Let’s set the scene, Mr. Smith a transferee with XYZ Corporation finally sells his house after 180 days on the market. His net proceeds from the sale of his home, after paying off the mortgage, is $2,000—in essence, break-even.

With the credit crunch tightening product guidelines, the down payment requirements have made a significant impact on qualifying for a loan. The no and zero down payment products have been eliminated; consumers that previously qualified for 5% down now qualify for 10% down.

Mr. Smith has a small amount of savings he could use for a down payment, not nearly the 10% down he was approved for at the beginning of his relocation.

As credit tightening continued, products like second mortgages and Home Equity Lines of Credit have been significantly reduced and in many cases eliminated from purchase transactions. These products would typically assist the buyer by providing combination loans (e.g. 80/10/10) piggybacked with a first lien loan as a way to decrease payments, avoid mortgage insurance and provide a lower Loan to Value on the first loan.

Private Mortgage Insurance is still a viable way to provide a less than 20% down payment loan, but mortgage insurance guidelines have also changed and now require higher credit scores and higher premiums. With the combination of falling home sale values decreasing the amount of money available for a down payment, higher down payment requirements, time constraints and more costly mortgage insurance—many transferees are left confused, frustrated and experiencing less satisfaction during the relocation.

Mr. Smith’s situation has a happy ending. He qualified for a 3% down payment with a FHA loan. The monthly payment and down payment requirements fit his budget and he was able to close on his new home on time.

His co-worker Mr. Jones completed a short sale on his home sale and faces other challenges we will discuss next time.

If you would like more information about FHA loans, you can call one of our loan counselors at 800.531.3837.

Group moves occur for a variety of reasons and in most cases can be treated (relative to the IRS rules) exactly as other non-group moves. A group move, however, may not meet the IRS 50-mile test. In that case, consideration should be given to providing a short distance group move policy. The IRS 50-mile test generally requires that in order for certain costs associated with a relocation to be excludable from income, the distance between an employee's old residence and the new work location must be 50 miles greater than the distance between the employee's old residence and the old work location.

It is not uncommon for companies to change office locations, or have multiple facilities in the same geographic area, where the distance between an employee's old and new work location may or may not meet the IRS 50-mile test. For example, in larger cities, where a move may be from one side of a metropolitan area to the other, it is likely that the IRS test will not be met. These "short distance" office relocations, however, can significantly impact the commuting patterns of employees. It is highly unlikely that employees impacted by an office move, where their commute could be increase by up to 49 miles, will simply accept an "IRS explanation" as to why they are not entitled to relocation benefits. Employees will often make their feelings known and ask management to consider providing some or all of the relocation benefits provided in a standard regular or "long distance" employee transfer.

The relative distance that a short distance group move involves, necessitates a closer look at the specific features provided in a company's relocation policy to see if benefits should be offered for a short distance group move. Properly structured, short distance group move programs reduce absenteeism, attrition and administrative time, and are often far less costly than a normal relocation program.

For more information about short distance relocation packages, visit our relocation resource library and view our white paper.

When localizing an expatriate, there are several compensation items that need to be considered. Here is a checklist to use a guideline:

1. Base salary. Should the employee be "re-priced" to the local market pay structure? Should a premium be offered for international experience? Many organizations move the employee to local salary levels. If there is an extreme difference in salary levels (either lower or higher), however, a phased-in approach is often carried out. On the other hand, oftentimes organizations justify paying an expatriate on a higher pay structure because of his/her international experience and business relationships with the home office.

2. Retirement benefits. Because retirement plans, social security and pensions do not cross national boundaries, this is often the most difficult item to transition. Often employees have expectations to remain on their home country retirement program, but unfortunately there is no typical solution to bridge the gap between country plans. Some basic alternatives include retaining the employee in a tax-qualified home country plan, simply transferring to the local plan or using an umbrella-funded plan.

3. Income taxes. Normally, the expatriate will simply transfer to the local tax system. This is not a problem for most of the world. American workers, however, are put in a difficult situation because they are taxed on a worldwide basis. Many organizations will continue the "tax equalization" process on an as-needed basis to prevent double taxation on American expatriates. Employees of other nationalities do not require such assistance.

4. Housing. It is recommended that organizations remain flexible regarding host country housing because many factors come into play when deciding how to handle housing for the expatriate. In many locations throughout the world, expatriate housing is vastly different than local standards and expectations. In some cases, it may be unreasonable to expect an expatriate to move into a local neighborhood or local style housing, e.g. Mumbai, Beijing, Jakarta, etc. Therefore, if the expatriate is moved to the local salary structure, a housing allowance may be needed to subsidize continued living in expatriate style housing. Other issues that arise with housing tax issues, family matters, property ownership laws, home search assistance and moving costs.

