Sunday, November 22, 2009

“A snug fit now, but property loans for super could vanish (Business Day)” plus 2 more

“A snug fit now, but property loans for super could vanish (Business Day)” plus 2 more

A snug fit now, but property loans for super could vanish (Business Day)

Posted: 22 Nov 2009 11:52 AM PST

In the bank.

In the bank. Photo: Steven Siewert

SUPERANNUATION and property are the piggybanks into which most Australians pour their life's wealth. Until recently, they were treated quite differently, with superannuation locked tight to minimise risk to retirement savings but the lid on the property money box left loose.

Now, the relationship between superannuation and property investment has started to blur. Legal changes have allowed trustees of self-managed superannuation funds (SMSFs) to borrow to invest in assets, including residential property.

And with Treasurer Wayne Swan having cut the concessional contributions for super since then, more trustees are turning to gearing arrangements to buy property through their funds.

ABS housing finance data out last week showed a continued acceleration of commitments this year by non-individual or ''other'' investors, including trusts and super funds.

While the number of SMSF housing investments is still too small to warrant a further breakdown in the measures, anecdotal reports suggest it is becoming more popular, especially for people aged over 50.

Property adviser Monique Sasson Wakelin says interest has spiked since May when St George and Commonwealth banks introduced relatively cheap and streamlined loan products for SMSFs.

''What we are seeing is the beginning of a trend that is gathering pace. This is something quite new in the whole property investment arena.''

While wealth accumulation through super is attractive because of its tax-preferred status and greater asset protection, many people are still put off by the complexity and cost of a SMSF.

There are strict rules, for example, that prohibit funds from acquiring residential property from or leasing to the relatives of trustees, or buying lifestyle assets such as holiday houses. And residential assets that a trustee already owns outright cannot be transferred into a fund.

Accountant Larisa Moran, a partner at KPMG, says it is crucial to get good advice.

''It's critical that it is structured and documented absolutely correctly and in line with the legislation, because to get it wrong would really be very unfortunate and costly to unwind.''

Trustees of a fund that is found to be non-compliant face a potential tax liability of 45 per cent on the fund's value.

But expert advice can also be costly, with a SMSF costing up to $10,000 in legal, accounting and other fees.

While those costs are down on what was being charged only last year, they are on top of the annual $3000 it typically costs to administer and audit a SMSF.

There are also some tax ambiguities that the Tax Office has yet to resolve. The first is that there has been no ruling on whether stamp duty is payable twice (incurred for the second time when the debt is repaid and the property moves from what is called a bare trust arrangement, a holding vehicle, to the super fund itself). Current advice is that it is not payable twice.

It is also unclear whether a capital gains liability is incurred in the same transfer process from the bare trust. The current understanding is that capital gains would not apply.

Finally, the ATO is still looking at the practice of lenders asking for personal guarantees from trustees for loans to a SMSF, even though the loans must be a limited-recourse.

Ms Moran says there are several industry groups working with the ATO to get it to form an opinion on such matters.

Fellow accountant Michael Schmulian, a partner at Lowe Lippmann, says even with ''one layer of complication after another'', buying residential and commercial real estate through a super fund is still an attractive investment that will get more popular now that borrowing is allowed.

''Members of a self-managed super fund can now afford better quality property assets without having to put all their eggs in one basket, by turning their other investments in super into cash or selling down shares and other assets.''

However, he said there was a risk that if property values nosedived, lenders could realign loan to value ratios, forcing funds into a firesale of assets or requiring more equity to be into the fund. With the reduction in caps for contributing to super, this is a potentially dangerous predicament.

Mr Schmulian said he would also not necessarily recommend such transactions for those younger than 50 because super rules can change very quickly, with the risk that money is locked in until retirement.

Indeed, the September 2007 amendments to allow geared structures such as instalment warrants for super funds, caught many experts by surprise. It went further than expected when it established - some say accidentally - the right of funds to borrow to invest in residential investment. That goes against the traditional notion of limiting risk to super.

Some are now predicting that either Ken Henry's review of tax or Jeremy Cooper's of superannuation will lead to alterations or even a reversal of the SMSF rule change.

