$18,000 IN COMBINED HOMEBUYER TAX CREDITS FOR A LIMITED TIME
Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits. To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive. Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.
Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010. Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied. The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)). California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)). Other terms and restrictions apply to both tax credits.
For more information, C.A.R. offers a Homebuyer Tax Credit Chart with a side-by-side summary of the federal and California laws. C.A.R. also offers a legal article entitled Homebuyer Tax Credit Update.
C.A.R. provides REALTORS® with many other legal articles covering a wide range of topics of interest. Some of the new or newly revised legal articles available at http://qa.car.org are as follows:
Federal Lead-Based Paint Renovation Rule: Provides new certification requirements and lead-safe work practices effective April 22, 2010 for contractors and property owners performing renovations that disturb lead-based paint in target housing.
HAFA Short Sales Fact Sheet.
Short Sale Tips for REALTORS®.
REO Tips for REALTORS®.
Wednesday, March 31, 2010
Monday, March 29, 2010
Home repos help rejuvenate some older Sacramento neighborhoods
Home repos help rejuvenate some older Sacramento neighborhoods
ABOUT THIS SERIES: This is the eighth segment in an ongoing series by The Bee and Capital Public Radio examining the people and companies that will contribute to Sacramento's recovery.
Some of Sacramento's older working-class neighborhoods most devastated by the foreclosure crisis are seeing improvement as investors snap up properties at extreme bargain prices, fix them up and sell or rent them.
In places like Del Paso Heights, Oak Park and south Sacramento, you can now buy a fixer house for well under six figures – a price that has proved irresistible to investors, some of them contractors who can do remodeling work themselves.
They are stepping in where homeowners departed, unable to keep up with subprime loans whose payments reset to much higher levels starting in 2006.
Real estate experts say the cycle will likely continue until prices rise to a level where it no longer makes sense.
Players include people like Jeff Douglas, a former custom homebuilder who saw his business shrivel with the recession. He adopted a new strategy: rebuilding bank repos priced below $100,000.
"In the last couple of years I've spent a lot of time driving on these streets. It's getting better. The houses are getting sold and they're getting fixed, and it's spreading," Douglas said.
Douglas pointed to one of a dozen houses he bought in Del Paso Heights, a neighborhood that was heavily seeded with risky subprime loans that later went into foreclosure.
"This was a really nasty place," he said of his acquisition. "It was almost a tear-down. Now it's rented out, and across the street they cleaned up. Like blight spreads, rehab spreads."
Rehab work continues
Make no mistake. Sacramento neighborhoods like Del Paso Heights, Oak Park and Meadowview still need plenty of fixing after suffering an epidemic of foreclosures. City code enforcement officers are kept hopping by continuing house vacancies that can become nuisances.
At this point, the evidence of improvement is mostly anecdotal. The number of building permits issued by the city in Del Paso Heights and Oak Park, for instance, actually dipped slightly to 2,083 in 2009 from 2,238 in 2008, when most bank repos hit the market. That was up from 2,164 in 2007. Douglas said many rehabs don't require permits and noted that a lot of the "most seriously beat-up" properties were rehabbed in 2008.
Still, the ongoing work of investors is readily apparent during a drive through Sacramento's foreclosure distress zone. There are new roofs, all-new interiors, landscaping and windows where homes were boarded up and trash marked the spot.
Some people who have worked in the area for years say they see the improvements, though with homeowners still in trouble, it can be hard to tell which trend is winning.
"I think it's better than 10 years ago," said Ron O'Connor, operations manager for the city of Sacramento's code enforcement division. But the crash that followed a bloom of investment and renovation during the housing boom was ruinous, he said. And O'Connor still sees newly vacant homes even as investors buy and fix earlier repos.
The current house-by-house transformation of the city's lower-income neighborhoods reveals the stunning rise of a new investor class that has moved in after the storm.
Its ranks include contractors, professional investors and ordinary people tapping their retirement accounts and stock funds for more lucrative returns in real estate. Some come from the Bay Area, attracted by Sacramento's comparatively low prices.
Investors now buy 27 percent of the houses sold in Sacramento County. In February, buyers paying cash represented 34 percent of the county's sales, according to La Jolla researcher MDA DataQuick.
Investors irk some
Some first-time buyers have come to resent the phalanx of investors, who fuel bidding wars in the city's most affordable neighborhoods and win deals with all-cash offers. But while investors often carry a stigma as bottom-feeders and speculators, many are improving the distressed properties after buying.
Douglas and other investors handily score homes for well under $100,000, which enables them to spend more fixing them up. He said the widespread sprinkling of rebuilt houses signals an investor belief that the worst is over in these inner-ring neighborhoods. Values have fallen as low as they'll go.
"If you buy inexpensively, and the rent covers the mortgage, you're safe," he said.
High-end markets have emerged as the places to avoid for investors, he said. Values in such neighborhoods continue to fall, and many owners owe far more than their homes are worth.
Bargain prices aren't the only factor driving new investment in neighborhoods like Del Paso Heights, Oak Park and south Sacramento. The federal government also has played a role through its Neighborhood Stabilization Program. Congress steered $31.8 million to the city and county of Sacramento last year to rebuild neighborhoods plagued by foreclosures.
The Sacramento Housing and Redevelopment Agency said $9.6 million in federal funding has so far put 114 properties into the repair pipeline. The SHRA reports 33 sales of upgraded homes to income-qualified buyers. Prices average $45,000 above their values as repos, said agency spokeswoman Angela Jones.
One Sacramento investor-contractor company, the Housing Group Fund, is rebuilding 15 houses with government financial incentives, mostly in North Highlands. The firm is buying and rebuilding eight more houses privately in Oak Park and south Sacramento.
"There are some wrapped up we're selling, some in construction and some just starting," said co-owner Brooke Hammett. Sale prices for newly remodeled homes range from $105,000 to $139,000, she said. Hammett cited a noticeable improvement in some neighborhoods as contractors buy, fix and re-sell.
The Sacramento Municipal Utility District has invested $77,000 in three bank repo rebuilds to demonstrate energy-saving techniques in drafty older houses. Eventually, these methods will help retrofit older urban areas to use less electricity and gas.
"We think we can get a consistent 50 to 60 percent energy savings, said SMUD project manager Michael Keesee. "Some of these older homes have up to $200 a month in utility bills. You can cut that in half."
Re-sell prices still low
Sacramento contractor Harold Maker, who is rebuilding one of Douglas' newer repo acquisitions, said private investors are creating affordable housing by returning trashed houses to the market fixed up and still reasonably priced.
As an example, Maker pointed to a house in the 2800 block of Albatross Way near Del Paso Heights. It had a bullet hole in the front door, signaling a shot fired from inside. On the front window was a September 2009 foreclosure notice from the mortgage servicer. But the small house had a huge backyard. It was getting a one-month makeover, including a new kitchen, Maker said.
Its eventual price tag for a new neighborhood buyer: about $115,000, said Douglas.
Douglas said it's only because prices have fallen to a "once in a lifetime" level that he can afford to buy, replace stoves, cabinets, blinds, carpet, make extensive repairs and still sell at such prices to working-class buyers.
"You can't do this if the price is $300,000," he said. "We just buy bank-owned houses, and the worse the better. If we buy it for the right price, we can fix it."
North Sacramento-based homebuilder Allen Warren, president and chief executive officer of New Faze Development, agreed that this is an "unprecedented" time for such a business model, and it won't last too long once prices start to rise.
"As long as you can do that, the market will be there all day long," he said. "But that will be short-lived."
Douglas agrees that time is short. So before the bargain-basement sale ends, he savors one repo makeover in particular. It's an Oak Park rebuild, once the worst house on a nice block.
