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Escrow Accounts: A Necessary Evil

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 17th, 2018

Many homebuyers, particularly first-timers, often question the need for mortgage-related escrow accounts. “Why can’t I pay the charges myself?” they wonder.

There are good reasons, for both you and your lender. But first, a quick explanation of escrow accounts.

Sometimes known as impound accounts, escrow accounts are set up by your lender to pay certain property-related expenses: real estate taxes, homeowner’s insurance, mortgage insurance and sometimes your community association fees.

The money for these payments is collected by your lender (or the company that services your loan) every month, along with the principal and interest you owe on your mortgage. And when those payments are due, the lender disburses them to the proper payee.

Most lenders require escrow accounts to make sure these bills are paid on time, thereby reducing the risk that you will default on the mortgage or incur liens on the property. Either of those possibilities will place a cloud on your title, making the property more difficult to sell -- by you or the bank, should it have to foreclose.

While there is no law, either federal or state, that requires lenders to impose escrow accounts, it is probably a good idea for borrowers to go along. Otherwise, you’d have to come up with large payments once or twice a year to cover these charges. How large? In 2017, the average property tax on a single-family home was $3,399, according to ATTOM Data Solutions -- and that’s just one expense.

Years ago, when banks paid substantially higher rates than they do now, it might have made sense to keep control of your money rather than cede it to your lender. But not now, with banks paying next to nothing.

Without an escrow account, you run the risk of being late on payments for taxes and insurance, or missing payments altogether. If you fail to pay your property taxes, your state or local government may impose fines and penalties or place a tax lien on your home. You could also face foreclosure. And if you fail to pay your taxes or insurance, your lender may add those amounts to your loan balance, add an escrow account to your loan, purchase insurance for you and bill you for it. (And lender-purchased insurance, known as force-placed insurance, is typically more expensive than buying your own policy.)

Indeed, it makes good sense to “budget” for these costs by paying them with 12 monthly installments to your lender.

Again, there is no law requiring escrow accounts. But there is a federal law, the Truth in Lending Act, that protects borrowers by strictly controlling how lenders handle their escrow accounts.

For one thing, the lender is not allowed to collect an excess amount. And there are limits on the amount a lender may require you to put into your account.

Over the course of a year, starting on the anniversary date of your mortgage, you will be required to pay into your account no more than one-twelfth of the total of all payments for all escrowed items.

After the first year, you will be required to make up any difference in the amount owed and the amount collected: There’s almost always a shortfall in the first year, because your payments are usually based on estimates as opposed to actual bills. Lenders will either ask for a lump-sum payment or allow you to catch up with an acceptable increase in your monthly escrow payment over the upcoming calendar year.

In addition, the lender may require a cushion, not to exceed an amount equal to one-sixth of the total needed for the year, to make sure there is never a shortage again.

Lenders are also required to perform an annual escrow account analysis and notify you of any deficit or surplus in your account. If there is a shortage, you can be required to correct it. If there is a surplus of more than $50, the lender must ask if you’d like it returned or applied to the next year’s escrow amount.

If you have a fixed-rate mortgage, your payment for principal and interest will never change, month to month. But because the other fees collected for your escrow account can change, and often do, your total house payment is likely to change with them.

In some jurisdictions, once you have paid down the balance of your mortgage to a certain percentage of the original loan amount, you have the right to terminate your escrow account. In Illinois, for example, 65 percent is the benchmark -- as long as you are current with your payments.

But why would you? After all, escrow accounts are usually the easiest way to handle these recurring payments.

Finally, if you have questions about or issues with your escrow account, call the company administering your account. Follow up in writing if necessary. By law, the servicer must acknowledge your question or complaint in writing within 20 business days of receipt, and must resolve the issue within 60 business days (or state the reason for its position). Until the complaint is resolved, however, you should continue making the required payment.

If you’re not satisfied, and your servicer is registered in your state, escalate your complaint to the agency in your state that regulates the mortgage business. If your servicer is a national or out-of-state institution, contact the federal Consumer Financial Protection Bureau at 855-411-2372 or consumerfinance.gov.

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When Moving, Beware of Fraudsters

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 10th, 2018

Anyone who has ever moved from one residence to another probably has a tale to tell about an unscrupulous mover.

