The Mortgage Forgiveness Debt Relief Act, a law temporarily amended the federal tax code to allow mortgage debt on a principal home that is canceled by a lender through a loan modification, short sale or foreclosure to escape taxation as ordinary income, is set to expire on December 31. The prospect is scaring the hell out of loan owners. If this law is not extended, millions of loan owners who plan to sell over the next several years will have to claim potentially hundreds of thousands of dollars of taxable income on the sale.
The Mortgage Forgiveness Debt Relief Act was originally passed out of necessity. The tax bills were going to push millions of insolvent former debtors into bankruptcy. It seemed like the compassionate thing to do for loanowners who bought at the peak and already lost their down payments and their homes. However, the issue is not that simple. By forgiving mortgage debt on all borrowers who short sale, the Ponzis are going to escape taxation on the money they took out. Ponzis extracted hundreds of thousands of dollars in mortgage equity withdrawal — money that was used and spent as income. Ponzis should pay income tax on this money. It was income to them.
The reasonable compromise
No effort was made to separate the wheat from the chaff when administering this tax break, and this created a situation where HELOC abusers and Ponzis really were given free money. My proposal is simple. Extend the tax break only for resale amounts less than the original purchase prices of the property. If the debt exceeds the purchase prices of the property, this money was not the original down payment, and the excess truly was “income” to the borrower that should be taxed. For example, if a loanowner paid $500,000 and sells for $300,000, they pay no tax. However, if a loanowner paid $300,000, then borrowed $1,000,000, and sells for $650,000, they will have to pay tax on the $350,000 they were short on their mortgage.
This compromise is easy to administer because the original purchase price is known. It bails out the people who were victims of bad timing, and it charges an appropriate income tax on Ponzis who were using mortgage equity withdrawal as a source of income. There isn’t really a reasonable objection to this compromise other than it will cause the bankruptcy of a large number of Ponzis. If that happens, too bad. They don’t deserve a tax break for their irresponsible borrowing.
Underwater homeowners fear drowning
By Kenneth R. Harney — December 9, 2012
WASHINGTON — Patrick Boris, a banquet chef in Las Vegas, is inching toward his own “fiscal cliff,” 2,100 miles away from the political brinkmanship underway in Washington.
If Congress and the White House don’t solve the fiscal impasse this month, Boris figures he could owe federal income tax on more than $100,000 in forgiven mortgage debt following the short sale of the two-bedroom townhouse he plans to sell next year — a personal financial “disaster,” in his words.
In Sacramento, Elizabeth Weintraub, a real estate broker who specializes in short sales, says many of her clients have potentially taxable exposures on $200,000 or more in negative equity balances on their short sales next year if Congress fails to act. …
“This is ludicrous,” she says. “These people already are on the losing end. Now it could get much worse.”
If this tax break is allowed to expire, it will be devastating financially to loanowers. It will also have a host of unintended consequences.
First, it will cause the volume of short sale listings to plummet. The housing market is already suffering from an extreme shortage of inventory, and if short sale listings disappear, very little will be available for sale.
Second, more borrowers will game the system by applying for loan modifications that will ultimately fail. Particularly here in California where dual tracking is prohibited starting January 1, everyone who is underwater will play the game. Many people who would otherwise have sold their homes will chose to rent them out instead.
Third, lenders will be under more pressure to process foreclosures to replenish MLS inventories and boot out committed squatters. With no option for a short sale, those who don’t bother playing the game with loan modifications will strategically default thus forcing lenders to deal with them via foreclosure.
Consider:
• Nationwide, according to mortgage industry estimates, about 11 million owners are underwater. New data generated for this column by realty information company Zillow indicate that the average negative equity of owners who are underwater — their loan balances exceed the property value — is higher than $90,000 in more than 64 local markets and more than $50,000 in 470. The average negative equity among such owners nationwide, according to Zillow, is $73,163.
About a third of the sales on the MLS are short sales. This number will fall to near zero if the tax break isn’t extended. realtors everywhere will starve.
