Renee Medema’s Blog

Calculate the Appropriate Value of the Property Obtain sales prices of comparable properties in the neighborhood to determine the property™s initial value.   Have an appraisal done to determine what the property is worth based on an inspection, comps, and a thorough analysis of the property and its neighborhood.   Based on those numbers and your own opinion of what the property is worth to you, ascertain the appropriate purchase price of the property.  

Establish Credit and Monetary StabilityObtain a pre-approval letter from your lender to inform the seller that you have the resources to purchase the property.     Provide a substantial amount of earnest money to let the seller know you are serious about the property.   In addition, let the seller know that you have additional funds in savings as back-up.  

Establish Your Maximum Spending LimitComparables provide an estimated purchase price for a property and appraisers are able to determine the value of a property based on the market, but only you know personally what the home is worth to you.   When you decide a maximum spending limit, it is very important to stick to it when negotiating the purchase price.   Affordability is vital when purchasing a property.  

Include a Personal Touch when Extending an OfferSellers will appreciate it if you add a personal letter or note with your offer.   Sellers often have an emotional attachment to the property and it will give them peace of mind to know that the potential buyer will take good care of the property.   Tell the seller what you like about the property and why you are excited to purchase it.   This letter may directly effect the sellers™ decision, especially if there are multiple offers extended at the same time.  

Create Bonus Incentives if Multiple Offers ExistRecommend adjusting the closing date or inspection date if it benefits the seller.   If possible, offer to pay closing costs or waive certain contingencies that will help the seller.   It is not necessary to offer terms that will put you in a bind, but the more accommodating you are the more the seller will consider your offer.   Your flexibility will show the seller that you are serious about the purchase and willing to compromise to close the deal.  

Improve Negotiation TacticsListen effectively to what the seller wants and/or needs to close the deal.   Reiterate to the seller exactly what they expressed to confirm that everyone is on the same page.   By appropriately identifying the issues and feelings driving the seller, you will be better apt to adjust your responses to ensure a positive outcome.   Remain firm on the terms that you are unable to change, but be as flexible as possible on all other terms.   Negotiation requires compromise so the outcome is win-win for both the buyer and seller.

Information provided by the National Association of Realtors.

The National Association of REALTORS ® has made every effort to work with Congress for many years to focus on the increasing demands for reform in our nation™s health insurance system.    On Sunday, March 21, health reform legislation was passed that will ensure major changes to many aspects of our health care system.  

As a result of this legislation, 1.2 million members (28%) of the National Association of REALTORS ® will have the opportunity for affordable health insurance coverage. In the past, REALTORS ® have indicated that cost was the primary reason they were unable to obtain health insurance.  

Key Benefits

• Individual and small group policies will be offered by private insurance companies

• Insurers will not be allowed to cancel policies, turn down applicants and/or applicants with pre-existing conditions, require applicants to wait a long time before covering pre-existing conditions, charge more to certain applicants because of past claim costs, charge more to women than men, charge older individuals a high premiums based on the insurer™s discretion.

http://www.realtor.org/small_business_health_coverage.nsf/docfiles/government_affairs_health_ref_side_by_side_032210.pdf/$FILE/government_affairs_health_ref_side_by_side_032210.pdf

Information Provided by the Democratic Policy Committee

Key Benefits

• Tax credits for up to 144,000 small businesses

• Prohibit insurance companies from excluding coverage of pre-existing conditions for 3.2 million children

• Close ˜donut hole™ and improve other Medicare benefits for 1.8 million seniors

• Reduce Medicare premiums for 1.6 million seniors not enrolled in the program

• Ensure affordable coverage options for 1.8 million who are uninsured and 612,000 who purchase health insurance through the individual market

• Create 1,100-1,700 jobs by reducing health care costs for employers

• Allow 1.3 million young adults to stay on parent™s insurance plans

• Provide more federal funding for 570 community health centers

http://dpc.senate.gov/dpcdoc-sen_health_care_bill.cfm

Mayor Daley recently passed the City of Chicago™s Property Tax Relief Program proposed by the City Council.   The program is designed to provide some tax relief for the property owners in the City of Chicago.   The program was proposed in response to the phase-out of the state law that put a 7 percent cap on the annual increase in the taxable value of a homeowner™s property.    

The amount of tax relief you might receive ($25 – $200) is based on your income level and the amount of property tax increase.  The three requirements are that you own your home (condo), pay property taxes and have an income less than $200,000 annually.   Applications are being accepted now.   Relief checks will be distributed on a first-come, first-served basis. To see if you qualify, download an application at www.cityofchicago.org.

According to Reuters and RISMedia, Fannie Mae and Freddie Mac said they would suspend foreclosures of occupied homes as well as the completion of evictions beginning November 26, 2008 through   January 9, 2009.   Regulators and lawmakers have worked vigorously to help stabilize the U.S. housing market and help Fannie Mae and Freddie Mac in particular, since they own or control about half of residential mortgages outstanding.

