Will Homebuyer Tax Credit Be Extended?

Cited: Time

The tax credit worth up to $8000 for first-time homebuyers and $6500 for folks who already own a home must have a contract in place by April 30 and be closed by the end of June because it is coming to an end.  The federal homebuyer tax credit was meant to spur demand in the housing market and may be extended once again.

Much has happened since the last time this deadline loomed, people are rushing to buy houses. Also like last time: there’s talk of hanging on to the credit for a bit longer. But it might surprise you who thinks that’s a good idea and who doesn’t.

Consider this passage from a recent NYT story:

Arguments for extending the tax credit a second time are just beginning. Robert Shiller, a professor of economics at Yale and co-developer of the Standard & Poor’s/Case-Shiller housing price index, is an early advocate. He thinks the credit was a bad idea that nevertheless the market cannot do without.

“You don’t make drug addicts go cold turkey,” Mr. Shiller said. “The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house.” He advocates phasing it out gradually.

In some states, worries about the housing market are trumping fiscal considerations. They are adopting or extending tax credits or other supportive measures in hopes of bringing the market to life.

The prime example of state action is found in California, but other places, such as New Jersey and South Carolina, are stepping in too.

On the other side of the argument are—oddly—housing lobbyists. A spokesman for the National Association of Realtors has said his group won’t angle for another extension. TIME’s Janet Morrissey recently heard the same thing from another one-time booster:

Jay Brinkmann, chief economist with the Mortgage Bankers Association, says he would not like to see the program extended a second time. “They work best if they’re somewhat rare and short-lived,” he says of such programs.

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What’s up with that? It’s not as though all is suddenly sunny in the housing market.

Part of the pivot may have to do with the realization that political willpower has left the room. Even Johnny Isakson, the Senate’s biggest fan of the tax credit the first two times around, has said he wouldn’t support another extension. Why waste time and money pushing for something that isn’t likely to happen?

Another possibility: it’s clear that these tax credits just aren’t doing much for the market. Last fall, a Deutsche Bank report estimated that only about 5% of home sales could be attributed to the tax credit—the other 95% would have happened anyway. Even with that sort of analysis out there, the extension was passed, and the credit was expanded to many current owners. The Deutsche Bank report did acknowledge that the credit also had an impact by boosting consumer sentiment and home-buyer psychology.

It may be the expectations are waning because we have had that much more time to set what the homebuyer tax credit.  Industry observers have also noted that the extension has drummed up fewer sales than the original credit had.  In fact, it makes sense that most ready buyers jumped on the credit the first time around because they did not know it was going to be extended.

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My Take: I do hope the day extend the tax credit.  The reason I do is very simply that I have just recently found out that I can get my first home on a limited income.  I am disabled and my income isn’t as large as the average person.  That means because of the housing market and all the foreclosures I can now afford to get my first home.  The tax credit will help me save money for the future.

I never tried to purchase my own home before because I’ve heard so many stories about people needing a San Diego real estate attorney resolve their sale.  There is no way I could afford an attorney and get a home.  I have heard other stories where people had to get a San Diego construction accident lawyer because somebody got hurt while building their new home.  The number of horror stories about first-time home buyers or builders can be very discouraging.

Because there’ve been so many home foreclosures, and the prices of those homes being so low, I am now able to afford my first home and the tax credit would help me keep that home in the future.  I am not looking for a home that has one of those fancy decorative wooden door entrances.  I just wanted to have a front entry door.  In fact, I do not care if it needs a little fix-up work as long as I own it.

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New Effort to Shrink Home Loans

Cited: AP

On March 26, the Obama administration announced a plan to reduce the amount some troubled borrowers owe on their home loans.  This comes after months of criticism that it has not done enough to prevent foreclosures.

The multifaceted effort will allow people who owe more on their mortgages than their properties are worth to get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.

That would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. It could spark criticism that the government is shouldering too much risk by taking on bad loans made during the housing boom.

The plan would also enable the borrowers’ existing mortgage companies to receive incentives to lower their principal balances.

