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Bucks Blog: Some Borrowers Need More Equity to Sell Homes

May 24, 2013 by Leave a Comment

A home for sale in Washington, D.C.Reuters A home for sale in Washington, D.C.

The number of homeowners who owe more on their mortgage than their house is worth continues to drop, but many borrowers still haven’t regained enough equity to afford to move, a new analysis finds.

About a quarter of all homeowners remain “underwater,” owing more than their home’s value, according to a first-quarter negative-equity report from the real estate site Zillow. That’s down from nearly 28 percent at the end of last year.

Zillow predicts the rate will fall to 23.5 percent by the first quarter of 2014, which will lift another 1.4 million homeowners into positive equity territory.

But for now, another 18 percent of homeowners with mortgages, while technically above water, still don’t have enough equity to make a move, bringing the current “effective” negative-equity rate to nearly 44 percent, Zillow says.

Technically, a homeowner reaches positive equity when the market value of the home exceeds the remaining loan balance. But listing a home for sale, and buying a new one, generally requires equity of 20 percent or more to comfortably meet related costs, like sales commissions and a down payment on a new home.

Such homeowners probably can’t afford a down payment, locking them into their current homes and helping to keep the inventory of homes for sale tight.

Without enough equity, such costs have to come out of a homeowner’s pocket, leaving many stuck, said Stan Humphries, Zillow’s chief economist. “You might not be underwater, but can you go out in the market and transact?” he said.

The “effective” negative-equity rate helps explain why healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale, he said.

The only cure, he said, is time.  As rising home values continue to build equity, they will eventually get to the point where more homeowners can realistically sell.

Of  the 30 largest metropolitan areas that Zillow tracks, those with the highest “effective” negative-equity rates — including homeowners with 20 percent equity or less — include Las Vegas, 72 percent; Atlanta, 64 percent; and Riverside, Calif., 60 percent.

Zillow’s negative-equity report looks at current outstanding loan amounts for owner-occupied homes, and compares them to those homes’ current estimated values. Loan data is provided from TransUnion, one of the three major credit-reporting bureaus. (Other reports estimate current loan balances based on the most recent loan on a property.)

Is a lack of equity holding you back from selling your home?

Article source: http://bucks.blogs.nytimes.com/2013/05/24/some-borrowers-need-more-equity-to-sell-homes/?partner=rss&emc=rss

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Bucks Blog: Should You Have to Pay Taxes on Forgiven Student Loan Debt?

December 15, 2012 by Leave a Comment

Stephanie Day worries about paying taxes on the portion of her student loan debt that is forgiven. The Treasury Department taxes such debt as income.Kevin P. Casey for The New York Times Stephanie Day worries about paying taxes on the portion of her student loan debt that is forgiven. The Treasury Department taxes such debt as income.

I generally try to stay away from policy debates in my work, but this weekend’s Your Money column begs a tax policy question that will probably affect millions of people someday: If you’re enrolled in the income-based repayment program, where any remaining federal student loan debt gets forgiven after a certain number of years, should you have to pay income taxes on the loan balance that the government dismisses?

The tax rules say yes, though there are exceptions for teachers and people who work in public services jobs. The truly destitute can get a pass on the tax bill, too, as do people who manage (against all odds) to get rid of their student loan debts in bankruptcy court.

Everyone else, however, must pay the taxes and pay quickly, lest they get hit with penalties and interest. Changing the rules would deprive the government of revenue, and legislators might try to take it from some other federal education program. Keeping this tax rule as is, however, means that people who are supposed to be getting a break end up with a single tax bill that could equal years of continued loan payments.

So would you keep the rule? Or change it? Or, as Josh Delisle of New America Foundation has suggested, limit how much graduate and professional students can take out in federal student loans so that the forgiven amounts aren’t likely to be so big in the first place? Doing that might make a change in the tax law more palatable — and inexpensive.

Article source: http://bucks.blogs.nytimes.com/2012/12/14/should-you-have-to-pay-taxes-on-forgiven-student-loan-debt/?partner=rss&emc=rss

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Degrees of Debt: Colleges’ Debt Falls on Students After Construction Binges

December 14, 2012 by Leave a Comment

A decade-long spending binge to build academic buildings, dormitories and recreational facilities — some of them inordinately lavish to attract students — has left colleges and universities saddled with large amounts of debt. Oftentimes, students are stuck picking up the bill.

Overall debt levels more than doubled from 2000 to 2011 at the more than 500 institutions rated by Moody’s, according to inflation-adjusted data compiled for The New York Times by the credit rating agency. In the same time, the amount of cash, pledged gifts and investments that colleges maintain declined more than 40 percent relative to the amount they owe.

