74.6 percent of homes affordable to median-income households, trade group finds

Housing affordability hit a new high in the first quarter, surpassing the previous high set in fourth-quarter 2010, according to the National Association of Home Builders and Wells Fargo.

The Housing Opportunity Index found that 74.6 percent of new and existing homes sold in the first quarter were affordable to families earning the national median income of $64,400. That’s up from 73.9 percent in the fourth quarter of 2010, and it’s the highest level in the more than 20 years the index has been measured.

“With interest rates remaining at historically low levels, today’s report indicates that homeownership is within reach of more households than it has been for more than two decades,” Bob Nielsen, chairman of the National Association of Home Builders (NAHB), said after the index was issued last week.

“While this is good news for consumers, homebuyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales.”

The Seattle metropolitan area also became more affordable with 67.5 percent of homes within reach of those earning the median income of $85,600. That number is the highest recorded since the index started in the first quarter of 1999.

Before 2009, the national index rarely topped 65 percent, the association said. Last quarter was the ninth straight quarter the index was above 70 percent.

Indiana, Ohio and Michigan dominated among the most affordable metro areas. Among metro areas with populations under 500,000, Kokomo, Ind., was the most affordable area, with 98.6 percent of homes affordable to households making a median income of $61,400. The median sales price in the area was $88,000 in the first quarter.

California dominated among the least affordable metro areas. San Luis Obispo-Paso Robles, Calif., was the least affordable among the smaller metro areas with 47.6 percent of homes affordable to households making the median income of $72,500. The median sales price in the area was $320,000 in the first quarter.

Among metro areas with populations of 500,000 or more, Syracuse, N.Y., was the most affordable to households making the median income of $64,300. The median sales price in the area was $80,000 in the first quarter.

Another New York market, New York-White Plains-Wayne, N.Y.-N.J, was the least affordable among both the larger metros.

Less than a quarter of homes, 24.1 percent, were affordable to families making the median income of $65,600 in the first quarter. The median sales price was $425,000.

In other cities in Washington state, Spokane was the most affordable with 82.2 percent of homes within reach of those earning the median income of $60,300. Olympia recorded 81.8 percent; Tacoma, 78.5 percent; Bremerton-Silverdale, 70.1 percent; Bellingham, 69.7 percent; and Mount Vernon-Anacortes, 60.5 percent.

Source: By Inman News

Banks Get Failing Grade in Foreclosure Handling

Banks continue to receive backlash for their handling of a flood of foreclosures across the country. A new report released this week by federal regulators finds that banks failed to do a good job in handling foreclosures and sometimes evicted home owners when they clearly should not have.

The problems were “significant and pervasive” and added up to “a pattern of misconduct and negligence,” according to the Federal Reserve. The Fed says it soon plans to announce monetary penalties against mortgage servicers.

The report revealed several cases “in which foreclosures should not have proceeded due to an intervening event or condition,” such as families in bankruptcy or home owners who were eligible for a loan modification or even in the process of doing a loan modification.

The report also noted that banks had inadequate and poorly-trained staffs and improperly submitted paperwork to the courts.

In response to the report, several mortgage servicers signed a consent agreement this week, agreeing to changes that include new oversight procedures of foreclosures and reimbursing home owners who were wrongly foreclosed upon. One of the servicers signing the agreement, JPMorgan Chase, says it would add up to 3,000 employees to meet the new regulatory procedures.

“The banks are going to have to do substantial work, bear substantial expense, to fix the problem,” says John Walsh, the acting comptroller of the currency.

About two million households are in foreclosure, and several million home owners have already lost their home to foreclosure.

More Penalties Coming

The banks still face punishment and settlement talks with other agencies. The state attorneys general are conducting their own probe into shoddy foreclosure procedures and working with the Obama administration to overhaul the foreclosure process to prevent future abuses.

Source: “Report Criticizes Banks for Handling of Mortgages,” The New York Times (April 14, 2011)

Foreclosed? The tax man may want his cut

Did you lose your house to foreclosure this year? Did your lender forgive some of your mortgage debt because the house sold for less than it the mortgage balance?

If so, you could be facing a big tax hit.

It is IRS policy to tax forgiven debt you are personally responsible for as if it is income. Say, for example, your credit card company settled a $10,000 debt for 50 cents on the dollar. You’d have a debt forgiveness of $5,000, which the IRS would count just like your wages.

The same policy held true for most mortgage debt until 2007, when Congress passed the Mortgage Forgiveness Debt Relief Act. That ended the liability for many homeowners — but not all.

In general, if you lose your home to foreclosure or short sale, where you sell your home for less than you owe, the IRS won’t add insult to injury by counting the difference as income, at least until 2012, when the act expires.

There are four major exceptions to the rule:

1. You did a cash-out refinance and splurged.

Many homeowners took cash out when they refinanced their homes and used the extra dough to pay for new cars, boats, vacations or other spending.

Say you did that and then got into trouble, losing the house through a foreclosure or short sale. Even if your lender waived the remaining debt, the IRS will treat as income the portion of the forgiven debt that you took out as cash and spent.

Only the funds used to actually improve your home won’t be taxed (plus the costs of refinancing the loan). Yes, even if you spent the money on paying off your student loans or credit cards.

The IRS’ reasoning is that only the money spent on home improvement actually added to your home’s value. And that, presumably, diminished the difference between what you owed on your mortgage and the value of your home when it was foreclosed.

Beware: Some lenders made refinancing offers contingent on homeowners paying off credit card debt, according to Kent Anderson, a Eugene, Ore.-based attorney and tax expert. If you took one of those deals, the refinance money will be reported to the IRS and you will owe taxes on it.

2. You have a home-equity line of credit.

The same rules that apply to refinancings also apply to home-equity loans: The IRS will only forgive the tax liability if the loan money was spent on home improvements. And, tax experts advise, be prepared to show receipts to prove it.

3. You lost your vacation home or investment property.

So the market tanked and you lost your vacation home. Unfortunately, if you didn’t use it as your primary residence for at least two of the previous five years, you’re going to pay the tax man.

More common, however, may be the case of investment properties gone sour. During the housing boom, buying homes for investment purposes soared, accounting for 28% of all sales during 2005, according to the National Association of Realtors. (Vacation homes made up 12%.) And many of these purchases were made with little down payment.

When the bust hit, second home prices cratered. The median price for investment properties fell nearly in half to $94,000 by 2010, according to NAR. For vacation homes, the median price paid dropped 26% to $150,000.

If an investor bought a property in 2005 at the median price and sold it in 2010, she could have run up almost $90,000 in forgiven debt. If she’s in the 25% tax bracket, that would add more than $22,000 to her tax liability. Ouch!

4. You owned a multi-million-dollar home.

It may be hard for Americans struggling in this weak economy to sympathize with anyone wealthy enough, at one time, to afford a multi-million-dollar home, but owners losing one could be on the hook for a huge tax bill.

Only the first $2 million in forgiven debt will be voided under the relief act; all the overage is taxable as income.

So, say, for example, you’re ex-ballpayer and self-styled stock-picker Lenny Dykstra and paid $18.5 million to Wayne Gretzky for a mansion in Thousand Oaks, Calif. When you defaulted on the loan in 2009 and the house was auctioned in 2010 for $10.5 million, you could be on the hook for $6.5 million of the $8.5 million in forgiven debt.

Other ways out

The good news? Even if you fall under any of these four scenarios, you may have a way out, according to Anderson. “If the taxpayer was insolvent at the time of the foreclosure, the forgiven debt can be excluded for tax purposes,” he said. “It can also be discharged in a bankruptcy and approved by court order.”

People like Dykstra could elude taxes because California is a “non-recourse” state. Lenders there accept homes as the collateral for the debt and when a bank forecloses, the loan is regarded as paid in full. Since there’s no debt to forgive there’s no taxable income.

It’s not always that simple, though. Many homeowners in California and other non-recourse states have refinanced their mortgages and refis are, as a rule, recourse loans, according to attorney Bill Purdy in Santa Cruz,. “A refi destroys your non-recourse status,” he said. If a big debt is forgiven, borrowers may owe taxes.

Purdy also explained that banks often file 1099 forms with the IRS that mistakenly list debt forgiveness when there was none.

“People need to regard the 1099s with suspicion,” he said. “I’ve had clients in here who have been making payments to the IRS when they had non-recourse loans.”

As long as the Mortgage Forgiveness Debt Relief Act stays in effect, only borrowers for the most expensive properties in foreclosure will have to worry. After that, though, it may pay for any homeowner in foreclosure to be very aware of their tax exposure — and plan accordingly.

Source: By Les Christie, CNNMoney (April 15, 2011)

House Flippers Return, Still Finding Profits

More investors are taking on the risk of flipping homes, despite falling home prices and sluggish real estate markets across the country. But investors say there are still profits to be made in the house flipping business.

Nearly 1 million homes were bought as investment properties in 2010, according to the National Association of REALTORS®, and a record number of buyers purchasing properties with cash currently are flooding the market.

Flipping homes for profit is easier in rising markets, but not many markets are reporting increases in home prices, analysts say. In Washington, D.C., Justin Konz of RestorationCapital says his clients are going through four of five properties a month and are making gross profit margins of 35 percent or higher.

Where to Find the Deals

Flippers mostly are finding their homes through foreclosures auctions, REOs, and short sales. They seek homes at rock-bottom prices that will have low fix-up costs, no more than about 5 percent or 10 percent of the purchase price.

In Florida, where investors are finding it more difficult to flip homes because of the drastic drop in prices and high inventories, flippers are targeting inner-city properties that are being sold at steep discounts. For example, some of houses are selling for $30,000 when they once sold for $200,000.

Perry Henderson, a real estate agent and investor in Austin, Texas, says the biggest opportunities in flipping are the “ugly” houses that have lingered on the market or “old houses that somebody’s grandma lived in for 40 years and didn’t do anything to. Now, she’s passed away and her family wants to sell quickly.”

Real estate investor Brian Fuller, who with partners buys and sells more than 200 properties a year in the San Diego area, says he’s drawn to the “biggest eyesore on the block.” He says they then “ turn it into the best looking house there. We’re helping pull up values in the neighborhood.”

Source: “Vulture Investors Flipping Their Ways to Big Profits,” CNNMoney.com (April 13, 2011)

Gov’t to Lenders: Pay Up for Foreclosure Errors

The nation’s largest banks reached a settlement with federal regulators, agreeing to compensate home owners who were wrongly foreclosed upon and to overhaul their operations.

The settlement also directed financial firms to hire auditors to determine if they improperly foreclosed on home owners in 2009 and 2010.

However, the settlement reached with federal regulators on Wednesday is hardly the end of punishment and investigation into banks’ shoddy lending practices and wrongful foreclosures, officials say. Officials warn fines will be determined later for the lenders and banking companies, which include Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup.

Wednesday’s settlement with banks was reached with three federal banking regulators: the Office of the Comptroller of the Currency, the Federal Reserve, and the Office of Thrift Supervision.

Banks still face settlement talks — which are believed to be even more stringent — with the 50 state attorneys general, the Treasury and Justice departments, the Federal Trade Commission, and the newly created Consumer Financial Protection Bureau. This group has called for tougher measures, including detailed document procedures and even guidelines for modifying loans that include reducing the mortgage principal of struggling borrowers.

Banks continue to face investigations and punishments from abusive lending practices that plagued the industry, including probes that have revealed banks approved foreclosure paperwork without proper reviews, court filings that weren’t properly notarized, mortgage documents that weren’t transferred properly, and having inadequate staff to handle the foreclosure process.

Source: “14 Lenders and 2 Servicers to Reimburse Home Owners who Were Incorrectly Foreclosed Upon,” Associated Press (April 13, 2011) and “Mortgage Lenders Settle but Still Face Probe,” MSNBC.com (April 13, 2011)

Foreclosure Activity Drops to 3-Year Lows

New data released from RealtyTrac on Thursday show the foreclosure crisis is easing: Foreclosure notices filed during the first three months of 2011 dropped 27 percent compared with the first quarter of 2010. More than 681,000 homes received a foreclosure filing during the first quarter of 2011.

And while 215,046 borrowers lost their homes, that marks a 17 percent decrease year-over-year.

However, while the improvement may be encouraging, experts warn that the decrease in foreclosure activity is likely temporary.

“The nation’s housing market continued to languish in the first quarter, even as foreclosure activity fell to a three-year low,” says James Saccacio, RealtyTrac’s CEO. “Weak demand, declining home prices, and the lack of credit availability are weighing heavily on the market, which is still facing the dual threat of a looming shadow inventory of distressed properties and the probability that foreclosure activity will begin to increase again as lenders and servicers gradually work their way through the backlog of thousands of foreclosures that have been delayed due to improperly processed paperwork.”

