IT’S A 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 3 rd quarter, and in the 4 th quarter it was a 6. 3% decline. This is the steepest decline since 1 st 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 ECONOMIST’S OUTLOOK • 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. • 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 Tiered Policies. (13% two tiers, 19% three tiers, 21% four tiers; 20% five tiers) Most common structure for these tiered policies are based upon employee’s job grade or salary level. * Statistics provided by WERC 2008 Of those companies, 60% have three or more tiers. 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. 90% Prevalance of Payback Agreements 81% 80% 70% 60% 39% 50% 40% 30% 20% 10% 0% 1983 * Statistics provided by WERC 2008 2002 2008
A FISTFULL OF DOLLARS • National Lenders • Direct Bill • Negotiated Rates • Quicker Close • Capped Fees New Home Purchase • Is it time Closing Costs & Mortgage for Pre-Purchase Appraisals again? Assistance * Statistics provided by WERC 2008
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 • Declining Home Values PMI (Private Mortgage Insurance); something that they may not be used to. • Reluctance to Move • Escrow Waivers – The ability to pay your taxes and insurance on your own now requires a 20% down payment. Anything less • Reduced valuations required to escrow their than 20% and the buyer isin soft/declining markets taxes and insurance. This may cause additional funds needed at closing, • Negative Equity and Loss on Sale because a “start-up” escrow is created at closing. • 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 Recent Changes – What does this mean for your transferees? * 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” Interest Rates at or near record lows escrow costs, etc. 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 The GOOD News… • • * 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. ü 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. ü 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 ü Resources: www. financialstability. gov and www. makinghomeaffordable. gov
SHORT PEOPLE GOT… • 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. • • 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. 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. • going out and what money has been coming in. 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. ü 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. ü Resources: www. mortgagefit. com/deed-lieu
THE GOOD, THE BAD & THE UGLY… Temporar y Living • But at what costs? • #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 70% 69% 66% Percent of Organizations Providing Family Temp Living Allowance 54% 50% 40% 30% 20% 10% 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 benefit to list price reduction. Dollars Spent on Duplicate Housing Assistance 2007 $ 5, 244 2006 $ 3, 030 2005 $ 2, 986 2004 $ 3, 079 $- * 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 Sale Assistance and Incentives 90% • 87% of companies require participation in a Marketing Assistance program • List price restrictions • Home value restrictions • Bonus programs • Mandatory marketing time • Delayed appraisals • Appraising for a sale in less 120 days 79% 66% Prevalance of Marketing Assistance 87% 80% 70% 60% 50% 40% 30% 20% 10% 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 50% 45% 40% 46% 42% Prevalence of Loss-on-Sale Assistance (Formal Policy) 33% 35% 30% 25% 20% 15% 10% 5% 0% 2000 * Statistics provided by WERC 2004 2008
TOTO…WE ARE NOT IN KANSAS ANYMORE Reluctance to Relocate* 2008 95% 2007 71% 2006 16% 2005 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 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 2007 $ 8, 9 57 2006 $ 7, 707 2005 $ 6, 737 2004 $- $ 8, 76 7 $ 1, 000 $ 2, 000 $ 3, 000 $ 4, 000 $ 5, 000 $ 6, 000 $ 7, 000 $ 8, 000 $ 9, 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.
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