September 2007      

In this issue of Home Base:

Congress May Restrict the Mortgage Interest Deduction
Home Sellers Using New Tools to Sell their Homes
"Help Promote Teleworking," Says AHGA
Health Care Proposals Advance
Energized Over Energy
Your Future Home

Congress May Restrict the Mortgage Interest Deduction

A key Congressional leader has announced his intention to introduce legislation restricting the mortgage interest tax deduction. AHGA has urged him to reconsider.

Congressman John Dingell, Chairman of the House Energy and Commerce Committee, recently announced his intention to introduced legislation that would “remove the mortgage interest deduction on 'McMansions,' -- homes over 3,000 square feet." The proposal would be part of a larger bill, still being developed, that is intended to reduce U.S. energy consumption.

The American Homeowners Grassroots Alliance (AHGA) has asked Chairman Dingell to reconsider this provision. Although the Alliance agrees that reducing home energy consumption is a very laudable objective, we believe that eliminating the mortgage interest deduction on larger homes is a flawed solution to the problem. In its August 28 letter to Chairman Dingell, AHGA suggested better ways to reduce home energy consumption. Among them are making permanent, and perhaps expanding, tax incentives for home builders to construct energy efficient homes, and for homeowners to add additional insulation and/or to make other energy reduction efforts on existing homes. These tax incentives will soon expire unless extended by Congress.
 
AHGA pointed out that creating an arbitrary limit on mortgage interest deductions is unfair because it discriminates against larger/extended families who need additional living space. A family of 6 in a 3,100 square foot home occupies substantially less square footage per occupant than a single occupant of a 2,900 square foot home. Members of the large family almost certainly consume less energy per occupant, and the larger home could easily be the more energy efficient of the two as well. The proposal would have no impact on those among the super wealthy who choose to pay cash for their very large homes, because there are no mortgage interest payments for them to deduct.

AHGA also fears that if such a provision is offered by a respected leader like Mr. Dingell, it could also serve as an invitation to other legislators to propose further reductions of the mortgage tax deduction to generate more federal tax revenues for their favorite future projects. Such an approach could snowball, leading to the gradual elimination the mortgage interest deduction, a few hundred square feet at a time.   
 
There are many other excessive wastes of energy that could be addressed by modification of tax laws. For example, the owners of private jets and yachts consume vastly more energy per capita than those of us who can only afford to fly in commercial airlines or take a once in a lifetime vacation on a cruise ship. In some cases the energy consumption difference can be a hundredfold per passenger mile. AHGA suggested that one possible substitute for a limit on the size of homes eligible for the mortgage interest deduction would be to substantially increase taxes on private and corporate yachts and airplanes. The new tax revenues generated as a result could then be used to fund the aforementioned tax incentives to reduce home energy consumption and to expand federal research on new and more energy efficient technologies to reduce home energy consumption.

Time will tell whether Mr. Dingell will find these arguments convincing. We urge AHGA members to express their views on this issue to Mr. Dingell. You can contact him through our congressional lookup link or call his office at 202-225-4071.

Home Sellers Using New Tools to Sell their Homes

With home sales continuing to decline, and home prices continuing to slide in many areas, many homeowners are using new tools to help sell their homes.

Continuing advances in technology, changes in the marketplace, and necessity (the mother of many inventions), are rapidly changing the way American homeowners sell their homes. Many homeowners are taking advantage of tools that make it easier to get far more involved in the process than their predecessors.

The supply of unsold homes continues to climb over most of the nation. The overall inventory of resale homes grew to 9.6 months worth of sales in July, 2007, according to the National Association of Realtors. That compares to an average inventory of 4.3 months for 2004, 4.5 months in 2005 and 6.5 months in 2006. An inventory of more than 6 months is generally considered a buyers market, less than 6 months a sellers market. There is much variation at the local level across the country. Sellers are still raising prices in some local markets, and the direction of home values continues to vary greatly, even within many local markets. Nevertheless, far more home resale markets are in bad rather than good shape from a seller’s perspective.

Home sellers are becoming more aware of alternatives to traditional full service, full commission (6% or near that rate) real estate brokers and agents. As the number of real estate brokers and agents using alternative business models grows and homeowners comfort levels with technology increase, more homeowners are selling their homes using non traditional approaches. Many use a multi-pronged approach, using limited service real estate brokers to get their listings on the local multiple listing service (MLS) for little or no cost and using other marketing channels (www.craigslist.org, other FSBO marketing avenues). That effort gets them wide exposure on websites of local brokers that belong to the local MLS. Many charge between $200 and $400 for listing only, and some can also provide other marketing services such as signs, brochures and "virtual" Internet home tours for additional costs or for a higher flat fee. If you need help locating a limited service/flat fee broker, their national association is at www.AREBA.org.
 
Limited Service/flat fee brokers have a lot of presence in some markets, and limited or no presence in others. Search "flat fee MLS Denver" and you’ll find seven brokers. In other areas you there are few or none. In some of those cases the reason is that protectionist segments of the full service real estate brokerage community successfully sought state laws requiring that all real estate brokers be able to provide full services. These laws undermine the efficiency of a flat fee model. Thankfully the U.S. Department of Justice (DoJ) and Federal Trade Commission (FTC) have been opposing such state laws, as well as other protectionist proposals from state real estate associations that would prohibit consumer rebates. The DoJ and FTC have also virtually ended another protectionist practice by some MLS’s – making it harder for buyers to find flat fee or limited services listings on the Internet. All but one MLS have stopped discriminating under threat of federal lawsuits, and the lone remaining holdout has already caved in on most of the federal competition agency’s demands.

One criticism that has been leveled against the limited service/flat fee business model by traditional full service brokers is that if the home seller does not offer a competitive commission to the buyers agent (i.e. 2.5% or more), buyers agents are unlikely to expose the home to their clients. That raises the net selling cost when using flat fee brokers to almost as much traditional they will pay full service full commission brokers.

Flat fee brokers don’t agree with that math. According to Albert Hepp, President of the flat fee real estate brokers association, (www.AREBA.org), “Most of our members recommend that sellers offer a competitive commission for buyers agents, and most of our clients choose to do so. Even though that increases selling costs, the savings for sellers using a flat fee or limited service broker can still approach half of the traditional full service commission. The additional exposure to the 86% of buyers that work with an agent is well worth the cost, as that additional exposure maximizes the seller's chances of getting the highest sales price.”

Barry Nystedt, President-elect of the National Association of Exclusive Buyers Agents (www.NAEBA.org) sees it from the perspective of the buyer. “Most of our clients have a pre-existing signed agreement with their exclusive buyers agent (EBA), and they recognize in advance that there may be situations where a seller will not be willing to offset the buyers financial obligation to the EBA. For that reason the lack of an offer of copayment in most cases doesn’t discourage an EBA from showing such a listing. My buyer’s offer will frequently include the payment of the EBA’s compensation even if such compensation isn’t offered initially. In most cases sellers are prepared to step up and defray all or part of the buyer’s obligation to his or her EBA, so as a practical matter an offer of buyer broker compensation, or lack of it, is rarely a problem or a burden for my client.”

Other fairly new brokerage models are full service discounters. Among them are Assist-2-Sell and Help-U-Sell, both national companies operating through local franchisees. They list homes on the local MLS, provide home showings, negotiation assistance, and help with closing the transaction. Assist-2-Sell charges $2,995 on homes priced at $200,000 or less, and costs increase along with the asking price. Help-U-Sell’s pricing follows the same lines with a base price of $1,950 for a $100,000 home. Iggyshouse.com offers MLS listings for free. The company encourages its users to choose its "sister company," BuySideRealty.com when they turn to buy their next home. The company recently announced plans to go public.

Many home sellers also use other Internet outlets, such as craigslist.com , as well as other non-technical for-sale-by-owner marketing techniques. Many real estate books available in your local library cover for-sale-by-owner marketing techniques (among them are the American Homeowners Foundation’s How to Sell Your Home Fast!, which can also be ordered on the Foundation’s website).

With home buyers much harder to find these days, the value of a qualified full service real estate agent may well be worth the substantial extra cost if you really need to sell your home. However home sellers should verify claims of superior marketing and sales skills with a request that the traditional full service real estate agent document their track record of finding buyers in your neighborhood over the last two years. If you do decide to use a full service agent you should take other steps to make sure you pick the cream of the crop as well. There are free tips on the American Homeowners Foundation’s website, and also real estate agent interview forms in the American Homeowners Foundation’s Complete Home Buyers Guide, which is also available on the Foundation’s website.

