South Orange County Blog from Bob Phillips

What Would Americans Do With an Extra Couple Hundred Bucks?

An article from The Atlantic, by Gillian B. White, dated  10/8/2015

That’s not a hypothetical question. Falling gas prices mean the average household will be about $700 richer this year.

shopping cartsFor most Americans, trying to cut back on bills involves a mix of discipline and sacrifice: Moving into a smaller place, searching for sales at the grocery store, or forgoing air conditioning on hot days, for examples. But drivers around the country have been getting a reprieve without any effort thanks to falling gas prices. So what are they doing with the unanticipated bonus in their bank accounts? Not saving it, a new report from J.P. Morgan finds.

The price of gas peaked at about $3.70 a gallon in 2014. At present, that price has declined by about $1.50. While those single-gallon prices might seem insignificant, they add up. Take the example of a Toyota Camry, one of the nation’s top-selling cars with a fuel tank that holds around 17 gallons: Filling a totally empty tank at the peak would cost over $60. Now it would cost a much more reasonable $37. And for those who rely on their car as the main method of transportation, that’s a big deal. It’s been estimated that over the course of 2015, Americans will save on average $700 thanks to the dip in gas prices. That’s more than government stimulus checks in recent years, which paid out between $300 and $600.

And they’re spending it—most of it, at least. According to the J.P. Morgan Institute, Americans are spending about 80 cents for every dollar they’ve saved. They’re going out to restaurants—which accounted for nearly 20 percent of gas savings—shopping for clothes, and buying groceries, electronics, and appliances.

These findings imply that Americans are feeling surprisingly upbeat about the economy. Were they more pessimistic, economists would expect them to be saving a greater portion of the money for the expected tough times ahead, or using the money strictly for essentials, like housing and bills. Other recent reports on the impact of lowered gas prices have painted a less optimistic picture. The Council of Economic Advisors puts the consumption bump at closer to 45 percent of gas savings, and a Gallup poll found that though nearly 60 percent of respondents said they’re feeling the positive effects of lower prices, only about one-quarter said that that they were spending the extra money. The bulk of respondents told Gallup that the money was going toward bills or savings.

So what explains the difference? The study’s authors, Diana Farrell and Fiona Greig note that these discrepancies could be related to sample size or more limited data in those surveys. In their study, J.P. Morgan analyzes the spending of 25 million clients via transactions on debit and credit cards between October 2012 and June 2015. While that certainly is a robust sample, it too has its own limitations and biases. For instance the bank’s data won’t capture transactions made with cash or on other credit or debit cards, which could be money that families are using for essentials rather than a night out or a new television. The data could also be skewed to reflect the habits and demographics of the bank’s clientele. For instance, the survey finds that gas bills account for only 2.9 percent of individual’s incomes in 2014 while the Consumer Expenditure Survey reports that it accounts for 3.7 percent, which could reflect a difference between where these sample groups live, their access to public transportation, or their income.

Nonetheless, some of the broad trends are intriguing. The data show that the gas-price infusion is obviously not spread equally among all Americans. It’s more heavily concentrated among those who live in the South and Midwest where people drive more, over greater distances, and have decreased access to and use of public transportation. The savings are also more meaningful for low-income households—who saw their monthly disposable income climb by more than 1 percent for those pulling in less than $30,000 a year—and young people.

Though the money spent on gas makes up a nominal amount of consumption in the grand scheme, the impact of gas prices on American families can be a telling way to assess how confident people are feeling about spending. It could also help predict spending trends should prices hold steady, or increase in the future. That could help inform policy decisions on things like gas taxes. For an economy that’s been puttering along with little wage growth, increasing costs of living, and little disposable income—spending is a good thing. It puts more money into businesses, which then creates more jobs and helps spur further economic growth. And there hasn’t been quite enough of that since 2008.

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GIFTS, WE ALL LIKE TO RECEIVE GIFTS

A longtime friend of mine, Duane Gomer, is a local expert/provider of real estate education.

Below is a recent post of his.

