Archive for the 'Finance Foreclosures' Category

A 4-year-old accounting regulation that standardizes how banks acquired loans is expected to help the banking industry gain revenues and reduce Bank Owned Foreclosures.

JPMorgan Chase is set to gain $29 billion due to an accounting rule that allows it to transform bad loans into income. The bad loans were part of JPMorgan’s acquisition of Washington Mutual.

Also set to make some profits from home lending acquisitions are Wells Fargo which purchased Wachovia, Bank of America which took over Countrywide Financial and PNC Financial Services Group which acquired National City.

The acquisition deals provide a total of $56 billion in accretable yield, which represents the difference between the cash flow banks are expected to produce and loan values on their balance sheets.

With the escalating foreclosure and unemployment rates in the country, the banking companies have no choice but to invoke the accounting rule that standardizes the way they book acquired loans that have depreciated credit quality.

Former executive at Lehman Brothers Holdings, Robert Willens explained that banks can earn revenues by applying the rule to commercial and mortgage loans that have lost value during the financial crisis.

Meanwhile, when JPMorgan acquired Washington Mutual for $1.9 billion, it used the purchase accounting method to allow it to record deteriorating loans at fair value. This created a mark down of 25 percent on almost $118.2 billion assets.

JPMorgan is expecting to earn $29.1 billion as borrowers are starting to pay their debts. RBC Capital Markets analyst Gerard Cassidy explained that the purchase-accounting regulation offers incentive to banks to mark down troubled loans they acquire.

JPMorgan acquired Washington Mutual’s loans and deposits after that latter was seized by regulators in a widely-publicized bank failure. A total of $29.4 billion in write downs of Washington Mutual’s holdings was taken over by JPMorgan, with majority for home-equity loans and adjustable-rate mortgages.

The lender said that Washington Mutual’s loans produced $1.26 billion revenue and gave it a potential accretable-yield balance of $29.1 billion.

The $8,000 tax credit offered to first-time homeowners under President Barack Obama’s American Recovery and Reinvestment Act of 2009 has highlighted the role of timing, including luck, in home buying. It has also highlighted the issue of unfairness, such as the exclusion of tax foreclosures in assistance programs.

The said tax credit is an actual tax credit to be deducted from taxes owed by the first time homebuyer. Homebuyers have also the option to claim the tax credit on their 2008 tax returns or on their 2009 tax returns.

On the other hand, the tax credit of $7,500 offered to first time homeowners who purchased their homes within the period from April 8 to December 30 in 2008 under the Housing and Economic Recovery Act is not a true tax credit. It is an interest-free federal government loan offered to the homebuyers to help them pay their taxes.

The $8,000 tax credit has made first-time homebuyers within the prescribed period winners while making first-time home buyers outside the prescribed period losers. It is similar to the situation of persons losing their homes to tax foreclosures but are not helped by the government.

The tax credit case of Indiana homebuyer Jeremy is a good illustration of misfortune and luck in home buying. Jeremy bought his first home in December 2008, about 14 days before January 1, the start of the prescribed period for the $8,000 tax credit. He has been asking whether he can still be considered for the $8,000 tax credit since his purchase date is just a few days before January 1.

The answer however is a big disappointment for Jeremy. The IRS announcement for the $8,000 tax credit specifically stated that the tax credit does not include first time homeowners who purchased their homes between April 8, 2008 and January 1, 2009.

This is where the concept of luck and misfortune in home buying enters especially so when the difference is only a few days. What is also difficult to imagine are the feelings of first-time homeowners who completed their home purchases just hours before the first day of 2009. Feelings of being unfairness surely would come out.

Another area where feelings of unfairness enter is the questions of tax foreclosures. During the economic downturn, more Americans are losing their homes to tax foreclosures because of job losses and other family troubles. But unfortunately, they are not included in the assistance program. Their case is even more difficult because they have only 10 days to settle their taxes before their homes are lost to tax foreclosures. Oftentimes also, homes lost to tax foreclosures are easily sold because of the bargain prices attached to them.

Allow banks to fail. That is what Republican Senators Richard Shelby of Alabama and John McCain of Arizona suggested even if it means shareholders will also suffer as a consequence.

Allowing some big troubled banks to close and funneling the relief funds to the housing market will come a long way in helping streamline foreclosed homes.

In an interview on ABC’s program “This Week”, Shelby pointed out that financially distressed banks are already hopeless and should be permitted to rest.

Meanwhile, in an interview on the “Fox News Sunday”, McCain said that major banks should be permitted to close even if it means shareholders will suffer as a consequence.

Some industry experts believed that allowing major banks to fail would divert some of the capital infusion to programs that will help abate the flood of foreclosure homes.

A bank rescue program unveiled by Treasury Secretary Timothy Geithner includes a plan to generate about $1 trillion in new consumer lending and to eliminate up to $1 trillion of banks’ bad assets.

The program also includes housing support and prevention of the spread of foreclosure homes. The federal government will expand efforts to lower mortgage rates to reduce foreclosure homes statistics. It will also commit about $50 billion to prevent foreclosures of middle-class houses still occupied by their owners by reducing payments.

Meanwhile, the FDIC issued a directive requiring banks as well as other financial institutions to monitor how the funds from the federal government will help them and distressed homeowners who do not want their properties to be added to the growing list of foreclosure homes.

On the other hand, some industry experts questioned Shelby and McCain’s suggestion to allow banks to live out their existence. They pointed out that the suggestion runs contrary to the goal of the government after it provided almost $90 billion in financial rescue funds and loan guarantees.

Both Shelby and McCain cited as example Bank of America and Citigroup which they claimed have done extensive damage to the country’s economy that they should not be allowed to go on with their current operations.

Shelby explained that closing big banks is one way to send a message to the financial market that it must shape up or ship out. He also hoped that if people will see that aggressive efforts are used to address the financial crisis, it would encourage them to invest in banks again.

As tax foreclosure property listings continue to grow longer because of unabated foreclosures, the government has found ways to reduce the number of foreclosed homes. This time with the help of first-time home buyers.

Efforts to add a stipulation in the economic stimulus bill supported by congressional Democrats that would permit bankruptcy judges to minimize mortgages as a possible solution to the foreclosure problem is being resisted by President-elect Obama and his advisers.

Just minutes after President Bush said at a news conference that President-elect Barack Obama just had to “ask” if he needed the remaining $350 Billion bailout funds allocated for foreclosure prevention, Obama did just that. Now Congress has to vote within a 15-day period whether to approve the request.

Pending home resales dropped in October due to continued foreclosures, according to analysis by 34 economists interviewed by Bloomberg News. Pending resale index is viewed as a major economic indicator because it monitors home resale contract signings. Sale closings are usually accomplished about two months later, when the sales are counted as existing-home sales in real estate reports.

Sheriff Nygren had an incident with a 73 year-old renter. The poor old man will be evicted not having any idea that the room he is renting, owned by a Woodstock-man, was in foreclosure. The old man was so thankful that he was made aware and hopes to make arrangements.

There is no law that requires [...]

Some studies showed that areas that see an increased in foreclosure sales experienced a 1 percent drop in home market values. Most often the drop in home market prices is due to a buyer’s perception of the neighborhood, which may ultimately lead to his refusal to reside in the area.

It cannot be denied that the present housing conditions are creating great investment opportunities for buyers. If you even consider the housing supply and home prices, you could say that it is indeed a buyer’s paradise.