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#41
08-18-2007, 02:27 AM
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suffolkgirl and wiphon obviously understand this better than the other posters in this thread, but still made a couple mistakes. the appraised value of homes, at the present, isn't the problem. it's the financial markets ANTICIPATING that they will be problems in the coming months. the actual problem, at this very moment, is that there is no money to lend due to the fact investors in mortgage backed securities have divested to secure their funds in ANTICIPATION of future foreclosures. the foreclosure rates haven't increased as we sit here, but investors are anticipating that they will. it is very much due to the negative amortization loans that wiphon mentioned. particularly countrywide has a huge chunk of them coming up to key adjustment periods. these loans were written with pre-payment penalties, so the borrower was locked in to the loan, with no escape, until this key time. underlying lenders and funders are very concerned with the potential of home values being unable to support the new amounts needed to re-finance, and also very concerned that the borrowers themselves have not done the necessary credit cleanup or income improvements to qualify for better paper.
the disaster in the home market hasn't actually occurred, it is being anticipated, which could become a self-fulfilling prophecy. fortunately, the fed has done a remarkable job in keeping their cool and putting in just enough money, and not touching consumer interest rates. there is no good in making money cheaper if there is no money to lend in the first place. 
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#42
08-18-2007, 09:23 AM
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__________________
Tod Marks Photo - Daybreak over Oklahoma
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#43
08-18-2007, 11:48 AM
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Aha. Understood. But if you double your payment you are making, you are still paying much more than you would on a 15 year, but you have the flexibility of paying a much smaller amount if you get bonked on the head or something. I must say all of this house stuff is very interesting as I have not been into this in a long time.So thank you to the people who work in these areas who have posted. I think the Fed has signaled that interest rates are going to change. When T-bills and the current lending rate are so far apart something is out of whack. Almost a bit of deflation it seems based on what I have been hearing/ reading. It apparently means bring the lending rate down, inflation is not a problem. I have no background in economics so corrections are appreciated (never had to take a class in anything dealing with money, a hole in the old educational system). Most of the general stuff makes sense to me, but all the little particulars are a bit confusing. And the guys/gals that write on this all seem to have their own little views. One fella is suggesting a complete disaster based on the dollar losing value compared to other currency. Seems the economic people have their own little pet disaster theories. very interesting, and confusing at times.
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#44
08-18-2007, 12:00 PM
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ONe more thing that seems to be missing.
What financial state or what financial profile fits best describes individuals in the US? I am not interested in cashing in and out of investments quickly. I am relatively young (since people are living much longer than Lake Sturgeon these days). So I just wait. But older folks who do need cash, have to start drawing on investments I would think in most cases. And younger people without families and renting have much more flexibility it seems. So what is the profile? We got a bunch of youngsters madly trading? A bunch of old people getting out and into cash? A bunch of youngsters that are gluttons that got into trouble and need cash? People like me who have time? There are a lot of different motives here. So when the stock market, bond market, and all these other financial vehicles start wildly moving around... The big institutional investors I am not counting as they have certain goals already laid out, even though I realize they have a huge effect on what goes on. Seems a big mess to me.
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#45
08-19-2007, 12:38 PM
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Greed
I have been reading more about the lending practices that were going on in 2005 and 2006. Holy cow. The buyers of houses were not coming in asking for loans, it was more like the mortage people were pulling in folks off the streets to sell them.
I remember how closely scrutinized I was when I got a mortage. I had to bear all my financial secrets... How long had I been working, how much I was making, how much in assets, and on and on... they were very careful. I had been a fairly frugal guy up to that point and when it was clear from bank statements I could back up my mortage. Then they started the sell tactics and I got the upper hand in negotiations with points etc... this was clearly not done in the past two years. So why? Because the secondary buyers of the mortages saw the attractive rates. What they did not know is how little background was done on the buyers. So the GREED of the secondary people fueled the mortage companies to keep pulling people in off the streets. My take. Look closely into stuff to good to be true. Buying Mortages is much more risk laden than people thought. As an individual if you personally are going to make a loan to make money, are you not going to make sure in everyway you can the person borrowing from you is good for it? Jeeeeez. But if your job is just to sell that Mortage, sell, people will buy these things... one might feel free of responsibility to make sure the individual is good for the money. You as the seller of the mortage dont feel the risk directly cause you have been told the secondary market will pick it up. NOt good. Where am I off on this, if you dont mind, experts? Is this way off base?
