Archive for January, 2010

The Obama administration’s $75-billion program to help troubled borrowers hold on to their homes appears to be keeping more California families out of foreclosure, data released Wednesday showed, but the relief may be temporary.

The number of homes entering the first stage of foreclosure declined 24.3% during the fourth quarter from the previous three months, according to MDA DataQuick, a San Diego real estate research firm. The decline in the default number is significant because any new wave of foreclosures, which could swamp the housing market’s recovery, would be preceded by a surge in defaults.

So far, thousands of California borrowers have had their mortgages modified through Obama’s Making Home Affordable program, but only 7.8% of those modifications were permanent through Dec. 31, according to government data. If the majority of borrowers who have received temporary loan modifications are unable to make those changes permanent, another surge of foreclosures could follow.

“Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification,” Celia Chen, senior director of Moody’s Economy.com, said. “This will cause home prices to start falling again.”

The foreclosure explosion began early in 2007 as home values began falling and adjustable-rate mortgages began resetting, putting payments out of reach for many homeowners. Rising unemployment has added to the problem.

Of particular concern is the number of people who are underwater, or owe more on their mortgages than their homes are worth. That number soared with the precipitous drop in home prices. At the end of September, about 1 in 4 U.S. mortgage holders was underwater, and more than a third of California mortgage holders were in that position, according to First American CoreLogic, a real estate data firm.

“If a borrower is deeply underwater, he doesn’t want to be in the home,” said Laurie Goodman, senior managing director of Amherst Securities. A loan modification would give the borrower more time, she said, “but there is no reason to stay in your home, and you save a lot by just walking away.”

Consumer groups are calling for more aggressive measures to help struggling borrowers stay in their homes, such as cutting the amount borrowers owe on their mortgages.

“We believe strongly that principal reduction should be a component of an effective loan modification program, because principal reduction is going to be more effective keeping people in their homes,” said Paul Leonard, California director of the Center for Responsible Lending.

Principal reductions are a part of the Obama administration’s program, but most loan modifications have involved interest rate reductions and term extensions. The Obama administration has resisted calls to increase the number of principal reductions because such a move could encourage some borrowers to fall behind on their mortgages intentionally and increase the cost to taxpayers, Meg Reilly, a Treasury Department spokeswoman, said Tuesday.

“There are concerns about moral hazard,” she said.

The Federal Deposit Insurance Corp. is considering how best to implement a principal reduction option into its loss share agreements with banks that have purchased mortgages of failed banks seized by the federal agency, according to spokesman David Barr. Under the proposals, principal reduction would be an option and the agency would share losses with the banks.

“We are analyzing the overall program,” Barr wrote in an e-mail.

A key problem is that many mortgages were sold by the lenders that originated them and packaged into complex securities. Most lenders still act as servicers, collecting and dispersing payments on the loans to far-flung investors and may not control the terms of the contracts, complicating negotiations over modifications.

One major California bank, San Francisco-based Wells Fargo, has been actively reducing the principal balances of a batch of Wachovia loans that the bank inherited when it acquired Wachovia in 2008. The bank reduced about $2.6 billion worth of principal during 2009. Franklin Codel, chief financial officer of the bank’s home-lending unit, said in an interview this week that the fact that the bank owns those loans made the changes easier.

“To us it is an important part of creating an affordable, sustainable modification for the borrowers,” Codel said.

Alejandro Estrella, a 47-year-old postal carrier in Riverside, received a principal reduction of about $50,000 from Wells last fall on the two-bedroom house he bought in 2005. It is motivating him to stay in his home, he said.

“I am happy with what I have gotten,” he said. “Now, whatever it takes, I make the payment.”

Throughout California, 84,568 notices of default were filed at county recorders’ offices in the fourth quarter, an increase of 12.4% from the same period of 2008, DataQuick said. Trustee deeds recorded, signifying the actual loss of a home to foreclosure, totaled 51,060 from October through December, up 2.1% from the third quarter and 10.6% from the fourth quarter of 2008.

For the full year, 190,360 California homes were lost to foreclosure, down 19.42% from 2008, when foreclosures topped 236,000. That was the most since DataQuick began tracking foreclosures in 1988.