The highest average negative equity among owners who are underwater is in Key West, where it exceeds $185,600. In San Francisco, it’s $153,194; Los Angeles, $134,400; New York, $126,500; the Northern Virginia suburbs of Washington, $114,000; Miami-Fort Lauderdale, $99,900; Las Vegas, $99,000; and Seattle, $91,000, to name just a few.
Lenders would be happy to see prices rise back up to the peak due to the lack of inventory, but the markets are so far below the peak in most locations, it will take far too long for such price increases to happen.
• Federally regulated Fannie Mae and Freddie Mac own about 4 million mortgages that are underwater, and as of Nov. 1 began encouraging owners who are current on their payments but facing a financial hardship to apply for short sales that forgive their loan balances. All participants in these short sales who close after Jan. 1 could be subject to federal taxation on the forgiven balances if Congress does not extend the law.
Again, short sales will basically stop.
• Forty-one state attorneys general recently appealed to the House and Senate to pass an extension so as not to disrupt the $25-billion nationwide “robo-signing” settlement they negotiated with five major lenders. Among other provisions, the settlement encourages lenders to forgive billions of dollars in mortgage debt next year and beyond. Failure to renew the law, said Nevada Atty. Gen. Catherine Cortez Masto, would cause families who are already facing financial distress to be “stuck with an unexpected tax bill” that could deter them from “participating in this historic settlement.”
Fortunately for the banks, they are close to reaching their write-off goals under the loan settlement. However, if short sales stop, it will take lenders longer to get to their accounting goals.
What’s the outlook? There are no indications that either House Speaker John A. Boehner (R-Ohio) or Senate Majority Leader Harry Reid (D-Nev.) plan a separate vote on a mortgage debt forgiveness extension, essentially freeing it from the game of political chicken underway. Whether a grand bargain including an extension can be struck is anyone’s guess — and underwater short sellers’ ongoing nightmare.
I feel bad for the peak buyers who are stressing over this issue. This will trap them in their homes until prices reach their loan balances.
I feel nothing for the Ponzis who are facing the consequences for their foolish borrowing. If they get a break, it will be a travesty of justice.
I wish lawmakers had the wisdom to see the difference between these two vastly different groups of borrowers. The compromise I outlined above would solve the problem in a way that does not cause moral hazard. I urge them to consider it while they deliberate the fate of loanowners everywhere.
Should these borrowers pay taxes or not?
The former owners of today’s featured REO are a typical example of people who don’t deserve a break under the tax code. They extracted over half a million dollars in mortgage equity withdrawal they spent as income. If they get a tax break, this income they spent goes untaxed, and they are the beneficiaries of truly free money.
- This property was purchased on 1/21/1998 for $453,000. The owners used a $300,000 first mortgage and a $153,000 down payment.
- On 4/17/1998 they obtained a $100,000 HELOC.
- On 1/25/2002 they refinanced with a $294,000 first mortgage. Apparently, they were paying down their original purchase money mortgage and did not use the first HELOC.
- On 5/17/2005 they refinanced with a $790,000 Option ARM. This $490,000 in mortgage equity withdrawal was not taxed in any way.
- On 10/19/2006 they opened a $200,000 HELOC.
- On 1/31/2007 they refinanced with a $856,000 first mortgage and obtained a $200,000 HELOC.
Let’s say the borrowers sold this property short rather than letting it go to foreclosure. They extracted over $600,000 from the property. It is too much to expect them to pay a few dollars in taxes on this income? I don’t think so.