He put $65,000 into the house and made it like new inside. Then he sold it to people from Carmichael.
"It's a jewel on the corner. It was a nasty house on the corner," he said. "I don't care what neighborhood you live in. Nobody wants that in their neighborhood."
ABOUT THIS SERIES: This is the eighth segment in an ongoing series by The Bee and Capital Public Radio examining the people and companies that will contribute to Sacramento's recovery.
Some of Sacramento's older working-class neighborhoods most devastated by the foreclosure crisis are seeing improvement as investors snap up properties at extreme bargain prices, fix them up and sell or rent them.
In places like Del Paso Heights, Oak Park and south Sacramento, you can now buy a fixer house for well under six figures – a price that has proved irresistible to investors, some of them contractors who can do remodeling work themselves.
They are stepping in where homeowners departed, unable to keep up with subprime loans whose payments reset to much higher levels starting in 2006.
Real estate experts say the cycle will likely continue until prices rise to a level where it no longer makes sense.
Players include people like Jeff Douglas, a former custom homebuilder who saw his business shrivel with the recession. He adopted a new strategy: rebuilding bank repos priced below $100,000.
"In the last couple of years I've spent a lot of time driving on these streets. It's getting better. The houses are getting sold and they're getting fixed, and it's spreading," Douglas said.
Douglas pointed to one of a dozen houses he bought in Del Paso Heights, a neighborhood that was heavily seeded with risky subprime loans that later went into foreclosure.
"This was a really nasty place," he said of his acquisition. "It was almost a tear-down. Now it's rented out, and across the street they cleaned up. Like blight spreads, rehab spreads."
Rehab work continues
Make no mistake. Sacramento neighborhoods like Del Paso Heights, Oak Park and Meadowview still need plenty of fixing after suffering an epidemic of foreclosures. City code enforcement officers are kept hopping by continuing house vacancies that can become nuisances.
At this point, the evidence of improvement is mostly anecdotal. The number of building permits issued by the city in Del Paso Heights and Oak Park, for instance, actually dipped slightly to 2,083 in 2009 from 2,238 in 2008, when most bank repos hit the market. That was up from 2,164 in 2007. Douglas said many rehabs don't require permits and noted that a lot of the "most seriously beat-up" properties were rehabbed in 2008.
Still, the ongoing work of investors is readily apparent during a drive through Sacramento's foreclosure distress zone. There are new roofs, all-new interiors, landscaping and windows where homes were boarded up and trash marked the spot.
Some people who have worked in the area for years say they see the improvements, though with homeowners still in trouble, it can be hard to tell which trend is winning.
"I think it's better than 10 years ago," said Ron O'Connor, operations manager for the city of Sacramento's code enforcement division. But the crash that followed a bloom of investment and renovation during the housing boom was ruinous, he said. And O'Connor still sees newly vacant homes even as investors buy and fix earlier repos.
The current house-by-house transformation of the city's lower-income neighborhoods reveals the stunning rise of a new investor class that has moved in after the storm.
Its ranks include contractors, professional investors and ordinary people tapping their retirement accounts and stock funds for more lucrative returns in real estate. Some come from the Bay Area, attracted by Sacramento's comparatively low prices.
Investors now buy 27 percent of the houses sold in Sacramento County. In February, buyers paying cash represented 34 percent of the county's sales, according to La Jolla researcher MDA DataQuick.
Investors irk some
Some first-time buyers have come to resent the phalanx of investors, who fuel bidding wars in the city's most affordable neighborhoods and win deals with all-cash offers. But while investors often carry a stigma as bottom-feeders and speculators, many are improving the distressed properties after buying.
Douglas and other investors handily score homes for well under $100,000, which enables them to spend more fixing them up. He said the widespread sprinkling of rebuilt houses signals an investor belief that the worst is over in these inner-ring neighborhoods. Values have fallen as low as they'll go.
"If you buy inexpensively, and the rent covers the mortgage, you're safe," he said.
High-end markets have emerged as the places to avoid for investors, he said. Values in such neighborhoods continue to fall, and many owners owe far more than their homes are worth.
Bargain prices aren't the only factor driving new investment in neighborhoods like Del Paso Heights, Oak Park and south Sacramento. The federal government also has played a role through its Neighborhood Stabilization Program. Congress steered $31.8 million to the city and county of Sacramento last year to rebuild neighborhoods plagued by foreclosures.
The Sacramento Housing and Redevelopment Agency said $9.6 million in federal funding has so far put 114 properties into the repair pipeline. The SHRA reports 33 sales of upgraded homes to income-qualified buyers. Prices average $45,000 above their values as repos, said agency spokeswoman Angela Jones.
One Sacramento investor-contractor company, the Housing Group Fund, is rebuilding 15 houses with government financial incentives, mostly in North Highlands. The firm is buying and rebuilding eight more houses privately in Oak Park and south Sacramento.
"There are some wrapped up we're selling, some in construction and some just starting," said co-owner Brooke Hammett. Sale prices for newly remodeled homes range from $105,000 to $139,000, she said. Hammett cited a noticeable improvement in some neighborhoods as contractors buy, fix and re-sell.
The Sacramento Municipal Utility District has invested $77,000 in three bank repo rebuilds to demonstrate energy-saving techniques in drafty older houses. Eventually, these methods will help retrofit older urban areas to use less electricity and gas.
"We think we can get a consistent 50 to 60 percent energy savings, said SMUD project manager Michael Keesee. "Some of these older homes have up to $200 a month in utility bills. You can cut that in half."
Re-sell prices still low
Sacramento contractor Harold Maker, who is rebuilding one of Douglas' newer repo acquisitions, said private investors are creating affordable housing by returning trashed houses to the market fixed up and still reasonably priced.
As an example, Maker pointed to a house in the 2800 block of Albatross Way near Del Paso Heights. It had a bullet hole in the front door, signaling a shot fired from inside. On the front window was a September 2009 foreclosure notice from the mortgage servicer. But the small house had a huge backyard. It was getting a one-month makeover, including a new kitchen, Maker said.
Its eventual price tag for a new neighborhood buyer: about $115,000, said Douglas.
Douglas said it's only because prices have fallen to a "once in a lifetime" level that he can afford to buy, replace stoves, cabinets, blinds, carpet, make extensive repairs and still sell at such prices to working-class buyers.
"You can't do this if the price is $300,000," he said. "We just buy bank-owned houses, and the worse the better. If we buy it for the right price, we can fix it."
North Sacramento-based homebuilder Allen Warren, president and chief executive officer of New Faze Development, agreed that this is an "unprecedented" time for such a business model, and it won't last too long once prices start to rise.
"As long as you can do that, the market will be there all day long," he said. "But that will be short-lived."
Douglas agrees that time is short. So before the bargain-basement sale ends, he savors one repo makeover in particular. It's an Oak Park rebuild, once the worst house on a nice block.
He put $65,000 into the house and made it like new inside. Then he sold it to people from Carmichael.
"It's a jewel on the corner. It was a nasty house on the corner," he said. "I don't care what neighborhood you live in. Nobody wants that in their neighborhood."
Friday, March 26, 2010
Schwarzenegger signs extended Tax Credit for Homebuyers
Schwarzenegger signs extended tax credit for homebuyers
Nearly 32,000 California homebuyers can claim state tax breaks of up to $10,000 starting May 1 under a bill signed Thursday by Gov. Arnold Schwarzenegger.
But the hopes of thousands of Californians for a shield against state taxes on forgiven mortgage debt will have to wait until at least April 5, when lawmakers return to Sacramento.
The same day Schwarzenegger approved the homebuyer tax credit bill, Assembly Bill 183, he vetoed a bill that would prevent the state from taxing mortgage debt forgiven last year for Californians who got loan modifications or sold their homes in distress sales.
