Friday, May 2, 2008
Monday, April 28, 2008
By JEFF D. OPDYKE
April 26, 2008; Page B1
Homeownership, the bedrock of the American Dream, is a bit of a nightmare these days for many first-time home buyers.
Lenders are demanding higher credit scores, mandating private-mortgage insurance on many more loans, and requiring larger down payments. Fewer first-timers qualify for the house they want, or they're paying a larger monthly amount to own it.
There are still some programs for first-time buyers that offer slightly more lenient underwriting standards that make it easier to get into a home, or discounted interest rates that make homeownership more affordable. But even these are tougher to qualify for.
Freddie Mac requires a solid credit score of at least 700 for a low- or no-down-payment mortgage through its Home Possible first-time buyer program. Previously, it imposed no minimum. Freddie saw "an influx of business" amid the subprime bust, says Patricia McClune, a vice president, because it's the only way to obtain 100% financing. Loan volumes are still up, but the tightened standards mean fewer first-timers qualify.
Volumes at the Federal Housing Administration are up, too. The agency hasn't changed its underwriting standards, but does impose income-verification and debt thresholds. Moreover, FHA loans require that a mortgage-insurance premium of 1.5% of the loan value be financed into the mortgage; and borrowers must pay an additional 0.5% mortgage-insurance premium every year. Together, that adds $75 a month on a $150,000 loan.
"Every borrower faces a steeper hill" now, particularly first-timers, says Pete Ogilvie, president of the California Association of Mortgage Brokers.
Many programs for first-timers carry restrictions, so shop around. Connecticut's Homebuyer Mortgage Program offers a 5.625% interest rate fixed for 30 years, half percentage point below the area average. That can save $60 a month on that $150,000 mortgage. The problem: Reduced funding means the agency is doing only 2,750 mortgages this year, down from roughly 4,000 previously.
The catch: The loan is subject to a federal recapture tax. If you sell within nine years, you could be required to give up as much as 50% of the profits, depending on various factors.
"That's the problem" you need to be aware of with some first-time buyer programs, says Michael Menatian, president of Sanborn Mortgage, a mortgage bank in West Hartford, Conn. "You get the lower rate, but you're potentially robbed of a big part of the equity to buy your second house. But in this market, it's better than nothing."
Wednesday, April 23, 2008
Congress Hammers OutBy MARTIN A. VAUGHAN
Breaks for Homeowners
April 23, 2008
In just a couple of years, Congress has gone from considering ways to collect more taxes from homeowners and individual real-estate investors, to dreaming up new tax breaks for home buyers. With foreclosures hitting about 7,500 a day nationwide in March, and median home prices declining in most U.S. markets, the shift in attitudes is no mystery.
Gone are the days of 2005, when an advisory panel appointed by President Bush recommended trimming the home-mortgage interest deduction to pay for lower income-tax rates. Many lawmakers scoffed at the proposal, but the fact that it was even put forward by the distinguished, bipartisan panel was remarkable in itself.
As recently as this past October, the House of Representatives passed a provision that would have raised taxes on some owners of vacation homes. It targeted owners who moved into those houses for two years before selling them, in order to benefit from the full $500,000 maximum income exclusion available for the sale of a principal residence.
Tax Credits, Tax Breaks
That provision is now nowhere on the radar. Moreover, Congress is moving toward enacting new tax credits for home buyers, and tax breaks for millions of homeowners who don't currently benefit from the ability to write off property taxes.
"The world has changed dramatically," says Linda Goold, tax counsel for the National Association of Realtors, of the rush by Congress to aid homeowners and the real-estate industry.
Who is likely to benefit from tax changes in the pipeline? And for how long? The Senate and the House Ways and Means Committees have each passed packages of tax breaks aimed at easing the housing slump. Both enjoyed broad support from Democrats and Republicans.
The first thing to know is that in order to claim any tax benefits in the current proposals, you must live in the house you are claiming them for. None of the provisions likely to become law are written to help the small-time investor in a single-family home.
Second, the tax breaks under discussion are temporary, so lawmakers can advertise them as being available "for a limited time only." However, if history is any guide, Congress is loath to let tax cuts for individuals expire once it creates them.
Both the Senate and House bills would increase the standard deduction for one year to allow those who don't itemize their taxes to take a deduction for property taxes. The increase would be capped -- the additional standard deduction is worth up to $1,000 for joint filers under the Senate plan, for example.
But nearly all homeowners already itemize so they can write off their mortgage interest, right?
Wrong. Roughly 40% of all homeowners -- about 28 million -- don't itemize. The additional standard deduction would particularly benefit people who live in modest homes and have paid off or nearly paid off their mortgages, many of whom are seniors.
As such, those people would also likely not have charitable or other deductions totaling more than the standard deduction amounts -- in 2008, $5,350, or $10,700 for married taxpayers filing jointly.
Besides the standard-deduction increase, Congress-watchers say some kind of tax credit for home buyers has a good chance of becoming law. The House wants to give first-time home buyers a $7,500 credit. The $7,000 credit offered in the Senate bill, not limited to first-time buyers, would apply only to new, unsold homes or homes in foreclosure.
A 'Buyers' Psychology'
"The whole goal here is to create a buyers' psychology," says Ms. Goold of the Realtors' group.
