Blight fight: New programs deal with vacant foreclosures
Posted on 2012-05-01, at 00:40:20
By Teke Wiggan
The foreclosure crisis, which has caused around 4 million people to lose their homes, has wreaked havoc on many neighborhoods. Foreclosed homes drag down property values when they swell the housing supply and sell at below-market rates. These bank-owned homes also can erode the character of communities by attracting all manner of blight as they sit unoccupied.
The foreclosure scourge is especially acute in minority neighborhoods, according to a recent report by the National Fair Housing Alliance, which found that banks take much better care of their foreclosed properties in predominantly white neighborhoods than those in minority communities.
Some nonprofits are taking robust measures to combat the epidemic of foreclosures, also known as REO (for "real estate owned") homes. Three of them -- Rebuilding Together, NeighborWorks America and the National Community Stabilization Trust -- recently announced a new partnership designed to ramp up efforts to revitalize clusters of bank-owned foreclosures, highlighting what appears to be a growing focus on maintenance as a means to mend the housing market.
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NeighborWorks America, which coordinates with affiliates that were awarded more than a total of $500 million from the $7 billion Neighborhood Stabilization Program fund in 2010, is teaming up with local affiliates of the nonprofit Rebuilding Together to train the groups to rehabilitate vacant foreclosed homes and sell them to low-income Americans.
The National Community Stabilization Trust, which was created in 2008 to facilitate the transfer of bank-owned homes to nonprofits, will work with the two groups to identify homes that will receive repairs under the program.
"This is a unique effort in that it's focused on transforming vacant and dilapidated properties into safe and affordable homes in the communities they serve," Rebuilding Together spokesperson Janice Walker told AOL Real Estate.
The announcement of the collective nonprofit initiative marks one of the latest attempts to reduce the strain of neglected foreclosed homes on neighborhoods and the housing market. Nonprofits, banks and the government use rehabilitation to combat REO blight, and sometimes provide affordable housing to low-income Americans after the homes' restoration. They've appeared to bolster their efforts in recent months in order "to figure out how to move upstream," says Ascala Sisk, senior manager of Stabilization Strategies at NeighborWorks. And there are "many different structures" to use to accomplish this.
For nonprofits, the Neighborhood Stabilization Program plays a key role in rehabilitation efforts, furnishing them with the necessary funds to invest in mass-scale neighborhood revitalization, which often takes the form of REO rehabilitation.
The Department of Housing and Urban Development administers the fund, which has received $7 billion in appropriations so far, Sisk says. And the National Community Stabilization Trust, one of the three partners of the new nonprofit initiative, helps put these funds into action by "providing the only nationwide platform that gives local housing providers a clear, consistent, and straight path to acquire foreclosed and abandoned properties from financial institutions," the National Community Stabilization Trust's website says.
NeighborWorks America affiliates across the country helped homeowners rehabilitate more than 8,700 homes and 43,000 rental homes in 2011, group spokesperson Douglas Robinson says.
With NeighborWorks' guidance, Rebuilding Together, which purportedly completes 10,000 projects that assist low-income homeowners per year, is now beginning its first foray into REO rehabilitation. Rebuilding Together's plan is to rehabilitate REOs and sell them to community members who make between 80 and 120 percent of the local median income, and also provide them with homeownership education, Walker says.
Since the partnership has just formed, Rebuilding Together says that it can't provide an estimate of how many homes the program will impact.
Coinciding with the two nonprofits' newly formed partnership is another program launched in February that takes an alternative approach to combating REO blight. Under the REO Rental Initiative, the Federal Housing Finance Agency will sell Fannie Mae and Freddie Mac-owned REO properties in bulk to private investors, if they agree to rent the properties.
By mandating that the properties be converted into rentals, the program aims to lower rents where foreclosures have hiked up rates and provide the homes with caretakers who are motivated to maintain them, namely, the investors themselves. After a few years of renting (and maintaining) the once-dilapidated properties, investors are expected to push the homes onto the market and sell them.
The program has its critics, including the National Association of Realtors. Detractors say that selling in bulk to investors could chip away at home prices (private investors often buy homes at discounts because they pay banks in cash, not borrowed money) and encourage prospective buyers to rent, instead of buy.