Schwarzenegger vetoed the bill over an unrelated provision regarding tax refunds for the state's largest businesses. It was a repeat of a veto last year over the same issue.
The bill vetoed Thursday would have aligned much of California's tax code with that of the federal government. But even in vetoing it, Schwarzenegger expressed support for one of its most widely awaited provisions – the ban on taxing forgiven mortgage debt.
"I signed a law in 2008 that forgave this debt for two years and I am supportive of extending the law," he said in his veto message. Schwarzenegger immediately called for the Legislature to send him a bill to provide the tax forgiveness before the April 15 tax-filing deadline.
"Everybody agrees we need to do something about that," said Schwarzenegger spokesman Aaron McLear.
Schwarzenegger objected to a provision in the bill, SBX8 32 by Sen. Lois Wolk, D-Davis, that would have penalized businesses for seeking some state tax refunds. The federal government has penalties similar to those proposed in Wolk's bill.
Two bills that also would provide tax relief on forgiven mortgage debt remain in the Legislature. Lawmakers are expected to pass one when they return.
"We will not hold people in desperate need hostage," said Alicia Trost, spokeswoman for Senate President Pro Tem Darrell Steinberg, D-Sacramento. But she called the governor's Thursday veto of a bill that promised relief "an unfortunate and ill-advised decision."
Thursday's tax credit launch got the most attention. The governor signed the bill in Fresno, a city hard hit by foreclosures.
The real estate industry immediately praised the governor's action, saying it would move buyers off the fence.
Liz Snow, chief executive officer of the California Building Industry Association, said in a statement, the tax credit will "jump start the home building industry, which will help create jobs and reinvigorate the state's economy."
The legislation allocates $200 million to new buyer tax credits. Half will fund credits for buyers of new unoccupied homes. The other half funds credits for first-time buyers who buy resale homes.
California Association of Realtors President Steve Goddard said the tax credit "will incentivize first-time homebuyers to purchase homes that have been abandoned, foreclosed upon, and returned to the lender, or have been sitting on the market for extended periods of time."
In both cases, buyers can waive whatever state taxes they owe – up to $3,333 – in each of the three years after buying. The program begins with escrows that close May 1 or after. Buyers who close escrow before then, and those who closed after a similar 2009 tax break ended last July, are ineligible.
Nearly 32,000 California homebuyers can claim state tax breaks of up to $10,000 starting May 1 under a bill signed Thursday by Gov. Arnold Schwarzenegger.
But the hopes of thousands of Californians for a shield against state taxes on forgiven mortgage debt will have to wait until at least April 5, when lawmakers return to Sacramento.
The same day Schwarzenegger approved the homebuyer tax credit bill, Assembly Bill 183, he vetoed a bill that would prevent the state from taxing mortgage debt forgiven last year for Californians who got loan modifications or sold their homes in distress sales.
Schwarzenegger vetoed the bill over an unrelated provision regarding tax refunds for the state's largest businesses. It was a repeat of a veto last year over the same issue.
The bill vetoed Thursday would have aligned much of California's tax code with that of the federal government. But even in vetoing it, Schwarzenegger expressed support for one of its most widely awaited provisions – the ban on taxing forgiven mortgage debt.
"I signed a law in 2008 that forgave this debt for two years and I am supportive of extending the law," he said in his veto message. Schwarzenegger immediately called for the Legislature to send him a bill to provide the tax forgiveness before the April 15 tax-filing deadline.
"Everybody agrees we need to do something about that," said Schwarzenegger spokesman Aaron McLear.
Schwarzenegger objected to a provision in the bill, SBX8 32 by Sen. Lois Wolk, D-Davis, that would have penalized businesses for seeking some state tax refunds. The federal government has penalties similar to those proposed in Wolk's bill.
Two bills that also would provide tax relief on forgiven mortgage debt remain in the Legislature. Lawmakers are expected to pass one when they return.
"We will not hold people in desperate need hostage," said Alicia Trost, spokeswoman for Senate President Pro Tem Darrell Steinberg, D-Sacramento. But she called the governor's Thursday veto of a bill that promised relief "an unfortunate and ill-advised decision."
Thursday's tax credit launch got the most attention. The governor signed the bill in Fresno, a city hard hit by foreclosures.
The real estate industry immediately praised the governor's action, saying it would move buyers off the fence.
Liz Snow, chief executive officer of the California Building Industry Association, said in a statement, the tax credit will "jump start the home building industry, which will help create jobs and reinvigorate the state's economy."
The legislation allocates $200 million to new buyer tax credits. Half will fund credits for buyers of new unoccupied homes. The other half funds credits for first-time buyers who buy resale homes.
California Association of Realtors President Steve Goddard said the tax credit "will incentivize first-time homebuyers to purchase homes that have been abandoned, foreclosed upon, and returned to the lender, or have been sitting on the market for extended periods of time."
In both cases, buyers can waive whatever state taxes they owe – up to $3,333 – in each of the three years after buying. The program begins with escrows that close May 1 or after. Buyers who close escrow before then, and those who closed after a similar 2009 tax break ended last July, are ineligible.
Wednesday, March 24, 2010
Schwarzenegger expected to sign new $10,000 California homebuyer Tax Credit
Schwarzenegger expected to sign new $10,000 California homebuyer tax credit
Homebuyer tax credits are almost certainly returning.
Sacramento-area buyers can begin claiming $10,000 tax credits starting May 1 under a bill expected to be signed soon by Gov. Arnold Schwarzenegger.
The legislation allocates $200 million for more state tax credits – twice what was offered last year to 10,659 buyers of new, unoccupied homes. The state's newest housing stimulus will grant $100 million in tax credits to first-time buyers of existing homes and $100 million to anyone who buys a new, unoccupied home.
The state Franchise Tax Board on Tuesday estimated nearly 32,000 homeowners statewide might get the tax breaks. Buyers must close escrow or reserve a credit on or after May 1 and before or on Dec. 31 to qualify.
The bill, AB 183, passed both houses of the Legislature by near unanimous votes. But one local lawmaker, Assemblyman Roger Niello, R-Fair Oaks, voted against it.
"I think it's a lot of money in a deficit situation that doesn't have the desired benefit," Niello said Tuesday, noting that housing prices are still depressed despite earlier credits designed to stimulate the market.
Niello's view was clearly a minority one, however.
"This tax credit has a proven track record," said Assemblywoman Anna Caballero, D-Salinas, who authored the bill along with Sen. Roy Ashburn, R-Bakersfield. Caballero said California's construction industry reported a 39 percent increase in building permits after the first round of tax credits began in March 2009 and proved more popular than expected. It ran out last July 2.
Schwarzenegger spokesman Mike Naple said Tuesday the governor supports the bill "and is expected to sign it."
The governor signaled his intent Monday while signing two other budget bills. In a signing message, he commended the Legislature for approving the tax credit bill, saying it will stimulate "the housing industry, creating jobs for thousands of Californians."
Schwarzenegger proposed the housing stimulus in his January State of the State Address to help revive the California economy. The new state tax credit would take effect one day after expiration of a federal $8,000 tax credit for first-time homebuyers.
As was the case last year, buyers won't be eligible for the full $10,000 credit if they owe the state less than that amount over a three-year period. Buyers can get up to $3,333 off their tax obligation in each of the three years after buying a house.
Buyers must be at least 18 years old and be unrelated to the seller. They must live in the home they buy. First-time buyers are defined as those who have not owned a home in the past three years.
The Franchise Tax Board estimates the tax credit will cost the state $6 million for the fiscal year ending June 30 and $69 million next year. For three years after that, it will cost the state treasury $67 million, $54 million and $4 million.
