Plan to cut some mortgage write-offs gets down to details

WASHINGTON - Though the housing and real estate industries oppose the plan, a key House committee leader's proposed "carbon tax" cuts on mortgage interest deductions are attracting strong support from environmental and scientific groups.

Rep. John Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, wants to phase out mortgage interest write-offs for houses larger than 3,000 square feet, using a graduated scale that ends at zero deductions for properties of 4,200 square feet or more.

Though he says he recognizes that newly constructed houses may be "more energy efficient" than older ones, their "sheer size, sprawl and commutes lead to dramatically more energy use -- or to put it more simply, a larger carbon footprint."


In his latest draft, Dingell provides more detail about the housing-related tax elements. The new draft also offers some limited exemptions from the phaseout, including for "historical homes" built before 1900, farmhouses, certified energy-efficient homes and houses whose owners "purchase carbon offsets to make the [property] carbon-neutral."

Under the plan, owners of homes with 3,000 to 3,199 square feet would be eligible for only 85 percent of the mortgage interest deductions they currently receive. Homes of 3,600 to 3,799 square feet get only 40 percent of the interest deductions, homes of 4,000 to 4,199 square feet would get 10 percent and homes of more than 4,200 square feet would get zip.

Mortgage interest write-offs are among the largest federal tax benefits. The congressional Joint Committee on Taxation estimates that homeowners will take $402.7 billion in deductions between fiscal 2006 and 2010.

Some environmental advocates initially questioned Dingell's purposes in advancing an ambitious program to limit greenhouse gas emissions, seeing that he staunchly defends the auto industry. But Dingell's plan would impose stiff new taxes on gasoline (50 cents per gallon to start) and a $50-per-ton tax on coal, petroleum and natural gas, plus the mortgage interest deduction clampdown.

A number of scientific and environmental organizations think Dingell's proposals represent a gutsy first effort not only to cut consumption of carbon-based energy products, but also to focus on energy use and efficiency in the residential arena.

Lexi Shultz, Washington representative for climate policy of the Union of Concerned Scientists, says "the residential part of the [climate change] problem is very significant," ranging from excessive carbon-based energy consumption in homes to exurban sprawl requiring long commutes and more highways.

Shultz's group favors taxes on energy consumption as a way to change behavior but also supports a companion "cap and trade" plan that sets carbon-reduction goals and auctions of "offsets" for industries and other high consumers of energy. Revenue from the auctions could be used to assist low-income and other consumers who would be economically harmed by higher prices associated with carbon taxes.

Dingell's stated goal is to reduce carbon emissions in the U.S. by 60 percent by 2050. Erich Pica, director of economic policy for the environmental group Friends of the Earth, says Dingell's plan "overall is good" and applauds its focus on residential real estate.

"The mortgage-interest deduction was meant to be an incentive for people to buy and afford a home, but now we see it has significant energy impacts" -- subsidizing development of ever-larger first and second homes far from the urban core. Though Pica says the choice of 3,000 square feet as a cutoff point "may be a little arbitrary, the intent is right."

Charles Komanoff, co-director of the Carbon Tax Center, an energy-policy think tank, says "we think Dingell's idea is terrific -- the carbon tax would give important incentives to minimize energy consumption" and discourage sprawl long term.

Dingell has yet to introduce his legislation, key portions of which will be directed to the House Ways and Means Committee that traditionally supports tax benefits for housing. The National Association of Home Builders and the National Association of Realtors criticize Dingell's plan as impractical and misdirected at the square footage of residences rather than their measurable energy efficiency.

But Komanoff argues that the carbon tax will hit the bull's-eye. "Big houses consuming lots of energy will pay more" than smaller, energy-efficient homes, he says. Environmental advocates say they recognize Dingell's plans will be highly controversial with some of the biggest, best-funded lobbies on Capitol Hill. But they say that even if some portions fail, growing public awareness of the effects of global warming -- and the role played by housing and real estate -- will help produce needed reforms.

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source: chicagotribune.com

New Skinner school approved by PBC

A long-planned new Skinner Elementary School is slated to go up in the city's Near West neighborhood.

The original school, built in the 1950s, declined beyond restoration and was demolished this year, according to an attorney for the Public Building Commission. Plan commissioners have approved the development.

