New Foreclosure Legislation

[scooterbug44]

WHY do we have to bail these people out again?

I personally know only ONE person facing possible foreclosure/issues - and that is because of multiple property ownership and real estate investments that didn't pan out.

Guess I am just heartless and feel people bought more than they could afford and so they should suffer the consequences.

 

[Mango]

Mango, this is your area...what do you think of these proposals? Will they help?

It seems to me like some of this will just slow down the inevitable. It seems like trading a horrible crash that lasts a year or two for a bad crash that lasts 4 or 5 years. Is the latter any better, really?

Second, the extension of the Net Operating Loss Carryback -- what good will that do. It seems likely to be the most expensive part of this bill, but won't it just keep inventory high and draw the correction out further?

I'm buried in projects right now, but yes, I do think that most of the Dodd/ Shelby proposal is one of the most thought out plans. I'll explain more later. Sorry to drive by post.

Ahh, Mango, you made me feel guilty for making a joke.

Really though, this is just a combination of bandaids and bailouts for the guilty. (especially the builder bailout legislation.) I'm all for helping out anyone who was taken advantage of, but I think it's high time this country stops trying to prop up our economy with toothpicks and let this rollercoaster run all the way to the end of the ride. We'll be better off for it over the long run.

Apologies. My intention was not to make you feel guilty, but to enlighten based on my 22 years in this industry. Sowal sees the investulators who contributed to the run up in real estate values. I simply wanted to point out that this is not the case nationwide. That not all the families or people who took adjustable rate mortgages or got subprime loans should be stereotyped. I spent many years walking in and out of Brokers and Bankers offices nationwide at one time. I've seen the whole demographic Borrower spectrum. I've seen the loans get underwritten to the guy who had a $700 car payment, didn't make his child support payments, and try to buy a house with no money down, but, I have seen minorities and old people get atypical loans who could have qualified for typical loans. They simply did not know any better, and neither did the loan officer who helped procure it. I watched guidelines change from qualifying a person for a ARM based on the max rate to just using the initial base rate allowed by the Federal agencies who purchased these loans.

 

[SHELLY]

I'm buried in projects right now, but yes, I do think that most of the Dodd/ Shelby proposal is one of the most thought out plans. I'll explain more later. Sorry to drive by post.

Does that proposal extend "Friends of Angelo?" loans to the entire nation?


.

 

[Mango]

Second, the extension of the Net Operating Loss Carryback -- what good will that do. It seems likely to be the most expensive part of this bill, but won't it just keep inventory high and draw the correction out further?

No, because Builders and all those affected by the down turn, window companies etc; are only going to produce based on the demand, so how is inventory going to be affected? The Bill is trying to keep people in homes vs. foreclosure, thereby reducing inventory. It also is looking to give a tax benefit to those who buy foreclosures.

Lacking in this Bill is how to get the Borrowers facing foreclosure the best workout. They wanted to give Bankruptcy Judges the ability to forgive part of the mortgages. The problem with that is they know nothing about real estate securitization. They also can not determine if fraud was involved originally on the loan. So, now the responsibility lies with the Bank, and herein is the bigger problem. We've all heard how it takes forever to get an answer back from the Banks on foreclosed properties when an offer is presented. Why? Because the REO specialists are basically just clerks with some basic credit training. What's really needed to move things along in my opinion is to have someone sitting at these desks, who have 1) extended underwriting experience to determine if the Borrower has the capacity to pay, 2) has knowledge of securitizations and secondary marketing so they can determine how much loan to forgive and what kind of hit the security will take with the workout. Unfortunately, finding people who have this kind of industry experience is like trying to find a Economist who has marketing skills. The Banks need to revamp their systems to allow them to work jointly and without constant sign off from mgt. I am not seeing it happen.

If these foreclosures can get off the books quicker, there's less maintenance, less loss, and thus the prices may not drop as quickly. If there's a demand via tax incentives, we may be able to stabilize this market faster. Some opponents of the tax incentive say that it will lower the overall market prices because people will want to buy foreclosures vs. resale, I say the opposite, because of free market and demand. Shelby recognizes this being a business man himself. Instead critics want to point out that Shelby owns a title company, and is a landlord and will not do anything that will hurt the Mortgage and Rea Estate Industry, but, I am not of that opinion. He was originally a Democrat turned Republican, and all his opposed legislation made sense because he knows the industry. I would rather have someone who knows the business, and is a entrepreneur himself, than some opposing junior level wonk trying to make a name for himself by placing restrictions that will only hurt businesses in the long run, and eliminate fair market competition, which is what some tried to do.

