Senate Passes Bill to Help Troubled Homeowners

By DAVID M. HERSZENHORN and DAVID STOUT Published: July 11, 2008 WASHINGTON - The Senate on Friday afternoon approved a major package of housing legislation, including a rescue plan aimed at helping hundreds of thousands of troubled borrowers avoid foreclosure by refinancing their mortgages.

The 63-to-5 vote came at the end of a tumultuous day for Fannie Mae and Freddie Mac, whose shares were battered amid worries that the companies are in risk of default. The Senate package includes long-awaited legislation overhauling the regulation of the two government-chartered enterprises that are the nation’s biggest buyers of home mortgages and the government’s traditional backstop for the housing economy.

“Every legal work day, people are filing 8,500 new foreclosures,” Senator Harry Reid of Nevada, the Democratic majority leader, said in urging passage of the bill and promising to work with the administration to help Fannie Mae and Freddie Mac. “That’s a lot of foreclosures.”

The housing measure now goes back to the House, where related tax provisions and other details remain to be ironed out. The House, which passed its own version of housing legislation in May, is expected to approve those changes within the next two weeks and return the bill to the Senate for final passage.

At that point, the legislation would be sent to President Bush, who has threatened to veto it, although White House officials have recently indicated that a compromise can be reached. President Bush has said from the outset that he would like to see help for responsible homeowners but not reckless lenders and “speculators.”

The Senate vote came as many members had already left for the weekend, and the margin indicated that there is enough support among senators to easily muster the two-thirds needed to defeat a veto. The House passed its version of housing legislation with just under the two-thirds majority needed to override a veto, but support for a rescue package may have grown in recent weeks with the increasingly bad economic news.

Approval in the Senate came after two weeks of procedural wrangling, forced by Senate Republicans, over unrelated measures. First, Senator John Ensign of Nevada sought to attach a package of alternative energy tax incentives to the housing bill. And on Thursday, Senator Jim DeMint held the bill up as leverage in a fight over amendments to a bill that would renew the President’s Emergency Plan for AIDS Relief.

To the anger and dismay of many senators, Mr. DeMint’s actions forced Democrats to schedule rare votes on Friday afternoon, when most lawmakers would prefer to be well on their way back to their home states, if not already home for the weekend. (Mr. DeMint did not vote on Friday.) The five “no” votes came from Western Republican senators: John Thune of South Dakota, Jon Kyl of Arizona, Mike Crapo of Idaho and Mike Enzi and John Barrasso, both of Wyoming.

There had been little doubt among members of both parties that the housing legislation would be approved before Congress leaves for its summer recess in August. But even as the housing market has continued to decline, lawmakers have not been in any rush.

Representative Barney Frank, the Massachusetts Democrat who is a main author of the housing package, said on Thursday that he hoped to approve the bill and return it to the Senate as soon as possible.

Earlier on Thursday, Senators voted, 84 to 12, to limit debate on the measure. It was the Senate’s third procedural vote on the housing legislation to pass with overwhelming bipartisan support.

“Unless we act and do so promptly, we’re going to look at a situation that only gets worse,” Senator Christopher J. Dodd, the Connecticut Democrat who heads the Banking Committee, said just before the vote.

The Federal Reserve Chairman, Ben S. Bernanke, said on Tuesday that he expected the problems in the housing sector to continue well into 2009. While his remarks and the troubles of Fannie Mae and Freddie Mac created a touch of drama, the timing of the Senate votes was a coincidence, a function of arcane rules and procedures.

The bill would authorize the Federal Housing Administration to insure up to $300 billion in refinanced mortgages, enabling borrowers now saddled with unaffordable loans to assume more manageable 30-year fixed-rate loans. To take part in the program, lenders would have to lower each debt obligation to 90 percent of a home’s current value and also make a payment to an insurance fund to insulate taxpayers against losses from any future defaults.

Borrowers would stay in their homes but would have to document income showing their ability to pay the new loan as well as a 1.5 percent annual insurance premium. The government would retain a stake in the property and would share in any profit if values rise and the home is sold.

Senate Democratic leaders issued a statement calling Fannie Mae and Freddie Mac “critical to America’s homeowners” and pledging their willingness to work with the administration and to act “quickly and decisively” to assist the companies. The statement was signed by Senator Reid and Senators Richard J. Durbin of Illinois, the assistant majority leader; Charles E. Schumer of New York, the Democratic Conference vice chairman, and Patty Murray of Washington, the conference secretary.

Mr. Schumer said on the Senate floor that he believed there were “countless intermediate steps” that can be taken to shore up the mortgage finance giants without resorting to a government takeover.