The move by the two government-sponsored enterprises comes a week after their regulator unveiled a plan that could cut payments for hundreds of thousands of borrowers by easing terms on their loans.   Homeowners facing foreclosure who are spending more than 38 percent of their income on mortgage payments could have payments reduced by the companies, under the program.

Fannie™s streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy.  The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal.

 œBy working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year, said Freddie Mac Chief Executive Officer David M. Moffett.

 This year, Freddie Mac expects to approve 84,000 workouts for the estimated 140,000 who are delinquent on Freddie Mac-owned mortgages.

Interest = Interest Rate * Principal * Time

If a homebuyer purchases a $200,000 house at 6% over 30 years,  calculation would be:
Interest = 6% * 200,000 * 30
Interest = $360,000
Interest + Mortgage = $560,000

Monthly Payment = $560,000 / 360 months = $1,555.00 (not including tax or insurance)

If the purchaser puts 10% down, then the bank assumes 90% of the loan.

10% – Owned by Buyer                             10% of Mortgage
$20,000                                                                       $56,000

90% – Owned by Bank                               90% of Mortgage
$180,000                                                                   $504,000    

Typically the first mortgage payment is 99% interest and the last mortgage payment is 99% principal.   All payments in between are percentages between the two.  

If home values decrease and the value of the home loan becomes less than $180,000 (let™s say $170,000), the banks begin to lose money on the œinterest portion of the loan ($360,000 paid over the course of 30 years) and the interest now becomes $342,000 because of the loss in the value of the home.  

If the bank wanted to sell the loan because it was losing money, the bank had difficulty because the market was not interested in purchasing a loan that was not worth its own value.   This in turn œfroze the mortgage industry because a lot of homes were experiencing a loss in value at the same time.  

Although most people continued to make payments, the banks were worried that they would eventually take a loss because they would not be able to sell the bad debt or loans that weren™t worth their value.   This led to the mortgage bailout plan that the government set in place to buy the loans that weren™t worth their value and let the people pay the money back with their tax dollars over the next 30-50 years.   The bailout plan prevented the banks from losing a portion of the money they were making on the interest.  

Another option rather than putting the government and the people into another $700 billion of debt could have been to adjust the principal to the current value of the house ($170,000 instead of $180,000) so that banks continue to make a substantial amount of money from the interest, the loan would be worth its value so other banks would be willing to buy the loan AND the homeowners would benefit because they would acquire a higher percentage of the pay off on the principal.   This is what that might look like:

15% – Owned by Buyer                           15% of Mortgage
$30,000                                                                       $84,000

85% – Owned by Bank                               85% of Mortgage
$170,000                                                                   $476,000

The difference between the original mortgage $504,000 and the revised mortgage $476,000 is $28,000 over the course of 30 years.   If banks had to take that much of a loss on each home loan they serviced, they would have lost quite a bit of money.   However, consider the fact that banks are making almost 2.5 times the amount of money that the houses are worth and then the $28,000 looks like a very small amount in comparison.   Knowing that the bailout plan passed is a little bit more frustrating now given a better understanding of the reasons it was passed.

The Federal Housing Administration (FHA) is federally funded and insures mortgages for homebuyers that meet certain criteria.   Typically FHA loans help average people with mid-low credit scores and could use some improvement on their overall credit rating.  

In the past, FHA loans may have been viewed as a less appealing option because some consumers might have been uncomfortable leaning on the government for assistance to fund their mortgage loans.   However, since the recent consistent decline in the economy more and more consumers are willing to accept assistance regardless of the source.   The truth is that FHA loans should have always been a more appealing option because loans are insured, generally a lower initial down payment is required, qualification requirements are less restrictive and a greater variety of loan options are available to consumers.  

FHA loans for residential properties allow for the purchase or refinance of new or existing homes that have one to four units and must be owner-occupied.   Recent changes have been made in the way that FHA loans are processed and they now can be secured in about the same time that conventional loans take to secure.    

According to Judith Heaney, Supervisory Operations Officer for the Chicago Regional Office of the U.S. Department of Housing and Urban Development says that œFHA insured loan applications in Illinois are up about 375% from over a year ago.   This spring, Congress temporarily raised FHA loan limits through the end of the year to 125 percent of the local median home price. The follow-up Housing and Economic Recovery Act of 2008, signed into law July 30, permanently raises FHA limits starting January 1, 2009, but at 115 percent of the local median.

Commercial development has been booming in the South Loop.   Whole Foods, DSW, Office Depot, Linens ˜N Things, PetSmart, Cost Plus World Market, LA Fitness, Panera Bread, Starbucks, Home Depot, Best Buy, Dominick™s, Staples and Target all occupy the vicinity near Roosevelt and Canal.   In the near future, ground will break on a new condominium development that will be welcomed into the area late 2009 or early 2010.   The development will include retails stores such as movie theaters, gourmet grocery stores, a variety of restaurants and other favorites.   The half-mile sprawl running along the east bank of the Chicago River will boast a river walk, along with parks and vegetation, as required by the city.

