HousingStorm.com

When a homeowner sells their property “short,”  that amount of money that was forgiven by the lender is considered income and typically taxed.   Well, currently the Federal Government is not taxing that money to the short seller but the state of California is.  On Monday, Legislation to prevent the state from taxing forgiven mortgage debt cleared the state Assembly.  The legislation could potentially offer tax relief to thousands of Californians who sold their home through short sale in 2009.  The measure passed 47-27 and is now being sent to Governor Schwarzenegger.

Schwarzenegger’s office signaled later that he may veto the measure. 

Currently, the fed’s tax relief is in place through 2012.  California was forgiving the “income” in 2007 and 2008 but since falling on major budget deficits, the state has since been taxing the amount of money the seller/homeowner was forgiven.

Doug’s take: I can definitely see both sides of this one.  It is a huge help for struggling homeowners that have to sell short to get the tax break.  I know, i have many short sale clients currently and in the past.  They all tell me how tough it is going to be to pay that tax on the forgiven amount.  It would be a much needed break for those in the difficult position of losing their home and have to do a short sale.

On the other hand, the state is in financial ruin as well.  The state needs all the tax money it can get.  We’ve all been effected by the deficit.

My suggestion is meeting in the middle and only taxing half as much as would normally be taxed.  It would be a win-win in my opinion but then again politics are not that easy.  We’ll just have to wait and see how it plays out.  I know my past short sale clients will be anxiously waiting.

If you have any questions about selling your home as a short sale, i’m here to help.  Give me a call or email and i’ll put my short sale experience to work for you.

clear skies,

doug reynolds

Are Principal Reductions Coming? – The Atlantic

Indeed, if principal reductions begin, then the pendulum swings back in the other direction away from encouraging short sales. There appears to be a sort of scattershot approach at this point, and I am curious whether there’s some unifying strategy that I’m just missing.

Napa wineries fall under foreclosure crush – The San Francisco Chronicle

As many as 10 wineries and vineyards in Napa, where the most expensive U.S. wines are produced, will change hands in distressed sales or foreclosures this year and next, up from none in 2008, according to Silicon Valley Bank. In a bank survey of vintners, 7 percent called their finances “very weak” or “on life support.”

Lies, Damned Lies, and Chinese Statistics – China Stakes

The process of estimating China’s GDP bears on social stability and even the political future of local leaders, and is inevitably subject to political influence.

So Where’s Consumer Protection? – The New York Times, Andrew Ross Sorkin

So the questions are these: Should a consumer protection agency have true independence — in effect, its own street address — as many Democrats believe it should, so that it has real power to act on its own? Or should it be given the equivalent of a room in the basement of the Fed, next to the janitor’s closet — as the bankers themselves and many Republicans would prefer?

Job Openings in U.S. Climbed in January, Labor Department Says – Bloomberg

The figures indicate that the world’s largest economy, which expanded in the second half of 2009, is poised to add workers after payrolls dropped less than anticipated last month.

California legislators vote to extend tax relief for home short sales – The Sacramento Bee

“We should provide relief to those who are struggling and at risk of losing their homes,” said Assemblywoman Mariko Yamada, D-Davis.

Does FDIC think about the impact it’s having on commercial real estate – Globe St.

Two recent news items suggest that CRE is not at the forefront of FDIC’s thinking as it goes about dispersing the assets now under its control.

Sole occupant of 32-story Fort Myers condo wants out – News Press

Victor Vangelakos is the only buyer to take possession of his unit in the 32-story Tower 1 of the Oasis high-rise project in downtown Fort Myers.

Shorting America Rocks! – Matt Taibbi

I’d like someone to explain to me how trading a credit default swap on a U.S. Treasury note isn’t gambling. This is purely betting on crowd behavior — after all, nobody really thinks the U.S. will default.

Turnkey Tales: Moreno Valley is prime example of housing boon and a bust – Press Enterprise

“I was waiting any second for the bank to knock on the door … But that didn’t happen,” Ward said.

