Ways to reduce federal deficit include changes in homeowner deductions

The article "Ideas to cut the federal deficit could cost homeowners billions" on latimes.com looks at some of the options the Congressional Budget Office has proposed to reduce the deficit. Among the ideas that might be of interest to homeowners:

• Get rid of all write-offs for state and local taxes, including property taxes. That would pump $343 billion into federal coffers from 2010 to 2014, and $862 billion by 2019.


• Clamp a 15% cap on the value of all itemized deductions -- not just mortgage interest and property taxes but also charitable contributions, medical expenses and casualty losses. The revenue windfall: $1.3 trillion over 10 years.


• Revert to the capital gains approach that prevailed before 1987. Rather than taxing most gains at 15% as the current code does, the CBO plan would exclude 45% of gains from taxation and tax the remaining 55% at an individual’s regular tax rate.

At the top of the list was to "slash deductions for homeowner mortgage interest from the present $1.1-million limit to $500,000, phased in with $100,000 annual reductions starting in 2013." I'm not sure why we ever needed a million-dollar-plus deduction in mortgage interest each year in the first place.

-- Lauren Beale

Thoughts? Comments?

Pomona man accused of running Ponzi scheme has companies shuttered

A Los Angeles federal judge barred Ben-Wal Leasing Co. and Ben-Wal Management Inc., and the owner of the two companies, from doing business in response to a complaint alleging investor fraud filed by the Securities and Exchange Commission.

The civil complaint said the two firms, based in Pomona and run by Jerry E. Benson, ran a Ponzi scheme that took nearly $6 million from about 125 investors, many of them elderly, from mobile home parks throughout California.

The court ordered a halt Wednesday to the alleged fraud and also froze the assets of Benson and his Ben-Wal companies. “Mr. Jerry Benson has and will continue to cooperate with the SEC’s efforts to recover investor funds,” Benson's lawyer, J. Brian Watkins, said in a statement.

“Though cooperating with the SEC, Mr. Benson disputes any allegations of fraudulent conduct and notes that the continuing shift from print to electronic media combined with the economic downturn resulted in a failure of the business,” Watkins said.

In the complaint, the SEC said that since about 1990 Benson had been offering and selling investments in Ben-Wal Leasing through promissory notes. Investors were lured with guarantees of 12% annual returns, and Benson told potential investors that others had earned returns as high as 18%, the commission said.

Ben-Wal Leasing raised at least $5.7 million from about 125 investors from 2004 to April of this year, court documents said. Mobile home parks across the state were specifically targeted with circulated advertisements, the complaint said.

Investors were falsely told that financiers had never lost money through Benson and that their money would be used to buy printing equipment that would be leased out with the lease payments producing the promised 12% returns, the SEC said.

Instead, much of the funds were transferred to a company owned and operated by Benson’s son, Scott W. Benson, known as CTR Web Printing Inc., court documents said.

CTR Printing also was the only company leasing printing equipment from Benson, though CTR failed to make regular lease payments to Ben-Wal Leasing, the complaint said.

New investor funds were used to make principal and interest payments to previous Ben-Wal Leasing investors, the SEC said.

In May 2009, Benson and Ben-Wal Leasing received a desist-and-refrain order issued by the California Department of Corporations, which demanded the man and his business stop offering or selling securities in California in violation of state law.

The SEC’s complaint said that Ben-Wal Leasing stopped making interest payments to investors in June 2009, but then started up a new company, Ben-Wal Management Inc. to continue selling notes.

When Benson stopped paying investors, he told them it was because of an audit; later investors were told they weren’t getting paid because the SEC wasn’t approving his payments, but that he was working with the commission to “expand business,” the complaint said.

The court order also froze the assets of CTR Printing and appointed a temporary receiver over the two Ben-Wal companies and CTR. Investors are asked to contact the SEC’s Los Angeles Regional Office by telephone at (323) 965-4574 or by e-mail at ben-wal@sec.gov if they have questions about the commission’s actions or future court hearings.