Here are a few stories gleaned from a federal fraud prevention video:

-- Susan Parr, who was moving from Washington to North Carolina, said, “The guy showed up and he said, ‘Do you have the cash?’ I said I’d be happy to write him a check, but he wouldn’t take a check.”

-- Ron Karlosky, going from St. Louis to Washington, D.C., had to pay $1,500 to get his household goods back, only to find many of them smashed.

-- Reana Kovalcik, relocating from Chicago to New York, said, “When your movers are five hours late, you’re concerned. When you can’t get ahold of your moving company, you’re concerned.” The end result for her was a bump in the price: from $900 to $2,000.

At the national level, a movers’ trade association has its antennae out for fraudsters, and wants to prevent consumers from being scammed. And a federal agency cracks down on any scallywag outfits it finds.

The American Moving & Storage Association (AMSA) has started a consumer protection and certification program called ProMover.

“The ProMover program promotes ethical principles in the moving and storage industry, and works with federal and state governments to mitigate unethical moving practices,” the AMSA says. “It clearly separates professional movers from rogue operators.”

At the same time, the Federal Motor Carrier Safety Administration (FMCSA) offers a wealth of knowledge for the 35 million of us who move every year.

FMCSA is a unit of the Department of Transportation, and its primary job is to reduce commercial vehicle crashes and fatalities. But it offers several resources to help stop moving fraud on its website (fmcsa.dot.gov) as part of its Protect Your Move campaign. For example, its look-up service allows people to research complaints against movers and obtain other relevant information, such as what kind of insurance the carrier has. Go to protectyourmove.gov, or call the FMCSA at 888-368-7238.

Here’s how rogue movers often operate, according to the FMCSA: “Without ever visiting your home or seeing the goods you want moved, they give a low estimate over the telephone or internet. Once your goods are on their truck, they demand more money before they will deliver or unload them. They hold your goods hostage and force you to pay more -- sometimes much more than you thought you had agreed to -- if you want your possessions back.”

Here are a few red flags that a moving outfit may not be reliable:

-- The mover doesn’t offer or agree to an onsite inspection of your household goods, instead giving you an estimate over the phone or online, sight-unseen. A reputable company will send out an agent who looks over your goods, going from room to room. They estimate the weight of the stuff you want to move, along with other important details, then provide a written estimate of the charges.

-- Bad guys demand cash or a large deposit before they’ll even show up. A good mover will want payment (in cash, or by certified or traveler’s check) when its crew arrives to pick up your stuff. Some movers also accept charge cards, but make sure you ask first.

-- Fraudsters sometimes ask you to sign blank or incomplete documents. Never sign anything that isn’t filled out completely, isn’t signed by the mover’s agent and doesn’t contain the mover’s address, phone number and licensing and insurance information.

-- Scoundrels won’t provide a written estimate, but will promise to determine the exact charges once the truck is loaded and weighed. Don’t bite. Once a bad guy has your goods on his truck, you are stuck. You’ll have to pay to get them back.

-- Beware if the company’s website has no local address and no information about their registration or insurance.

-- It’s a bad sign if a rental truck arrives, rather than a company-owned fleet truck. Remember, you can stop the move anytime something seems fishy, right up until the movers themselves actually enter your house. After that, if something has your antennae wiggling, call the police.

By law, all interstate movers are required to give you a copy of the FMCSA-prepared brochure called “Your Rights and Responsibilities When You Move.” But you can download the pamphlet in advance from FMCSA’s website and get some good information.

Also available on the site are the agency’s “Ready to Move?” brochure, and a checklist with suggestions such as checking potential movers with the Better Business Bureau, asking whether they are registered with the FMCSA and learning whether they have an official DOT registration number.

Remember, it is always better to be safe than sorry, especially when it comes to giving someone the responsibility of handling your property.

-- Freelance writer Mark Fogarty contributed to this report.

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Some Immigrants Buy Without SSNs

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 3rd, 2018

When Rodrigo Lopez snuck into this country 25 years ago, there wasn’t the controversy there is today about undocumented immigrants. He put down roots, becoming a homeowner in 2004.

