5 to Watch: August 2010

News and trends that we're keeping an eye on this month.

August 1, 2010

1. The Oil Spill’s Effect on Real Estate

Images of tarballs, oil-covered pelicans, and an underwater geyser of oil have dominated the news since the April 20 explosion of BP’s Deepwater Horizon oil-drilling rig on the Gulf of Mexico. Gulf coast brokers and agents say the news has kept vacationers away. But other renters—including BP staff, National Guard and Coast Guard personnel, and the media—are picking up some of the slack.

The environmental and economic costs will be major, but practitioners here caution against counting them out or vilifying the oil industry. Vivid media coverage, they say, is unnecessarily discouraging real estate activity.

BP is accepting claims for property damages, loss of earning capacity, cleanup costs, and more; to make a claim, visit www.BP.com or call 800-440-0858. A special report on the oil spill will appear in the September issue of REALTOR® Magazine.

2. A Jumbo Recovery

The first jumbo loan securitization since 2008 closed in late spring, marking what could be the beginning of a recovery for jumbo loans. "This transaction has broken the ice in the private mortgage securitization market," says Brett Nicholas, CIO of Redwood Trust, which sponsored the securitization.

The $238 million deal is collateralized by 255 loans that exceed Fannie Mae and Freddie Mac’s conforming high-cost loan limit of $729,750. Since 2008, jumbo originations have been limited to portfolio loans made by the large national lenders. Now that investors are showing a willingness to purchase securities of nongovernment–backed loans, a wider variety of lenders could return to the market.

3. Loan Mods Under Fire

The government program for helping hard-hit home owners avoid foreclosure is encouraging strategic defaults, says Barbara Novick of asset management giant BlackRock Inc.

Loan modifications made through HAMP are based on the home owners’ first lien debt, not overall debt. So even when lenders modify first mortgage debt to 31 percent of income, many borrowers continue to carry unmanageable debt-to-income ratios. The result too often is borrowers defaulting in order to qualify for a short sale or federal assistance, Novick says. BlackRock is shopping a proposal in Congress to replace HAMP with a temporary type of bankruptcy that requires subordinate debt to be eliminated first.

4. More Time for Tax-Credit Deals?

Slow-moving short sales have made it impossible for many buyers to meet the June 30 closing deadline to qualify for the government tax credit. So it was a relief when a bill was introduced in the Senate in June to extend the closing deadline to Sept. 30 for contracts that were already in place. As many as 180,000 households could benefit if the bill passes, NAR estimates. Meanwhile, members of the military, intelligence agencies, and the Foreign Service who spent at least 90 days overseas last year have until the end of April 2011 to get a contract in writing in order to qualify for the tax credit.

5. Housing Myths Busted!

Two e-mail chains are spreading misinformation about pending legislation, NAR says. One claims that the energy bill that’s working its way through Congress would require home sellers to obtain an energy audit or make energy retrofits before they can sell their home. In reality, the bill includes a provision that requires new construction to be energy-labeled but prohibits states from requiring new ratings when the house is resold.

The second e-mail states that the health care bill contains a 4 percent transfer tax on home sales. The truth is that the bill imposes a 3.8 percent Medicare tax for some high-income households that have "net investment income."

The tax, which goes into effect in 2013, applies only to households with adjusted gross income of more than $250,000 ($200,000 for individuals). Also, since the capital gains exclusion rule is still in effect, the tax would be charged only on home-sale proceeds that exceed the exclusion amount of $500,000 ($250,000 for individuals). That’s an amount that touches few households.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.