This year's legislation is different in that it allows buyers of new homes to reserve a tax credit in advance. A buyer signing a sales contract in June can claim the credit in November when the house is completed, a capital-area building industry official said Tuesday.
"In our parlance, that allows dirt sales," said Dennis Rogers, a vice president at the Roseville-based North State Building Industry Association. "We'll be able to build new houses now and get jobs going."
Homebuyer tax credits are almost certainly returning.
Sacramento-area buyers can begin claiming $10,000 tax credits starting May 1 under a bill expected to be signed soon by Gov. Arnold Schwarzenegger.
The legislation allocates $200 million for more state tax credits – twice what was offered last year to 10,659 buyers of new, unoccupied homes. The state's newest housing stimulus will grant $100 million in tax credits to first-time buyers of existing homes and $100 million to anyone who buys a new, unoccupied home.
The state Franchise Tax Board on Tuesday estimated nearly 32,000 homeowners statewide might get the tax breaks. Buyers must close escrow or reserve a credit on or after May 1 and before or on Dec. 31 to qualify.
The bill, AB 183, passed both houses of the Legislature by near unanimous votes. But one local lawmaker, Assemblyman Roger Niello, R-Fair Oaks, voted against it.
"I think it's a lot of money in a deficit situation that doesn't have the desired benefit," Niello said Tuesday, noting that housing prices are still depressed despite earlier credits designed to stimulate the market.
Niello's view was clearly a minority one, however.
"This tax credit has a proven track record," said Assemblywoman Anna Caballero, D-Salinas, who authored the bill along with Sen. Roy Ashburn, R-Bakersfield. Caballero said California's construction industry reported a 39 percent increase in building permits after the first round of tax credits began in March 2009 and proved more popular than expected. It ran out last July 2.
Schwarzenegger spokesman Mike Naple said Tuesday the governor supports the bill "and is expected to sign it."
The governor signaled his intent Monday while signing two other budget bills. In a signing message, he commended the Legislature for approving the tax credit bill, saying it will stimulate "the housing industry, creating jobs for thousands of Californians."
Schwarzenegger proposed the housing stimulus in his January State of the State Address to help revive the California economy. The new state tax credit would take effect one day after expiration of a federal $8,000 tax credit for first-time homebuyers.
As was the case last year, buyers won't be eligible for the full $10,000 credit if they owe the state less than that amount over a three-year period. Buyers can get up to $3,333 off their tax obligation in each of the three years after buying a house.
Buyers must be at least 18 years old and be unrelated to the seller. They must live in the home they buy. First-time buyers are defined as those who have not owned a home in the past three years.
The Franchise Tax Board estimates the tax credit will cost the state $6 million for the fiscal year ending June 30 and $69 million next year. For three years after that, it will cost the state treasury $67 million, $54 million and $4 million.
This year's legislation is different in that it allows buyers of new homes to reserve a tax credit in advance. A buyer signing a sales contract in June can claim the credit in November when the house is completed, a capital-area building industry official said Tuesday.
"In our parlance, that allows dirt sales," said Dennis Rogers, a vice president at the Roseville-based North State Building Industry Association. "We'll be able to build new houses now and get jobs going."
Monday, March 22, 2010
Sacramento-area home sales dismal in February
Sacramento-area home sales dismal in February
Sacramento-area home sales hovered around two-year lows during February, branding the start of 2010 as real estate's long slow winter.
But prospects for spring are stronger with thousands of new sales contracts blossoming across the region, say real estate agents and mortgage brokers. Most will close escrow in March and April.
"The people who have money out there are buying right now," said Lori Mode, a Keller Williams agent in Elk Grove. They include first-time buyers and investors from as far away as Australia, she said Thursday. A $589,000 bank repo in Wilton fetched "10 offers the first week, and it went for almost $100,000 over the asking price," she said.
That's a silver lining in an otherwise lackluster February sales report. Amid a short month, wet weather and unemployment that has reached 13.1 percent regionally, buyers and sellers closed just 2,464 escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, La Jolla researcher MDA DataQuick reported.
That was up from January's 2,428 sales, but well under 2,809 in February 2009. Buyers closed 2,162 escrows in February 2008 and 2,534 in February 2007.
"January and February were dismal," acknowledged Jon Dobbel, Elk Grove branch manager of Summit Funding. "It's the rain, the unemployment, the housing depression and the inability of people who own a house to buy a house because it's upside down. The move-up market is virtually dead."
The new home market is equally rough. Just 6.6 percent of February's regional sales were new homes, 163 in all, DataQuick reported. In 2005 new homes accounted for 25 percent of sales.
But Dobbel, too, is cheered by a March "that has just taken off. We're going to be up about 300 percent in closings over February."
February's median sales price for new and existing homes in Sacramento County rose slightly from January, reaching $169,000, DataQuick reported. That's a 5.6 percent gain from Feb. 2009 when repos were 70 percent of sales and prices bottomed out at $160,000. They went as high as $180,000 during the second half of 2009. Median is that point where half cost more and half less.
Sales prices were also 5 percent higher than last year in Sutter County and 2.7 percent higher in Yolo County. Other area counties, especially the affluent suburban zones, saw prices dip from last year as owners slashed them to sell.
At this point, Sacramento's housing recovery is lagging coastal California. The Bay Area saw sales prices jump 20 percent from last year. Prices rose 10 percent in the Los Angeles, Inland Empire and San Diego region.
DataQuick analyst Andrew LePage said the high-end markets there have awakened from being "asleep a year ago." Foreclosures are also a smaller part of their sales mixes.
Sacramento County's February repo market share was 54.8 percent, reflecting a continuing widespread mortgage crisis where 12.3 percent of area home loans are seriously delinquent, in foreclosure or tied to a bank repo listed for sale. The foreclosed inventory attracted large numbers of absentee buyers, usually investors, who accounted for 27.4 percent of sales. DataQuick said 34 percent of buyers paid cash in a county market where nearly one in four sales were priced below $100,000.
"As an investor you pretty much have to be cash," said Warren Adams, a broker associate with Security Pacific Real Estate in Fair Oaks. Banks, he said, have stopped lending to most investors after they buy four houses. First-time buyers are getting most of the rest.
"I would say a majority of my accepted offers are owner-occupied," he said. Adams attributed March's rise in activity to the season, low interest rates and possibly an April 30 deadline for an $8,000 first-time buyer federal tax credit. Buyers must be in sales contracts by then and close escrow by June 30 to qualify.
Mortgage rates have stayed below 5 percent, before paying points, for seven of 2010's first 11 weeks, according to federal mortgage giant Freddie Mac. Rates this week for 30-year fixed loans were 4.96 percent.
Sacramento-area home sales hovered around two-year lows during February, branding the start of 2010 as real estate's long slow winter.
But prospects for spring are stronger with thousands of new sales contracts blossoming across the region, say real estate agents and mortgage brokers. Most will close escrow in March and April.
"The people who have money out there are buying right now," said Lori Mode, a Keller Williams agent in Elk Grove. They include first-time buyers and investors from as far away as Australia, she said Thursday. A $589,000 bank repo in Wilton fetched "10 offers the first week, and it went for almost $100,000 over the asking price," she said.
That's a silver lining in an otherwise lackluster February sales report. Amid a short month, wet weather and unemployment that has reached 13.1 percent regionally, buyers and sellers closed just 2,464 escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, La Jolla researcher MDA DataQuick reported.
That was up from January's 2,428 sales, but well under 2,809 in February 2009. Buyers closed 2,162 escrows in February 2008 and 2,534 in February 2007.
