HEALTH CARE CAN KILL REAL ESTATE
If you’re a long time reader then you already know that I try to avoid politics. So I am not going to opine on the health care bill. However, I read an article this week that took me by surprise and will have a dramatic effect on our industry. The article is reporting that the health care bill contains a 2.9% tax on interest, dividend, annuity, royalty and rental income to pay for the bill. This tax would apply to taxpayers earning more than $250,000.
Due to the fact that no one has seen the new bill yet, I can not say this is actually true. However, if it is, the health care bill will have a chilling affect on our business. Having to pay 2.9% of rents would certainly act as a deterrent to buying investment property.
I have a call into our local Representative to determine if this provision is in the bill. It is being researched and I will get back to you as soon as I get the information. If so, it is up to you whether you want the bill passed but I will let the powers know that I say “NO”. The effect of such a provision is a detraction to buyers of investment real estate.
I DIDN’T THINK IT WOULD BE THIS BAD
We are still trying to get our arms around the new RESPA here at EXPRESS. I knew it would be bad just by reading the legislation, but this is laughable. Our software program has had 3-4 updates since the law was signed, yet the programmers have failed to eliminate the many glitches to date. The software that we use is used nationwide. So why is it so hard for these programmers to fix the glitches to a program that has been in operation for years?
The answer is very simple. The government missed the boat as usual.
Yes, there was a housing bubble, spurred by artificially low rates. Yes, mortgage loan products got a little wacky during the boom. Yes, people for the most part knew what they were getting into and knew what product they signed up for at the table. However, this is not the cause of the problem. The problem was caused by the investment houses that bundled the subprime toxic mortgages and sold them with AAA credit ratings. Heck, Goldman knew these pools of mortgages were so toxic it went to AIG and obtained insurance against the defaults. The pools of mortgages were then leveraged up. When the music stopped, there were not many chairs left.
Instead of focusing on the cause of the problem, it legislated the effect of the problem. HUD felt compelled to protect JOE PUBLIC so it came up with this convoluted revision to RESPA. The government should be legislating the investment banks that made huge money off the sale of these mortgage pools knowing the toxicity of the pools.
So today we are subject to the new RESPA. All of us in the industry are trying to cope with this monstrosity. The fact that the government thinks putting all title fees on one line, and having all the lender charges on another is going to prevent another melt down is absurd.
I have just one question: why the heck is the lender’s title insurance premium included on line 1101?
IT’S A SMALL WORLD AFTER ALL
Wow. How about those two snow storms? Our electricity went out for about 48 hours and the temperature in our home hit 44 degrees. I am just now beginning to thaw. The median cut out side my office was plowed in with about 20 feet of snow. We won’t be using it until mid April if I had to guess. If you have some time and want to see something really amazing, take a ride to the soccerplex in Germantown.
At the park across the street from the plex off the circle entrance sits a mountain of snow (at least 30 feet in height and the size of at least 3 football fields).
Enough with the weather. About 9 years ago, my family went to Disney for Thanksgiving. To this day I still cannot get the song in the above title out of my head. My kids took us on that ride many times!!! lol
You all know by now that I have said there is tremendous market pressure for rates to increase. Heck, the Fed just raised the discount rate yesterday by 25 basis points.
However, as I said two weeks ago, there is a caveat to rates increasing. Right now, there are events taking place in Europe that can force downward pressure on rates the USA. Greece, Italy, Spain, Portugal to name a few countries are on the brink of financial disaster. These countries all participate in the Euro. What happens if any one of the Euro participating countries defaults on its debt. The Euro is in serious trouble and I would not be surprised if the Euro implodes within the next 24 months.
The dollar is still the reserve currency, albeit it has been beaten up lately. If the Euro crashes, the holders of Euros would flee to dollars. This would create a huge demand for US treasuries which in turn would put down ward pressure on rates.
It really is a small world after all.
THE STATE OF MY UNION
I was driving back to my office yesterday and formulating this weeks FWC in my mind. As you know, I think that interest rates will be going higher. This week I was going to write about one caveat to this belief, which may take interest rates down.