“Clearly, many lenders and servicers have concluded that the traditional foreclosure process isn’t necessarily the best way to process market distress,” DataQuick President John Walsh said. He said banks have been negotiating with distressed borrowers to keep them in their homes and increasingly turning to “short sales” in which the banks accept an offer that is less than the value of the outstanding mortgage; banks end up taking a loss on such deals.

The worst may be over for California’s hard-hit entry-level market, DataQuick said. The most affordable 25% of the state’s housing stock accounted for about 35% of all foreclosure activity in the fourth quarter, down from 52% a year earlier.

Mortgages were more likely to go into default in inland areas such as Merced, Stanislaus and Riverside counties, which were ravaged by foreclosures during the downturn. The coastal counties of San Francisco, Marin and San Mateo had the least probability of default, DataQuick said.

alejandro.lazo@latimes.com

The Valerie Fitzgerald Group specializes in luxury residential real estate in Beverly Hills, Bel Air, Brentwood, Santa Monica and Malibu. Valerie has more than 20 years of real estate experience and is known for her solid reputation in the West Los Angeles brokerage community. She’s also the author of the book published by Simon and Schuster Heart and Sold: How to Survive and Build a Recession-Proof Business. Buy it here.

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Take a look at your systems, your schedules, your expenses, and your goals. Each of these areas could use a little ‘touch up’, so without getting overwhelmed, take a look at these suggestions and decide to make the positive change.

Systems – Systems are the foundation of which you work from. You can think of systems as the guide or rules for each particular area of your business. When your systems are effective and in place, you can spend more time generating business than crawling out from under piles of paper.

What happens when you go away on holiday? Do you come back to a huge ‘pile’ of things to do before you can even dive into your work load. When your systems are in place, you can effortlessly assimilate back into work mode and take off running.

How do you write and implement your ‘to do’ list? How do you monitor your contact with clients? How do you keep records and important data? How do you organize your office, including your computer? What simple changes can you make to get more organized and efficient?

Schedules – They say, if you have a task to complete – give it to a busy person. It seems there are those who can do 1,000 things each day, and there are those who can’t get 1 thing done. Usually the person who can’t get 1 thing accomplished has the most available time. Setting your schedule enables you to focus on what you need to get finished and weeds out ‘time wasters’. Set your weekly schedule on Sunday and allocate tasks to specific days.

Each night, review what you need to do the following day and get together anything you’ll need to complete those tasks. Of course, things get shifted throughout the week, but once the plan is in place, you can clearly see how to rearrange things to be sure everything gets finished.

Be sure to put an “end time to your day”. Set a time you leave the office, or if working from home – your “stop” time. You’ll find you’ll still complete your ‘to do’ list because you’ve set parameters on your time. It’s a trick I’ve played on myself for many years, and I find I am finished around the same time every day and I’m able to complete the things on my list.

Are you setting your schedule the night before, noting things that must get done and including things ‘if you have an extra minute’? Are you being reasonable with the time it takes to complete your tasks? Are you allocating time to ‘return calls’, ’send emails’, and other daily tasks. What are your “time-wasters”?

Expenses – It’s not just in today’s economy, this an important arena to pay attention to. Every little bit adds up. I tend to use this example often because many can relate to it. Let’s say you buy yourself a $3.00 latte each day before going into work. If you multiply that by each day, and each week, and each month – you are spending, on average, $600 a year.

Although, you need to make about $900 – before taxes -to ‘take home’ $600. That’s just for coffee! Ok, so you allow that, but what about all the other $3.00 expenses that add up the same way. No matter what the expense, every little bit adds up and you need to ‘get real’ with your budget.

Do you have a personal budget? Do you have a business budget? What unnecessary expenses can you cut? What changes can you make in how you run your business, in order to save on expenses?

Goals – I saved the best for last! It’s not too late to write your business goals for 2010. This is an important component in reaching success in your business. What do you want to accomplish this year? Do you want to increase your database by 500? Do you want to close (4) deals each month? Do you want to generate enough business to hire an assistant? or two? Do you want to extend your on-line marketing efforts? Do you want to make an additional $_____ (fill in the blank) each month? Regardless of your goals, write them down, visualize them, and take the necessary steps to make them h happen.

