Two similar pieces of legislation introduced last month in the House and Senate that would extend tax relief to homeowners who are underwater on their mortgage loans have been referred to committees and are waiting to be heard.
Congressman Tom Reed (R-New York) introduced the Mortgage Forgiveness Tax Relief Act of 2015 (H.R. 1002 on February 13, and that bill is now being heard in the House Committee on Ways and Means. Two weeks later, Senators Debbie Stabenow (D-Michigan) and Dean Heller (R-Nevada) introduced a similar bill (S. 608), which is currently in the Senate Banking Committee. Both bills would extend relief to homeowners on forgiven mortgage debt – the remaining mortgage balance when a borrower sells a home in a short sale to avoid foreclosure. The bills would allow homeowners to exclude the forgiven debt from federal income tax forms and not report it as earned income.
Without such legislation, distressed and underwater homeowners would be required to report the amount of mortgage debt forgiven in a short sale as taxable income.
“It is bad enough that so many families in Michigan are faced with mortgages that now exceed the value of their home,” Stabenow said. “But to add insult to injury, without this bipartisan legislation, families willing to work with their lenders will have to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”
This is not the first time Stabenow and Heller have introduced legislation to help distressed homeowners. In June 2013, the two Senators introduced a similar bipartisan bill to give distressed homeowners tax relief on forgiven mortgage debt.
Just before Christmas last year, President Obama signed into law H.B. 5771, which retroactively extended 55 tax provisions – including one for distressed homeowners similar to the one that the bills recently introduced by Reed, Stabenow, and Heller. One of those 55 provisions was an extension of the Mortgage Forgiveness Debt Relief Act of 2007, originally signed into law by President George W. Bush, which relieved distressed homeowners from having to pay taxes on forgiven mortgage debt for the three calendar years of 2007 through 2009. That tax exemption was extended three more years until the end of 2012 with the Emergency Economic Stabilization Act of 2008, and it was extended until the end of 2013 with the American Taxpayer Relief Act of 2012. H.B. 5771 retroactively extended the tax break on forgiven mortgage debt until the end of 2014.
The current legislation that has been introduced would extend tax relief to underwater homeowners through the end of 2016. According to a press release on Heller’s website, nearly 17 percent of American homeowners (approximately one out of every six) are underwater on their mortgage loans, which means they owe more than their house is worth. The goal of the bill introduced by Reed is the same as that of the bill introduced by Stabenow and Heller, to “amend the Internal Revenue Code of 1986 to extend for two years the exclusion from gross income of discharges of qualified principal residence indebtedness.”
“Unless Congress acts, those who are underwater in their homes and have received financial relief for their mortgage could be forced to pay a tax on income they never received. This makes no sense, and the legislation Senator Stabenow and I introduced ensures it won’t happen,” Heller said. “As a member of the Senate Finance Committee I look forward to finding a vehicle to pass this important legislation.”
At least one state is attempting to adopt similar legislation for distressed homeowners on state income taxes. Earlier this week, a committee in the North Carolina House of Representatives approved an amendment to bill that would permit homeowners to exclude forgiven mortgage debt when reporting income for state taxes.
Posted By Brian Honea DSNews
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Both the delinquency rate and the foreclosure inventory rate in Q4 2014 for residential mortgage loans fell to their lowest levels since 2007, according to the Mortgage Bankers Association’s National Delinquency Survey released Wednesday.
The delinquency rate, which includes loans that are at least one payment past due but not loans in foreclosure, fell to a seasonally-adjusted rate of 5.68 percent in Q4 for all mortgage loans outstanding at the end of the quarter, the lowest level since the third quarter of 2007. The delinquency percentage in Q4 represented a decline of 17 basis points from the previous quarter and 71 basis points from the same quarter a year earlier.
The percentage of loans in foreclosure for Q4 also experienced a sharp decline, down to 2.27 percent – the lowest foreclosure inventory rate since the fourth quarter of 2007. The foreclosure inventory rate for Q4 was down 12 basis points from the previous quarter and 59 basis points year-over-year.
The percentage of loans on which the foreclosure process began ticked slightly upward by two basis points quarter-over-quarter in Q4, up to 0.46 percent. This was still a decline of eight basis points year-over-year, however. The serious delinquency rate – percentage of loans either 90 days or more past due or in foreclosure – fell to 4.52 percent, a drop of 12 basis points quarter-over-quarter and 89 basis points year-over-year.