The South Loop development craze is catching on and moving further South into China Town.   According to David Roeder and Fran Spielman, entrepreneurs promise a new landmark building in China Town at the corner of Cermak and Archer.   The Grand Imperial, estimated at 15-stories, is scheduled for delivery Fall 2010.   According to Maureen Wilkey, condominiums will be priced from $268,000 to $500,000 and the building will feature pagoda-style architecture.   See Wong and business partner Peter Siu hope that the Asian influence will be apparent through the ancient Chinese dynasties and principles of feng shui that are planned to be incorporated into the development.

 Wong and Sui are hopeful that the development will do well because of its proximity to McCormick Place and the draw for repeat customers that attend conventions and do not want to pay the high costs associated with the downtown area.   Wong said “The Chinese economy is booming, and most of the businessmen do a lot of overseas travel for conventions. Chicago is one of the most popular destinations.

On July 30, 2008 President Bush signed a major housing bill (H.R. 3221) into law.   As part of the housing bill, Congress has created a new temporary tax credit to provide an incentive for first-time homebuyers.   The $7,500 credit will be available for the purchase of a principal residence on or after April 9, 2008 and before July 1, 2009. (http://www.realtor.org/press_room/news_releases/2008/president_signing_housing_bill)      

The tax credit works in conjunction with annual tax filings.   Tax payers that receive a refund will be given a $7,500 tax credit in addition to their refund ($1,000 credit plus $7,500 tax credit equals $8,500 credit).   Tax payers that owe additional taxes will be given a $7,500 credit that will counter balance the amount of money owed ($1,000 owed plus $7,500 tax credit equals $6,500 credit).   Individuals will be eligible for the $7,500 credit if they meet the following requirements:  

• First time homebuyer (individual has not owned primary residence in the past 3 years)
• Purchase of property has to be a principal residence in the U.S.
• Single tax filers have income level up to $75,000
• Joint tax filers have income level up to $150,000

The first-time homebuyer tax credit has a limit of $7,500 and is calculated based on 10 percent of the purchase price of the property.   Home buyers purchasing a principal residence with a sales price of $58,000 will receive a $5,800 tax credit.   Any principal residences that are purchased for a sales price of $75,000 or higher will receive the full tax credit.    

The tax credit must be paid back in full prorated over the course of 15 years.   Payments will be made annually at 6.67% of the total credit amount.

On January 19, 2007 Governor Blagojevich issued an immediate suspension on HB 4050 predatory lending pilot program.   The program was not effective because it was negatively impacting the communities it was designed to protect.   The link below lists further details regarding the suspension.http://www.idfpr.com/newsrls/011907govidfpr4050susp.asp  

On November 2, 2007 Governor Blagojevich signed a lending law that would toughen standards that mortgage brokers must meet before completing loans for their customers. The link below lists further details regarding the law.http://www.ihda.org/admin/Upload/Files//5f95c2fa-5427-423d-9361-1cc77ba7e831.pdf  

On May 15, 2008 the Office of Banks and Real Estate (OBRE) issued memos to Illinois Housing Counselors and Illinois Title Companies regarding the Anti Predatory Lending Database to be implemented on July 1, 2008.    The link below lists further details regarding the memos. http://www.obre.state.il.us/RESFIN/NEWS/SB1167RegistrationCounselors.pdf  

Beginning July 1, 2008 mortgage brokers and loan originators licensed by the Division of Banking, Housing Counselors (must be HUD-certified agencies) and closing agents will be required to get approval prior to real estate closings through the website address www.ilapld.com (live on July 1, 2008).   The link below lists further details regarding the Illinois Anti-Predatory Lending Database and an overview of the program.http://www.obre.state.il.us/RESFIN/NEWS/SB1167FactSheet.pdf  

The OBRE has also provided a list of credit counselors that are available to buyers and sellers, some of the services are free of charge and some counseling programs require a fee.   Interested parties are highly encouraged to research companies offering these services prior to signing any contracts or paying any fees.   The link below provides a list of service providers that offer these types of services. http://www.obre.state.il.us/consumer/credit%20counseling.htm  

Although state and local legislators might not hit the mark perfectly the first time, they are researching and trying to implement processes and programs that will assist in the mortgage crisis to prevent further problems in the future.   The current real estate market is a direct result of sub-prime mortgages and buyers who bought homes that were beyond their budgets.   It is true that if the real estate market had continued to escalate, these problems may have come at a later time but at some point the adjustable interest rates were bound to increase and cause a ripple effect for the majority of mortgages obtained in the sub-prime market that were not realistic for certain buyers.   Hopefully, the changes being made by our legislators will bring positive change to the real estate market and mortgage lenders in the near future.