Have you written your goals for 2010? Can you see your goal list while sitting at your desk/laying in bed/driving in the car? What changes and action steps do you need to make to reach your goals?

It may seems like a lot to ask of yourself, but aren’t you worth it? I urge you to make the necessary changes that will enable your business to grow in 2010. Establish your systems, set your schedules, respect your budget, and reach your goals. Be the change you need in your world!

“Failing to plan, is planning to fail.”

~Anonymous

The Valerie Fitzgerald Group specializes in luxury residential real estate in Beverly Hills, Bel Air, Brentwood, Santa Monica and Malibu. Valerie has more than 20 years of real estate experience and is known for her solid reputation in the West Los Angeles brokerage community. She’s also the author of Heart and Sold: How to Survive and Build a Recession-Proof Business. Buy it here.

Subscribe to this blog: Valerie Fitzgerald Group Blog

Follow me on Twitter: http://twitter.com/ValreFitzgerald

Follow me on Facebook: http://www.facebook.com/ValerieFitzgeraldRealEstate

If you have been holding back on the new $6,500 federal tax credit for repeat home purchases, you now have all the official IRS guidance you will need to buy a house, qualify for the credit and pocket the $6,500.

That is because the Internal Revenue Service finally published the rules for the repeat purchase credit along with key details for taxpayers that had been missing since President Obama signed the legislation creating the program November 06.

The IRS posted its revised Form 5405 on its website ( www.irs.gov) on January 15, six weeks after the agency warned taxpayers not to file claims for the $6,500 credit without using the revised form and new instructions.

The repeat buyer credit — inelegantly dubbed the “long-time resident of the same main home” credit by the IRS — supplements the popular $8,000 credit for first-time buyers. Homeowners who have occupied the same property as a principal residence for any five consecutive years during the previous eight years may now be able to claim a tax credit on a purchase of another home they intend to use as a principal residence.

The credit is for as much as 10% of the price of the replacement home, capped at $6,500. The purchase contract must be dated from November 07, 2009, to April 30, 2010, and the closing must occur no later than June 30. Members of the armed forces and federal diplomatic and intelligence personnel stationed overseas get an extra year to claim the credit.

The maximum purchase price on homes eligible for the credit is $800,000. Buyers are not required to sell their previous home, but they must be able to demonstrate that the replacement home they buy is or will be their principal residence.

The new IRS guidance answers key questions that had been uncertain from the legislative language alone. For example, they describe what documentation home buyers must submit along with their $6,500 credit claim. On 2009 and 2010 tax returns, buyers should attach:

* A copy of the signed HUD-1 settlement sheet, including contract sale price and date of closing. This is to document that the timing of the transaction meets the program’s requirements.

* Evidence of long-term ownership and occupancy of the previous home to meet the five consecutive years’ test. This can be property tax records, homeowners’ insurance records or IRS Form 1098 interest statements for the five-year period.

* For buyers claiming a credit on a newly constructed home, where a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the buyers’ names, the property address and date.

* For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property’s address, purchase price and date of purchase.

All this extra documentation was required by Congress after reports that audits had uncovered widespread abuses by those seeking the $8,000 credit for first-time buyers. Among these were fictitious home purchases in which taxpayers or tax preparers sought — or obtained — credits on properties that never were sold or bought. This time around, the IRS says, it is going to rigorously investigate all claims filed, starting with a review of the documentation submitted.

The new IRS guidance also spells out the revised income limits for home buyers claiming credits: Your modified adjusted gross income must be $125,000 or less if you are single, or $225,000 or less if you are married filing jointly. Above these limits, the allowable credit amount begins to phase down in increments, and it is eliminated once incomes reach $145,000 for singles and $245,000 for married joint filers.

There are pitfalls as well: An advisory posted by the IRS this month spelled out situations in which recipients of tax credits may have to repay them to the government. These include taxpayers who sell their homes within a 36-month period after purchase. Recipients must also repay the credit if they convert their principal residence to a rental or business property, or if their lender forecloses on the home.

