By John Gittelsohn and Margaret Collins
Dec. 4 (Bloomberg) -- Drew Schlosser tried for two years to sell his three-bedroom Punta Gorda, Florida, waterfront condominium for less than he owed on its two mortgages. The deal only went through last month when Wells Fargo & Co. agreed to take a $165,000 loss on the loans.
Even after he had an offer of $155,000 for the property, it took five months for the San Francisco-based lender to approve the purchase, a so-called short sale, in which the bank accepts less than the balance owed on a property. Schlosser said earlier offers had fallen through as bidders lost faith the bank would take less than the $320,000 in two mortgages.
“It was just kind of a mess,” said Schlosser, 31, a market research company director living in Estero, Florida. “You really have to get buyers who are patient.”
Banks are beginning to go along with short sales in increasing numbers, three years into a U.S. housing slump that pushed the economy into a recession and cut resale values by 30 percent from the peak in July 2006. Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier. Yet for each short sale, there were 25 foreclosures started or completed in the first half of this year, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
“It’s really finally dawning on banks that they’re better off with a short sale,” said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.”
Obama Pressure
Wells Fargo, Bank of America Corp. and JPMorgan Chase & Co. this year have hired and trained more staff, developed software systems for expediting short sales, and increased marketing of short sales to delinquent borrowers.
Banks are increasing such sales under pressure from the Obama administration and lawmakers who criticized them for favoring foreclosures and delaying short sales, Green said. Lenders and loan servicers also stand to receive up to $2,000 in incentives to close short sales under a Treasury Department plan unveiled Nov. 30.
“Judging by how slowly the modification plan is up and running, it doesn’t lend confidence this is going to jump start things,” Mark Zandi, chief economist with Moody’s Economy.com, said in a phone interview. “They’re saying the right things, but nothing so far suggests it’s going to work in a measurable way.”
The increase in banks agreeing to take losses on mortgages is helping some home buyers and real estate brokers.
‘Lucky Deal’
Pat Meislik, 63, started looking for a house in San Diego in March and said she felt locked out of the California market until short sales in her price range became available.
“There were times when I had looked at homes before and could only afford a condo,” said Meislik, an accountant and financial analyst.
Meislik closed on a three-bedroom “fixer upper” for $280,000 in May. “By the time it ended I felt lucky.”
Lender Countrywide Financial Corp., now part of Bank of America, lost about $150,000 on the $406,000 loan to the previous owner, said Meislik’s realtor Deborah Reed. Wells Fargo settled the second $47,252 mortgage on the home for less than 10 cents on the dollar, she said.
“The tide is turning,” said Reed, who works at Coldwell Banker in San Diego, where the price of a single family home has dropped 38 percent since the peak, according to the S&P Case- Shiller Home Price Indexes. “All of a sudden the banks are being more cooperative.”
More Short Sales
Reed said she completed four short sales in the past four months and the banks agreed to as much as $400,000 in losses.
Lenders have been reluctant to do such sales because they didn’t have procedures for employees to approve a financial loss for the company, said Alan White, assistant professor at Valparaiso University School of Law in Valparaiso, Indiana.
“A short sale requires somebody to stick their neck out and make a decision,” said White, an expert in consumer law and bankruptcy. “There are not good structures in place to incentivize losses.”
Bankers also have been slow to sign off on short sales because homeowner associations, mortgage insurers and second- lien holders may not agree to the terms of the deal, said Michael Frantantoni, vice president of single family research at the Mortgage Bankers Association.
Loan Modifications
The first choice for lenders has been to try to keep borrowers in their homes, offering loan modifications as an alternative to foreclosure, Frantantoni said. More than half of the modifications of delinquent mortgages re-defaulted within a year, according to a Sept. 30 report by the Office of the Comptroller of the Currency.
“The single biggest problem was the lack of a vehicle or mechanism at most banks to handle short sales,” said Walter Molony, a National Association of Realtors spokesman. “You could say they were shortsighted in dealing with the problem.”
Pressure is building to approve short sales as the number of delinquent mortgages has grown to 3.2 million and an estimated 7 million foreclosures loom in the next two to three years, according to Irvine, California-based RealtyTrac Inc., which compiles and sells U.S. mortgage delinquency data.
New Treasury Department guidelines for foreclosure alternatives scheduled to take effect in April 2010 will require lenders to consider borrowers for a short sale on their primary residence 30 days after missing two consecutive payments on a modified loan or after the borrower requests a short sale.
Treasury Plan
The Treasury Department would pay up to $1,500 for a homeowner to relocate, $1,000 to loan servicing companies that accept a sale and a maximum of $1,000 to help settle a second mortgage or subordinate lien. A lender must agree to release the borrower from all liability for repayment for the mortgage, under the Treasury plan.
In July, Wells Fargo began mailing notices to delinquent borrowers advising them that short sales might be an option to avoid foreclosure.