She said the bank repeatedly has delayed foreclosing on the house although her parents would like to get it over with so they can start rebuilding their credit. Meanwhile, she said, “no one is watering the lawn. It is probably an eyesore for the former neighbors.”

Help may bring another bubble – The Las Vegas Sun

Nevada more than just about any other state could use help for its beleaguered construction industry; unemployment in construction in Clark County has climbed into the high 20s and could reach 50 percent this year, according to labor union officials.

So it’s not surprising that Nevada’s congressional delegation has signed on to a plan to extend the credit and even make it more generous.

Program Will Pay Homeowners to Sell at a Loss – The New York Times

In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

Strategic defaults on homes on the rise – The San Francisco Chronicle

The phenomenon reflects shifting attitudes toward debt and commitment. In an era where high-profile investors have walked away from multibillion-dollar real estate projects and more than 2 million Americans have gone through foreclosure, defaulting has begun to lose its stigma.

‘Shadow inventory’ may prolong housing slump – The Santa Rosa Press Democrat

A new study estimates that Sonoma County has more than 7,000 houses and condos that will be lost to foreclosures or other distressed sales in the next few years.

Couples work twice as long for a house – The Daily Telegraph

They needed to work 25 hours to meet the monthly mortgage repayment of $25, based on an average five per cent interest rate and a mortgage of $4620.

Today, the average worker earning $30.04 an hour spends 70.7 hours – or almost two weeks of the month – at work to cover the monthly mortgage repayment for an average $283,000 loan at a 6.64 per cent interest rate.

The figures show rising costs and growing property prices have largely outstripped wages and young couples today need to work longer and harder to achieve the great Australian dream of owning their homes.

University of California Campus Erupts In Riots; Student Loan Scam Drives Up Cost Of Education; Expect More Riots - Mish

Government guaranteeing the loans makes the money readily available to all takers driving up the cost of education.

The Very Expensive Home Buyer Tax Credit – Calculated Risk

This is no surprise and suggests that the extension and expansion of the home buyer tax credit will probably cost taxpayers over $100,000 for each additional home sold.

Market Defies Fear of Real Estate Bubble in China – The New York Times

“This is wild,” said Andy Xie, a former Morgan Stanley economist who is now an independent analyst. “By all the traditional measures, like rental yield, this is a bubble.”

Greek Protesters Clash With Police in Athens - The New York Times

Up to 7,000 demonstrators gathered outside as lawmakers debated the austerity package, which aims to save euro4.8 billion ($6.5 billion) with measures including higher consumer taxes and cuts to public sector workers’ pay of up to 8 percent.

Employment Report: 36K Jobs Lost, 9.7% Unemployment Rate – Calculated Risk

Note: the impact of the weather on the survey is unknown, but was probably minimal. Census hiring was 15,000. So 51,000 jobs lost ex-Census.

Good Grief! – The Big Picture

I suspect it’s possible that municipalities have been digging in, denying grievances in the hope of hanging on to one of their main streams of revenue.  After all, how far is the typical homeowner willing to go to shave some bucks off his tax bill?

Fannie, Freddie May Ask Banks to Eat $21 Billion of Sour Loans – Bloomberg

The mortgage firms are looking at every loan more than 90 days past due and “asking us basically to give them all the documentation to show that it was properly underwritten,” JPMorgan’s Scharf said. “We then go through a process with them that takes a period of time, and literally it’s every loan, loan-by-loan, and have the discussion on whether or not we actually should buy the loan back.”

Broader U-6 Unemployment Rate Increases to 16.8% in February – The Wall Street Journal

The U-6 figure includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find.

Mean Street: Don’t Be Brainwashed by the Housing Cult – The Wall Street Journal

It’s one of my favorite truisms that you can never be too cynical about Wall Street or Washington.

But after watching Bob Toll, CEO of Toll Brothers on CNBC this Monday, I’ll be adding home builders to that esteemed list.

