Saturday, June 17, 2017

Selling Commercial Property? Should you do it now? 1031 Exchanges Under Threat?



1031 Exchanges Under Threat?

DAILY REAL ESTATE NEWS | THURSDAY, JUNE 15, 2017
A major tax advantage for the commercial real estate industry may be one of the casualties in a sweeping federal tax reform expected this year, The Wall Street Journal reports.
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Some lawmakers are eyeing the 1031 exchange provision to get the tax-rate cut they seek. The provision allows sellers of real estate and other assets to defer capital gains taxes by reinvesting any profit in “like-kind” properties. The 1031 exchange applies to a range of assets, but real estate accounts for the largest portion of exchanges at 36 percent, according to Ernst & Young LLP data.
The Joint Committee on Taxation estimated in 2014 that repealing like-kind exchanges could raise $40.6 billion in extra tax revenue over one decade. Several lawmakers consider the provision to be loophole that has limited economic benefit and, therefore, some are looking to put it on the chopping block in order to pay for lower tax rates. For example, Mark Mazur, the director of the Tax Policy Center, says 1031 exchanges “really have become just a way to defer tax liability.”
However, real estate executives believe that any move to get rid of 1031 exchanges would be devastating to the economy and the industry. A recent report by Green Street Advisors says that like-kind exchanges are used in 10 percent to 20 percent of commercial real estate transactions.
Any threat to 1031 exchanges “would cause a lot of transactions not to occur,” says Jeffrey DeBoer, chief executive of the Real Estate Roundtable. He adds that investors who purchase real estate through 1031 exchanges are more likely to invest in those properties than those who pay cash. “Therefore, you have capital you can now put into the newly acquired property.” 
The House Ways and Means Committee has yet to release a bill on the matter, although The Wall Street Journal reports that the chatter among lawmakers on such legislation is growing.
Maintaining 1031 exchanges is a top priority for the National Association of REALTORS®. Earlier this year, NAR President William E. Brown said the association will meet any proposals to curb 1031 exchanges with strong resistance because the provision is a vital vehicle in driving commercial real estate development. “If that goes away, commercial real estate will be decimated,” Brown said earlier this year. “That’s something we’re being very clear about with Congress. This provision is to commercial real estate what [the mortgage interest deduction] is for residential real estate. We will fall on our sword for this.” 
Source: “1031 Exchanges, a Cherished Real Estate Tax Break, Faces Extinction,” The Wall Street Journal (June 14, 2017) [Log-in required.]

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Friday, June 16, 2017

Buying a Home? Zero-Down Loans Making a Comeback

Zero-Down Loans Making a Comeback

DAILY REAL ESTATE NEWS | THURSDAY, JUNE 15, 2017
Your buyers may soon be able to bring less to closing. They were blamed for precipitating the housing crisis years ago, but major lenders are giving no- and low-down payment loans another shot.
Several major lenders are reportedly offering loans with just 1 percent down. Navy Federal, the nation’s largest credit union, offers its members zero-down mortgages in amounts up to $1 million. NASA Federal Credit Union markets zero-down mortgages as well. Quicken Loans, the third highest volume lender, offers 1 percent down payment options, as does United Wholesale Mortgage. And the Department of Veterans Affairs has offered zero-down loans to eligible borrowers for many years.
Also, Movement Mortgage, a large national lender, has introduced a financing option that provides eligible first-time buyers with a nonrepayable grant of up to 3 percent. As such, applicants can qualify for a 97 percent loan-to-value ratio conventional mortgage, which is basically zero from the buyers and 3 percent from Movement. For example, on a $300,000 home purchase, a borrower could invest zero personal funds with Movement providing $9,000 down. The loan also allows sellers to contribute toward the buyer’s closing costs.
So far, the delinquency rates on these low- to zero-down payment loans have been minimal, according to lenders. Quicken Loans says its 1 percent down loans have a delinquency rate of less than a one-quarter of 1 percent. United Wholesale Mortgages told The Washington Post that it has had zero delinquencies from the borrowers on its 1-percent down loan since debuting it last summer.
For Movement’s new loan product, the lender will originate the loans and then sell them to Fannie Mae, which remains under federal conservatorship. Fannie officials released the following a statement: “(We’re) committed to working with our customers to increase affordable, sustainable lending to creditworthy borrowers. We continue to work with a number of lenders to launch test-and-learn that require 97 percent loan-to-value ratio for all loans we acquire.” They add that there “is no commitment beyond the pilots," which are “focused on reaching more low- to-moderate income borrowers through responsible yet creative solutions.”
During the housing crisis, zero-down loans were among the biggest losses for lenders, investors, and borrowers. However, housing experts say the latest versions are different from years ago. Applicants must now demonstrate an ability to repay what’s owed. They also must have stellar credit histories and scores, and lenders require a lot more documentation to prove borrowers are in good standing. Also, many of the programs are charging higher interest rates. For example, Movement’s rate for its zero-down payment option in mid-June was 4.5 percent to 4.625 percent, compared with 4 percent for its standard fixed-rate mortgages.
Some critics say that the borrowers who really could benefit from such options aren’t able to qualify for them. Paul Skeens, president of Colonial Mortgage Corp. in Waldorf, Md., told The Washington Post that “it seems like people without excellent credit scores and three months of [bank] reserves don’t qualify.”Source: “No Down Payment? No Problem, Say Lenders Eager to Finance Home Purchases,” The Washington Post (June 14, 2017)


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