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Go Green!!!…Bottled water debate hits a boiling point

by Rob Lever Sun Jun 29, 1:02 PM ET

WASHINGTON (AFP) - A debate over water is boiling over in the United States and elsewhere amid growing environmental concerns about bottled water and questions about safety of tap water.

The US Conference of Mayors in June passed a resolution calling for a phasing out of bottled water by municipalities and promotion of the importance of public water supplies.

While largely symbolic, the vote highlighted a growing movement opposing regular use of bottled water because of its plastic waste and energy costs to transport drinking supplies.

Janet Larsen, director of research at the Earth Policy Institute, cites a “backlash against bottled water as more people are realizing what they get out of the bottles is not any better than what they get out of the faucet.”

The Pacific Institute, a California think thank on sustainability issues, contends that producing bottles for US water consumption required the equivalent of more than 17 million barrels of oil in 2006, not including the energy for transportation.

The group says bottling water for Americans produces more than 2.5 million tons of carbon dioxide and consumes three liters of water for each liter of bottled water produced.

The debate in the US mirrors that taking place worldwide in places such as Paris; Liverpool, England; Florence, Italy; Vancouver, Canada. According to the EPI, the issue making waves among policymakers in locations including Denmark and New South Wales, Australia, among others.

The backlash comes even amid surging sales of bottled water in the United States. Some of this is linked to concerns about contamination of public water supplies, although critics of the industry say marketing hype is a greater factor.

Aficionados of Evian from France or Fiji from the South Pacific swear by the taste and health benefits of those waters, but others decry the high cost of energy for a product that may not be any better than local water.

A Natural Resources Defense Council concluded that “most of the tested waters were found to be of high quality (but) some brands were contaminated.”

The group said bottled waters “are subject to less rigorous testing and purity standards than those which apply to city tap water.”

In fact, says the group “about one-fourth of bottled water is actually bottled tap water” while government rules “allow bottlers to call their product ’spring water’ even though it may be brought to the surface using a pumped well, and it may be treated with chemicals.”

Americans drank about 8.8 billion gallons (33 billion liters) of packaged water in 2007, or 15 percent of their total liquid intake, according to the Beverage Marketing Corp. Per capita bottled US water consumption is up to 29 gallons (109 liters) per year, from 20 gallons in 2002.

The US is the largest consumer of bottled water, but on a per capita basis it ranks far behind Italy, the leader which consumes nearly twice as much, and others such as the United Arab Emirates, Mexico and France.

Advocates of bottled water they the industry is being used as a scapegoat.

Kevin Keane of the American Beverage Association said the mayors’ resolution was “just cynical politics. It’s like being against rope until you need a lifeline.”

Keane says the bottled water industry is needed for communities hit by floods or other natural disasters and compromised municipal water systems.

Bottled water “is convenient and a good tasting beverage, especially in this day when you have fewer water fountains and even when you have them, people are skeptical about using them.”

Beyond questions of safety and environment, some activists say the bottled water industry is seizing a public resource.

In the northeast state of Maine, a battle is brewing over access to a large aquifer by Poland Spring, a large US bottler owned by Swiss-based Nestle.

“Nestle’s water grab is ruining streams, ponds, wells and aquifers,” said Judy Grant of the activist group Corporate Accountability.

“Nestle’s practices are raising serious questions about who should be allowed to control water, our most essential resource, and to what end.”

The mayors, meeting in Miami, approved a resolution proposed by San Francisco Mayor Gavin Newsom along with 17 other large-city mayors to redirect taxpayer dollars from bottled water to other city services.

Joe Doss, president and chief executive of the International Bottled Water Association, an industry group based near Washington, said it was “unfortunate this is turning into a tap water versus bottled water debate.”

Doss said most people drink both and that in many cases bottled water is a healthy replacement for sweetened or carbonated drinks.

The IBWA says the industry uses less than one percent of groundwater supplies and produces only a tiny fraction of greenhouse gases.

According to Doss, water bottles represent a tiny fraction of plastic waste that even if not recycled, and that any effort to improve recycling should cover all industries, not just bottled water.

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FHA Financing Improvements

Recently, Federal Housing Administration (FHA) loans have increased in popularity due to structural and legislative changes.

Earlier this year, Congress passed the Stimulus Act of 2008, which temporarily increased FHA loan limits in many regions of the U.S. Because of this legislation, Washoe County has an FHA loan limit of $403,750, Placer County a limit of $580,000 and some surrounding counties are experiencing even higher FHA loan limits.

Structurally, FHA drastically changed its appraisal and fee negotiating policies in an effort to be more competitive. It also made other changes that allowed 1) sellers to finance all of the buyer’s costs to close, 2) homeowners to take cash out up to 95% of the home’s value, and 3) homeowners to consolidate a 1st and 2nd loan up to 97% of the home’s value.

