Senators Say Homebuyer Tax Credit is “In the Bag”

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Post Date:  October 28, 2009

The U.S. Senate’s chief Democrat, Majority Leader Harry Reid (Nevada), said Wednesday that his party has reached a consensus to extend the first-time homebuyer tax credit, which is set to expire November 30.

Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) has voiced the same sentiment to the media today, as well.

But the party support isn’t one-sided. Reuters reported that the chamber’s foremost Republican, Sen. Mitch McConnell (Kentucky), acknowledged that most senators support the measure, quoted by the news agency as saying he shares Reid’s view.

Reid summed it up on the Senate floor when he said, “There has been general agreement by a significant number of senators, Democrats and Republicans, to get this done.”

As reported Tuesday, the proposal gaining the most favor among Senators was an amendment offered up by Reid and Senate Finance Committee Chairman Max

Baucus (D-Montana), which would extend the tax incentive until the end of 2010, but reduce the credit amount with each quarter.

Take two: The tax break measure has gotten yet another makeover. The latest version reduces the credit to 10 percent of the sale price, with a cap of $7,290 – as opposed to the $8,000 maximum currently in place. The benefit could be applied to home sales signed – not closed – by April 30, 2010, allowing 60 days beyond that date for closing.

It would also be opened up to buyers who have lived in their current residence for at least five years, so-called step-up buyers. The income limits for first-time homebuyers would stay the same – $75,000 for individuals, $150,000 for couples – but increase for step-up buyers to $125,000 for individuals and $250,000 for couples.

Andrew Parmentier, a managing partner at Height Analytics, a research firm in Washington, told Bloomberg News that the demand for new homes and condominiums may more than double with step-up buyers as part of the equation. “You just opened up a whole new pool of people who can buy into those empty homes and empty condos that were built out,” Parmentier said – a move that would aid the existing-home market as well, as overall inventory levels are reduced.

A Senate vote on the credit extension was expected to come last night, but reportedly got entangled in legislative procedural issues. The tax credit amendment did not get attached to an insurance benefit bill, which did pass Tuesday night, as intended. Despite the red-tape roadblock, senators say a decision will be made sometime this week.

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Landlords Sweeten Pot for Renters

LANDLORDS SWEETEN POT FOR RENTERS:  Office Owners are Slashing Rents, Increasing Incentives to Hold On to Tenants

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Post Date:  October 28, 2009

Some of the country’s top office-building owners reported they are cutting rents and increasing tenant incentives to keep buildings filled during one of the worst commercial real-estate markets in decades.

[commercial real estate and rents and landlords] Bloomberg NewsBoston Properties, which owns the GM Building in New York, above, said new tenants are paying 17% less in gross rents.

Boston Properties Inc., owner of the GM Building in Manhattan and other trophy properties, reported Tuesday, after the market closed, that new tenants are paying 17% less in gross rents than the prior tenants who had occupied that space. Boston Properties also reported that occupancy of its total portfolio, which includes 146 properties, declined 2.4 percentage points, to 92.1%, compared with the end of 2008.

The results follow similar releases Monday by SL Green Realty Corp., one of New York’s largest office landlords, and Liberty Property Trust, of Malvern, Pa., which owns more than 700 properties, including office and manufacturing. Their funds from operations, a closely watched metric in the real-estate industry, declined 28% and 10%, respectively, in the third quarter compared with the same period last year.

“While competitive market occupancies continue to erode, we may be seeing the first signs of what will, with no doubt, be a slow market recovery,” said Bill Hankowsky, Liberty’s chief executive.

The office market is getting pounded by the economic downturn as businesses shed workers and put off leasing decisions. In the third quarter, companies vacated 19.6 million square feet of space throughout the country, the equivalent of more than six Empire State Buildings, according to Reis Inc.

Boston Properties reported that third-quarter revenue rose 5.7% to $377.3 million compared with $357 million in the same period in 2008. SL Green’s revenue declined 7%, to $249.6 million, and Liberty’s rose 2.7%, to $187.5 million.

Problems may be on the way. Office buildings often don’t show financial strain in the early stages of a downturn because they are occupied by tenants who have signed long-term leases. As long as the tenants stay in business, their landlords can even see revenue increases because of escalation clauses in their contracts.

The pain starts hitting when leases expire. In tough markets, landlords typically have to spend a lot to retain or attract tenants through brokerage commissions or incentives such as free rent or interior construction. The cost of attracting tenants is a factor that is cutting into funds from operations.

[office vacancies]

Also, because rents have declined in most major markets, new leases carry lower rents than the leases that are expiring. Nationwide, effective office rents fell 8.5% in the third quarter compared with the same period in 2008, according to Reis. Effective rents take into account the cost of free rent and other tenant incentives.

SL Green during the third quarter beefed up tenant incentives, adding nearly an extra month of free rent, to 6.9 months, and offered new lease signers a construction allowance of $56.19 a square foot, up $23 from the third quarter of 2008. The company said average starting Manhattan rents were $47.31 a square foot, down from $66.78 during the same period last year. Also, the company signed 11 fewer leases in New York during the third quarter compared with a year ago.

