Moody's - Short sales will rise 50%

Feb 12, 2010

Citigroup, for instance, plans to announce a pilot program on Thursday that would allow delinquent borrowers who don't qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. Other initiatives have also emerged for borrowers likely to lose their homes.

Fannie Mae and Freddie Mac, the mortgage financing companies, developed programs allowing former homeowners to become renters after a foreclosure or other proceedings. As part of its federal foreclosure prevention program, known as Making Home Affordable, the Treasury Department announced late last year that lenders would be eligible for $1,000 in exchange for allowing borrowers to sell their home in a short sale. In such deals, the borrower sells the home for less than the outstanding mortgage, and the lender forgives the difference.

Moody's has forecast that the number of short sales and transactions in which borrowers surrender their deed in lieu of foreclosure will increase more than 50 percent, to about 490,000, this year. That is just a fraction of the 1.9 million homeowners Moody's has forecast will lose their homes to foreclosure this year, up from 1.7 million last year. Retail sales upThe Commerce Department said total retail sales edged up 0.5% to $355.8 billion last month, compared with December's revised decline of 0.1%. Economists surveyed by had anticipated that January sales would grow 0.3%. Sales excluding autos and auto parts rose 0.6% last month. A consensus of economists had projected ex-auto sales to rise 0.5% in January.

The year-to-year increase was more impressive. January retail sales jumped 4.7%, compared to the same month in 2009. Sales were boosted by electronics and appliance stores, where sales rose 1.2 percent after declining 3.5 percent in December. Sporting goods, hobby and books sales rose 1 percent last month, adding to December's 1.9 percent increase. Sales at general merchandise stores rose 1.5 percent in January, the biggest gain since February 2009. Core retail sales, which exclude autos, gasoline and building materials, rose 0.8 percent after falling 0.3 percent in December. The jump in sales sent the dollar hig her, extending gains against the Japanese yen. Retail sales are being closely watched for signs of whether consumers are healthy enough to sustain the economy's recovery once government stimulus and the boost from restocking by businesses wanes. - Homebuilders buy troubled loan portfolios Lennar Corporation, one of Americas largest homebuilders, said that it has purchased two loan portfolios from the FDIC with a combined unpaid balance of $3.05 billion. Lennar paid $243 million for the portfolios, which include 5,500 distressed residential and commercial real estate loans from 22 failed bank receiverships. But the Miami-based builder says its no stranger to working with troubled mortgages. Acquiring and working out distressed real estate loans was a large and extremely profitable part of our business during the last major real estate down cycle in the early 1990s, said Stuart Miller, president and CEO of Lennar Corporation.

We are pleased to return to this business and honored to partner with the FDIC to manage, work through and add value to these portfolios of real estate loans. Miller says the company has been preparing to invest in the distressed loan space for the last two years and has been closely watching the market to identify t he opportune point of entry. Tulsa-based BOK Financial Corp. also bought servicing rights to a $4.1 billion portfolio of 34,400 mortgage loans made by Albuquerque-based Charter Bank. The acquisition boosts BOKs $7.4 billion mortgage servicing portfolio by 46%. Investor's Business Daily - Stimulus a failureEarly last year,

President Obama's advisers made it clear: By the end of 2010, there would be 3.5 million new jobs created if the stimulus bill then being crafted in Congress was passed. Unemployment would peak at 8%. The reality was a tad different. No net new jobs zero were created. Indeed, the White House had to make up jobs "created or saved" through numbers-fudging and statistical legerdemain to show any new jobs at all. The sad fact is, private U.S. businesses cut 4.7 million jobs 392,000 a month in 2009. All told, we've lost 8.4 million jobs since the recession began in December 2007. Now we're told this year will see a job recovery, with payrolls adding an average 95,000 per month. Yet the unemployment rate will be around 10% higher than the current 9.7%. Some in the media seem surprised by this. But as we explained a week ago, since 1990 the U.S. work force has expanded by 113,000 workers each month mainly from young people and immigrants entering for the first time. Monthly job growth below 100,000 isn't enough. It's the economic equivalent of paddling a boat five miles an hour upstream against a current going 10 miles an hour the other way. No matter how hard you paddle, you still end up downstream.

Also as noted, the new Council of Economic Advisers report amounts to an admission that past "stimulus" efforts have failed. Yet, even now, Congress is crafting a new $85 billion "jobs" bill. Instead of creating jobs, this bill will do what the last did: create a sluggish economy and long-term dependency on government. We're not saying every element of it is bad. But it's built around a special tax credit for businesses that hire workers or give them a raise. Even those who would benefit from it are skeptical. "There's certainly nothing wrong with giving a tax break to a business that's hired a new worker, especially in these tough times," Bill Rys, tax counsel for the National
Federation of Independent Business, told the Associated Pres s. "But in terms of being an incentive to hire a lot of workers, we're skeptical." Now on to our real estate investing educational section...Understanding AuditsJust the mere mention of an IRS "audit" strikes fear in the heart of most Americans; in fact, many would be short sale investors are so overwhelmed by the prospect they completely avoid the topic altogether.

Unfortunately, what you don't (want to) know can still hurt you when it comes to taxes; after all, ignorance of the law is no excuse and you must still sign-off on all tax forms prior to the final submission. Understanding a little about audits can go a long way toward preventing problems in the first place.

1. The very first thing to understand about audits is that they are not as common as most people fact, audit rates have steadily declined over the past decades. In 1963 over 5.5 percent of all Americans were audited. In 2008 only .80 of Americans were audited - less than 1 percent of taxpayers annually.

Audit rates for landlords do not appear to be any higher than that of the average population according to "How to Beat the IRS at Its Own Game" by Amir Aczel and approximate that of most small business owners. Real estate dealers and investors also appear to garner roughly equivalent audit rates.

2. Automated Under-reporter Program. Although not widely known, the IRS compiles and compares payment data submitted by banks, financial institutions and property managers, repair co's etc.. against rental receipts and mortgage interest payments claimed by landlords. When the amounts don't match, it automatically triggers further investigation.

3. Avoid round numbers. Yes, they are easier but it raises a red flag that the amount in question could be "made up" rather than real.

4. State and federal returns should match. Sounds simple but it's a common mistake likely to trigger additional scrutiny at one end or the other.

5. Don't file early. Why give IRS additional time to decide whether or not to audit your return? Remember, they have three years to make up their mind...more than sufficient time!

6. Stay within market averages! The IRS makes good use of average market rates for each area and you should too. Avoid renting or selling to friends and family where it could be construed as a gift, barter or other irregularity in need of additional "attention" (ie, an audit).

7. Keep those receipts. Without a doubt, good record keeping is the first defense against an audit. When in doubt, make a note and include it with your tax return.

Bottom line: Don't cheat on taxes but also don't become so fearful of an audit that you miss available tax write-offs and deductions. Stay within the legal limits and use aggressive tax strategies to reduce taxes and maximize profits.

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