Dan's Papers - August 1, 2008

In the dark world of the mortgage mess that has six out of every 1,000 homes in the United States in the foreclosure process, there is a bright light in the distance that isn't an oncoming train. Positive actions were taken to help the real estate market when New York State Governor Paterson signed into law legislation introduced by Assemblyman Fred W. Thiele and co-championed by Assemblyman Marc Alessi and Senator Kenneth LaValle that exempts first time buyers from paying the 2% Real Estate Transfer tax (which funds the Community Preservation Fund). The legislation states limitations: The home must be less than $660K, and the combined household income of the buyers must be under $97,100. On a $660K home, $410,000 (the amount above the CPF's $250,000 untaxed benchmark) would be taxed at 2%, adding $8,200 to the buyer's closing costs. The new law wipes that amount off of the balance sheet.

The legislation helps new buyers step into home ownership and perhaps gives a little boost to one end of the sluggish real estate market. Although according to East Hampton Town & Country Real Estate Agent, Beth Troy, "Properties under $1 million are the hottest commodities right now. They are very much in demand." (Troy has sold six houses in the last 10 months at that under $1 millon price point.)

Scott H. Wilson, Director of Land Acquisition for the Town of East Hampton said that the original tax, "was never really meant to tax first time buyers, and the new rule is a good thing." (Assemblyman Thiele deserves to be applauded for this feather in his cap.)

While there will be mortgage help to new buyers under the First Time Buyer exemption, strict financial disclosure systems will be in place to insure no one incapable of owning a home slips through the process.With the new official bank rate for "Jumbo" home mortgages officially reaching 8%, the effect on Hampton's real estate is not as favorable. A Jumbo home mortgage as defined by FNMA (Federal National Mortgage Association), presently starts at around $300K and goes up to around $730K. Although nationally, these loans are not given out regularly, due to Hamptons home prices, they are part of almost every deal out here. Melissa Cohn, founder of Manhattan Mortgage, said, "If you shop around there are still banks that offer Jumbo 30-year fixed rates mortgages at 6.75%." However, Cohn added, "No income, no doc - all those loans are gone. Banks are going back to the business of lending the old fashioned way, which will clean up the market place."

But will this affect sales? One real estate agent who preferred not to go on record said, "Yes. It kills deals with those who probably weren't qualified but were willing to try and speculate when the market was rising quickly. Now there is just no way, so only the solid buyers are buying - mostly on their terms. But solid buyers don't put in ridiculous insulting offers, which is good."

So as the summer season hits its high point, these developments will have both a positive and sobering effect. First time buyers whose time has come to buy a home to raise their families are poised to find a great deal, and will not have to pay that 2% CPF transfer tax. Buyers who are looking for big time summer homes may be paying more for financing, and maybe they can afford it. And for those whose incomes are not so easily documented and want to buy, tougher times are ahead. It's like the saying, "Things are never as good as they seem when things are going good, and things are never as bad as they seem when things are going bad."

Governor Paterson signed into law new amended rules on how CPF funds can be used by towns to purchase lands and administer the lands and buildings on the acquired properties. Wilson, reading the actual signed document for the first time, acknowledged there were some language changes from what was agreed to at meetings he attended. But he felt the changes were minimal and generally in line with what Cabot and McGintee had signed off on. McGintee's office had told this reporter they believed they received 99% of what they wanted in the new agreement.