To be eligible for the FHA refinancing program, borrowers who owe more than the value of their homes, known as being “under water,” must not have fallen behind on their existing mortgage payments.

Separately, the program also would reduce monthly payments for unemployed homeowners for up to six months.

The administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.

“There’s no intention here of tackling what may be 10 to 12 million foreclosures over the course of the next three years,” said Diana Farrell, a White House economic adviser.

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Meet original target

Instead, officials said, the goal is to make it more likely the administration will meet its original target, announced last year, of assisting 3 million to 4 million struggling homeowners.

That would be “enough to provide help to those for whom help is worthwhile … and to provide some kind of stability in the market.”

The plan won’t assist investors and speculators or “Americans living in million dollar homes or defaulters on vacation homes,” an administration fact sheet said.

Some homeowners will not be able to afford to stay in their homes because they bought more than they could afford, officials said.

Mark Zandi, chief economist at Moody’s Analytics, estimated the plan could help an additional 1 million and 1.5 million homeowners avoid foreclosure. That compares with about 4.5 million already in foreclosure proceedings or 90 days delinquent on their mortgages, he said.

But preventing even a fraction of potential foreclosures could help stem the slide in home prices. That would encourage those who are under water to keep paying their mortgages as prices stabilize.

“The changes are wide-ranging and significant and have the real potential for bringing the foreclosure crisis to a much quicker end,” Zandi said.

It is the latest effort by the Obama administration to tackle the foreclosure crisis which has continued to grow. Home foreclosures have soared despite the administration’s effort to prevent foreclosures, a complex and problem-plagued endeavor involving more than 100 mortgage companies. Only 170,000 homeowners have completed that process out of 1.1 million who began it over the past year.

Dubious

“We remain dubious about government mortgage modification efforts,” wrote Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group. “So far none have lived up to expectations and we see little reason to believe the latest effort will turn out any different.”

The plan announced Friday will also require the mortgage companies participating in the administration’s existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.

It also includes three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans — a problem that has blocked many loan modifications.

The plan will also allow lenders to refinance mortgages that are under water with a new loan backed by the FHA. Lenders will have to reduce the first mortgage by at least 10 percent. And the combined total of second mortgages and other liens cannot be more than 115 percent of the current value of the home.

Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co., the four big holders of second mortgages, will participate in the government’s program to modify second mortgages after they were pressured by the Treasury Department.  After being delayed for months, the program is ready to go now that the major players are on board.

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My Take: Of course, those banks did not want to be part of this program!  The program means they could lose money on any Louisville KY mortgage or commercial mortgage loans.  And that is something that no bank wants to do, lose money.  As it is, they have set interest rates on credit cards sky-high.

I just realized that commercial mortgages may not be involved in this program.  I think it only involves private home ownership.  I could be wrong!  But I do know that there are a lot of people that are looking for debt settlement services in an effort to keep their home.  I read somewhere that more people are trying to get into a debt settlement program just to reduce their credit card in an effort to save their home.  Credit cards will get you in trouble every time!  I know!

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Foreclosed-On Homeowners Turned Renters

Cited: Realty Times

Allowing foreclosed homeowners to remain in their homes as renters is a plan that first surfaced a couple of years ago and is gaining greater popularity today. “The basic point is you’re recognizing an unusual situation so you’re temporarily changing the rules on foreclosure,” says co-director of the Center for Economic and Policy Research, Dean Baker, who first proposed the plan.  According to Baker, nothing else seems to be working in foreclosures are on the rise.

“As it stands now, if I hold the mortgage on a house and the person hasn’t met the payments, I go to the judge and say ‘Look this person hasn’t met the payments.’ The homeowner is given a certain number of days and, if payments aren’t met by then, the house is mine. I throw [the homeowner] out on the street,” says Baker.  Baker’s plan proposes to change the rules of foreclosure for a limited period of time.

“Mortgages issued 2002 to 2006 or 2007, whatever time period we want to put in there. For those mortgages we’re going to recognize the unusual situation and say that if I want to foreclose on that person, I have to give [the homeowner] the option to stay there as a renter,” explains Baker.