“When we determine that a loan is not affordable for the customer -- either because a modification was denied or failed - - we obtain the value of the property, run it through our loan decision tool and then send a letter to the customer advising them of our short sale program, including the short sale price we are willing to take on the property,” Debora Blume, a spokeswoman for Wells Fargo Home Mortgage said in an e-mail.
‘Pick a Pay Loans’
Wells Fargo is focusing on delinquent borrowers in Florida and California homeowners with “Pick-a-Pay” loans originated by Wachovia Corp., Blume said. Wells Fargo acquired Wachovia in December 2008 and owns the “Pick-a-Pay” loans outright, said J.K. Huey, the bank’s senior vice president overseeing short sales and bank-owned properties. That allows the company to approve a short sale without consulting investors or parties that can hold up transactions.
“Pick-a-Pay” mortgages have among the highest rates of negative equity, because borrowers could select their monthly payments, often paying less than the interest, with the difference added to the principal. That formula means that total loan debt was increasing at a time property values were falling.
Wells Fargo held $87.8 billion of such loans as of Sept. 30, down $7.5 billion from the end of last year. Wells Fargo Chief Financial Officer Howard Atkins said on an Oct. 21 earnings call that the bank is reducing the number of loans with “negative amortization potential.” As of the end of the third quarter, 26 percent of the loans in that portfolio now have minimum monthly payments that fully cover the interest due so that the total principal does not grow, up from 16 percent at the end of last year.
As of Sept. 30, Wells Fargo had modified 43,500, or 22 percent, of the distressed loans to reduce borrowers’ payments, Atkins said.
Reaching Out
JPMorgan doubled the number of staff trained to handle short sales after adding 5,000 people since Jan. 1 to deal with distressed mortgages, said Thomas Kelly, a spokesman for the New York-based bank’s home lending division.
Chase services 10.3 million mortgages worth $1.4 trillion, according to Kelly. Of its portfolio, Chase reported 422,000 loans more than 60 days delinquent, about one third of which were in loan modification programs, according to a Nov. 10 Treasury Department report on the Obama administration’s Making Home Affordable Program.
“We’re reaching out to people who are struggling with the Obama loan modifications or our own,” Kelly said. “Approaching customers is a very recent phenomenon.”
Bank of America, the nation’s largest loan servicer, had one of the lowest loan modification rates, with 14 percent of problem loans in trial workout plans as of Oct. 31, according to the Obama Administration.
The Charlotte, North Carolina-based bank started a “cooperative short sales” program in October and may close its first short sale through the program this month, said Dave Sunlin, senior vice president for foreclosure and real estate management.
Pay-Option Mortgages
Many are borrowers with pay-option adjustable-rate mortgages issued by Countrywide Financial Corp., Sunlin said. BofA bought Countrywide, once the nation’s largest mortgage originator, for $4 billion in stock in 2008.
Short sales benefit a neighborhood because they clear out stagnant properties that may have an adverse effect on values, said Sean Shallis, a senior real estate strategist with Weichert Realtors in Hoboken, New Jersey. Shallis has one home with bank approval for a short sale and three others waiting approval on the same street in Jersey City with views of the Manhattan skyline.
“In every case we had multiple offers from people who had plenty of money to put down,” Shallis said. “Americans are out there still buying homes and trying to move it along.”
Cutting Losses
Short sales also help the bank, because foreclosed properties lose more value when they are vacant or a homeowner vandalizes a house on the way out, Sunlin said.
“We typically expect a 10 to 15 percent decrease of loss severity with a short sale,” Sunlin said.
Losses on prime loans going through the foreclosure process averaged 49 percent versus 34 percent for a short sale as of Oct. 1, according to a Nov. 10 report by Laurie S. Goodman, senior managing director of Amherst Securities Group LP. For subprime loans, losses averaged 73 percent for a foreclosure compared with 59 percent for a short sale, Amherst reported.
“The loss severity of short sales is lower but it’s not low,” Goodman said.
For a borrower’s credit history, a short sale is typically reported as “settled” and considered as severe as a foreclosure, said Maxine Sweet, vice president of public education for Experian PLC, the world’s largest credit-reporting company. The impact of a short sale on a credit score is similar to that of a foreclosure. It may drop a credit score of 780 to 620, according to Minneapolis-based FICO Corp.
Hardship Letter
For sellers like Drew Schlosser, who bought 10 properties in Florida as investments during the housing bubble, getting a short sale was a relief even if the process was difficult.
Schlosser said he had to provide Wells Fargo a hardship letter, demonstrating that his financial situation merited a short sale. He also had to provide pay stubs, bank account information and past tax returns. To avoid fraud, the bank also required evidence that the transaction was an arms-length sale and not to one of his relatives, he said.
“They don’t agree to do it because you’re upside down,” Schlosser said. “If they think you can pay for it they’re not going to let you out of it.”