Tax-Saving-Tips-252“There is a lot of misunderstanding about giving someone gifts and the tax consequences. It is not a simple matter and before gifting large sums (not just cash but anything of value) get professional advice. You will be glad you did. Sleeping   at night becomes more difficult during an IRS Tax Audit.

Most people know that you can gift up to a certain amount to someone with no tax problems. Currently, the amount is $14,000 per year and your spouse could also contribute $14,000 per year so in our case with four children we could gift each one $28,000 or a total of $112,000, and we could throw in five grandchildren for another $140,000. That is  $252,000 per year, and you can give the same $14,000 to relatives, parents, friends, etc. with no tax. Wouldn’t take too long to give away  all we have.

You can add even more by making direct tuition payments for students or direct payments of a person’s medical expense. You can even use a 529 plan to give more. Do not do any of these gifting ideas without professional advice to make sure your tracking meets IRS rules.

What if we want to give one child the $252,000? We can do whatever we want, it is our money, but is there any tax to pay that year if this is the first gift that we have ever given. No, No, No. This year the estate tax exemption is $5.43M. You can gift up to that amount in any year without tax to pay, BUT any amount over $14,000 for that year must be reported, and the amount is deducted from the $5.43M for later.

With everyone living to advanced ages, heirs are getting their money late in life and in large amounts. Some money spread to them through the years would be more valuable, and the estate tax impact would not be severe. To give is better than to receive. I am not positive of that, but you should consider this topic before too long. Time is fleeting.” ( End of Duane’s post. Thanks, Duane!)

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The subprime mortgage crisis wasn’t about subprime mortgages

By Chris Mathews, of Fortune Magazine, 6/17, 2015

next-exitNew research challenges the conventional wisdom on the financial crisis.

In the years following the financial crisis, a cottage industry arose that tried to explain just what happened to the American economy and the financial system.

Early on in the process, journalists zeroed in on one set of villains: subprime lenders and the supposedly irresponsible borrowers who were their customers. We were regaled with stories of mortgage lenders like Countrywide handing out loans that borrowers couldn’t possibly repay, and then selling them on to investment banks, who packaged them into “toxic” bundles like Goldman Sachs’ infamous Abacus collateralized debt obligation.

When these subprime borrowers began to default, so the narrative goes, the dominoes began to fall, eventually helping to send the entire mortgage market, U.S. financial system, and global economy into crisis.

At the time, the press spent a lot of energy scrutinizing subprime borrowers and lenders, based on the fact that in the early days of the crisis, the rate and absolute number of subprime foreclosures were much higher than foreclosures in the prime market. It was around this time that CNBC’s Rick Santelli gave his famous rant against talk of bailing out underwater homeowners that helped launch the Tea Party movement, calling the folks who were at risk of foreclosure “losers.”

Furthermore, much of the reforms instituted since the financial crisis have centered around increasing scrutiny of mortgage lending, to make sure that these sorts of irresponsible loans aren’t made again.

But if journalism is the first-draft of history, then it’s about time for a second draft. In a new working paper by Wharton economists Fernando Ferreira and Joseph Gyourko, the authors argue that the idea that subprime lending triggered the crisis is misguided. The paper looks at foreclosure data from 1997 through 2012 and finds that while foreclosure activity started first in the subprime market, the foreclosure activity in the prime market quickly outnumbered the number of subprime foreclosures.

The following chart shows the total number of foreclosures and short sales per quarter in various classes of mortgages:

Screen Shot 2015-06-17 at 10.38.09 AM

While subprime borrowers default at a higher rate than prime borrowers, Fierra said in an interview with Fortunethat the data shown above suggest that the foreclosure crisis would have happened even in the absence of such risky lending. “People have this idea that subprime took over, but that’s far from the truth,” says Ferreira. The vast majority of mortgages in the U.S. were still given to prime borrowers, which means that the real estate bubble was a phenomenon fueled mostly by creditworthy borrowers buying and selling homes they simply thought wouldn’t ever decrease in value.

