How Congress Is Providing Tax Relief To Foreclosed Homeowners

After Thursday's passage of the Mortgage Forgiveness Debt Relief Act of 2007, foreclosed homeowners have one less worry: taxes.

When a homeowner defaults on a home loan, a mortgage lender will sometimes "forgive" the debt owed.

One example is when a foreclosed home sells for less money than is owed on it. The mortgage lender will sometimes accept this lesser amount, while considering the mortgage to be "paid in full".

This is often called a "short sale" because the lender is "short" of the full amount owed.

Prior to Thursday, the IRS treated the forgiven mortgage debt as taxable income. This added thousands of dollars to a foreclosed homeowner's tax liability.

A $50,000 short sale, for example, could yield an additional $12,500 in taxes owed.

After the bill's passage, that tax liability is gone. No taxes will be owed on primary residence mortgage debt that is forgiven or written off by a mortgage lender.

The bill has two sides, though.

In order to recover the estimated $650 million in tax revenue that will be lost, Congress has limited the amount of tax breaks available on the sale of second/vacation homes. That will be impactful on homeowners, too, of course.

If you think the Mortgage Forgiveness Debt Relief Act of 2007 will impact you personally, be sure to talk with your accountant.

For Some Homeowners, PMI Is Tax-Deductible Through 2010

The resurgence of private mortgage insurance continues -- if only because it's aided by Congress.

For eligible homeowners, lawmakers voted to extend the tax-deductibility of PMI through 2010. The law was previously scheduled to expire at the end of 2007.

For all loans originated prior to December 31, 2010, and within those years, private mortgage insurance is 100% tax-deductible provided that two tests are met:

• The homeowner's household income is $100,000 or less in the calendar year
• The home loan is for a primary or secondary residence

For households earning more than $100,000, the deduction is phased out to the tune of 10% per $1,000 of additional income until it reaches 0% at $110,000.

So, if a single person earns $90,000 in 2007 and buys a home using PMI, the PMI expenses are tax-deductible in 2007. If that person's income exceeds the threshold prior to 2010, the deduction is phased out.

As always, talk with your tax professional about how tax deductions work and whether you qualify for a PMI deduction.

You've Been Pre-Approved -- Now Get RE-Approved

Even if you've been recently pre-qualified (or pre-approved) for a mortgage, it may be prudent to get "re-approved".

The mortgage industry is changing quickly; being prepared beats the alternative.

Recently, mortgage lenders have made adjustments in what they will lend, and to whom. This shrinks the pool of eligible mortgage borrowers.

Some of these guideline changes include:

• Low or no down-payment loans may require more income and/or assets
• No income verification (i.e. stated) loans may not be available
• Higher credit scores may be necessary to qualify

In addition to tighter guidelines, many mortgage lenders are now required to pass higher fees and/or mortgage rates along to their clients as well.

The burden of these mandatory extra costs will be the difference-maker in a mortgage approval for some mortgage applicants.

Getting re-approved can give home buyers a realistic sense of how mortgage financing may shape up in the changed mortgage environment. It's important to make sure that the mortgage plan still fits into your short and long-term financial goals.

But, if nothing else, getting re-approved gives you the opportunity to speak with your Real Estate professional and Mortgage Planner about changes to the industry, and how it impacts you on a personal level.

How To Squeeze Extra Tax Deductions From Your Mortgage In 2007

For most Americans (but not all), mortgage interest is tax-deductible in the year in which it was paid.

With some advance planning, therefore, a homeowner can increase his 2007 tax deductions by paying additional mortgage interest while the calendar still reads 2007.

The key is to make the mortgage payment due January 2008 a few days early.

Because mortgage interest is paid in arrears, a mortgage payment due January 1, 2008 accounts for interest that accumulated throughout December 2007.

Rather than make January's mortgage payment on January 1, 2008, a homeowner can send payment this week or next -- while it's still 2007 -- and increase the amount of mortgage interest paid in 2007. This can increase 2007's tax deductions.

Tax planning can be a complicated issue and not all homeowners qualify for mortgage interest tax deductions. Be sure to consult your tax professional before making any tax planning decisions. If you are without a tax professional, call or email me; I would be happy to make a trusted recommendation to you.

Giving the Gift of Choice

So, you're not sure what to buy for your anniversary? Maybe it's your teen niece or nephew's birthday, or maybe someone's graduation. Is it a wedding you're going to, or maybe a baby-shower? Perhaps you're a supervisor/manager or business owner and are looking for a cost-effective, but personal way to reward/motivate your staff.

Whatever, the reason or occasion, why not give the gift of choice?
That's right. You choose your budget, and allow the recipient to choose their own gift. You don't have to go through the stress of trying to find a gift that the recipient will actually like and appreciate. And, it's more personal than just a cash award which, most likely, will be spent on something that will not remind the recipient of your generosity and thoughtfulness.

It's very simple.
Choose your budget - Gift cards/albums range in price from $25.00 to $750.00, and just about everything in between. You can order a Gift Card that will allow the recipient to view their gift choices and redeem them online. Or, you can order a Gift Card, Album, and Envelope ensemble which will allow the recipient to view their choices in print before making their selection online.

