This explains the sub-prime mortgage mess beautifully… (Warning contains some "swears" as my kids would say) 

The tax paid by the buyer on the purchase of real in the city of Chicago increased from $7.50 per thousand of the purchase price to $10.50 per thousand starting 4/1/08. (There’s a minor exception for buyers of homes of $250,000 and under who are over age 65).

I know the CTA is in trouble, but this is exorbitant.

I did a closing of a Chicago condo this week. The developer offered a flat screen television to the buyer AND another one to the buyer’s agent as an incentive to buy the condo. The price limit was $1200 on the televisions. The developer reported that sales picked up nicely when the televisions were thrown in. Both client and agent were quite satisfied too.

If your mortgage is paid off, don’t read this item.

If you plan to buy a house, and to put down more than 20%, you can skip this item.

If you are like 50% of the population and put less than 20% down on a real estate purchase, then you want to know about this.

Private Mortgage Insurance (PMI) is now tax deductible. PMI is a insurance premium paid monthly by borrowers who put less than 20% down on a property. It does nothing for the borrower, but protects the lender if the borrower defaults.

No one wants to pay PMI so "piggyback" mortgages developed. These avoid PMI because the first mortgage is usually 80% of the purchase price and there is a second mortgage (at a higher rate) for the extra 10 or 20%. The interest paid on both mortgage is deductible. PMI virtually disappeared from real estate closing for the last few years.

Now it may be worth at least considering. Rules: If your income is less than $110,000.00 and if you itemize deductions, you can deduct PMI premiums effective 1/1/07.

Now, more than ever, you need a competent mortgage broker to evaluate the options for you.

(I don’t know why Congress always does this, but the law expires at the end of 2007.)

Update: President Bush signed this on 12/20/06 See story.

At real estate closings, about 50% of the time there is a “dry” closing (meaning that no money is disbursed and the closing is on hold), usually because the mortgage lender has not wired the mortgage funds to the closing yet.

This makes the following people irritated (for good reason):

1.The seller is mad, because she doesn’t get her money until the wire is received.

2. The buyer is mad because she doesn’t get the keys to the new house and can’t move in (even if the moving van is in the driveway).

3. The real estate agent is mad because he doesn’t get paid.

4. The attorneys are mad because they have to deal with people who are mad.

5. The closer for the title company is mad because she has to deal with people lurking around all day asking “did you get the wire yet” and a one hour closing drags on for 5, 6 or sometimes 24 hours or more.

Something has to be done to force mortgage lenders to get the money to the closing on time. Some title companies (ATG for one) now charge the Buyer a dry closing fee of $100 if the money for closing is not there at the closing. I have mixed feeling about this. First, the Buyer is already mad because she can’t move in; charging her $100 will make her borderline psychotic. I refused to let my Buyers pay this fee recently and the lender paid it instead.

If everyone knows in advance that this fee will be imposed, I think charging a dry closing fee is a great idea. The Buyer is responsible for choosing the lender and should be held accountable for this decision to some extent. But people buy homes only once every 10 years or so and don’t really understand the behind-the-scenes stuff anyway. IF this fee is charged by all title companies, the buyer will have to get his or her lender to agree in writing to pay the fee if the funds are not there at closing. I think this will happen if title companies start charging the dry closing fee.

The solution: Don’t use an out-of-state lender or internet lender. Check with your mortgage lender in advance and insist that the funds be wired the day before or, better yet, that a check be at closing.

Mortgage brokers are middlemen who prepare a loan application and submit it to an end lender for you. They are paid about 1.5% of the loan amount from the end lender. Lately I have come to the conclusion that the most (not all) mortgage brokers actually hinder a client trying to close on his or her home.

It is best to obtain a mortgage from a local representative (not a 1-800 line that is out of state) of a direct lender (with no middle man). This way you deal with a person who cares about your closing, wants it closed on time and smoothly and will make sure that the money is there at closing. Examples of direct lenders would be Harris Bank, Fifth Third, Wells Fargo, Countrywide and Charter One (Washington Mutual is usually a hassle, but is getting a little better.)

Reasons not to use a mortgage broker:

1. The broker takes the application and may not pass all of the information on to the end lender, forcing you to resupply the information at closing. With mortgage brokers we frequently cannot disburse the loan because the broker did not give the end lender some documentation and we have to hunt down the broker at closing (of course he or she is not there) and find the missing documents.

2. Often it takes at least 72 hours from the time the closing is scheduled to prepare the documents and close. That’s too long 24 to 48 hours is plenty of time.

3. Mortgage brokers charge document preparation, underwriting fees, review fees and other garbage can charges. The end lender also charges these same fees. Why pay two sets of fees?

4. The funds for the mortgage rarely come from the mortgage broker, but are usually wired from the end lender to closing. The end lender does not know you and really does not care about you or your closing. The end lender only cares about having their loan file correctly documented and disbursed. Many of them do not even BEGIN to send the funds for the mortgage until the closing is over. They start to wire the money after a signed RESPA or HUD-1 is faxed to them. This means your moving van will remain parked in front of the new house (with you paying the movers) until the wire comes in. This is absolutely wrong and no client should have to put up with it. The money should be at closing in the form of a check or should be wired the day before closing.

If you must use a mortgage broker, but be sure that they fund their own loans by check at closing, that there are not duplicate charges and that the loan representative will be at closing.