Part of the published series entitled: “A Closer Look at Residential Real Estate Appraisals” by Shmuel Shayowitz

Residential Real Estate Appraisals in the current housing environment

Another common appraisal issue is where a borrower comes with their own appraisal in-hand from another broker or even an appraiser they hired directly. That appraiser may have come up with an appraised value, however when submitted to the bank for review, the underwriter may determine that the valuation is unjustifiable. As indicated above, during the different valuation methods an appraiser can use his/her own good judgment to make certain assumptions or adjustments as they attempt to support a specific value. A bank underwriter will always carefully evaluate the accuracy and discretion of an appraiser to be certain that the value is supported and within their comfort level thresholds.

This matter will be further exasperated as recent appraisal regulations have caused significant changes to the appraisal “request” process. Regulators have determined that certain brokers and loan officers were using force or influence to push appraisers to inflate home values. These new regulations will now restrict brokers and independent agents from being involved in the appraisal process and create a separation to ensure proper valuation methods are being utilized.

Unfortunately, this current marketplace is also seeing an increase in the number of homes that are being appraised for a lower value than what they are being purchased for. This is as a result of several factors. First and foremost home prices have dropped in the last few months and many sellers have not yet adjusted to the market accordingly. Furthermore, there just may not be the documentable sales to support the price, even if everyone agrees that the value is justified and warranted. Finally, many borrowers are now using national banks that may not have a local understanding of the marketplace. These national companies hire large appraisal firms that may not have the best hands-on information of the local area.

This is especially true in certain neighborhoods where because of a strong desire to live within a desired area, or the need to buy in close proximity to a certain Synagogue, Church, other type of religious, social, or educational need that homes are worth considerably more. In many cases it becomes a real matter of supply and demand where homes on one block may be worth significantly more than comparable homes that are literally one block away. It is imperative to work with local bank or mortgage bank that is cognizant of these unique distinctions, and is willing to include that in the overall consideration of the loan review.

Appraisals for Home Buyers

In reality a home is worth what a typical buyer is willing to pay for it assuming it is an arms-length transaction. However, because a lender uses the home as collateral a formal appraisal is required to support the purchase or acquisition price. Furthermore a lender will then finance a certain percent of the appraised value or purchase price, whichever is less. For example, if a person is buying a home for $400,000 and it appraises at $500,000, the bank will only lend off the $400,000 number, and consideration will not be given to the excess value. In fact, the lender may question why the seller is selling at such a discount and will require supporting verification and documentation. Conversely, if the home appraises for $350,000 on a $400,000 sale, the lender will lend off the lower value, and similarly require a satisfactory explanation as to why the buyer is still proceeding with the transaction.

Without getting into the legal ramifications, it is for this reason that anyone buying a home should make certain that they carefully review their contract of sale with an Attorney. You should be sure it contains a mortgage contingency clause which does not require you to proceed with the transaction if you are unable to obtain mortgage financing at the given terms of the contract. At the same time however, a lower appraised value can give the buyer the ability to renegotiate with the seller and hopefully adjust the sale price to something that is more market appropriate. A competent mortgage advisor should be able to guide you as these issues arise giving you the many alternatives and options available to you.

The Appraisal Process

The exact process and procedures of the real estate appraisal are beyond the scope of this article and should be left to the experts. I did however want to highlight some of the factors that are utilized by appraisers as they try to determine market value. The appraisal institute has created standards for the analysis for Federally regulated residential mortgage financing:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Sales Comparison Approach

There are three main methodologies that are utilized by licensed appraisers to determine value, they are the Cost Approach, the Sales Comparison Approach, and the Income Approach. Specific to residential appraisals, the Sales Comparison Approach is typically the method used by appraisers to get the best indication of what a home is worth.

The sales comparison approach simply examines the price of similar properties that sold in the marketplace. These sales are analyzed and subsequently adjusted to account for differences in the comparables to the subject to best determine the value of the subject. While there is no exact science with this formula as appraisers can vary with their adjustments, this approach is generally considered the most reliable if adequate comparable sales exist.