The way homes are financed is also in a state of flux due to changes in mortgage financing. Mortgage lenders have regained their senses and rediscovered the process of underwriting. As a result it is much harder for buyers with questionable credit or income sources to qualify for a mortgage. The rates for nonconforming loans (above Fannie Mae’s and Freddie Macs $417,000 lending caps) to qualified buyers have also increased, in some cases making higher end homes unaffordable to buyers with good jobs and excellent credit histories.

A likely result of these trends will be to spur more owner financing. For example a home seller might be willing to hold a second trust so that a buyer will be able to get the lower rates on a conforming loan. This is not necessarily a bad idea for home sellers – a second trust may well pay a higher return than the seller could earn if he/she invested the same amount elsewhere. Sellers should seek legal counsel if they are considering this alternative, for there are risks involved and the legal documents must be prepared properly. One obvious risk in a market with declining home values is that unless the buyers are making a substantial down payment and a foreclosure is necessary, there may not be enough money to fully repay the home seller after the primary mortgage is paid.

Many buyers will also need to get more creative in finding sources for down payments as lenders also get stingier with no down payment and low down payment loans, and sellers may want to help them with creative suggestions. In addition to traditional sources such as family members and friends, some buyers are turning to new technology based lending sources like Prosper. Prosper is an online people-to-people lending marketplace, where people list and bid on loans using Prosper's online auction platform. The borrowers set the maximum rate they are willing to pay a lender on loans of up to $25,000. Prospective lenders then bid down the interest rate and specify how much they are willing to lend at that rate (assuming that the borrower set the original rate high enough to make it still worthwhile for them to bid it down). At the conclusion the borrower ends up with a rate that will usually be lower than equivalent commercial rates. If several lenders are needed to generate the required amount Prosper takes the two or more bids with the lowest rates and blends them into a single rate loan.

The mortgage lending outlook could change quickly if policy changes are made. Some changes are already in process. AHGA had been urging the Bush Administration to loosen restrictions on FHA loans, and we were pleased that Administration announced on August 31 that the rules governing the FHA lending program will be changed so that it can help many homeowners stuck with unaffordable mortgage rate adjustments refinance using FHA guaranteed loans. FHA would also ease the current requirement that homeowners refinancing with FHA guaranteed loans have at least 3% equity in their homes and raise FHA's loan guarantee limits to $417,000, the same as Fannie and Freddie. The Administration will also support temporary changes in tax laws so that homeowners aren’t taxed on mortgage loan forgiveness in cases where mortgage lenders are willing to settle for payment of less than the full mortgage balance in cases where the home has dropped in value to less than the amount owed on the mortgage. Some lenders are willing to let the homeowner sell their home and forgive the difference in order to avoid the time and expense of a foreclosure.

These changes should help slow the decline of home values that is evaporating the home equity of millions of homeowners, most of whom do not have risky home mortgages. Still stranded at this point are many homeowners with negative equity or who would need to refinance a mortgage above $417,000. AHGA and others have urged Congress to immediately lift the caps on Fannie Mae and Freddie Mac’s lending limits when they reconvene this month. The Administration remains opposed to this suggestion. These additional actions could also have a very favorable impact on mortgage rates and availability, especially if combined with an interest rate cut from the Federal Reserve after its mid-September meeting.

The home selling environment is in a rapid state of flux across the country. The bottom line is that today’s home sellers must stay on top of both rapidly changing local market conditions, new marketing tools, and new policy developments, all of which can significantly impact the home selling process.

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"Help Promote Teleworking," Says AHGA


The trend towards teleworking (both home-based businesses and teleworking) is good for homeowners and good for the nation, AHGA has been telling policymakers. 

In an August 31 briefing to Naveen Parmar, Tax Counsel, House Committee on Small Business, AHGA President Bruce Hahn urged the Committee to support legislation that would promote teleworking. Many of the nation’s more than 18 million home-based businesses (U.S. Census figures) are dependant on technology, and growing numbers of employees are working from home at least part time, Hahn told the Committee staffer. At one time or another an estimated 19.6 million private sector workers telecommuted in 1999 according to the International Telework Association and Council. The Federal Government has also been setting a good example in encouraging telecommuting - 119,248 federal employees are regular telecommuters -- about 6.6 percent of the federal workforce, according to a study released this summer. The Small Business Committee has scheduled a Sept. 19, 2007 hearing regarding legislation to extend the Internet Tax Moratorium, which expires the end of this year.

