Transcript IT’S A MAD MAD MAD MAD WORLD

IT’S A MAD, MAD, MAD, MAD, WORLD
Presented by Joyce Frye, Executive Vice President
TRC Global Solutions, Inc.
INTERESTING MR. WATSON
We are in Interesting
Economic Times
THINK OF WHERE WE WERE 4
YEARS AGO
Economy was doing well in 2005
• Quarterly GDP Growth averaged 3.2%
• Unemployment rate relatively low at 5.1%
• Annual inflation (3.4%)
On high end of Fed comfort zone!
Housing Market Solid in 2005
• Mortgage rates near 40 year lows
Under 6% much of the year
• Over 7 million sales
• Over 1.7 million Single Family Housing Starts
• Homeownership rates at nearly 70%
Significant gains for minority groups (over 51% ownership rate)
• All indicators of housing price growth were strong
Affordability slipping, but gains in home equity were strong.
Life was good!
IN CONTRAST – THE LAST 18 MONTHS
HAVE BEEN VERY UGLY!
Bad Economic News has been
Mounting
• GDP growth negative in 3rd quarter,
and in the 4th quarter it was a 6.3%
decline. This is the steepest decline
since 1st Quarter of 1982.
• Job losses are mounting
• Consumer confidence at all-time low.
• Major bank failures/mergers
Housing market weak!
SIGNS OF THE TIMES
PROPERTIES WITH FORECLOSURE
FILINGS –OCTOBER 2008
PROPERTIES WITH FORECLOSURE
FILINGS –MARCH 2009
ON A CLEAR DAY, YOU CAN SEE
FOREVER
•The months' supply of existing housing inventory has fallen to less than 10
months in January and February after being in the double digits for most of
2008. The months' supply of newly constructed homes, by contrast, moved
up past 12 months in January and February after bouncing around in the
10 to 11 months range last year.
THE ECONOMIST’S
OUTLOOK
•New homes on the market are down 57% from 3 years ago.
•Existing homes on the market are down 83% (3.8 Million homes today,
versus 4.6 million homes in July ‘08).
SURVEY SAYS!
*
73% of the companies
using a relocation
program are using
Of those companies,
Tiered Policies. (13%
60% have three or
two tiers, 19% three
tiers, 21% four tiers;
20% five tiers)
more tiers.
Most common
structure for these
tiered policies are
based upon
employee’s job grade
or salary level.
* Statistics provided by WERC 2008
24% use cafeteria
style/menu driven
policies.
DO YOU WANT TO PLAY WITH FIRE,
SCARECROW?
• Legal Document almost always drawn up by
the company’s legal counsel.
Repayment Agreements
• 81 Percent of the organizations request this
agreement regardless of position.
Prevalance of Payback Agreements
81%
100%
80%
39%
60%
40%
20%
20%
0%
1983
* Statistics provided by WERC 2008
2002
2008
A FISTFULL OF DOLLARS
• National Lenders
• Direct Bill
• Negotiated Rates
New Home Purchase
Closing Costs &
Mortgage Assistance
* Statistics provided by WERC 2008
• Quicker Close
• Capped Fees
• Is it time for Pre-Purchase Appraisals again?
FOR A FEW DOLLARS MORE
Recent Changes – Mortgage Industry
•
Documentation– more documentation on income, assets and reserves.
•
Cost of Financing / Credit Requirements – transferees can expect that closing costs have increased (particularly for those
homebuyers with credit scores between 620-719). Additionally costs have increased with down payments 5%-15%.
•
Subordinate Financing / Limited Loan Offerings– Second Mortgages have radically been reduced so buyers are having to pay
PMI (Private Mortgage Insurance); something that they may not be used to.
•
Escrow Waivers – The ability to pay your taxes and insurance on your own now requires a 20% down payment. Anything less
than 20% and the buyer is required to escrow their taxes and insurance. This may cause additional funds needed at closing,
because a “start-up” escrow is created at closing.