5. G&S differential/assignment incentives. In locations where assignees receive a G&S differential, the common practice is to immediately stop the allowance. Other options include a phase-out or lump-sum buyout, although it is rare for companies to continue to pay a G&S allowance beyond the effective localization date. Other assignment incentives such as mobility premiums, hardship allowances, etc. are also normally stopped upon conversion to local status.

6. Education for dependent children. After housing, this item is the most commonly subsidized cost after an expatriate is localized, especially if the local schools are inadequate based on international standards or if the host country language is an issue. To alleviate the problem, organizations should consider continuing education coverage, or pay a percentage of the education costs for one to two years.

7. Health care. Health care standards and costs vary greatly in different parts of the world and is a priority issue for most employees and their families. Normally, localizing employees will simply transfer into the local health care system, but concerns will arise if the health coverage in the new location is of a lower standard than in the home location. This will be a costly change for an employee coming into the United States, where typically the health care is more expensive. Because of their time spent in the host country, a localized employee will most likely be aware of the issues, and therefore be in a position to make appropriate decisions.

Finally, localization may subject the employee and the company to various employment laws and regulations that apply to employees hired by local companies. It is important to speak with a local employment counsel to understand the legal effects and ramifications of localization, including subjecting the company to stringent employment laws in some European countries.
Localizing expatriates can be a complicated process and is not as simple as transferring expatriates to a local compensation package. By having a strategic plan in place, companies can anticipate potential localization issues and make the process as efficient as possible.

The decision to relocate an employee or new hire is the result of a great deal of effort and evaluation by a company and then by the prospective transferee. Agreeing to relocate at the request of an organization is not always an easy decision for an individual and his/her family to make. When describing your company’s corporate relocation policy it is important to remember that no matter what the circumstances are, agreeing to relocate will begin a stressful and sometimes life-changing process for most transferees. When crafting the relocation policy it is advisable to look beyond just describing the level of benefits that will be provided. You should also consider if the policy will assist and support the transferee when it is examined at the start of the relocation.

When writing a relocation policy there is a checklist of things to keep in mind when setting the right tone:

Optimistic Empathy
Start your company’s relocation policy with a supportive and positive welcome or introduction. Recognize what your company is asking transferees to do and acknowledge what they may face during the relocation process. Let the transferee know that your company understands the experiences of other transferees that have preceded them. Point out that understanding and following the relocation policy will minimize the disruption to the lives of the employee and their families. Close the introduction with words of appreciation and thanks for accepting the relocation.

Rational Processes and Requirements
When describing a process or requirement in your company’s policy, include the reasons behind the wording. Letting the transferee know the “why” can often increase voluntary policy compliance and reduce the level of enforcement needed. While relocation is a complex process and there are a number of hard rules that need to be followed, the tone of the policy as being one of mutual benefit is critical. The key is to avoid setting a negative and controlling tone that may offend the reader and create a pessimistic view of the relocation process and even perhaps of your organization.

Clarity and Firmness
A policy needs to be both clear in what it says and firm in how it says it. A policy should not give the impression that the components are subject to personal interpretation and/or can be negotiated. Some policies even state up front that the company is ”…please to provided you with a quality relocation program and exceptions are not anticipated.” While the tone needs to be supportive, the policy must still clearly state what benefits will or will not be provided. If the company style/format guidelines permit, write the corporate relocation policy in the second person voice. Using the pronouns “you” and “your” adds a personal tone to the policy. It also assists the employee in understanding what processes and procedures he or she must follow.

Mortgage expectations in the United States have changed as a result of the current lending market, and transferees will face a different lending process from what existed only a few months ago. While it is still easier to get a home loan today than it was eight years ago, transferees should be aware of several changes so they can avoid mortgage surprises.

"Transferees should be encouraged to be pre-approved and speak to a mortgage counselor once they accept a relocation, even if they are not yet ready to purchase a home," says Rick Hoover, director of client services at SIRVA Relocation. "A credit check can be completed up front, which allows transferees to be proactive in addressing any issues. They should also be prepared to provide relevant financial documentation, as programs that allow no, low or limited documentation have disappeared or been drastically curtailed in most areas."

In addition, transferees should also expect to buy within their salary range, since the use of projected bonuses or incentive pay is no longer acceptable. They should also expect to make a down payment, as zero down loans are not as accessible. Making a down payment-even a small one-also lowers the opportunity for negative equity situations in the future.