-- Nathan Olivarez-Giles

Activist group challenges mortgage lender in front of L.A. family's home

More than two dozen members of the Assn. of Community Organizations for Reform Now, better known as ACORN, gathered outside the home of a Los Angeles truck driver and his family this afternoon in an effort to keep the home from being sold.

The small rally was a part of the activist group's "Home Wreckers" campaign targeting lenders that aren't adjusting home loans under the Obama administration's $75-billion Making Home Affordable plan and other home-saving efforts from the federal government, said Anthony Panarese, an ACORN organizer.

The demonstration took place in front of the foreclosed residence of Jose Rodriguez, who lives in the home with his wife and three sons, in Huntington Park shortly after 2 p.m.

Rodriguez has unsuccessfully tried over the last two years to modify his mortgage with lender Litton Loan Servicing, owned by Goldman Sachs & Co., Panarese said. Calls to Litton, based in Houston, requesting comment weren't returned.

The ACORN campaign also targets other lenders,including American Home Mortgage Investment Corp., OneWest Bank Group, formerly known as IndyMac, and HomEq Servicing, owned by Barclays.

In July, the U.S. Treasury Department criticized lenders, including banks JPMorgan Chase, Wells Fargo and Bank of America, for not helping enough homeowners on their mortgages.

The Obama administration asked lenders to modify 500,000 mortgages by Nov. 1 using the government's Making Home Affordable plan, which subsidizes lender's costs when lowering loan payments for those in need.

About two months ago, Rodriguez and Litton agreed to a loan modification, but then the lender backed out of the agreement and decided to foreclose on the home, Panarese said.

The company tried to sell Rodriguez's home in a foreclosure auction July 15, but it didn't sell, so the ownership of the property reverted to Litton, he said.

Rodriguez, whose income has taken a hit in the recession, bought the home in 1994 with an adjustable rate mortgage from Litton, Panarese said.

-- Nathan Olivarez-Giles

Next foreclosure wave is in view

 

That much talked about "next wave" of foreclosures is on the horizon, according to a report by The Times' Don Lee:

Amid rising unemployment and falling home prices, mortgage defaults have surged to record levels this year. Until recently, many banks have put off launching foreclosure action on the troubled properties, in part because they had signed up for the Obama administration's home-stability plan, which required them to consider the alternative of modifying loans to make it easier for borrowers to make payments.

Just how big the foreclosure wave will be is unclear. But loan defaults are up sharply. And with many government and banks' self-imposed foreclosure moratoriums expiring, the biggest lenders indicate that they are likely to move more aggressively to clear up a backlog of troubled mortgages.

... rising foreclosures will depress home values, pushing more homeowners underwater. Mark Zandi of Moody's Economy.com estimates that 15.4 million homeowners -- or about 1 in 5 of those with first mortgages -- owe more on their homes than they are worth.

Out-of-work homeowners aren't going to qualify for loan modifications.

California accounts for an outsized share of mortgage loan defaults. A stunning 135,431 homeowners in the state were hit with notices of default in the first quarter, an increase of 11% from the earlier peak in the second quarter of 2008, according to real estate information service MDA DataQuick.

On top of state IOUs, budget woes and a statewide moratorium on housing foreclosures, California will be working its way through this for a long time.

-- Lauren Beale

Thoughts? Comments?

Photo: A sign promotes free bus tours of foreclosure properties outside a real estate office in Victorville on June 15, the first day of a 90-day moratorium on foreclosures. The California Foreclosure Prevention Act pressures lenders to work to keep borrowers in their homes. Credit: Robyn Beck / AFP/Getty Images

FTC investigates Van Nuys companies

A local company is among the targets of a Federal Trade Commission crackdown on consumer fraud. From The Times' Jim Puzzanghera:

One of the FTC's new cases alleged that five Van Nuys companies had bilked consumers out of about $300 million by selling fraudulent programs related to real estate or online businesses.