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#46
08-19-2007, 12:48 PM
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i know countrywide contacted us several times about refinancing at a lower rate. BUT, unless the rate is much lower, it's not worth it once you pay all the fees, closing costs, etc. another time they offered a second mortgage to pay off my credit cards. i gleefully replied that i HAVE no credit cards. man was flabbergasted. then he said you should tell others how to do that...then he said no, wait. don't do that, it'll put me out of business!
__________________
Books serve to show a man that those original thoughts of his aren't very new at all. Abraham Lincoln
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#47
08-19-2007, 01:00 PM
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So they see you can make your payments so they try to take on your other debt (which you dont have) to make money off of that. Sounds a bit desperate. Getting into areas they dont belong. Aside: This is why I like this board. We got a bunch of smart people that share info and I learn more than just horses.
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#48
08-19-2007, 01:11 PM
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i wonder tho if the second mortgage business is one of the things that is fueling the current problems. they preach consolidation, lower your payments,etc. BUT people who have no financial restraint might do what my in laws have done--more than once. pay off credit cards and loans....put it all in one payment...then they have extra money. get more credit cards, run them up. right back to square one. only this time, they have mortgage, second mortgage, and more credit card debt. then they run into problems making payments, fall behind, and lose their home because all of their debt was included in a payment they can no longer make. my son said he was getting a card for 'emergencies'. i told him he better not, that he'd be surprised how many things suddenly seem like an emergency!
__________________
Books serve to show a man that those original thoughts of his aren't very new at all. Abraham Lincoln
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#49
08-19-2007, 02:06 PM
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go to www.optoutprescreen.com and register there. that will get your name removed from the lists that equifax, experian, innovis, and transunion provide to buisnesses that want to offer you credit or insurance. you can choose to do it forever or for a 5 year period.
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#50
08-19-2007, 04:17 PM
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"Always keep your heads up and act like champions." Coach Paul Bryant
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#52
08-19-2007, 09:49 PM
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btw:
i think 5 years from now we'll all look back on this period as a needed correction to the easy credit bubble and the feds action in cutting the discount rate as a panic induced inflationary mistake. the market was working through this just fine. countrywide might be too big to fail but there were more direct options to get them on their feet that wouldn't involve spreading the pain to everyone.
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#53
08-20-2007, 09:33 AM
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#54
08-20-2007, 01:37 PM
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Federal Taxes Weekly Alert, 08/23/2007, Volume 53, No. 34
After the bubble bursts: tax strategies for homeowners selling at a loss While real estate generally appreciates in value over time, homeowners who are forced to precipitously liquidate their investment—particularly if they bought at the height of the market—may have to sell at a financial loss. To compound the misery, a loss is generally not available for tax purposes on the sale of a personal residence. A tax loss is only available if the taxpayer is treated as having converted his home into business or income-producing property. This Practice Alert provides some tips on accomplishing this goal and explains the other tax consequences of a successful conversion. Generally, when a real estate bubble bursts, property buyers are suddenly scarce and housing inventory builds up, and property prices (and values) crash downward. The best strategy for a homeowner who had been planning to sell may be to wait until the market readjusts to a more normal condition. But many homeowners may not be able to wait and, for a variety of reasons, may have to sell even though it means taking a financial loss. Borrowers with “sub prime” mortgages may have little choice but to sell when faced with rising property taxes and interest rates. Similarly, executives with new jobs hundreds of miles away may assume they have no other realistic choice but to sell at a loss. The tax law is not particularly helpful to a taxpayer in this situation. However, there are certain options available that may provide some tax relief. Background. A taxpayer can deduct an ordinary and necessary expense in carrying on a trade or business. ( Code Sec. 162(a) ) Similarly, taxpayers can deduct a loss if it is from a trade or business or a transaction entered into for