Then I received an email from Jo that yesterday was the 20th year anniversary of my filing the corporate papers with the state to create Express Title Company. So you will have to wait until next week to read about an event that may take interest rates lower.
It is hard to believe that it has been 20 years in this business. In 1990, most of us in the business were typing settlement statements on typewriters, the facsimile machine was just becoming main stream and car phones were the size of a loaf of bread. Technology has sure come a long way in 20 years.
Conducting a closing was a lot easier back then as well. A HUD, deed, note, trust TIL, and a few other documents were all that was signed back then. Contracts were 6-8 pages. Today, contracts average around 45 pages and there are close to 100 pages of loan documents. We are on our 5th update to our software program for the new Respa, and the program continues to have glitches. We are definitely over regulated today.
Over twenty years, we have seen many employees come and go, some too soon and others not fast enough. However, we still maintain the policy that I instituted soon after opening the doors; the entire office eats lunch together. We have also seen many of our competitors come and go too.
The thing that amazes me the most about this business though, is that just when I think I have seen it all, something else pops up that just amazes me. If it is not someone trying to sell a property they do not own, someone not having any identification, making bogus checks on our account and the bank cashing them, people drawing on HELOC’s after closing, it is worrying that a check you received from the bank will clear after the FDIC just closed the bank. Yes, I had hair 20 years ago!
We are still here through all of the ups and downs in the cycles. The reason why in my opinion is because we give great service at a reasonable price. This has been our mantra here for the past 20 and will continue to be for next________? LOL
I want to thank all of you that have supported the company in the past and present and look forward to establishing relationships with those of you who have yet to use us.
Give us a try; our service is second to none!!!!!!!!
Be safe in the snow this weekend.
TAKE TWO
When I wrote the trilogy column “Government v. Economy” a year ago, I never thought I would be able to get this much mileage out of it. Today, we remind you that two of the government’s actions implemented to stifle the bear market in housing will be coming to an end in short order.
ONE
The Federal Reserve made it quite clear this week it intends to halt its 1.25 trillion dollar spree of buying up mortgages. After March, the Fed will no longer be buying mortgages. Keep an eye on rates in April to see what effect this has on interest rates. Common sense says rates move higher in April but if the housing data remains weak, rates may continue to remain flat or may head lower.
TWO
The tax credits expire on contracts written after April 1, 2010. Although the credit has been a catalyst for bidding wars among first time home buyers, I think this will be short lived after the credit expires. Keep an eye on the movement of homes under $300,000.00 after April fools day!
As I said earlier, this year is going to be interesting.
SHORT SALES UPDATE
The Attorney General of Maryland issued an opinion on the 27th of January concluding the counties do not have the right to charge transfer taxes on the forgiven indebtedness in a short sale transaction. Thus the purchase price in the contract is the controlling amount be taxed.
NAH NAH NAH NAH, HEY HEY HEY, GOODBYE
The Bush tax cuts expire at the end of this year. Most significantly, is the reduction of capital gains to 15%. At the end of the year the rate for capital gains will revert back to the pre 2003 rules as follows: Taxpayers in either the 10% or 15% income tax bracket ONLY: After 1/1/2001, taxpayers will be subject to the current capital gains tax rate of 10% on assets held from 12 to 60 months, OR the 8% rate on "super long term" assets held more than 60 months. Taxpayers in income tax brackets above 15%: Capital gains tax on assets held over 12 months will be 20%, the same as it has been since 1/1/1998, except for certain assets purchased after 1/1/2001, or on assets where the specific tax election is made as of 1/1/2001 and the tax paid at that time. The lower 18% "super long term" capital gains rate is NOT EVER available for ANY asset acquired before 12/31/2000, UNLESS the election to report the gain in market value as of 1/1/2001 is made, AND the capital gains taxes are paid at that time on any appreciation, AND the asset is then held for another 60 months after 1/1/2001, which means 1/1/2006 is the earliest possible qualifying date. Assets purchased after 1/1/2001, which are then held for 60 months are eligible for the lower 18% "super long term" capital gains tax rate, so the earliest date a sale can qualify for the 18% rate is 1/1/2006. If you have any clients with large capital gains that may be on the fence to sell this year, you may want to remind them of the change in the tax rate next year.