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Proprietary OC Housing News home purchase analysis
1330 TERRACE Way Laguna Beach, CA 92651
$1,149,900 …….. Asking Price
$453,000 ………. Purchase Price
1/21/1998 ………. Purchase Date
$696,900 ………. Gross Gain (Loss)
($91,992) ………… Commissions and Costs at 8%
============================================
$604,908 ………. Net Gain (Loss)
============================================
153.8% ………. Gross Percent Change
133.5% ………. Net Percent Change
6.3% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,149,900 …….. Asking Price
$229,980 ………… 20% Down Conventional
3.86% …………. Mortgage Interest Rate
30 ……………… Number of Years
$919,920 …….. Mortgage
$216,850 ………. Income Requirement
$4,318 ………… Monthly Mortgage Payment
$997 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$287 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$5,602 ………. Monthly Cash Outlays
($1,108) ………. Tax Savings
($1,359) ………. Equity Hidden in Payment
$302 ………….. Lost Income to Down Payment
$307 ………….. Maintenance and Replacement Reserves
============================================
$3,745 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$12,999 ………… Furnishing and Move In at 1% + $1,500
$12,999 ………… Closing Costs at 1% + $1,500
$9,199 ………… Interest Points
$229,980 ………… Down Payment
============================================
$265,177 ………. Total Cash Costs
$57,400 ………. Emergency Cash Reserves
============================================
$322,577 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Consumer Confidence Takes a Dive Over Fiscal Cliff Concerns
A preliminary report from Thomson Reuters and the University of Michigan shows consumer confidence took a major hit to start December as Americans anxiously watch for signs from Washington on budget negotiations.
The Thomson Reuters/University of Michigan Index of Consumer Sentiment fell to 74.5, a substantial drop from November’s promising 82.7. The median forecast from economists polled by Reuters was 82.4.
“Confidence plunged in early December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff,” said Richard Curtin, chief economist for the Survey of Consumers.
If policymakers do fail to reach an agreement by the start of 2013, experts predict the resulting tax increases and spending cuts would drive the country into another recession.
Consumers expressed declining confidence about current economic conditions, driving the Current Conditions Index down from 90.7 at the end of November to 89.9 in this preliminary release.
More drastic was the drop in the Index of Consumer Expectations, which fell to 64.6 from 77.6 previously.
While the decline in confidence may be a cause of alarm for some, Capital Economics’ Amna Asaf said the sharp drop was overdue after several months of improving sentiment.
“The headline index of confidence is now at a level consistent with only modest consumption growth in the fourth quarter,” the economist writes. “It is clear that the negative impact from previous declines in equity prices and the looming fiscal cliff has started to weigh in on consumer moods. But we will have to get more certainty on the direction of the fiscal cliff before we see a marked impact on spending.”
Final results will be released December 21.
This is such a lie. Consumer confidence didn’t take a dive because ordinary people are anxiously watching live cable TV broadcasts of House debates, and poring over the editorial pages of the WSJ and Post, debating the merits of Boehner’s proposal versus the President’s this and that. Give me a break. Only political dweebs are that into the weeds.
Consumer confidence took a dive because of what is actually going on in people’s lives. They went to the grocery and were smacked in the face by the price of milk, or filled up the van and paid $90 for a week of driving, not even a long road trip. Their kid who graduated in June still hasn’t found a job using his Ecological Engineering major and has finally settled for being a customer service rep at a cable TV company. The 401(k) started to look promising earlier this year, and they even used some of their IRA money to buy some FB stock because everyone said the future was all social media…but ugh the last four months…and now the company says it’s holding salaries flat next year because sales are crapping out this fall and health-care costs are zooming — wasn’t Obama supposed to have fixed that by now, damn it?
The reason journalists lie outrageously like this is they want you to believe the clown show in Washington can easily fix things — if the wreckers and obstinate fools who insist on some fiddling limits to the power of government (like the Constiution) would just shut up and get out of the way. We need a Strong Leader, damn it. It’s just a question of which leader…
A “fiscal cliff” can easily be solved by Speaker Boehner just giving the President his Ask The Rich To Pay Just A Little More magic potion. So if you can be made to believe this is all that stands between you and salvation, a return to glory days, you’ll be passionately committed to the struggle in Washington, which of course sells newspapers and pays the mortgages of news analysts and TV talking heads.
If on the other hand you think the nation is grinding to a halt because of broad and nearly inescapable (in the short run) trends — a looming recession, currency being printed into worthlessness, a debt overhang from the 2000s that was incredibly foolish and has no cheap or fast solutions — well, you aren’t going to give much of a damn what journalists, talking heads, or professors have to breathlessly say about the latest wrinkle in the “fiscal cliff” talks. You’ll figure this is all just re-arranging deck chairs on the Titanic (which it is) and tune them right out.
I love your comments. Great job!
Yes, this is correct, the speculation in food and oil killed the average guy. And BTW, the Ponzis are the lenders, not the borrowers, for the millionth time.
