Archive for July 31st, 2008

Inside Congress’s housing repair kit

Posted on July 31, 2008 by admin

The Boston Globe – July 31, 2008


The sweeping housing legislation signed yesterday by President Bush provides a tax credit for first-time home buyers, higher mortgage allowances for expensive markets such as Boston, property tax breaks, and a variety of other benefits.


Although the main thrust of the legislation was to shore up the nation’s primary mortgage providers, Freddie Mac and Fannie Mae, and stem the onslaught of foreclosures, the new law has numerous tax breaks and incentives for homeowners and buyers aimed at repairing the damaged housing market.


“There’s enough for some, but not for everybody,” said Representative Barney Frank, the Newton Democrat who sponsored the legislation. “If we had more money, we could do more.”



Tax relief

  • First-time buyers can receive a $7,500 tax credit for buying a home by next July 1, a provision aimed at recharging sales in slumping markets. Eligibility requirements include that a buyer has not owned a home within the past three years. The credit is effectively a no-interest loan since the taxpayer must pay it back at a rate of $500 a year over 15 years. The credit begins to be phased out for single taxpayers earning $75,000 and ends at $95,000, and for couples earning $150,000 to $170,000, said Linda Goold, lawyer for the National Association of Realtors.



  • Homeowners who elect to claim the standard deduction on their tax forms can receive a property tax break of $500, or $1,000 for couples filing jointly.



  • Taxpayers subject to the alternative minimum tax will no longer have to pay taxes on the interest they earn from housing-related bonds sold by state and municipal governments. Lawmakers said this will lower the cost of building affordable housing by making the bonds more attractive to investors.



  • Owners of vacation homes, however, will be limited in the amount of capital gains tax deductions they get when selling the second property, if they’ve used it as a primary residence during a certain period prior to selling it.



    New disclosure requirements

  • Lenders will have to provide copies of mortgage documents to borrowers at least seven days prior to the loan closing.



  • Mortgage documents must completely disclose the full costs of the loan over its lifetime, including future increases in payments, for subprime or other types of adjustable-rate mortgages.

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    Private Lenders Provide Option for Borrowers

    Posted on July 31, 2008 by admin

    The Wall Street Journal – July 31, 2008


    As lending standards have become tougher, a rising number of people and businesses are turning to an unlikely source for money: private lenders.


    In recent years, the practice of borrowing money from private parties was rare, except among those who were unable to qualify for traditional loans. Banks were flush with cash and eager to lend, meaning even people with a tarnished credit history often could find quick sources of cash.


    Now, even those with good credit are bypassing banks to borrow money — despite interest rates that can reach 20% or more, and down payments of 35% or more.


    These private funds — which aren’t from banks or credit unions — are being used for everything from second homes to apartment construction. Many borrowers have excellent credit, but they are trying to avoid the added time, scrutiny and uncertainty of a conventional bank loan. Such transactions are “not as publicly available as one might expect,” says Ron Phipps, a real-estate broker in Warwick, R.I., “but there is definitely money available.”


    Arrangements for such loans are equally low-key. While hedge funds and high-net-worth investors are providing cash, it isn’t unusual for a private lawyer to get five friends to each throw in $100,000 for a home loan. Wealthy investors, hedge funds and private-equity firms are lending money in pursuit of consistently higher returns. The bear market for stocks may make alternative investments such as this type of lending more attractive.


    Typically, borrowers hear about private loans from lawyers, mortgage brokers and real-estate agents. Borrowing and lending opportunities are even sometimes posted on Web sites or in newspapers.


    For investors, well-structured deals could reap significant returns, because private lenders typically charge much higher closing costs and interest rates than traditional lenders. They also require a much higher loan-to-equity ratio. So if the borrower falls behind, the lender potentially could resell the property at a profit.


    “For the investors, there’s an opportunity,” says Scott Haislet, owner of LEC Mortgage in Lafayette, Calif. “But you better know who is in charge and who’s making the decisions about the property.”


    Borrowers “need to make sure they understand the way the loan works,” says Allen Fishbein, director of housing for the Consumer Federation of America. Mr. Fishbein recommends that borrowers “seek out independent professional advice before committing themselves.”


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