Oh, These Dog Days of Summer!
Why “dog” days? Why not “cat” days? Even “bear” days seem more appropriate… I googled it… and apparently, the Greeks and Romans looked on these hot summer days as the rising of the star known as Sirius – the Dog star. Well, Sirius, it is about 101° outside our front door and it’s time for you to cool it down with the heat already!
I am in full Escrow Officer mode, which means that I am totally in the multi-tasking zone. My headset is on as I have been on hold for the last two hours hoping to talk to someone at the IRS Lien department. While I listen to their pre-recorded soundtrack I am typing my newsblog furiously on one screen, keeping an eye on another screen for emails and using the 3rd screen to access my escrow software. Honestly, how did we ever survive with only one monitor screen at our desk??
VIVA ESCROW Q & A SEGMENT
(Real questions left on our website!)
Q: I am closing escrow end of July. I just paid my property taxes in April and my escrow lady says I still owe more property taxes when the transaction closes? How come?
A: Real property taxes in the State of California goes from July 1st of one year to June 30th of the next year, payable in two halves. The tax bill you paid in April is for the second half and would bring you current to June 30. Come July 1 a new tax year starts again. Tax proration between Seller and Buyer starts as of July 1 up to the day of the actual closing. We base the amount on the latest known tax figures, which is usually that second half taxes that just got paid. The daily amount from July 1 to the day of closing is debited from the Seller and credited to the Buyer because the Buyer will end up paying the actual tax bill when it is generated and sent out by the Tax Collector around September-October.
WHERE’S THAT REAL ESTATE GRAVY TRAIN?
Golly, I guess I am not the only one noticing that the fast train that left the station about 2 years ago is chugging along slower and slower. Getting priced out is like getting kicked off that train but there are other factors that are crowding the passengers off. For instance, this CNBC report
points to a few other reasons: Fewer new homes! Mortgage rates rising! Let’s breakdown some of these other reasons:
HOW DID IT GET TO BE SO UNAFFORDABLE?
It’s supply and demand! Imagine that. After the great recession (2007-08) and the economic crash, values slowly slid downward (or outright tanked in some areas). Lo and behold, as the worldwide economy stabilized, foreign investment started to stream in to take advantage of the much lower real estate prices here. Demand rose and supply was happy to accomodate. Now, two years (or so) after that big rush, with prices rising steadily, the values have reached an all-time high again and that has left lots of us standing by the curb gazing at the back of the train. But the cycle is going around again. Recently foreign money is having a hard time making it stateside. The Chinese government is keeping tight control on funds leaving through business accounts. So, demand has decreased but prices have not. Hopefully the market will correct itself or another recession will be in the immediate future.
ARE THE TARIFF WARS BACKFIRING AGAINST HOMEOWNERS?
The Chinese have a saying” Wool is grown from sheep”. What it means is that if you want the wool, you gotta grow the sheep. In other words “You want? You Pay”. Which means that according to this article, the tariffs on Canadian lumber are backfiring. The U.S. does not make sufficient lumber and needs to import from Canada to complete housing construction. Lumber is tariffed (is there such a word??) and the tariffs costs are charged back to the product purchased by the U.S. builders and then passed on to the new homeowner. The article says the tariff costs add another $9,000 to the cost of a new home. What, Canadian lumber companies couldn’t absorb the cost? Builders here couldn’t absorb the cost? It had to be the consumer who has to pay?? I don’t think this is what the President had in mind when trade restrictions were sought. How do we get out of this hole? Wool. Sheep. Wool. Sheep.
20% DOWN? IS THAT ACHIEVABLE? WHAT’S THE ALTERNATIVE?
With a higher purchase price comes a higher loan amount. With a higher loan amount and higher rates come higher mortgage payments. See how that works? Unfortunately, according to the Washington Post in this article it will probably take my daughter 37 years to save a 20% downpayment to buy a home, probably more since she works in Mountain View, CA. By that time this Millennial will be ready to retire. Homeownership is becoming further and further out of reach, a sad legacy for us to leave to our children.
But is 20% down absolutely necessary? Not at all. It used to be that you could buy a home with zero down. Remember those days? Oh, right, those were the good ole days that were a precursor to our economic crash. Today you can buy a home with 90 or 95% loan. But before you do that, factor in the requirement of private mortgage insurance (PMI) and the setup of an escrow impound account. So there is a perfectly viable alternative. Just remember that if you have less skin in the game to start out, be prepared to pay more as you follow the road down..
Don’t know what PMI is? The private mortgage insurance organization has a report at this link which describes the positive aspects of getting this type of insurance in order to be able to obtain the necessary loan.