Because of these and other features, FHA loans in many cases are actually a little bit cheaper for the borrower. Also, because FHA loans are federally insured, they tend to trade at a higher premium in the secondary market, and consequently, lenders can often charge a lower rate. However, additional changes to FHA financing are slated to be initiated on July 14, 2008.

Recent changes have made FHA a valuable option for many Americans, especially first-time home buyers, borrowers with less-than-perfect credit, and borrowers with adjustable rate mortgages. If you are considering a home purchase or refinance, please contact me. Together we will determine if FHA financing aligns with your financial goals.

Marc J. Rancourt                                      

Mortgage Planner

775.833.1014

Marc@LakeTahoeLoan.com

www.LakeTahoeLoan.com

Tahoe Lending Group, Inc., 940 Southwood Blvd., #101, Incline Village, NV 89451 (775) 833-7100 

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A Commonly Missed Tax Break

Condominium or cooperative residents often miss the fact that upgrades to the common areas of communities can affect the amount of tax an owner pays when the home is sold.

If the property is a principal residence and the owner has lived in it for two of the previous five years before the sale, a big chunk of the profit is already exempt from federal tax - $250,000 for a single person and $500,000 for a married couple.

But the seller will owe taxes on any profit beyond that, and he will owe taxes on the whole amount if the property isn’t a primary residence.

A proportional share of the amounts spent by the condo or cooperative association on improvements to the property - not simple maintenance - can be added to the amount paid for the property, or in tax lingo, “the basis.” The basis is subtracted from the sales price to determine any taxable profit.

“It surprises me that many community association owners are not aware of this tax benefit. Particularly for older home owners who have watched real estate profit build up over many years and now have a profit of more than $500,000, every dollar of capital improvements they can document is valuable,” says Benny L. Kass, real estate attorney.

Source: The Washington Post, Benny L. Kass (06/21/2008)

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7 tax-free havens

Nevada

Taxes: No personal or corporate income tax

Nevada’s advantageous tax structure is helping to lure workers from neighboring states: the state population increased by 25% from 2000 to 2006. Beyond lacking an income tax, Nevada also has no inventory tax and low state payroll taxes. Plus, the cost of living is affordable.

Most people cluster in and around Las Vegas, the state’s largest city, and Reno, the second-largest, both known for their gaming and hospitality industries. While construction companies have been hit hard since the housing market’s downturn, the growing population has created demand for a variety of services as well as new restaurants and bars.

Henderson, just outside of Las Vegas, boasts thriving health care, education, and finance sectors; its location is conducive to doing business with other major southwest cities. Tourists flock to Reno not just for gambling but also for outdoor recreation - nearby Lake Tahoe offers water sports in the summer and skiing in winter. In rural areas, where mining is the primary industry, businesses are benefiting from the high cost of gold and copper.

-CNNMoney.com
 

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Top 5ive Places to Own a Summer Home

4. Lake Tahoe, California

With close to 71 square miles of mountainous shoreline, almost every property in Lake Tahoe boasts a view of the water. In the winter visitors can ski at one of a dozen ski areas. In the summer, music, wine and Shakespeare festivals abound for those who tire of swimming and boating all day. Lakeview homes start at $250,000, with more ostentatious lakefront properties topping $25 million.

Why Buy Now: California home prices have plunged an alarming 26% since last March, according to DataQuick, a real estate market researcher. “You’d almost have your pick of property,” says Pereira. Beyond single-family homes, there are condos and cottages, as well as purchase shares on larger homes. Given Lake Tahoe’s popularity, there’s little doubt that home values will spring back as the economy stabilizes, he says.

-AOL Money & Finance

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The Luxury Market Is Going Green — Luxury Brands Can’t Afford to Ignore It

Unity Marketing’s latest trend report uncovers strategies for targeting the affluent ‘green’ consumer

Stevens, PA  June 6, 2008 - The typical ‘green’ consumer is no longer certain to be a fashion-challenged, granola-crunching wearer of Birkenstocks.  Today, the consumer looking to go green is increasingly likely to be an affluent professional woman dressed in an eco-friendly and animal-free Stella McCartney power suit with satin pumps.  And if you want the affluent green-conscious customer’s dollars and loyalty, you need to pay attention to the priorities she finds important when making her selection of luxury goods and services.

Green luxury consumers look for social responsibility before making a purchase

According to Unity Marketing’s latest trend report on luxury, Green Marketing and the Luxury Consumer, luxury consumers are concerned about the environmental issues that hit closest to home, citing fuel and energy shortages and the use of renewable energy sources as top concerns.  “With gas prices at $4 a gallon - and this might be the summer low - even the affluent find it hard to ignore the impact of filling your tank a couple of times a week,” says Pam Danziger, president of Unity Marketing and author of Shopping:  Why We Love It and How Retailers Can Create the Ultimate Customer Experience.