"January and February were dismal," acknowledged Jon Dobbel, Elk Grove branch manager of Summit Funding. "It's the rain, the unemployment, the housing depression and the inability of people who own a house to buy a house because it's upside down. The move-up market is virtually dead."
The new home market is equally rough. Just 6.6 percent of February's regional sales were new homes, 163 in all, DataQuick reported. In 2005 new homes accounted for 25 percent of sales.
But Dobbel, too, is cheered by a March "that has just taken off. We're going to be up about 300 percent in closings over February."
February's median sales price for new and existing homes in Sacramento County rose slightly from January, reaching $169,000, DataQuick reported. That's a 5.6 percent gain from Feb. 2009 when repos were 70 percent of sales and prices bottomed out at $160,000. They went as high as $180,000 during the second half of 2009. Median is that point where half cost more and half less.
Sales prices were also 5 percent higher than last year in Sutter County and 2.7 percent higher in Yolo County. Other area counties, especially the affluent suburban zones, saw prices dip from last year as owners slashed them to sell.
At this point, Sacramento's housing recovery is lagging coastal California. The Bay Area saw sales prices jump 20 percent from last year. Prices rose 10 percent in the Los Angeles, Inland Empire and San Diego region.
DataQuick analyst Andrew LePage said the high-end markets there have awakened from being "asleep a year ago." Foreclosures are also a smaller part of their sales mixes.
Sacramento County's February repo market share was 54.8 percent, reflecting a continuing widespread mortgage crisis where 12.3 percent of area home loans are seriously delinquent, in foreclosure or tied to a bank repo listed for sale. The foreclosed inventory attracted large numbers of absentee buyers, usually investors, who accounted for 27.4 percent of sales. DataQuick said 34 percent of buyers paid cash in a county market where nearly one in four sales were priced below $100,000.
"As an investor you pretty much have to be cash," said Warren Adams, a broker associate with Security Pacific Real Estate in Fair Oaks. Banks, he said, have stopped lending to most investors after they buy four houses. First-time buyers are getting most of the rest.
"I would say a majority of my accepted offers are owner-occupied," he said. Adams attributed March's rise in activity to the season, low interest rates and possibly an April 30 deadline for an $8,000 first-time buyer federal tax credit. Buyers must be in sales contracts by then and close escrow by June 30 to qualify.
Mortgage rates have stayed below 5 percent, before paying points, for seven of 2010's first 11 weeks, according to federal mortgage giant Freddie Mac. Rates this week for 30-year fixed loans were 4.96 percent.
Friday, March 19, 2010
Option ARM mortgages still pose a risk
Option ARM mortgages still pose a risk
Inside the fallout from risky housing boom loans in Sacramento, one particularly notorious brand of mortgage, the Option ARM, still looms as big potential trouble.
Analysts have debated its implications half to death. Will it or won't it spark a new wave of area mortgage defaults in 2010 and 2011?
The experience of Mark Mosley of Vacaville offers hope that another crisis may be averted. Last fall, Wells Fargo rewrote his dangerous Option ARM into a fixed-rate loan and cut what he owed by $59,000. He'll make it now.
This week, Wells Fargo executive Brad Blackwell told the state Senate Banking Finance and Insurance Committee the bank has modified thousands of Option ARMs assumed with its October 2008 purchase of Wachovia. He said Wells Fargo has cut average monthly payments by 25 percent and forgiven $2.6 billion in Option ARM debt. Mosley is one example.
At Sacramento's NeighborWorks Homeownership Center, a nonprofit loan counseling agency, executive Mike Himes said he's seen several clients get these deals from Wells Fargo. The counselor also has seen Bank of America, Wilshire and OneWest (formerly IndyMac) trim Option ARM loans, a phenomenon known as principal reduction.
Blackwell said just a few hundred of the bank's Option ARMs will put borrowers into foreclosure situations in 2010 and 2011. Most have 10-year horizons well beyond that, he said.
Still, plenty of borrowers out there remain in trouble. Like Jullean Ewers of Rocklin, for instance. She is edging toward the moment when her loan "explodes," and her monthly payment nearly triples. Her servicer, Aurora, has told her that as long as she's making the minimum payment she doesn't qualify for a modification. If she gets no help, she may not make it.
Ewers' story is common in that she didn't know exactly what she was getting into at a time when her mother had a stroke and her brother had heart bypass surgery.
"I feel embarrassed that I got into an Option ARM," she says. Yet she has always made her payment, almost always the minimum.
These minimum payments are the problem with Option ARMs, which Business Week magazine once declared "might be the riskiest and most complicated home loan product ever created."
Most people, like Ewers, make the minimum of four available payment choices: the one that doesn't even pay all the interest and makes the loan grow bigger as it's being paid off. When the loan amount reaches 10 to 15 percent above what was originally borrowed, it "recasts." Monthly payments can triple, and foreclosure is often not far behind.
Sacramento's economy partially rests on whether lenders create more examples like Mosley and fewer like Ewers. Almost one in five 2005 home loans in Sacramento, Placer, El Dorado and Yolo counties were Option ARMs. In 2006, they were one in four, according to First American CoreLogic.
Consumer advocates say 60 percent of the nation's Option ARMs are in California, an "affordability product" that's also a ticking time bomb if not altered.
Subprime is now yesterday's news. The jury is out on whether Option ARMs might be tomorrow's.
Inside the fallout from risky housing boom loans in Sacramento, one particularly notorious brand of mortgage, the Option ARM, still looms as big potential trouble.
Analysts have debated its implications half to death. Will it or won't it spark a new wave of area mortgage defaults in 2010 and 2011?
The experience of Mark Mosley of Vacaville offers hope that another crisis may be averted. Last fall, Wells Fargo rewrote his dangerous Option ARM into a fixed-rate loan and cut what he owed by $59,000. He'll make it now.
This week, Wells Fargo executive Brad Blackwell told the state Senate Banking Finance and Insurance Committee the bank has modified thousands of Option ARMs assumed with its October 2008 purchase of Wachovia. He said Wells Fargo has cut average monthly payments by 25 percent and forgiven $2.6 billion in Option ARM debt. Mosley is one example.
At Sacramento's NeighborWorks Homeownership Center, a nonprofit loan counseling agency, executive Mike Himes said he's seen several clients get these deals from Wells Fargo. The counselor also has seen Bank of America, Wilshire and OneWest (formerly IndyMac) trim Option ARM loans, a phenomenon known as principal reduction.
Blackwell said just a few hundred of the bank's Option ARMs will put borrowers into foreclosure situations in 2010 and 2011. Most have 10-year horizons well beyond that, he said.
Still, plenty of borrowers out there remain in trouble. Like Jullean Ewers of Rocklin, for instance. She is edging toward the moment when her loan "explodes," and her monthly payment nearly triples. Her servicer, Aurora, has told her that as long as she's making the minimum payment she doesn't qualify for a modification. If she gets no help, she may not make it.
Ewers' story is common in that she didn't know exactly what she was getting into at a time when her mother had a stroke and her brother had heart bypass surgery.
"I feel embarrassed that I got into an Option ARM," she says. Yet she has always made her payment, almost always the minimum.
These minimum payments are the problem with Option ARMs, which Business Week magazine once declared "might be the riskiest and most complicated home loan product ever created."
Most people, like Ewers, make the minimum of four available payment choices: the one that doesn't even pay all the interest and makes the loan grow bigger as it's being paid off. When the loan amount reaches 10 to 15 percent above what was originally borrowed, it "recasts." Monthly payments can triple, and foreclosure is often not far behind.
Sacramento's economy partially rests on whether lenders create more examples like Mosley and fewer like Ewers. Almost one in five 2005 home loans in Sacramento, Placer, El Dorado and Yolo counties were Option ARMs. In 2006, they were one in four, according to First American CoreLogic.