"Over time, servicers have adjusted their models to accommodate selling properties quickly rather than holding onto potentially wasting assets," the 2010 Federal Reserve report on neighborhood stabilization says. "At times this may mean selling to a cash investor immediately, at a slightly lower price, instead of waiting for a prospective owner-occupant to receive financing for the purchase."
Bank of America has launched a similar pilot program, called the "Mortgage to Lease Program," that forgives the outstanding debt of some homeowners headed toward foreclosure and offers them the opportunity to rent their homes from Bank of America in exchange for handing over the titles to the bank. If homeowners opt for the program, they may rent for up to three years.
"If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtailing neighborhood blight by keeping a portion of distressed properties off the market," Ron Sturzenegger, a servicing executive of Bank of America, said in a statement.
For all the two programs' possible shortcomings, they reflect a growing interest across the real estate industry in finding innovative ways of ameliorating the housing crisis by attending to the REO threat, Sisk says.
"And that's great to see," she says.
Beware Tax Rules When Refinancing
Posted on 2012-04-30, at 23:33:36
By ARDEN DALE
As more people refinance home mortgages, some are getting tripped up by tax-deduction rules.
Those who decide to borrow more than they owe on their existing mortgage often assume they can write off interest on the whole new loan, but in many cases they can't.
Homeowners generally are entitled to interest deductions on whatever amount was left on the original mortgage. Whether they can deduct interest on the excess depends on several factors, including the amount of extra money they have borrowed and how they plan to use it. Risk getting it wrong and homeowners could find themselves the subject of an Internal Revenue Service audit.
Judith D. Ludwig, an adviser at Braver Wealth Management LLC in Needham, recalls how one client was audited after he took on a $400,000 mortgage in refinancing a home on which he owed $200,000 and tried to deduct interest on the whole new amount.
With interest rates unusually low, financial advisers say they are fielding lots of calls from clients asking if it makes sense to refinance. Limits on the tax deduction, they say, can be a deal breaker for clients thinking about increasing the size of their mortgage.
"Once I tell them they can't write it all off, nine times out of 10, people say "I'm not going to take more than what's owed on the mortgage,'" says Robert J. DiQuollo, founder and principal of Brinton Eaton, a fee-only adviser in Madison, N.J., with about $650 million under management.
Many people, he says, just don't understand how the deduction works. Sometimes, he says, they get confused by jargon—the rules, for example, use the term "home-equity loan" for debt that doesn't have to be used to improve a home.
The rules most in play now apply to mortgages taken out after Oct. 13, 1987. They let a homeowner deduct interest on up to $1 million of acquisition debt—that is, money used to buy, construct or improve a residence or second home—and on another $100,000 of home-equity debt, which can be used for any purpose. (The interest on home-equity debt isn't deductible, however, when it comes to determining alternative-minimum tax income.)
The IRS has been looking closely at people with expensive homes, scrutinizing mortgage-interest deductions taken for some homes valued at $1 million or more. David A. Lifson, a certified public accountant at Crowe Horwath LLP in New York, says some clients last year were caught up in "mini-audits," and he predicts more of the same for 2012.
Renée Kwok, president of TFC Financial Management in Boston, says clients often draw down their home-equity credit lines and assume any interest expense is deductible.
"The bottom line," says Ms. Kwok, "is that mortgage interest is probably over-deducted on many federal income-tax returns due to the complexity of the deduction rules, and the IRS probably has a legitimate beef on this count."
Ms. Dale is a special writer for Dow Jones Newswires in New York. She can be reached at arden.dale@dowjones.com.
A version of this article appeared March 12, 2012, on page R6 in some U.S. editions of The Wall Street Journal, with the headline: Beware Tax Rules When Refinancing
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Posted on 2012-04-30, at 19:13:00
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6 ways to get a great mortgage deal
Posted on 2012-04-30, at 19:07:04
(MONEY Magazine) -- Finding an affordable house is no longer a problem but qualifying for a mortgage can be. Six tips to getting a mortgage and a good rate.
Put your credit on ice. The higher your credit score, the lower your rate: The best rates go to those with a 760 or more, says credit-score expert John Ulzheimer.