To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net; Margaret Collins in New York at mcollins45@bloomberg.net.
Tuesday, December 8, 2009
Monday, December 7, 2009
Signs of the Bottom of Your Real Estate Market
by M. Anthony Carr
We've been watching a buyer's market for so long, we've almost forgotten how to see the signs of the building of a seller's market. Keep in mind, a seller's market slowly builds (over months) while a buyer's market can hit overnight.
While the National Association of Realtors announced sales of resale homes jumped more than 10 percent nationally in October 2009 over a year earlier – those numbers are not the numbers to watch while you're trying to find the bottom of your local market. Don't make a local decision based on national information.
The resale numbers have been up in markets all across the country for more than a year, we just never heard about it from the evening news, et. al., because your national news venues don't watch local markets. You should.
Most buyers and the media in general look to pricing to dictate that the bottom of the market has been hit. But before making that dictum, a buyer must first define what the bottom really is. Many would say, it's when prices hit the lowest they've been. True. That's part of the signs to watch.
And if price is you're only interest, then go ahead and wait for the bottom in pricing. Keep in mind, however, that everyone else is also looking for that number. When prices start to move up, they are moving up because the demand is starting to outpace supply and higher priced homes are starting to sell again, thus you may have missed the optimal time to purchase a house at a low price with someone else's money to help you with closing costs.
When the prices hit bottom (and the only way you can figure that out is the first month that prices start moving up, you've already missed the bottom), consumers are already starting to beat each other out for a shrinking inventory.
So, here are the indicators to watch to find the bottom:
1. Inventory: Watch for inventory to start dropping. When this happens, you've entered the bottom territory. Buyers start jumping on the bandwagon once there is so much inventory that prices have hit an acceptable low level.
2. Seller Subsidy: When sellers are giving back maximum amounts allowed by loan programs, you've hit the bottom. Some loan programs allow up to 6 percent of the sales price to be given back to the buyer at the settlement table from the seller for closing costs. Imagine, purchasing a house for $300,000 and getting $18,000 back from the seller for the buyer's closing costs – that's a sign of the bottom. (And this is most likely after getting 3 or 4 percent off the sales price – another $9,000 to $12,000).
3. Pricing: Now this is where everyone watches, when in reality it's the sign that the market has been climbing up from the bottom for several months. If you're going to track pricing as a bottom indicator, then start watching it from month to month, instead of year over year. Thus, when prices start moving up, say, from March to April to May to June – THEN you may have hit the bottom on pricing. A market can experience price increases month after month while still showing lower prices than a year before – thus the buyer, while waiting for signs that prices are moving up over last year, may have missed the bottom on pricing. By the time value starts surpassing year over year, the climb up has already begun.
4. Multiple offers: As buyers start competing for the best properties that have hit the lowest price, then you've found another sign of the bottom of the market.
5. Days on market: Once prices have hit bottom and buyers start gobbling up houses and start competing with each other – then you'll see the days on market begin dropping.
For some markets across the country, all of these indicators have already started showing signs of the bottom, such as Florida, Washington DC, Phoenix, Las Vegas, Las Angeles, and other metropolitan areas that were hit heavy by foreclosures.
Watching your local numbers is the only way to determine if you've hit the bottom of the market for your local real estate market.
Published: December 7, 2009
We've been watching a buyer's market for so long, we've almost forgotten how to see the signs of the building of a seller's market. Keep in mind, a seller's market slowly builds (over months) while a buyer's market can hit overnight.
While the National Association of Realtors announced sales of resale homes jumped more than 10 percent nationally in October 2009 over a year earlier – those numbers are not the numbers to watch while you're trying to find the bottom of your local market. Don't make a local decision based on national information.
The resale numbers have been up in markets all across the country for more than a year, we just never heard about it from the evening news, et. al., because your national news venues don't watch local markets. You should.
Most buyers and the media in general look to pricing to dictate that the bottom of the market has been hit. But before making that dictum, a buyer must first define what the bottom really is. Many would say, it's when prices hit the lowest they've been. True. That's part of the signs to watch.
And if price is you're only interest, then go ahead and wait for the bottom in pricing. Keep in mind, however, that everyone else is also looking for that number. When prices start to move up, they are moving up because the demand is starting to outpace supply and higher priced homes are starting to sell again, thus you may have missed the optimal time to purchase a house at a low price with someone else's money to help you with closing costs.
When the prices hit bottom (and the only way you can figure that out is the first month that prices start moving up, you've already missed the bottom), consumers are already starting to beat each other out for a shrinking inventory.
So, here are the indicators to watch to find the bottom:
1. Inventory: Watch for inventory to start dropping. When this happens, you've entered the bottom territory. Buyers start jumping on the bandwagon once there is so much inventory that prices have hit an acceptable low level.