Lopez (not his real name -- he’s actually a composite made from the stories of numerous immigrants) never had a Social Security number, which most homebuyers use to prove their identities to lenders. Instead, he used an Individual Taxpayer Identification Number, or ITIN, issued by the Internal Revenue Service to identify himself.

ITINs are issued to taxpayers who are not eligible to obtain Social Security numbers, regardless of immigration status.

At times, Lopez worked 60 hours a week. He paid taxes, just like everybody else. He paid his bills on time, always in cash because he didn’t have any credit cards, and put a couple of kids through college. And he never, ever got into trouble with the law.

Lopez bought his house with a mortgage from a Midwestern bank under a pilot program spearheaded by the Mortgage Guaranty Insurance Co. That initiative fizzled, largely because investors wouldn’t buy loans in which their borrowers’ legal residency hadn’t been proven.

Nevertheless, hundreds, if not thousands, of undocumented immigrants are still using ITINs to buy houses.

Government figures indicate that more undocumented immigrants are leaving the United States than are entering, but nobody knows for certain how many remain here. The Federation for American Immigration Reform (FAIR) says 12.5 million people who’ve entered the country without authorization, or remained after their authorizations expired, still reside here. (According to the FAIR website, the group seeks “lower levels of overall immigration” but says that “immigration, within proper limits, can be positive.”)

Likewise, there is no official count of the number of lenders willing to write mortgages on behalf of undocumented immigrants. But Scotsman Guide, a monthly mortgage industry publication, lists 18 lenders who finance homebuyers on the basis of ITINs.

The IRS does not verify or validate information supplied during the ITIN application process, and neither do lenders who accept ITINs as identifiers.

Other than that, though, ITIN lenders check out potential borrowers -- vigorously.

“Nobody is trying to fool anybody,” says Raymond Eshaghian, president of Greenbox Loans, a Los Angeles-based lender that prides itself on the concept of “out-of-the-box” underwriting. “They have to qualify just like everybody else.”

Among other things, Greenbox verifies a minimum of two years’ tax returns and the applicant’s country of origin. “Just like the old days, you have to make common-sense lending decisions,” Eshaghian says. “Each application is analyzed, borrowers have to show they have the ability to pay, and you have to meet compliance requirements.”

Greenbox also charges for additional risk, currently 7 percent for a 30-year fixed-rate loan. For that, customers with ITINs can borrow up to $600,000 with 10 percent down if they have a credit score of 620 or higher, or 25 percent down if they have no score. But they need only 5 percent of their own money; the rest can come from family gifts.

Las Vegas-based Alterra Home Loans also charges higher rates to ITIN users, and wants 20 percent down. The company’s requirements include two years’ employment in the same or similar line of work and tax returns using the borrower’s ITIN for the preceding two years.

First National Bank of America in East Lansing, Michigan, offers ITIN loans in all 50 states. It wants at least 15 percent down (gift funds are allowed) and borrowers must document their income with tax returns or bank statements.

Not everyone favors allowing undocumented immigrants to become homeowners.

“It’s a form of insanity,” says Dave Ray, a spokesman for FAIR. “Any program that incentivizes illegal immigrants runs counter to federal law and undermines national security and public safety. If someone is here illegally, there has been no criminal background check or any other checks. They are a complete unknown.”

Eshaghian, however, says his ITIN clients are “excellent borrowers” and “very responsible.”

To that point, Guadalupe Credit Union in Santa Fe, New Mexico, reports that its delinquency rate among ITIN borrowers with auto loans and mortgages is 1.24 percent, compared to 1.85 percent for its entire portfolio. And the Latino Community Credit Union in Durham, North Carolina, which has 86 percent of its mortgage portfolio in ITIN loans, says its delinquency rate is 1.16 percent.

Both figures are far under the industry average of 4.63 percent as of this year’s first quarter, according to the Mortgage Bankers Association.

Eshaghian of Greenbox says he understands there is “a lot of sensitivity” surrounding undocumented immigrants.

“You can say all kinds of negative stuff, but you have to look at these families closely,” he argues. “They are not criminals. They are not trying to take advantage of this country.”

As far as he’s concerned, “it really says a lot when people who could really hide” come out of the shadows. “They could continue going under the radar, but they live here just like me and you,” he says. “And they want to do the right thing.”

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