With revenue pinched at institutions big and small, financial experts and college officials are sounding alarms about the consequences of the spending and borrowing. Last month, Harvard University officials warned of “rapid, disorienting change” at colleges and universities.

“The need for change in higher education is clear given the emerging disconnect between ever-increasing aspirations and universities’ ability to generate the new resources to finance them,” said an unusually sobering introduction to Harvard’s annual report for the fiscal year ended in June.

The debate about indebtedness has focused on students and graduates who have borrowed tens of thousands of dollars and are struggling to keep up with their payments. Nearly one in every six borrowers with a student loan balance is in default.

But some colleges and universities have also borrowed heavily, spending money on vast expansions and amenities aimed at luring better students: student unions with movie theaters and wine bars; workout facilities with climbing walls and “lazy rivers”; and dormitories with single rooms and private baths. Spending on instruction has grown at a much slower pace, studies have shown. Students end up covering some, if not most, of the debt payments in the form of higher tuition, room and board and special assessments, while in some instances state taxpayers pick up the costs.

Debt has ballooned at colleges across the board — public and private, elite and obscure. While Harvard is the wealthiest university in the country, it also has $6 billion in debt, the most of any private college, the data compiled by Moody’s shows.

At the Juilliard School, which completed a major renovation a few years ago, debt climbed to $195 million last year, from $6 million in inflation-adjusted dollars in 2002. At Miami University, a public institution in Ohio that is overhauling its dormitories and student union, debt rose to $326 million in 2011, from $66 million in 2002, and at New York University, which has embarked on an ambitious expansion, debt was $2.8 billion in 2011, up from $1.2 billion in 2002, according to the Moody’s data.

The pile of debt — $205 billion outstanding in 2011 at the colleges rated by Moody’s — comes at a time of increasing uncertainty in academia. After years of robust growth, enrollment is flat or declining at many institutions, particularly in the Northeast and Midwest. With outstanding student debt exceeding $1 trillion, students and their parents are questioning the cost and value of college. And online courses threaten to upend the traditional collegiate experience and payment model.

At the same time, the financial crisis and recession created a new and sometimes harrowing financial calculus. Traditional sources of revenue like tuition, state appropriations and endowment returns continue to be squeezed, even as the costs of labor, health care for employees, technology and interest on debt have generally increased.

Students are requiring more and more financial aid, a trend that many believe is unsustainable for all but the wealthiest institutions.

“We’ve had a lot more downgrades than upgrades in the last five years,” said John C. Nelson, managing director of the higher education and health care practice at Moody’s, which has a negative outlook on all but the top state universities and private schools. “There is going to be a thinning out of the ranks.”

For now, the worst financial struggles are confined to stand-alone professional schools and small, tuition-dependent private colleges. For instance, $63 million in debt has left Mount St. Mary’s University, a small Roman Catholic college in Maryland, with thin financial resources and junk-rated credit, according to a Moody’s rating in March.

“We borrowed a lot of money, but we had no choice,” said Thomas H. Powell, the university’s president, who maintains, despite the credit rating, that it has regained its footing and has no need for additional debt. “I wasn’t going to watch the buildings fall down.”

Almost no one is predicting colleges will experience default rates on par with those of indebted students and graduates, at least not anytime soon. While payments on debt principal and interest have increased over all, they remain a manageable piece of the expense pie for most institutions, partly because of historically low interest rates, financial analysts said.

Article source: http://www.nytimes.com/2012/12/14/business/colleges-debt-falls-on-students-after-construction-binges.html?partner=rss&emc=rss

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Bucks Blog: Getting Cash in Exchange for a Short Sale

September 23, 2011 by Leave a Comment

A short sale home in Nevada.BloombergA short-sale home in Nevada.

To avoid further clogging the already sluggish home foreclosure pipeline, some lenders have been offering cash incentives to strapped homeowners at risk of foreclosure to complete short sales and move out of their homes.

Chase, for instance, has been quietly offering as much as $35,000 to homeowners who are “upside down” on their loans — meaning, they owe more than the home is currently worth. In a short sale, the lender allows the sale of the home for less than the loan amount and often relieves the borrower of any further obligation.

The incentives began late last year and are available nationally, a Chase spokesman said. Why would the bank want to pay more money to a homeowner who hasn’t been keeping up with the mortgage payments? It generally wraps up the transaction much more quickly, and leaves the home in better shape for resale. “A short sale generally produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” the Chase spokesman said in an e-mail. Chase has completed more than 140,000 shorts sales since the start of 2009. The program is continuing.

Wells Fargo also offers relocation incentives for short sales as well as “deed in lieu of foreclosure” transactions in some markets with extended foreclosure timelines, like Florida. The payments apply only to first-lien loans that Wells holds for its own portfolio (rather than loans it merely services for others), a spokesman said. The amount varies, based on factors like the loan balance and appraised value of the home, but can be as much as $20,000.

It doesn’t appear likely that the need for short sales will end anytime soon. The outlook for home prices remains glum, with a drop of 2.5 percent expected this year followed by meager growth for several years thereafter, according to a recent report from MacroMarkets LLC.

Incentives offered in California (where there are a lot of loans made by the failed lender Washington Mutual, which was subsumed by Chase) apparently depend on various factors, agents say. Daniel Klein, a real estate broker and entrepreneur, said his firm had one client with a $300,000 loan who received a $20,000 incentive for a short sale, and another client with a $500,000 loan who received $10,000.

The funds can be used by the borrower to cover expenses, like moving costs.

The programs were started after a government program, known as HAFA (for Home Affordable Foreclosure Alternatives), began in early 2010. That program provides up to $3,000 in borrower relocation assistance for short sales. That program is available through the end of next year.

Despite the incentives, Mr. Klein said, some borrowers prefer to take their chances and stay in the home. The lengthy foreclosure process in some areas appears to have made some people complacent about the prospect of eviction.

Have you been offered a cash incentive for a short sale? Did you take it?

Article source: http://feeds.nytimes.com/click.phdo?i=2ec81f210ac4772f0536f1fcb0b40212

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Mortgages: Financing Foreclosed Homes

May 14, 2011 by Leave a Comment

Most of what people call foreclosed homes are being sold by lenders saddled with a property because there were no other takers at the foreclosure auction. The borrower on such a house owes more on it than the house is worth. These are known as R.E.O. houses, short for “real estate owned” on a bank’s balance sheet.

Distressed properties — those sold at a discount — made up 40 percent of resales in March, up from 35 percent a year earlier, according to the National Association of Realtors. (That includes not only R.E.O. but also short sales, in which a buyer pays less than the loan balance, once it gets the bank’s blessing.) Though not a record, it is a huge portion of sales compared with what used to be considered normal.

Where the money comes from depends on the buyer and the property. If a house was in relatively good physical shape — with water and power turned on — it could be eligible for standard financing.

Otherwise, right now, all-cash sales are at their highest level ever — 35 percent of total sales, according to the Realtors. Cash buyers, often investors who don’t plan to live in the home, “are a major player in the R.E.O. market,” said Tom McGiveron of Realty Connect in Hauppauge, N.Y., a real estate agent who specializes in foreclosures on Long Island. “Asset managers want to move their portfolios as fast as possible,” he added.

For would-be owner-occupants without cash, the federally insured 203(k) loan is key, said Mark Yecies, the president of SunQuest Funding in Cranford, N.J. Borrowers can roll projected rehab costs into the loan.

As Mr. McGiveron put it, “Since most R.E.O.’s are as is, and the heat, plumbing and electric are turned off frequently, a 203(k) loan is necessary to cover the borrower and the lender — a lender will not lend money on a home where the major heating and electrical systems are not operable.”

Buyers generally hire an independent consultant certified by the Federal Housing Administration to review contractor cost estimates and architectural plans for things like whether the work will bring the property up to minimum standards while not going overboard on improvements.

“In other words,” Mr. Yecies said, “if you’re buying a home in Newark and you want to put in a Viking range, it’s not going to happen.”

Yet in a higher-priced neighborhood like Short Hills, N.J., he added, you probably would be able to borrow for more upscale appliances. The F.H.A. appraiser takes the consultant’s report into account when reviewing a property and determining how big the loan can be.

Not all R.E.O. properties are eligible, Mr. Yecies pointed out. For instance, a partially built house that has never had a certificate of occupancy requires a construction loan of the kind that a commercial developer would use.

Mr. Yecies estimated that an F.H.A-certified consultant would cost $500 to $1,200, depending on the extent of the repairs and the number of units in a property.

The interest rate on a 203(k) loan is about a quarter of a percentage point higher than on a standard F.H.A.-insured loan, and a buyer also can expect to pay 1 or 2 points, he said. (A point is an upfront charge equivalent to 1 percent of the loan amount.)

As with other F.H.A.-backed loans, down payments may be as low as 3.5 percent, and loan limits apply. Currently, most F.H.A. loans in the area are capped at $729,750. (Energy-efficient rehabs may be eligible for more.)

Despite the extra steps, these loans work, Mr. Yecies said. “We’re doing a half dozen a month here,” he said. “They can be done in a normal period of time, as long as everyone cooperates.”

Article source: http://feeds.nytimes.com/click.phdo?i=bc2123a147ca22483533bff09e5cf24c

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