The length of the rental period would be determined by Congress if the proposed bill passes. “My view is you want it to be as long as possible — seven years or 10 years — a lot of people wouldn’t take advantage of that whole time but the point is to give people substantial security in their home so they can stay there for a period of time as renters, paying the market rent. They’re not getting a subsidized rent,” says Baker.

The plan also binds buyers of the foreclosed property to commit to allowing the former homeowner to remain as a tenant for the rest of the guaranteed period. According to Baker, the important thing to note is the many benefits that this plan can bring for neighborhoods and property owners in those areas as well as those facing foreclosure.

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“The absolute worst thing you could have happen for a neighborhood is to have vacant properties and, of course, in a lot of these areas you have a lot of vacant properties. Banks often don’t care for them well. They don’t see to it that the grass is mowed, that broken windows are fixed or boarded up. Sometimes houses become crack houses or there are squatters there. So it’s the worst thing in the world to have a foreclosure and have a house sit vacant and in many places that’s exactly what’s happening,” says Baker.

But Baker says that this plan may actually keep people in their homes and also let them remain homeowners. “I think a lot of banks will suddenly get serious about modifying loans if the alternative is being a landlord for five years. So, I think it will keep more people in their homes as owners but certainly it’s also better to have a neighborhood that has renters in those houses than have them staying vacant.”

However, Baker says banks still may feel the loss. “There is a neighborhood effect that if you prevent foreclosures and keep homes occupied, [the banks] may actually benefit. But in any specific home, if [the banks] kept everyone else from foreclosing but they themselves got the right to foreclose, they’d probably be better off foreclosing and throwing the person out. So the banks weren’t happy about [the proposed plan],” says Baker.

And the public? Well, these matters can be very touchy. “When you talk about the bailout programs, the modifications that involve public money, it really breeds a lot of resentment,” says Baker.

Baker says, “You have someone saying, ‘Well, I’ve been paying my mortgage why should I subsidize this person who’s not?’” However, he says that’s not the case with the right to rent plan. Baker says that non-delinquent homeowners should understand that taxes are not being raised to support the plan.

According to Baker, the best thing about this plan is that it does not require any bureaucracy, just changing the rules.  This gives millions of homeowners who otherwise could just be foreclosed upon with no recourse another option.  This plan gives them something that they can hang on to.

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My Take: I like this idea!  It gives people the opportunity to stay in the home that they love instead of completely losing it.  It is also possible that once they are able to, they could start buying it again at a later date.  I see a lot of potential in this plan.

The main obstacle I can see is the banks; they always want their money now.  If banks would stop to think like the average person does, you might actually find a bank with a heart.  I know their main purpose is to make money, but the difference in the rental and mortgage payment can be written off as a loss did save some money in taxes.  However, I doubt they will see that point.

Although, it does give homeowners, who are about to lose their home, an opportunity to stay in your home longer instead of getting a foreclosure.  I know many homeowners would be concerned about their credit rating and how this would affect it.  Another aspect that might be incorporated into it is the possibility of not ruining their credit so that when they are able, they could purchase a home in the future.

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Bronx Gets an Image Overhaul

Cited: NY Daily News

Bronx needs to capitalize all that it has going for it.  A partner in the exclusive real estate marketing and development firm Seventh Art Group, David Williams, is giving a new look to The Plaza, 995 5th Ave., four seasons and some of the best condominiums from Dubai to Dallas.  He is helping to give the Bronx and image overhaul because he thinks image is everything in New York City.  He is attempting to overcome the lingering stigma to borough has had for many years and bringing out its strong points like outdoor space.  Those who know the borough love it and Williams has suggested revamping it will make it better.

Working with his team, Williams came up with this slogan:  “If you think you know the Bronx – Think again.”  For those that don’t know, the Bronx has some of the best first-home opportunities in the five boroughs. It offers the optimism and dreams associated with home ownership, with prices starting at $129,000 for some one-bedroom condos.

