I have received a nasty-gram from USAA about this post.  They aren’t very happy about my disclosures.  They have pointed out that some of my information is inaccurate, in their eyes, while admitting to most of it, or choosing to read my words in a way that suites their purpose.  The purpose of this post is to explain to consumers why I will not participate in their program, nor will I work for a company that does.  If a consumer chooses to be a part of their incentive program, that is their right.  It is my right and duty as a licensed REALTOR(R) to offer the best services to my buyer clients without the intervention of a bank.  If you would like more information about their incentive programs, go to their websites and look it up.

It seems that as the market begins to show real signs of stabilization, more and more buyers are looking at purchasing a home.  In recent weeks I’ve received several calls from perspective buyers asking about my services and wanting to hire me.  For the first time in 2 years, many of these buyers are bringing up the USAA and NAVYFED Incentive Programs.  For those readers who are not familiar with these incentive programs here’s a recap.  If a buyer or seller uses a USAA or NAVYFED Preferred REALTOR(R) and obtains a USAA or NAVYFED loan product, the buyer will enjoy a cash incentive at closing.  The cash incentive is based on the purchase price of the home and changes depending on how the market is doing.  Most cash incentives are around $1000.  Seems like an awesome deal, doesn’t it.  However, cash isn’t free and banks aren’t in the business of giving money away.  USAA and NAVYFED are not required to make many disclosures about this program to the consumer.  So, I will make the disclosures for them.

The buyers calling me are a little shocked to find out that I am not a USAA or NAVYFED Preferred REALTOR(R) and if they choose to be in that program they have to choose a buyer’s agent from specific brokerages in the area.  So, if they want to be in the program, USAA or NAVYFED will require them to use a brokerage and agent they may not have chosen on their own?  Yes.  To top it off, not all agents in a preferred brokerage are certified or qualify to be in the program.  How does an agent qualify for the program?  The agent has to take classes to be certified for the program.  Some agents are told they must pay a few hundred dollars for the privalege of taking the class.  This fee can be charged yearly.  Is the training good?  If you are not a disciplined agent, yes, the classes can be beneficial.  They teach you how to make yourself accountable to your clients.  But more important to USAA and NAVYFED, they teach the agent to be more accountable to them.  It’s the agent’s job to make sure the buyer doesn’t stray from the USAA or NAVYFED loan product… even if another lender has better options.  An agent can lose their certification by not closing enough business with USAA and NAVYFED.  So, who does the agent work for?  The buyer or the bank?  As a buyer’s agent I have a legal obligation to look out for my client’s best interest.  How can I do that with a big bank breathing down my neck every other week?

Let’s move on to another issue.  Where does the incentive money come from?  As I stated earlier, banks don’t just give money away.  It has to come from somewhere.  If it’s not coming from them and it’s not coming from the consumer, then it must be coming from the agent.  Yes, in order to be a Preferred REALTOR(R), the agent must agree to pay USAA and NAVYFED a portion of their commission to cover the incentive program.  Some consumers may say, “$1000 isn’t alot for an agent to give up if the bank is funneling clients to them.”  It’s not $1000.  The agent actually gives up upwards of 47% of their commission to participate.  If a house costs $250,000 and a 3% buyer’s commission is being offered by the seller, the commission is $7500.  If an agent is paying the highest referral fee they would be giving the bank $3525.  The consumer is only getting $1000.  Who gets the rest of the money?  USAA and NAVYFED.  They are getting the equivalent of a loan origination fee out of the real estate agent.  By the way, I’ve just made 2 disclosures for these banks.  1.  The money doesn’t come from the bank, it comes from the agent.  And 2.  The bank is not required to tell you what they do with the overages.

Here’s my last disclosure about this program; and this only has to do with USAA.  If your loan is not a jumbo loan, roughly $625,000 and over, you aren’t getting your mortgage from USAA.  This can account for the crappy service you receive.  The mortgage is actually coming from PHH.  PHH Mortgage is a “mortgage outsourcing solution.”  Yeah, otherwise known as a third party originating loans under someone else’s brand.  This is NOT disclosed  to USAA mortgage clients.  When most consumers are getting a USAA loan, they aren’t actually getting a USAA loan.  They are calling into a large call center and becoming a number on a file.  I can’t tell you how special I feel when I become a number at a call center.  You won’t meet your loan officer which limits the accountability needed in today’s real estate transaction.  I’ve actually been told by a PHH loan officer, working under the USAA name, that my client’s file had been placed on the back burner while she dealt with larger loan amounts for others.  Okay, I’m paying a company thousands of dollars to treat my buyer like crap?  How does this make sense?