2. Seller Subsidy: When sellers are giving back maximum amounts allowed by loan programs, you've hit the bottom. Some loan programs allow up to 6 percent of the sales price to be given back to the buyer at the settlement table from the seller for closing costs. Imagine, purchasing a house for $300,000 and getting $18,000 back from the seller for the buyer's closing costs – that's a sign of the bottom. (And this is most likely after getting 3 or 4 percent off the sales price – another $9,000 to $12,000).
3. Pricing: Now this is where everyone watches, when in reality it's the sign that the market has been climbing up from the bottom for several months. If you're going to track pricing as a bottom indicator, then start watching it from month to month, instead of year over year. Thus, when prices start moving up, say, from March to April to May to June – THEN you may have hit the bottom on pricing. A market can experience price increases month after month while still showing lower prices than a year before – thus the buyer, while waiting for signs that prices are moving up over last year, may have missed the bottom on pricing. By the time value starts surpassing year over year, the climb up has already begun.
4. Multiple offers: As buyers start competing for the best properties that have hit the lowest price, then you've found another sign of the bottom of the market.
5. Days on market: Once prices have hit bottom and buyers start gobbling up houses and start competing with each other – then you'll see the days on market begin dropping.
For some markets across the country, all of these indicators have already started showing signs of the bottom, such as Florida, Washington DC, Phoenix, Las Vegas, Las Angeles, and other metropolitan areas that were hit heavy by foreclosures.
Watching your local numbers is the only way to determine if you've hit the bottom of the market for your local real estate market.
Published: December 7, 2009
Monday, November 23, 2009
Existing-Home Sales Jump To Highest Level in 2-1/2 Years
Published: Monday, 23 Nov 2009 | 10:46 AM ET
By: Reuters
Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed Monday.
The National Association of Realtors said sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million-unit pace in September.
Analysts polled by Reuters had expected October sales to jump to a 5.70 million-unit pace from the previously reported 5.57 million units in September. Compared to October last year, home sales were up by a record 23.5 percent. U.S. stock indexes extended gains on the data, while Treasury debt prices were little changed.
"Many buyers have been rushing to beat the deadline for first-time buyer credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," said Lawrence Yun, NAR's chief economist.
Distressed transactions accounted for 30 percent of sales last month and continued to weigh on house prices. First-time buyers made up a third of sales in October.
The national median home price fell 7.1 percent from October last year, the smallest decline in over a year, to $173,100. Homes in foreclosure typically sell for 15 to 20percent less than traditional homes.
"Existing home sales have already bottomed. Home prices are almost there. We are seeing a less of a decline in house values," said Yun.
The housing market is slowly mending after a three-year decline, which contributed to tipping the U.S. economy into its worst recession in seven decades. Housing construction contributed to economic growth in the third quarter for the first time since 2005.
Recovery is being supported by the $8,000 tax credit for first-time buyers, low mortgage rates and falling house prices. The government this month extended the incentive into next year and added a $6,500 credit for home owners buying a new residence. It had been due to expire on Nov. 30.
"The tax benefits going into the housing market are working, and that's a relief," said William Larkin, portfolio manager at Cabot Money Management in Boston. "Everything is about housing and jobs right now."
The improvement in October sales was broad-based, with sales of single-family homes, the biggest segment of the market, rising 9.7 percent to an annual rate of 5.33 million units, while condominium and co-ops increased 13.2 percent to a 770,000-unit rate.
Sales were up in all four regions of the country. Prices rose 1.1 percent in the Midwest, which didn't see the same boom as the rest of the country, while declining in the other three. The rise in the Midwest was the first price increase in any region since November 2008.
Analysts are cautiously hoping a sustained housing market recovery will help to improve the psychology of households, which has been shaken by rising unemployment.
While the economy resumed growing in the July-September period after four quarters of decline, sluggish consumer spending is seen slowing the momentum.
The inventory of existing homes for sale in October fell 3.7 percent to 3.57 million units from the previous month, NAR said. At October's sales pace, that represented a supply of 7.0 months, the lowest in 2-1/2 years, from September's revised 8.0 months.
Copyright 2009 Reuters.
By: Reuters
Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed Monday.
The National Association of Realtors said sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million-unit pace in September.
Analysts polled by Reuters had expected October sales to jump to a 5.70 million-unit pace from the previously reported 5.57 million units in September. Compared to October last year, home sales were up by a record 23.5 percent. U.S. stock indexes extended gains on the data, while Treasury debt prices were little changed.
"Many buyers have been rushing to beat the deadline for first-time buyer credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," said Lawrence Yun, NAR's chief economist.
Distressed transactions accounted for 30 percent of sales last month and continued to weigh on house prices. First-time buyers made up a third of sales in October.
The national median home price fell 7.1 percent from October last year, the smallest decline in over a year, to $173,100. Homes in foreclosure typically sell for 15 to 20percent less than traditional homes.
