The Veridian Blog

With so many homeowners across the state suffering from depreciating values, is it possible to reduce property tax obligations which are based on value?

Proposition 13, well known for its limits on increases in property tax assessment, is also valuable knowledge for homeowners in a down market. It is important to note that Prop 13 puts a 2% ceiling on annual increased assessments but no floor on reductions. Therefore, via Proposition 8 (Section 51), a property owner can seek an immediate reduction in assessed value if they believe the market value has declined less than its taxable value on the county assessor’s books (the little yellow notice we receive every year). The tax cut would be temporary, but the savings would be permanent.

In a number of counties, property owners may not even have to apply to receive a tax reduction! Many assessors are being proactive, automatically reevaluating those homes that were purchased from 2004-07, at the height of the housing bubble. If your client did not get a reduction notice and you believe their property has declined significantly in value, you should recommend that they contact the county assessor to request a reduction. A good rule of thumb is, if you believe your home today would sell for less than the value reflected on your tax bill, you should apply for a reduction.

For more information on tax assessment relief, see http://www.scctax.org/portal/site/asr/agencyarticle?path=%252Fv7%252FAssessor%252C%2520Office%2520of%2520the%2520%2528ELO%2529&contentId=1460bb3166b34010VgnVCMP2200049dc4a92____

Are purchase loans processed and underwritten the same way as refinance loans?

While the principal elements of creditworthiness (income/credit/assets) do not change in regard to loan purpose (rate & term, purchase or cash-out), they are treated differently in most underwriting departments. Purchase loans are widely considered more urgent than refinance loans and are more often than not, given priority in any underwriting queue due to the contracted close of escrow date. In addition, many lenders offer discounts and broker incentives for closing purchase loans.

The underwriting for purchase loans is often more complex because of the significant amount of additional paperwork that needs to be reviewed. Underwriters must verify and paper-trail down payment assets in addition to required reserves. For first time homebuyers, they will require a Verification of Rent to demonstrate a satisfactory house payment history. Underwriters must also examine the purchase contract to determine if there are extensive repairs required or excessive credits given back to the buyer that may jeopardize the appraised value.

Cash-out loans are more or less underwritten in the same fashion as rate & term loans however most lenders will have maximum loan-to-value ratios for cash-out loans as well as a cap on the nominal dollar value allowed on cash-out loans.

How will the HERA Mortgage Disclosure Improvement Act impact your closings?

The Housing and Economic Recovery Act (“HERA”) includes wording, namely the Mortgage Disclosure Improvement Act that applies to applications taken by lenders or brokers on or after May 1, 2009.   requires that lenders disclose after certain waiting periods.  Here are some notable guidelines that may impact a loan transaction timeline:

1.      Upfront fees cannot be charged until the borrower receives the initial Truth-in-Lending (“TIL”) from the lender.  Veridian has never charged upfront fees anyway, so we aren’t impacted by this particular guideline.

2.      Initial TIL now required on all purchases and refinances of primary residences and second homes.  This means another paper to sign at the outset – no big deal.

3.      Appraisal requests can only be made 4 days after initial disclosures are mailed out to the borrowers.  This is a significant one because of the mandatory waiting period.  In a quick close, this can be an excruciating delay, but is somewhat mitigated by the fact that the loan should be initially underwritten during this time anyway. 

4.      Lenders are required to RE-disclose APR (on the Truth-in-Lending statement) if the initial APR is over-disclosed by more than 1/8%.  Moreover, there is a 7 business day waiting period during this re-disclosure period which could obviously cause delays in the signing/closing date.  This is huge and puts pressure on the lender/broker to get it right (or make a conservative estimate) at the beginning.

5.      Brokers will need to provide an initial HUD-1 before closing documents are released.  Many lenders were already requiring this as a prior-to-doc condition.

6.      The final TIL must be received 3 business days prior to closing.

Business days here include Saturday.  HERA only applies to primary residence and second home transactions (not investment home transactions).

For more details, information and reasons for HERA, just call us!