Commercial Real Estate Values Declining in Real Time – EconBlog

Nothing is ever clear, but given the rapid decline in such measures as ECRI’s weekly leading indicator growth rate, the

continued poor velocity of money, it continues to strike EBR that too much of the positive economic statistics that show recovery from the worst of the depression is due only to Fed money/credit creation.

“The measures are grossly unfair,” Dimitris Bratis, the president of the Greek teaching federation, which will strike for 24 hours tomorrow, told NET TV today. “We’re being asked to pay for the crisis. Greek taxpayers are being asked to foot the bill again.”

Even if a lawsuit doesn’t ultimately succeed, it can sometimes significantly delay the loss of a home. Some suits contend the lender reneged on a promise of a loan modification, as in the Levermans’ case. Others argue lenders screwed up the foreclosure process. Among the most frequent claims: During the overheated housing boom, the bank did not properly disclose the terms of the loan, the borrower never really qualified, but got a loan anyhow.

The bank’s foreclosure auction for the properties, which were previously owned by Palo Alto-based firm Page Mill Properties, attracted no bidders Tuesday, said Elise Wilkinson, Wells Fargo spokesperson. As a result, Wells Fargo officially took ownership of the properties, which the bank valued at $142 million.

ABI: Personal Bankruptcy Filings Up 14% from February 2009 – Calculated Risk

“Consumer filings this year will likely surpass 1.5 million filings, or the same number of annual filings averaged in the years leading up to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.”

Greece Approves Plan for New Taxes and Pay Cuts – The New York Times

The new measures include an increase of two percentage points in the value-added sales tax, which is now 19 percent; a further increase in the fuel tax; increases of 20 percent in alcohol taxes and 6 percent on cigarette taxes; a new tax on luxury goods and a 12 percent cut in add-ons to civil servant wages, Mr. Petalotis said.

They also include a 30 percent reduction in the bonuses given to civil servants as holiday pay, which amount to two additional monthly wages, he said.

70% Of The Elderly Aren’t Retiring Because They Can’t Afford To Anymore – Clusterstock

Such job satisfaction will become necessary for most young Americans, since fully supporting retirees from ~60 years onwards will be simply untenable as an increasing proportion of America becomes old due to demographic change and extended life expectancies. Already, in 2012 about 1 in 3 American workers will be over 50 years old according to The Economist.

Census 2010: Impact on Employment – Calculated Risk

With all the talk about the impact of the February snow storms on employment, it is worth remembering that the temporary hiring for Census 2010 will also distort the payroll employment numbers.

Fannie Mae Changes Mission Statement – HousingDoom

Did you note the difference?  Their focus changed from helping families to helping those who house America.  [Helping those who house America being mortgage bankers and other lenders.]

California job losses grow – The Contra Costa Times

“The economy was a lot worse than everybody thought,” said Howard Roth, chief economist with the state’s Department of Finance. “The job market is weaker than we figured.”

It appears California lost 871,000 jobs in 2009, suggests an estimate provided by the state Employment Development Department.

“This is the worst recession for California since the Great Depression,” said Brad Kemp, director of regional research with Beacon Economics.

Dallas Fed President: Break Up Big Banks – The Baseline Scenario, James Kwak

For whatever reason, the administration and Christopher Dodd seem to be going for the other kind of majority — one that cobbles together a least-common-denominator reform package that leaves the basic financial system intact. Even if they succeed, at best we will have lost our best opportunity for real change in decades.

Here’s The Untold Story Of How AIG Destroyed Itself – Clusterstock, John Carney

The details of AIG’s investment strategy have been largely obscured by the analogy with insurance. In the typical telling, AIG is depicted as insuring mortgage bonds packaged by banks. AIG often seems to be almost a passive and unsophisticated player that came in after the deal.

In reality, AIG was deeply involved in the creation of the financial products it insured, according to a person familiar with the matter.