"Existing home sales have already bottomed. Home prices are almost there. We are seeing a less of a decline in house values," said Yun.
The housing market is slowly mending after a three-year decline, which contributed to tipping the U.S. economy into its worst recession in seven decades. Housing construction contributed to economic growth in the third quarter for the first time since 2005.
Recovery is being supported by the $8,000 tax credit for first-time buyers, low mortgage rates and falling house prices. The government this month extended the incentive into next year and added a $6,500 credit for home owners buying a new residence. It had been due to expire on Nov. 30.
"The tax benefits going into the housing market are working, and that's a relief," said William Larkin, portfolio manager at Cabot Money Management in Boston. "Everything is about housing and jobs right now."
The improvement in October sales was broad-based, with sales of single-family homes, the biggest segment of the market, rising 9.7 percent to an annual rate of 5.33 million units, while condominium and co-ops increased 13.2 percent to a 770,000-unit rate.
Sales were up in all four regions of the country. Prices rose 1.1 percent in the Midwest, which didn't see the same boom as the rest of the country, while declining in the other three. The rise in the Midwest was the first price increase in any region since November 2008.
Analysts are cautiously hoping a sustained housing market recovery will help to improve the psychology of households, which has been shaken by rising unemployment.
While the economy resumed growing in the July-September period after four quarters of decline, sluggish consumer spending is seen slowing the momentum.
The inventory of existing homes for sale in October fell 3.7 percent to 3.57 million units from the previous month, NAR said. At October's sales pace, that represented a supply of 7.0 months, the lowest in 2-1/2 years, from September's revised 8.0 months.
Copyright 2009 Reuters.
Thursday, November 19, 2009
Low Interest Rates Spur Refinancing, Buying Interest
by Broderick Perkins
If you purchased a home a year ago and have the equity and creditworthiness to swing it, a refinance today could save you hundreds of dollars a month.
Or, if you are in the market to buy a home, interest rates will make for a more affordable deal.
Freddie Mac's Primary Mortgage Market Survey for Nov. 12 put the average fixed interest rate for 30-year conforming mortgages at 4.91 percent.
Last year at the same time, the 30-year fixed rate mortgage (FRM) averaged 6.14 percent.
"Keeping rates at historically low levels for a sustained period of time has to remain a cornerstone of Fed policy until the economy gets back on track," said Nancy Osborne, chief operating officer of Erate.com.
On a $300,000 mortgage the principle and interest payment at today's average rate would be about $1,594, compared to $1,825 a year ago, according to Erate's calculators.
That's a monthly savings of $231. Put another way, a year's worth of the savings -- $2,772 -- amounts to almost two mortgage payments on a $300,000 mortgage at today's average rate.
Both home buyers and owners who want to refinance may have some time yet to shop around and dicker for the best interest rate deal.
"I don't suspect rates will begin to rise until we see at least three consecutive months of solid employment growth," Osborne said.
Freddie Mac also said the 15-year FRM averaged 4.36 percent, down from 5.81 percent a year ago.
Adjustable rate mortgages (ARMs)
The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) averaged 4.29 percent this week, down from 5.98 percent a year ago. The one-year Treasury-indexed ARM averaged 4.46 percent, down from 5.33 percent in 2009 at this time.
Published: November 19, 2009
If you purchased a home a year ago and have the equity and creditworthiness to swing it, a refinance today could save you hundreds of dollars a month.
Or, if you are in the market to buy a home, interest rates will make for a more affordable deal.
Freddie Mac's Primary Mortgage Market Survey for Nov. 12 put the average fixed interest rate for 30-year conforming mortgages at 4.91 percent.
Last year at the same time, the 30-year fixed rate mortgage (FRM) averaged 6.14 percent.
"Keeping rates at historically low levels for a sustained period of time has to remain a cornerstone of Fed policy until the economy gets back on track," said Nancy Osborne, chief operating officer of Erate.com.
On a $300,000 mortgage the principle and interest payment at today's average rate would be about $1,594, compared to $1,825 a year ago, according to Erate's calculators.
That's a monthly savings of $231. Put another way, a year's worth of the savings -- $2,772 -- amounts to almost two mortgage payments on a $300,000 mortgage at today's average rate.
Both home buyers and owners who want to refinance may have some time yet to shop around and dicker for the best interest rate deal.
"I don't suspect rates will begin to rise until we see at least three consecutive months of solid employment growth," Osborne said.
Freddie Mac also said the 15-year FRM averaged 4.36 percent, down from 5.81 percent a year ago.
Adjustable rate mortgages (ARMs)
The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) averaged 4.29 percent this week, down from 5.98 percent a year ago. The one-year Treasury-indexed ARM averaged 4.46 percent, down from 5.33 percent in 2009 at this time.
Published: November 19, 2009
Wednesday, November 4, 2009
Congress Poised to Keep Homebuyers’ Tax Credit
By JACKIE CALMES
Published: November 3, 2009
WASHINGTON — The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.
