Federal Reserve Chair Ben Bernanke says he underestimated the amount of fallout from risky mortgages.
"I and others were mistaken early on in saying that the subprime crisis would be contained," Bernanke said in an article in the Dec. 1 issue of The New Yorker magazine.
"The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict," he said in the piece titled "Anatomy of a Meltdown."
Source: The Associated Press, Jeannine Aversa (11/23/2008)
Sunday, November 23, 2008
Friday, November 21, 2008
Fannie, Freddie Suspend Some Foreclosures
Fannie Mae and Freddie Mac will halt foreclosures of occupied dwellings from Nov. 26 to Jan. 9 so that servicers have more time to develop workout plans for struggling borrowers.
The plan could buy extra time for approximately 16,000 borrowers to try to save their homes, according to the mortgage giants, but some experts worry that it only will delay inevitable foreclosures.
Meanwhile, the companies will commence a streamlined modification program on Dec. 15, under which hundreds of thousands of borrowers shelling out over 38 percent of earnings on mortgage payments could see their payments lowered by lenders.
Source: Reuters, Al Yoon, Dan Burns (11/21/08)
The plan could buy extra time for approximately 16,000 borrowers to try to save their homes, according to the mortgage giants, but some experts worry that it only will delay inevitable foreclosures.
Meanwhile, the companies will commence a streamlined modification program on Dec. 15, under which hundreds of thousands of borrowers shelling out over 38 percent of earnings on mortgage payments could see their payments lowered by lenders.
Source: Reuters, Al Yoon, Dan Burns (11/21/08)
Wednesday, November 19, 2008
Government Mortgage Refis Aren't Working
The two primary government programs offered as solutions for borrowers facing foreclosure are on the verge of being declared busts, acknowledged Steven Preston, secretary of the U.S. Department of Housing and Urban Development.
The FHASecure program announced in August 2007 has only helped about 4,000 borrowers late on payments. Hope for Homeowners has received a total of 111 applications since its introduction on Oct. 1.
Preston says the rules for the Hope for Homeowners program are being modified to allow lenders to take a smaller loss, making new loans for 96.5 percent of the home’s current value rather than the previous 90 percent.
FHASecure is also under review, according to Preston.
Source: The Associated Press (11/19/2008)
The FHASecure program announced in August 2007 has only helped about 4,000 borrowers late on payments. Hope for Homeowners has received a total of 111 applications since its introduction on Oct. 1.
Preston says the rules for the Hope for Homeowners program are being modified to allow lenders to take a smaller loss, making new loans for 96.5 percent of the home’s current value rather than the previous 90 percent.
FHASecure is also under review, according to Preston.
Source: The Associated Press (11/19/2008)
Wednesday, November 12, 2008
Another Loan Modification Plan on the Way
The Bush Administration announced a plan Tuesday that would use part of the government’s $700 billion in bailout money to encourage loan modifications so that borrowers would receive more affordable loans that requires less than 38 percent of their income to pay.
To qualify, borrowers must live in their homes, not be in bankruptcy proceedings, and owe at least 90 percent of the value of their home.
Fannie Mae and Freddie Mac would administer the program.Critics say that the plan won’t work. FDIC Chairman Sheila Bair said it "falls short of what is needed to achieve wide scale modifications of distressed mortgages."
Source: The Wall Street Journal, Damian Paletta, Jessica Holzer and Ruth Simon (11/12/08)
To qualify, borrowers must live in their homes, not be in bankruptcy proceedings, and owe at least 90 percent of the value of their home.
Fannie Mae and Freddie Mac would administer the program.Critics say that the plan won’t work. FDIC Chairman Sheila Bair said it "falls short of what is needed to achieve wide scale modifications of distressed mortgages."
Source: The Wall Street Journal, Damian Paletta, Jessica Holzer and Ruth Simon (11/12/08)
Friday, November 7, 2008
Pending Home Sales Down 4.6% in September
Pending home sales fell on the heels of a strong gain a month earlier as credit tightened and economic conditions deteriorated, according to the NATIONAL ASSOCIATION OF REALTORS®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, declined 4.6 percent to 89.2 from an upwardly revised reading of 93.5 in August, but is 1.6 percent higher than September 2007 when it stood at 87.8.
Lawrence Yun, NAR chief economist, said pending sales have been above year-ago levels for two months in a row. “The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,” he said.
“Conditions remain mixed around the country, but markets that are showing annual sales gains include Long Island, N.Y.; Boston; Minneapolis; Denver and Washington, D.C., in addition to consistent solid gains in California and Florida.”
The pending home sales index in the West rose 3.7 percent to 113.6 in September and remains 39.5 percent above a year ago. In the Midwest the index slipped 0.7 percent to 83.3 and is 3.1 percent below September 2007.
The index in the South fell 7.9 percent to 89.0 in September and is 11.3 percent below a year ago. In the Northeast, the index dropped 16.8 percent to 66.4 and is 9.4 percent below September 2007.
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said it’s a challenging time for both buyers and sellers. “Beyond affordable financing, correct pricing and professional expertise are keys to success in the market today,” he said. “Consumers need REALTORS® more than ever to help them navigate the transaction process in these uncertain times.”
Yun projects growth in the U.S. gross domestic product (GDP) to contract in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as home sales recover. “Right now we’re in a recession and unemployment will increase through 2009,” he said. “Consumer spending has halted and businesses are very cautious of expanding. It is unclear by how much the global economic slowdown will dampen U.S. exports, which had been rising strongly.”
“The depth of the recession depends entirely on housing – with sufficient housing stimulus, the recession will be shallow. If government actions stay focused on housing, the cost to the Treasury would be much less that the potential losses in the nation’s output and income in a severe recession.”
Looking at middle-ground assumptions, existing-home sales are expected to total 5.02 million in 2008, rising to 5.32 million next year and 5.62 million in 2010.
For all of 2008, home prices will have fallen by more than 20 percent in Las Vegas, Phoenix, and many California and Florida markets, while many markets in middle America will experience little change. Wide variations in home price movements will continue in 2009, with Houston and Denver likely to see respectable price gains while most other markets experience no notable change.
New-home sales are likely to total around 487,000 this year and 413,000 in 2009 before rising to 520,000 in 2010. Housing starts, including multifamily units, will probably total 936,000 units in 2008 and 781,000 next year, then increase to 886,000 in 2010. “Housing construction won’t improve before existing-home sales recover and inventory conditions become more balanced,” Yun said.
The 30-year fixed-rate mortgage should average 6.2 percent in the fourth quarter, rise gradually to 6.5 percent during the second half of 2009 and then average 6.7 percent in 2010. NAR’s housing affordability index is averaging 19 percentage points higher this year than in 2007, but is estimated to ease modestly in 2009.
The unemployment rate is expected to be 6.4 percent in the fourth quarter and then average 7.0 percent in 2009. “We’ve lost jobs throughout the year, and we could see jobs continue to decline for another six months – unemployment may top out around 7.0 percent,” Yun said.
Inflation, as measured by the Consumer Price Index, is seen at 4.4 percent for 2008, easing to 2.2 percent next year. Inflation-adjusted disposable personal income is projected to grow 1.4 percent this year and 1.6 percent in 2009.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, declined 4.6 percent to 89.2 from an upwardly revised reading of 93.5 in August, but is 1.6 percent higher than September 2007 when it stood at 87.8.
Lawrence Yun, NAR chief economist, said pending sales have been above year-ago levels for two months in a row. “The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,” he said.
“Conditions remain mixed around the country, but markets that are showing annual sales gains include Long Island, N.Y.; Boston; Minneapolis; Denver and Washington, D.C., in addition to consistent solid gains in California and Florida.”
The pending home sales index in the West rose 3.7 percent to 113.6 in September and remains 39.5 percent above a year ago. In the Midwest the index slipped 0.7 percent to 83.3 and is 3.1 percent below September 2007.
The index in the South fell 7.9 percent to 89.0 in September and is 11.3 percent below a year ago. In the Northeast, the index dropped 16.8 percent to 66.4 and is 9.4 percent below September 2007.
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said it’s a challenging time for both buyers and sellers. “Beyond affordable financing, correct pricing and professional expertise are keys to success in the market today,” he said. “Consumers need REALTORS® more than ever to help them navigate the transaction process in these uncertain times.”
Yun projects growth in the U.S. gross domestic product (GDP) to contract in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as home sales recover. “Right now we’re in a recession and unemployment will increase through 2009,” he said. “Consumer spending has halted and businesses are very cautious of expanding. It is unclear by how much the global economic slowdown will dampen U.S. exports, which had been rising strongly.”
“The depth of the recession depends entirely on housing – with sufficient housing stimulus, the recession will be shallow. If government actions stay focused on housing, the cost to the Treasury would be much less that the potential losses in the nation’s output and income in a severe recession.”
Looking at middle-ground assumptions, existing-home sales are expected to total 5.02 million in 2008, rising to 5.32 million next year and 5.62 million in 2010.
For all of 2008, home prices will have fallen by more than 20 percent in Las Vegas, Phoenix, and many California and Florida markets, while many markets in middle America will experience little change. Wide variations in home price movements will continue in 2009, with Houston and Denver likely to see respectable price gains while most other markets experience no notable change.
New-home sales are likely to total around 487,000 this year and 413,000 in 2009 before rising to 520,000 in 2010. Housing starts, including multifamily units, will probably total 936,000 units in 2008 and 781,000 next year, then increase to 886,000 in 2010. “Housing construction won’t improve before existing-home sales recover and inventory conditions become more balanced,” Yun said.
The 30-year fixed-rate mortgage should average 6.2 percent in the fourth quarter, rise gradually to 6.5 percent during the second half of 2009 and then average 6.7 percent in 2010. NAR’s housing affordability index is averaging 19 percentage points higher this year than in 2007, but is estimated to ease modestly in 2009.
The unemployment rate is expected to be 6.4 percent in the fourth quarter and then average 7.0 percent in 2009. “We’ve lost jobs throughout the year, and we could see jobs continue to decline for another six months – unemployment may top out around 7.0 percent,” Yun said.
Inflation, as measured by the Consumer Price Index, is seen at 4.4 percent for 2008, easing to 2.2 percent next year. Inflation-adjusted disposable personal income is projected to grow 1.4 percent this year and 1.6 percent in 2009.
Obama Will Support Housing, Says NAR
President-elect Barack Obama is likely to make a housing market recovery a central part of his economic revival plan.
That was the assessment of NAR leaders, speaking to a packed audience Thursday at the Peabody Hotel during the opening forum of the REALTORS® Conference.
Obama has long made housing a priority, said Illinois Association of REALTORS® CEO Gary Clayton, who knows the president-elect from his days as a state senator. Clayton said with a chuckle that he now regrets not joining Obama’s weekly poker game.
In Illinois, Obama advocated tax credits for property owners and fought to end predatory lending, Clayton said. As a U.S. senator, he’s advocated for a stronger FHA and voted for the NAR-backed economic stimulus bill, which increased loan limits in high-cost areas.
NAR Chief lobbyist Jerry Giovaniello addressed election banter about Obama having a “socialist” agenda. “There’s not much left to socialize,” he joked, referring to the government rescue of Fannie Mae, Freddie Mac, insurance giant AIG, and the entire U.S. banking system. “I think Jiffy Lube may be next,” he said, to uproarious laughter.
Clayton said the real Obama is a “friendly, fun guy. He’s smart, quick, and a good listener but no pushover.” Giovaniello described Obama as “careful and cautious,” someone who will listen to all sides of an issue before making decision.
Besides winning the presidency, Democrats gained seats in both the House and the Senate. Giovaniello told the crowd that didn’t necessarily mean legislators will have an anti-business bent. A substantial number are “Blue Dog Democrats,” he said, who tend to be conservative and business oriented. And many already have sided with REALTORS® on key real estate issues.
“We made our friends before we needed them,” he said, “so thank you for being involved in the REALTOR® party.
It’s Still The Economy
Clearly the state of the economy was on everyone’s minds, and NAR 2009 President Charles McMillan asked Chief Economist Lawrence Yun about his economic outlook.
“We are in a recession,” Yun said. “In the next six months, we may lose up to 1 million jobs. But the good news is, historically housing moves independently from the economy. We are seeing a 20 percent improvement in home sales in states like California, Florida, and Virginia. The economy will not improve without a housing recovery.”
In the meantime, NAR is doing all it can to help REALTORS® through the tough times, McMillan said. Among the free resources at REALTOR.org are daily economic commentaries, an FHA toolkit, and 150 local market reports.
The association also offers a host of money-saving benefits. For more information, visit REALTOR.org/NARHelpsYou.
President-elect Barack Obama is likely to make a housing market recovery a central part of his economic revival plan. That was the assessment of NAR leaders, speaking to a packed audience Thursday at the Peabody Hotel during the opening forum of the REALTORS® Conference.
Obama has long made housing a priority, said Illinois Association of REALTORS® CEO Gary Clayton, who knows the president-elect from his days as a state senator. Clayton said with a chuckle that he now regrets not joining Obama’s weekly poker game.
In Illinois, Obama advocated tax credits for property owners and fought to end predatory lending, Clayton said. As a U.S. senator, he’s advocated for a stronger FHA and voted for the NAR-backed economic stimulus bill, which increased loan limits in high-cost areas.
NAR Chief lobbyist Jerry Giovaniello addressed election banter about Obama having a “socialist” agenda. “There’s not much left to socialize,” he joked, referring to the government rescue of Fannie Mae, Freddie Mac, insurance giant AIG, and the entire U.S. banking system. “I think Jiffy Lube may be next,” he said, to uproarious laughter.
Clayton said the real Obama is a “friendly, fun guy. He’s smart, quick, and a good listener but no pushover.” Giovaniello described Obama as “careful and cautious,” someone who will listen to all sides of an issue before making decision.
Besides winning the presidency, Democrats gained seats in both the House and the Senate. Giovaniello told the crowd that didn’t necessarily mean legislators will have an anti-business bent.
A substantial number are “Blue Dog Democrats,” he said, who tend to be conservative and business oriented. And many already have sided with REALTORS® on key real estate issues.
“We made our friends before we needed them,” he said, “so thank you for being involved in the REALTOR® party.
It’s Still The Economy
Clearly the state of the economy was on everyone’s minds, and NAR 2009 President Charles McMillan asked Chief Economist Lawrence Yun about his economic outlook.
“We are in a recession,” Yun said. “In the next six months, we may lose up to 1 million jobs. But the good news is, historically housing moves independently from the economy. We are seeing a 20 percent improvement in home sales in states like California, Florida, and Virginia. The economy will not improve without a housing recovery.”
In the meantime, NAR is doing all it can to help REALTORS® through the tough times, McMillan said. Among the free resources at REALTOR.org are daily economic commentaries, an FHA toolkit, and 150 local market reports.
The association also offers a host of money-saving benefits. For more information, visit REALTOR.org/NARHelpsYou
That was the assessment of NAR leaders, speaking to a packed audience Thursday at the Peabody Hotel during the opening forum of the REALTORS® Conference.
Obama has long made housing a priority, said Illinois Association of REALTORS® CEO Gary Clayton, who knows the president-elect from his days as a state senator. Clayton said with a chuckle that he now regrets not joining Obama’s weekly poker game.
In Illinois, Obama advocated tax credits for property owners and fought to end predatory lending, Clayton said. As a U.S. senator, he’s advocated for a stronger FHA and voted for the NAR-backed economic stimulus bill, which increased loan limits in high-cost areas.
NAR Chief lobbyist Jerry Giovaniello addressed election banter about Obama having a “socialist” agenda. “There’s not much left to socialize,” he joked, referring to the government rescue of Fannie Mae, Freddie Mac, insurance giant AIG, and the entire U.S. banking system. “I think Jiffy Lube may be next,” he said, to uproarious laughter.
Clayton said the real Obama is a “friendly, fun guy. He’s smart, quick, and a good listener but no pushover.” Giovaniello described Obama as “careful and cautious,” someone who will listen to all sides of an issue before making decision.
Besides winning the presidency, Democrats gained seats in both the House and the Senate. Giovaniello told the crowd that didn’t necessarily mean legislators will have an anti-business bent. A substantial number are “Blue Dog Democrats,” he said, who tend to be conservative and business oriented. And many already have sided with REALTORS® on key real estate issues.
“We made our friends before we needed them,” he said, “so thank you for being involved in the REALTOR® party.
It’s Still The Economy
Clearly the state of the economy was on everyone’s minds, and NAR 2009 President Charles McMillan asked Chief Economist Lawrence Yun about his economic outlook.
“We are in a recession,” Yun said. “In the next six months, we may lose up to 1 million jobs. But the good news is, historically housing moves independently from the economy. We are seeing a 20 percent improvement in home sales in states like California, Florida, and Virginia. The economy will not improve without a housing recovery.”
In the meantime, NAR is doing all it can to help REALTORS® through the tough times, McMillan said. Among the free resources at REALTOR.org are daily economic commentaries, an FHA toolkit, and 150 local market reports.
The association also offers a host of money-saving benefits. For more information, visit REALTOR.org/NARHelpsYou.
President-elect Barack Obama is likely to make a housing market recovery a central part of his economic revival plan. That was the assessment of NAR leaders, speaking to a packed audience Thursday at the Peabody Hotel during the opening forum of the REALTORS® Conference.
Obama has long made housing a priority, said Illinois Association of REALTORS® CEO Gary Clayton, who knows the president-elect from his days as a state senator. Clayton said with a chuckle that he now regrets not joining Obama’s weekly poker game.
In Illinois, Obama advocated tax credits for property owners and fought to end predatory lending, Clayton said. As a U.S. senator, he’s advocated for a stronger FHA and voted for the NAR-backed economic stimulus bill, which increased loan limits in high-cost areas.
NAR Chief lobbyist Jerry Giovaniello addressed election banter about Obama having a “socialist” agenda. “There’s not much left to socialize,” he joked, referring to the government rescue of Fannie Mae, Freddie Mac, insurance giant AIG, and the entire U.S. banking system. “I think Jiffy Lube may be next,” he said, to uproarious laughter.
Clayton said the real Obama is a “friendly, fun guy. He’s smart, quick, and a good listener but no pushover.” Giovaniello described Obama as “careful and cautious,” someone who will listen to all sides of an issue before making decision.
Besides winning the presidency, Democrats gained seats in both the House and the Senate. Giovaniello told the crowd that didn’t necessarily mean legislators will have an anti-business bent.
A substantial number are “Blue Dog Democrats,” he said, who tend to be conservative and business oriented. And many already have sided with REALTORS® on key real estate issues.
“We made our friends before we needed them,” he said, “so thank you for being involved in the REALTOR® party.
It’s Still The Economy
Clearly the state of the economy was on everyone’s minds, and NAR 2009 President Charles McMillan asked Chief Economist Lawrence Yun about his economic outlook.
“We are in a recession,” Yun said. “In the next six months, we may lose up to 1 million jobs. But the good news is, historically housing moves independently from the economy. We are seeing a 20 percent improvement in home sales in states like California, Florida, and Virginia. The economy will not improve without a housing recovery.”
In the meantime, NAR is doing all it can to help REALTORS® through the tough times, McMillan said. Among the free resources at REALTOR.org are daily economic commentaries, an FHA toolkit, and 150 local market reports.
The association also offers a host of money-saving benefits. For more information, visit REALTOR.org/NARHelpsYou
Thursday, November 6, 2008
Stop Worrying About Stock Market Losses
If you're worried about how much money you lost from your retirement account over the past few months, it’s time to refocus your thoughts.
The stock market will regain strength and your investments will grow over time, certified financial planner Chris Bird told a packed audience Thursday at the 2008 REALTORS® Conference & Expo in Orlando. Getting caught up in short-term fluctuations will only cause distress.
"Don't believe the talking heads who say the sky is falling," Bird said at the Women's Council of REALTORS® financial planning seminar.
Bird said a 401(k) account is the best vehicle for saving and growing money for retirement—offering far more benefits than an IRA. Not only are annual deposit limits higher in a 401(k), but if you're 50 years old or older, you can put extra money into your account annually, enabling you to "catch up" for the years you missed.
The other beauty of a 401(k): flexibility to borrow money from the account without taking a tax hit. IRA plans, on the other hand, don’t allow you to borrow, only withdraw. And when you take money out, you’ll have to pay taxes and penalties.
So what if you already have an IRA and you need some extra cash right now? Bird suggests rolling over your IRA to a 401(k) so you can write yourself a loan. It’s as easy as can be: "All you have to do is check a box," he said. "You don't even have to say what you're going to use the money for."
However, borrowed money does have to be paid back within five years or you face a penalty. But at a reasonable interest rate (about 6 percent currently), the payback isn’t overly burdensome.
For people with kids, Bird offered up another flexible savings idea: Socking money away in a tax-exempt "529" college savings plan. You can borrow money against that account, the majority of it tax free, by temporarily making yourself the designated recipient.
"Stealing from your kids" isn’t an ideal strategy unless you really need the money, Bird said. If you must take money from the account, you should pay it back and redesignate your child as the recipient.
—Robert Freedman
The stock market will regain strength and your investments will grow over time, certified financial planner Chris Bird told a packed audience Thursday at the 2008 REALTORS® Conference & Expo in Orlando. Getting caught up in short-term fluctuations will only cause distress.
"Don't believe the talking heads who say the sky is falling," Bird said at the Women's Council of REALTORS® financial planning seminar.
Bird said a 401(k) account is the best vehicle for saving and growing money for retirement—offering far more benefits than an IRA. Not only are annual deposit limits higher in a 401(k), but if you're 50 years old or older, you can put extra money into your account annually, enabling you to "catch up" for the years you missed.
The other beauty of a 401(k): flexibility to borrow money from the account without taking a tax hit. IRA plans, on the other hand, don’t allow you to borrow, only withdraw. And when you take money out, you’ll have to pay taxes and penalties.
So what if you already have an IRA and you need some extra cash right now? Bird suggests rolling over your IRA to a 401(k) so you can write yourself a loan. It’s as easy as can be: "All you have to do is check a box," he said. "You don't even have to say what you're going to use the money for."
However, borrowed money does have to be paid back within five years or you face a penalty. But at a reasonable interest rate (about 6 percent currently), the payback isn’t overly burdensome.
For people with kids, Bird offered up another flexible savings idea: Socking money away in a tax-exempt "529" college savings plan. You can borrow money against that account, the majority of it tax free, by temporarily making yourself the designated recipient.
"Stealing from your kids" isn’t an ideal strategy unless you really need the money, Bird said. If you must take money from the account, you should pay it back and redesignate your child as the recipient.
—Robert Freedman
Wednesday, November 5, 2008
1031 Exchanges: Tax-Deferred, Not Tax-Free
There are many complex rules governing 1031 exchanges, but one of the most important rules is easy to remember: “If you take the cash, you pay the taxes,” said Craig Brown, a vice president of IPX1031 Exchange, which specializes in exchange transactions.
If a seller exchanges one like-kind investment property for another, and the transaction results in any cash for the seller, that amount is taxable—even if the seller is taking on additional mortgage debt.
“Debt does not offset cash,” said Brown, who is based in Dallas.
Capital Gains Concerns
If your client expects to see cash from a 1031 exchange, it may be better to initiate the transaction in 2008, when the capital gains tax rate is only 15 percent, he said.
“You can’t predict what will happen next year to the capital gain rate, but many of my clients are concerned Congress will increase it next year, and they want to take advantage of the current rate,” Brown said.
If an exchange isn’t completed until 2009, the investor may choose to pay taxes on the gain in either 2008 or 2009 under IRS installment sales rules.
What Qualifies as a 1031?
To qualify for a 1031 exchange, a property must meet four basic rules:
If a seller exchanges one like-kind investment property for another, and the transaction results in any cash for the seller, that amount is taxable—even if the seller is taking on additional mortgage debt.
“Debt does not offset cash,” said Brown, who is based in Dallas.
Capital Gains Concerns
If your client expects to see cash from a 1031 exchange, it may be better to initiate the transaction in 2008, when the capital gains tax rate is only 15 percent, he said.
“You can’t predict what will happen next year to the capital gain rate, but many of my clients are concerned Congress will increase it next year, and they want to take advantage of the current rate,” Brown said.
If an exchange isn’t completed until 2009, the investor may choose to pay taxes on the gain in either 2008 or 2009 under IRS installment sales rules.
What Qualifies as a 1031?
To qualify for a 1031 exchange, a property must meet four basic rules:
- Be held for an investment or used for productive purposes in a business.
- Be exchanged with a like-kind property (any other type of real estate).
- Investor must identify replacement properties for the one being exchanged within 45 days.
- Exchange transaction must be completed within 180 days.
While it’s not possible to exchange a principal residence, a recent court ruling has clarified rules that make it possible to exchange a second home or a vacation home, Brown said.
The property must meet these requirements: The owner has held the property for at least two years; rented the property for at least 14 days per year at fair market value; and used the property personally for no more than 14 days of each year.
Dream House Rules
The same ruling spelled out circumstances under which owners could defer taxes when exchanging any type of investment property for a “dream house,” that they will eventually live in full-time.
First, the investor must rent out the dream home for 14 days a year for at least two years, and use it for no more than 14 days per year. At the end of the two-year span, the home could be converted to a principle residence for the owner’s use. The two-day session on 1031 exchanges was presented by the REALTORS® Land Institute. For more information, visit www.riland.com—Mariwyn Evans
California Considers Foreclosure Moratorium
California Gov. Arnold Schwarzenegger is prepared to propose a 90-day ban on foreclosures.
The program would give borrowers and lenders enough time to find a solution to their problems or work out a modification to the loan, authors of the bill say.
Schwarzenegger says his plan is better than the one President-Elect Barack Obama plans to propose because it offers a “safe harbor” to mortgage lenders. Lenders that could prove they have offered a robust modification program could avoid having a stay put on individual foreclosures, says David Crane, an adviser to the governor.
Schwarzenegger, who will explain the total program on Thursday, is expected to seek tougher licensing requirements for loan originators and to ask to allow the state Department of Real Estate and Department of Corporations to enforce federal laws and regulations regarding the Truth in Lending Act.
Source: Reuters News (11/05/2008)
The program would give borrowers and lenders enough time to find a solution to their problems or work out a modification to the loan, authors of the bill say.
Schwarzenegger says his plan is better than the one President-Elect Barack Obama plans to propose because it offers a “safe harbor” to mortgage lenders. Lenders that could prove they have offered a robust modification program could avoid having a stay put on individual foreclosures, says David Crane, an adviser to the governor.
Schwarzenegger, who will explain the total program on Thursday, is expected to seek tougher licensing requirements for loan originators and to ask to allow the state Department of Real Estate and Department of Corporations to enforce federal laws and regulations regarding the Truth in Lending Act.
Source: Reuters News (11/05/2008)
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