‘If you really want a fiscal problem, look at the UK’ – FT Alphaville

Britain is probably one of the few countries in the world where political uncertainty, a renewed round of house price deflation and a sinking currency can manage to elicit a bounce in consumer sentiment (the country has a Greek-like 12.5% deficit-to-GDP ratio, which is double the European average and a household debt-to-GDP ratio that, at 170%, makes the U.S. household sector downright frugal at 130

An Update On Consumer Frugality: Americans Staying Home More, Reading Books - Zero Hedge

While people did spend more on luxury items and things to help them improve their mood during these tumultuous times, there was still very much a frugal ‘stay at home’ cocooning theme in the spending report. For example, there was less spending activity on sports events (-0.7%), amusement parks (-0.3%) and movie theaters (-4.2%). Instead, people spent more money on books (+2.1%), cable (+0.9%) and television sets (+0.7%). Games and toys were up 1.4% — family fun for everyone! While there was more money for fast food outlets, grocery spending was more robust during the month (+1%). People cut back on their travel, that is for sure too — rails down 1.5% and airline spending was flat. Hotels were cut back by 4.4%.

Mortgage Rates: Only One Way to Go – The Big Picture

In fact, based on what happened following the similar technical pattern that developed in the early 1990s, we may well be on the cusp of a secular rise in the cost of mortgage-related financing costs. Another reason, perhaps, to bet against a near-term recovery in house prices.

The Impact of California’s Biggest Tax Revolt – KPBS

As California struggles to pinch together the funds to cover one huge budget shortfall after another, as state services are strangled to the point that entire programs are on the chopping block and state workers are furloughed, some say now may finally be the time to re-evaluate Proposition 13.

Foreclosures now are just ‘tip of the iceberg’ – The Mortgage Insider

Meanwhile, he says,  redefaults on loan modifications are “sabotaging” government efforts…

FHFA Extends Refinance Program – Calculated Risk

I’d think that most homeowners that qualified for HARP would have already refinanced – and I expect the refinance boom will slow significantly in 2010, so I’m not sure this matters.

The Home Depot Misery Index – Truthout.org

After a few moments of silence, he looked up at me again and continued.

“I came out of school with a degree in Political Science – lot of good that did me – then I went back and got an MBA, a Masters in Business Administration. Finally got a good job at Northern Trust Bank. Five weeks before I would’ve been vested for my pension, they fired me. After that, forget about it…age discrimination, a guy in his fifties, forget about it…damned banks…”

Chart of the day: The USA’s lost decade – Felix Salmon

Consumer Preference for Saving vs. Spending Jumps in 2009; Major War Coming Between Union “Haves” and Non-Union “Have-Nots” – Mish

At some point retail sales and tax levels will stabilize, but it will not be at a level that will support rising wages for public unions, or even current benefits promised to public workers via defined benefit pension plans.

A major war is coming between the union parasite “haves”, and the non-union “have-nots”, the latter already forced to live in the real economy.

Don’t go wobbly on us now, Ben Bernanke – Telegraph, Ambrose Evans-Pritchard

Barack Obama’s home state of Illinois is near the point of fiscal disintegration. “The state is in utter crisis,” said Representative Suzie Bassi. “We are next to bankruptcy. We have a $13bn hole in a $28bn budget.”

Financial Reform Endgame – Paul Krugman

There’s no question that consumers need much better protection. The late Edward Gramlich — a Federal Reserve official who tried in vain to get Alan Greenspan to act against predatory lending — summarized the case perfectly back in 2007: “Why are the most risky loan products sold to the least sophisticated borrowers? The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”

I’m Sure Glad The Recession Ended – Mish

It’s a good thing the recession ended. Otherwise, key economic charts might look something like this…

Housing: Time to Pull the Plug on Government Support - BusinessWeek

These policies are geared toward propping up home prices, the definition of a perverse public policy. Artificially holding prices at above-market levels harms new potential buyers, from young adults starting their own households to immigrants putting down stakes in the American Dream. The subsidies wrongly delay the inevitable home market price adjustment to excess supply in many markets across the country.