With all the rules now available, here is the action message to potential tax-credit seekers: Speed up your search for the home you want to buy. There are only 14 weeks to sign a contract and five months to close.

kenharney@earthlink.net

Distributed by the Washington Post Writers Group. On L.A. Times

“Tax reform is taking the taxes off things that have been taxed in the past and putting taxes on things that haven’t been taxed before.”

– Art Buchwald

Less than 3 months remain before your federal income tax return must be sent to the Internal Revenue Service.
Now is the time to start preparing so you can take all of the deductions and credits authorized by law.

True, you can file IRS Form 4868 and receive a six-month filing extension, but you still have to pay the full amount of the tax you owe for last year, which means you at least have to prepare a careful estimate of your liability.

A good first step in determining your tax obligation is to go to the IRS Web site, where you will find a host of publications to download. Perhaps the most comprehensive publication is No. 17, a 280-page booklet titled “Your Federal Income Tax for Use in Preparing 2009 returns.”

This column is the first in a series aimed at assisting homeowners in understanding basic tax rules and concepts.

First, a few definitions:

– Tax credits versus deductions. According to Julian Block, tax attorney and author of “The Home Seller’s Guide to Tax Savings,” most people do not understand the difference between the two. Credits, he writes, “lower a person’s taxes dollar for dollar, making them more valuable than deductions, which merely reduce the amount of income on which taxes are figured.”

Block provides this example: “A deduction of $1,000 saves $350 in taxes for someone in the highest bracket of 35 percent, but only $100 for someone in the lowest bracket of 10 percent A credit of $1,000 reduces taxes by that amount, whatever someone’s bracket is.”

Basis. This is the initial cost of the property, plus any improvements you have made over the years.– Gross profit. The difference between what you paid for your house and what you get when it sells. — Net profit. Gross profit minus the cost of improvements and real estate commissions. Also called “capital gain.”

Here are some of the key deductions and credits that apply to homeowners filing their 2009 tax returns. In many cases, there are income limitations. — First-time-buyer credit. If you bought a new home in 2009 or plan to do so before June 30, you may be able to take the first-time-home-buyer credit on your 2009 return.
– Energy-saving improvements. If you installed qualifying home improvements — such as windows and doors — in your principal residence, you may also be able to take a credit up of up to $1,500.

– Mortgage interest. Interest paid on mortgage loans on a first or second home is fully deductible, subject to the following limitations: acquisition loans up to $1 million and home-equity loans up to $100,000. If you are married but file separately, the limits are split in half.

The concept of an acquisition loan, also called “acquisition indebtedness,” is very important and has confused — and even trapped — many homeowners. In order to qualify for such a loan, you must buy, build or substantially improve your home. If you refinance for more than the outstanding indebtedness, the excess amount does not qualify as an acquisition loan unless you use all of the excess to improve your home.

However, at least part of the excess debt may qualify as a home-equity loan.

The IRS offers the following illustration about the deductibility of mortgage interest:
A taxpayer buys a principal residence for $1.5 million, putting $200,000 down and borrowing the difference of $1.3 million. According to the IRS, the first million is acquisition indebtedness, and up to $100,000 of any debt exceeding $1 million will qualify as home-equity debt. Accordingly, the taxpayer would be allowed to deduct the interest paid up to $1.1 million of the mortgage loan. Interest on the remaining debt is personal interest and is not deductible.

– Taxes. Property taxes can be deducted, but only in the year they are paid to the government. Thus, if last year you escrowed money with your lender for taxes to be paid in 2010, you cannot take a deduction for these taxes when you file your 2009 return.

However, if you bought a house last year, you may have reimbursed your seller for a portion of the prepaid taxes through the end of 2009. Review your settlement sheet (the HUD-1). Line 106 on Page 1 should reflect this tax adjustment. Because this was a current payment by you for real estate taxes, it is a deductible item. Indeed, when you receive your annual statement from your lender showing the amount of taxes paid last year (Form 1098), that amount may not be included because it was just an adjustment between buyer and seller and not a payment collected by the lender. Lenders are required to send these annual statements to borrowers by the end of January, reflecting interest and taxes paid for the previous year.

