Smart Real Estate News & Commentary by Chris McLaughlin July 5, 2010
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$8000 tax credit gets a last gasp
On Friday President Obama signed a law giving consumers three extra months to close the deal and still get a popular tax credit from the government – assuming they’re already in the process of buying a home. Homebuyers with contracts signed by April 30 who failed to go to closing by the original June 30 deadline will now have until September 30 to complete their purchases. The Senate approved the measure on Wednesday just hours ahead of the earlier deadline and one day after the House of Representatives approved the measure.
The $8,000 tax credit for first time homebuyers and $6,500 credit for others purchasing a new primary residence was a highly popular temporary measure by the Obama administration to jump start home sales during the economic recession. Real estate agents said as many as 180,000 homebuyers would miss the June 30 deadline because banks and settlement offices were struggling to deal with the volume of people rushing to close on their deals signed before April 30. Critics say the three-month extension is an invitation for fraud, providing prospective home buyers time to back date contracts to a date before April 30 and subsequently closing on those contracts by the new September 30 deadline. “The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit,” the Internal Revenue Service said.
Bankruptcy filings up
Bankruptcy filings surged 14% during the first half of 2010, according to the American Bankruptcy Institute. Filings totaled 770,117 through June, compared to 675,351 during the same period last year. The institute also said that bankruptcies totaled 126,270 in June, a jump of 8.5% from the same month in 2009, when they totaled 116,365. The institute relied on data from the National Bankruptcy Research Center for its information.
Samuel Gerdano, executive director of the institute, says “Years of rising consumer debt and low savings rates, combined with the housing and unemployment crisis, are causing bankruptcy levels not seen since the 2005.” In 2005 Congress amended the Bankruptcy Code, making it harder for Americans to file and sparking a rush to file by October of 2005, when the amendments kicked in. In 2005, bankruptcy filings totaled more than 2 million. By comparison, Gerdano expects there will be more than 1.6 million new bankruptcy filings by the end of 2010.
HAUP now active
As of July 1, homeowners have been able to apply for assistance from the Home Affordable Unemployment Program (HAUP). HAUP provides homeowners a forbearance of monthly mortgage payments, either reducing them or suspending them for at least three months. Servicers can extend the timeline depending on regulatory guidelines. In June, the unemployment rate edged down to 9.5% from 9.7% in May, according the Department of Labor. Homeowners who qualify for the program have a first-lien mortgage originated on or before Jan. 1, 2009. The unpaid principal balance on a single-unit primary residence must be equal to or less than $729,750, and the mortgage has to be in default or in imminent default.
HAMP requires borrowers to be employed with some income for the modification to be reduced down to 31% of the monthly income. But once the borrower finds another job or the borrower is 30 days from the end of the HAUP forbearance period, the borrower can be revaluated for a HAMP modification. Those who have already gone through the Home Affordable Modification Program (HAMP) process are not eligible for the HAUP. HUAP joins the Home Affordable Foreclosure Alternatives (HAFA) program, which provides incentives to servicers for providing short sales and deeds-in-lieu of foreclosure, as another net to catch borrowers who fall out or fail the HAMP program.
Factory orders drop more than expected
The Commerce Department said Friday that orders for manufactured goods decreased 1.4 percent in May. It was the biggest drop since March 2009. Excluding the volatile transportation sector, orders fell 0.6 percent. That number fell 0.7 percent in April, the worst showing in 13 months. Overall orders in April grew a revised 1.0 percent. Orders for big-ticket durable goods were down 0.3 percent, after a 2.0 percent increase in April. Electronics and commercial aircraft were among the weakest performers.
Demand for those goods expected to last less than three months fell 2.1 percent. Lower gas prices were partly to blame. But there were significant losses for makers of clothing, drinks and tobacco, and chemical products. The overall decline in orders was bleaker than the 0.5 percent drop expected by economists surveyed by Thomson Reuters. Manufacturing has been a rare bright spot, helping lead the country out of recession with increased hiring and productivity. However, economists fear joblessness and less demand for exports could sap the sector’s strength in the coming months.
DSNews.com – Delinquencies inch up in May
The seasonal improvement period for delinquencies and foreclosure inventories has come to a halt, according to an industry report released last Thursday by Lender Processing Services (LPS). The Florida-based analytics firm’s monthly Mortgage Monitor report found that the total U.S. delinquency rate jumped to 9.2 percent in May, inching up 2.3 percent from April and 7.9 percent higher than the same month last year. Herb Blecher, VP of LPS Applied Analytics, said the slight increase on the delinquency side was expected as this is the period when rates start to pick up. He said delinquencies will likely continue to increase all the way through the end of the year. The foreclosure inventory rate remained stable from the month prior at 3.18 percent, but it was 13.5 percent higher than May of 2010. Blecher explained that while some stability has been achieved in the foreclosure inventory rate, a further decline over the coming months is unlikely.
The national noncurrent loan rate, which reflects both foreclosures and delinquencies, came in at 12.38 percent. Not including REO properties, nearly 6.3 million loans were noncurrent in May. When REO properties were included, the total jumped to nearly 7.4 million. On a state-by-state basis, Florida and Nevada continued to hold the most noncurrent loans in May, with rates of 22.4 percent and 21.8 percent respectively. On the other end of the spectrum, the lowest noncurrent loan rates were seen in North Dakota, at 4.1 percent and South Dakota, at 5 percent.
Now for our real estate education section…
Life, Liberty, the Pursuit of Happiness & Real Estate
By the time you read this, the entire nation will have once again celebrated another Fourth of July with all of its star spangled glory, hoards of hot dogs and rainy day fireworks. This year it is also a good idea to stop and reflect on what the founding fathers really had in mind when declaring independence and the self-evident concept that all men are created equal. While life, liberty and the pursuit of happiness might seem an odd topic for a real estate investing newsletter…real estate played a critical role in the creation of what was to become the “American way of life”. In fact, real estate is so critical to the plans of the founding fathers that to tamper with ownership is to change the very fabric upon which our society was based.
Throughout history, societies have risen and fallen based upon land rights and ownership. “Free men” were nearly always landowners while serfs, servants and peasants were those forced to eek out a living without the benefit of owning raw assets or the land upon which the based a livelihood. During the formation of this nation, land rights were closely associated with the ability of a man (or woman) to determine their own fate, pursue a life of individual meaning and the very essence of freedom itself. The rights of property ownership include:
The right of possession, the ability to control the property, the right to enjoy the property, the right of exclusion and disposition. Unfortunately, many of these same rights upon which the nation was built are now under attack from a variety of sources. Not only does the erosion of land ownership and property rights impact the individual but also society at large. From runaway zoning regulations to the actions of eminent domain, land rights in the United States have eroded over decades but never to the extent seen in recent years. For example, the same bill that allows a judge to modify a mortgage contract is seen as a potential threat to the very foundation of contractual law…creating a more risky (and therefore more costly) lending environment for future loans. Squatters rights which are plaguing many cities across the nation have severely undercut the foundational right of enjoyment, exclusion and disposition. Even the newly proposed (and passed) regulations concerning required training, licensure and/or certification for everything from lead laws to owner financed properties is expected to have dramatic impact upon the rights of the individual to control and dispose of their own properties.
What does this mean for real estate investors and other property owners?
Change. Perhaps not the exact type of change the nation had in mind during the last election but change just the same. However, change isn’t always bad. In many instances it present unprecedented opportunity for those that are prepared to act. If history is any measure, excessive regulations tend to add ever increasing cost and growing scarcity over the long run. The new lead laws are a prime example; be requiring additional certification for anyone (including the property owner) to perform even rudimentary work on a home built prior to 1978, the cost of renovation is likely to increase even without putting more money into the pockets of the property owner.
Houses built post 1978 just became slightly more valuable if for no other reason than the lack of headache associated with them. Likewise, foreclosed properties plagued by squatters are at a distinct disadvantage…but may represent a golden opportunity for new investors long on time and short on funds. Savvy real estate estate investors would do well to keep an eye out for buying opportunities and price their bids accordingly. In the meantime, congratulations in exercising one of the most fundamental rights enjoyed by every red blooded American throughout the history of our great nation…the right to buy and sell property. It’s the cornerstone of what made this nation strong and what has been the foundation to wealth over the eons.
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
* Join my Facebook Fan Page: http://www.mclaughlinchris.com
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