethics. There are several steps that the mortgage industry can take to eliminate incompetent and unethical mortgage originators from the industry such as setting higher standards in hiring practices, completing independent background checks, requiring membership in an organization such as the CMLA, which provides a place for consumers to turn to file a complaint and force accountability.

The real estate industry has done a far better job of self regulation through licensing, enforcement, and the promotion of the Realtor designation in association with various Boards of Realtor. Real estate agents who carry the Realtor designation agree to adhere to a code of ethics and consumers must understand that not all real estate agents are Realtors. The industry could still do more to protect the public and managing brokers should bare more of the responsibility when hiring agents to their firms. In addition to the established consumer safeguards, agents should police themselves by reporting unethical practices when dealing with unethical agents.

Real estate appraisers often are subjected to tremendous pressure to “make the deal work,” when appraising a property under contract or as part of a refinance transaction. During my tenure as Chairman of the Colorado Real Estate Appraiser’s Board, I oversaw the discipline of many practitioners who were victim to the threat from mortgage lenders and real estate agents who pressured them to achieve a predetermined value for a subject property. Inflated appraisals are among the primary factors resulting in foreclosures in Colorado. As with the real estate industry the legislative structure and professional associations exist to address the most egregious offenders, the industry could benefit from more aggressive reporting of poor appraisal practices from real estate agents and mortgage lenders.

Title companies and closing agents are on the front lines in witnessing the pressure placed upon the consumer when deceptive practices come to light at the closing table. When a borrower learns that the interest rate and closing cost promised are not being delivered the closing agent is left to manage the closing and protect the borrower. Unfortunately this does not always happen as many do not feel it is their role to advocate for the consumer. I believe if a title company or closing agent recognizes a pattern of unethical practices from a real estate agent or mortgage lender; they should act to protect the consumer and title insurer by reporting those involved to the Colorado Real Estate Commission and the employing brokers.

The Bottom Line: New legislation aimed at regulation is only as effective as the enforcement, which in Colorado is limited by budgetary restrictions. If we act as an industry to raise the bar of professional practice and ethical behavior; we can accomplish the goal of cleaning up our industry in a responsible manner and elevate our professions in the eyes of those we seek to serve.

Resources:

Colorado Mortgage Lenders Association - http://www.cmla.com/
Colorado Department of Regulatory Agencies - http://www.dora.state.co.us/

Real Estate Today! 710 KNUS AM - In the News

This week the Real Estate Today radio broadcast recieved media exposure in the following:

Rocky Mountatin News http://www.rockymountainnews.com/drmn/other_business/article/0,2777,DRMN_23916_5239112,00.html,

Denver Post
http://search.denverpost.com/sp?aff=3&keywords=James+Holmes+KNUS+

Denver Business Journal (12-29-2006 Edition)

We appreciate the exposure as we continue to grow our radio community. Please tune into our show heard in Colorado on 710AM KNUS or on the internet at www.710knus.com Saturday afternoons at 2:30 PM MST .

Notes and Comment from our Radio Broadcast 12-23-2006

We had a great radio show today. I was joined in the studio by Bruce Deffler, Certified Relocation Specialist and Broker for Benchmark Property Advisors a Keller Williams affiliate. Here is an overview of the topics discussed and a few added comments.

2006 Housing Slump Dampens Economy

Homebuilding declined by a rate of 18.7% in the third quarter, which translates to the largest cut in 15 years. This contributed to a 1.2% reduction on third quarter growth, the sharpest cut in 25 years. Economic growth slowed to an annual pace of 2% in the July – September quarter according to the commerce department. Although not a positive sign, not quite the 2.2% annual rate estimated a month ago.

Economist estimate that the Gross Domestic Product (GDP = The value of goods and services produced within the United States) for the October – December timeframe with fall in the range of 1.7% – 2.5%, or slightly higher. Looking ahead the estimates are in the same range for the first quarter of 2007.