In case you missed it, I don’t like the USAA and NAVYFED Preferred REALTOR(R) programs.  It’s not because I’m jealous that other agents are getting the clients.  I’ve actually had many clients opt out of the program in order to work with me.  I don’t like the program because it is dishonest.  If the bank thought the program was on the up and up, they should have no problem disclosing all aspects of the program.  They actually forbid Preferred Agents from disclosing these things to consumers.  I also believe that once an agent starts losing money on a transaction, even the most ethical and fantastic agents, customer service begins to slip.  It’s the difference between a server at McDonald’s and a server at Old Town Steak and Seafood.  You do your job better when you know you will be rewarded for your work.  The policies of the program also don’t allow me to carry out my fiduciary duties.  I can’t be loyal to a bank and be loyal to my client.  One of them has to lose out.  In my world, it will always be the bank.

** It would only be prudent for me to disclose that I was banned from being a USAA Preferred Agent 4 years ago for expressing my dislike for how my client was being treated by USAA on the internet.   I took to Twitter and tweeted that I hated USAA.  USAA contacted my broker and demanded I be sensored.  I chose to work for another broker. **

Please note:  The guidelines discussed in this article apply to the properties I handle leasing for, in the Buffalo, NY, Amherst, NY, Williamsville, NY, and Grand Island, NY areas.  There is even some flexibility on a complex to complex basis, so please keep these in mind as GENERAL guide lines.

So, what is a credit report?  A credit report is an organized list of all of a person’s credit related activities, broken down by account.  It is updated monthly with balances, late payment notices, collection accounts, hard inquiries, contact information, and much more.  Credit reports can be obtained from all 3 bureaus (Equifax, Trans Union, and Experian) at www.annualcreditreport.com once a year for free.  By pulling one bureau’s report every 4 months, credit can be checked up to 3 times per year for free.  A credit score is a number value assigned to a credit report, based on repayment history, debt to available credit ratios, length of time accounts have been open, and much more.  The process of exactly how the number is calculated is kept fairly secret, but the most recent information provided at MyFICO.com states that it is based 35% on payment history, 30% on amounts owed, 15% on the length of time credit has been established, 10% on new credit, and 10% on types of credit used.

What are the credit red flags that will impact rental ability?

Every landlord or property manager looks at things a little bit differently.  Several factors are taken in to account, some of which have nothing to do with credit!

First and foremost, having a secure job and a solid rental reference will help significantly when hunting for an apartment.  Landlords want to know that a tenant can pay not only the security deposit and first month’s rent, but also the rent EVERY month!

The overall credit score is a good place to start.  The higher a credit score, the better.  Scores range from 300-850, with about 60% of the country falling between 650 and 799.  The median score in the United States is a 723.  Improving other factors on your credit report is a great way to improve an overall score.

The number of positive and negative accounts open is an important factor to consider as well.  Generally the number of positive accounts isn’t as important as the number of negative accounts.  Positive accounts show the ability to have and manage credit appropriately, but negative accounts impact more deeply by showing the inability to handle credit.  An account would show negative if it is overdue, over limit, or has gone to collections.

The debt to available credit ratio factors in as well.  Someone with plenty of available credit will generally rank higher than someone who is near the credit limits on their accounts.  Being OVER the credit limit on an account is automatically a red flag.

When a credit report is pulled, it shows the name of the creditor, when the account was opened, the limit, the balance, the high balance, any past due amount owed, and the status of the account (current, over due, closed, etc).  These accounts will all be looked at to determine an applicant’s credit worthiness.

Seeing collection accounts on a credit report can sometimes be a red flag.  Many landlords tend to be more lenient toward medical collections, but look more strongly on utility collections, phone bill collections, cable/satellite collections, and other types of collection accounts.  A utility collection is a major red flag because a utility can’t be established in that persons name until the collection account is cleared.  Most rental applications are turned down on that basis alone.

Be proactive when discussing credit with a landlord.  Having perfect credit is nearly impossible in this economy.  However, showing that steps have been taken to improve a credit score will help significantly.  Some landlords will also be willing to overlook credit issues if the applicant is willing to pay additional rent or security deposits up front.

