Talking Points

• Mortgage rates in 2010 are expected to rise from 2009’s historically low levels. Early last year, the Federal Reserve announced plans to purchase debt and mortgage-backed securities from Fannie Mae and Freddie Mac to lower interest rates for consumers and spur home buying. As a result, rates on 30-year, fixed mortgages fell to historic lows. However, the Fed’s asset purchase program is scheduled to expire at the end of the first quarter of 2010, and a lack of private demand for mortgage-backed securities could lead to a rise in rates.

• The once popular “no down payment” loans which meant borrowers were not required to put down any money on a house to secure a mortgage, now are practically non-existent. Instead, most lenders require borrowers to put down at least 10 percent, if not more, to secure a loan. Down payments not only help protect the lender, they also are beneficial to buyers. For example, the higher the down payment, the lower the loan amount and the lower the monthly payment.

Source:California Association of Realtors

IRS Finally Publishes Rules For $6,500 Repeat Home Buyer Tax Credit

If you've been holding back on the new $6,500 federal tax credit for repeat home purchases, you now have all the official IRS guidance you'll need to buy a house, qualify for the credit and pocket the $6,500.

That's because the Internal Revenue Service finally published the rules for the repeat purchase credit along with key details for taxpayers that had been missing since President Obama signed the legislation creating the program Nov. 6.

The IRS posted its revised Form 5405 on its website (www.irs.gov) on Jan. 15, six weeks after the agency warned taxpayers not to file claims for the $6,500 credit without using the revised form and new instructions.

The repeat buyer credit -- inelegantly dubbed the "long-time resident of the same main home" credit by the IRS -- supplements the popular $8,000 credit for first-time buyers. Homeowners who have occupied the same property as a principal residence for any five consecutive years during the previous eight years may now be able to claim a tax credit on a purchase of another home they intend to use as a principal residence.

The credit is for as much as 10% of the price of the replacement home, capped at $6,500. The purchase contract must be dated from Nov. 7, 2009, to April 30, 2010, and the closing must occur no later than June 30. Members of the armed forces and federal diplomatic and intelligence personnel stationed overseas get an extra year to claim the credit.

The maximum purchase price on homes eligible for the credit is $800,000. Buyers are not required to sell their previous home, but they must be able to demonstrate that the replacement home they buy is or will be their principal residence.

The new IRS guidance answers key questions that had been uncertain from the legislative language alone. For example, they describe what documentation home buyers must submit along with their $6,500 credit claim. On 2009 and 2010 tax returns, buyers should attach:

• A copy of the signed HUD-1 settlement sheet, including contract sale price and date of closing. This is to document that the timing of the transaction meets the program's requirements.

• Evidence of long-term ownership and occupancy of the previous home to meet the five consecutive years' test. This can be property tax records, homeowners' insurance records or IRS Form 1098 interest statements for the five-year period.

• For buyers claiming a credit on a newly constructed home, where a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the buyers' names, the property address and date.

• For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property's address, purchase price and date of purchase.

All this extra documentation was required by Congress after reports that audits had uncovered widespread abuses by those seeking the $8,000 credit for first-time buyers. Among these were fictitious home purchases in which taxpayers or tax preparers sought -- or obtained -- credits on properties that never were sold or bought. This time around, the IRS says, it is going to rigorously investigate all claims filed, starting with a review of the documentation submitted.

The new IRS guidance also spells out the revised income limits for home buyers claiming credits: Your modified adjusted gross income must be $125,000 or less if you are single, or $225,000 or less if you are married filing jointly. Above these limits, the allowable credit amount begins to phase down in increments, and it is eliminated once incomes reach $145,000 for singles and $245,000 for married joint filers.

There are pitfalls as well: An advisory posted by the IRS this month spelled out situations in which recipients of tax credits may have to repay them to the government. These include taxpayers who sell their homes within a 36-month period after purchase. Recipients must also repay the credit if they convert their principal residence to a rental or business property, or if their lender forecloses on the home.

With all the rules now available, here's the action message to potential tax-credit seekers: Speed up your search for the home you want to buy. There are only 14 weeks to sign a contract and five months to close.

Source: L.A. Times

What Home Sellers Don't Tell Buyers

As buyers ease back into the battered real-estate market, they're often hitting a stumbling block: fibbing by home sellers.

Eager to unload their abodes, some sellers exaggerate the size of their lots or their houses. Others minimize their property-tax or utility bills, conveniently forget about pests, or downplay flooding problems or noise.

Real-estate experts say that while such misrepresentations aren't new, the tough market of the past few years has made buyers more wary, partly because they can't expect rising home prices to bail them out of costly mistakes. As a result, deals are taking longer, and more of them are falling apart as buyers find properties sometimes aren't all they're supposed to be.

More than 30 states have disclosure laws requiring sellers to tell prospective buyers and agents about leaky roofs and other problems, according to the National Association of Realtors. But there's often a gray area involving the disclosure of problems the seller may not know about, such as a long-ago flood or hidden mold.