“Opportunity is what the pride of the Bronx hinges on, and opportunity is what this economic downturn ultimately means,” Williams said. “The Bronx is a place to thrive. A place to step off from. It’s where many successful people came from.”

Woody Allen, George Carlin, Robert De Niro and Al Pacino. Jennifer Lopez, Mary J. Blige and Cuba Gooding Jr. Edgar Allan Poe and Sonia ­Sotomayor. They are just a few of the notables who grew up or lived in the borough.

“You have three generations of great celebrities coming from the Bronx,” Williams said. “It’s not just a blip in time. It’s something that has a great history. It’s a breeding ground for all these great people.”  Williams finds it ironic that while so many Hollywood types come from the Bronx, Hollywood presents a skewed view of the borough.

“The television show ‘M.A.S.H.’ made South Korea seem like a place that was constantly at war,” he said. “The same problems happen with the Bronx. Right now, you have ‘The Taking of Pelham 1 2 3’ in the theaters, and that’s not even remotely close to the true Bronx.”

He also points to “The Bonfire of the Vanities,” the well-regarded novel by Tom Wolfe that portrays the Bronx as crime-ridden, dangerous and dirty, which at the time of the book, a couple of decades ago, it was. But that scene is well in the past.

“Wolfe takes the Bronx down to a stereotype,” Williams said. “The media has given the Bronx a bad rap. I don’t necessarily mean the news, but literature, Hollywood features and television.”

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The Bronx’s dozens of neighborhoods tend to lack identity, said Williams. While those neighborhoods are some of the most diverse in the world, Williams said people who don’t live there don’t differentiate among them, and those who are from the Bronx often downplay their borough, saying they are from “New York City.”

“We need to get to the point where people recognize that if you are from the Bronx, then that is something to be proud of,” he said. “People recognize the charm of [Brooklyn’s] Cobble Hill, the cutting edge of Williamsburg and the brownstone culture of Park Slope. There are between 44 and 69 different neighborhoods in the Bronx, depending on whom you ask, that most people don’t even know the names of … one quarter of the entire borough is open space. It has the highest elevation of any land in the five boroughs. It has some of the best education in the boroughs.”

When will the Bronx know that it is had “made it” as a brand?

“We have to get to the point where being Bronx born and raised is something that people are going to wear on their baseball caps,” Williams said.  Or when J.Lo wants to move back.

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My Take: I understand what David Williams is saying about the Bronx having a certain stigma about it.  Movies and series have made the Bronx that be the birthplace of gangsters and criminals and some of the worst games in the country.  However, it is also made Bronx a very well known place for the actors, authors and heroes that have come from the Bronx.

I know if I ever get a chance to visit New York, the Bronx is one place I would like to see because I have seen so much of it in the movies, like the Bronx Zoo.  Of course, you have to admit that movies and TV studios have a tendency to show the bad side of the Bronx.

That is like the Haight-Ashbury District in San Francisco.  It sets right off of the Golden Gate Park.  In the 60s, it was the place to be if you were a hippie.  However, at one time it was like a small town where everybody knew everybody else.  However, because of the “make love not war” era, it got a bad reputation just like the Bronx did.

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Wall Street Expects Commercial Real Estate Crisis

Cited: Reuters

Wall Street is waiting for the other shoe to drop on the already weak US economy.  They have been waiting for almost 6 months for a US commercial real estate decline that would rival the housing market collapse.  However, surprisingly enough the lenders have been keeping that shoe in the closet and forestalling foreclosures by extending loans even with the rapid rise in mortgage default rates

“In today’s environment, it’s obviously not very attractive to foreclose on a borrower,” said Matthew Anderson, co-founder of real estate consulting services firm Foresight Analytics.

The U.S. commercial real estate sector has been grappling with a credit crisis that has dried up some of its most important sources of lending. That has left many borrowers unable to refinance maturing mortgages. Even when they can obtain financing, borrowers are often obtaining much less than they need.  Lending is based on a percentage of a property’s value and prices are off 34.8 percent from their peak in October 2007. Many see the decline reaching 45 percent.  But banks have been loath to foreclose on the mortgages and are extending them.