profit. An exception to this rule also allows an individual to deduct a loss from a casualty or theft. ( Code Sec. 165(c) ) But a loss on the sale of a residential property bought or built by an individual for use as his personal residence and so used by him up to the time of the sale isn't a loss that can be deducted. ( Reg. § 1.165-9(a) ) Taking a tax loss. The solution for an owner who needs to sell his home at a loss seems obvious: first convert it from personal use property into an income-producing use (e.g., renting it out) before it's sold. The loss would then be deductible so that some benefit could be salvaged from a bad situation. ( Reg. § 1.165-9(b)(1) ) But this is easier said than done. IRS is not overly inclined to recognize such a purported transformation. Whether a former personal residence has been converted to income producing property qualifying for a loss deduction is a question of fact. The Supreme Court has said that a conversion to income producing purposes at the time of sale must be shown by acts which specifically devote the property to business purposes. This may include any business act or operation which devotes the property exclusively to the production of taxable income, such as renting the property. (Heiner v. Tindle, (S Ct 1928) 6 AFTR 7366 ) While no factor is determinative and all the facts and circumstances must be considered, five factors often considered by IRS and the courts are: (1) the length of time the house was occupied by the individual as his residence before placing it on the market for sale; (2) whether the individual permanently abandoned all further use of the house; (3) the character of the property (recreational or otherwise); (4) offers to rent; and (5) offers to sell. Thus, courts have found that a personal residence was converted to income producing property in situations where a lease was signed (Cullman, Joseph Jr., (1929) 16 BTA 991 ); it was rented without a lease on a month to month basis (Sweet v. U.S., (DC CA 1968) 23 AFTR 2d 69-448 ); and it was rented for only 3 months before sale at an extremely small net profit (after depreciation). (Rechnitzer, (1967) TC Memo 1967-55 ) A court even found that a residence was converted into rental property where the leased residence remained on the market during the lease term, and the one-year lease allowed any unused rents to be credited as a downpayment if the lessee bought the residence before the lease term ended. (Abrams, James, (2002) TC Summary Opinion 2002-155 ) Courts have also held against the taxpayer. Perhaps most disconcerting to a homeseller in a conversion situation, a court found that a temporary rental (12 months) following failed attempts to sell a residence didn't show that the property was converted to an income producing use. The court reasoned that to hold otherwise would mean that real property held for sale could be deemed converted to property held for the production of income anytime the property was temporarily rented. (Saunders, Philip, (2002) TC Memo 2002-143 , affd (CA 6 2003) 92 AFTR 2d 2003-6172 (unpublished) ) Other courts have held that an unsuccessful attempt to rent one's home isn't enough. (Grohse, Edward, (1968) TC Memo 1968-47 ) Nor does no longer using a home as a residence and listing it with a broker accomplish a conversion. (Cottrell, Richard, (1970) TC Memo 1970-218 ) Where individuals rented their residence to their building contractor on a month-to-month basis for less than fair rental value and he was required to maintain it and show it to prospective buyers, the “lease” was held to be only a caretaking arrangement pending a sale. (Murphy, Michael, (1993) TC Memo 1993-292 ) RIA observation: While it's sometimes hard to extract basic principles from cases that seem to reach contradictory results, the above cases seem to suggest a few guidelines that should be followed to improve a taxpayer's chances of being able to show a successful conversion: • discontinue any and all personal use of the residence; • treat the rental of the property as any other serious business enterprise (e.g., keep proper records, have a business plan that projects income and expenses, etc.); • actively attempt to rent the property (e.g., list it with a real estate broker, advertise, etc.); • rent the property at its fair market value to unrelated third parties, if possible; • employ a straightforward lease (don't include other provisions which could cause it to be treated as a caretaker or another type of agreement); • rent for a set term if possible (preferably what's standard for other rental property in your area); and • treat as income producing property on your tax return, reporting income and claiming appropriate deductions. Limit on tax loss that can be taken. The tax loss available to an individual converting his home into investment property may be smaller than he expects even if he successfully converts the property. That's because basis (cost for tax purposes) is equal to the lesser of the actual cost or the property's fair market value when it's converted to rental property. So he can only recognize the amount of loss that occurs after the property becomes business or investment property. ( Reg. § 1.165-9(b)(2) ) RIA observation: Individual A buys a home for $500,000. He eventually converts it to