What goes into this escrow impound account? This is a Lender account into which the Borrower would deposit their calculated monthly payment of taxes, insurance and private mortgage insurance so that the Lender would pay them when due. Let’s take a property that has a value of $500,000 and a loan that is $450,000. The breakdown for the impound account would be as follows:
Estimate property taxes per year = $6,250 per year = $521 per month
Estimate Insurance per year = $700 per year = $60 per month
Estimate private mortgage insurance = $113 per month
Total each month to pay into the escrow impound account = $694
The principal and interest monthly payment on the $450,000 loan at 4.52% interest rate is $2,398 per month. Add to that the escrow impound account payment and the Borrower would have to pay approximately $3,092 every month, at least until his equity build up on the property exceeds 20%. At that time he may request from his Lender to have the impound account eliminated. We look at it as “forced savings.”
By the way, when you have a PMI account and an impound account, your Lender closing costs will also increase, meaning that at closing you will need to not only bring in your 5-10% cash downpayment, you will also need to bring in initial reserves to fund the impound account. Be sure you ask your Loan Officer how much that will be!
I have a short article which summarizes the Lender’s escrow impound account and the difference between “escrow” versus “escrow”, at this link.
Let me just say that in other parts of the country, $500,000 can purchase a great home. In parts of California, spend three times this amount and you can possibly buy a decent home. Obviously this can become a financial issue and it is no wonder that young families and single persons are seeking to rent rather than buy. According to Trulia, the trend is going towards leasing . Or moving out of state as mentioned in last month’s Newsblog.
RENTER SCAMS – THIS TOO IS FRAUD
Fraud comes in all sizes, shapes, amounts, intensity. We have to be aware that for anything that involves money, there will exist the possibility that someone wants to separate it from you. If you are a renter, and especially a new renter, here are some tips that you might want to look into before you fork over money to a “landlord”
BEC – THE NEW SCARY WORD
This Halloween I am going to throw a white sheet over me, cut two holes for my eyes, and write in the front “BEC” because Business Email Compromise is the newest and most scary acronym.
It started out with hackers accessing company internal email systems and sending employees fake directives from their “corporate managers” to wire funds out. It now denotes any event in which hackers take over any business or private email address for the purposes of committing fraud. Nowhere is it more prevalent than in the real estate industry where a compromised email address can lead to wire fraud of incredible amounts. It is now officially an epidemic. Unfortunately although the general public are more aware of identity fraud, they are still innocently unaware of how big a threat hackers, email compromisation and monetary fraud have become in our daily lives. So many incidents, so many terrible stories!
Here is one story about a $400,000 loss.
And here is another story of one person’s hour by hour, day-by-day, step-by-step desperate rush against time to uncover fraud and recover the amounts.
Finally, in this story, there is a happy ending – the funds were retrieved, but probably the trauma of it will live on forever for this couple.
CALIFORNIA AB 375 – THE NEW PRIVACY LAW
Fed up with the problems that Cambridge Analytica brought forward, frustrated with a legislature that was dragging their feet in passing a comprehensive privacy policy measure to protect consumers, a northern California millionaire committed $3 million seed money to start a grassroots initiative that would put the most advanced privacy measures onto the November ballot. If the initiative passed, it would have been very difficult to be changed or amended in the future by the legislature. Threatened by this move, the Legislature in Sacramento hastily passed AB 375, a privacy policy act that is not as extreme as the grass roots initiative would have been but is still the first of its scope in the nation. This is a measure that might become a nationwide standard once the rest of the 49 states get a look at it. It might even surpass the existing European Union’s General Data Protection Regulation (GDPR) initiative.. This Bill is known as the California Consumer Privacy Act of 2018.
What does AB 375 achieve? It is a protection for you and me – the general public/consumer who have been battered by the indiscriminate leakage of our personal information by companies through hackers and 3rd party purchasers of data information. This bill will affect any company that has gross revenues of over $25 million, provides service to 50,000 or more consumers and collects their personal data. This bill will allow their customers “the right to see what information businesses collect on them, request that it be deleted, get access to information on the types of companies their data has been sold to, and direct businesses to stop selling that information to third parties”. This is not a bill that will affect just the giants – the Amazons, the Facebooks, the Googles of the world. Every day companies like, Expedia, Target, Macy’s, Whole Foods, all of whom have had their customers’ data compromised, as well as title insurance companies and even escrow companies that have multiple branches, will be affected. Here is a summary of the bill from the Wired publication. So, if the bill will do what it is supposed to do come 2020, welcome to the new world where citizens will finally be provided with a measure of control over their personal information. For a full copy of the bill, click on this link.
As we come to an end of this newsletter, let me leave you with one simple thought:
