Bush suspends debt-forgiveness tax

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tourbillon_IHB

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CNN just reported Bush will try to suspend debt-forgiveness tax. I guess a lot of people will walk now. Too bad I did not do a 110% financing... Banks will probably get hit pretty hard . This move will probably accelerate the price drop instead of helping it, IMHO.
 
Yes, that will facilitate the crash not prevent it.





I am not surprised by that proposal. The political fallout from millions of people losing their homes is bad enough. Harassment from the IRS after the fact is rubbing salt in the wound. I think it is wrong, but this is something that probably will happen after the 2008 election.
 
They always make it sound like you will lose your home and thus become homeless. If you can't afford it, you'll just end up renting like you should've been in the first place. Somehow in Bush's "ownership society" owning a home is paramount - even if it's nothing for you. Well, I think I deserve some luxuries in life that I cannot afford as well - where is MY bailout???
 
<p>I agree Green Cactus.</p>

<p>This notion that "people will lose their homes" is just BS. People WILL lose their homes, but better qualified people will be buying those homes (if they are priced correctly). So, net loss is zero.</p>

<p>The tax break for the home losers doesn't bother me too much provided that there is no additional legislature in any size, shape or form that helps the dumb lenders who will be the bag holders.</p>

<p>There should be a condition that if a person has their dept forgiven with no tax consequence, then they shoud be banned from purchasing another house for a certain period (7 years?). It would not be fair to cut them a break and then have them get right back in line to compete with qualified people (who were prudent during the boom) to buy a home.</p>
 
<p>I like the idea personally. </p>

<p>I know they shouldn't have bought the house but having to pay taxes on the difference of what you bought it at and what it was sold is wrong. These people didn't really lose a house, they never owned it. They also never really had any debt foregiven.</p>

<p>The house they never really owned depriciated.</p>

<p>Someone mentioned the credit card industries being decimated as well because people will charge their cards up to try to save their house. Well this will kill the credit card industries as well.</p>

<p> </p>
 
<p>IMO, IRS got its money already from the housing boom; therefore, pardonning debt-forgiveness tax is fair. IRS always gets a big cut from capital gains and comissions, especially from the subprime mortgage brokers, where 7-figure income were many. Oh, and not to forget fine collection from fraudulant transactions - a cash cow for government.</p>

<p>IMHO, the government never says exactly what it is going to do. My guess is that the fed will bring the fed fund rates way down (temporarily) to control the re-set rate and to stabilize the market. In a way, everyone pays. </p>

<p>So, with the government intervention, I do not see how another housing crash can occur.</p>
 
<p>"IRS always gets a big cut from capital gains and comissions, especially from the subprime mortgage brokers, where 7-figure income were many."</p>

<p>You forgot to include RE agents in the list of commission-paid benefit-ers of the boom!</p>
 
<p>The idea that suspension of debt forgiveness tax will help anyone who actually needs help is a joke. Debt forgiveness tax is already waived if the taxpayer is insolvent. The taxpayer does not have to declare bankruptcy, just show the IRS that they are insolvent. And when Joe six pack loses his home to foreclosure, 99 times out of 100, he is insolvent. The only folks this will help are the well to do folk who want to send their keys in.</p>

<p>NIR - How will lowering the Fed funds rate reset rates on ARMs or stabilize the market? It is my puny understanding that most ARMS are tied to LIBOR and England sure as heck doesn't give two hoots and a holler what the Fed does when considering what to do with their own CB rate.</p>
 
<p>NIR,</p>

<p>They will have to reset these loans to about -20%. Some of the ARM rates that people are adjusting to are lower then todays rates. They cannot afford that interest rate.</p>

<p>They need to get another 1.25% interest only arm. They will need to continue to get that same loan every two years for the rest of the time they want to OWN that home.</p>

<p>They cannot afford the loans. I laughed last night I was looking on Redfin at a hole the owner still wanted 540k for it. Nobody that makes enough to make that payment would live in that house.</p>

<p>Inventory keeps going up looks like we are at about 12 months of inventory. </p>

<p>Even if the governement resets the interest rate, who is buying these loans?</p>

<p> </p>
 
<p>awgee,</p>

<p>Many tax codes are ridiculous, so nothing is unusual here.</p>

<p>The fed fund rate ties to HELOC rate; therefore, many borrowers can move their debts around. Moreover, ARM indexes follow each other closely.</p>
 
Bush's speech was nothing more than a dog and pony show for all the political pundits to see that the govt is trying to do something...albeit very little.





Relieving the tax burden of foreclosed homeowners does nothing for what the underlying problem really is. To many uneducated, spotty credit history individuals wanted to live the high life and thought housing would never go down. Well now they are effed and I for one will be sitting back with a frosty beverage and enjoying the decline.
 
<p>NIR - <em>"The fed fund rate ties to HELOC rate; therefore, many borrowers can move their debts around. Moreover, ARM indexes follow each other closely"</em></p>

<p>Are you saying that refiing their HELOCs will be helpful? Will they have to pay fees when refiing a HELOC? Are HELOCs a significant percentage of this problem? Are you saying the LIBOR will follow the Fed funds rate closely? History says differently? The Bank of England has been raising rates with no regard to what the Federal Reserve thinks or does. Again, how will lowering the fed funds rate have any effect of ARMs tied to LIBOR?</p>
 
At the risk of offending all the libertarians out there I just have one word for you .. REGULATION. Loan brokers had a vested interest in offering unaffordable and unfavorable loans; they ended up making more money. How is it that a high school drop out can become a millionaire from selling these unscrupulous loans? (although these guys are probably back to flipping burgers after blowing it all on bling-bling). How many lives are ruined by convincing people that they can afford these "sucker" loans? Same has to happen to predatory lending by credit card companies and such. The promise of "free" money will always attract those least able to afford it. Then again, we live in a culture of debt (although called ownership) and there needs to be a cultural shift for things to actually change for the better.
 
<p>green_cactus,</p>

<p>I could not agree with you more. </p>

<p>Most of the REO homes that I analyzed share similar characteristics: 100% financing, non-owner occupied, early default, inflated pricing, unusually high interest rate... And I am not hearing much of any corrective actions. But again, our government does not tell us everything.</p>
 
<p><em>Yes, that will facilitate the crash not prevent it.</em></p>

<p>IMHO, the faster the crash the better. Fast crash and everybody recognizes it's a bubble. Cash flow returns and RE returns to being a normal economic segment. Slow burn and RE becomes a lasting drain on the economy and locks up with low volume pushing unemployment due to job losses in RE, construction and finance.</p>

<p>IOW, fast crash = capital loss, slow burn = cash flow loss & capital loss.</p>

<p> </p>
 
<p>My take:</p>

<p>The varied proposals in play will indeed help many lower-priced markets to a less-than-crash landing.</p>

<p>Higher-priced markets have a completely different problem.</p>

<p>It's not the jumbo loan that is necessarily the problem - I believe they will settle to a place reasonably over conforming.</p>

<p>The problem is withdrawal of the Alt-A jumbo loan market.</p>

<p>Every mortgage veteran here will confirm that this is a heavily-used product type here.</p>

<p>I just floated a scenario (75% to $650,000/Stated Income) and found it's doable today at 7.75% on a 30 year fixed.</p>

<p>This loan was suspended last month - and could be again tomorrow.</p>

<p>This is the single most important factor that will affect pricing here. </p>

<p> Subprime be damned, speculators be damned - watch this lending sector for your real answers.</p>

<p>On the LIBOR .v. Prime debate: </p>

<p>There is absolutely no reason why ARM products cannot be tied to either (or any other index) going forward.</p>

<p> </p>

<p> </p>
 
<p><em>"Most of the REO homes that I analyzed share similar characteristics: 100% financing, non-owner occupied, early default, inflated pricing, unusually high interest rate..."</em></p>

<p>While this was true six months ago this is not the current state of the foreclosure stats. I have been watching the foreclosure market like a hawk and it has rapidly changed. Six months ago it was almost only loans from 06 and 05 with a few from 04 an 03 that were probably due to medical issues or job loss. Currently 50% of the loans are from 06 and 05 with a significant increase of loans from 03 and 04. The fruadsters may be getting cleansed from the market their damage is just now being felt. Not only did they screw themselves and the lender but they screwed everyone around them. A particular tract I like to follow in Ladera has 12 listings 7 of which are REO. </p>

<p>In a little bit I will give a real life example of how screwed people really are with a hypothetical that the LIBOR does go down with a Fed rate cut. IMO 2008 will make 1996's foreclosures look like chump change.</p>
 
<p><em>I just floated a scenario (75% to $650,000/Stated Income) and found it's doable today at 7.75% on a 30 year fixed.</em></p>

<p>I'd agree, if stated goes goodbye, the market is toast. However, if stated stays, the market still may be toast. I assume that the stated is "real" income and actually exists. And that the stated income has a likewise realistic DTI front and back.</p>

<p>How many are, and will be, walking around with $125K plus of income, and $162K to put down? That's for a purchase of the median at $650K. If it's an $865K place, that's a $650K loan with an income in the 150K+ range and $220K to put down. There are a lot of people out there with the income, and some with money or "equity", however, there are a lot more houses in that range than there people in that range.</p>

<p> </p>
 
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