Another significant change is the availability of certain types of loans. Jumbo loans are now more restrictive than smaller conforming loans, and as a result, executives who may have been approved for jumbo loans last year may no longer qualify. Also, combination loans-such as 80/10/10 or 80/20 loans-which many transferees have used to avoid mortgage insurance or as a bridge loan, are more restrictive than ever. Pricing and underwriting guidelines have made these options less favorable, causing mortgage insurance to once again be more prevalent than in the recent past.

"Mortgage lending changes regularly, and it is important that transferees have access to a knowledgeable resource to answer any questions," continues Hoover. "SIRVA has mortgage counselors available to work with transferees within a company's relocation policy parameters. They can walk transferees through various lending options and help determine the right loan for them based on several factors, including risk levels, cost, credit qualification and housing needs."
Hoover emphasizes that if companies conduct their own counseling with employees, they should stress that transferees talk to a lender at the beginning of the process, even if they don't intend to purchase a home right away. This will help transferees better understand what will be required once they are ready to move forward. 

Regardless if transferees work with a SIRVA Mortgage counselor or another mortgage professional, they should have the proper financial documentation available before beginning the lending process. "Underwriting guidelines can change daily," explains Hoover. "The more educated transferees are about the process, the better prepared they'll be."

For more information about the latest mortgage trends visit Paul Klemme's Blog, "The Mortgage Insider" or visit our resource library to view our recent Webinar, "Today's Mortgage Industry and its Impact on Relocation."

According to the latest forecast by the National Association of Realtors® (NAR), over the next few months, existing home sales in the United States are expected to hold fairly steady, then rise later in the year and continue to improve in 2009. NAR reports existing home sales for 2007 totaled 5.65 million, but projects home sales to edge up to 5.70 million this year and reach 5.91 million in 2009, which is still well below the 6.48 million units sold in 2006.

New construction home sales will continue to decline. According to the Association, new-home sales were reported at 770,000 for 2007, and are projected to decline to 669,000 this year before rising to 730,000 in 2009, but well below the 1.05 million in 2006.

In an early January speech, Daniel H. Mudd, chief executive of the mortgage finance company Fannie Mae, said home prices would "perhaps begin to gain modestly" in 2010. However, The National Association of Realtors (NAR) has a more positive prognostication that by the end of 2008 or early in 2009 most markets will start seeing appreciation once again.      

SIRVA does suggest companies put the appropriate controls in place to reduce risk and manage program performance at both the departure and destination locations. The following 12 best practices will help companies provide the policy framework so that transferees price and market their homes so they have a greater probability of selling their homes to an outside buyer and not have them go into inventory.

• Use qualified agents:  Use a network of qualified brokers, such as those found in SIRVA's Preferred Broker Network, to ensure transferees receive the right expertise and the best value when selling their home in the current real estate market. Using a qualified and "relocation experienced" broker is critical because if a home is listed at an incorrect price or without adequate marketing support, it is unlikely to find a timely buyer at the optimal sales price.

• Require two broker price options/broker market analyses: Multiple broker price options will help establish the most accurate selling price, which is key to quickly selling a home. Because market activity steadily falls after the first few weeks a home is on the market, pricing realistically from the beginning will attract more potential buyers.

• Delay appraisals: Delay appraisals to provide the opportunity to market a home before incurring appraisal costs. This provides more data for appraisers to use in value determination, sets more realistic value expectations, and lowers home sale cost and risk.

• Support mandatory marketing periods: Require transferees to list their homes and market them effectively for a mandatory period of time (at least 60 days) in order to increase, not only the number of amended-value sales, but also the opportunities to generate outside sales with no appraisals needed.

• Establish list-price caps:  Establish list-price caps to prevent over-listing during the property's initial exposure to the market, which is one of the most common reasons a home sits on the market. Make sure that your company's policy language specifically states that a home may not be listed at more than 105% of the average of the two most-probable sales prices from the broker market analyses. More and more companies are now going to 104% or even 103%. The list price should also be adjusted based on changes in market conditions and/or receipt of the appraised value offer.

• Modify a BVO/BVX to AVO/AVX:  In down real estate markets, some homes simply will not sell-even when transferees do everything right. Offer a guaranteed buyout after 90, 120 or 150 days to ensure the home will not be on the market past a certain time frame. This will eliminate delays in a transferee's relocation schedule, diminish transferee frustration from not selling his or her home or even prevent a cancelled relocation.

The other six best practices will be posted later today, so stay tuned. 

What can companies do to leverage technology in order to reduce cost, increase accuracy, compliance and reporting capabilities in the global mobility space?