But some tax experts say it is more like a psyche-out. Take the proposed first-time home buyers credit, for instance. A qualified buyer can receive a maximum $7,500 from the federal government, similar to an interest-free loan, repayable over 15 years. That works out to an average of an additional $42 per month paid back to the government.
But what if, in lieu of borrowing from Uncle Sam, the strapped buyer had simply borrowed an extra $7,500 from the bank? Spread out over the life of a 30-year mortgage with a 6.5% interest rate, the borrower would end up paying an extra $48 a month.
Of course, the buyer who takes the tax credit saves $9,500 in interest costs over the long run. But the difference on the monthly payment side is small. "It raises the question: Is it really increasing the ability of the buyer to purchase that home?" says Clint Stretch, managing principal of tax policy for Deloitte Tax LLP.
The measures could still get tripped up by concerns about their cost, or by disagreements between the White House and Democrats over Federal Housing Administration provisions that are also expected to become part of the package.
* * *
LAW STUDENTS, be civic minded ... but also be tax wise.
Yale Law School last week announced it is expanding its student-loan-forgiveness program to include students in public-service jobs making up to $60,000.
Yale is one of more than 100 law schools nationwide that offers to forgive student debt, as an incentive for graduates to work for the government or a nonprofit when they graduate. But law students should be aware of possible tax consequences of such a gift, says Heather Jarvis of Equal Justice Works, an organization to promote public-interest law.
"It's an unsettled area of tax law," Ms. Jarvis says. Most schools have structured their programs so that the loan amounts forgiven wouldn't be treated as income, she said. But a 2006 court decision threw some doubt on whether law-school programs qualify for a tax exclusion.
Other schools structure their loan-forgiveness programs as a grant. In those cases, lawyers in the programs will owe some tax on the grant amounts.
In the meantime, school administrators including Associate Dean Ellen Aprill of Loyola Law School -- who blogged about the issue on the TaxProfBlog Web site -- and University of Virginia Law School Dean John Jeffries -- have asked the IRS to clarify its guidance.
At the end of the month, Fannie Mae will adopt higher minimum down payments and credit scores for borrowers with a past foreclosure.
The government-sponsored enterprise already has boosted the time period for these borrowers to re-establish their credit to five years from four years.
While exceptions could be made for borrowers in hardship situations, Marianne Sullivan, senior vice president of single-family credit policy and risk management at Fannie Mae, says those who had the ability to pay but walked away from their homes should be treated differently than those who met their payment obligations.
Additionally, Sullivan says Fannie Mae will make it more difficult for borrowers to transform their current residences into rentals and purchase new homes to discourage them from walking away from the existing home after the transaction closes.
Fannie Mae is making these changes as Congress considers passing legislation that would allow struggling borrowers to refinance into FHA loans after their lenders write down a portion of their mortgages, and the mortgage industry is pushing for speculators to be barred from the program.
Former Mortgage Bankers Association chair Regina Lowrie asks, "Why should a servicer take a haircut or have a cram-down for any borrower that truly has the ability to pay?"
Source: American Banker, Kate Berry (04/22/08)
Copyright Info Inc.
U.S. Rep. Ed Perlmutter (D-Colo.) has rolled out legislation that could result in lower-interest loans for people who purchase energy-efficient homes or retrofit existing residences with green features.
Under the bill, Fannie Mae and Freddie Mac would gain as much as a 25-percent credit toward their federal goal of serving low- and moderate-income buyers by repurchasing mortgages on environmentally friendly buildings.
This would create an incentive for lenders to pursue green lending because they would know they can easily resell the loans, said Perlmutter, adding that they could also pass the savings on to borrowers.
It's a promising idea, but it's not a sure thing yet. Home builders have expressed concern about the proposal because the additional requirements could increase construction costs; and Fannie Mae is worried about a requirement that would force it to have different percentages of "green mortgages" by various benchmark dates.
Source: Denver Post, Anne C. Mulkern (04/23/08)
Friday, April 18, 2008
Daily Real Estate News | April 18, 2008
Delinquencies in U.S. commercial mortgages have risen slightly this year, according to the Commercial Mortgage Securities Association (CMSA). But for the most part, the market is in good shape.
The current delinquency rate is about 0.4 percent, up from 0.25 percent during the final quarter of 2007. The trade group says delinquencies could reach 1.5 percent to 2 percent before the end of the year.
That’s still low compared with residential mortgages, and compared with commercial mortgages historically. The worst delinquency rate was in 1992, when it averaged 7.53 percent. Fitch ratings on Tuesday said that situation is unlikely to be repeated.
"The commercial real estate markets are not facing the same significant oversupply that plagued the markets in the late eighties and early nineties, plus tax treatment of commercial real estate projects has been relatively steady," Fitch Managing Director Bob Vrchota said in a statement.
CMSA President Lee Cotton, complained that investors misunderstand the situation and consider securities connected to commercial lending tainted by the same problems facing residential mortgages.
"We are saying, stop. We've got 40 basis points of delinquencies. We've got in-balance markets. We've got sophisticated borrowers. We are not the same business," he said.
Source: Reuters News, Lisa Lambert and Avesha Rascoe (04/15/2008)