[bsrsharma]

patient – There is this feeling among many that this plan is some great giveaway. It is really not if you read the details.

1. It extends FHA guaranteed loan conversions (to fixed mortgages) to people who are CURRENT on their mortgages. Almost zero taxpayer money involved. If any, some losses will be borne by lenders since they won’t get their juicy yields. The CMO holders will feel stiffed. Why should taxpayers worry?

2. It allows homeowners with upside down loans to petition the lender for partial loan forgiveness (probably for a short sale). The lender has to agree to that. It seems to be a vary laborious and difficult process, and usually denied. With the proposed rule, with possibility of fraud you described, lenders will be even more stingy in allowing any forgiveness. I am sure they will never allow it for recourse loans (HELOC). They will be incredibly stupid to allow that and I am sure the IRS rules will be written to exclude them from tax leniency. No fear of subsidizing Vegas, drugs etc.,

IRS will write the law to carefully verify that the loans are non-recourse, limited to small amount and may even demand personal bankruptcy from the borrower to prove hardship. Nobody has ever accused IRS of being kind and forgiving.

[bsrsharma]

5th year with no rent increase

Can you reveal some details (location, sqft, rent etc.,) ?

[bsrsharma]

I can well understand your example. I am just confident that IRS is at least as competent as you and me to prevent this open fraud. They are going to institute a sequence of “Tests” you have to jump through to qualify. Hey, you can’t even write off a room in your home as home office that easily.

[bsrsharma]

HLS – I think you are too cynical towards FED. I think FED will be lot more responsible than the government. One thing they don’t have to contend with is elections & votes. That makes things a little more rational. Secondly, they have to try very hard not to seriously upset confidence in $. Else, they will compound the problem by significant devaluation. The ice is very thin here. One major wrong move and the reserve currency status can easily collapse. The European and Asian banks have taken major hits and won’t shed a tear if $ goes the way of British Pound.

[bsrsharma]

I took a cue from my POT smoking … who sold his house to a drug dealer, so I sold my house for over 700K to a …

There will be lot of juicy paperbacks in 20 years about these times.

 

[bsrsharma]

CostaMesa – What area is that? (We lived in CM in ’91 on Harbor)

[bsrsharma]

stan,

upload to a website and post the link.

[bsrsharma]

I need to find a way to get the corporation's money into my own pocket while minimizing taxes.

Commendable idea – done legally.

Under the mortgage debt forgivess plan, the corporation gives me $1 million home equity loan.

I am not sure the proposed tax exemption on mortgage debt forgiveness covers HELOC?

I default. I still have $1 million and pay zero in income or payroll taxes. The corporation gets to deduct $1 million as an expense. Uncle Sam is the loser.

Obviously this is fraud. I am certain the tax exemption will skip HELOC for this reason.

This would work great for estate planning purposes as well to transfer wealth the next generation. Say I have $10 million I want to transfer to my heir free of estate taxes. I give him a $10 million mortgage on his POS house.

I think this will be prevented by putting a limit, say $417K, for the program.

He defaults, still has the $10 million but neither he nor I paid any estate tax.

Since it was a mortgage, the heir should not have the money. It should have gone to the sellers, unless fraud is involved.

Sure they can limit the amount to $10,000. But smart people will find a way to profit. I have a maid who makes $25k per year. Instead, I can just pay her $15k in salaray and give her $10k home equity loan. She defaults, keeps the $10k. The $10k in "effective compensation" is tax free. She pays no income taxes and I pay no payroll taxes. What a great deal!!!

Powerful reason why HELOC should not benefit from the program. I think the existing law also distinguishes between recourse loans and non-recourse loans for this reason. HELOCd people will have to rot in debtors hell all their life.

[bsrsharma]

if you have cash

Yeah, that quaint habit called Saving will be fashionable again!

[bsrsharma]

California would have been reduced to this…

What has California got to do with it? It was a national & even international thing. The problem was with dumbvestors who loaned money to any worm that could crawl. That 20 year old and her ilk are the reason this nation is going to be cured of the addiction. Thank her for affordable house prices for the next 20 years!

[bsrsharma]

if all of the people stacking up on the sidelines of SFH purchases ….

I think those are much smarter in reading the tea leaves. Most who haven't bought yet, won't buy till there is lot more blood in the water!

[bsrsharma]

That link has good graphics and explanation. But in the present situation, it may be good to remember the caveat "Past performance is not necessarily indicative of future results". The reason being, the situation is not lack of money as much as lack of trust. Lack of money can be fixed by tweaking FFR, but that won't infuse trust. How are you going to tell all those who lost their pension funds in Europe and Asia that US borrowers really want to pay back their debt? How will you prove to them that a piece of paper stamped AAA by Moody's or S&P has value?

I think the days of splurging on foreign capital are over. We can only lend to each other what we save. And that is not a lot.

[bsrsharma]

SD – I couldn’t understand their train of thought; if there is one. What is the “qualify” for? and what “bail out” they hope may come? If they think like that, they will be even more screwed.

[bsrsharma]

Actually I like both their stances. What I grasp from those comments of BB – after we have a severe recession (2 back to back -ve growth), I will wakeup. Till then, watch me have fun as the drama unfolds. Perfectly sensible. He will watch the murders with detachment and come later to bury the bodies.

[bsrsharma]

Patiently – I think I have a problem understanding your logic. This Tax break will allow all homeowners who are upside down to walk away harmless and start from a clean slate. Imagine the mountain of REOs and the downward pressure on prices! The lenders will be so screwed I can imagine the whole mortgage market practically shutting down! 40% down payment will become de rigeur in many markets.

Coming to your example; Your corp has LOANED you a Huge mortgage, right? You default; The Corp has a loss. It may take a writeoff. The seller of the house would have paid tax on it anyway (beyond 250K/500K residential exemption, if any). I don’t see a big problem. As long as the tax writeoff is accompanied by a foreclosure or bankruptcy entry on your credit, I don’t think I would begrudge your “good fortune”.

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