However, luxury consumers are also looking beyond their pocketbooks to larger issues, like protecting the environment, global warming and avoiding water and air pollution.  And the leaders on these issues are affluent women.  Danziger explains, “In all of the green issues that Unity Marketing studied, women popped as being much more concerned than men.  This is an important signal for luxury marketers to sit up and take notice, as women are often the major shoppers for a family, making the primary decisions about the products and services the family will purchase.  For luxury consumers, an increasing number are looking to a company’s environmental practices before making a purchase.”

Luxury marketers take action:  You need to think of the long term and going green should be part of the plan

“A lot of marketers are skeptical about the green trend.  They don’t know whether it has legs or is just a passing fad for the moment.  I am convinced that this issue is only going to gain momentum in the future, with the affluent consumers in particular taking the lead as early adopters of green living.  So the call is for luxury brands to connect with their customers who are increasingly green aware and eco-conscious by making green marketing a part of their strategy.  Luxury marketers can learn by studying trend-setters who are creating a dedicated following among green-living luxury consumers.
 
For example, only a few years ago designer Stella McCartney with her no-animal policy was considered very much on the fringe of fashion.  Today she is front and center as a luxury designer of fashion-forward and environmentally-sound style.  Donna Karan is also at the forefront of the green movement through her Urban Zen initiative which combines a philanthropic foundation along with a retail arm that distributes a line of natural and organic fashions.

“Saks Fifth Avenue is another trend-setter in the green marketing category,” Danziger explains.  “From converting their extravagant Fifth Avenue Christmas display to LED lights which drastically reduced energy consumption to their ‘Green House — Home of Eco Smart Style’ online initiative where website visitors can shop for eco-friendly designer fashion, home furnishings and jewelry made from recycled metals, the company is putting efforts behind helping their affluent customers live responsibly.
 
“Another interesting initiative for Saks is a new sales area just introduced  in five of its stores called ‘The Beauty of Living Well.’  The sales areas are devoted to what Saks terms ‘natraceutical’ skin care products.  What is intriguing about this new concept is that it is intended as a platform to expand into other healthful living products, including nutritional products and supplements.
 
Danziger concludes, “My advice to luxury marketers is not to wait, but start to plan for green marketing initiatives that will connect with the priorities of their increasingly green-aware consumers.  This trend  isn’t going away.  On the contrary, it will only grow and luxury consumers will expect their favorite luxe brands to go green along with them.”

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Lake Tahoe has been named to SmartMoney.com’s “Top 5ive Places to Own a Summer Home

The site listed Lake Tahoe’s 71 miles of mountainous shoreline that allows many properties a view of the water, wine and music festivals, the Lake Tahoe Shakespeare Festival, swimming and boating and ski resorts as attributes, according to a news release from Dickson Realty.

Lake Tahoe single family homes start around $200,000, with some as high as $25 million.

Lake Tahoe is fourth on the list that also includes Panama City Beach, Fla., Pocono Mountains, Penn., The Crystal Coast, N.C., and the Great Smokey Mountains, Tenn.

“Lake Tahoe not only offers people a place to live with incredible scenic beauty, it also offers an incredible sense of community,” Dennis Liebl, broker and manager of Dickson Realty’s South Lake Tahoe and Tahoe Keys offices, said in the news release. “Lake Tahoe has safe streets, friendly neighborhoods and many ways to enjoy the outdoors making it a very attractive location to own a vacation home at a reasonable cost.”

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Is It True That My Home Equity Line of Credit (HELOC) Can Be ‘Frozen’?

Yes. HELOCs, though secured by your real estate, are treated by lenders as consumer credit. And just as a lender can revise the terms of your credit cards, or even cancel them, the same can be done with your HELOC.

Previously, HELOC withdrawals were usually only frozen for reasons such as bankruptcy, declining credit and payment problems.

While these events can still cause a freeze, there’s another factor that lenders are using more often today: the value of your property. You should be aware that the lender retains the right to suspend or reduce the line of credit available if your property value falls below the appraised value used to originate the loan. Lenders are actively assessing properties and then suspending access for account holders who have seen a downward slide in their home value.

Although Incline Village has not experienced quite the decline in real estate values as some areas, you should be aware that access to your HELOC may be at risk. Your financial security and success are important to me.  Feel free to call to discuss your options in this rapidly changing marketplace.

Marc J. Rancourt                                      

Mortgage Planner

775.833.1014

Marc@LakeTahoeLoan.com

www.LakeTahoeLoan.com

 Tahoe Lending Group, Inc.940 Southwood Blvd., #101Incline Village, NV 89451(775) 833-7100

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The Housing Crisis Is Over

By CYRIL MOULLE-BERTEAUX
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

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