Other Factors of Consideration

The appraiser will then present the report with the final market value to the lender. Photos will be taken of the homes exterior both from the front and back, as well as street scenes surrounding the home for a more broad perspective. In addition, if the house contains any enhanced improvements or notable upgrades inside the home, the appraiser will typically include such photographs as well. It is important to note that cleanliness of the home is usually not a factor of consideration at all. At the same time over-improvements in a home may not add too much to a homes value either. As an example, if a homeowner wants to spend $100,000 for a special imported custom kitchen that is turquoise colored, the appraiser will not give that full consideration, because a typical buyer may not appreciate or want such an obscure kitchen, and may even consider the need to replace it.

This is often the case with any over improvements that homeowners spend on bathrooms, tiling, or the like, which may not get the full benefit in an appraisal. Simply put, an appraiser is there to determine that if the bank needs to seize this property through a foreclosure, and then place it on the market for sale, what the going price would be for a typical buyer who will buy this home as-is.

How to Calculate Total Monthly Mortgage Payments

What is “PITI”?

PITI is an acronym lenders use to describe the different components that make up your monthly mortgage payment. It stands for: principal, interest, taxes and insurance. (It’s is important to note that the payments of taxes and insurance are also known as the “escrow” payment or portion)

Principal: This is the actual portion of the payment that goes to repay the principal balance of your loan. On a standard “self amortizing” loan, a portion of the principal is usually paid off with each mortgage payment thereby gradually reducing the outstanding balance you owe and increasing your home equity (the portion of the home you own). The principal component of each payment is typically very small in the first few months, but increases during the life of the mortgage as the mortgage balance drops. Some types of loans do not have principal payments, including interest-only mortgage, which does not include any principal repayment in the monthly calculation.

Interest: The interest is the amount a lender charges you for borrowing the money to buy the home. Initially, the largest part of your mortgage payment goes toward paying off the interest. However, as time goes by and you begin to pay off your mortgage, more of your monthly payment goes toward paying down the principal and less toward paying off the interest. (Your mortgage rate can change periodically if you have an adjustable-rate mortgage. It can also change if you renegotiate your mortgage or make a lump payment to lower the principal which will help save interest towards the end of your mortgage).

Taxes: Most homeowners also pay their real estate taxes as part of their mortgage payment. The lender passes these on to the local municipality to pay for community schools, roads, police and other municipal services. Depending on your actual Real Estate Tax amount, taxes can be a significant part of your total mortgage payment, and tax rates can vary significantly from area to area. So it’s wise to find out the EXACT local tax rate. The estimates we give are based on the estimates we obtain from you, the realtor, the appraiser, etc and are not 100% accurate until we get the title report and confirm it with your township.

Insurance: The fourth component of your payment is homeowner’s insurance, which gets collected by your lender and paid to your insurance company. Typical homeowner’s insurance protects your home and property against fire or other damage. You may need supplemental coverage for other risks. For example, you may need flood insurance if your home is in an area with a high risk of flooding. If you buy your home with less than a 20 percent down payment, you may also be required to have private mortgage insurance (PMI) to protect the lender from default.

To calculate your total PITI:

• Enter your current mortgage balance and the term or amortization period of your mortgage into the Approved Funding Mortgage Calculator to help you calculate the principal and interest components of your monthly payment.
  
• To calculate your property taxes, divide the estimated annual real estate taxes and divide your total by 12 (to be collected over per months)
  
• To calculate your monthly insurance payments, divide your total yearly premiums by 12 (to be collected over per months)
  

NJ Mortgage Assistance Sites

1. New Jersey Home Ownership Preservation Effort (NJ HOPE)
   

   If you are having trouble paying back your mortgage, help is available. Do not be embarrassed. Do not panic. But most importantly, do not do nothing. …
   www.state.nj.us/dobi/njhope/ – Cached – Similar
   

2. New Jersey Housing and Mortgage Finance Agency | Home
   

   NJHMFA, HMFA, Housing and Mortgage Finance Agency. … Foreclosure Assistance help for new jersey homeowners · http://www.state.nj.us/dca/hmfa/ …
   www.state.nj.us/dca/hmfa/ – Cached – Similar
   

   Show more results from www.state.nj.us
   

3. Home repair grants, Mortgage assistance + NJ: Foreclosure …
   

   Foreclosure Assistance: Please advise if any of the following links fail indicating which one by sending a reply to this post.
   mortgage-assistance-in-nj.new-jersey.aidpage.com/ – Cached – Similar
   