File this under studying the obvious…
Lower Mortgage Payments Cut Default Risk
New research from the Federal Reserve Bank of New York finds cheaper monthly mortgage payments significantly reduce mortgage default risk even when the principal value of the home stays the same.
The report, which was written by Andreas Fuster and Paul Willen, based its findings on the performance of what are called Alt A adjustable-rate mortgages, between 2008 and 2011. This class of mortgage was able to take advantage of the massive rate-cutting campaigns and other efforts to lower long-term borrowing costs conducted by the Fed.
“Interest rate changes dramatically affect repayment behavior,” the report said. “Our estimates imply that cutting a borrower’s payment in half reduces his hazard of becoming delinquent by about two-thirds,” the authors found.
“Government or lender programs that allow underwater borrowers to refinance at a lower rate, or loan modifications that lower the interest rate, have the potential to significantly reduce delinquencies, and the view that principal reduction is the only way to meaningfully reduce defaults is incorrect,” the report said.
I think this study makes an important point. Distressed borrowers respond better to an affordable payment than to a principle reduction. Many underwater borrowers don’t have any clue about what their home is worth or how much their loan balance is for that matter, but they do know how much damage the monthly payment is making to their wallet. If you modify a loan to bring the monthly payment in line with, or less than, comparable rents without reducing principle, it will keep many underwater borrowers paying for a long time because the payment is all they are fixated on.
FHA Will Cost Taxpayers $150 Billion
Over two months ago on these very pages I predicted the Federal Housing Administration or the FHA would end up being bailed out by taxpayers. Not an overabundance of prescience was required in reaching this conclusion. No government agency goes bankrupt of course…..they just ante up more taxpayer dollars to keep it alive……but with a current negative net worth of $16.3 billion and profuse bleeding continuing, a patient can endure loss of only so much blood before death ensues. On September 11 of this year the House overwhelmingly passed (402-7) a barely noticed piece of legislation, the FHA Emergency Fiscal Solvency Act of 2012. Besides all the gibberish about cracking down on fraud, improving transparency and internal controls within FHA, the only real reason for the Act was to increase annual FHA insurance premiums to 2.05%. Around the same time the administration’s 2013 budget projected taxpayers may have to contribute $668 million to backstop FHA losses. In our days of a $16 trillion in national debt this seems like petty cash especially when you consider that FHA alone insures $1.1 trillion in single family loans. Fast forward to today and in less than three months radically different words are being spoken at FHA overseer, Department of Housing and Urban Development (HUD). With the election now but a fleeting memory, a least parts of the financial truth seeps from the miasma in Washington. In the latest HUD report released in late November, FHA loans insured between fiscal 2007-9 now expect losses of $70 billion. That’s over a 100 fold increase in what we, the dumb public, were fed like pablum less than one quarter ago.
It’s program is so key on keeping home prices high, that so matter the losses it will be around for sometime. They just start charging up to 2.05% insurance premiums on some loans…Orange County type loans.
“I have talked with two homebuilders, who sell homes in the $250,000 to $400,000 range and virtually all of their loans are now FHA. Buyers have migrated away from private lenders that sell to Fannie Mae with its much more stringent down payment and income requirement ” – From Article
FHA, Zero interest rates, Federal Reserve QE program, and squatting are key. They need to keep all 4 going to keep prices up.
And the government will do everything possible to make sure all four factors are in place.
This a completely reasonable solution, but Ponzi are so unreasonable. They don’t see the consequences of taking out all the equity of their home. They also don’t want to be taxed of the forgiveness of the debt.
Also, increasing to note that credit card debt is way again. In fact this economic “recovery” might be just credit fuel again. I really believe no lessons have been learned.
To lenders and the federal reserve, spending savings or spending by taking on new debt is all the same. If the “wealth effect” causes people to go deeper into debt, the banks are okay with that because in the short term, it means more fees and interest income to them. Now that they know the US taxpayer will bail them out for the inevitable Ponzi losses, they have no incentive to be prudent with their lending. And since borrowers know they will also be bailed out, I fully expect to see an explosion of consumer and mortgage debt in the coming years — followed by another massive taxpayer bailout.
