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4 Problems With Mortgage Interest Deduction

March 30, 2010 By 1 Comment

Daniel Indiviglio, The Atlantic

I just complained about how the government does too much to prop up some industries. Perhaps the most obvious example of this over the past few years has been residential real estate. Washington bailed out Fannie and Freddie, offered a home buyer tax credit and spent billions to prevent foreclosures, to name just a few of numerous tactics used to prop up housing. Another way it has done this for nearly a hundred years is through mortgage interest deduction. By allowing taxpayers to deduct their mortgage interest from their taxable income, they have a greater incentive to buy a house. Is this a good idea?

An article by Agnes Crane from Reuters Breakingviews argues against this concept today, and I largely concur with her analysis. I don’t see any compelling practical or even philosophical reason why home ownership should be encouraged by the government. There is neither shame in renting nor virtue in owning.

But when you look at the details of mortgage interest deduction up close, you begin to see how ugly it really is.

Arbitrary Taxation

First, think about what it means when a homeowner manages to pay less in taxes than a renter. Assuming they both had the same income and their other deductions were identical, the homeowner gets an additional tax break merely because she chose to purchase a home. How is that fair? That would be like if the government arbitrarily decided that the diamond industry was worth supporting, so it allowed anyone who happens to buy jewelry containing diamonds to deduct the expense from their taxes.

Read more here: http://www.theatlantic.com/business/archive/2010/03/4-problems-with-mortgage-interest-deduction/37907

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How $50 Billion in TARP Money Is Being Spent on Housing

March 30, 2010 By 1 Comment

By Nick Timiraos, Wall Street Journal

The Obama administration is stressing that the revamp of its foreclosure prevention efforts won’t cost any more taxpayer money.
That’s because the administration hasn’t come close to using the $50 billion from the Troubled Asset Relief Program (TARP) that it set aside for its loan modification program last year.

That money helps cover the cost of lowering borrowers’ monthly payments, usually by reducing interest rates and extending loan terms to 40 years. Loan servicers that handle mortgage payments also receive incentive payments for successfully modifying mortgages under the Home Affordable Modification Program, or HAMP. Borrowers are eligible for payments after one year in the program.

Separately, the administration said last week it would begin requiring banks to consider writing down loan balances for borrowers who owe 115% of their home value. Lenders will receive 10 to 21 cents of federal subsidies for every dollar of loan principal reduced, depending on the degree to which the borrower is underwater.

HAMP has resulted in just 170,000 permanent modifications so far and is being revamped to reach more borrowers. That means the $50 billion outlay from TARP has essentially become a housing slush fund that doesn’t require congressional approval for every new outlay or program change.

Here’s a look at where some of the money is going:

http://blogs.wsj.com/developments/2010/03/30/how-50-billion-in-tarp-money-is-being-spent-on-housing/?mod=e2tw

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N.Y. Court Places Burden on Bank of Showing Notice of Foreclosure

March 30, 2010 By Leave a Comment

Vesselin Mitev, Law.com

Failure to give proper notice to a homeowner under New York’s foreclosure fraud law is a defense that can be raised at any time, a Brooklyn appeals court has ruled in a decision of first impression at the state appellate level.

In dismissing a foreclosure suit against homeowner Alan Silver, a panel of the Appellate Division, 2nd Department, held that the lender seeking to foreclose had the burden of showing strict compliance with the state’s Home Equity Theft Prevention Act.

The act, codified in Real Property Law §265-a, requires that a homeowner be served with a foreclosure notice on a separate, colored page with a “bold, twenty-point type” title and “bold, fourteen-point type” in addition to a summons and complaint. Enacted in 2007, the law aims to curb foreclosure-related schemes that encourage homeowners in financial distress to sign over their houses to buyers who promise to pay off the debt but disappear once they have the title.

In reversing Supreme Court Justice Karen V. Murphy in Nassau County, N.Y., a four-judge appeals panel in First National Bank of Chicago v. Silver, 18539/07, disagreed with the bank’s argument that complying with the statutory notice requirement was a “red herring.”

“We hold that this is a condition precedent which is the plaintiff’s burden to meet, and which does not have to be raised as an affirmative defense in the answer,” Justice Anita R. Florio wrote for the panel. Justices Mark C. Dillon, Ruth C. Balkin and John M. Leventhal joined the opinion.

Read more here: http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202447054812

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NYC to offer legal aid to those facing foreclosure

March 30, 2010 By Leave a Comment

Mayor launches program to train and dispatch 300 volunteer attorneys; vows “no family facing the loss of their home should be without representation.

Amanda Fung, Crains New York

The city announced Monday that it will be offering free legal support for New Yorkers at risk of losing their homes to foreclosure.

The new program will be offered through NYC Service, which was launched last year by Mayor Michael Bloomberg to provide volunteer services to different sectors across the city suffering from the recession. The program will train and dispatch 300 volunteer attorneys to expand the legal services already provided by nonprofits to homeowners facing foreclosure.

The mayor unveiled the new initiative at the Queens County Supreme Court on Monday. Also on hand were Fern Fisher, deputy chief administrative judge for New York City courts, Michael Hickey, executive director for the Center for New York City Neighborhoods and Hilary Gingold, an attorney with extensive experience working on foreclosure proceedings.

“The city has not been hit as hard as some other areas by the foreclosure crisis, in part due to our efforts, but we are seeing a serious impact,” said Mayor Bloomberg, in a statement. “No family facing the loss of their home should be without representation. With a small commitment from just some of the 90,000 attorneys in the City, we can make sure every family in need has a better chance of staying in their home.”

The program, dubbed NYC Service Legal Outreach, will provide homeowners legal assistance during the mandatory settlement conference, which is when the homeowner and bank meet to negotiate alternatives to a foreclosure. Under a recently passed New York state law, these conferences are required before foreclosures can proceed.

Read more here: http://www.crainsnewyork.com/article/20100329/REAL_ESTATE/100329845

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