The Internet Tax Moratorium prevents unfair, duplicative, and discriminatory taxation of the Internet. Examples include taxing Internet access (duplicative, since the wires or satellites through which homeowners reach the Internet are already heavily taxed). Discriminatory taxes include such things as taxing a product purchased over the Internet at higher rates than the same product if purchased in a retail store.

There are two bills with nearly 150 sponsors that would make the moratorium permanent. The sponsors are Representative Eshoo (H.R. 743) and Representative Campbell (H.R. 1077). Hahn reiterated many of the points made by moratorium supporters at a July 26 hearing before the House Judiciary Committee. In that hearing representatives of the Don’t Tax Our Web Coalition (DTOW) testified in favor of the permanent extension. The DTOW Coalition’s three priorities are permanence; an internet access definition that prevents states from taxing transport and the internet backbone; and ending the “grandfather” provisions earlier Internet moratorium bills that allowed pre-existing unfair taxes to continue. The coalition represents a broad array of business and consumer groups, including AHGA. At the hearing Rep. Campbell stated that the societal benefits of free internet access outweigh the need of states and local governments to tax that access, a view AHGA heartily endorses.

The AHGA President also suggested to the Small Business Committee tax counsel that the committee consider additional topics for future hearings related to home-based business technology policy issues. “We need to encourage the creation of more home based technology businesses and more telecommuting. Both significantly help reduce global warming and pressure on our transportation infrastructure“ .

AHGA believes that Congress should develop incentives that will accelerate the growth of teleworking. The Energy Bill passed by the House of Representatives in August included provisions to encourage more telecommuting by federal workers. Congress should consider tax incentives for private employers to encourage teleworking by their employees. It should also consider federal incentives to encourage more American homeowners to create their own home-based businesses. They should include both direct incentives to home-based business owners to lower the cost of doing business, as well as incentives to companies that contribute to the broadband network to help them build out high speed broadband to reach the entire population as quickly as possible. This will also help preclude network slowdowns from the “exaflood”, a term recently coined to describe the huge surge in data traffic caused by rapid growth in video-related Internet applications.

What Congress should avoid is steps that discourage the growth in teleworking. In particular Congress should oppose the streamlined sales tax proposal promoted by state and local government authorities. The bill would make it possible for states to force small Internet-based businesses located in other states to provide sales tax collection services for them.

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Health Care Proposals Advance

One of the fastest growing costs for American Homeowners is healthcare.

Yet as those costs increase it gets harder and harder for U.S. employers, especially those that must compete in a global marketplace, to offer good medical packages to their workers. Employers are cutting back or eliminating healthcare benefits as a result, and more and more homeowners find themselves unable to afford health insurance, or forced to pay for greater portions of their medical costs.

This is particularly hard on American homeowners. Many of them pay more in monthly mortgage payments than renters, and for many homeowners there is little savings or wiggle room to help with the growing healthcare costs they have been assuming. For that reason addressing healthcare costs is a critical challenge for the nation’s 75 million homeowners.

Congress has made some good progress this year, but the lobbying success of the prescription drug industry makes it clear that more than the good intentions of the Congressional Democratic leadership will be necessary to make more headway.

Earlier this year the prescription drug lobby was able to block in the U.S. Senate legislation that would allow the Secretary of Health and Human Services to negotiate prices of prescription drugs purchased from Medicare. The House passed the bill earlier, but the Administration opposed the bill.

On a positive note, the U.S. House of Representatives on August 1 passed the Children’s Health and Medicare Protection (CHAMP) Act by a 225–204. It will improve Medicare for older Americans and strengthen the State Children’s Health Insurance Program (SCHIP) for millions of children. The latter expires in September, and AARP, AHGA, and many other consumer organizations are urging prompt Senate action.

Bills have been introduced in the Senate and House that would create a national coordinator of health information technology position, authorize grants to hospitals, nursing facilities, health centers and physicians for the adoption of updated health IT systems, and allow providers to deduct health IT investments from federal taxes. They have fairly wide support but the two big challenges to this legislation are reaching a consensus on how to protect medical privacy, and getting the legislation to the floor of each body in an election year.