4. Local business results for mortgage help near New Jersey
   
5. New Jersey Mortgage Center – NJ.com
   

   NJ.com: Shop Jersey. … Latest Mortgage Rates: Check up-to-date rates from New Jersey mortgage lenders; Email Questions to Lenders …
   Mortgage Help Center …
   www.nj.com/mortgagecenter/ – Cached – Similar
   

6. Mortgage Help Center – NJ.com
   

   NJ.com: Shop Jersey. …
   Mortgage Center Find rates, compare loans and learn about buying a home …
   Mortgage Help Center …
   www.nj.com/mortgagecenter/index.ssf/helpcenter – Cached – Similar
   

7. Homeownership Assistance: New Jersey – HUD
   

   Need help buying a home? You may qualify for one of these programs. …
   New Jersey Housing & Mortgage Finance Agency (NJHMFA) …
   

   Atlantic – Bergen – Burlington – Camden
   

   www.hud.gov/local/nj/homeownership/buyingprgms.cfm – Cached – Similar
   

8. New Jersey Help For Foreclosures – FHA Mortgage Center.com Blog
   

   Sep 8, 2008 …
   New Jersey Help For Foreclosures. Homeowners who are struggling to make payments in New Jersey may have an opportunity to get out of their …
   www.fhamortgagecenter.com/…/new-jersey-help-for-foreclosures/ – Cached – Similar
   

9. NJ Department of Community Affairs
   

   Program rules may give housing administrators some flexibility to help families … The New Jersey Housing and Mortgage Finance Agency (HMFA) has many …
   www.nj.gov/dca/codes/affdhousing/affdhsgguide/index2.shtml – Cached
   

10. New Jersey Mortgage Guide | FHA Loans New Jersey, Home Mortgage
    …
    

    Find New Jersey Mortgage Lenders at Mortgage Lenders Plus.com. … lending laws in order to help protect New Jersey homebuyers from predatory lenders. …
    www.mortgage-lenders-plus.com/mortgage/new-jersey-mortgage-lenders.html – Cached – Similar
    

    
     

What’s in the Financial Reform Bill?

The broadest overhaul of U.S. financial rules since the Great Depression won final approval in the Senate on Thursday. Yet over 70 percent of Americans know nothing about the legislation.

By a vote of 60 to 39, the Senate gave final approval to a sweeping measure that tightens regulations across the financial industry.

In comments to CNBC Thursday, Democratic Senator Chris Dodd, a co-sponsor of the bill, noted that the sweeping measures passed by Congress won’t necessarily prevent a future financial crisis, but instead will “minimize the possibility” of another “near-meltdown.”

“The suggestion that any bill can stop future crises is ridiculous,” Dodd said. “The issue is whether we’ve got now the oversight council to keep an eye on what’s occurring.”

Also Thursday, President Barack Obama hailed congressional passage the regulation, saying it will provide greater financial security to Americans and would foster accountability.

“All told, this reform puts in place the strongest consumer financial protections in history and it creates a new consumer watchdog to enforce those protections,” Obama said in a press conference.

“Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes and there will be no more tax payer funded bailouts,” he continued. “If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy.”

Obama will likely sign the bill into law next week, the White House said.

The legislation, which had been opposed by banks, leaves few corners of the financial industry untouched. It establishes new consumer protections, gives regulators greater power to dismantle troubled firms, and limits a range of risky trading activities by banks in a way that would curb their profits.

The Senate vote caps more than a year of legislative effort after Obama proposed reforms in June 2009. The House of approved it last month.

Despite the landmark overhaul, 38 percent of Americans have never heard of the legislation and 33 percent have heard of it but know almost nothing about it, according to an Ipsos Public Affairs online poll. Another 18 percent said they know “a little bit” about the measure.

The Ipsos poll found 3 percent are very familiar with the legislation, and 8 percent are somewhat familiar.

Now that the bill is set to become law, here’s a rundown of the key elements:

TITLE I. Systemic Risk

A council of regulators chaired by the secretary of the Treasury would be created to monitor big-picture risks in the financial system. The Financial Stability Oversight Council could identify firms that threaten stability and subject them to tighter oversight by the Federal Reserve. The Fed and the council could break up firms that have not responded to earlier measures and pose an urgent threat.