States are also increasingly passing laws requiring homeowners to disclose environmental issues, such as the presence of radon gas, a contaminant linked to lung cancer, and underground fuel tanks. In California, the checklist of required disclosures is so long that a cottage industry has sprung up of firms that help sellers prepare the forms.

Given the complexity of disclosure laws, it's not surprising that potential buyers don't hear about every problem in a house. Besides the issue of fibbing, sellers may genuinely not know about problems. And even if they do, the laws generally don't apply to bank-owned homes transferred in foreclosures, which now constitute a larger share of sales.

Buyers need to do their own due diligence and not rely exclusively on what sellers and agents say. They should hire an independent home inspector or home-inspection engineer, one not referred by the seller—and be aware that real-estate agents typically represent the seller.

Here are some of the common misrepresentations and white lies that buyers may hear as they shop for a house, according to real-estate experts and state regulators:

• "This house is on two acres." Disputes about property dimensions—how many square feet in a house or condo, or its exact boundaries—are common. Sometimes buyers don't learn the exact dimensions until the lender's appraisal.

How to Learn More About a Home
If you want to know more about a home's history of property damage, you can ask the seller to provide you with a copy of his or her C.L.U.E., or Comprehensive Loss Underwriting Exchange report from LexisNexis at www.choicetrust.com. A Home Seller's Disclosure report lists claims for property losses, such as fire damage, from the last 5 years as reported by insurance companies at the stated address, but doesn't disclose personal information such as the homeowner's social security number or date of birth. The seller's disclosure report can tell you about problems that might affect the availability or price of homeowners insurance, including claims for fire or hail damage. It costs $19.50, but homeowners also can obtain a free annual personal property report, which lists a 7-year history of losses associated with both the property and the individual, under the federal fair credit act. No claims in the last 7 years will produce a clean report.

A similar loss report, called A-PLUS, is available from the Insurance Services Office, Inc. or 800-627-3487.
Listing agents usually accept a seller's word on property dimensions, says Diane Saatchi, a senior vice president at Saunders & Associates, a real-estate firm in Bridgehampton, N.Y. "We tell everyone to verify," she says. Smaller dimensions also can cause an appraisal to come in lower than the agreed-upon purchase price. Low appraisals are a leading cause of ruined deals in today's market. A properly worded appraisal contingency in the purchase contract would allow you to scuttle the deal or find other financing if the appraisal comes in low, says New York real-estate attorney Michael Xylas.

• "We don't have pests." A basic home inspection generally doesn't include a peek inside walls or underground for termites and mold, which are among the top complaints. Inspections for mold and radon gas also generally aren't included; usually buyers must order these inspections separately. Other inside-the-wall problems include faulty wiring and old plumbing, which also may require specialists.

James Holtzman, a financial adviser at Legend Financial Advisors Inc. in Pittsburgh, says sellers of the 1901 house he bought in August 2006 said its electrical wiring was completely upgraded, yet an electrical inspection revealed only one of three floors had been totally upgraded. The seller then knocked $6,000 off the sales price before they went to contract so Mr. Holtzman, 35 years old, could pay for the necessary work.

• "This place never floods." Even arid states such as Arizona and New Mexico have occasional flash floods, and water and drainage problems aren't always obvious. June Walbert, 52, a certified financial planner at USAA, a financial-services company, says her San Antonio house received a clean bill of health from a home inspector before she bought it six years ago. But 10 days after she moved in, the sewer backed up, flooding the house, and she had to fork over $2,800 for repairs. "It was a rude surprise," says Ms. Walbert, who adds she asked her home inspector and the seller for compensation, but didn't get it.

Bill Richardson, outgoing president of the American Society of Home Inspectors, says a general home inspection wouldn't catch that unless the sewer line was visible from the basement or water backed up into sinks and tubs or toilets.

• "Taxes and maintenance costs are low." Home buyers often gripe about tax and utilities bills that are higher than sellers said they were. Homeowner association and condo dues and assessments are also common complaints. Sometimes sellers simply underestimate the bills, or forget to include recent or expected increases, agents and brokers say. Taxes can also be deceptively low because of unrecorded improvements like decks and finished basements. Ask to see recent bills, and check with the tax assessor's office for up-to-date information.

• "This is a quiet neighborhood." Sellers may play down distractions that could drive you crazy, such as barking dogs or idling buses. A charming park by day could be a teen hangout at night. Your best bet is to view a property at different times of the day. "I can't tell you how many times in my career buyers didn't go there in the night time, even though I told them to. You spend more time in the house at night than during the day," says Ms. Saatchi, the New York real-estate agent. Talk to neighbors and peruse the local newspapers and blogs to get a feel for a place, and check with police for crime.

• "There's going to be a golf course, a pool and a party room." Builders of many developments that broke ground during the housing boom ran out of money before the project was completed. Many homeowner and condo associations also are strapped because of delinquencies and defaults. Some states require upfront disclosures about this, but you should also ask neighbors, not just sellers, about any promised facilities. Also, check titles to be sure that specific parking spaces, storage units or other facilities are included in a property sale.