There are now technologies and best practices to help manage global mobility cost, data and compensation accrual for tax reporting and budgeting purposes, to allow for compliance, risk mitigation and financial planning. These are areas that are important to all companies but in the past have been a challenge to achieve in a complex global compensation and tax arena.

New specialist companies--with the latest technology--can provide companies with cost estimates and linking processes, which streamline reporting and reconciliation. They also track actual expenditures, including employee compensation and benefits. Tracking such expenses involves leveraging technology to effectively and accurately navigate through global compliance and regulatory issues, and linking reporting processes to create greater efficiencies.

New, sophisticated services and programs can streamline otherwise very labor-intensive reporting processes. In addition, they can provide customized reporting solutions on a faster, real-time basis while also reducing the rate of error. Providers exist for these purposes—to provide administrative, back-office payroll and financial reporting solutions on a global scale.

When evaluating what type of program is right for a company—whether it is payroll management, tax preparation or managing global compensation—executives should select ones that are compatible with multiple countries and multiple sets of payroll codes. 

Companies always struggle with tying together numbers at the end of year, but there should be ongoing, real-time reporting and analysis so that annual financials become merely just another step. Let the providers program do the work for you and provide effective, accurate data to your organization.

Seems for sale signs are everywhere. We all know it takes longer to sell a house now, added to this real estate slow down is tighter credit guidelines due to the “credit crunch." Loan programs that offered a wide range of financing solutions are gone, 100% financing products have disappeared. Several mortgage insurers are not insuring loans with less than 5% down. Jumbo loan rates are considerably higher than conforming loan rates driving mortgage payments for these loans out of reach. Speculators and investors have all run off, foreclosures are popping up everywhere with no end in sight. Daily, consumers are hit with news on falling real estate prices and declining markets that have driven reality and fear into the minds of consumers. Those that may want to buy up cannot afford to since they are in a zero or negative equity situation or due to the stormy economy do not have the confidence to buy.
 
With so many people buying houses over the last several years and the tightening of credit, who is left to buy a house?  

I would be interested in your opinion, just click on the comment link below.

The Panel:

Paul Klemme
President
SIRVA Mortgage

Peggy Love
President & CEO
Full Circle International Relocations, Inc.

Kelly Reiss, CRP
Senior Vice President / General Manager,
Eastern Region / Global Supply Chain
SIRVA Relocation

Connie Swenson
Senior Vice President, Relocation and Referral Services
Coldwell Banker Residential Brokerage / Arizona

Joseph K. Taylor, SCRP
Executive Vice President
Valuation Services, LLC

Kelly Reiss moderated today’s panel of mortgage, destination services, household goods shipment, and real estate supplier representatives.  The session gave clients the opportunity to speak directly with SIRVA’s suppliers, gain a better understanding of how the relocation supply chain operates, and hear a discussion of today’s real estate market from the supplier perspective.

 

The discussion began with new trends in the relocation industry.  Multiple suppliers cited declining markets as a significant trend emerging this year.  As Paul Klemme noted, the fourth quarter of 2007 ended with 108 U.S. markets identified as declining markets by Freddie Mac.  During the first quarter of 2008, this number has already risen to 205, and experts predict at least 100 more declining markets in the second quarter.  Additionally, the number of foreclosures on U.S. homes has risen dramatically in recent months.  The panel explained how lenders have reacted to the poor markets by decreasing the amount of overall lending and requiring higher down payments from home buyers.  As a result, the number of potential homebuyers has decreased, and relocating employees are having difficulty selling their homes.

 

While the real estate market lies outside of the suppliers’ control, the panel also discussed issues directly affected by suppliers, such as how they manage the quality of their services.  Several panel members emphasized the important role that employees play in ensuring consistently high quality.  For example, Connie Swenson explained that real estate agents use tactics such as designating certain specialists for SIRVA transferees.  If at any point the specialists lack the appropriate time to dedicate to SIRVA’s clients and transferees, realtors realize the importance of quickly hiring additional employees so quality does not suffer.  Adding to the idea that the quality of a supplier comes from its employees, Paul suggested that a company’s commitment to on-going training and pushing to make people better at what they do forms an essential element of a successful supplier.

 

Further discussions touched on other interesting topics such as overcoming a seller’s denial that they live in a declining market and the importance of securing a loan quickly in today’s economy.  In conclusion, Kelly requested that each supplier share one last piece of information with attendees; panelists final comments centered on the idea that clients, transferees, SIRVA, and every member of the supply chain must work together for a successful relocation.