Recent Changes – What does this mean for your transferees?
•
•
Declining Home Values
•
Reluctance to Move
•
Reduced valuations in soft/declining markets
•
Negative Equity and Loss on Sale
•
Cash-to-close issues
•
Lake of down payment funds
Tightening Credit Policies
•
Increased documentation
•
Increased down payment requirements
•
Return of PMI and Lender Paid PMI
•
Focus on Credit Scores – Increased minimum credit score
•
Evidence of Sale – including executed buyout agreement
* Statistics provided by WERC 2008
AND MORE…
What We’re Doing…
Documentation: Clearly explaining the current market and all documentation that may be necessary. Setting definite
•
expectations early, to avoid confusion later.
Costs of Financing: Using Mortgage Partners who provide credit education to correct any discrepancies that could affect
•
the transferees score. Alternative financing options (such as FHA).
PMI: Regarding PMI – possible alternatives available – 1) Lender paid PMI – Transferee can “buy-out” the PMI with a
•
one-time up front charge (cost dependent upon credit score and down payment) or 2) SMART PMI – Transferee can pay
1 discount point up front at closing and reduce their monthly PMI to about 80% less than what it would normally be.
Escrow Waivers: Education and setting clear expectations. Providing the transferee’s with full disclosure on the “start
•
up” escrow costs, etc.
The GOOD News…
•
Interest Rates at or near record lows
•
Affordability back in the market place as home prices drop
•
New Higher Loan Limits = Expanding Financing Opportunities
•
The maximum loan amount is determined as the great of $417,000 (the floor) or 125% of the median home price in a
metropolitan area as determined by HUD, not to exceed $729,750.
•
Government Loans Offer Solutions
•
Expansion of FHA and VA loan limits offer financing options for borrowers with reduced down payments and minor
credit issues
•
Customers with overall strong credit will find financing readily available through well capitalized lenders
* Statistics provided by WERC 2008
HERE COMES THE SUN…
American Recovery and Reinvestment Act of 2009
1. Refinancing for Responsible Homeowners – by offering a refinance program for homeowners suffering from
declining home values.
This will benefit millions of responsible families who make their monthly payments and fulfilled their obligations
but have seen their property values fall, and are now unable to refinance at lower mortgage rates. Plan expires
June of 2010.
2.
Homeowner Stability Initiative – by encouraging loan modifications, strengthening programs aimed at reducing
foreclosures and supporting local communities.
This will assist millions of workers who have lost their jobs or had their hours cut back, are now struggling to stay
current on their mortgage payments.
3.
Low Mortgage Rates – Rebuild confidence in Fannie Mae and Freddie Mac [GSEs] by increasing their capital
and purchasing mortgage-backed securities.
 Resources: www.financialstability.gov and www.makinghomeaffordable.gov
AND I SAY…
Federal Housing Administration (FHA)
Reinstates the loan limits in select areas set under the Economic Stimulus Act of 2008:
•
The FHA base loan limit for 1-unit properties is set at $271,050 for 2009.
•
The maximum loan amount is determined as the greater of $271,050 (base loan limit) or 125% of the median home price
in a metropolitan area as determined by the Department of Housing and Urban Development (HUD), not to exceed
$729,750.
•
The minimum down payment is now 3.50% (previously 3.00%).
First Time Home Buyer Tax Credit
•
•
•
•
•
Increases the maximum tax credit for first-time home buyers (must not have owned a home within the last three years) to
$8,000.
The credit is now calculated at 10% of the home’s purchase price, not to exceed $8,000.
The credit is only allowed for the purchase of a principal residence made on or after January 1, 2009 and before
December 1, 2009.
The credit can be claimed on a tax return to reduce the income tax liability for single tax payers with incomes up to
$75,000 and married couples with incomes up to $150,000.
The credit does not require repayment.
 Resources: www.financialstability.gov and www.makinghomeaffordable.gov
IT’S ALRIGHT!