Following this fall’s “robo-signing” scandal, in which banks were accused of processing foreclosures without proper reviews, banks have slowed their pace of foreclosures until they clean up their paperwork procedures, experts say. Otherwise, the number of foreclosures would be much higher for the quarter, says RealtyTrac spokesman Rick Sharga.

Meanwhile, Nevada continues to post the highest rate of foreclosure activity, followed by Arizona and California. Nevada alone had 32,000 properties, or one in every 35, receiving a foreclosure filing.

Source: “Foreclosures Off 30% This Year,” CNNMoney.com (April 14, 2011) and “Processing Delays Cut Foreclosure Activity by 27% in 1Q 2011: RealtyTrac,” HousingWire (April 14, 2011)

Homeowners facing foreclosure about to win right to mediation

More homeowners in Washington state could get help avoiding unnecessary foreclosures under a bill awaiting Gov. Chris Gregoire’s signature.

The bill, the “Foreclosure Fairness Act,” would give distressed homeowners working with housing counselors or attorneys the right to in-person mediation with the bank or company servicing their mortgage. Consumer advocates expect Gregoire to sign the bill Thursday.

Washington, among the 27 states where court approval of foreclosures isn’t required, would become only the third state — after Nevada and Maryland — to adopt a foreclosure-mediation program in which a homeowner can seek to modify terms of their loan.

“There’s no silver bullet, but this will at least be a competent response to the irresponsibility of the financial industry,” said Bruce Neas, a Columbia Legal Services attorney who helped negotiate the bill.

State regulators, who receive hundreds of complaints each year against national mortgage servicers, have been stymied by federal rules that limit their power to intervene.

The only recourse for homeowners has been going to court, where they’re usually outmatched by servicers.

Also Wednesday, federal regulators announced they had ordered eight national banks — Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank and Wells Fargo — to hire an outside firm to review all foreclosure actions from 2009 to 2010 and submit a plan to remedy “all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies” identified by outside consultants.

The move by state lawmakers to require mediation comes as the foreclosure crisis in Washington continues. In the first three months of the year, more than 5,600 homes were seized and more than 7,000 were headed to foreclosure auction, according to RealtyTrac.

The bill before Gregoire also would provide an estimated $7.5 million for foreclosure-prevention efforts and more than double the number of housing counselors. Washington has just over 40.

“The real hope is that by adding the counselors, the banks and families would reach some kind of agreement before going to mediation,” said Kim Herman, executive director of the Washington State Housing Finance Commission.

Under the proposed law, once a homeowner becomes delinquent, the servicer must send a letter asking the owner to contact the server and urging the person to call a housing counselor or attorney for help.

Homeowners who respond to the letter would be given 60 more days before the servicer could file a notice of default.

If the counselor or attorney couldn’t resolve the issue with the servicer, they could refer the homeowner to a mediator through the state Department of Commerce.

The Commerce Department selects the mediator, who must hold a session within 45 days. The homeowner and servicer share in the cost of the mediator’s fee, which can be up to $400.

If the mediator finds the servicer didn’t participate in good faith, a homeowner can use that to ask a court to stop the foreclosure. The state Attorney General’s Office also could pursue penalties against servicers.

When lawmakers opened negotiations on the bill, consumer advocates were surprised by the bankers’ first move.

Without prompting, the Washington Bankers Association offered to pay a $250 fee for every default notice filed, with the stipulation that 80 percent of the money pay for housing counselors.

“It did surprise people,” Herman said.

The association, which represents national and community banks, suggested the fee because it wants more delinquent homeowners to work with housing counselors, said James Pishue, the group’s president.

National studies show that homeowners who work with trained housing counselors have much higher success rates in reaching an agreement with their servicer.

“We thought that would prevent the need for mediation,” Pishue said. “Ultimately it results in fewer foreclosures.”

Marc Cote, a housing counselor who oversees the state’s foreclosure-prevention hotline, said he’s pleased with the measure.

“The main thing I’m hopeful for is that the mediation piece will inspire servicers to resolve the hundreds, in my experience, of [loan] workouts that are still not resolved after months and months.”

Source: Sanjay Bhatt, Seattle Times (April 13th, 2011)