I JUST MADE THE RIGHT MOVE, KELLER WILLIAMS IS #1.
by Stefan Swanepoel
11,000+ Agents Cast 390,000 Votes to Select the Top 10
It’s been almost 40 years since franchising entered the residential real estate industry; a move that has shaped the industry like few other concepts or strategies before or since. The impact of franchising ranks with MLS and the Internet as the top three game changing strategies in real estate since WW II.
Today there are a growing number of agents questioning the value proposition of real estate franchising. They point to some of the “older models” that seem to offer little more than a brand; a brand of questioned value in today’s online world. A franchise company’s long term success (or failure) is therefore dependent upon both its model standing the test of time and its implementation systems supporting the local franchisee in successfully putting those models into operation.
In the 2010 Swanepoel TRENDS Report, scheduled for publication on February 8th, 2010 — reserve a copy now at www.RETrends.com) — a whole trend is dedicated to analyzing real estate franchising. The trend discusses the changes that have occurred during the last year including bankruptcies, acquisitions, large mergers, the re-introduction of previously dormant franchise brands and the launch of several new ones.
The Report details the Top 20 largest franchises based on agent count as of December 2009, inclusive of recent changes and acquisitions up and including that date.
However, as an additional test RealSure (www.realsure.com), the publishers of the Swanepoel TRENDS Report and the Swanepoel SOCIAL MEDIA Report, decided that it would be interesting to compare agent count rankings with the perception and recognizability of franchise brands by the industry itself.
So on Thursday December 3rd a nationwide online survey was launched to determine the “Most Recognizable Franchise Brand in Real Estate.”
With real estate agents being independent contractors and fiercely loyal to their respective brand the vote quickly garnished huge attention. It went viral through various social media networks, blogs and emails encouraging agents to vote.
In the end an astonishing 11,355 agents voted, casting just over 390,000 votes for 33 different real estate franchise brands making this — according to knowledge — the largest survey of its kind in the industry. The survey required real estate professionals to vote for a franchise on a scale from 0 – 5; starting from “Never heard of the brand” all the way up to “Excellent brand.” The brand’s scores in all categories were taken into consideration to determine the overall rankings. In the end there was a significant difference in the vote count between most of the top 10, thereby solidifying the placement of the brands.
Although another survey can produce different results and rankings, we are confident that this is a very good reflection of the real estate brokerage industry’s current opinion and awareness of the franchise brands that serve them.
The Top 10 real estate franchises, most recognized by the real estate industry as quality national brands are:
1.Keller Williams Realty
2.Coldwell Banker Real Estate
3.RE/MAX International
4.Century 21 Real Estate
5.Prudential Real Estate
6.Sotheby’s International Realty
7.EXIT Realty
8.ERA Real Estate
9.Weichert Real Estate Affiliates
10.Better Homes & Gardens Real Estate
The franchises that made it to the Top 5 were to be expected and are also the five largest real estate franchises in the country. The Top 5 also comfortably attracted more votes than the second five on the list, strongly pointing to the industry’s own internal belief that these are the top five franchise brands that agents would like to work for.
Keller Williams Realty’s surprising #1 ranking was most likely due to the strong, above average online and social media presence of their agents and the fact that during 2009 KW surpassed RE/MAX in agent count according to a widely published REAL Trends survey..
The 103-year old Coldwell Banker franchise has been the beneficiary of many NRT, Inc. acquisitions that have allowed the brand to remain at the forefront of many agents in a positive way. RE/MAX with their powerful consumer portal has also enjoyed the highest profile on national television of all the brands, thereby probably contributing to their high ranking.
Most interesting was the strong showing of Sotheby’s International Realty at #6, ahead of ERA Real Estate (a more established brand in real estate) and EXIT Realty (a more bolder promoter). The ranking was most likely attributed to the luxury homes image that many agents attach to the brand.
Long standing independent and northeast-based regional Weichert REALTORS converted to a franchise seven years ago and has steadily grown. Impressively it was able to break into the top 10 as a recognizable national brand.
Also surprising was the fact that newcomer Better Homes & Gardens squeezed out companies like Realty Executives, John L Scott and Windermere (both still regional players) to claim the last spot in the Top 10. This was most likely attributable to the recent news that 2,000-agent Metro Brokers switched from GMAC to BH&G as well as a few other key acquisitions.
The housing market is smaller than it was three years ago, yet we have more franchisors today than we did back then. Clearly the market is over saturated and yet the franchises reflected on this list are, according to thousands of agents that work for them and for their competitors, the best of the best.
At the end of the day, real estate brokers and agents want and need different kinds of support and thus different franchisors will attract different brokers and agents. For a detailed discussion on franchising, what the 7 key different types of real estate franchises are and which of the strategies currently work the best, read the 2010 Swanepoel TRENDS Report. Secure your copy at a special pre-publication discount of 34% when ordering at http://www.realestatebooks.org/items/Swanepoel_TRENDS_Report_2010.htm
Survey methodology:
The poll was conducted online within the United States between December 3rd and December 11th, 2009 among 11,355 real estate professionals.
All surveys and polls are subject to multiple sources of error that are not possible to quantify. Especially with online polls the errors associated with wording, selection, exposure and attempts to manipulate the vote make it very difficult to guarantee results. Post-survey weighting and adjustments are made to adjust for irregularities found in the voting but we avoid using the term “margin of error” as we feel it is still misleading.
Due to the very large number of real estate professionals that voted it is felt that the results closely reflect the opinion of the majority in the industry.
Tuesday, December 15, 2009
Monday, December 14, 2009
If You Don't Buy a House Now, You're Stupid or Broke
By Marc Roth
Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth.
Well, you may not be stupid or broke. Maybe you already have a house and you don't want to move. Or maybe you're a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don't act soon, you will regret it. Here's why: historically low interest rates.
As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.
In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity.
And it is exactly that, based on what the graph shows us. Let's look at the point on the far left.
In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.
But they weren't happy soon thereafter. From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.
Interest Rate Lessons
And when rates started to decline after that, they took a long time to recede to previous levels. They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990. For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%. We've since spent the last nine years, until very recently, at 6% to 7%. So you can see why 5% is so remarkable.
So, what can we learn from the historical trends and numbers?
First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.
Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.
Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.
Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let's assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.
Loan Costs
Stay with me now. We are at 5%. As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000.
Let's put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is "more stable" and it's safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.
If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you're borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.
What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.
Marc Roth is the founder and president of Home Warranty of America
Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth.
Well, you may not be stupid or broke. Maybe you already have a house and you don't want to move. Or maybe you're a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don't act soon, you will regret it. Here's why: historically low interest rates.
As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.
In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity.
And it is exactly that, based on what the graph shows us. Let's look at the point on the far left.
In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.
But they weren't happy soon thereafter. From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.
Interest Rate Lessons
And when rates started to decline after that, they took a long time to recede to previous levels. They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990. For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%. We've since spent the last nine years, until very recently, at 6% to 7%. So you can see why 5% is so remarkable.
So, what can we learn from the historical trends and numbers?
First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.
Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.
Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.
Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let's assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.
Loan Costs
Stay with me now. We are at 5%. As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000.
Let's put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is "more stable" and it's safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.
If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you're borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.
What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.
Marc Roth is the founder and president of Home Warranty of America
Tuesday, December 8, 2009
Banks Take Losses on Short Sales as Foreclosures Soar
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.
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.
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.
Subscribe to:
Posts (Atom)
Posts
