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Archive for November, 2007

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Mortgage Points – What You Need to Know

November 28, 2007 By: Mortgage Refinance Category: Uncategorized No Comments →

Mortgage PointsIf you are in the process of purchasing your home or refinancing your existing mortgage you will most likely encounter the term “points.” What are points and is it ever in your best interest to fork over additional cash at closing? Here are the basics you need to understand about mortgage points and whether or not it’s in your best interest to pay them.

Mortgage Points Come In Two Flavors

There are two varieties of mortgage points. The first are the origination points you pay for your loan originators part in arranging your loan. Your loan originator could be a mortgage company, internet mortgage site, your bank, or a mortgage broker. Origination fees vary widely and are one of the reasons many homeowners overpay for their mortgage loans. How much is a reasonable amount to pay for your mortgage origination points? A reasonable fee to pay is one percent of your loan amount and not a penny more.

One Mortgage Point = One Percent of Your Loan Amount

The second type of mortgage points you will encounter are the “discount” points you pay in exchange for something from the lender, usually a lower mortgage rate. Discount points can be used for other reasons when negotiating; for example you could negotiate to pay discount points in exchange for a certain rate and not having a prepayment penalty included in your loan contract. Don’t underestimate your ability to negotiate with mortgage lenders, especially with the current economy. Mortgage lenders are hurting and are desperate to close loans. You can leverage this to your advantage when negotiating for loan terms.

Should You Pay Discount Points?

The decision to pay discount points depends on your financial situation and what you have to gain by paying this fee. One of the main factors to consider is how long it will take you to recoup the expense from paying discount points with the lower mortgage payment. You can easily calculate how long this will take by dividing the amount you’ll pay in discount points by how much lower your mortgage payment will be because of the fee. This will tell you the number of months it will take you to recoup paying discount fees before you realize any savings. If you plan on selling your house within the next five years or in the amount of time you calculated above, it doesn’t make sense to pay discount points.

There Are Tax Advantages When Paying Discount Points

Paying discount points will earn you a tax deduction in most cases. According to the IRS the discount points you pay are prepaid mortgage interest. There are stipulations and you may or may not be able to deduct the full amount in one year according to IRS rules; however, this prepaid interest can certainly reduce your tax liability if you itemize deductions on your tax returns.

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More Stats for Your Next Cocktail Party

November 28, 2007 By: Alex Stenback Category: Uncategorized No Comments →

The previous post on foreclosures inspired some quick back-of-the notepad calculations to put the numbers into perspective.  In other words, how large a problem is this, relative to the broader real estate market?

According to the Minneapolis Area Association of Realtors, there have been 35,061 closed sales through October of this year.

According to a count performed by the Pioneer Press, there have been 10,521 homes foreclosed (sold at Sheriff's Auction) through October of this year.

That's 1 foreclosure for every 3 homes sold in the Twin Cities this year.  Trot that one out at your next cocktail party.

Foreclosure: Daily Doom and Gloom

November 28, 2007 By: Alex Stenback Category: Uncategorized No Comments →

North_minneapolis_foreclosures
Foreclosures, near-North Minneapolis, Via Star-Tribune Foreclosure Map

It's getting hard to keep up with the now daily real-estate-is-going-to-hell in-handbasket data stream, but we wanted to point out a couple of stats from some of the recent coverage that had us pausing mid-read.

For instance, from the Pioneer Press, on North Minneapolis, which as you can see from the map above, is Ground Zero for the Twin Cities foreclosure problem:

In the Jordan area of North Minneapolis, banks are repossessing homes at a rate of about 200 per half-square mile — the highest rate in the Twin Cities

And this, from the Strib, detailing an FBI raid of perhaps the biggest fraud-for-profit outfit yet:

"The affidavit indicates that about 150 north Minneapolis properties foreclosed on in one six-month period earlier this year passed through TJ Waconia's hands.

That's one in every five foreclosed properties in that area in that period,..."

Just jaw-dropping stuff.
More Trouble in Sight [Pioneer Press]
FBI Names Two in Latest Mortgage Fraud Case [Strib]

Update: Commenter John Hoff went all Columbo and posted at least a partial list of properties that passed through TJ Waconia and are now in foreclosure.  Nice work there.

One thing to keep in mind is that these properties aren't by definition damaged goods - as always there is a market value for any property - its just that the history of values on these properties will have very little to do with reality, since they were inflated for fraudulent purposes.

Of course, these fraudulent sales distort the market, because they become comparable (albeit inflated) sales for legitmate transactions.  Because of the sheer volume of properties involved, it is highly likely that many legit buyers in north paid more than the true market value.  This is where mortgage fraud hurts everybody.

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