Just as the superannuation and property investment piggybanks are getting to know each other, they could be made strangers again. All for the sake of keeping them out of the mud.

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New way to profit from bad loans (Pioneer Press)

Posted: 21 Nov 2009 10:31 PM PST

As millions of Americans struggle to hold on to their homes, Wall Street has found a way to make money from the mortgage mess.

Investment funds are buying billions of dollars' worth of home loans, discounted from the loans' original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans.

But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors.

While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers.

For instance, a fund might offer to pay $40 million for a $100 million block of mortgages from a bank in distress. Then the fund could arrange to have some of those loans refinanced into mortgages backed by an agency like the FHA and then sold to an agency like Ginnie Mae, a government-owned corporation within the Department of Housing and Urban Development, which guarantees investors the timely payment of principal and interest on mortgage-backed securities backed by federally insured or guaranteed loans.

The trick is to

persuade the homeowners to refinance those mortgages, by offering to reduce the amounts the homeowners owe.

The profit comes when the refinancings reach more than the $40 million that the fund paid for the block of loans.

The strategy has created an unusual alliance between Wall Street funds that specialize in troubled investments — the industry calls them "vulture" funds — and American homeowners.

But the transactions also add to the potential burden on government agencies, particularly the FHA, which has lately taken on an outsize role in the housing market and, some fear, may eventually need to be bailed out at taxpayer expense.

Housing experts warn that the financial players involved — the investment funds, their intermediaries and certain FHA approved lenders — have a financial incentive to put as many loans as possible into the government's hands.

"From the borrower's point of view, landing in a hedge fund or private equity fund that's willing to write down principal is a gift," said Howard Glaser, a financial industry consultant and former official at the Department of Housing and Urban Development.

He went on: "From the systemic point of view, there is something disturbing about investors that had substantial short-term profit in backing toxic loans now swooping down to make another profit on cleaning up that mess."


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Wallis loans JKF artifacts to Doss Center (The Weatherford Democrat)

Posted: 22 Nov 2009 02:52 AM PST

Published: November 20, 2009 03:06 pm print this story

Wallis loans JKF artifacts to Doss Center

Phil Riddle

editor@weatherforddemocrat.com

It was 46 years ago today that Dallas newsman Jack Brown picked up his press pass which would allow him into the breakfast honoring the visit of President John Kennedy and went to work.

Brown, like other members of the Metroplex media, had no idea what the day would hold.

Now, thanks to a permanent loan from Aledo's Mason Wallis, Brown's press pass from that day, along with other artifacts concerning the presidency and assasination of the country's 35th elected leader will be available for perusal by visitors to the Doss Culture and Heritage Center.

Wallis, who acquired the collection when the items were left behind in a building he bought in Aledo, took them to the Doss Center late last week.

"Jack Brown from Channel 4 news owned the house there on 1187, which is now the Parson's Table" Wallis said. "When I purchased that building back in 1991, he left all this stuff there."

Included in Wallis' findings is a 16-millimeter film, apprently made by Brown, of an interview with Lee Harvey Oswald's mother.

"I'm not sure if Jack was doing a presentation or a report of some kind, but that's who is on the film." Wallis said. "We looked at it last year. The audio is not very good. It's a relic."

Wallis said he offered to return the items to Brown when he found them.

"I told him 'Jack you left a bunch of stuff there.'" he said. "He told me to do whatever I wanted to do with it."

Part of Wallis' discovery are white binders chock full of photos, documents and copies of the Warren Commission Report.

One hand-written page contains notes from the emergency room physician at Parkland Hospital in Dallas where the slain president was taken. In addition, there is a neatly typed page explaining JFK's personal property, other than his watch, were given to Secret Service Agents. No mention is made of what was done with the watch.

Other pieces in the collection include old magazines with JFK and President Johnson on the covers, yellowed nespapers from 1963 announcing the death of Kennedy and the press pass allowing Brown, working for WBAP radio at the time, into the breakfast honoring Kennedy in Fort Worth.

C.B. Williams,exhibit coordinator at the Doss said the museum is full right now, but looks forward to having the exhibit up for local residents to see.

"I hope we can have it out by the end of April," she said.

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