TITLE II. Ending Bailouts

The bill would set up an “orderly liquidation” process that the government could use in emergencies, instead of bankruptcy or bailouts, to dismantle firms on the verge of collapse.

The goal is to end the idea that some firms are “too big to fail” and avoid a repeat of 2008, when the Bush administration bailed out AIG and other firms but not Lehman Brothers. Lehman’s subsequent bankruptcy froze capital markets.

Under the new rule, firms would have to have “funeral plans” that describe how they could be shut down quickly.

The Federal Deposit Insurance costs for running liquidations would be covered in the short term by a Treasury credit line, then recouped by sales of the liquidated firms’ assets. In case of shortfalls, costs could be further covered by claw-backs of any payments to creditors that exceeded liquidation value, and fees charged to other large firms.

The FDIC could guarantee the debts of solvent insured banks to prevent bank runs. But this could only happen if the boards of the FDIC and the Fed decided financial stability was threatened, Treasury approved the terms, and the president activated a rapid process for congressional approval.

TITLE III. Supervising Banks

The U.S. Office of Thrift Supervision, which was widely criticized in the run-up to the 2007-2009 credit crisis, would be closed and most of its duties shifted to the Comptroller of the Currency.

Banks would be barred from converting their charters to escape regulatory enforcement actions.

The FDIC’s deposit insurance coverage would be permanently raised to $250,000 per individual from $100,000.

TITLE IV. Hedge Funds

Private equity and hedge funds with assets of $150 million or more would have to register with the Securities and Exchange Commission, exposing them to more scrutiny. Venture capital funds would be exempted from full registration.

Investment advisers would have to manage assets of $100 million or more to be federally regulated, an increase from the present $30 million level. The change would shift some of the oversight for small firms from the SEC to the states.

TITLE V. Insurance

A new federal office would be created to monitor, but not regulate, the insurance industry, which is now policed only at the state level. The move would appease opponents of centralized regulation by keeping real power out of Washington’s hands, while giving big insurers that want a single regulator a foothold they might be able to expand from in the future.

TITLE VI. Volcker Rule And Bank Standards

Under a rule proposed by White House economic adviser Paul Volcker, the bill would bar proprietary trading unrelated to customers’ needs at banks that enjoy government backing, with some of the details of implementation left up to regulators.

Banks could continue to invest up to 3 percent of their Tier 1 capital in private equity and hedge funds, not to exceed 3 percent of any single fund’s total ownership interest.

Private equity and hedge fund interests above the new caps would have to be divested over time, under the Volcker rule.

In addition, the largest banks’ ability to expand would be limited by a new cap on share of industry-wide liabilities.

Non-bank financial firms supervised by the Fed would face limits on proprietary trading and fund investing as well.

Bank holding companies within five years would have to stop counting trust-preferred securities and other hybrids as Tier 1 capital, a key measure of a bank’s balance sheet strength.

Firms with assets under $15 billion could count current holdings of hybrids as Tier 1 capital, but not any new ones.

The bill would also require credit exposure from derivative transactions to be added to banks’ lending limits.

In addition, bank capital standards could not sink below those already on the books, and a 15-to-1 leverage standard could be imposed on firms that threaten financial stability.

The bill would also make bank holding companies follow higher capital standards observed by bank subsidiaries.

Analysts expect the Volcker rule and related changes to cut profit at firms such as Bank of America, Goldman Sachs, Morgan Stanley and JPMorgan Chase.

TITLE VII. Over-The-Counter Derivatives

The bill would impose regulation for the first time on the $615 trillion over-the-counter derivatives market, including credit default swaps like those that dragged down AIG.

Much OTC derivatives traffic would be rerouted through more accountable and transparent channels such as exchanges, electronic trading platforms and central clearinghouses.

Banks would also have to spin off the riskiest of their swap-clearing desk operations, but could keep many swaps in-house, including derivatives to hedge their own risks.

Some end-users of OTC derivatives would be exempted from central clearing requirements. Swap-dealers’ ownership interests in clearinghouses would be limited.

JPMorgan, Bank of America and other commercial banks could face structural changes from the bill, while it could boost business for clearing and trading venues such as CME and Intercontinental Exchange, analysts said.

