Buyers’ Tax Credit Now For All Buyers

Announced in November, 2009, new tax credits not only offer first-time  buyers incentives to purchase a new home [up to $8,000], but  all buyers, even those who already own homes.  If you’re seeking to change your house and take advantage of low home prices and interest rates, now’s the time!

Who’s Eligible?

If you’ve owned your principal residence for 5 consecutive years  of the last 8, you’re in. If you’re planning to live in your new home as your principal residence, you’re in.  If you’re single, you can earn up to $125,000 adjusted gross income and still receive the full credit of $6500. For married folks, that’s $225,000 adjusted gross income. Singles earning $125,000 to $145,000 and marrieds $225,000 to $245,000 can still get incrementals of the tax credit.

What’s the Deal?

Your new home cannot cost more than $800,000. Beyond that, I guess the feds’ feeling is you can handle the costs yourself.  And the credit is actually 10% of the purchase price up to a limit of $6500. Your purchase contract must be dated between November 7, 2009 and April 30, 2010. And, you must close on your deal no later than June 30th.

Notice:  Your new home’s price has no relation to your previous home’s value. This tax credit is for move-up buyers, downsizing buyers and relocating buyers. The legislation has no provision regarding the price of the new home.

In case you were wondering, you are not required to sell your previous home.  A detail announced by the IRS, however, states you are not eligible  if you convert your previous home into a rental.  It does seem, though,  you could short sale your previous home and still purchase a new home with the federal tax credit using the special loan mentioned in a previous post. Another detail is that you must live in your new home for which you received the tax credit for 36 months or you might have to repay it.

What’s the Catch?

Really, there’s no catch.  The federal government is trying to send some “stimulus” to the average taxpayer and to the moribund housing industry. As we know, the buyers’ tax credit was extended and this one for move-up buyers added, so there’s little likelihood that this will be extended again…

The main catch to this program is the same for any government program. It requires proper paperwork. Especially this time around, after many proven cases of out-and-out fraud in the buyers’ program, the IRS is determined to make sure all claims are valid.

 So, here’s what you need: a copy of  the HUD-1 settlement sheet from your new property. This gives the sales price and date of closing. You will need some evidence of the 5 consecutive years at the previous property–property tax, homeowners’ insurance or the like. And revised Form 5405 available at www.irs.gov.

That’s it. You’re in business. Now go get that property.

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Tsunami of Foeclosures Coming

So much for all the “good” news coming out of  D.C. Goldman Sachs, JP Morgan Chase, B of A are all happy campers with their billions in profits, while the rest of us lose our jobs and watch our state sink into bankruptcy. No one ever mentions that, besides the TARP money since repaid,  Goldman Sachs got $12 Billion from AIG to cover hedge fund losses. And, of course, where did AIG get the dough to cover its insurance policies? Why, funny you should ask, that also came from tax payers…So, it’s kind of an endless circle of taxpayer funds creating “wealth” for these jokers while the rest of us starve. That’s capitalism, right?

But, back to real estate…What does all this have to do with real estate. Plenty, as it turns out. Chase and B of A are, of course, banks, now, in fact, the biggest banks in the country. That means they also control a majority of the mortgage loans and how the rising default rate is to be handled. In case you hadn’t heard, default rates are up and rising. Could that have anything to do with the also rising unemployment rate now over 10% in 30 states and 12.6% in California last time I checked. Here, even the “good” state jobs are now at risk and going down the tubes faster than your 5-year-old at Raging Waters.

With no job or prospect of a job, when underemployed or working only part-time or sporadically, home owners can’t cover their mortgage payments. Add to that, the factor of plunging prices. It’s estimated that by now, after more than a year of record foreclosures and drops in home values, 27% of all California home owners are under water, that is, they owe more than their homes are worth. Of course, the smart ones are short selling their homes. It’s hard to give up the old homestead and all the work and money put into it, but once the underwater mark hits 30% loss of equity, it really makes more sense to let it go. It will be years before that equity returns given the numbers involved.

home floating on waves

What about the refi program discussed in a previous post? For some, that might be an option. It’s no help if you’ve lost your job. You won’t qualify.  If you still have a job and can afford the payments, this is an option. Though, notice–you still owe the money your home is no longer worth. You do pobably have a better rate and more managable payments, but, the debt is still there.

What about the loan mod program also discussed in a previous post? Well, there we’re back to these big banks, Chase, B of A, Wells Fargo and all the rest. These banks do most of the loans in the country, so borrowers  have to apply to these banks to get  loan mods.  Obama’s Homeowners’ Stabilization program, announced amidst much hopeful optimism in March, has proved less than effective, shall we say. Chase trumpets that it has modified 138,000 loans since April. That sounds reasonably good, but the program was supposed to modify more than 4 million in 3 years…Not much of a start, so far…

Then, there’s B of A which says it’s done 45,000 loan mods since April. That’s for the ENTIRE COUNTRY.  Think about this: California ALONE had 135,431 notices of default [NODs] send out from January through March of this year. B of A and its newest acquisition, failed California-based Countrywide, probably account for at least 30% of those loans or 40,000 loans. So, B of A is basically DOING NOTHING to help at this time of NATIONAL CRISIS. And, remember 27% of California homeowners are under water and so need to have their loans modified. How many actual borrowers would that be? I don’t know, but we have 35 million people, so that’s got to be in excess of 1 million loans….Nationwide, in the first quarter 1.8 million homeowners fell more than 60 days behind on their loans, 15% more than the prior quarter [Q4 08]. To repeat: this is a NATIONAL CRISIS.