The companies -- John Beck Amazing Profits, John Alexander, Jeff Paul, Mentoring of America and Family Products -- and five people who had founded or run those companies were accused of violating federal laws related to telemarketing and consumer fraud.

The FTC accuses the companies of making "false and unsubstantiated claims about potential earnings" that customers could make by following their advice in books, CDs and DVDs titled "John Beck's Free & Clear Real Estate System," "John Alexander's Real Estate Riches in 14 Days" and "Jeff Paul's Shortcuts to Internet Millions," which were sold for $39.95 each.

People who purchased the programs, advertised through infomercials, unknowingly were signed up for additional monthly charges of $39.95 and offered "personal coaching services" that cost several thousand dollars.

Messages left at the companies' offices were not returned Wednesday.

Anyone in L.A. Land have any first-hand experience with any of these outfits? By the way, the FTC is calling this push "Operation Short Change."

-- Lauren Beale

Thoughts? Comments?

 

Do you agree with Barney Frank?

When I was in Washington, D.C., last week, Rep. Barney Frank (D-Mass.) and a couple of other politicians addressed a group of journalists gathered on Capitol Hill to cover the administration's overhaul of finance rules. I hesitated to blog on it because have you ever heard the man speak? It's a stream of mumbling.

With that caveat, he said a couple of discernible things worth recounting.

No. 1: "The notion that homeownership is a universal goal is greatly flawed," Frank said. There are people "for whom rental housing is ideal." His point: Homeownership society thinking contributed to the housing bubble.

No. 2: "The ability to securitize 100% of loans caused the bubble," he said. One of the critical changes going forward is that lenders keep some "skin in the game," he said, and retain at least a 5% stake in the loans they make.

I agree on No. 1 and, as for No. 2, I think a 5% stake is better than nothing, but I have no idea if it's enough.

And while we're talking about having skin in the game, he concluded with this idea: When home prices appreciate, a lot of problems can go unchecked and unnoticed. "But when the tide goes out," he said, "you can see who has been swimming naked."

-- Lauren Beale

Thoughts? Comments?

Photo: Rep. Barney Frank (D-Mass.) says lenders need to retain at least a 5% stake in the loans they make. Credit: Brendan Smialowski / Bloomberg News

Hurdles to resolving the foreclosure crisis

Even with loan modifications and refinancing programs moving forward, the end of the foreclosure crisis is not around the corner, a panel of government officials and consumer advocates told real estate reporters and editors at a recent conference.

Among the factors slowing progress are loan servicers still gearing up for the task, the recession and for-profit foreclosure prevention firms handing out misinformation.

With about three-quarters of mortgage servicers onboard, Deputy Treasury Secretary Seth Wheeler said the administration's loan modification program "is not performing up to expectations yet." About 150,000 trial modifications have been completed and, as servicers work to beef up their staffing and training, tens of thousands are in the works. The goal is 9 million reworked mortgages over the next several months, Wheeler said.

Economic conditions, however, are working against refinancing, said John Walsh, chief of staff of the Office of the Comptroller of the Currency.

"The continued decline in home prices of course makes refinancing more difficult," Walsh said. And unemployment is "only beginning to take its toll now." The agency is tracking data and will report on progress at the end of the month. A 52% failure rate was reported in the fall for mortgage modifications.

David Berenbaum, vice president of the National Community Reinvestment Coalition, called on newspapers to stop running ads by "for-profit racketeers who charge on average $2,900 to consumers for poor advice." Examples he cited included counsel to not pay the mortgage or contact the service provider. HUD-approved counselors will help consumers for free.

Among organizations administering foreclosure-mitigation counseling services is NeighborWorks America, a congressionally chartered nonprofit network of more than 240 community development and affordable housing organizations.

Ken Wade, chief executive officer of NeighborhoodWorks, said there needs to be "transparency on results" and more information on people who are getting assistance "to see what's working."

If the new programs can keep up with the changing nature of the nation's housing problems, he said, they "have a better chance at working."

