Tax break for short-sale sellers

A bill that would give homeowners facing foreclosure a tax break if their lender forgives part of their debt -- and make up for the lost revenue by raising taxes on sales of some second homes -- passed the House of Representatives.

HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, would also extend the deduction for private mortgage insurance to 2014, helping home buyers avoid high-interest piggyback loans. Although the bill enjoyed bipartisan support in the House -- passing in a lopsided 386-27 vote -- some of its provisions are expected to be subject to further debate as the Senate weighs similar legislation.

The Bush administration supports amending the tax code so that debt that's forgiven as part of a foreclosure sale or loan modification isn't classified as income by the IRS. But the change should be temporary, the administration maintains, and Congress should not meddle with the rules for claiming a second home, vacation or rental property as a primary residence for tax purposes.

Giving borrowers a tax break on forgiven debt will cost an estimated $1.38 billion over the next 10 years if the change isn't temporary. Extending the deduction for private mortgage insurance is expected to reduce tax revenue by $570 million over 10 years. To make up for the loss, HR 3648 would reduce the size of the deduction some owners of second homes can claim on the gains from a sale if it was once their primary residence.

Under current law, married couples can claim a deduction of up to $500,000 on the sale of a second home if it was their primary residence for two of the five years before the sale. HR 3648 would tie the size of the exemption to the number of years a home is used as a primary residence -- raising an additional $2 billion in taxes in the next decade.
The administration says it will work to narrow the scope of the bill as the Senate considers similar legislation. Any differences between the two bills would have to be reconciled before they are sent to the president to be signed into law.
Mortgage Bankers Association Chairman John Robbins said extending the deduction for mortgage insurance premiums lowers the cost of a mortgage for low- and moderate-income borrowers, and urged the Senate to follow the House's lead.

Borrowers who engage in workouts with lenders "should not have to face a tax bill on the phantom income that results from debt forgiveness," Robbins said in a statement. "I hope the Senate recognizes the importance of this legislation and moves quickly to get it to the president's desk."

No hope for home prices in 2008

Home prices throughout most of California will post modest declines next year while sales of existing homes will stabilize from the precipitous decrease experienced in 2007, according to C.A.R.'s "2008 California Housing Market Forecast" released yesterday.

The forecast was presented this afternoon during the CALIFORNIA REALTOR® EXPO 2007, running from Oct. 9-11 at the Anaheim Convention Center in Anaheim, Calif. The trade show attracts nearly 12,000 attendees and is the largest state real estate trade show in the nation.

The median home price in California will decline 4 percent to $553,000 in 2008 compared with a projected median of $576,000 this year, while sales for 2008 are projected to decrease 9 percent to 334,500 units, compared with 367,500 units (projected) in 2007."Tighter credit standards, affordability concerns, and a continued standoff between buyers and sellers will contribute to continued weakness in the market going into next year," said C.A.R. President Colleen Badagliacco. "Now is not the time for homeowners to test the waters, only serious sellers should put their homes on the market in what will continue to be a challenging sales environment."

Jobs Report

Remember the old show "Get Smart", when bumbling secret agent Maxwell Smart would describe his latest major goof by holding up his fingers about a half-inch apart, and emphatically stating that famous line? In similar fashion...it appears the Department of Labor missed some recent job creation counts by quite a long shot.

Last Friday, the highly anticipated monthly Jobs Report arrived bright and early, showing 110,000 new jobs created during September, very close to what analysts had expected. But the real surprise was the upward revision to last month's shocking number, which had shown a LOSS of 4000 jobs in August. The revised number was a gain of 89,000 jobs, or a change of 93,000! That's right - the Department of Labor "missed it by that much."

The revised jobs report for August and the new jobs report for September, pretty much ended any speculation about a recession resulting from the housing market. Despite low sales and some construction industry layoff the overall job picture continues to do well.

I told you so. When the Commerce Department, mistakenly reported in early September the loss of 4,000 jobs in August, it was front-page material on the Sac Bee. The revised and new job numbers that came out last week was found on in a small article in the business section.

Title rates go on-line

With California Insurance Commissioner Steve Poizner on hand to lend support, the California Land Title Association rolled out a new Web site Tuesday that the industry group said would help consumers shop for the best deal on title insurance.

At this time a year ago, groups representing title and escrow companies were doing battle with Poizner's predecessor, John Garamendi, and his proposal to roll back rates by $1 billion and impose rate caps based on the companies' expenses.
Like Garamendi, Poizner has said title insurers have marketed their product not to consumers, but primarily those who can refer business to them -- Realtors, lenders and builders. But Poizner has pushed back any implementation of rate caps to 2011, saying he wants to give the industry a chance to reform itself.

The Web site unveiled today, TitleWizard, is a centerpiece of the industry's efforts to increase competition by marketing to consumers, rather than real estate professionals. The site allows users to find local title companies and compare their rates and services.
TitleWizard's rate-generating software delivers comparisons that are specific to each transaction, and user data is not shared with any title company or third party, CLTA said in a press release. Information on rates is accurate and current because it is supplied by CLTA members, the group said. TitleWizard, developed by La Jolla, Calif.-based ClosingCorp Inc., is also intended to educate consumers about the closing process.

The site asks users for their ZIP code, purchase price, loan amount and property type. A TitleWizard query for a title insurance policy on a $600,000 property in Alameda County generated quotes from eight companies, ranging from $621 to $706.
CLTA President Margaret Foster said “the goal is to use creative technological solutions that empower consumers. TitleWizard will help Californians take advantage of comprehensive and accurate marketplace information." Yes, but will it deliver donuts to the office sales meetings?

Big bucks made in mortgage fraud

One out of every 52 adult Californians has a real estate license. Most agents are honest and attempt to make a living selling homes or originating mortgage loans. The Department of Real Estate, DRE, has more licensed agents than at any time in its history. The recent market correction is now revealing another record for the DRE. The number of fraudulent sales and loan transactions committed by licensed agents over the past few years is keeping investigators working overtime.

Each quarter the DRE publishes hundreds of license violations, suspensions and revocations. Most are minor infractions and procedural errors, mistakes happen. An improperly filed form or earnest money deposit check handled incorrectly is grounds for a reprimand. With significant license violators, the DRE files a legal action to revoke or suspend a license. Last year was a record for DRE with 1,900 filings against licensed agents. Officials at the department expect even more formal filings this year.

What has been surprising to the department and industry officials is not the number of complaints against licensed agents but the astonishing dollar amount of the claims involved. There has always been the dishonest agent who pockets their trust account or the swindler who pressured some poor soul out of their savings. But the recent unveiling of organized fraud against lenders and sellers is reaching Enron proportions.

A federal grand jury in Sacramento returned an indictment last month, charging the primary owners of VFM Investment Group, Esnian Mortgage Realty and Freedom Capital Mortgage with bank fraud, conspiracy to launder money and making false statements on loan applications. The three defendants, James Martin, Mario Fellini, and Sal Gallo, are accused of a straw buyer mortgage fraud scheme involving 19 homes and more than $8 million in loans. If convicted, they could be sentenced for up to 30 years in prison. What were they thinking?

What they are accused of thinking works like this. The key requirement is finding a straw buyer with a good credit history in order to qualify for a loan. The buyer’s employment and income were not necessary since that can be falsified and neither was verified. The straw buyer is attracted by financial incentives on the purchase of the home. The buyer is assured they will never need to make a house payment, the deal will not cost them any money and after they sign the loan documents they will receive a portion of the broker’s commission or a flat fee. How’s that for a quick few thousands bucks?

If the straw buyers were concerned about their liability for the loan, they were assured that the house would be resold and the loan paid in full. What actually happens is after the loan closes the house is refinanced or additional cash extracted through a home equity loan, which may involve inflated appraisals. As long as property values keep climbing who cares, right?

Two former real estate agents of Prudential California Realty in Los Angeles used a different scam using bogus appraisals. Joe Babajian and Kyle Grasso were indicted by a federal grand jury claming that their actions contributed to $40 million in losses by federally insured banks. The indictment charges the defendants sent false documentation, including bogus purchase agreements and appraisals, to victim banks in order to deceive them into unwittingly funding loans for hundreds of thousands of dollars higher than the home was worth.

To work, this scheme requires the participation of the seller, a licensed appraiser and an in-house escrow company. According to the indictment, Grasso and co-conspirators Fitzgerald and Abrams, would enter into a purchase agreement with a seller for the market value of the property but with the condition the sellers and their agents would not reveal the purchase price. Then they would draft another purchase agreement on the same property for hundreds of thousands of dollars more than the real purchase price. Along with a dummy appraisal and other falsified documents, the bank would fund the loan for the higher amount. Guess who would pocket the difference between their real purchase price and the amount the lender financed? According to the indictment, Lehman Brothers Bank funded 80 such loans between 2000 and 2003 resulting in the loss of millions.

A Northern California broker has had a lot of explaining to do recently for his involvement in the sale of 21 homes in Elk Grove and Natomas raided this summer by the DEA for illegal gardening activities. Kevin Parker, an agent with Prudential California Realty acted as the buyer’s agent in all but five of the homes.

June Barlow, vice president and general counsel for the California Association of Realtors, said she was not familiar with the details of the case but said, “If you see something suspicious right in front of you, you might want to ask a few probing questions before you participate. One of the hardest decisions a professional faces is to walk away from a deal because it has too much risk or because there might be something inappropriate going on.” Good advice for all of us to remember.