The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.
The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.
Extending and expanding the credit would cost an estimated $11 billion, on top of the $10 billion spent so far. It would be a big victory for the housing and real estate lobby and for the Senate majority leader, Harry Reid, Democrat of Nevada, who faces a tough re-election race next year in the state with the most claims for the credit per capita.
Critics complain that most of the credits go to taxpayers who would have bought their homes anyway, which even the industry acknowledges. Also, a Congressional subcommittee released a Treasury Department report last month about suspected criminal and civil abuses of the program.
Government officials testified, however, that many of the problems may be due to confusion among taxpayers and the Internal Revenue Service about the overlapping 2008 and 2009 versions of the tax credit. With Congress likely to change the eligibility provision again, the new measure could present further administrative problems for the I.R.S., although the measure does include several new safeguards.
“It’s not unreasonable to think that this is going to provide some further challenges for them, both in terms of implementing a third version of it and in terms of ensuring taxpayers’ compliance,” said James R. White, director of tax issues for the Government Accountability Office.
The Treasury Department report said that as of Sept. 30, the I.R.S. had identified 167 suspected criminal schemes and was examining nearly 107,000 cases of potential civil violations.
The first person to be convicted of defrauding the tax credit program was a tax preparer in Jacksonville, Fla., who was sentenced last month to 30 months in prison. According to the Justice Department, he claimed the credit for ineligible clients, many of whom were unsuspecting, and electronically paid himself $1,000 of the credit’s value each time.
Investigators found that more than 500 claimants of the tax credit nationwide were minors as young as 4, so the new measure will require applicants to be at least 18. Homes cannot be acquired from relatives, and taxpayers must submit a settlement statement as proof of purchase, though officials acknowledge that could be a problem for those who file tax returns electronically.
While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.
Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.
Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.
The expanded homebuyers’ tax credit was attached to a bill intended to extend unemployment compensation for up to 20 weeks for people who have been out of work for long periods. Another amendment would sweeten a tax break for businesses with net operating losses in 2008 and 2009.
Published: November 3, 2009
WASHINGTON — The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.
The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.
The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.
Extending and expanding the credit would cost an estimated $11 billion, on top of the $10 billion spent so far. It would be a big victory for the housing and real estate lobby and for the Senate majority leader, Harry Reid, Democrat of Nevada, who faces a tough re-election race next year in the state with the most claims for the credit per capita.
Critics complain that most of the credits go to taxpayers who would have bought their homes anyway, which even the industry acknowledges. Also, a Congressional subcommittee released a Treasury Department report last month about suspected criminal and civil abuses of the program.
Government officials testified, however, that many of the problems may be due to confusion among taxpayers and the Internal Revenue Service about the overlapping 2008 and 2009 versions of the tax credit. With Congress likely to change the eligibility provision again, the new measure could present further administrative problems for the I.R.S., although the measure does include several new safeguards.
“It’s not unreasonable to think that this is going to provide some further challenges for them, both in terms of implementing a third version of it and in terms of ensuring taxpayers’ compliance,” said James R. White, director of tax issues for the Government Accountability Office.
The Treasury Department report said that as of Sept. 30, the I.R.S. had identified 167 suspected criminal schemes and was examining nearly 107,000 cases of potential civil violations.
The first person to be convicted of defrauding the tax credit program was a tax preparer in Jacksonville, Fla., who was sentenced last month to 30 months in prison. According to the Justice Department, he claimed the credit for ineligible clients, many of whom were unsuspecting, and electronically paid himself $1,000 of the credit’s value each time.
Investigators found that more than 500 claimants of the tax credit nationwide were minors as young as 4, so the new measure will require applicants to be at least 18. Homes cannot be acquired from relatives, and taxpayers must submit a settlement statement as proof of purchase, though officials acknowledge that could be a problem for those who file tax returns electronically.
While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.
Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.
Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.
The expanded homebuyers’ tax credit was attached to a bill intended to extend unemployment compensation for up to 20 weeks for people who have been out of work for long periods. Another amendment would sweeten a tax break for businesses with net operating losses in 2008 and 2009.
Tuesday, October 13, 2009
Survey: Most economists see recovery beginning
By Mae Anderson
The Associated Press
New York » More than 80 percent of economists believe the recession is over and an expansion has begun, but they expect the recovery will be slow as worries over unemployment and high federal debt persist.
That consensus comes from leading forecasters in a survey by the National Association for Business Economics released Monday.
"The survey found that the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines," said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.
The forecasters upgraded the economic outlook for the next several quarters, but cautioned that unemployment rates and the federal deficit are expected to remain high through the next year. Forecasters now expect the economy, as measured by gross domestic product, to advance at a 2.9 percent pace in the second half of the year, after falling for four straight quarters for the first time on records dating to 1947. They expect a 3 percent gain in 2010.