“Delinquency rates and the percentage of loans in foreclosure decreased for another quarter and were at their lowest levels since 2007,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “We are now back to pre-crisis levels for most measures. The foreclosure inventory rate has decreased every quarter since the second quarter of 2012, and is now at the lowest level since the fourth quarter of 2007. Foreclosure starts ticked up two basis points, after being flat last quarter, largely due to state-level fluctuations in the speed of the foreclosure process. Compared to the same quarter last year, foreclosure starts are down eight basis points.”
According to Walsh, 45 states experienced a quarter-over-quarter decline in foreclosure inventory rate in Q4. Fewer than half of the states saw an increase in 30-day delinquencies, and foreclosure starts jumped in 28 states during the quarter. The foreclosure inventory was roughly three times in judicial states compared to non-judicial states during Q4 (3.79 percent in judicial states compared to 1.23 percent in non-judicial states, according to Walsh. States that used both judicial and non-judicial foreclosure processes reported a foreclosure inventory rate of 1.43 percent.
Posted By Brian Honea DSNews
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QUESTION: Can you find deals to flip on the Multiple Listing Service (MLS)?
The simple answer to this question, one that I receive all the time, is NO, you can’t find deals to flip on the MLS. Whenever I post something on my website or Facebook about the lack of deals on the MLS, I always get some goober who wants to tell about his massive success story from an MLS property, but the fact is that deals RARELY are found on MLS. Yes, I have also purchased a very profitable deal on the MLS….1 house in 12 years. And so, if I relied on that deal source for my real estate investing, I would have been out of business a LONG time ago.
If your definition of a “deal” is a rental property that has a 10-11% cap rate, then of course, you can pick those up by the handfuls on the MLS. However, you will have a very difficult time finding deals you can rehab or wholesale, like most “active” investors are looking for, on a public website with inordinate amounts of web traffic. New investors always follow the path of least resistance, and so when they want to find houses, they go to the MLS…because that’s where they’ve been told to go find houses for sale. But the deals that fit the standard 65-70% rule that most investors use, must be found OFF the radar, the hidden gems that no one else knows about. And the reasons are simple:
1.) Competition – It only stands to reason that if you have a lot of people (the millions of people with access to the MLS) looking at a few properties (how many houses are priced even close to what an investor would need to buy it at), that the price of those homes will be driven up to the point that MOST investors will be priced out of the market. It’s a basic rule of supply and demand. I just experienced this same phenomenon when I listed an old refrigerator on Craigslist. I listed it LOW ($50) because I just wanted it out of my garage, but I receive SO MANY phone calls, that I ended up selling for $75…and could have gotten more! There was just ONE cheap refrigerator, with a LOT of people interested, and so I had the luxury of raising my price. Had I gone 10 days without a call, and someone called and offered me $25, I would have taken it without a hesitation.
2.) Realtor Pricing Strategies – Realtors are trained to get top dollar for their client’s houses in the shortest amount of time. So, when they do their research to determine the listing price for a home, they are not researching what price will create a stampede of bargain-hunting, bottom-feeding, low-ball-offering investors. It’s their fiduciary responsibility to that seller to price the property at highest price that is realistically attainable in the open market.
3.) Bank Loss Mitigation Strategies – As most of you know from your experience with banks, they are not an investors friend, unless it’s an investor in their company who is looking for a good return on their stock purchase. Real estate investors will always find themselves beating their head against a wall in trying to get a “deal” from a bank-owned REO listing. After eating as much as $25,000-$50,000 in the foreclosure process, the bank is now out to get as much as humanly possible for their new acquisition, and to mitigate their loss as much as possible. They will typically have an AS-IS BPO or appraisal done, list it at the full current market price with a high-octane Realtor, and then WAIT…as long as they have to in order to receive top dollar. They are NOT emotional and they are NOT in a hurry. They are much more likely to make small, systematic price reductions than to consider a low-ball offer by you.
4.) MLS sellers are TYPICALLY not motivated – Of course, that’s not always the case, because on a rare occasion I will make lowball offers on the MLS, and have found some sellers who are extremely motivated and will consider lower offers. However, in general, most motivated (or desperate) sellers will try other ways to sell their home before they have to go through the process of listing with a Realtor. Those who have met with an agent, and signed a contract to list, are usually a little more patient and looking at trying to maximize their profits on what is typically their most valuable asset.