FHA Loans Today – FHA Modernization Act
Implemented Change
Impact to Borrowers
Allows other down payment options, such as loans
from a family member
Low income borrowers unable to afford the old down
payment, may be able to consider homeownership
Increase loan limits of FHA mortgages
FHA loans more feasible to homebuyers in high-cost
housing markets
 Resources: www.financialstability.gov and www.makinghomeaffordable.gov
SHORT PEOPLE GOT…
Short Sales
• A short sale occurs when a property is sold and the lender agrees to accept a
discounted payoff, meaning the lender will release the lien that is secured to the
property upon receipt of less money than is actually owed.
Short Sales Process – What You Will Need To Do:
•
•
Call the Lender – Not just anyone, you want the supervisor's name, the
name of the individual capable of making a decision
Submit Letter of Authorization - you write a letter to the lender giving
the lender permission to talk with those specific interested parties about
your loan. The letter should include the following:
• Property Address
• Loan Reference Number
• Your Name
• The Date
• Your Agent’s Name & Contact Information
•
Preliminary Net Sheet - This is an estimated closing statement that
shows the sales price you expect to receive and all the costs of sale,
unpaid loan balances, outstanding payments due and late fees,
including real estate commissions, if any.
•
Hardship Letter – The sadder, the better. This statement of facts
describes how you got into this financial bind and makes a plea to the
lender to accept less than full payment.
•
Proof of Income and Assets - Be truthful and honest about your
financial situation and disclose assets. Lenders will want to know if you
have savings accounts, money market accounts, stocks or bonds,
negotiable instruments, cash or other real estate or anything of tangible
value. Lenders are not in the charity business and often require
assurance that the debtor cannot pay back any of the debt that it is
forgiving.
•
Copies of Bank Statements – Bank will want to see what has been
going out and what money has been coming in.
•
Comparative Market Analysis – showing if the market and pricing
for your market has declined, if this is the reason you cannot sell
your home at a price that will repay what is owed.
•
Purchase and Listing Agreement - When you reach an agreement
to sell with a prospective purchaser, the lender will want a copy of
the offer, along with a copy of your listing agreement. Be prepared
for the lender to renegotiate commissions and to refuse to pay for
certain items such as termite inspections or home protection plans.
As part of the negotiation, you might ask that the lender not report
adverse credit to the credit reporting agencies, but realize that the
lender is under no obligation to accommodate this request.
 Resources: www.mortgagefit.com/shortsale
TWEEDLE DEE & TWEEDLE DEED…
Deed in Lieu
•
A Deed in Lieu is a way the borrower who cannot pay his mortgage may
attempt to avoid a foreclosure transaction. Instead of going through the
foreclosure process, the borrower hands his keys over to the lender.
Deed in Lieu Process and What You Need To Do:
When you go for a deed in lieu in order to avoid foreclosure, you need to sign legal documents such as the Agreement in Lieu of Foreclosure
and a Warranty deed, quit claim deed or a grant deed. The first document reveals the terms and conditions of the deed-in-lieu, and is signed
by both the lender and borrower. The second document, which is the deed, conveys legal ownership of the property to the lender.
The lender marks the borrower's note as "paid" and provides the latter with two forms - one which states that the debt is canceled and the
other which refers to the waiver of the right to a deficiency judgment (the lender's right to ask for the unpaid debt amount if it is not recovered
totally by the property-sale).
The agreement for deed in lieu of foreclosure is executed through an escrow company which receives the borrower's note (marked as "paid")
from the lender. The escrow then records the deed used for transferring legal ownership of the mortgaged property and sends the note to the
borrower. The borrower is thus released from the liability of the mortgage payments.
Possible Tax Consequences:
When you go for deed in lieu, you may have to pay 2 types of taxes. These are:
•
Deed tax: Since deed in lieu foreclosure involves transfer of property, the borrower needs to pay state deed tax upon conveyance of
property to the lender. The deed tax is $1.65 for no consideration or when consideration is $500 or less.