– Points. When you obtain a mortgage loan, you often have to pay one or more points. Whether referred to as “loan origination fees,” “premium charges” or “discounts,” they are still points and are considered deductible interest. Each point is 1 percent of the amount borrowed; if you obtain a loan of $220,000, each point will cost you $2,200. The new good-faith estimate and the revised HUD-1 that lenders are required to use will help you determine the cost of these items.

– Mortgage insurance premiums: If you paid such premiums last year, you may be able to deduct that cost. They would have been paid under a private mortgage company or for loans backed by the Department of Veterans Affairs (which calls them a “funding fee”) or the Federal Housing Administration. Discuss this with your tax advisers. There are income limitations that may preclude you from claiming these payments as deductions.

blkass@kmklawyers.com

Home prices in Los Angeles County bounced back in December, the first month since the housing bust that the median price for both homes and condos was higher than the year before.

The median price of a home was $348,000, up from $339,000 in November and $345,000 the year before, according to data supplied to the Business Journal by HomeData of Hicksville, N.Y. The median price of condos was $315,000, up from $305,000 in November and $310,000 in December 2008.

But there are signs that the road to recovery may be a rocky one.

The number of homes sold dropped by about 7 percent from November, but it was 30 percent higher than November 2008.

Analysts viewed the rising prices as further evidence that the real estate market is rebounding, though some characterized the upswing as a temporary respite before it once again recedes.

Last week, analysts were alarmed when the National Association of Realtors reported that the number of pending home sales across the United States dropped 16 percent from October to November. L.A.’s November sales volume dipped by 1.6 percent.
The market had softened until President Obama extended a tax credit through April 30.

“What we’re seeing today is not due to fundamentals but to government intervention in the economy,” said Christopher Thornberg, principle analyst for Beacon Economics, a West L.A. consulting firm specializing in real estate.

Thornberg said the tax credit and other government policies aimed at encouraging low mortgage rates, including financing from the Federal Housing Administration, were propping up the market. In addition, he added, the rate of foreclosures has been artificially slowed by federal pressure on banks to allow upside-down homeowners to modify their loans.

How it all turns out, Thornburg said, will become more apparent over the next several months.

“We have a big excess supply of units that have to be burned off when foreclosures start going on the market,” he said. “If that wipes out demand, it will push prices down.”
Nonetheless, Thornberg said that the historic lows of mortgage interest rates are an advantage for buyers.

That point of view is shared by many in the real estate business.

“I’m feeling very optimistic,” Betty Graham, president of Coldwell Banker Residential Brokerage in Los Angeles, said of December’s price hike. “I think it shows that we’re moving in the right direction.”

Graham said her company is doing brisk business, especially at the market’s upper end. And while obtaining financing is still difficult, many customers are tapping other sources – such as stock holdings – to pay for homes.

“They’re tired of waiting,” she said. “The buyers out there really want to steal something; but bottom fishers looking for desperate sellers may find disappointment in this market because there isn’t a deep need to sell.”
In other words, she said, when homeowners put their houses on the market they can usually hold out for their price.

One place that is occurring, Graham said, is in Malibu, where – after weak sales for the last two years – an agent recently sold three homes priced at more than $6 million each.
HomeData figures show that seven homes in Malibu were sold in December at a median price of $1.2 million.

Another area where sales were booming was Beverly Hills, Graham said.
“One of my top agents had her best fourth quarter in 30 years,” she said. “And she’s been selling real estate in Beverly Hills the whole time.”

HomeData reported that 15 homes were sold in Beverly Hills’ 90210 ZIP code in December at a median price of $1.9 million.

“This was better than most Decembers,” Graham said. “I go out to these offices and can almost touch the feeling of optimism.”

But she quickly noted that it’s not overly exuberant optimism.

“The recovery is going to be a little anemic,” she acknowledged. “Any hope of it being something else is naïve.”

A case in point, she said, is the San Fernando Valley, where sales have been flat for several months.

“I can’t really say why,” she said, “but I believe that their time will come.”

Twenty-one homes were sold in each of Woodland Hills’ two ZIP codes in December at a median price of $660,000 in 91364 and $559,000 in 91367.

Los Angeles Business Journal