The collapse of the housing market a few years ago was caused, reportedly, by predatory lending practices on people who couldn’t really afford to buy a house, coupled with shady investment instruments from the world of high finance. But a new study is questioning that conventional wisdom. Most of the people with bad loans turn out to be middle class and high income folks, with very few poor people involved. The real problem, as Robert Samuelson reports, was unbridled optimism from virtually everyone in the housing industry that home prices would continue to go up forever. [Read more…]
Homeowners who were underwater on their homes but who took advantage of mortgage relief programs face the prospect of the IRS calculating the amount by which a portion of their loan was forgiven as income. [Read more…]
The Bush tax cuts aren’t the only measures that expire on New Year’s Day. So will the Mortgage Forgiveness Debt Relief Act of 2007. Without that law, homeowners who have negotiated a short sale–that is, have part of their mortgages forgiven by the lender because they are so far underwater when they sell their home–will have to count the amount chopped off their mortgage as income for tax purposes.
Say a person owes $200,000 on his house but it’s only worth in today’s market for $100,000. If the mortgage is held by the federally regulated lender Fannie Mae or Freddie Mac, there is a federal program that makes it possible for the underwater amount to be forgiven when the home is sold at market value. So in a short sale, the person might be able to sell the home for $100,000 but be clear of the mortgage. But after New Year’s Day, he will have to declare the $100,000 that Fannie Mae wrote off as if it were money that he actually received. And then pay taxes on it!
Various bipartisan bills have been proposed to extend the Mortgage Forgiveness Debt Relief Act, but no votes are scheduled, and it isn’t part of the package that either side is proposing in the fiscal cliff negotiations.
The housing market woes are having a big impact also on houses of worship, as banks are increasingly foreclosing on churches:
(Reuters) – Banks are foreclosing on America’s churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data.
The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance.
Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group.
In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before.
The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches.
The highest percentage have occurred in some of the states hardest hit by the home foreclosure crisis: California, Georgia, Florida and Michigan.
“Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches,” said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler.
Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.
Its common practice for banks to refinance such loans when they come due. But banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets, said Rolfs.
“A lot of these loans were given when the properties were evaluated at a certain level in 2005 or 2006,” Rolfs said. “Banks have had to reappraise the value of these properties, whether it’s a church or a commercial office building. Values have gone down, so the loans cannot continue in the same form.” . . .
Solid Rock Christian Church near Memphis, Tennessee, took out a $2.9 million loan with the Evangelical Christian Credit Union at the beginning of 2008, to construct a new, 2,000 seat, 34,000 square-foot building to house its growing congregation.
In the middle of construction, the economy crashed. The church raided its savings to finish the project, but ended up defaulting on the loan.
The ECCU foreclosed and put the church up for auction.
“We are still fighting this,” a church spokesman told Reuters. “We have filed for bankruptcy to stop this foreclosure and to restructure our debt.”
Though the article says that small and medium size churches are most affected–there are more of those–the example is of a megachurch. My impression is that lots of big congregations may have become over-extended in building their big “campuses.” Again, the problem is not so much failure to make payments on a conventional mortgage but having to make a “balloon payment” after a few years, only to find the decrease in the value of the property makes refinancing impossible. I didn’t realize that churches could go bankrupt.
Have any of your churches had problems like these?