New mortgage program offers lower payments

Story originally appeared on USA Today.

The federal government on Wednesday announced a new loan modification program designed to help many more struggling homeowners than previous initiatives by requiring no documentation of income or financial hardship.

Under the Streamlined Modification Initiative, borrowers with loans backed by mortgage finance giants Fannie Mae and Freddie Mac must be at least 90 days delinquent on their mortgages and and make three trial payments on time. The initiative is being launched by the Federal Housing Finance Agency, which regulates Fannie and Freddie.

"This new option gives delinquent borrowers another path to avoid foreclosure," says FHFA Acting Director Edward DeMarco.

Other programs to aid struggling homeowners, such as the Home Affordable Modification Program (HAMP), required borrowers to provide financial, income and hardship documentation. That created bureaucratic bottlenecks for many mortgage servicers, which limited the effectiveness of the programs.

The new initiative will begin July 1, 2013, and end Aug 1, 2015. By July 1, mortgage servicers must identify delinquent borrowers and send them a letter offering the modification.

To reduce their monthly payments, borrowers will get a new interest rate that's equal to or below their current rates, based on the average of 30-year fixed mortgages, and the term will be extended to 40 years. Also, borrowers who owe more than their homes are worth will pay no interest on up to 30% of their unpaid balance. Borrowers, on average, are expected to reduce their monthly payments by 30%.

FHFA notes that in most cases, borrowers who provide proof of income and financial hardship can receive a more affordable monthly payment through the HAMP program.

To be eligible for the new program, homeowners must be 90 days to 24 months delinquent on their loans. They also must have a first-lien mortgage that's at least 12 months old, and the amount they owe on their mortgages must be at least 80% of their home value.

FHFA says it has screening measures in place to ensure that the new program isn't exploited by strategic defaulters — people who stop paying their loans to get a modification.

FHFA officials have not estimated the number of borrowers they expect to participate. But in a pilot program, 70% of those offered the opportunity took part in the trial, and 50% of the latter group received a permanent loan modification.

Ira Rheingold, executive director of the National Association of Consumer Advocates, says the program "is not a bad idea" because it addresses mortgage servicers' paperwork snafus.

"It's a solution for some people who just want a roof over their head and don't want to lose their home," he says.

But it will not be the best option for homeowners who could save more money through other programs that require documentation, Rheingold says.

More critically, he says, the program doesn't lower the principal owed by borrowers to give them more equity in their homes. FHFA has been unwilling to do that.

About one in five homeowners owe more on their mortgages than their homes are worth. That's been an impediment to the revival of the housing market and the economy.

"Unless they address principal reduction, it's not good enough," Rheingold says.

Fannie and Freddie helped 130,000 homeowners avoid foreclosure in the fourth quarter, pushing their total such successes last year to 540,000, according to FHFA. Since 2008, they have helped 2.7 million borrowers avoid foreclosure, including 1.3 million through loan modifications and the remainder through repayment and forbearance plans, short sales and other strategies.

Puerto Rico Creates Tax Shelters in Appeal to the Rich

Story originally appeared on the New York Times.

Known for its white-sand beaches and killer rums, Puerto Rico hopes to stake a new claim: tax haven for the wealthy.

Since the beginning of the year, the island has gone on a campaign to promote tax incentives that took effect last year, marketing its beautiful beaches, private schools and bargain costs in an effort to lure well-heeled hedge fund managers and business executives to its shores.

So far, Puerto Rico’s pitch has attracted a handful of under-the-radar millionaires. Several American executives of mostly smaller financial firms say they have already relocated to the island, and Puerto Rican officials say another 40 persons, mostly from the United States, have applied.

The tax savings could add up to “at least in the six figures” each year, said Barry Breeman, an American who said he was moving to Puerto Rico with his wife. Mr. Breeman is the co-founder of the New York-based Caribbean Property Group, a real estate investment firm that has substantial holdings on the island.

Millionaires are nice, but Puerto Rican officials hope to reel in billionaires like John A. Paulson, the hedge fund manager who Bloomberg News reported earlier this month was weighing a move.

The attention prompted an unusual statement from Mr. Paulson, which declared that he was not relocating. (Still, Mr. Paulson, a 57-year-old New Yorker, had briefly considered a move, say two people with knowledge of his plans.)

If not Mr. Paulson, government officials and real estate brokers in Puerto Rico hope to sell other wealthy mainland Americans on what they hope will become the next Singapore or Ireland as a favored low-tax destination. Puerto Rico is closer and, compared with Ireland, decidedly warmer. And unlike in Switzerland or other havens, in Puerto Rico, Americans do not give up their citizenship.