The school will be built at at 1234-1260 W. Adams St. and 111 S. Throop St. The three parcels comprise the original school site, a vacated public alley and two parking lots on Adams recently acquired by the Chicago Board of Education. The area increasingly has been converted to residential from the traditional light-industrial and warehouse use.


The new L-shaped, 106,575-square-foot, three-story school will serve up to 928 students from pre-kindergarten through 8th grade. Board of education officials expect 742 students to enroll to start.

Most of the building's 27 classrooms will face Skinner Park. The building will also have a computer lab, music room, art room, multipurpose room, library, gymnasium/auditorium, student cafeteria and kitchen.

Skinner is operating from a temporary location on Clybourn Avenue, about two miles north of the site.

"This school is long overdue and will serve the increased population. ... It has been one of the top schools in the state, and they weren't working in a beautiful facility but they still made it work," Ald. Walter Burnett Jr. (27th) told commissioners. At least one commissioner noted that the project will reuse a historic water tank. Taken from a condo building at 1327 W. Washington St., it will be installed atop the school as part of a cistern system to irrigate the green roof.

"You hear about TIF [tax-increment financing] dollars taking money away from the public schools, well this project is being built with TIF dollars. There has been a lot of new development to the community and now people want to move here because there is a good school," Burnett told commissioners.

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source: chicagotribune.com

Of closing costs, lending to kin

Some advice on paying for credit reports and closing costs and helping out in a mortgage crisis:

*Opening the book on closing costs.

One of the more mysterious expenses of home buying is the tab for "closing costs," so named because it's due at the closing of the sale, when title transfers from seller to buyer.

Composed of a number of items, such as the lenders' document preparation fee and appraisal fee, it's hard to know whether the charges seem fair.

According to a survey conducted by Bankrate.com, the average charge in Illinois is $1,110, the second lowest of any state. Wyoming came in lowest, at $1,084. The national average is $1,442.

The survey didn't count taxes in the closing costs, though, says Holden Lewis, senior reporter at Bankrate.com.

The survey averages sound about right, shares Hank Shulruff, senior vice president of Attorneys' Title Guaranty Fund Inc.

But when localities levy transfer taxes that the buyer must pay, that raise the bill considerably, adds Shulruff. In Chicago, for instance, buyers are asked to pay a transfer tax of $7.50 per $1,000 of the purchase price, he notes.

In the Bankrate.com survey, Indiana came in as the third cheapest state, with closing costs averaging $1,137, and Wisconsin ranked among the lower states as well, at $1,296.

The fees composing closing costs that buyers pay vary from state to state, which impacts average costs.

Home sellers also pay some charges at closing.

The amounts that sellers pay at the closing table probably exceeds what buyers average paying in Illinois, says Shulruff. For one thing, sellers here pay for the part of the title insurance which insures clear title for the home buyer, which is more expensive than the $300 or so home buyers pay to insure title for the mortgage lender.

And in Illinois, sellers pay a state transfer tax of $1 for every $1,000 of the home price, and there can also be county transfer taxes.

When pro-rated portions of property taxes are also added to the mix, the tab can easily top three or four times the average charge buyers pay.

*Profiting from your credit worries.

If you have an e-mail account, you've seen those messages promising a "free" look at your credit report.

Now that mortgage lenders are asking for credit scores 30 or 40 points higher than they were just a few months ago, more than curiosity can compel you to click to uncover your credit.

Federal law guarantees every consumer a free annual review of his credit report from each of the three major bureaus, but the government isn't advertising that, says Travis Plunkett of the Consumer Federation of America.

"The companies advertising free reports aren't really giving anything away; they're selling something," Plunkett adds.

What they're peddling -- services such as identity theft protection -- aren't what the typical worried mortgage borrower needs, Plunkett said.

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source: chicagotribune.com

Art irritates life?

Since its opening in 1965, Harper Court has served as a novel artistic and retail hub in the Hyde Park neighborhood.

But the mall's last heyday was in the late '80s and early '90s. Its decline, along with an aging infrastructure, has sparked a debate over the question of whether to tear it down or renovate it -- pitting Hyde Park traditionalists against its young blood.

To understand the fuss, you must know what makes the neighborhood distinctive: It's home to the University of Chicago, the Museum of Science and Industry, vintage housing stock, new residential development and a well-educated, racially integrated and socially aware population.

"For the same reasons it's not a good idea to tear down Williamsburg [the historic settlement in Virginia] because it's an old city ... it's part of our heritage," says Charlotte Des Jardins, one of the original investors in Harper Court and a proponent of saving it.