The situation we have now is what happens when lenders are allowed to supply weaponry, aka credit to all who think they can win in on the battlefield. Central bankers encouraged ambitious, aggressive, self assured types, and the foolish, to fight in this war. After the build up comes the destruction that damages even the prudent who didn’t play the game. And in the end, the central banks, with the mandate to create money at will, are the only ones left with assets. And the cycle starts again.
Some bubble-era justice is served…
Ex-IndyMac Executives Found Liable for Negligent Loans
Three former IndyMac Bancorp Inc. executives must pay $169 million in damages to federal regulators for making negligent loans to homebuilders as the real estate market was deteriorating, a jury decided.
The federal court jury in Los Angeles issued the verdict against Scott Van Dellen, the former chief executive officer of IndyMac’s Homebuilder Division; Richard Koon, the unit’s former chief lending officer; and Kenneth Shellem, the former chief credit officer. Jurors yesterday found them liable for negligence and breach of fiduciary duty.
The jury awarded the damages to the Federal Deposit Insurance Corp., which brought the lawsuit in 2010.
The FDIC, which took over the failed subprime mortgage lender in 2008, alleged the men caused $500 million in losses at the homebuilders unit by continuing to push for growth in loan production without regard for credit quality and despite being aware a downturn in the real estate market was imminent.
The agency said the executives made loans to homebuilders that weren’t creditworthy or didn’t provide sufficient collateral.
“Today’s verdict is the result of a deliberate effort by the government to scapegoat a few men for the impact that the unforeseen and unprecedented housing collapse in 2007 had at IndyMac,” Kirby Behre, a lawyer for Shellem and Koon, said in an e-mailed statement after yesterday’s verdict.
“Mr. Shellem and Mr. Koon used the utmost care in making loan decisions, and there is no doubt that all of the loans at issue would have been repaid except for the housing crash,” Behre said.
Robert Corbin, a lawyer for Van Dellen, didn’t immediately return a call to his office yesterday after regular business hours seeking comment on the verdict.
The verdict was reported earlier by the Los Angeles Daily Journal.
The case is FDIC v. Van Dellen, 10-04915, U.S. District Court, Central District of California (Los Angeles).
My crystalball and prior case law say that they will likely have the corporation and insurance pay any fines and not one dime will personally come out of their pockets. If any money does come out of their pocket, the company will reimburse them. Most top exec’s contracts have the company to pay insurance for any wrong doing in the capacity as the company’s exec. and cover any that the insurance doesn’t cover.
The banks will likely ask and receive a bailout to pay the fine.
fed now well into buying $40bil in mis-priced MBS per month (LOL) yet negative reprice risk abounds….
Reprice:
Cole Taylor- Worse
Provident Funding- Worse
Interbank- Worse
Interbank- Worse
Pinnacle- Worse
Wells Fargo- Worse
Fifth Third Mortgage- Worse
Franklin American- Worse
Stearns Lending- Worse
Flagstar- Worse
360 Mortgage- Worse
Kinecta- Worse
Another back-door bailout. The fed is probably buying some of the crap from these lenders poorly performing MBS pools.
That’s my article next weekend. The final housing bailout on this cycle will be from Federal Reserve, it will be debt forgiveness.
I hope your’re wrong, but it’s a real possibility. Getting your mortgage purchased by the federal reserve will be the new lottery.