Consumer advocates say 60 percent of the nation's Option ARMs are in California, an "affordability product" that's also a ticking time bomb if not altered.
Subprime is now yesterday's news. The jury is out on whether Option ARMs might be tomorrow's.
Thursday, March 18, 2010
Sacramento area home sales remain depressed, but Sacramento County prices rise.
Sacramento area home sales remain depressed, but Sacramento County prices rise
Sacramento-area home sales rose slightly from January, but remained below the same time a year ago, bucking a statewide trend of year-over-year sales gains.
Buyers and sellers closed 2,464 February escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, La Jolla researcher MDA DataQuick reported Thursday. That was up slightly from January's 2,428 sales, and down from 2,809 in February 2009.
The median sales price for new and existing homes sold in Sacramento County reached $169,000, a 5.6 percent gain from the same time last year when prices bottomed out at $160,000.
The county's price gain is moderate compared with a 20 percent annual gain in sales prices in the Bay Area and a 10 percent rise in the Los Angeles, Inland Empire and San Diego region.
Sales prices were 5 percent higher than last year in Sutter County and 2.7 percent higher in Yolo County. Other area counties, especially the more affluent suburban zones, are still down from last year as owners cut prices to sell.
With the new sales numbers partially reflecting a normal winter slowdown, Sacramento researcher TrendGraphix this week reported a big rise in new sales contracts in February, which will show up in March and April escrow closings.
The firm attributed it to "attractive interest rates" and an April 30 deadline for an $8,000 first-time buyer federal tax credit. Buyers must be in binding sales contracts by then and close escrow.
Sacramento-area home sales rose slightly from January, but remained below the same time a year ago, bucking a statewide trend of year-over-year sales gains.
Buyers and sellers closed 2,464 February escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, La Jolla researcher MDA DataQuick reported Thursday. That was up slightly from January's 2,428 sales, and down from 2,809 in February 2009.
The median sales price for new and existing homes sold in Sacramento County reached $169,000, a 5.6 percent gain from the same time last year when prices bottomed out at $160,000.
The county's price gain is moderate compared with a 20 percent annual gain in sales prices in the Bay Area and a 10 percent rise in the Los Angeles, Inland Empire and San Diego region.
Sales prices were 5 percent higher than last year in Sutter County and 2.7 percent higher in Yolo County. Other area counties, especially the more affluent suburban zones, are still down from last year as owners cut prices to sell.
With the new sales numbers partially reflecting a normal winter slowdown, Sacramento researcher TrendGraphix this week reported a big rise in new sales contracts in February, which will show up in March and April escrow closings.
The firm attributed it to "attractive interest rates" and an April 30 deadline for an $8,000 first-time buyer federal tax credit. Buyers must be in binding sales contracts by then and close escrow.
Tuesday, March 16, 2010
California tax relief for forgiven mortgage debt delayed by politics
California tax relief for forgiven mortgage debt delayed by politics
Sacramento-area residents are almost certain to get state tax relief for 2009 forgiven mortgage debt – eventually.
First, allow for politics.
On Monday, Gov. Arnold Schwarzenegger signaled his intent to veto a wide-ranging bill that – among other provisions – bans the state from taxing debt forgiven in short sales and loan modifications.
But the governor's spokesman said Schwarzenegger is "absolutely, 100 percent" committed to ensuring that Californians who escaped one harrowing financial encounter with lenders don't have another with the state this year. A majority of lawmakers have repeatedly said the same.
"We're looking to get this done with another bill," said Schwarzenegger spokesman Aaron McLear on Monday. McLear said the governor is looking at AB 1779 by Assemblyman Roger Niello, R-Fair Oaks, and SB X6 14 by Sen. Ronald Calderon, D-Montebello. Both would prevent the state from labeling forgiven mortgage debt as extra new income and taxing it.
The federal government has banned such taxes through 2012. California lawmakers and the governor banned them in 2007 and 2008, but haven't reached agreement yet for 2009. Niello's proposal extends protections through 2010; Calderon's through 2013.
The governor's veto threat stems from a dispute with the Democratic-controlled Legislature over SB X8 32, a bill passed by both houses in recent days. McLear said Schwarzenegger will likely veto it over a business tax issue unrelated to the forgiven mortgage debt issue.
The governor opposes a clause that penalizes the state's largest businesses for seeking some tax refunds. Businesses, backed by such groups as the California Chamber of Commerce, say they sometimes overpay taxes to avoid penalties for underpaying. But some businesses routinely fish for refunds whether or not they're fairly owed one, said Democrats, pointing to similar prevention measures by the federal government.
"This anti-fraud provision was adopted by the Bush administration in 2007," Alicia Trost, spokeswoman for Senate President Pro Tem Darrell Steinberg, D-Sacramento, said in a statement Monday.
The forgiven mortgage debt and business refund provisions are among dozens in a bill that aligns many of the state's tax codes with those of the federal government.
Sacramento-area residents are almost certain to get state tax relief for 2009 forgiven mortgage debt – eventually.
First, allow for politics.
On Monday, Gov. Arnold Schwarzenegger signaled his intent to veto a wide-ranging bill that – among other provisions – bans the state from taxing debt forgiven in short sales and loan modifications.
But the governor's spokesman said Schwarzenegger is "absolutely, 100 percent" committed to ensuring that Californians who escaped one harrowing financial encounter with lenders don't have another with the state this year. A majority of lawmakers have repeatedly said the same.
"We're looking to get this done with another bill," said Schwarzenegger spokesman Aaron McLear on Monday. McLear said the governor is looking at AB 1779 by Assemblyman Roger Niello, R-Fair Oaks, and SB X6 14 by Sen. Ronald Calderon, D-Montebello. Both would prevent the state from labeling forgiven mortgage debt as extra new income and taxing it.
The federal government has banned such taxes through 2012. California lawmakers and the governor banned them in 2007 and 2008, but haven't reached agreement yet for 2009. Niello's proposal extends protections through 2010; Calderon's through 2013.
The governor's veto threat stems from a dispute with the Democratic-controlled Legislature over SB X8 32, a bill passed by both houses in recent days. McLear said Schwarzenegger will likely veto it over a business tax issue unrelated to the forgiven mortgage debt issue.
The governor opposes a clause that penalizes the state's largest businesses for seeking some tax refunds. Businesses, backed by such groups as the California Chamber of Commerce, say they sometimes overpay taxes to avoid penalties for underpaying. But some businesses routinely fish for refunds whether or not they're fairly owed one, said Democrats, pointing to similar prevention measures by the federal government.
"This anti-fraud provision was adopted by the Bush administration in 2007," Alicia Trost, spokeswoman for Senate President Pro Tem Darrell Steinberg, D-Sacramento, said in a statement Monday.
The forgiven mortgage debt and business refund provisions are among dozens in a bill that aligns many of the state's tax codes with those of the federal government.
Monday, March 15, 2010
Years after homeowners default, collectors may still come after them
Years after homeowners default, collectors may still come after them
Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars – and a collection agency is coming after them to get it.
That's because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in California have up to four years to make a claim.
If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.
"The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy," said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.
The phenomenon suggests an ominous, looming echo of today's real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid Sacramento home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.
"I think there will be a lot of unhappy people when it hits," said CoBen. "We saw this in the '90s. This is not really new. Just when you think you're back on your feet, you're making money and the economy's good, they hit you with this."
Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don't get the advice necessary to prevent future fallout, say nonprofit loan counselors.
"You've got tens of thousands of people in California who have this hanging over their heads who don't even know it," said Scott Thompson, principal at for-profit Carmichael-based Mortgage Resolution Services. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.