We can draw two conclusions from this data. One is that your chances of being foreclosed upon in the past decade was more a matter of timing than anything else. If you were a subprime borrower in, for instance 2002, who bought a bigger house than a more prudent and creditworthy borrower would have bought, chances are you would have been fine. But a prime borrower who did everything right—bought a house he could easily afford, with a large downpayment—but did so in 2006 would have had a higher chance of defaulting than the subprime borrower with better timing.

Since whether you were hurt by the crisis had more to do with luck than anything else, Ferreira argues we should rethink whether doing more to help underwater homeowners would have been a good idea.

The research also offers some sobering policy implications. Ferreira’s data show that even with strict limits on borrowing—say, requiring every borrower to put 20% down in all circumstances—wouldn’t have prevented the worst of the foreclosure crisis. “It’s really hard for certain regulations to stop the process [of a bubble forming],” Ferreira says. “I really wish my research had showed that it’s all about putting down 20% and all problems are solved, but the reality is more complicated than that.”

Furthermore, we still don’t have the tools to understand the cycles of real estate prices, or to recognize bubbles, in any asset class, before they form. So it would be a mistake to think that any regulatory reform will offer fool-proof protection against the next financial crisis.

The booms that capitalism confers on us, it seems, will inevitably be followed by busts. ( End of Chris’ article.)

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HARP and HAMP Receive Probable Final Annual Extension

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( An article from Colin Robertson of TheTruthAboutMortgage.com dated May 11, 2015 )

Since being introduced back in 2009, both and the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) have helped millions either avoid foreclosure and/or save money on monthly mortgage payments.

Both programs have been deemed pretty successful, though the numbers did fall short of original projections (as everyone probably expected) despite several annual extensions. I think the original estimate was nine million.

HAMP Is Finished at the End of 2016

HAMP

Since HAMP was launched in the spring of 2009, a total of about 1.5 million homeowners have received permanent loan modifications through the fourth quarter of 2014.

Nearly 2.3 million trial modifications were started but fewer than one million are permanent and still active either because of a positive outcome such as loan payoff or alternative modification, or because of something negative like a short sale or foreclosure.

This has resulted in aggregate savings of approximately $32.7 billion compared with prior unmodified mortgage obligations.

The goal of HAMP is to get the borrower’s front-end DTI ratio down to 31% by reducing the interest rate, extending the loan term, and potentially forgiving principal.

About 95% of HAMP loans received an interest rate reduction, though those are temporary and subject to rise.

Just over 60% of HAMP borrowers received a term extension and less than a third (30.3%) received principal forbearance.

[HAMP participants are now eligible for $5,000 more in principal forgiveness.]

HARP Probably Done After 2016

The Home Affordable Refinance Program (HARP) is a program that allows underwater borrowers with Fannie Mae- and Freddie Mac-backed mortgages to refinance to take advantage of lower interest rates.

It originally allowed borrowers to refinance with LTVs as high as 105%, but that number was later increased to 125% and eventually the cap was removed entirely for most types of loans.

Over the years there were pleas to expand the program and open it up to borrowers with non-agency mortgages (remember HARP 3), but those demands fell on deaf ears.

To date, roughly 3.3 million borrowers have taken advantage of the program, though the numbers have been waning lately. Around 10,000 borrowers are refinancing monthly via HARP nowadays.

This is not unexpected given the fact that most have already applied for assistance under the program or no longer need it thanks to rising home prices.

During FHFA director Mel Watt’s speech at the Greenlining Institute 22nd Annual Economic Summit last Friday, he spoke about both programs and revealed that HAMP would be finished after one final extension through the end of 2016.

Since March 2013, Fannie and Freddie have also offered a proprietary Streamlined Modification that requires less paperwork than HAMP, and this could serve as an ongoing loss mitigation solution for borrowers.

As far as HARP goes, he said “we anticipate that this will also be the final extension for HARP.”

Apparently some 600,000 plus borrowers could still benefit from HARP though they’ve yet to come forward for one reason or another.