Still, the federal deficit has ballooned and the jobless rate is expected to lag behind, as employers remain cautious.
The unemployment rate rose to 9.8 percent in September from 9.7 percent, the Labor Department said earlier this month, the highest point in 26 years.
Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010.
The recession, the worst since the 1930s, has eliminated a net total of 7.2 million jobs. More job cuts were announced last week. Thermo Fisher Scientific Inc., which makes industrial and scientific equipment, said it will close a plant in Dubuque, Iowa, next year, costing 350 jobs.
Worries about unemployment are likely to continue to constrain household spending. Personal consumption spending likely began rising in the second half of this year, but is expected to remain low in 2010. Still, Americans aren't expected to save as much as they have in past decades. The savings rate is expected to be above the 2 percent average of the past four years, but below the 9 percent average in the 1970s and 1980s.
The housing recovery is one bright spot. Forecasters expect 2010 to be the first year since 2005 that the housing sector will contribute to overall growth. Home prices are expected to rise 2 percent in 2010, but panelists do not believe that will stifle the housing recovery.
Inflation is expected to remain low due to the weak labor market and other factors. Thus, the NABE panel -- which consists of 44 economists surveyed Sept. 2 through Sept. 24 -- expects the federal funds rate to remain at its current record low near zero until late next spring, before a gradual rise begins.
"The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation," said Reaser.
The Associated Press
New York » More than 80 percent of economists believe the recession is over and an expansion has begun, but they expect the recovery will be slow as worries over unemployment and high federal debt persist.
That consensus comes from leading forecasters in a survey by the National Association for Business Economics released Monday.
"The survey found that the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines," said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.
The forecasters upgraded the economic outlook for the next several quarters, but cautioned that unemployment rates and the federal deficit are expected to remain high through the next year. Forecasters now expect the economy, as measured by gross domestic product, to advance at a 2.9 percent pace in the second half of the year, after falling for four straight quarters for the first time on records dating to 1947. They expect a 3 percent gain in 2010.
Still, the federal deficit has ballooned and the jobless rate is expected to lag behind, as employers remain cautious.
The unemployment rate rose to 9.8 percent in September from 9.7 percent, the Labor Department said earlier this month, the highest point in 26 years.
Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010.
The recession, the worst since the 1930s, has eliminated a net total of 7.2 million jobs. More job cuts were announced last week. Thermo Fisher Scientific Inc., which makes industrial and scientific equipment, said it will close a plant in Dubuque, Iowa, next year, costing 350 jobs.
Worries about unemployment are likely to continue to constrain household spending. Personal consumption spending likely began rising in the second half of this year, but is expected to remain low in 2010. Still, Americans aren't expected to save as much as they have in past decades. The savings rate is expected to be above the 2 percent average of the past four years, but below the 9 percent average in the 1970s and 1980s.
The housing recovery is one bright spot. Forecasters expect 2010 to be the first year since 2005 that the housing sector will contribute to overall growth. Home prices are expected to rise 2 percent in 2010, but panelists do not believe that will stifle the housing recovery.
Inflation is expected to remain low due to the weak labor market and other factors. Thus, the NABE panel -- which consists of 44 economists surveyed Sept. 2 through Sept. 24 -- expects the federal funds rate to remain at its current record low near zero until late next spring, before a gradual rise begins.
"The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation," said Reaser.
Home-buying incentives available, but time is short
Economy » The two programs are intended to help spur the sale of houses.
By Lesley Mitchell
The Salt Lake Tribune
Homebuyers along the Wasatch Front are racing to meet a deadline for purchasing incentives that expire on Nov. 30.
The larger of the two incentives is an $8,000 federal income tax credit geared toward first-time buyers of new or existing homes, although anyone who hasn't owned a home in the past three years is eligible. Utah also is offering a $4,000 grant for buyers of newly built homes. Both state and federal officials stress that there is no leeway on the deadlines for the incentives, which are aimed at boosting the sagging economy and real estate sector.
"You could be a day late and $8,000 short," said IRS spokesman Bill Brunson.
Salt Lake City Realtor DeAnna Dipo is telling prospective buyers who are interested in either incentive they probably are going to need to be under contract to buy a home no later than the end of October to allow for sufficient time for loan underwriting and to beat the Nov. 30 deadline to close.
"It's definitely getting people off the fence," said Ryan Kirkham, president of the Salt Lake Board of Realtors. "There's no question that it's having a positive effect on home sales right now." Further motivating buyers are super-low mortgage rates of about 5 percent or even below 5 percent.
"A lot of people realize that rates aren't always going to be this low," Kirkham said.
First-time buyer Saxony Sharkey qualified this summer for a mortgage at 5.25 percent to purchase an existing home in West Jordan. Like other buyers, she first heard about the federal home-buying incentive last year. But last year, the incentive was a $7,500 no-interest loan that had to be repaid.