Jeez. I’m already too late. The rumor is that new FHFA director that will replace DeMarco will be open to much larger principal reduction program. From ZeroHedge
The man who singlehandedly fought the administration over the idea of converting Fannie and Freddie into the latest taxpayer-funded handout machine, FHFA head Ed DeMarco, and refused to write down Fannie and Freddie home loans in yet another Geithner-conceived debt forgiveness scheme, whose cost like any other non-free lunch will simply end being footed again by yet more taxpayers (what little is left of them), appears to have lost the war, and with the second coming of Obama appears set to be replaced as head of the FHFA. The WSJ reports that “The White House has begun preparations to nominate a new director to lead the agency that oversees Fannie Mae and Freddie Mac as soon as early next year, according to people familiar with the discussions. This would pave the way for President Barack Obama to fill what has become one of the most important economic policy positions in Washington.” And so the impetus for as many as possible to default on their mortgage in a wholesale scramble to obtain debt forgiveness, will soon take the nation by storm,
Looks like he’s right…….DeMarco is toast…
”And so the impetus for as many as possible to default on their mortgage in a wholesale scramble to obtain debt forgiveness, will soon take the nation by storm, while the contingent liability will be transferred to those who still believe that taking out debt should be a prudent activity and one that takes into account future cash flows. In other words, the solvent middle class – those who were prudent stupid enough to save when they should have simply be doing what the government does and spend like a drunken sailor, preferably on credit, will soon be punished once more. And like it.”
http://www.zerohedge.com/news/2012-12-10/obama-prepares-kick-out-fannies-ed-demarco
that’s odd… Mike’s DeMarco post was not there when I posted mine @1:03, yet he posted @12:40.
%-)
Sorry amigo.
Keep in mind, that “debt forgiven” is only taxable at the federal and state income tax levels, if it was truly “forgiven.” If the creditor had no right to pursue a deficiency, the deficiency is not “forgiven” and therefore not taxable as income.
e.g. Couple buys/finances $1m on a $1m house in Woodbury in 2007. Their short sale is completed in Jan 2013 at $800k with no extension of this Act. If they had not refinanced since the purchase, then this is non-recourse debt and any deficiency ($200k) is not taxable.
Same scenario, but the couple refis in Dec 2012 bringing cash to closing financing $800k in an FHA loan on a FMV of $800k. If the value drops in 2014, any deficiency resulting from a distressed sale would be taxable because it’s recourse debt.
Same scenario, but the couple’s refi is completed one month later in January 2013. Any deficiency resulting from a distressed sale would then be non-taxable because it would be non-recourse debt in CA. CA passed a bill this year making mortgage debt recourse only to the extent new debt was added (cash-out refi amount above principal balance).
Good points. It further underscores that there is no need to extend the tax break. If original buyers are already protected, then extending the tax break merely serves to subsidize Ponzis and imprudent borrowers.
So how can the Ponzi’s get off the bench and start playing the game again?
Their credit score history is supposed to be at “treacherous” level.
This should be alarming. So why do banks and credit card issues even……Oh yeah….I forgot. Financial institutions don’t ever have to face the music either.
Well, this is another fine mess we’re getting ourselves into.
The solutions bankers, left-wing activists, and the government all come up with will create a new batch of problems which will prompt a new round of manipulations to benefit bankers, left-wing activists, and the government.
These lunatics think they can borrow, print, and regulate to cure the problems. Not gonna happen. The leverage and rot is systemic. The next crisis is going to be the bursting of the bond bubble, drastically higher interest rates, US sovereign default, and printing the dollar into the ground.
They will fight the bond bubble bursting by printing more money to buy bonds. That’s when the death spiral begins.
I’m having a hard time seeing what the benefits of extending this act are. All of the negative consequences you listed – less short sale inventory, more people renting their homes out, starving realtors – sound like positives to me. Plus the US Treasury gets some much needed tax revenue from a group of people that it makes absolutely no sense to subsidize.
There’s very little difference between somebody that overpaid for a property in the hopes it would double every couple of years and a traditional HELOC-addicted ponzi. Let them all suffer the consequences of their actions and learn the hard lessons that need to be learned. If they were serious about buying a HOME to live in but just happened to overpay, then let them continue to pay the obligation they signed up for and receive a modification only if they lose their job or have a serious medical issue.
“All of the negative consequences you listed – less short sale inventory, more people renting their homes out, starving realtors – sound like positives to me. Plus the US Treasury gets some much needed tax revenue from a group of people that it makes absolutely no sense to subsidize. ”
I’m glad someone made this point. I can’t argue with any of those observations. The “negative” consequences will cause a great deal of political pressure on legislators to extend the Act. Privately, some of them may see the positives in letting the Act expire, but I think they will succumb to the political pressure to continue bailing everyone out.