“We already knew rents were down, and here is the proof,” said Michael Knott, an analyst at Green Street Advisors.

SL Green Chief Executive Marc Holliday said during an earnings call Tuesday that rents have dropped so steeply partly because there is a large inventory of high-quality sublease space available for leases over 10 years. He predicted that market conditions will improve once that sublease inventory is absorbed. He also said he expected a turnaround in the second half of 2010.

In 4 p.m. composite trading on the New York Stock Exchange, Liberty’s and SL Green’s shares were down 4.2% and 5.3%, respectively.

Victor Calanog, director of research at Reis, said the drop in rents

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Help From Fannie and Freddie for Foreclosed Homes

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Dated: October 9, 2009

HOME buyers are not accustomed to getting much help with their mortgage financing; generally, they’re happy just to get a loan closed.

At least one group of borrowers, though, could get a break. Fannie Mae and Freddie Mac, the government-controlled companies that buy mortgages in bulk from lenders, are offering financing incentives for buyers of foreclosed homes that Fannie and Freddie own.

Home buyers have until Oct. 30 to apply to take advantage of Freddie Mac’s SmartBuy program, which began in July and offers up to 3.5 percent of a home’s sale price to help cover closing costs.

To qualify, the home must be a principal residence and must be chosen from Freddie Mac’s HomeSteps Web site for its foreclosed properties ( Loans must close by year’s end. The HomeSteps properties also include two-year warranties on major appliances and electrical, plumbing, air-conditioning and heating systems.

HomeSteps includes relatively few properties in New York City and the surrounding counties, however, in part because Freddie Mac accepts few loans greater than $417,000. Last week, for instance, the site had no homes in Manhattan and five in Westchester County, including a three-bedroom apartment in Yonkers and a four-bedroom home in South Salem, both listed for $300,000. (There were a few more homes in New Jersey and in Fairfield County, Connecticut.)

Nor does the Fannie Mae program,, have many foreclosed homes for sale in the greater New York region. A one-bedroom apartment on West 110th Street, selling for $378,000, was the site’s only Manhattan listing last week. (Thirteen homes were available in Nassau County, by contrast.)

The incentives for buyers in Fannie Mae’s ongoing program are even more aggressive than those offered by Freddie Mac.

Through participating lenders, Fannie will offer mortgages to buyers who make a down payment of 3 percent, and these buyers do not have to secure private mortgage insurance, or P.M.I., as they would when doing business with nearly any other lender.

A Fannie Mae spokeswoman, Amy Bonitatibus, said the company “already owns the risk” on the property. “So buyers can save a couple hundred dollars a month in insurance,” she said.

Fannie Mae will often offer closing cost assistance to buyers, so long as they negotiate for it. Unlike Freddie Mac’s, Fannie’s assistance level is not capped. Under the program, the average homeowner has received payments equivalent to 3.75 percent of the loan’s value.

Until June, Fannie Mae also offered to pay for home repairs during the borrower’s first six months in the property, up to $3,000. The company is considering whether to renew, or change, that program.

Also, in areas hit hardest by the economic downturn that have qualified for federal financing through the National Stabilization Program, which helps distressed communities, Fannie Mae may discount its foreclosed properties by up to 15 percent.

Most of Fannie Mae’s foreclosure incentives are offered to buyers who will use the property as their primary residence, or so-called public entities like Neighborhood Housing Services and other organizations that rehabilitate properties and sell them to owner-occupants.

Banks, meanwhile, have been leery of offering financing incentives on foreclosed homes. But Brad Geissen, the chief executive of, which, among other things, posts listings of foreclosed homes, said that in his discussions with banking executives, banks appear ready to offer similar programs.

“We’re starting to see banks loosen up on financing and consider a number of different incentive programs to move their inventory,” Mr. Geissen said. “I know a number of banks who are getting ready to release programs like this, between now and the end of the year.”

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Home-Buyer Credit is Focus of Inquiry

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Dated: October 20, 2009

The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break, another sign of potential trouble for the soon-to-expire program.

The measure, adopted in February as part of the economic-stimulus bill, gives first-time buyers an $8,000 tax credit in an effort to boost sales and stimulate the moribund housing market. The program is set to end Nov. 30, but housing-industry leaders are lobbying Congress to extend it.

More than a million claims for the credit have been received so far, and housing-industry experts estimated that the credit has helped generate about 350,000 home sales that wouldn’t otherwise have occurred. But some lawmakers and tax experts now say there is evidence that a significant number of the claims might prove to be unjustified, or even fraudulent.

“I am concerned about recent reports that there have been fraudulent schemes involving the credit,” Rep. John Lewis (D., Ga.), chairman of a House Ways and Means oversight subcommittee, said in a statement. The subcommittee is planning a hearing on the problems on Thursday.

The IRS said it was investigating 167 “criminal schemes” involving the credit, according to the subcommittee. IRS officials on Monday declined to describe the suspected schemes or provide additional details.

At a recent hearing of a White House tax advisory panel, Bonnie Speedy, national director of AARP Tax-Aide, a volunteer service for low-income people, suggested that abuse of the home-purchase credit appeared to be widespread, in part because of relatively loose standards for claiming the credit.