Home Prices the Number One Business Story in 2006 among Business Editors

I am a big fan of Rob Reuteman, Business Editor for the Rocky Mountain News. Although I do not know him well, we are members of a business leadership group that meets quarterly – I know his work very well and he excellent at his craft. Reuteman was among a group of business editors asked to chose from a list of 35 business stories from 2006 and choose the top 10 where shared in Reuteman’s Saturday 12-23 column in the Rocky Mountain News.

The number one story both at Reuteman’s judgment and that of his colleagues was the decline in home prices. The editor is exactly right when he characterizes the use of home equity by many homeowners as “the nation’s piggy bank.” Equally, his interpretation of our soft landing is also correct, Denver experienced double digit appreciation in the period between 1999 and 2000. He also reports that the expected drop in appreciation Is expected to be an additional 3.6% in 2007.

Job Creation Continues in 2007

Given the announcement of new job creation in Colorado for Lockheed and the announcement this week that Rio Tinto Minerals will locate their division headquarters in Greenwood Village bodes well for the continuation of job creation in the year ahead. The division of London based Rio Tinto PLC, signed a lease for 104,500 square feet valued at 25 million dollars.

Bottom Line: Both of these stories underscore my belief that we are in a tremendous buyer’s market and anyone thinking of buying a home or acquiring investment real estate will benefit from doing so in 2007. The conditions are perfect for the buyer: 1.) Rates are low. We are offering several programs with rates below 6.000%. 2.) Inventories are high both in the resale and new build market segments. 3.) Savvy investors recognize that very few people buy at the bottom of an investment market and the best place to buy is on the way down. The one caveat is that there are concrete reasons to believe that we are near the bottom and there is a recovery on the horizon. They then ride the wave back to the top.

Should a non-selling or non-refinancing homeowner invest in an appraisal?

We welcomed a caller into our conversation today with a question concerning engaging an appraiser to determine property value. The caller does not plan to sell or refinance and was simply interested in knowing the value of their home. We have been advocating over the past few weeks that homeowners obtain a Comparative Market Analysis (CMA) from an experienced Realtor knowledgeable in their market. A real estate appraisal will cost $300 - $350 in most markets and the report carries a “use by date,” as the market data is subject to Uniform Appraisal Standard to be used for underwriting a mortgage loan – typically six months.

The caller also asked about the value of obtaining a property inspection. Bruce advocated that a seller obtain a pre-sale inspection and address major items prior to placing a home on the market. In addition, we recommend that a seller look at their property in the same manner as a fix and flip investor. Seek advice from a Realtor when considering high return investments when improving a property prior to sale.

Bottom Line: If you are a property owner interested in knowing the value of you property, contact Bruce Deffler or Bob Speaker by accessing our website at http://www.realestatetodayshow.com/ and click on the “Ask James” button request our free CMA at no obligation. Also feel free to visit http://www.colo2home.com/ to reach Bruce and Bob directly.

Tune into our radio broadcast "Real Estate Today" on KNUS radio 710 AM in Colorado, or via live audio streamby logging onto www.710knus.com and clicking "listen live."

LandAmerica Title Guilty of Poor Judgement

Ok, let me see if I have this correct. LandAmerica Financial Group, Inc. known as LandAmerica Title Insurance Company among other entities in Colorado is under investigation by the Colorado Insurance Commission in part resulting in a Cease and Desist Order on March 4, 2005 and a Stipulation for Entry of Final Agency Order on August 23, 2006. Rather than looking inward at business practices present in violation of RESPA Section 8, the company endeavors to pursue a smear campaign against Erin Toll who at the time served as Colorado Deputy Insurance Commissioner. Ms. Toll presently serves as Colorado Real Estate Division Director.