THE INDIRECT EFFECT OF SCOTTY BROWN
The people have spoken in Massachusetts, but what does that mean for real estate in the DC metropolitan area. The Federal Reserve will have more pressure on it to keep the pedal to the metal on the printing press which will lead to higher inflation. This will put pressure on interest rates to increase. The reason why is now the democrats can not pass stimulus packages on demand. Now they have to deal with the republicans. The President now seems intent on dealing with unemployment. Since it will be impossible to get legislation passed without having to deal with republicans, the president will be pressuring Chairman Bernanke to keep the money machines rolling overtime to spur the economy. This will put upward pressure on interest rates in my opinion. Stay tuned to see if I am right. ressuring Chairman Bernanke to keep the money machines rolling overtime to spur the economy. This will put upward pressure on interest rates in my opinion. Stay tuned to see if I am right.
ON, THEN OFF
Montgomery County started the week off taking the position that it would charge transfer taxes on the outstanding principal balance of the loan irrespective of the price negotiated in the contract in connection with a short sale. Thankfully, they withdrew from this position later on in the week. Stay tuned for updates.
MAILBAG
Client: What are the ramifications of a country de-valuing it’s currency?
Reply: Are you asking about Venezuela or the USA?
Client: Venezuela. Is the US planning on doing this too?
Reply: What Chavez did was devalue the Bolívar by 50% against non essential goods. What this means is that the purchasing power for most goods was just whacked in half. While not out right publicly devaluing the dollar, our government by all of the borrowing and printing money essentially is doing the same thing as Venezuela. The difference is we just don’t do it overtly. This is why the dollar has been in a free fall.
SETBACKS
As many of you know, my son is a soccer goal keeper. A few weeks back his team played in a tournament and lost in the final 2-1. His team did not give up a goal throughout the entire tournament until the last ten minutes of the final game. It was a painful loss for the boys.
After the awards ceremony, my son came over to me, handed me the trophy and said “Burn it, I don’t want it.” We gathered our belongings and headed home. I was not looking forward to this ride (LOL). On the way home we of course discussed what just transpired. I tried to comfort him but he wanted nothing of it. Everything I said was rebuffed with a “yea, but …..” Nothing was going to make him feel better so it was time to stop the comforting and time to knock some sense into him. I said” Remember what I have been telling you, it is how you handle the setbacks in life that separates the men from boys. You guys have not lost a game since September 19th….it was bound to happen. You can’t tell me that you don’t expect to lose another game?” Silence.
We pulled into our driveway, went into the house, showered and changed, and headed back out for his high school soccer banquet. Eli played JV this year and had a winning season but that was not the story for varsity. The varsity had a tough go at it, losing several players to season ending injuries. The coach said to the team “It is not the victories that defines a team rather it is how the team deals with it’s setbacks”. I leaned over to my wife and said that is exactly what I told Eli.
An hour and a half later, we got into our car and the first thing out of Eli’s mouth was “I was going to turn around and look at you when the coach was talking about setbacks”.
I thought to myself “Yes ….he is listening, but does he really get it?” Once we arrived home, Eli went straight up stairs to bed. He was exhausted. About five minutes later, Eli’s door opened, he leaned over the stairs and “Hey POPS, I love you. Nite.” Success. He was listening and got it. It is how we deal with the setbacks that define who we are!
GOVERNMENT v. ECONOMY
GOVERNMENT v. ECONOMY
REVISITED
Welcome to 2010. I took some time off last month to prepare for the new RESPA. In addition to our seminars that we gave, our web page now has a Quick Quote so you can get all of your closing costs to prepare your GFE. Visit us @ www.expresstitle.com.
My first piece last year was a 3 part series titled as above. If you recall, the essence of the series was that the government would be caught in a tug of war with the economy for the year in order to right the ship. So let us take a look and see where we are today.