Watt said the FHFA will use the next year and a half “to explore possible streamlined refinance solutions for future Enterprise loans,” so there might be some kind of permanent HARP solution for Fannie and Freddie loans that “might apply in a non-crisis environment.” ( End of Colin’s article.)

From Bob Phillips:  Over the past couple of years, local house prices have risen substantially, which may help in two different ways.  First, former underwater homeowners may now actually have some equity, hopefully allowing a little breathing room.

Second, owners having difficulty making their payments on a loan that has a high interest rate, may, in fact, be able to refinance now, where they couldn’t before, staying in their home with a lower payment, OR, they may now be able to sell their home without going through a short sale, getting themselves out from under a terrible loan that they’ve been living with, for years.

Even if the home is STILL underwater, solutions have become easier to accomplish, if you’re dealing with an agent who has both training and experience, in dealing with distressed loan situations.  I, Bob Phillips, have both the training, and the experience, to help you sort out the many options you might have.

If you – or someone you know – is still having difficulty making their house payments, please consider calling me at (949) 887-5305, or shoot me an email to BobPhillipsRE@gmail.com.

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Four Excellent Reasons to Buy a Home So You Can Get out of the “Renting Rut”

Three Excellent Reasons to Buy a Home So You Can Get out of the Renting a home is a good option for some, but buying a home just might be the best thing for you.

There are some big advantages to buying a house that will help you get out of your renting rut and focus more on your future.

#1.)  Build Equity

Did you know that when you rent a home, you help someone else build equity? Any changes that you make with your landlord’s approval puts money back in his or her pocket. Keeping the yard clean and taking care of routine maintenance builds equity in that property. When you buy a home of your own, you have the chance to build equity of your own, which can add significantly to your net worth.

#2.)  Save On Your Taxes

When you rent a house, you cannot deduct the money you spend on your taxes. Though some states will let you make a small deduction based on the total amount you spend in rent each month, you cannot make any deductions on your federal taxes. When you buy a home, you can save with a few different types of deductions.

The federal government lets you make a deduction if your home is worth more than what you currently owe on your taxes. If you purchased your first home, you can make a deduction in regards to your property taxes. You can also deduct money that you spend on some renovations and energy saving appliances.

#3.)  Put Your Personal Touch On Things

As long as you continue renting, you live in a home that belongs to someone else. Your landlord has final say over what you do and do not do. This often means that you cannot make repairs or significant changes without seeking approval first.

Renting a home lets you put your personal touch on things. You can paint the walls any colors you want, rip out the carpet to add hardwood flooring or even make significant changes outside to turn your new home into your dream home.

#4.)  Interest Rates Are STILL Incredibly LOW!

One factor that has contributed to home affordability has been the incredibly low interest rates that have been available for the last couple of years.

Now that you know more about the benefits of buying a home and how that purchase can get you out of the rental rut you’re in currently, isn’t it a good time to give me a call? I would be thrilled to assist you in becoming a homeowner. Let’s go home shopping!

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Three iPhone and Android Apps That Make Managing Your Mortgage Payments Quick and Easy

Three iPhone and Android Apps That Make Managing Your Mortgage Payments Quick and EasyYour mortgage payment may be among the largest payments you make every month. While certainly an important part of your budget, this payment is also critical to helping you build equity in your home because it attributes to mortgage principal reduction. Managing your mortgage payments can be challenging, but there are some incredible apps available for use with Android or iPhone smartphones that can simplify your mortgage management tasks.

Mortgage Mentor

This app is available for both iPhones and Android devices, and is designed to be compatible with all types of mortgages. It can calculate PMI for adjustable rate and variable rate mortgages, and it can help you to determine the true cost of a mortgage. Through the use of this intelligent app, you can track your account information in real-time, or you can manipulate the numbers to help you to make more thoughtful and intelligent decisions about your finances.

Loan Calculator Pro

This app is only currently available on iOS devices, but those with this operating system may want to download it today. It has some of the same capabilities as Mortgage Mentor, but it goes a step above and beyond by providing you with mortgage payment notification reminders. It also has a unique feature that allows you to set a final payoff date for your mortgage, and it will calculate how much money you need to pay per month toward your mortgage to accomplish this goal.