See the Documents: LandAmerica Title (Commonwealth Land Title Insurance Company, Lawyers Title Insurance Company, and Transnation Title Insurance Company)
Cease & Desist Order
Stipulation for Entry of Final Agency Order
You may contact LandAmerica at 866-526-3264 for more details on eligibility in relation to captive reinsurance.
(Sources: http://www.dora.state.co.us/insurance/enforcement/2005/O05-155.pdf and http://www.dora.state.co.us/insurance/enforcement/2007/O07-017.pdf )

This is troubling and calls in to question the integrity of a company who is entrusted with the funds of property owners and home buyers across Colorado. According to a story published in the December 20, 2006 edition of the Rocky Mountain News, the House Committee on Financial Services concluded in its 37 page report that LandAmerica Financial executives threatened to get “real stinky real quick” in referenced to an effort to discredit Toll and members of her family. The allegations were investigated and found to have no merit according to David Rivera, Colorado Insurance Commissioner.

Read the full Report: http://financialservices.house.gov/media/pdf/12-18-06%20Land%20America.pdf

Our firm (Private Mortgage Banking Branch of Cherry Creek Mortgage, Inc.) had been approached numerous times during the period August 2004 and January 2005 by companies seeking a title reinsurance controlled business arrangement. I investigated one such offer carefully concluding that such an arrangement would be a violation of RESPA Section 8 and declined to participate.

Bottom Line: I applaud the efforts of Erin Toll with support of the Colorado Division of Regulatory Agencies. She did an outstanding job in cleaning up illegal practices in the title industry and she aims to do the same in the appraisal industry. Rather than attack her personally, the collective real estate and mortgage industries should band together with our support.

Mortgage Insurance Premiums Tax Deductable for 2007

The 109th Congress has granted an early holiday gift for new home buyers who purchase a home or take out a mortgage utilizing Mortgage Insurance in 2007. For transactions that fund between January 1, 2007 and December 31, 2007, borrowers will be able to deduct mortgage insurance premiums paid on their 2008 Federal Tax Return.

Once signed by President Bush, this new law will have a dramatic effect on piggy back mortgages and may cause borrowers to delay closings scheduled for December 2006 in order to benefit from the law.

A borrower taking out a $175,500 loan amount in the 25% tax bracket would pay an estimated premium of $86.50 per month or $1,038 per year. The estimated tax deduction would be $260.00 for 2007. (This is not intended to be tax advice, dollar amounts rounded up and assumes premium payments made 12 months in 2007).

Bottom Line for Buyers: The full text of this Bill has not been released pending signature by the President. It appears that you will benefit from this law when purchasing or refinancing a home. Buyers would benefit by delaying the closing of a mortgage loan with mortgage insurance until January 1, 2007 or later. I would caution against delaying a closing prior to considering the full impact of this action, such as your contractual obligations, expiration dates for interest rate locks, moving schedules for both buyer and seller, cost savings from the deduction vs. expenses created by delaying your closing date, etc. Consumers should consult their lender or other real estate professional prior to altering a closing date. Borrowers should also consider that private mortgage insurance can be removed at the point when the property value and loan balance achieve an equity position of 20% or more. Higher rates on piggyback loans remain until they are paid in full.

Bottom Line for Sellers: If your sale is scheduled to close in December 2006, be prepared for the buyer of your home to request an extension of the closing date. Based on the terms of your purchase agreement, you may not be required to grant such an extension.

Bottom Line for Builders: If your sale is scheduled to close in December 2006, be prepared for the buyer of your home to request an extension of the closing date. Based on the terms of your purchase agreement, you may not be required to grant such an extension. The challenge for builders will be weighing your desire to add another transaction to the books for 2006 and making the best customer service gesture for your buyers. One strategy I recommend would be to calculate actual tax savings for the buyer and offer to credit an equal amount at closing in exchange for a closing in 2006. There is the possibility that the deduction could be extended by Congress beyond 2007 and the buyer would need to consider this possibility and the resulting loss of future deductions.