“They’re taking loans that don’t have a cash-flow problem, but definitely have a valuation problem, and they’re pushing those out to the future,” Anderson said.

About 4.5 percent of bank commercial real estate loans were 30 or more days delinquent in the second quarter, up from 3.6 percent in the first quarter, according to Foresight Analytics. Nonaccrual — or the percentage of the loan balances that banks believe borrowers will fail to repay — rose to 2.6 percent in the second quarter from 2 percent the prior quarter.

Banks account for about $1.7 trillion, or half, of U.S. commercial mortgages outstanding. The delinquency rates have been increasing since the second quarter 2007, when they were 1.2 percent, according to Foresight.  Yet foreclosed loans as a percentage of nonaccruals has been declining, down to 19.7 percent in the first quarter from over 30 percent three years ago, according to the most recent statistics from Foresight.  The practice of extending loans has become so prevalent, it has earned its own catch phrases — “push-outs,” “kicking the can down the road” and “a rolling loan gathers no loss.”

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THE PERVERSE LESSON

Banks have many reasons not to foreclose.

First, it’s an expensive processes. Secondly, banks are not in the business of owning real estate. When they sell a property, they face the same distressed market their borrowers would face, leaving them saddled with more losses.

They also have learned a “perverse lesson” from past commercial real estate downturns, Anderson said. After they dumped bad loans in the early 1990s, banks watched as buyers of the distressed loans, such as Goldman Sachs Group Inc’s Whitehall Funds, made a fortune when the market rebounded.

Banks already are dealing with losses from other sectors, such as home mortgages and credit cards delinquencies. Pushing the commercial real estate problem further into the future may allow banks to be in a stronger position when they finally face the issue.

“Rolling it over does not solve the issue,” Daniel Penrod, senior industry analyst for the California Credit Union League said. “But at this point, adding another negative to the current economy could be disastrous. If this were the only factor in the economy that was struggling, we could let it play out with all the other factors. Allowing it to catch its breath for six or 12 months may help shorten the current recession.”

Property values could fall should loan extensions not be long enough to give borrowers confidence that they will retain the properties. A three to nine-month extension could discourage a borrower from paying for needed maintenance and improvements.

“The thing I hear most frequently from borrowers is: ‘Why would I put capital into it?’” said Jere Lucey, managing director at Jones Lang LaSalle Inc (JLL.N), Real Estate Investment Banking.  But the lending market for loans under $35 million has thawed since the start of the year, said Deutsche Bank research analyst Richard Parkus.

“They should not be out there extending loans because there’s a financing market,” he said. “If there’s a loan that doesn’t qualify, it shouldn’t be extended unless it could be reasonably assumed to qualify in two to three years, given an extension.”

A new mortgage might not cover the full payment due at maturity. But that shouldn’t relieve a borrower from kicking in more equity or obtaining a mezzanine loan to fill the gap.

“If a borrower can’t get additional financing, it should be foreclosed and liquidated,” Parkus said.

A larger problem of loan maturities in the future may be caused from postponing foreclosures.  Next year sees approximately $270-275 billion of loans that will mature the available capital that is seen when refinancing rollover loans may come at the expense of new loans

“If it continues, essentially for most of the next decade, we’re really just going to be dealing with today’s and yesterday’s debt,” Anderson said.

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My Take: This is very confusing to me.  A real estate loan is a real estate loan, whether it is residential or commercial.  Does this mean that there is a possibility of another recession starting because they are having problems with commercial real estate loans?

It is very difficult for me to understand the difference between a home mortgage Louisville and a commercial mortgage.  The obvious difference is the amount of the loan; one is larger than the other is and usually in the millions.  However, even a home mortgage can be in the millions.  So what is the real difference between KY refinancing and commercial refinancing?  I have no idea.

Maybe it is not so much the difference between the loans as what the results will be.  If a commercial mortgage defaults, it usually means that the business has ended.  Businesses going out of business could definitely affect the economy.  This would mean more unemployment because the business had to lay off their employees.  Other than this, it remains a mystery to me.

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