“There’s nothing wrong with spending 183 days a year on a sailboat or yacht and working from here,” said Alberto Bacó Bagué, the secretary of economic development and commerce for the island, in a telephone interview. “We’re catching up to Ireland and Singapore — you can shelter income legally, and legally in a good way.”

Puerto Rico is a commonwealth of the United States, but for tax purposes, it is treated differently. Most residents of Puerto Rico, with the exception of federal employees, already pay no federal income tax. A person needs to live 183 days a year on the island to become a legal resident.

The new tax breaks are a twist on the island’s tradition of using tax perks to bolster the economy. Puerto Rico’s per-capita income is around $15,200, half that of Mississippi, the poorest state in the nation. In 2006, a previous incentive exempting United States companies from paying taxes on profits from Puerto Rican manufacturing ended after Congress said that the incentive had bilked taxpayers.

The new tax breaks are a radical shift in that they focus on financial, legal and other services, not manufacturing. Puerto Rico slashed taxes on interest and dividends to zero from 33 percent, and it lowered taxes on capital gains, a major source of income for hedge fund managers, to zero to 10 percent.

The incentives work with existing United States breaks. While residents still have to file a federal tax return, they do not have to pay capital gains taxes of 15 percent on assets held before moving and sold after 10 years of island residency.

The new tax incentives “likely will be considered more broadly by some taxpayers as a new opportunity for income shifting and tax deferral,” said Michael Pfeifer, an international tax lawyer at the law firm Caplin Drysdale in Washington.

Mr. Bacó, the Puerto Rican economic development official, is planning a road show on the East Coast next month to woo financial and law firms as well as wealthy individuals to moving to Puerto Rico.

Because of its new aggressive tax breaks, Puerto Rico is a supercharged version of Florida, which does not tax individuals on ordinary income.

Recently, a business development group in Palm Beach, Fla., wined and dined 10 executives from the Northeast who had flown in for a two-day tour showcasing the state’s tax advantages, complete with golf outings, showings of oceanfront office space and a soiree aboard a yacht.

Florida has already landed one big fish: Edward S. Lampert of ESL Investments moved his headquarters from Greenwich, Conn., to near Miami last year.

The sales pitches by Florida and Puerto Rico tap into a growing resentment among affluent people who feel that they have been vilified by politicians or believe they have unfairly become targets for disproportionately higher taxes. In one highly publicized example, the actor Gérard Depardieu, angry over a plan by the French government to raise taxes to 75 percent for the wealthy, accepted a Russian passport from President Vladimir V. Putin. Russia has a flat tax rate of 13 percent.

But a move to Puerto Rico may be easier said than done. Privately, some lawyers and accountants in the United States express concern that individuals who move to the American island for its lower taxes might appear “unpatriotic” in a widening crackdown by authorities on offshore tax dodging through Switzerland, Israel and Singapore.

And while the island’s tax breaks are legal, some investors say they do not want their hedge fund managers straying too far from their mainland office.

“Citi Private Bank expects hedge fund principals to be in a primary office with their critical employees close by,” David Bailin, the global head of managed investments for the firm, wrote in an e-mail.

Puerto Rico has been battered by several years of recession. Its unemployment rate is more than 13 percent, well above the national rate, and its economy remains mired. In December, Moody’s Investors Services downgraded the island’s debt to one notch above junk status; and in a recent research note, Breckenridge Capital Advisors said the island was “flirting with insolvency.” The island has the weakest pension fund in America and by some estimates could run out of money as soon as 2014.

An influx of wealthy financiers would provide a much-needed lift to the economy.

Margaret Pena Juvelier is a real estate broker with Sotheby’s International Realty who left the Upper East Side last fall to open an office in San Juan. “We’re getting an average of 10 to 15 calls or e-mails a day from people who want to look at homes,” she said.

Ms. Juvelier often sends a black S.U.V. with a driver in a suit and tie to meet clients, some of whom fly in on private jets and pepper her with questions like “is there a Whole Foods here?” and “if I get really sick, do I have to be medevaced?”

Nicholas Prouty of the investment fund Valivian Advisors, who is moving to San Juan from Greenwich, Conn., said he wanted “the excitement of having new experiences coupled with the worry of the unknown.”

While the real estate broker Ana González Brunet declines to name names, saying “discretion to billionaires is important,” she said multiple individuals had recently looked at the 8,379-square-foot penthouse in the Acquamarina in the chic Condado neighborhood of San Juan. The $5 million condo has underground parking and a panoramic view of the ocean through floor-to-ceiling windows, and is near luxury boutiques like Cartier, Salvatore Ferragamo and Louis Vuitton.

“It’s like being in the best part of Manhattan,” Ms. González Brunet said.