If an application for an apartment is denied because of credit, the landlord or property manager is required by law to mail a letter with the reason why, as well as provide contact information for the bureau which provided the credit report.  This letter can then be used to obtain a free copy of the credit report from that bureau.

Knowing what your credit looks like before you go hunting for an apartment can save you a lot of headaches in the long run.  Be ever mindful of your actions, and how they can impact you.  Doing so will help ensure you have good credit, and the ability to grab that great apartment!

From WalletPop:

Tax Credit: 10% of cost up to $500 or a set amount between $50 and $300

• HVAC equipment, including air source heat pumps, central air conditioners, advanced main air circulating fans, furnaces and boilers
• Insulation, including bulk products like batts and rolls, and air-sealing items such as weather stripping, caulk and house wrap
• Metal and asphalt roofing
• Non-solar water heaters
• Windows, doors and skylights (credits for windows are capped at $200)
• Biomass stoves with thermal efficiency rating of at least 75%

Tax Credit: 30% of cost with no upper limit

• Geothermal heat pumps
• Solar energy systems, including solar water heaters and solar panels
• Small residential wind turbines, with a nameplate capacity of no more than 100 kilowatts

Tax Credit: 30% of cost, up to $500 per .5 kW of power capacity

• Fuel cells, with efficiency of at least 30% and capacity of at least .5 kW

To receive the energy tax credits you deserve at tax time next year, hold on to receipts and Manufacturer’s Certification Statements for the items you install, and plan to file 2011 IRS Form 5695. For more information on qualifying products, check the product eligibility details posted via the Alliance to Save Energy and Energy Star.

As a disclaimer, I am not an accountant.  You should consult yours to verify your specific tax obligations.

John Compagno has published an article in REALTOR magazine which explains the use of the 1099-MISC in greater detail, including when you need to issue the form, what you need to do to ensure compliance, and the penalties for filing late.  I have uploaded a copy of the article as it was published, for your reading pleasure.

In most cases, your property manager will handle the issuing of 1099-MISC forms on your behalf.  Be sure to check with them to see what forms they issue on your behalf.

Article reprinted from REALTOR® Magazine February 2011 issue with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2011. All rights reserved.

Secured Debt is debt backed by something tangiable.  Good examples of a secured debt are your vehicle and your mortgage.  There is a physical good that can be reposessed or foreclosed on to recoup losses by the lender in the event you fail to make the payments.

Unsecured Debt is debt without a tangiable asset to back it.  The best example of this would be a credit card.  A regular credit card has nothing to back it, so the creditor can only attack your credit score and not your home.

There are secured credit cards, where you pay a specific amount up front to the creditor, for instance, $500.  You are then given a credit card with a credit limit of $500, secured by the money you have already fronted to the creditor.  This would be considered a secured debt.

Hope this helps!

This move wasn’t just an attempt to be a good neighbor, however.  The two giants are required to comply and allow tenants to stay in properties “where permissible” as part of the $700 billion bail out plan.

This is a smart move on their part, because it will prevent, or at least slow, the decline in condition of the properties and prevent further strain on the housing markets.

My main concern is that of ability.  Fannie Mae and Freddie Mac aren’t set up to manage properties in the landlord / tenant sense.  This means that they will either have to find property managers, pretty much all over the country, or hire maintenance contractors for every issue that springs up as a result of this move.  If a property is already in poor condition, this could result in a serious amount of money being spent to upkeep a property that the previous owner didn’t see fit to keep up.  In addition, not using an ethical property manager can result in serious price gouging.

However, Keeping tenants in the property may make them easier to sell.  In addition, tenanted properties tend to resell for more money.  The balance just needs to be reached between amount invested and return on investment, so that potential investors will want to jump on these properties in a timely fashion.

Overall, my opinion is that this is a smart move because of the reduction of diminishing value due to the homes being empty, and the potential ability to turn the properties around quickly.  The ability to manage from a distance is just part of doing business, similar to a California investor owning property in New York.

This was forwarded to me by my boss, so I don’t know who to credit.

One item that I did note is that the bill has now passed.  Included in the bill was an increase of the FDIC’s deposit insurance from $100,000 to $250,000, which I had mentioned the proposal for in a previous article.

With the public failures of both Washington Mutual (Thursday) and Wachovia (Monday), many people are looking at this on a more speculative level.  While many people don’t carry nearly $100,000 in their bank accounts, many busiensses do.  It is estimated that in 1991, 82% of deposits were protected while today only 63% of deposits are protected. [CNN Money]