David Hoyt, 38, a lecturer at the University of Chicago's Graham School of General Studies, counters that the structure of the mall, which occupies Harper Avenue between 52nd and 53rd Streets, needs to be changed because it's too 1960s -- too closed in and isolated from the street.

Hoyt and a handful of others have become increasingly upset with what they see as anti-development sentiment in the area, which is why he started a blog called Hyde Park Progress, a forum with the stated purpose of "promoting reasonable economic improvement in Chicago's Hyde Park neighborhood."

As such, it includes debate over a broad range of possible changes in Hyde Park, including the chance that big-box stores like Target may move in.

The Harper Court debate has been going on for nearly two years, since a community newspaper reported that the Harper Court Arts Council was trying to sell the property it "acquired" in an agreement with the Harper Court Foundation without community input.

Ald. Toni Preckwinkle (4th) has stepped in, asking the city's Department of Planning and Development to invite developers to submit development proposals for the mall, plans that are expected to be released soon.

The next step is a Request for Qualifications, which could be completed to be made public at a Nov. 19 tax-increment financing Advisory Council meeting. Three to five developers will be chosen to prevent plans to Preckwinkle, the Harper Court Arts Council and Department of Planning officials.

Preckwinkle would not predict how long the process could take. Irene Sherr, a consultant on the 53rd Street TIF district, said a community meeting will be held in early December.

That leaves residents with little to do now but argue about what should be done.

"People are attached to a certain vision that might have been appropriate 50 years ago, but the circumstances have changed and they haven't changed their vision," said Hoyt, who would like to see storefronts extend to the streets. "It is a product of '60s-era urban design, which is very much outdated."

Harper Court was the vision of Muriel Beadle, wife of former University of Chicago President George Beadle, and other residents. To fund its construction, they sold about $120,000 worth of bonds to the community, including the University of Chicago, and secured a loan of $480,000 from the federal Small Business Administration. John T. Black was the architect, and a group of community residents and activists, including Beadle, oversaw the plan.

When Harper Court opened in 1965, commercial enterprises at street level paid market rent while rent for the art shops in the basement was subsidized.

Today it has about 23 stores -- including small shops such as Alise's Designer Shoes and Dr. Wax Records -- as well as restaurants including the Calypso Cafe, Maravillas and the Dixie Kitchen & Bait Shop, offices, a veterinarian and the Checkerboard Lounge, a storied jazz and blues club that moved from Bronzeville in late 2005. It also has several vacancies, and the only art concern left is Artisans 21, part co-op/part gallery.

The property, which is part of a TIF district, also includes a parking lot.

"I would say Harper Court, at least in terms of its physical layout, design and appeal for people walking through it, is one of the most successful spaces to come out of urban renewal," said Max Grinnell, a lecturer on urban studies at the University of Chicago's Division of Social Sciences and author of "Images of America: Hyde Park, Illinois."

"There are not many other places I can think of in the city or United States where they tried on a small scale to maintain sort of an artist's colony," he added.

But that has made even several tenants skeptical of its sustainability, saying artists often are more interested in their craft or product than profit.

And there are issues beyond the philosophical. Take the 42-year-old infrastructure.

"I've had to tell people, 'No you can't come here, this place is flooded today,'" said Dr. Thomas Wake, a Harper Court tenant since 1981 who has built a thriving veterinary practice in one of the basement spaces, which he said floods frequently. Wake and other tenants attribute the flooding and other problems to the Harper Court Foundation's failure to keep up the property. They say it has mismanaged the mall and remained answerable only to itself. The latter charge arises not only from the foundation's remaining mum about its intention to sell the property, but also from its shift in mall assets to the Harper Court Arts Council, a tax-exempt non-profit, in 2005.

"The people on this board are bank presidents, lawyers," board member Nancy Rosenbacher said, in response to the charges of mismanagement, adding that all eight board members live in Hyde Park.

"We're not saying tear it down and build a strip mall. We would like to see something really nice for the community. Small businesses are extremely important," added Paula Jones, president of the foundation and council.

She said part of the foundation's original mission was to be a "leading organization in supporting the arts, in addition to retail development," but had become more of a "property manager."

"We're trying to balance it ... by still supporting small businesses in one form or another but not through ownership of the court ... we're looking for someone who can do it bigger and better than we can," Jones said.

