Bi-Weekly Mortgage Payment Plan - Its the extra payment that matters!

During this Thanksgiving I was spending time with some good friends who recently purchased a house. They are great people, but not particularly knowledgeable about the real estate industry.

My friend said to me that his wife and him were discussing setting up automatic payments for their mortgage, which I thought was a good idea so they would never miss a payment.

Then, my friend said that once they got situated in their new house that they would switch to paying every other week to cut down their interest and make the mortgage term shorter. My response was simple, "So you are going to make an additional payment a year on your mortgage?". He responded with "No, I am just going to pay every other week and we will save money, everyone does that", as if I was some sort of fool who had no idea how mortgages worked - thanks for the lesson. I thought that I may share with him why he doesn't understand what he is talking about, but on second thought I thought it is Thanksgiving and he didn't ask me for my professional advice, so I should keep my mouth shut.

To be clear, paying every other week as opposed to monthly is not a magic trick. The bank is not happy to merely receive payments in partial amounts more frequently than in full amounts monthly. Instead, paying bi-weekly results in 26 half payments throughout the course of a year. 26 half payments equals 13 full payments. Math not magic is what matters. So, the result is that a bi-weekly payor is making 1 extra payment a year and that is the SOLE reason that a loan's term is accelerated by expeditiously reducing the loan's principal balance. Moreover, as you reduce the principal, the amount of interest paid is reduced. This is actually what my friend was saying; albeit confusedly. In fact, it works the same if you simply make 13 payments a year as opposed to 12.

However, mortgagors (borrowers) should not EVER unilaterally decide to make bi-weekly payments. Instead, they must discuss their desire with their lender first. Many lenders want a one-time setup fee for this service and require online payments as opposed to checks.

Or, instead, mortgagors (borrowers) can simply send an extra payment annually and they are set.

Enjoy the holidays. I've learned that when I keep my mouth shut I enjoy the holidays too.

Federally Declared Disasters - Supplemental Directive (Modifications)

On November 16, 2012, we blogged about the Making Home Affordable Program's forbearance program for victims of Hurricane Sandy.

Today, Treasury issued Supplemental Directive 12-08, which addresses Federally Declared Disasters, such as Hurricane Sandy, and specifically directs Non-GSEs (servicers) with respect to the following topics:

• Flexibility with Borrowers in Federal Emergency Management Agency (FEMA) Designated FDD Areas
• Forbearance Plans
• Borrowers in a Home Affordable Modification Program® (HAMP) or the Second Lien Modification ProgramSM (2MP) Trial Period Plan
• Borrowers in a HAMP or 2MP Permanent Modification
• Handbook Mapping

To read Supplemental Directive 12-08, click here.

Age Discrimination in Housing

At our recent continuing education course, The Fair Housing Act, a student challenged our slideshow, which showed the list of protected classes. Specifically, they adamantly argued for the inclusion of age as a protected class. As explained then and reiterated now, there are multiple fair housing and discrimination laws of which real estate agents must be mindful. The course taught was the federal law, which does not expressly protect age. Nonetheless, New York has a law called the Human Rights Law that makes it unlawful to discriminate on the basis of age, among many other classes. However, the law does not apply the class of age to those under the age of 18, instead the class of familial status applies in those situations. Additionally, the law doesn't apply to housing restricted to those 55 years of age or older. Moreover, publicly assisted housing for the elderly is also exempted.

The message for real estate agents out there is that they need to consider a multitude of laws from Federal to State to Local (County, City, Town or Village) prior to practicing in a particular area.

The FTC is Investigating Deceptive Ads in Real Estate Marketing

According to Ad Age, the leading publication in the advertising industry, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are jointly investigating deceptive ads concerning mortgage modifications, short sales and workouts.

To read the article, click here.

The article expressly states that real estate agents have received warning letters from the FTC. Of specific concern to the FTC & CFPB was the practice of utilizing images of President Barack Obama in ads promoting loan-modification services, which wrongfully communicate to consumers that certain services are affiliated with the government. If you use the President's image on your advertisements, take it down now! 

Real estate agents this is important. When you work in mortgage relief, you must be mindful of the Mortgage Assistance Relief Services (MARS) Rules from the FTC, a summary of which can be found by clicking here.  Also, in New York, Distressed Property Consultants must additionally comply with Real Property Law section 265-B, the text of which can be found by clicking here. 

During each of our continuing education courses to real estate agents on foreclosure, whether its Foreclosure and the Economy: the Short Sale Course; or Foreclosure Filibusters we always stress the importance of these laws and regulations. Unfortunately, we always also get responses from agents that we are being ridiculous. This is very serious and far from ridiculous.

Real estate agents should also be mindful that the FTC's watchful eye is not restricted to mortgage modifications. As stated in our course, To be Green or Not to be Green: That is the Question, the Green Guides are available by the FTC and demonstrate the need to be candid and avoid deception in advertising Green Housing & Buildings. To read the Green Guides, click here. 

As Lieb School always states: You are a real estate Professional; knowing these laws makes you a value-add to your clients and customers. Now go study. 

Landlord Tip - Safety Glass - Is your rental house safe pursuant to statute?

Pursuant to the General Business Law, residential buildings and other dwellings must use safety glass in sliding glass doors, storm doors, shower doors, bathtub enclosures and "fixed glazed panels immediately adjacent to entrance and exit doors which may be mistaken for doors". 

The purpose of this law is to minimize the likelihood of piercing and cutting injuries. 

Landlords, be sure to perform a compliance analysis of your unit before renting. Failure to be in compliance with Statutes and Codes will devastate you if someone is injured in your premises. 

NY Attorney General to Wells Fargo - Modify Mortgages Now

Today, NY's Attorney General, Eric T Schneiderman, warned Wells Fargo to immediately recommence reviewing mortgage relief applications after the servicer / lender suspended its review process until it receives instructions from FEMA. Unfortunately for Wells Fargo, it has a settlement with 49 State Attorney Generals, that its new policy is now likely breaching.

To read the AG's press release, inclusive of his letter to Wells, click here.

While its not clear that Wells Fargo's policy was intended to hurt homeowners seeking a mortgage modification and instead was a response to the storm, it is clear that NY's Attorney General is quite serious about protecting struggling homeowners in his State and helping them to stay in their homes.

This is a good sign for homeowners seeking a modification.