You might be asking yourself, then how in the world do we find these “deals” that you are always talking about flipping? Well, that my friend might be for another blog post. If you are a member of the Professional Investors Guild, go back and watch the “Guerilla Marketing” videos in the archives, as well as the “Treasure Trove of Motivated Seller Leads” bonus video for tips and tricks to generating a deluge of motivated seller leads.Read More
House prices and rental prices are about to switch roles after three years of soaring home prices and tepid growth in rental prices, a new Capital Economics report said.
Over the next few years, Capital Economics predicts that rents are likely to rise at an annual average rate of 5% or more, while house price inflation will settle around 4%.
A subdued labor market, soft income growth, the low cost of servicing a mortgage and a ready supply of homes to rent has kept rents in check, only rising at a modest 8% since the market reached a turning point in late 2011. This is compared to a 20% rise in the Case-Shiller national house price index.
The report outlines 4 forecasts that will impact the rental and housing market.
- Improving job market
Since late 2011, the unemployment rate has dropped by a third, while the number of people working part-time out of necessity rather than choice has also tumbled.
The report expects the tightening in the labor market already seen to push average hourly earnings growth up from 2% this year, to 3% in 2015 and perhaps 3.7% in 2016.
- Dropping rental vacancy rate
The steady demand for rental housing that has been seen over the past few years has made a significant dent in the rental vacancy rate. Indeed, despite the fact that the share of property being built for rent is at record highs, the vacancy rate dropped to 7.4% in the third quarter. At current levels, the vacancy rate is signaling that rental growth is likely to rise to perhaps 5% per annum over the next 9-12 months.
Comparison of the costs of renting and buying suggests that the risks to that figure lie to the upside. After all, record low mortgage interest rates mean that the monthly repayments on a mortgage are only a little higher than the cost of a typical monthly rental payment.
However, Capital Economics’ forecasts imply that the monthly costs of a mortgage are likely to rise by a third over the next two years as mortgage interest rates head back towards 6%.
- Renting affordability
Assuming that is right, to keep the relative cost of renting and buying unchanged at current levels, rents would have to rise by 12% in both 2015 and 2016. If rents rise by 5% a year, in a relative sense renting will become considerably more affordable. In turn, that should help to underpin the demand for rental homes.
As a result, Capital Economics said that renters face affordability constraints. “Standard valuation measures show that average house prices are currently around 8% too low relative to income per capita, but around 8% too high relative to rents,” the report said. “The implication must be that rents are relatively low compared to incomes. Accordingly, with earnings set to rise by 3% to 4% per annum over the next two years, rental growth of 5% per annum seems perfectly plausible.”
Posted by Brena Swanson- HousingwireRead More
Among its five largest predictions for next year, Realtor.com expects first-time buyers will return to the market in full force after years of retrenchment that has dampened the recovery of the housing market. This push will be led by millennials, now settling into their families, careers, and 30s, who are eager to buy into the American dream.
This prediction mirrors that of Zillow, which earlier this month forecast that millennial buyers will become the driving force behind the American housing market in 2015.
According to that report, 42 percent of millennials say they want to buy a home within the next five years. Millennials have, according to most accounts, stayed away from buying because they have eschewed settling into marriages and families until later in their lives.
With millennial family growth on the rise and economic conditions improving for younger Americans and the nation in general, Realtor.com foresees more buying among the under-35 set.
“In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery,” said Jonathan Smoke, chief economist for Realtor.com. “If access to credit improves, we could see substantially larger numbers of young buyers in the market.”
Smoke predicts that millennials will drive two-thirds of household formations over the next five years. Next year’s addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales, he said. “However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability, such as the Midwest and South.”
The report sees Dallas, Atlanta, Denver, Des Moines, and Houston as the most promising growth areas in 2015, and expects between 5 and 14 percent growth in home sales in these areas.
And though the site expects homeownership overall to decrease, despite a growth in ownership for those under 35, Realtor.com predicts that existing-home sales will increase 8 percent as buyers become more motivated by the belief that rates and prices will continue to rise. The increase in home sales year-over-year will be similar to 2012, but this time the composition of properties sold will be more normal with minimal levels of distressed properties, the report noted.
Overall, Realtor.com expects home prices to increase 4–5 percent nationally, which in turn will help make homes 5 to 10 percent less affordable in 2015. On the mortgage front, Smoke expects fixed rates to top out at 5 percent by year’s end, as rates on adjustable-rate mortgages will increase little.
Posted By Scott Morgan DS News
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