Other legislation that allows drug importation from industrialized countries and increase FDA scrutiny over drug safety passed both the House and Senate earlier this year. Unfortunately a “poison pill” amendment will basically negate the drug importation provisions (fortunately the federal government has decided to stop enforcing existing prescription drug import restrictions anyway, so there is less pressure to pass that provision in the immediate future). The Senate and House must now reconcile their similar but separate bills, and have the joint bill to President Bush by Sept. 30, when the current FDA user-fee act expires.

While we already know that some healthcare legislation will not get through Congress this year, forward thinking organizations are making plans that should enhance success in the next Congress. Three leading organizations - the 38 million member AARP, a major business group, and a major union - have joined together in creating an initiative that will lead to prompt consideration of pressing health care issues in the next Congress. They have agreed on a consensus document that recognizes the importance and urgency of addressing healthcare issues.

The Divided We Fail Platform is based on the following principles, and its founders as well as backers such as AHGA believe that candidates for Congress and the Presidency should support the following principles:

“We believe that the opportunity to have access to health care and long-term financial security is a basic need that all Americans share. We believe it is the foundation for future generations.

We believe all Americans should have access to affordable, quality health care.

We believe...
All Americans should have access to affordable health care, including prescription drugs, and these costs should not burden future generations.

We believe...
Wellness and prevention efforts, including changes in personal behavior such as diet and exercise, should be top national priorities.

We believe...
Americans should have choices when it comes to long-term care - allowing them to maintain their independence at home or in their communities with expanded and affordable financing options.
We believe all Americans should have peace of mind about their future long-term financial security.

We believe...
Our children and grandchildren should have an adequate quality of life when they retire. Social Security must be strengthened without burdening future generations.

We believe...
Workers should be provided with financial incentives to save, should have access to effective retirement plans, and should be able to keep working and contributing to society regardless of age.

We believe...
Americans of all ages should have access to tools to help manage their finances, and save for the future and better, easy to understand information to help them increase their financial literacy and manage their money wisely. “

We stand as strong champions for the new American dream -- to build a 21st century America where these issues are paramount so that all people can have the opportunity for a prosperous future. We also believe that individuals, businesses, health care providers, non-profit organizations, and government must work together to find solutions - personally, privately and publicly. We represent tens of millions of Americans and we believe that all of us share a responsibility for making our society work and restoring peace of mind to all Americans.

This is our platform for positive change and our commitment to current and future generations.

AHGA urges its members and other homeowners to become part of the Divided We Fail Movement! Join today with other Americans who are pledging to let the candidates for President know that it is time to:

· Ensure that all Americans have access to affordable, quality health care.
· Ensure that all Americans have peace of mind about their long–term financial security–with a
  real plan of action, and a real commitment to the American people.
· Be specific about what the candidates will do and how, and stop speaking in generalities.

To participate in the effort click this link to the Divided We Fail website. There is no cost to join, nor are there specific requirements you must follow. We believe that it will jumpstart badly needed solutions to our nation’s healthcare challenges in the next Congress. Because of the healthcare challenges we all face, it certainly deserves our support.

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Please take the time to contact your legislators and express your views on the policy issues covered in this month’s Home Base. It's easy - you can reach your legislators by email in a couple of mouse clicks, and you can use the content in Home Base and elsewhere on our website to help you develop your message. To look up the phone number, email, and/or postal address of your U.S. Representative or your two U.S. Senators, (or your state representative or state senator) click here. The site can look them up by zip code for you if you don’t recall their names.

Many legislators are also happy to meet personally with their constituents when they are back home on weekends or when Congress is not in session. A personal meeting is a particularly effective way to get their attention and reinforce your message, so please consider also requesting a follow up face-to-face meeting in their home state or home district offices near you when you contact them on policy issues.

Is there a policy issue that is particularly important to you which significantly impacts homeowners or home ownership? Any member may propose a position on a policy issue, so please check the American Homeowners Grassroots Alliance's 2007 Issue Guide to see whether it’s already on our list. If it isn't on the list, we invite you to send us an email and tell us why you think the American Homeowners Grassroots Alliance should be working on it.