What is going to happen next? Is B of A going to change its corporate culture and start helping homeowners?  Not bloody likely. Digging deeper into the trough of public money is more apt  to be that bank’s continuing attitude.  Just try to do loan mods with Countrywide and B of A or short sales. They take forever–4 months is the minimum; there is no maximum time.  The paperwork demanded is just stunning. B of A NEVER, to my knowledge, forgives even one penny of any under water loan balance as some banks actually are doing.   Its idea of what it owes to the common good is EXACTLY ZILCH, NOTHING, NADA.

So, those foreclosures, kept off the market by useless cycling of paperwork in rejected refis and loan mods, will come onto the market, especially here in California.  Last summer, foreclosure sales statewide hit a high of 26,500 a month.  Before this year is out, we may well beat that record. I am one of many real estate brokers who supply lenders with estimates of value or broker price opinions [bpo] and I can say, anecdotally, that I am very busy, often doing 3, 4 or even 5 every day.  If  I am that busy, so are the others who do this work. That means so many foreclosures looming…

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Is the Recession Over? Coulda’ Fooled Me

Lately, we’ve been getting report after report in our media that the “greatest recession since the Depression” is over or almost over or showing signs of weakening…Really?

Here’s a snippet from a March, 2009 N.Y. Times article: “Retail sales are up. Industrial production is up. So are housing starts, non-farm employment, exports and business confidence. Even department store sales in the New York area are finally turning around.  At the same time, inflation, interest rates, new jobless claims and personal debt are all, gratifyingly, down. Is the recession over? Finally, after 19 months, the answer appears to be yes.”

Isn’t this a bit crazy? What  is he  talking about?  Unemployment continues to climb with another 500,000 jobs lost in April and a tsunami of foreclosures predicted for this summer and into next year. So, who’s out of recession? Why the stock market, of course, and why not? They’ve emptied the U.S. Treasury to save the Fat Cats of Wall Street while the rest of us are left with plunging home values and no jobs. The S & P 500 continues to climb and the banks are eager to get out from under the TARP.

Well, whoopee, for them…That same N.Y. Times [different article, of course] notes that 5.4 million homeowners nationwide are now delinquent or in some stage of foreclosure. That’s about 10% of ALL mortgages and that is very scary. I guess several factors are driving these homeowners into foreclosure. The first must be job loss. It’s hard to pay your mortgage with no income. The second must be plunging home prices which ties into job loss as more and more go into foreclosure driving prices down still further.

It really kills me to listen to the suits on TV gabbling about the “end is in sight”  and other equally nauseatingly self-serving opinions. If you are an investment banker on Wall Street, then I guess it’s over for you. The taxpayers bailed you out. If you’re an autoworker, not so much. Or, an auto-dealer. Or, anyone involved in the peripheral auto industry, supplies, parts, repairs. Oops, there goes a good chunk of California as well.

So, why would these bloated opinionators be so determined to call an end to the recession?  Besides bankers, they might be politicians or connected to the new administration or the Democratic party. I’m an Obama supporter, too, but getting increasingly tepid about him. His vaunted plan to save 4 million homes from foreclosure? Well, we’re  3 months into it and so far a mere 100,000 have had their loans modified. That means payments are reduced to manageable levels for 3 to 5 years, but  the principal will not be reduced one iota. That’s what’s really fueling foreclosures and delinquencies: buyers are massively upside down in their home values. It really doesn’t make much sense to keep paying the mortgage, even a “modified” mortgage when you are $100,000 to $200,000 “under water”. The banks don’t want to reduce the principal balances on their loans. No, they want to have the  TARP money from taxpayers and then continue on their merry way. Life will go as before–sweet–for them. Obama and his administration have apparently caved to the banks’ desires and have not asked them to reduce the principal balances owed. underwater borrower

No, Obama & Co.  would prefer to announce the “end is in sight” and ignore the tsunami of foreclosures expected this summer and into next year as the unemployment rate continues to climb, and homeowners’ equity continues to sink. This problem is especially acute here in California. Our unemployment rate is soaring; our state government has crumbled; every state agency, including schools and universities, is taking a huge hit, compromising our future as well as our present; homeowners are losing equity by the minute.

Obama was actually here a few days ago for a massive fundraiser. That’s what California means to politicians–parachute in, grab dough from our fat cats and then high tail it back to D.C. where they proceed to ignore us again….Left coast indeed.