I could be wrong but seems banks/fed would like to have new pool of buyers very quickly with little debt. I remember hearing talk that maybe FHA would suspend it’s 3 year waiting period.
I know this is off topic…but right now they are talking about capping the mortgage interest deduction (see today’s LA Times). I wonder what will happen if this is done AND the wealthy are taxed at higher rates AND interest rates go up. The combination of all three would do a number on the housing market in high tax/high price states like California. I heard a German banker talking about the housing market in his country a while back. It’s slow and steady – about as unexciting as you can imagine. About 1/2 of the people in Germany own. You want a buy a house there? Great, but don’t count on the Government helping you to buy one. 20% down is the bare minimum you can do…and most people put down more. Renting is not looked down upon, and owning is not seen as more virtuous than renting. It’s whatever you want to do and can afford. The only volatility in their rental market was caused when outside investors (Americans, I think) bought into the market and bid up prices…
Another thing – Germans hate borrowring. The head of Amex. Express in Germany was interviewed a while ago and he said its very hard to get Germans to borrow money.
Capping the mortgage interest deduction will really hurt the above $500,000 price range. Also, I read that the FHA is considering reducing the conforming limit for FHA loans to $368,000. That would further crush the above $500,000 market.
I’m not surprised the Germans don’t like debt. They save a high percentage of their wages, and the see how debt has hurt other cultures in Europe. They’ve done much to facilitate the destruction of Greek society. And now they may be called on to bail out Spain as well.
So, when government is not meddling in a mortgage market, the real estate market functions normally and unexcitingly? What a concept.
“Third, lenders will be under more pressure to process foreclosures to replenish MLS inventories and boot out committed squatters. With no option for a short sale, those who don’t bother playing the game with loan modifications will strategically default thus forcing lenders to deal with them via foreclosure.”
Attorney General Kamala D. Harris puts into effect the California Homeowner Bill of Rights, effective January 2013:
http://oag.ca.gov/news/press-releases/california-homeowner-bill-rights-signed-law
Among other things, under the new law, if a lender tries to do a non-judicial foreclosure in California, then the owner has a cause of action against the lender who could be charged with “foreclosure related crimes” and face a grand jury. Also, in cases where a property increases in value, say within a year’s time after a foreclosure, then the former owner may sue the lender for personal injury. This, also under the new law. Squatters everywhere should be rejoicing.
Nevada passed an even more onerous law in November of 2011, and it caused an 80% decline in foreclosure filings. The only filings since then have been HOAs and some small banks.
If the California law scares lenders as much as the Nevada law did, filings will fall off a cliff, and as you noted, squatters everywhere will rejoice.
Good to know. Found a relevant, recent story which suggests that a reversal of such draconian measures against banks may already be underway:
http://www.lasvegassun.com/news/2012/dec/09/banks-press-changes-strict-2011-foreclosure-law/
If so, this could bring a much needed flow of distressed property onto the market, and increase inventory levels in Nevada.
“Most important, the law requires bank workers to sign an affidavit that they have personal knowledge of a property’s document history, or they will face criminal or civil penalties.”
That provision is what really dried up the supply. If they change that, perhaps some supply will come back to the market there. I wish it would. I would like to buy some more properties.
The banks have become adept at withholding supply from the market. I wonder what will happen in Nevada if they change the law. Will they process a few more, but keep inventory tight to force prices higher? Will they flood the market and pound prices back to the bottom? I don’t have a crystal ball for that one. It’s completely up to the banks.
New Jersey just passed a law making it easier to foreclose on vacant or abandoned properties. Hopefully, the other draconian states like Florida and New York will follow NJ’s and Nevada’s lead.
If the house prices double because of fed fueled ponzis or whatever doen’t that mean rents will skyrocket also? Wow that might be fun. For me. I mean, terrible for renters. Sorry IR. That would be awful. I promise to keep my rents below market to rent fast and be more fair, huh.
The Mortg Forgive Act is for loans used to buy, build or improve the property. The Act does NOT cover cash-out refis. So if they extend the Act, it will only benefit those people that had purchase-money loans that they refi’d rate and term. If they took cash out, that money will STILL be taxable (unless they file BK or they are insolvent).
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