$3.6B Foreclosure Deal for Home Owners

Story first appeared on USA Today -

Consumer advocates say banks getting off too easy in reworked foreclosure settlement

A foreclosure settlement between the government and 13 banks will spread $3.6 billion in cash among millions of borrowers starting in April, regulators said Thursday.

But the $5.7 billion in mortgage relief that’s also part of the deal may favor borrowers with the biggest unpaid loan balances, consumer advocates say.

The settlement, first announced in January, is intended to compensate borrowers for foreclosure and mortgage servicing abuses.

The cash will be split among 4.2 million borrowers who were in foreclosure in 2009 or 2010 and had home loans serviced by one of 13 banks. They include Bank of America, Wells Fargo, and JPMorgan Chase.

Cash payouts will range from a few hundred dollars up to $125,000, says the Office of the Comptroller of the Currency (OCC). It’s overseeing the settlement with the Federal Reserve Board.

The companies are expected to meet their $5.7 billion mortgage relief obligation, in part, by modifying loans. They’ll earn certain levels of credit toward that $5.7 billion for certain actions.

Consumer advocates said they were shocked and dismayed when they learned Thursday how some of the credits will be tallied.

For instance, a bank forgiving $15,000 in principal owed on a $100,000 unpaid balance would get a $100,000 credit.

If the bank forgave $15,000 in principal on a $500,000 unpaid balance, they would get a $500,000 credit, says Bryan Hubbard, OCC spokesman.

The OCC says the terms are meant to drive modifications that best serve borrowers.
Consumer advocates, however, say the system will lead the banks to focus on high-balance loans instead of more smaller ones.

Plus, it’ll let them inflate the value of their modifications, says Alys Cohen, of the National Consumer Law Center. “It lets the banks off easy,” she says.

When the deal was announced, consumer advocates said it included too little money. The new credit formula is “monumentally bad,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. “I’m absolutely stunned that they would do this.”

The OCC disagrees with the consumer advocates. It also says regulators could take further action if the banks fail to meet the deal’s requirements for well-structured assistance.

The $9.3 billion settlement largely replaces a 2011 agreement reached between the regulators and the companies. That one required case-by-case foreclosure reviews and was too slow and costly, regulators say.

Florida man swallowed by sinkhole presumed dead

Story first appeared on The Detroit News -

Hazard common in state due to porous limestone caverns

In a matter of seconds, the earth opened under Jeff Bush's bedroom and swallowed him up like something out of a horror movie. About the only thing left was the TV cable running down into the hole.

Bush, 37, was presumed dead Friday, the victim of a sinkhole — a hazard so common in Florida that state law requires home insurers to provide coverage against the danger.

The sinkhole, estimated at 20 feet across and 20 feet deep, caused the home's concrete floor to cave in around 11 p.m. Thursday as everyone in the Tampa-area house was turning in for the night. It gave way with a loud crash that sounded like a car hitting the house and brought Bush's brother running.

Jeremy Bush said he jumped into the hole but couldn't see his brother and had to be rescued himself by a sheriff's deputy who reached out and pulled him to safety as the ground crumbled around him.

"The floor was still giving in and the dirt was still going down, but I didn't care. I wanted to save my brother," Jeremy Bush said through tears Friday. "But I just couldn't do nothing."

Officials lowered equipment into the sinkhole and saw no signs of life, said Hillsborough County Fire Rescue spokeswoman Jessica Damico.

A dresser and the TV set had vanished down the hole, along with most of Bush's bed.

"All I could see was the cable wire running from the TV going down into the hole. I saw a corner of the bed and a corner of the box spring and the frame of the bed," Jeremy Bush said.

At a news conference Friday night, county administrator Mike Merrill described the home as "seriously unstable." He said no one can go in the home because officials were afraid of another collapse and losing more lives. The soil around the home was very soft and the sinkhole was expected to grow.

Engineers said they may have to demolish the small house, though from the outside there appeared to be nothing wrong with the four-bedroom, concrete-wall structure, built in 1974.

"I cannot tell you why it has not collapsed yet," said Bill Bracken, the owner of an engineering company called in to assess the sinkhole and home.

Florida is prone to sinkholes because there are caverns below ground of limestone, a porous rock that easily dissolves in water. A sinkhole near Orlando grew to 400 feet across in 1981 and devoured five sports cars, most of two businesses, a three-bedroom house and the deep end of an Olympic-size swimming pool.

More than 500 sinkholes have been reported in Hillsborough County alone since the government started keeping track in 1954, according to the state's environmental agency.

Jeremy Bush said someone came out to the home a couple of months ago to check for sinkholes and other things, apparently for insurance purposes. "He said there was nothing wrong with the house. Nothing. And a couple of months later, my brother dies. In a sinkhole."

Six people were at the home at the time, including Jeremy Bush's wife and his 2-year-old daughter.