New Principles for Principal Reduction – The Atlantic

How much you love or hate principal reductions depends on your perspective…

City of Angels on brink of abyss – Guardian

Los Angeles, the second-largest US city, is facing a crisis of funding not seen since the darkest days of the Great Depression

When It’s OK to Walk Away From Your Home – The Wall Street Journal

No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.

IRS issues new guidelines on obtaining home buyer tax credits
The Internal Revenue Service (IRS) recently issued new guidelines and clarified documentation that taxpayers must submit to successfully obtain the federal tax credit for home buyers.

MAKING SENSE OF THE STORY FOR CONSUMERS

• The federal tax credit for home buyers was extended and expanded late last year.  Qualified first-time buyers may be eligible to receive a tax credit of up to $8,000 on homes purchased before April 30, 2010.  Repeat buyers may be eligible for a tax credit of up to $6,500.
• To receive the tax credit, home buyers must comply with the IRS’s documentation requirements, including a fully executed IRS Form 5405.  On the form, which is available on the IRS’s Web site, taxpayers provide information supporting their claim of eligibility, such as income and home purchase date.
• The IRS also requires home buyers to submit a copy of the closing or settlement statement that proves the transaction took place.  The IRS previously said that the statement should show “all parties’ names and signatures, property address, sales price, and date of purchase.”  However, since closing or settlement statements vary by state, and in some cases the form does not include both the seller’s and buyer’s signatures, the IRS has revised this requirement.  As long as the closing or settlement statement conforms to prevailing local practices, the IRS will accept it.
• One stipulation for repeat buyers is they must provide documentation they lived in their former property for a consecutive five years out of the previous eight years.  Accepted documentation may include property tax records, hazard insurance records, or copies of annual mortgage interest statements filed with their federal taxes.

clear skies,

doug reynolds

Obama May Prohibit Home-Loan Foreclosures Without HAMP Review – Bloomberg

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

U.S. Economy Grew at 5.9% Annual Pace Last Quarter – Bloomberg

The rise in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance in more than six years, the Commerce Department said today in Washington. Inventories added 3.88 percentage points to GDP, more than previously reported, and investment in software and equipment grew at the fastest pace in almost a decade.

GDP Contraction Coming In Second Quarter 2010? – Mish

Couple that with the fact that New Home Sales Unexpectedly Plunge to Record Low it should not be too hard to envision a flat to negative GDP decline in the second or third quarter unless things turn around right now.

Underwater Home-Owers: Demand Principal Reductions – The Big Picture

The FDIC is proposing a test program of principle reduction for negative equity homeowners.

But why is the FDIC required? An intriguing private sector solution would be a negotiated principle reduction between borrower and lender — no government intervention is needed.

FDIC to test principal reduction for underwater borrowers – The Washington Post

Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they kept up their payments on the mortgage over a long period. The performance of those borrowers would be compared with borrowers given more traditional mortgage relief packages, such as those that cut the interest rate on loans.

Better to Wait Until Home Buyer Tax Credit Expires? - The Wall Street Journal

The home builders and Realtors are jazzed for the home buyer tax credit’s remaining weeks. It’s tempting for home buyers to get caught up in the hype. But perhaps you’re better off waiting?

Housing Woes To Continue, More Losses Coming – HuffPo

While housing prices have temporarily stabilized, giving some homeowners some relief, Patrick Newport, an economist with IHS Global Insight, said he expects housing prices to decrease again later this year. He also said he expects a substantial number of home foreclosures (which would drive down housing prices) — perhaps as much if not more than last year’s record total of 2.8 million. More than 3 million homeowners could lose their homes this year, analysts predict.

Newport points out that while the high unemployment rate is largely behind borrowers increasingly falling behind on their mortgage payment, “the one wildcard that no one has a good handle on right now…is strategic defaults.” Those are also known as walkaways.

Hamp-lified, moral hazard outrage du jour – FT Alphaville

We’ve reached a stage in this crisis where lenders have no rights. The long-run distortions from such a heavy handed interventionist approach are too long to list right now, but suffice it to say, this will do more to exacerbate and prolong the deleveraging cycle than solve it.