The credit “has some fraud issues because it’s not being done at the time of the sale,” said Ms. Speedy. “People are filing for the home credit who don’t have a right to file for it.” Taxpayers don’t have to file their claims as part of a real-estate transaction and instead can file or amend their income-tax returns to claim the credit.

An IRS spokesman said the agency “will vigorously pursue those who filed fraudulent claims” for the credit.

“The IRS recognizes that there is a potential for fraud whenever a new refundable tax credit … is put in place,” agency spokesman Frank Keith said. “As we began implementing this credit in the days after the Recovery Act legislation was passed, we also identified the different  types of potential fraud, and matched our compliance program to those abuses.”

A spokesman for the National Association of Realtors, Lucien Salvant, said, “Any time there is a lot of money around, there is going to be people attracted to it with evil intent.”

Housing-industry officials recently have stepped up their lobbying for an extension of the credit. In a letter to the Obama administration on Monday, the National Association of Realtors, the National Association of Home Builders and the Mortgage Bankers Association called for a 12-month extension of the credit. They also asked that the tax break be extended to all home buyers — not just first-time purchasers — and noted that they were urging Congress to expand its value.

“Our fragile economy is just beginning to show signs of recovery,” the letter says. “We should not jeopardize that recovery by letting this tax credit expire.”

Mr. Salvant said the industry groups weren’t suggesting any changes to the credit policy aimed at diminishing possible fraud.

The idea of extending, or expanding, home buyers’ tax credit has been met with skepticism from some lawmakers, who cite the potential costs and impact on the surging federal budget deficits.

One proposal by Sen. Johnny Isakson (R., Ga.) and others to extend the credit and make it available to all home buyers through June 2010 carries a price tag of about $16.7 billion. That proposal would raise the income ceiling for eligible home buyers to $150,000 per year for an individual and $300,000 for a couple. Currently the credit phases out for individuals earning more than $75,000 and married couples earning more than $150,000.

Ted Gayer, an economist at the Brookings Institution, a liberal think tank based in Washington, estimated that the current credit costs the government about $43,000 for each additional home sale it generates, because most of the two million or so home buyers expected to claim the credit would have bought a house anyway. Expanding the credit to all home buyers would raise the government’s cost per additional home sale to more than $250,000, he said.

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Home Builders to Push for Tax-Credit Extension

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Dated: October 7, 2009

WASHINGTON — The home-builder industry will make a strong pitch for extending the $8,000 first-time home-buyer tax credit and expanding it beyond first-timers at a U.S. House hearing Wednesday.

The National Association of Home Builders will argue the credit has helped to stabilize the housing market and also boost the broader economy, according to prepared testimony.

“The economic stimulus created by established households moving into new homes and the added construction necessary to answer demand where there is no excess supply generates jobs, wages, salaries, business income and tax revenues,” Joe Robson, an Oklahoma home builder, will say in prepared remarks on behalf of the NAHB to the House Small Business Committee.

The home-builder group is pushing to extend the credit through Dec. 1, 2010, and open it to all people buying a primary residence. It estimates that this would boost home sales by nearly 400,000 next year, creating nearly 350,000 jobs. The credit is set to expire Nov. 30 of this year.

The panel also will hear from other groups, such as the National Association of Realtors, that support extending the credit.

Pamela Volm, the president of a Maryland construction company, will say in prepared remarks that the tax credit should be extended because it is helping to keep construction workers employed.

“New buyers purchasing homes would mean millions upon millions of dollars injected into local businesses and the communities in which they are located,” Ms. Volm will say.

The Mortgage Bankers Association supports expanding eligibility for the tax credit and also wants to increase its size to $15,000. The trade group, in a statement submitted to the panel, argues its proposal will help to combat a glut of homes in certain parts of the country.

“In simple terms, demand is not keeping up with the current supply. MBA supports tax initiatives that would encourage home purchase activity,” the group says in the statement.

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Mortgage Rates Fall Again

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Dated: October 9, 2009

WASHINGTON — Mortgage rates fell this week, with the average rate on 30-year fixed-rate mortgages retreating deeper below 5% and several others reaching lows, according to Freddie Mac’s weekly survey.

After yields on Treasurys rebounded from the multidecade lows hit earlier this year, they have since retraced, pulling down mortgage rates with them.

The 30-year fixed-rate mortgage averaged 4.87% for the week ended Thursday, the lowest since May. It compares with last week’s 4.94% average and 5.94% a year ago.

Rates on 15-year fixed-rate mortgages were 4.33%, down from 4.36% last week and 5.63% a year earlier. The latest figure is the lowest since Freddie began tracking such loans in 1991.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.35%, down from last week’s 4.42% and 5.9% a year earlier. Those loans haven’t had such low average rates in the four years Freddie has kept such data. The average rate on one-year Treasury-indexed ARMs rose to 4.53% from 4.49%. The prior-year average was 5.15%.

The falling rates also are spurring increased refinancing activity, which reached a 19-week high last week.

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