Obama’s Housing Plan: Problems for California

Obama’s recently announced Housing Stabilization Plan is good as far as it goes, and it goes $25 billion worth. California will get a good chunk of that taxpayer dough, but many homeowners here will not be able to benefit from the plan.

Refinancing becomes an option for some because Obama’s plan allows for refis up to 105% of equity. Say you owe $300,000 on your home. You could borrow up to$315,000. That’s a better deal than the normal 80% of equity allowed for a refi, but it’s hardly going to help much in California where prices have tumbled 25% to 50% or even 70%, depending on the area,   in a bit over a year.   Plus, of course, anyone who refinances must have the income to qualify.

Then, there’s the loan modification option, also sweetened considerably by Obama’s plan. For one, borrowers who have struggled to stay current are now eligible for loan mods as well as those who have missed payments. Here’s the problem, though, if you want a loan mod, you need to show income and unemployment is not acceptable. With California’s zooming unemployment rate, many who need loan mods won’t be able to get them for lack of income. Across the country, nearly 12% of homeowners are in arrears on their mortgages or already in foreclosure. This is a disaster not only for the homeowners, but for all of us . In California, the latest figures show 13% in arrears or in foreclosure as compared to, say, Florida where 20% are in that position. .

Besides job loss, another huge factor is loss of value. Estimates of homes  with  negative equity vary, but it’s around  12 million homeowners, about 25% of all homeowners in the U.S. either now owe more than their homes are worth or are within 5% of being so. Almost 2 million Californians are in that unfortunate situation with about 300,000 in the L. A. area. A research firm, First American CoreLogic, estimates that 723,000 California mortgages are in “severe” negative equity with loan amounts 125% or more of the home’s value. That’s about one-third of the country’s 2.2 million such loans.

house-in-watersmall

Other states have greater percentages of loans in trouble, but smaller populations and so fewer loans. Nevada, for instance, has 330,000 underwater loans, very similar to the L.A. area, but that represents an astounding 55.1% of all loans in Nevada. Michigan, economically sick for a long time, has 459,000 such loans or 40% of all loans in the state. Arizona has 31% of its loans underwater or 407,000. Florida, far more populous, has 30% of its loans in negative territory, but that’s 1, 284,000 loans. California, as mentioned, has 1, 900,000 or 29.5% of its loans underwater. Thus  the Big Four which  account for almost half of all the foreclosures in the nation. Rounding out the top ten are Georgia [23%, 335,000], Ohio [23%, 435,000] Colorado [21.5%, 225,000], New Hampshire [20%, 33,560] and Virginia [19.6%, 219,282].

Obama’s plan will help California, but, clearly, with our gigantic population so many cannot be allowed to go under. Obama and company need to come up with more creative ways to help California’s underwater homeowners.

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And Now For the Good News

Finally, some relief for California home sellers and home buyers. As part of the federal stimulus package,  conforming loan limits have been raised substantially, up to $729,000 and, to FHA  loan limits are up to the same amount until the end of the year.

Well, hooray for mortgage wonks! We were hoping for something that made sense,  you might say…Here’s what it all means…

 Until now, conforming loan limits,  meaning those conforming to the guidelines issued by Freddie Mac and Fannie Mae and thus saleable on the secondary market, capped at $417,000. Above that limit and buyers had to purchase a so-called jumbo loan with rates at least 1% higher and sometimes far more. That hadn’t bothered us in SoCal much.  Even with our ever-escalating prices, lenders simply packaged a first loan up to $417,000 and offered a smaller second loan to cover the difference.

Then came August 07 and the subprime crisis hits the fan. Foreclosures start to multiply, so lenders revise their guidelines to plug up the gaping holes speculators and the penniless had been running through. The investors who provide the money for the second loans designate SoCal counties as “distressed” and decline to provide any more funds. 

   Jumbo loans cost 1-3% more than conforming, so who is going to take the hit?   With lenders heading for the hills, it’s pretty clear that sellers will have to revise their prices, but even then buyers are declining to participate. The market slows to a snail’s pace, making a bad situation worse.

 Then, our do-nothing Congress, mired in gridlock, wakes up: 2008 is an election year! Miraculously, passing a bi-partisan stimulus package in record time, Congress  makes sure we all receive $300, $600, $1200 or whatever from our tax returns. But, this bill  also helps home owners sell their homes by raising the conforming  rate up to $729,000 in highest priced areas, such as our own.

 What about the buyers? Buyers will have an easier time to qualify with the lower rates, but first-time buyers are getting a break, too. FHA loan limits are $729,000 until the end of the year; that rate expires  right after the election. FHA loans typically have down payments of 3-5% or 103% of the purchase price for repairs, all guaranteed by the Federal Housing Authority [FHA]. FHA made home ownership possible for millions of Americans after World War II. FHA may save us once again.

So, you see this is really good news, not just for wonks but for home sellers and first time buyers.