Bottom Line for Lenders: Research all of the available information concerning this law and become knowledgeable on the impact on your borrowers and real estate agents. Be prepared to receive calls from your clients and be proactive by contacting any client that could be affected by the new law. I recommend that you develop tools that will allow you to accurately compare the use of loans with mortgage insurance as compared to combo (piggyback) loans. It is likely that many borrowers will benefit from refinancing to maximize the benefit of converting their adjustable rate mortgage to a fixed rate. I strongly caution that you do not provide specific tax advice and refer your clients to their tax advisor for clarification of how the law relates to their situation.

Bottom Line for Mortgage Insurance Providers: Congratulations, the playing field has been temporarily leveled and you should see an increase in transactions utilizing mortgage insurance in 2007.

According to an analysis conducted by Bankrate, there are four caveats to consider.

Caveat No. 1: The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.

Caveat No. 2: There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no mortgage insurance deduction is available if you make more than $110,000.

Caveat No. 3: This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Congress probably will extend the deduction, but you can't know for sure.

Caveat No. 4: If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you. "You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction," says Bob Walters, chief economist for Quicken Loans. In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000.

Please visit http://www.privatemortgagebanking.netand click "Free Reports" to download a complete summary including the full text of the Act and Section when it becomes available.

The Tax Relief and Health Care Act of 2006 Section 419:

Section 6050H of the Internal Revenue Code of 1986 (relating to mortgage interest) is amended by adding at the end the following new subsection:

In general.--Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.

Can a Borrower Obtain a Mortgage While in Consumer Credit Counseling?

If your goal is to purchase a home in 2007 and you have credit issues needing to be addressed now is the time to structure a “game plan” to ensure that your goal can be accomplished. When consulting with credit challenged clients we often engage with individuals who either are considering or are presently working with a Consumer Counseling Agency such as CCCS. The decision to enter into a modified payment agreement should be carefully considered to ensure that all of your goals can be met.

How do mortgage loan underwriters view borrowers currently working with a credit counseling agency? This week I sought the opinions of two experts on the subject and here is an overview:

I spoke with the Sr. Underwriter for Cherry Creek Mortgage Company to gain perspective from the mortgage loan underwriter’s point of view.

FHA and VA Borrowers – If a borrower utilizes an FHA or VA loan product, the borrower is eligible to receive a mortgage if the following three requirements are met.

1. The borrower has been in an approved consumer credit plan for a period of at least 12 months.
2. The borrower has a satisfactory “paid as agreed” record with the agency as set forth in the agreement.
3. The borrower has obtained written approval from the counseling agency to enter into a mortgage loan agreement.

Conventional Borrowers – For borrowers seeking a Conventional loan such as a Fannie Mae or Freddie Mac program the situation is quite different. The guidelines for these programs require the underwriter to view a consumer credit plan the same as a Chapter 13 Bankruptcy plan, which must be fully paid prior to entering into a mortgage loan agreement.

I spoke with a program specialist with Consumer Credit Counseling Services which is a HUD approved counseling agency and ask the question, “what are the factors that effect the decision to allow a borrower to enter into a mortgage loan agreement?”

There are a number of consumer driven factors which include the following:

1. Is the agreement with the existing creditors for full or partial payment of the credit balances?
2. Can the borrower’s adjusted debt to income ratio support the addition of a mortgage payment?
3. Has the borrower made the consumer credit plan payments as agreed?

Additional factors to consider before entering into a consumer credit plan:

1. If the consumer budget results in a plan for partial payments to creditors, many report “payments not as agreed” on the consumer’s credit report.
2. The consumer’s present credit report will impact Alt A or Sub-Prime underwriting decisions.
3. After the payment plan has been paid as agreed, the reporting agencies will remove all references to consumer credit counseling, etc.

The Bottom Line: Whether you are currently enrolled in a consumer credit plan or considering doing so, your dream on purchasing a home is still a possibility. I recommend scheduling a private consultation with a knowledgeable mortgage professional in order to make an informed decision. I also recommend avoiding the tendency to be steered into a sub-prime mortgage, which usually calls for higher rates, pre-payment penalties, and less favorable terms overall than the options noted above.