Bill Payment Log

The Bill Payment Log app is a unique program that can entirely replace the outdated manual entry checkbook balancing task. It is suitable for use with iOS, Android and even Windows. You can use it to monitor and track payments for all credit accounts, including mortgages. While it does not have the analytical tools associated with some of the other mortgage apps, those who are looking for an all-in-one app that facilitates bill payment tasks for all accounts, this may be a great option to consider.

Making your mortgage payments on time is important, but you also may need to know if you need to pay extra each month and what the effects of that will be. You may also be concerned about “what if” scenarios for your adjustable rate mortgage. There are numerous apps available on the market today that can help you to facilitate your efforts, and these are among the leading choices available.

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From RealtyTrac: Buying is more affordable than renting almost everywhere

A new blog from Trey Garrison of HousingWire.com, dated December 26th, 2014.

From RealtyTrac: Buying is more affordable than renting almost everywhere

rent-versus-buy“Buying is still more affordable than renting in the majority of U.S. housing markets, while the opposite is true in markets with the biggest increase in the millennial share of the population over the last six years, according to RealtyTrac.

RealtyTrac analyzed 2015 fair market rental data recently released by the U.S. Department for Housing and Urban Development for three-bedroom properties in 543 counties nationwide with a population of at least 100,000. In the 473 counties with sufficient rental and home price data, the fair market rent for a three-bedroom property in 2015 will require an average of 27% of median household income, while buying a median-priced home requires an average of 25% of median household income based on the median sales price in November.

Buying a median-priced home was more affordable than renting a three-bedroom property in 68% of the counties analyzed, representing 57% of the total population in those counties.

But in the 25 counties with the biggest increase in millennials between 2007 and 2013, fair market rents for a three-bedroom property in 2015 will require 30% of the median household income on average while buying a median-priced home requires 36% of median household income on average. For the analysis millennials were defined as anyone born between 1977 and 1992.

“First-time buyers and potential boomerang homebuyers are stuck between a rock and a hard place in today’s housing market: many of the markets with the jobs and amenities they want have hard-to-afford rents and even harder-to-afford home prices; while the more affordable markets have fewer well-paying jobs and tend to be off the beaten path,” said Daren Blomquist, vice president at RealtyTrac. “Those emerging markets with the combination of good jobs, good affordability and a growing population of new renters and potential first-time homebuyers represent the best opportunities for buy-and-hold real estate investors to buy low and benefit from rising rents in the years to come.”

The top markets with the biggest increase in the percentage of millennials over the past seven years were counties in Washington, D.C., San Francisco and Denver, all of which saw an increase of more than 50% in the share of the population that is millennials.

Other markets in the top 25 for biggest increase in millennials included counties in New York, Nashville, Portland, St. Louis, Seattle, Charlotte, Minneapolis, Indianapolis, Atlanta, Orlando, Austin, Des Moines and Midland, Texas.” ( End of Trey’s blog.)

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Looking for Luxury? How to Upsize Your Next Home Without Upsizing Your Costs

Looking for Luxury? How to Upsize Your Next Home Without Upsizing Your Costs Size matters when you are buying your next home. Whether you plan to expand your family, need more room for your stuff, or are concerned with resale value, you want to get the most space for your money. Also, if you want to add a feel of luxury to your home, one of the best ways to do it is to create open spaces rather than cramming all your furniture in rooms so tiny you can barely walk around without knocking something over.

Traditionally speaking, the larger a home is, the more it costs. If there are two newly built houses side by side in a subdivision, the bigger one is likely to cost more. However, there are some tricks to finding spacious houses that are affordable.

Choose Emerging Neighborhoods

Houses in this year’s trending neighborhood are at their peak prices. Clever buyers look for neighborhoods that are in the process of being gentrified, buying at the bottom rather than the top of the market, to get more house for their money.