The FHA expansion program, if done correctly, will be a risk based pricing modual, and hopefully, they take lesson from the past and get this right. Although I am not an FHA guru, because in order to do FHA loans you have to have obtain wings, and I never applied for them since I would have to become a Banker to do so, and I had no desire to. But, when I worked for Banks who offered FHA programs, they were always the most conservative executive Federal Lending Branch who had their own on staff appraisers, the strictest underwriting guidelines with no exceptions, and they took their time approving loans. I also think that it will help people get into homes who are seeking to buy with the expanded programs.

The Bill needs some tweaking, but, so far, it's the best collection of ideas to date that I have seen, which is trying to get pushed through, but the Bush Administration is putting concrete in the Committee's shoes.
http://www.ombwatch.org/article/articleview/4250/1/537

(Yes, I know it says omb watch) :roll:......................

 

[30ashopper]

Can some of the realtors here take a look and comment on the thread over in current events related to this? I think Dodd is trying to kill off the homeownership exemption with this bill.

 

[TheSheep]

WHY do we have to bail these people out again?

I personally know only ONE person facing possible foreclosure/issues - and that is because of multiple property ownership and real estate investments that didn't pan out.

Guess I am just heartless and feel people bought more than they could afford and so they should suffer the consequences.

Why yes. Why not? Butt you miss a virulent point.

It has always been known among the major capital players that there would be, and were, hyooogemongrelous profits feathered by large losses. Losses that would hit a concrete bottom/stopping point. That floor would be artificially poured and maintained by tax $$ primarily.

Bleat no more. You've been had well before you knew you were had. :roll:

 

[30ashopper]

I've gone and mixed threads so I'm back over here cross posting. Mango, I'm still trying to understand what this thing does to the capital gains exemption. From my understanding, this does alter the way owners are taxed on their income from a sale -

We've discussed this already on a previous thread in the RE forum, but no, it is not doing away with the homeowner exemption.

Present Law

In general Under present law, an individual taxpayer may exclude up to $250,000 ($500,000 if married filing a joint return) of gain realized on the sale or exchange of a principal residence. To be eligible for the exclusion, the taxpayer must have owned and used the residence as a principal
residence for at least two of the five years ending on the sale or exchange. A taxpayer who fails to meet these requirements by reason of a change of place of employment, health, or, to the extent provided under regulations, unforeseen circumstances is able to exclude an amount equal
to the fraction of the $250,000 ($500,000 if married filing a joint return) that is equal to the fraction of the two years that the ownership and use requirements are met........................>>>>>.link

Example 1.–Assume that an individual buys a property on January 1, 2008, for $400,000, and uses it as rental property for two years claiming $20,000 of depreciation deductions. On January 1, 2010, the taxpayer converts the property to his principal residence. On January 1, 2012, the taxpayer moves out, and the taxpayer sells the property for $700,000 on January 1,
2013. As under present law, $20,000 gain attributable to the depreciation deductions is included in income. Of the remaining $300,000 gain, 40% of the gain (2 years divided by 5 years), or $120,000, is allocated to nonqualified use and is not eligible for the exclusion. Since the remaining gain of $180,000 is less than the maximum gain of $250,000 that may be excluded,
gain of $180,000 is excluded from gross income.

Ignoring depreciation -

Under present law -

purchase: $400,000.00
(rent for 2 years)
(live 2 years)
(empty 1 year)
sale: $700,000.00
profit: $300,000.00
exemption: $250,000.00
capital gains income: $50,000.00
tax: $12,500.00 @ 25%

Under the new law:

purchase: $400,000.00
(rent for 2 years)
(live 2 years)
(empty 1 year)
sale: $700,000.00
profit: $300,000.00
exemption: $180,000.00
capital gains income: $120,000.00
tax: $30,000.00 @ 25%

correct? That's a very signifigant tax increase thanks to new restrictions on existing capital gains tax code.