rental property when it's worth $450,000. He ultimately sells the property for $425,000. Although the financial loss on the sale would be $75,000, the loss that he can recognized for tax purposes would only be $25,000. Tax implications of becoming a landlord. An individual who converts his home into rental property must report the rental income on his return (Schedule E, Form 1040). But he is also entitled to offsetting deductions for utilities, operating expenses, and incidental repairs and maintenance (e.g., fixing a leak in the roof). In addition, he can claim depreciation deductions for his home. However, under the tax law passive activity loss (PAL) rules, he may not be able to currently deduct the rent-related deductions that exceed his rental income unless an exception applies. If rental deductions exceed rental income, the loss generally can only offset other passive income until the property is disposed of. Under the most widely applicable exception, the PAL rules won't affect an individual's converted property for a tax year in which his adjusted gross income doesn't exceed $100,000, he actively participate in running the home-rental business, and his losses from all rental real estate activities in which he actively participate don't exceed $25,000. ( Code Sec. 469(i)(3)(A) ). Impact on homesale exclusion. An individual who's renting out a home he had been using as a principal residence may forfeit an important tax break for homesellers if the market changes and he finally sells it at a profit. In general, the homesale exclusion under Code Sec. 121 allows an individual to escape tax on up to $250,000 ($500,000 for married couples filing joint returns) of gain on the sale of his home. However, to qualify, generally an individual must have used the home as his principal residence for at least 2 of the 5 years preceding the sale. (There are important exceptions for sales as a result of a change in place of employment, health or unforeseen circumstances.) So renting a residence out for an extended time could jeopardize this tax break. Even if an individual doesn't rent out his home for such a lengthy period that he jeopardizes his principal residence exclusion, the tax break he would have gotten on the sale (i.e., exclusion of gain up to the $250,000/$500,000 limits) will not apply to the extent of any depreciation allowable with respect to the rental or business use of the home for periods after May 6, 1997. A maximum tax rate of 25% applies to this gain (attributable to depreciation deductions). RIA observation: For a client letter describing the consequences of converting a home into rental property, see FTC Client Letters ¶ 2350 . © 2007 Thomson/RIA. All rights reserved.
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#55
08-20-2007, 03:45 PM
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#56
08-25-2007, 01:46 PM
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Country Wide played a dirty little game:
http://www.nytimes.com/2007/08/26/bu...hp&oref=slogin Started as Countrywide Credit Industries in New York 38 years ago by Angelo R. Mozilo, a butcher’s son from the Bronx, and David Loeb, a founder of a mortgage banking firm in New York, who died in 2003, the company has become a $500 billion home loan machine with 62,000 employees, 900 offices and assets of $200 billion. Countrywide’s stock price was up 561 percent over the 10 years ended last December. Mr. Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987 A huge warning sign. That we dont often get to hear about till after the degredation occurs. CEO's etc... that sell their own stock and never buy any back.
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#57
08-25-2007, 08:32 PM
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Angelo sold over the last few years and never bought - Toll brothers ceo same thing - what gets me is these guys were constantly interviewed over the last few years but i can't remeber anyone asking them - how come if things are so good why are you guys selling instead of buying - the financial news media should have pressed them on this issue instead of ducking it It's typically not a good sign to see selling over and over for months and years at a time - these guys got out little by little over the years If you see a ceo exercise his/her options and then sell the stock again - not a good sign, but if you see them exercise the options and hold onto the stock than that is a good sign
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#58
08-25-2007, 08:40 PM
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It's typically not a good sign to see selling over and over for months and years at a time - these guys got out little by little over the years
If you see a ceo exercise his/her options and then sell the stock again - not a good sign, but if you see them exercise the options and hold onto the stock than that is a good sign Thud You fool the masses. You are really PeanutShell. We have already unveiled The Gardener as Christopher Hitchens.
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#59
08-25-2007, 09:08 PM
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And Morton, as always, your input is invaluable...waiting for lightning to strike me dead
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