-- Lauren Beale reporting from Washington

Thoughts? Comments?

Reining in boom-and-bust cycles

With real estate and mortgages at the heart of the financial crisis, one of the critical parts of the government's reworking of finance rules will be to figure out how to dampen some of the booms and busts, said James Lockhart, director of the Federal Housing Finance Agency, the umbrella entity that regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks.

"We failed to appreciate how high home prices had risen and how fast they could fall," Lockhart said in an address to a gathering of real estate and finance reporters in Washington. The FHFA head will be on the Financial Services Oversight Council, announced by the White House last week along with other financial regulation overhaul plans, that will look at systemic risk.

As private money has dried up, Fannie Mae and Freddie Mac have increased their share of lending to account for the majority of U.S. home loans. 

The FHFA's goals of providing stability, liquidity and affordability in the mortgage market are being realized, Lockhart said, as Fannie Mae and Freddie Mac have begun to stabilize. The two government-sponsored entities, which were taken over by the government last fall, buy home loans from lenders and package them into securities to sell to investors or the Federal Reserve.

However, Lockhart noted, "from the standpoint of profitability, it’s going to be a couple more years."

--Lauren Beale, reporting from Washington

Thoughts? Comments?

Photo: Federal Housing Finance Agency Director James Lockhart. Credit: Carol T. Powers / Bloomberg News

Foreclosures: Fast road to more problems or a way to stabilize the housing market?

Why not let foreclosures run their course so the home market can reset to a sustainable level -- a sentiment often expressed on L.A. Land comment boards -- was among questions asked of Shaun Donovan, secretary of the Housing and Urban Development Department, Thursday at the National Assn. of Real Estate Editors conference in Washington. His keynote address came on the heels of President Obama's announcement of major changes in rules governing financial institutions.

"Foreclosures were a part of the problem," Donovan said, "rather than a path to a solution."

Taking no action and allowing more foreclosures to occur "wasn’t going to lead to a bottom but to a much more substantial decline," he said.

Programs underway to help homeowners who are not yet in arrears refinance their loans or to modify the loans of borrowers who are in default are just part of the government's plans to stabilize the housing market. Also in the works as part of the president's overhaul plans are simpler loan terms, requiring originators to keep a 5% stake in their mortgages and increased efforts to stop fraud, he said.

The HUD secretary acknowledged government efforts have their limits.

"Clearly some families are in homes they can’t afford," Donovan said. "We can’t stop every foreclosure."

OK, L.A. Land you heard the man. Opinions?

--Lauren Beale, reporting from Washington

Thoughts? Comments?

Photo: HUD Secretary Shaun Donovan. Credit: Melissa Golden / Bloomberg News

Treasury Secretary Geithner's New York home has no takers

 

It's out of our area, but if you're having trouble selling your home, here's some solace from the misery-loves-company department. From the Associated Press:

 The real estate market’s troubles are hitting close to home for Treasury Secretary Timothy Geithner.

After reducing the price on his house in a tony New York City suburb to less than he paid for it, Geithner still couldn’t sell and recently rented it out instead, according to real estate agents familiar with the deal.

Geithner put his five-bedroom Tudor near leafy Larchmont on the market for $1.635 million in February, after heading to Washington for his job as the nation’s top economic official.

A few weeks after the asking price was dropped to $1.575 million, the home was rented for $7,500 a month on May 21, said the agents, Scott Stiefvater of Stiefvater Real Estate and Debbie Meiliken of Keller Williams Realty New York.

 While that sounds like a lot for rent, it probably falls a bit short of the monthly mortgage payments on the Geithners’ two loans totaling $1.25 million, plus $27,000 a year in property taxes.

To me, it doesn't seem like it's been on the market an inordinately long time but what stunned me as a Californian are those property taxes.

-- Lauren Beale

Thoughts? Comments?

Photo: Records the Geithners paid $1.602 million for the home in 2004. Credit: Stephen Chernin / Associated Press