Henry Webber, vice president of community and government affairs at U. of C., said the university would like to see "a high-quality, mixed-use development ... a vibrant, 24-hour, seven-day-a-week contributor to the town center of Hyde Park."

The university looked into buying the property several years ago, but backed out when it could not agree on a price with the council. Webber declined to comment on whether the university is still interested in the property.

Whatever the future of the mall, residents and community leaders want a say in it.

"I think it belongs to the community; it was paid for by community assets, it should be answerable to the community," said George Rumsey, president of the Hyde Park-Kenwood Community Conference.

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source: chicagotribune.com

Market boom took time ... so will bounce

There's a lot of real estate amnesia out there. It's probably fair to say that a lot of home-sellers can't remember much about the housing market before this decade's Big Boom.

But, oh, there have been arid spots (actually, deserts) in the real estate topography. They're sobering -- as if anybody who has been trying to sell his house for months needs more sobering.

PMI Group Inc., a mortgage-insurance firm in Walnut Creek, Calif., recently revisited the data on three cities that represented the worst of such boom-to-bust cycles in the last 25 years. It was ugly.

Its new report took a microeconomic look at Los Angeles and Boston in the 1990s and Houston in the 1980s. In each, many homeowners trying to make a buck -- not a killing, mind you, just a profit -- had to settle in for a long wait.

In the case of Los Angeles and Boston, the wait was as long as a decade. For Houston, nearly 15 years.

Los Angeles, for example, was seeing double-digit price run-ups in its housing for years until it peaked in 1990. At that point, a recession in the defense and technology industries soured the job market. And if you bought at that peak in late 1990, when prices began to drop, drop, drop, you were unlikely to recoup your investment until late in 2000, according to PMI's review of federal housing data.

The story in Boston was similar: In late 1989, technology jobs dried up and the market peaked. If you bought at that moment -- isn't timing everything? -- you were unlikely to break even until early 1998, PMI said.

Houston's "oil patch" bust, beginning in 1983, is probably the most storied saga in the market. If bought then, at the worst possible moment, you were likely to have to wait 14.5 years to recoup, according to the PMI report.

Are we there yet?

Probably not, said PMI economist LaVaughn Henry. "We don't predict how far things can go," he said. "But [those three busts] are extremes, a major economic shock to a major metropolitan market. If you look at the majority of markets, the time to recovery is much shorter."

Patience is still needed, though, he said. "The housing boom wasn't an overnight phenomenon. We can trace it back to early 2000, when the Federal Reserve started cutting interest rates, which so stimulated the housing market that everybody jumped in and demand for homes skyrocketed.

"At the end of the day, it took five years to get here," he said. "It probably won't take that long to get out," largely because employment hasn't plummeted.

"This isn't a correction of small magnitude," Henry said. "It's a large correction, but a workable correction. It will take time to work through the process."

Taxing times

The Internal Revenue Service, in its own cuddly way, has created a section on its Web site to explain the tax consequences for people who have lost their homes to foreclosure.

Some homeowners can work out arrangements with their lenders to forgive some of the debt; in some cases, that's a better financial deal for the lender than going through the protracted and expensive process of foreclosure.

But what the lender forgiveth, the IRS taketh away. As the tax man himself explains it on the site in a very simplified example: Say you borrowed $10,000 and defaulted on the loan after paying back $2,000. If the lender cannot collect the remaining debt from you, there is a cancellation of debt of $8,000.

That's the good news -- if you're the borrower -- right? Well, no. The IRS generally regards that $8,000 as your taxable income.

But there are some exceptions, which the IRS explains on the new section of its site; it also includes a worksheet for computing the income that must be reported in the foreclosure. Be forewarned, however, that it has the usual "subtract line 5 from line 4. If less than zero, enter zero" language.

Further, the specific URL for the foreclosure section is so complex as to guarantee that it will be mistyped -- and then you'll call me and complain. So if you want to know more, you're probably best served by going to http://www.irs.gov and in the search feature type in: "Questions and Answers on Home Foreclosure and Debt Cancellation."

The whole thing may be rendered moot, however. The U.S. House of Representatives recently passed a measure to prevent the IRS from taxing any of the forgiven debt. The proposed law would be retroactive to Jan. 1; it now moves to the Senate for consideration.

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source: chicagotribune.com