Fix It Up

Houses in perfect condition, that show well, sell for a premium. If you want to get more house for your money, choose something that needs a bit of TLC. A house that has pink walls and orange shag carpet might appear just too ugly to consider when you first view it, but it might just need a few coats of paint and some new carpet to become a spacious dream home.

Do Some Finishing

Unfinished areas such as attics and basements can be finished to create additional living spaces. The basement could become a family room and the attic an extra bedroom or study. An unfinished space can become the extra bathroom you need to make morning more manageable.

Consider an Addition

Contractors can add rooms to a house. If you have a large lot, you can build an extra wing. With a one story ranch house, it may be possible to raise the roof and add a second story.

The more stuff you have, the smaller your home appears. Reduce clutter and invest in smaller condo size furniture to give even the smallest home the appearance of spaciousness.

Ready to Go Bigger? ( Or Maybe Even Smaller?)

Give me a call – (949) 887-5305 or shoot me an email BobPhillipsRE@gmail.com  and let’s talk about your options.

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Be Prepared for Your Mortgage Pre-approval Interview by Having Answers to These 4 Questions

Be Prepared for Your Mortgage Pre-approval Interview by Having Answers to These 4 QuestionsSo – you’re thinking of buying a house and now you’re ready to take the next step and meet with your lender or mortgage advisor for the pre-approval interview. Are you ready?

At this stage of the application process your lender will dig into your financial background to ensure that you’re fully capable of making your mortgage payments and that you don’t present too high a risk. Let’s take a quick look at a few questions you should know the answers to before you go in for a mortgage pre-approval.

Do You Have a Specific Home in Mind?

If you’ve already picked out the perfect new home, be sure to bring along some of the details when you meet with your lender. At minimum you’ll want to know the price range that you’re expecting to buy in so that your mortgage advisor can try to find a mortgage that allows you to purchase the home and still meet your other financial goals.

What is Your Current Income from All Sources?

Your income (and that of your spouse or significant other, if you have one) will be a major factor in the size of your mortgage, your payment terms and the interest rate that you qualify for. If you have a significant income and it’s clear that you will have little trouble making the mortgage payments you’ll likely qualify for a shortened amortization period that includes a lower interest rate. Conversely, if you can only afford to make a bare minimum monthly payment you’ll be facing a longer mortgage term.

Do You Have Any “Black Marks” on Your Credit?

If you have any negative spots in your credit history you’ll want to ensure that you’re able to answer for them, because your lender will certainly ask about them. Be honest and confident, and remember that the lender wants your business as much as you want to receive a pre-approval for mortgage financing.

What Are Your Plans in the Next Five to Ten Years?

Finally don’t forget that interest rates will continue to fluctuate and that may have an impact on your mortgage in the near future. Be sure to share any major financial plans that you have with your mortgage advisor as they can keep you appraised of any refinancing opportunities that come about.

Buying a home is an exciting time – one that will be far less stressful if you are fully prepared for the many steps along the way. Contact your local mortgage professional today to learn more about how you can get pre-approved for mortgage financing. If you don’t have one, I have a couple of lenders I’ve worked with over the years, whom I can wholeheartedly recommend.

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Saving on Your Property Taxes

Tax-Saving-Tips-252This is a recent blog by one of my preferred lenders, Kevin Budde, of Prime Lending. Kevin has been doing loans in South Orange County for over 40 years, and I highly recommend him and his team, for any type of residential lending services.

Many Baby Boomers are selling their homes and downsizing these days. A question that is becoming more frequent is, “How do I transfer my current property taxes to a home I wish to purchase?” Most everyone in the real estate industry is aware of Proposition 60/90 but to articulate the guidelines and to not give wrong information is difficult. I find myself referring clients to the County Tax Assessors Office website for the technicalities of the Propositions. 

I decided to furnish the basics below to you and at the very bottom the URL address for the Assessor’s office. This is good information for any of your client’s that are thinking of making a move. If they are unaware of the ability to save on property taxes you might want to share this with them.

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prop-60-90

http://ocgov.com/gov/assessor/programs/55plus#470

 

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