The tax is calculated on the difference between the fair market value of your property and your mortgage balance plus liens removed
from the property due to deed in lieu. It may vary from one county to another.
•
Income tax on canceled debt: As per Mortgage Debt Forgiveness Tax Relief Act (applicable till the end of 2009), one need not pay tax
on canceled debt (unpaid loan balance which is forgiven by lender) resulting from deed in lieu. However, a borrower needs to satisfy
certain conditions for mortgage tax relief.
 Resources: www.mortgagefit.com/deed-lieu
THE GOOD, THE BAD & THE UGLY…
• But at what costs?
Temporary
Living
• #1 Exception in the last two years
DANGER, WILL ROBINSON
•
Tying extension of Temporary Living to list price reduction
•
Reducing meal benefits or capping meal per diems
•
Reducing benefits for family Temporary Living
•
Requiring one vehicle to be driven to Temporary Living site
Percent of Organizations Providing Family Temp Living
Allowance
80%
69%
66%
54%
60%
40%
20%
0%
2001
* Statistics provided by WERC 2008
2004
2008
RUMBLIN’, STUMBLIN’, BUMBLIN’
Duplicate Housing Assistance
• The availability of this benefit has been increasing.
• Typically Duplicate Housing is less expensive than Temporary Living and it is recommended that you tie this this
benefit to list price reduction.
Dollars Spent on Duplicate Housing Assistance
$5,244
2007
2006
$3,030
2005
$2,986
$3,079
2004
$-
* Statistics provided by WERC 2008
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
I THINK THIS IS THE BEGINNING OF A
BEAUTIFUL FRIENDSHIP.
Marketing/Home
•87% of companies require participation in a Marketing Assistance program
•List price restrictions
Sale Assistance
•Home value restrictions
•Bonus programs
•Mandatory marketing time
and Incentives
•Delayed appraisals
•Appraising for a sale in less 120 days
Prevalance of Marketing Assistance
87%
100%
80%
79%
66%
60%
40%
20%
0%
* Statistics provided by WERC 2008
1997
2004
2008
DON’T CRY FOR ME ARGENTINA
Loss on Sale
•
46% of companies surveyed offer loss-on-sale
•
What are Companies Doing?
•
Capping the Benefit
•
Removing Capital Improvements from the Equation
•
Tiering the Benefit By Time of Ownership
•
X for Amended and Y for Inventory and Sharing Loss
Prevalence of Loss-on-Sale Assistance
(Formal Policy)
60%
46%
42%
33%
40%
20%
0%
2000
* Statistics provided by WERC
2004
2008
TOTO…WE ARE NOT IN KANSAS
ANYMORE
Reluctance to Relocate
Reluctance to Relocate*
95%
2008
71%
2007
16%
2006
17%
2005
0%
20%
40%
60%
80%
100%
* Slow real estate appreciation and depressed housing markets were cited as the number one reason transferees were
reluctant to relocate – 2008 WERC Survey
TWO THINGS ARE ALWAYS CERTAIN,
DEATH & TAXES
Tax Assistance
•
•
•
Most corporations offer tax gross-up
$8,957 average federal tax liability
Companies are revisiting their tax gross up methodology and moving to a “statutory method”. This method is more
accurate because it makes the closest approximation of the employee’s actual tax liability
•
•
•
Calculates gross up based on effective tax rate, which is the rate a tax payer normally pays
Can save 2%-3% in federal gross up costs over a conventional “marginal” gross up
Additional cost savings from eliminating excess Social Security gross up
Average Dollars for Federal Tax Liability
$8,957
2007
$7,707
2006
$6,737
2005
$8,767
2004
$-
$2,000
$4,000
$6,000
$8,000
$10,000
IT’S OUR MOTTO…WHAT’S A MOTTO?
NOTHING, WHAT’S A MOTTO WITH YOU?
QUESTIONS &
ANSWER
GOODNIGHT AND GOOD LUCK!
This has been a presentation by
TRC Global Solutions, Inc.