The theme of 2009 was deflation and the Federal Reserve pulled out all of its tricks to inflate the economy. The DJIA hit a low in March of about 6700 and ended the year at about 10,500. Most commodities bulked up last year as well. While wheat, corn and natural gas were down, gold, coffee, oil, orange juice and copper were all up. GDP in the third quarter reversed direction as well and was up about 2.5%. Housing prices have stabilized in many parts of the nation, as well. Bernanke even said the recession is over. Looks like the government won.
Not so fast I say. To achieve the above, the government had to borrow or guaranty about 10-14 trillion dollars of debt. This is about equal to one year of our GDP. It is predicted that our national debt will equal 100% of GDP by the years end. Furthermore, 3.5 trillion dollars of debt must be issued in the next 12 months; 1.5 trillion to finance our budget deficit and 2 trillion to repay debt that matures. Unemployment remains at multiyear highs between 10-15% (depending on which figure you use) with jobs still being shed rather than gained. One of every four homes has negative equity. One of every seven mortgages is in default. Foreclosures remain at record levels and will continue to mount. When viewed on a chart, the number of Alt A, Prime and Subprime loans that will reset looks like two mountains. We have just hurdled the first mountain and are about to hurdle the second mountain which peaks in the last quarter of 2011.
The banks are still having problems as well. There were just shy of 150 bank failures last year with that number expected to double this year, according to the FDIC. Credit remains on the decline. The FDIC, FHA, Fannie and Freddie are broke. Congress passed legislation before the holiday agreeing to fund Fannie and Freddie any amounts necessary to keep them solvent. (Why can’t I get that?)
A record 37 million people received food stamp assistance. The number of food stamp recipients in Maryland increased 35% in 2009.
Furthermore, with all of the debt we must sell and with the central banks of Australia and China raising their rates recently, I expect our interest rates to rise this year as well.
On the face of it, it appears that the government is winning but the fact is the economy is still kicking our butt. As Bette Davis said, ”Fasten your seat belts. {2010} is going to be a bumpy {ride}!”
SAY WHAT?
The CBO reported this week that the government in the fiscal year ending 9-30-09 lost 98 BILLION DOLLARS of improper payments. This was money that was paid out wrongly and is now gone. This is the same government that is trying to take over health care and pass cap and trade legislation. What a mess it will be!
Recent polls show Congress has a 21% approval rating while the president’s approval is now at 48%. Unfortunately, no one is listening to WE THE PEOPLE that say no more wasteful spending and entitlement programs.
Meanwhile, mortgage delinquencies are skyrocketing and home starts fell off a cliff.
So much for the real estate recovery that everyone is predicting.
While driving my son to soccer practice last evening I heard a disturbing fact:
17 million homes with young children are facing food shortages.
Wow! That 98 billion would have fed a lot of kids. If only the politicians paid attention to helping WE THE PEOPLE instead of pushing their political agendas. This time of year I have done toy drives for needy children for the past 9-10 years, but this year I will be doing a food drive. So even if you do not use us or have a case to send us, please take the time (if you can afford it yourself) to stop by our office and drop off some canned goods or boxed food (cereals, etc) in our reception area. Please say hi when you stop in. We all are busy and I know it takes effort, but our fellow American’s need help so PLEASE take the time. An hour of your time can make a huge difference in some else’s life.
THANK YOU and HAPPY THANKSGIVING!
The next FWC will be in two weeks.
RESPA UPDATE
RESPA UPDATE
I have attended two seminars over the past week in connection with the new RESPA rules that go into effect on January 1, 2010 The legislation is complex, and really puts the lender in the hot seat for liability. However, everyone in the closing process is affected by the legislation, including real estate agents. If you would like us to come into your office to give a seminar on the legislation, please contact us to schedule.
On Friday, HUD says restraint would be used in enforcing the new rules for the first four months of 2010, IF the provider in good faith is attempting to comply with the new regulations.
There are just 45 days left before we all will subject to the new law. Call now to schedule.