TITLE VIII. Payment, Clearing And Settlement

Supervision of firms that settle payments among financial institutions would be broadened.

TITLE IX. Protecting Investors

On brokers and how they interact with investors, the SEC, after a study, could order brokers who give investing advice to follow a higher standard of client care.

On credit rating agencies, a new SEC office to regulate the agencies would be created. The SEC would have two years to study the widely criticized industry. Afterward, unless it comes up with a better idea, the agency would have to implement a plan to form a government panel to assign agencies to debt issuers for initial ratings of new structured securities.

Rating agencies would also be exposed to more legal risk.

On debt securitization, lenders that make loans and then sell them off as securities would have to retain at least 5 percent of the loans’ risk on their books, unless the loans meet certain standards for reducing risk.

The SEC’s enforcement powers would be beefed up and its funding levels raised.

On executive pay, shareholders periodically could cast non-binding votes on top managers’ compensation packages, while their role in electing directors would also be enhanced.

Corporations would have to allow claw-backs of executive pay if it was based on inaccurate financial information.

TITLE X. Protecting Consumers

A new government watchdog would be established to regulate mortgages, credit cards and other consumer financial products.

The Consumer Financial Protection Bureau would be a separate unit within the Fed and funded by the central bank. It would consolidate consumer programs now dispersed across several agencies. Its director would be nominated by the president and confirmed by the Senate.

The CFPB would answer, in some instances, to the Financial Stability Oversight Council. Car dealers, who fought for and won an exemption, would be beyond the watchdog’s reach. Fees charged on debit-card transactions would be limited.

TITLE XI. Federal Reserve

The Fed’s emergency lending would be exposed to congressional scrutiny, but not its decisions on interest rates. New limits would be placed on the Fed’s so-called 13(3) emergency lending authority

TITLE XII. Financial Access

Programs would be supported to help people without bank accounts to open them and to improve access to small loans and enhance financial literacy.

TITLE XIII. Funding

The costs of the reform bill would be met by funds raised from shutting down the $700 billion Troubled Asset Relief Program, and increasing the amounts of money that banks must pay to insure their deposits.

An earlier funding plan that targeted a new tax at large Wall Street banks and financial firms was dropped after some Senate Republicans complained about it.

TITLE XIV. Mortgage Reform

Mortgage lenders would have to assess borrowers’ ability to repay before making a loan. Pre-payment penalties against borrowers and bonuses to lenders known as “yield spread premiums” would be barred, with violators facing penalties.

Other new protections would be set up for borrowers aimed at ending predatory and abusive mortgage lending practices.

Source: Reuters via CNBC

Don’t chase rates — find the right mortgage too

A look at the various scenarios and what might work best for you

(AP) NEW YORK — For those who can qualify, it’s one of the best times to get a mortgage.

Last week, rates for 30-year fixed-rate loans dropped to 4.57 percent, the lowest level on records dating back to 1971, Freddie Mac said.

And for some who missed out on the government’s homebuying tax credit, the rates may more than make up for that lost $8,000.

“A tax credit is immediate gratification,” said Leonard Baron, a professor of finance at San Diego State University, “but long-term, with rates this low, you can get much more value.”

But which loan is right for you? The mortgage game has changed since the housing bust and more rules have been and are being added. One factor is for sure now: Your credit score should be at least 620 or you’ll have a hard time finding a loan. What varies is how much you have for a downpayment.

Buyer No. 1: You have a 20-percent downpayment and expect to retire in the house.

Take out a 30-year fixed-rate loan, the most popular type of mortgage. The interest rate stays the same over the life of the loan and right now, that rate is at historical lows.

“This loan is for someone interested in stability and security,” said John Stearns, mortgage banker at American Fidelity Mortgage Services Inc. in Mequon, Wisc.

Buyer No. 2: You have a 20-percent downpayment, but plan to move into another home down the road.

Consider a five-, seven- or 10-year adjustable-rate loan, which has a fixed rate for a set period and then adjusts higher after that time. These loans carry a lower initial interest rate than the 30-year fixed-rate, so you save money over the fixed-rate period. After the fixed-rate period ends, borrowers typically refinance into another loan to avoid the adjustable rate.