Source: Wall Street Journal

Talking Points

Customized rooms with extremely bright or dark colored paint, wallpaper, or wall fixtures can make a house feel like a home for the current homeowner, but often can be a turn off for home buyers. When selling a home, many REALTORS® recommend repainting rooms with neutral colors to help prospective buyers see the potential for the house.


For homeowners who planned to overhaul the kitchen or bathroom with a major remodel but never found the time, there are some small, inexpensive changes that can be done. Replacing the hardware on cabinets, upgrading light switches, and changing outlet covers are a few examples.

Foreclosures Rise 21 Percent In 2009

Foreclosures rose 21 percent in 2009 compared with 2008, as nearly 3 million properties received a foreclosure filing, according to RealtyTrac®’s Year End 2009 Foreclosure Market Report.

Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent increase from November and a 15 percent increase from December 2008. Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent compared with the third quarter, according to the report.

California continued to lead the nation in foreclosure activity by volume, with 632,573 California properties receiving a foreclosure filing in 2009. Following four consecutive month-over-month declines, California foreclosure activity increased approximately 9 percent in December compared with November. Foreclosure filings declined 17 percent in California in the fourth quarter compared with the third quarter, the report found.

Source: RealtyTrac

What’s Ahead For Home Prices?

California remains ahead of the nation in market recovery with many first-time home buyers entering the market due to affordable home prices, low mortgage rates, and first-time home buyer tax credits from the state and federal governments. However, credit still is tight and unemployment remains high, which could hinder a full market recovery until 2011.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Home sales in California hit bottom more than two years, and the median home price of an existing, single-family home reached its trough in February, according to data collected by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). In November, the state’s median home price rose in year-to-year comparisons for the first time since August 2007.

• C.A.R.’s closely watched "2010 California Housing Market Forecast,” projects that the median home price in California will rise 3.3 percent to $280,000 in 2010 compared with a projected median of $271,000 in 2009.

• Some economists are forecasting another surge of foreclosures in 2010. However, C.A.R.’s economists expect that foreclosures will remain flat this year compared with 2009. In 2008, many lenders flooded the market with foreclosures, and as a result, the state’s median price declined by historic levels. By comparison, in 2009, lenders listed properties for sale at a more measured pace, which helped moderate another home price decline.

Government efforts to maintain a low interest rate environment have stabilized the market. However, a mortgage analyst at a financial publishing company predicts that rates likely will rise to 5.5 percent by mid-2010 and close the year at 5.75 percent to 6 percent.

Source: MSN Real Estate

Most Successful Mortgage Modifications Reduce Principal

A new study found that borrowers who receive loan modifications that reduce loan balances, and not simply interest rates, are less likely to redefault on the loan, according to the Federal Reserve Bank of New York.

Principal reductions are more successful at avoiding redefaults because they reduce negative equity and provide the borrowers with greater incentive to remain current on the loan, according to the study. The study also found that borrowers who owe 15 percent or more than their homes’ value have a 51 percent higher risk of redefaulting in any given month.

Source: Federal Reserve Bank of New York

Good Faith Estimate Form Now In Effect

RESPA changes that went into effect Jan. 1, now mandate consumers receive a standard, three-page Good Faith Estimate to help consumers shop around for the best loan and compare lenders’ offerings.

Under the new rules, lenders and mortgage brokers are required to give consumers the standard estimate form within three days of receiving a loan application. The Good Faith Estimate form requires lenders to combine all of the bank’s fees into one “origination charge,” enabling consumers to compare one lender’s fees with another’s. Lenders also are prohibited from increasing the origination fee from the estimate.

Some additional charges, including title services and recording charges, can increase by as much as a combined 10 percent. Estimates for other charges, such as homeowner’s insurance and other services provided by third parties selected by the borrower, aren’t subject to such limits.

Source: U.S. Department of Housing and Urban Development

Construction Spending Declines 13.2 Percent In November

Construction spending declined 13.2 percent in November 2009 compared with November 2008, and 0.6 percent compared with October 2009, according to a report from the U.S. Dept. of Commerce. Residential construction declined 1.6 percent to a seasonally adjusted annual rate of $250.7 billion in November, compared with $254.9 billion in October.

Source: U.S. Department of Commerce

Fast Facts

Calif. median home price: November 09: $304,520

Calif. highest median home price by C.A.R. region November 09: Santa Barbara So. Coast $750,000

Calif. lowest median home price by C.A.R. region November 09: High Desert $124,710

Calif. First-time Buyer Affordability Index - Third Quarter 2009: 64 percent

Mortgage rates - week ending 12/31/09 30-yr. fixed: 5.14 Fees/points: 0.7% 15-yr. fixed: 4.54% Fees/points: 0.6% 1-yr. adjustable: 4.33% Fees/points: 0.6%

Source: California Association of Realtors