"So many of these are people with 750 or 800 credit scores who made a bad decision," said Thompson. "Or they're people who suffered income cuts. These are people, in terms of the economy, whom we need to participate."
But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said.
"It's a big business and investors are coming out of the woodwork. It's a very lucrative business," she said. Real estate insiders and financial players know it as "scratch and dent."
Total amount of debt unknown
One of the biggest players in the business, Texas-based Real Time Resolutions, did not respond to an inquiry on the subject from The Bee. Neither did Bank of America, which holds many defaulted Sacramento-area loans made by its Countrywide affiliate during the real estate boom.
Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about.
But statistics suggest that tens of thousands of borrowers locally may be vulnerable in years ahead. Generally, they are people who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.
In California, banks can't collect from borrowers for primary, so-called "first-lien," loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer.
But banks also made thousands of "second-lien" loans, including those used to finance 20 percent down payments across Sacramento during the housing boom.
The Sacramento metro area – Sacramento, Yolo, Placer and El Dorado counties – now ranks second nationally for delinquencies on these loans, according to Oakland-based Foresight Analytics, a real estate consulting firm. The firm said 7.9 percent of the $2.9 billion in area "seconds" now on bank balance sheets are delinquent. Only Las Vegas has a higher rate. Read more:
Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars – and a collection agency is coming after them to get it.
That's because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in California have up to four years to make a claim.
If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.
"The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy," said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.
The phenomenon suggests an ominous, looming echo of today's real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid Sacramento home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.
"I think there will be a lot of unhappy people when it hits," said CoBen. "We saw this in the '90s. This is not really new. Just when you think you're back on your feet, you're making money and the economy's good, they hit you with this."
Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don't get the advice necessary to prevent future fallout, say nonprofit loan counselors.
"You've got tens of thousands of people in California who have this hanging over their heads who don't even know it," said Scott Thompson, principal at for-profit Carmichael-based Mortgage Resolution Services. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.
"So many of these are people with 750 or 800 credit scores who made a bad decision," said Thompson. "Or they're people who suffered income cuts. These are people, in terms of the economy, whom we need to participate."
But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said.
"It's a big business and investors are coming out of the woodwork. It's a very lucrative business," she said. Real estate insiders and financial players know it as "scratch and dent."
Total amount of debt unknown
One of the biggest players in the business, Texas-based Real Time Resolutions, did not respond to an inquiry on the subject from The Bee. Neither did Bank of America, which holds many defaulted Sacramento-area loans made by its Countrywide affiliate during the real estate boom.
Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about.
But statistics suggest that tens of thousands of borrowers locally may be vulnerable in years ahead. Generally, they are people who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.
In California, banks can't collect from borrowers for primary, so-called "first-lien," loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer.
But banks also made thousands of "second-lien" loans, including those used to finance 20 percent down payments across Sacramento during the housing boom.
The Sacramento metro area – Sacramento, Yolo, Placer and El Dorado counties – now ranks second nationally for delinquencies on these loans, according to Oakland-based Foresight Analytics, a real estate consulting firm. The firm said 7.9 percent of the $2.9 billion in area "seconds" now on bank balance sheets are delinquent. Only Las Vegas has a higher rate. Read more:
Friday, March 12, 2010
California pension funds get burned again on real estate
California pension funds get burned again on real estate
California's two big public pension funds took fresh hits to their troubled real estate portfolios this week, suggesting the fallout from the real estate bubble hasn't completely run its course.
First up was CalPERS, which Wednesday walked away from a controversial Boston investment that cost it about $91 million.
Then came CalSTRS. A New York skyscraper it co-owns is about to go into default, a credit-rating agency warned Thursday. Default could cost the California State Teachers' Retirement System its share of a $75 million investment.
The two losses by themselves don't represent enormous drains on the pension funds, which control portfolios totaling $336 billion. But they show that the funds have yet to completely extricate themselves from the financial debacles that cost them a combined $100 billion in the fiscal year ended last June 30, including several billion in real estate.
"Real estate remains a very difficult situation for us," said Joseph Dear, CalPERS' chief investment officer, in remarks to the pension fund's board last month.
Troubles in real estate and other sectors are straining the state and local government entities that rely on CalPERS and CalSTRS pensions. The California Public Employees' Retirement System is imposing rate hikes on state and local governments to help it recover from its investment losses. CalSTRS, which needs permission from the Legislature to raise rates, is preparing to introduce a bill next year.
Additionally, both funds are considering lowering their official forecasts of future investment returns, which could increase the funding pressure on state and local governments.
Real estate could be the biggest trouble spot for the foreseeable future. Ben Thypin, senior market analyst with New York consultant Real Capital Analytics, said all big real estate investors are continuing to struggle with post-bubble economics.
"I don't think it's going to get much worse," he said, referring to the market in general and not the California pension funds' investments. "That doesn't necessarily mean there won't be other bombshells."
CalPERS' real estate portfolio lost 47 percent of its value in a year's time and was valued at $13.7 billion at the end of January. CalSTRS' real estate holdings declined by 38 percent in the 12 months ending last June 30, falling to $13 billion.
In its latest headache, Cal-PERS this week notified Massachusetts officials that it's abandoning a massive mixed-use project called Columbus Center. The project, a six-building condo-hotel complex to be built over the Massachusetts Turnpike near downtown Boston, had been stalled for years. Besides financial problems, it got tangled up in a thicket of state and local politics, as neighborhood groups and some elected officials complained about the size of the project and the use of public subsidies.
State officials warned Cal-PERS last month that they were about to terminate a lease the developers need to build a deck over the turnpike. Now the CalPERS group is walking away.
"With the deterioration in the market, the project's no longer viable," said Steve Sugerman, a spokesman for Cal-PERS real estate consultant Wilson Meany Sullivan.
Sugerman said the investors spent $120 million on Columbus Center; CalPERS' share came to $91 million.
California's two big public pension funds took fresh hits to their troubled real estate portfolios this week, suggesting the fallout from the real estate bubble hasn't completely run its course.
First up was CalPERS, which Wednesday walked away from a controversial Boston investment that cost it about $91 million.
Then came CalSTRS. A New York skyscraper it co-owns is about to go into default, a credit-rating agency warned Thursday. Default could cost the California State Teachers' Retirement System its share of a $75 million investment.
The two losses by themselves don't represent enormous drains on the pension funds, which control portfolios totaling $336 billion. But they show that the funds have yet to completely extricate themselves from the financial debacles that cost them a combined $100 billion in the fiscal year ended last June 30, including several billion in real estate.
"Real estate remains a very difficult situation for us," said Joseph Dear, CalPERS' chief investment officer, in remarks to the pension fund's board last month.
Troubles in real estate and other sectors are straining the state and local government entities that rely on CalPERS and CalSTRS pensions. The California Public Employees' Retirement System is imposing rate hikes on state and local governments to help it recover from its investment losses. CalSTRS, which needs permission from the Legislature to raise rates, is preparing to introduce a bill next year.
Additionally, both funds are considering lowering their official forecasts of future investment returns, which could increase the funding pressure on state and local governments.
Real estate could be the biggest trouble spot for the foreseeable future. Ben Thypin, senior market analyst with New York consultant Real Capital Analytics, said all big real estate investors are continuing to struggle with post-bubble economics.
"I don't think it's going to get much worse," he said, referring to the market in general and not the California pension funds' investments. "That doesn't necessarily mean there won't be other bombshells."
CalPERS' real estate portfolio lost 47 percent of its value in a year's time and was valued at $13.7 billion at the end of January. CalSTRS' real estate holdings declined by 38 percent in the 12 months ending last June 30, falling to $13 billion.