Only this year, when the government started offering an $8,000 tax credit -- it does not have to be repaid if the home remains a primary residence for at least 36 months -- did she make her move.
"I thought, this is something I didn't want to pass it up," she said.
The state incentive, dubbed "Home Run 2," provides $4,000 grants to buyers who meet certain criteria and buy new construction. It follows the original Home Run program, which provided $6,000 grants to new home buyers. That program ended in June after all the funds were exhausted and 1,652 grants had been issued.
Today, there's about 1,400 grants available out of 1,950 when the program debuted on Sept. 4.
"The interest level has been very high," said Grant Whitaker, president and CEO of the Utah Housing Corp., which is administering the program.
Clark Ivory, who lobbied the state to create the grant program, said his home-building company had 60 sales in September, up from 47 in September 2008.
Cristy and Luis Duran, who are renting, didn't think they could afford to buy. But after a local real estate agent told them about the incentives, they went to a mortgage lender to see if they could qualify to buy a townhome.
They did qualify, and are using the $4,000 state incentive toward their down payment. Once they close in a few weeks, they will file an amended return to get the $8,000 federal incentive, which they plan to use to finish their basement.
"Without this money, we would not have been able to buy this home," Cristy Duran said.
Sharkey said she elected to amend her 2008 tax return after she bought her home this summer, and expects to get the tax credit money sometime over the holidays. Others are waiting to file for the credit in early 2010 when they file their 2009 return. Half of Sharkey's $8,000 was earmarked for some upgrades; the other half is destined for her saving account.
"I wanted to use some of its on upgrades," she said. "But based on the way things are going right now [with the economy], I thought it would be good [to put] half of it in savings."
lesley@sltrib.com
By Lesley Mitchell
The Salt Lake Tribune
Homebuyers along the Wasatch Front are racing to meet a deadline for purchasing incentives that expire on Nov. 30.
The larger of the two incentives is an $8,000 federal income tax credit geared toward first-time buyers of new or existing homes, although anyone who hasn't owned a home in the past three years is eligible. Utah also is offering a $4,000 grant for buyers of newly built homes. Both state and federal officials stress that there is no leeway on the deadlines for the incentives, which are aimed at boosting the sagging economy and real estate sector.
"You could be a day late and $8,000 short," said IRS spokesman Bill Brunson.
Salt Lake City Realtor DeAnna Dipo is telling prospective buyers who are interested in either incentive they probably are going to need to be under contract to buy a home no later than the end of October to allow for sufficient time for loan underwriting and to beat the Nov. 30 deadline to close.
"It's definitely getting people off the fence," said Ryan Kirkham, president of the Salt Lake Board of Realtors. "There's no question that it's having a positive effect on home sales right now." Further motivating buyers are super-low mortgage rates of about 5 percent or even below 5 percent.
"A lot of people realize that rates aren't always going to be this low," Kirkham said.
First-time buyer Saxony Sharkey qualified this summer for a mortgage at 5.25 percent to purchase an existing home in West Jordan. Like other buyers, she first heard about the federal home-buying incentive last year. But last year, the incentive was a $7,500 no-interest loan that had to be repaid.
Only this year, when the government started offering an $8,000 tax credit -- it does not have to be repaid if the home remains a primary residence for at least 36 months -- did she make her move.
"I thought, this is something I didn't want to pass it up," she said.
The state incentive, dubbed "Home Run 2," provides $4,000 grants to buyers who meet certain criteria and buy new construction. It follows the original Home Run program, which provided $6,000 grants to new home buyers. That program ended in June after all the funds were exhausted and 1,652 grants had been issued.
Today, there's about 1,400 grants available out of 1,950 when the program debuted on Sept. 4.
"The interest level has been very high," said Grant Whitaker, president and CEO of the Utah Housing Corp., which is administering the program.
Clark Ivory, who lobbied the state to create the grant program, said his home-building company had 60 sales in September, up from 47 in September 2008.
Cristy and Luis Duran, who are renting, didn't think they could afford to buy. But after a local real estate agent told them about the incentives, they went to a mortgage lender to see if they could qualify to buy a townhome.
They did qualify, and are using the $4,000 state incentive toward their down payment. Once they close in a few weeks, they will file an amended return to get the $8,000 federal incentive, which they plan to use to finish their basement.
"Without this money, we would not have been able to buy this home," Cristy Duran said.
Sharkey said she elected to amend her 2008 tax return after she bought her home this summer, and expects to get the tax credit money sometime over the holidays. Others are waiting to file for the credit in early 2010 when they file their 2009 return. Half of Sharkey's $8,000 was earmarked for some upgrades; the other half is destined for her saving account.
"I wanted to use some of its on upgrades," she said. "But based on the way things are going right now [with the economy], I thought it would be good [to put] half of it in savings."
lesley@sltrib.com
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