Rates on five-year adjustable-rate mortgages averaged 3.75 percent this week. That was the lowest on Freddie Mac’s records, which date back to January 2005.

ARMs got a bad rap during the housing bust because most people who took out two- or three-year ARMs got caught with an unaffordable payment when their rates reset. They couldn’t refinance into a fixed-rate loan because home prices had tanked and credit tightened up.

That risk still exists, but starting in September, lenders will have to evaluate whether borrowers can make payments after the rate reset on adjustable-rate loans backed by Fannie Mae.

Buyer No. 3: You have at least a 20-percent downpayment for a house worth more than $729,500.

You need a so-called jumbo loan which is not backed by Fannie Mae and Freddie Mac. That means any lender who makes a mortgage above that amount will have to keep the loan on its books.

To compensate for that risk, lenders charge higher interest rates than a conventional mortgage. The average rate for a 30-year fixed-rate jumbo loan fell to 5.48 percent this week, the lowest level ever in Bankrate.com’s survey.

Buyer No. 4: You have more than a 20-percent downpayment.

Depending on how much you’re putting down, you might consider a 20-year fixed-rate mortgage. Rates are sometimes, but not always, lower than a 30-year fixed-rate by about a quarter-point. However, because the loan term is shorter on the 20-year loan, the monthly payment will be higher than a 30-year mortgage.

For example, the monthly payment for a 20-year fixed-rate loan for $300,000 is $1,898. It’s only $1,565 a month if the loan is 30 years. But over the life of the loan, you’ll save about $108,000 in interest.

“Most people are interested in a lower monthly payment,” Stearns said.

Buyer No. 5: You have less than a 20-percent downpayment.

Consider a mortgage insured by the Federal Housing Administration, or FHA. A borrower needs to put down only 3.5 percent of the purchase price.

After the housing market slumped, the FHA became the major source of funding for first-time homebuyers. It insured about 24 percent of new loans in the first quarter, according to Inside Mortgage Finance, a trade publication.

Or, consider a mortgage loan that isn’t backed by the FHA, which only requires 5 percent down. However, you will pay mortgage insurance each month, which can add an extra $25 to $50 to your monthly payment depending on your credit score. Private mortgage insurance protects a lender against losses when a borrower defaults. If you have very good credit, this option may be cheaper.

Buyer No. 6: You have a gift downpayment.

While one in five first-time homebuyers used a gift from a relative or friend for a downpayment last year, there are some rules to navigate.

Gift money can be used for a downpayment on a conventional loan only after the borrowers use their own money to make the 5-percent minimum. Gift money can pay for closing costs or prepaid expenses like property taxes and insurance that are put into an escrow account. Banks typically check two months’ worth of bank statements for unusually odd deposits that could be considered gifts. However, if the gift was deposited six months before, a bank might not notice.

However, FHA mortgages allow borrowers to use a gift to make the 3.5-percent minimum downpayment. The gift must be documented in writing and the lender may ask for proof of deposit.

Buyer No. 7: You don’t have a downpayment.

Your options are limited.

If you are a veteran or the surviving spouse of one, consider a mortgage backed by the Department of Veteran Affairs. These loans offer 100 percent financing without private mortgage insurance at competitive mortgage rates.

If the home you’re buying is in a rural area as defined by the U.S. Department of Agriculture, you may qualify for a USDA home loan, which offers 100 percent financing without adding on private mortgage insurance. The USDA aims to help lower-income households get home loans at reasonable rates.

Source: Associated Press

Post: Shmuel Shayowitz, Approved Funding

________

For Immediate Release: B of A Charging Fees for Monthly Statements

Bank of America Corp. is charging some customers to receive their monthly statement in the mail.

The $8.95 monthly fee is only applied to one type of account for the moment, and only in Georgia, but the Charlotte bank is planning to introduce the product in other markets soon as a replacement for its popular student checking account, which has no monthly fees when opened online.

Though B of A would not be the first U.S. bank to take an aggressive stance against paper statements, it is the biggest to start charging for them. And at a time when overdraft fees and interchange from debit cards are both under fire, financial companies are eager to find new sources of recurring revenue.

Source: American Banker

LOS ALTOS, Calif.—No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago—like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios—that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac , the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

This story originally appeared in the The New York Times

URL: http://www.cnbc.com/id/38163917/