Thursday, June 11, 2009

A new tax on cell phones and $98 homes!!

This is just an IRS proposal at this point and it's not a huge tax increase in the grand scheme of things, but some people with employer provided wireless devices might lose their minds over this proposal (and Verizon, AT&T, Sprint, etc are going to lobby heavily against this proposal)......

"The Internal Revenue Service proposed employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax."

You would be able to avoid the tax if you could prove that you have a separate cell phone for personal use. Holy-complicated-tax-return batman!!!

BUY A $315,000 house for just $98 a month!!! Sounds like a late night infomercial right? Not if you were in the market for an interest only adjustable rate mortgage in 2007, according to Bloomberg.

"Shirley Breitmaier, a 73 yr old widow, took out a $315,000 option ARM to refinance a previous loan on her house.

Her payments started at 3/8 of 1 percent, or less than $100 a month, according to Cameron Pannabecker, the owner of Cal-Pro Mortgage and the Mortgage Modification Center in Stockton, California, who is working with Breitmaier. The loan allowed her to forgo higher payments by adding the unpaid balance to the principal. She’ll be required to start paying principal and interest to amortize the debt when the loan reaches 145 percent of the original amount borrowed."

Think about that for a moment. She'll start paying principal and interest when the loan reaches 145% of the original loan amount or $457,000. How is a 73 yr old widow going to pay off a 30 year mortgage on a house that's falling in value but has almost $140k more debt associated with the property than it did when she refinanced?

There's plenty of blame to share in this scenario - the borrower for thinking a $98/mth payment and 0.375% interest was reasonable, the lender for making this kind of aggressive loan and the investors that had an insatiable appetite for these loans just a couple of years ago.


1 comment:

Anonymous said...

We can't forget that the mentality which pushed the dow to 14m+ is still pervasive in the average retail investors mind. If you take out the people who are affected by the reality of the downturn, you still have millions of idiots that think the Gov. will pull this bailout off. So they continue to buy at the direction of "salemen" pretending to be financial advisors, who are just living of the fees with no real clue, and viola, the market continue to rise.
But there's one more thing happening, and that's "what falls will also rise". I.e. because we have had a big fall, which then rose back in a short period of time, retail investors feel that even if it goes down again, it will rise again, so they are essentially running no risk in buying back in. They feel they will not sell into the next downturn. That's avery dangerous thought process, which is what really happened between 1929-1932, and it will more than likely happen again. That being said, one has to seriosly consider the day trading potential of this mentality. Kind of makes me want to go long, but I think I will still wait in out with 85% cash.