In its latest headache, Cal-PERS this week notified Massachusetts officials that it's abandoning a massive mixed-use project called Columbus Center. The project, a six-building condo-hotel complex to be built over the Massachusetts Turnpike near downtown Boston, had been stalled for years. Besides financial problems, it got tangled up in a thicket of state and local politics, as neighborhood groups and some elected officials complained about the size of the project and the use of public subsidies.
State officials warned Cal-PERS last month that they were about to terminate a lease the developers need to build a deck over the turnpike. Now the CalPERS group is walking away.
"With the deterioration in the market, the project's no longer viable," said Steve Sugerman, a spokesman for Cal-PERS real estate consultant Wilson Meany Sullivan.
Sugerman said the investors spent $120 million on Columbus Center; CalPERS' share came to $91 million.
Wednesday, March 10, 2010
U.S Plan Will Help Homeowners Avoid Foreclosure
U.S. Plan Will Help Homeowners Avoid Foreclosure
Homeowners across the United States who are undergoing financial hardship could avoid foreclosure under a plan announced on Nov. 30 by the U.S. Treasury Department. Under the plan, millions of at-risk homeowners could be free of mortgage debt without going through foreclosure, and given $1,500 for relocation.The Treasury plan, which potentially applies to 75 percent of the mortgages in the U.S., including those backed by Freddie Mac or Fannie Mae (those two organizations are currently devising guidelines), provides incentives for lenders and homeowners for completing Short Sales – transactions in which the lender agrees to a sale price that's less than the borrower owes on the mortgage. Short Sales are preferred to foreclosure because homeowners take less of a hit on their credit and lenders realize a smaller loss. However, Short Sales often get bogged down because of the complicated nature of the transaction. Deals can fall through because they take too long.The official effective date of the plan is April 5, 2010, but participating mortgage servicers can begin operating under the terms of the program before then if they are ready to meet all reporting requirements.Under the plan, which speeds up and simplifies the Short Sale process, mortgage servicers have 10 days to approve or reject a request for a Short Sale. And when the sale is done, the borrower must be fully released from the debt.
Homeowners across the United States who are undergoing financial hardship could avoid foreclosure under a plan announced on Nov. 30 by the U.S. Treasury Department. Under the plan, millions of at-risk homeowners could be free of mortgage debt without going through foreclosure, and given $1,500 for relocation.The Treasury plan, which potentially applies to 75 percent of the mortgages in the U.S., including those backed by Freddie Mac or Fannie Mae (those two organizations are currently devising guidelines), provides incentives for lenders and homeowners for completing Short Sales – transactions in which the lender agrees to a sale price that's less than the borrower owes on the mortgage. Short Sales are preferred to foreclosure because homeowners take less of a hit on their credit and lenders realize a smaller loss. However, Short Sales often get bogged down because of the complicated nature of the transaction. Deals can fall through because they take too long.The official effective date of the plan is April 5, 2010, but participating mortgage servicers can begin operating under the terms of the program before then if they are ready to meet all reporting requirements.Under the plan, which speeds up and simplifies the Short Sale process, mortgage servicers have 10 days to approve or reject a request for a Short Sale. And when the sale is done, the borrower must be fully released from the debt.
Monday, March 8, 2010
California tax law unsettled on home sellers short sales
California tax law unsettled on home sellers' short sales
Sacramento-area accountants say rising numbers of taxpayers who did short sales or received loan modifications in 2009 now fear they'll be walloped anew by a cash-starved state government intent on taxing their forgiven debt.
It's impossible to ease the fears or specifically answer many questions, these accountants say.
"We've had quite a few clients fall into that category," said Jennifer Neronde, office manager at Rocklin-based Cramer and Associates CPA.
Uncertainty reigns with less than six weeks before the April 15 filing deadline because the forgiven debt question has gotten caught up in a larger tussle over business taxes between the Legislature and Gov. Arnold Schwarzenegger.
It's headed for a Capitol showdown next week.
Monday, the Assembly is scheduled to vote on SB32 X8, a bill by Sen. Lois Wolk, D-Davis, that would ban the state from taxing mortgage debt forgiven in 2009.
But Schwarzenegger is threatening to veto the bill over an obscure clause opposed by business groups. That clause establishes new tax penalties on firms that file unfounded claims for refunds. Business associations believe it will unfairly punish them for tax withholding decisions they claim are difficult to calculate. The clause, along with forgiven mortgage debt, is among dozens in the bill to align California's tax codes with federal codes.
The governor wants the business penalty provisions stripped from the bill, said his spokesman Mike Naple.
"The governor would prefer that the provision be taken out of the bill and addressed in separate legislation," Naple said.
The state gave homeowners who occupied their homes a pass on forgiven mortgage debt in 2007 and 2008. The federal government, meanwhile, has backed off on taxing forgiven mortgage debt through the end of 2012. In the past, both branches of government treated forgiven debt as taxable income.
In a short sale, for instance, a lender might accept a sales price of $200,000 on a home where it's owed $325,000. The $125,000 left unpaid is classified as forgiven debt, which used to qualify as new taxable income. The Bush administration, backed by the real estate industry, blocked the IRS from taxing forgiven debt in 2007. It's a temporary measure to encourage borrowers to call lenders and negotiate alternatives to foreclosure.
In many cases, borrowers try short sales after they fail to get loan modifications, say real estate agents like Larry Henderson, of Prudential Norcal Realty in Carmichael. He said he gets frequent questions about the complicated tax implications of short sales.
"I make it clear to my clients they should talk with a lawyer or a CPA," he said.
Sacramento-area accountants say rising numbers of taxpayers who did short sales or received loan modifications in 2009 now fear they'll be walloped anew by a cash-starved state government intent on taxing their forgiven debt.
It's impossible to ease the fears or specifically answer many questions, these accountants say.
"We've had quite a few clients fall into that category," said Jennifer Neronde, office manager at Rocklin-based Cramer and Associates CPA.
Uncertainty reigns with less than six weeks before the April 15 filing deadline because the forgiven debt question has gotten caught up in a larger tussle over business taxes between the Legislature and Gov. Arnold Schwarzenegger.
It's headed for a Capitol showdown next week.
Monday, the Assembly is scheduled to vote on SB32 X8, a bill by Sen. Lois Wolk, D-Davis, that would ban the state from taxing mortgage debt forgiven in 2009.
But Schwarzenegger is threatening to veto the bill over an obscure clause opposed by business groups. That clause establishes new tax penalties on firms that file unfounded claims for refunds. Business associations believe it will unfairly punish them for tax withholding decisions they claim are difficult to calculate. The clause, along with forgiven mortgage debt, is among dozens in the bill to align California's tax codes with federal codes.
The governor wants the business penalty provisions stripped from the bill, said his spokesman Mike Naple.
"The governor would prefer that the provision be taken out of the bill and addressed in separate legislation," Naple said.
The state gave homeowners who occupied their homes a pass on forgiven mortgage debt in 2007 and 2008. The federal government, meanwhile, has backed off on taxing forgiven mortgage debt through the end of 2012. In the past, both branches of government treated forgiven debt as taxable income.
In a short sale, for instance, a lender might accept a sales price of $200,000 on a home where it's owed $325,000. The $125,000 left unpaid is classified as forgiven debt, which used to qualify as new taxable income. The Bush administration, backed by the real estate industry, blocked the IRS from taxing forgiven debt in 2007. It's a temporary measure to encourage borrowers to call lenders and negotiate alternatives to foreclosure.
In many cases, borrowers try short sales after they fail to get loan modifications, say real estate agents like Larry Henderson, of Prudential Norcal Realty in Carmichael. He said he gets frequent questions about the complicated tax implications of short sales.
"I make it clear to my clients they should talk with a lawyer or a CPA," he said.
Subscribe to:
Posts (Atom)