This may be especially beneficial to Mortgage and Real Estate professionals.
Just think about it for a moment. You can surprise your very own co-workers in the office ...(hint-hint)... maybe with a congratulatory Gift Album when they reach a certain milestone, or maybe the new person when they accomplish their first transaction. But, you can also leave a great impression with your clients (past, present, new) by showing them how special they are because you did not settle on giving them the standard fruit basket.

So, what are you waiting for ???
Head on over here and take a look for yourself (if that link does not work you can type: http://spabon.ordermygift.com into your web-browser). Look through the items that are available in each Gift Album. You'll probably want to order one for yourself. That's fine too.

Just a friendly reminder
If you are a Real Estate and/or Mortgage professional, please make sure that you are always abiding by RESPA, especially Section 8.

The Week In Review (December 17, 2007) : What To Watch For

Last week proved once again: The Fed does not control mortgage rates.

On Tuesday, after the Federal Open Market Committee lowered the Fed Funds Rate by 0.250%, mortgage rates began an ascent that carried all the way through Friday's close.

As a result, mortgage rates are dramatically higher today than just one week ago.

Other factors contributing to last week's run-up in mortgage rates:

1. The costs of running a business grew much faster than expected
2. The cost of living grew much faster than expected
3. Holiday sales were much stronger than expected

All three of these items point to inflation, the enemy of mortgage bonds. Inflation tends to push mortgage rates up.

This week, there isn't much new data of importance until Friday's Personal Consumption Expenditures release. PCE is the Federal Reserve's preferred measure of how much more (or less) everyday living is for Americans.

As the week progresses, expect increasing volatility in mortgage rates.

Market players will be in short supply because of holiday parties, half-days, and vacations. Fewer buyers and sellers in a marketplace mean finding the "right price" is more challenging.

(Image courtesy: The Wall Street Journal Online)

Why Recession Is Not A Guarantee In 2008

In its biggest month-over-month jump since 1973, the Producer Price Index rose 3.2 percent in November.

PPI is like a "cost of living" measurement for consumers, except that it applies to business.

PPI measures how expensive it is to produce goods on a day-to-day basis.

PPI spiking in November is an important development for all of us. When businesses spend more to create outputs, they may decide to pass those higher costs on to consumers.

Sometimes, they pass on the costs right away. Sometimes, they wait. Eventually, consumers could pay more for everything because businesses are paying more.

Now, economists and experts will say "if we don't count the cost of energy and food, business costs only rose 0.4% in November".

Yes, they're right. But costs are costs and businesses still have to pay them. And the price of energy is not expected to cheapen anytime soon.

Eventually, we all could to pay more and, when we do, it will be called "inflation". That would be bad for mortgage rates.

(Image courtesy: The Wall Street Journal Online)

Mortgage Rates Are Going Up -- But Not For The Reason You'd Expect

Conforming mortgages are getting more expensive -- but not because of mortgage rates.

To protect against further weakness in the housing sector, Fannie Mae and Freddie Mac are instituting "delivery fees" on all conforming mortgages, effective March 2008.

Fannie Mae's Adverse Market Delivery Charge and Freddie Mac's Market Condition Delivery Fee will add a one-time, quarter-percent fee to every home loan purchased from mortgage originators.

This means that on a $100,000 conforming mortgage, the borrower could:

1. Pay a $250 fee out-of-pocket
2. Accept a slightly higher interest rate that "finances in" the higher fee

Because the fee is in percentage terms, as the loan size increases, so does the fee. A $300,000 mortgage will carry a $750 fee, for example.

Unfortunately, mortgage borrowers may not get to choose on how they pay the extra cost. Many mortgage lenders are just adding it to their rate sheets.

Be aware, the 0.25% fee does not apply to all loans -- only to loans sold to Fannie Mae and Freddie Mac. This specifically excludes portfolio loans and sub-prime loans.

If you're not sure for what type of loan you are applying for, be sure to ask.

Making English Out Of Fed-Speak (December 2007 Edition)

The Fed lowered the Fed Funds Rate by 0.250%. The rate decrease was not well-received, though, as many investors were calling for a deeper cut of a half-percent.

In response, dollars moved from stock markets to bond markets and, therefore, mortgage rates fell.

Because it is tied to the Fed Funds Rate, Prime Rate fell by 0.250% yesterday, too. Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month's statements.

In the statement above -- as explained by The Wall Street Journal -- the Fed expresses concern about the consumer and business slowdowns. This leaves the possibility of future Fed Funds Rate cuts open.

Source
Parsing the Fed Statement
The Wall Street Journal Online
December 11, 2007
http://online.wsj.com/public/resources/documents/info-fedparse0712.html

Why Credit Card Holders May Benefit From The Fed's Actions Today

The Federal Open Market Committee meets today and will release a public statement at 2:15 P.M. ET.

It is widely expected that the FOMC will lower the Fed Funds Rate by at least 0.250%.

When the FOMC lowers the Fed Funds Rate, it is trying to "loosen" credit for American businesses and consumers. When credit is "looser", it is cheaper, and easier to procure.

Looser credit promotes spending and propels the U.S. economy forward.

By contrast, when the FOMC raises the Fed Funds Rate, it is trying to "tighten" credit which, in turn, slows down the U.S. economy.

The FOMC does not control mortgage rates, but it does have a direct impact on Prime Rate because (Prime Rate) = (Fed Funds Rate) + (3.000%).

Credit cards, construction loans and home equity lines of credit are all tied to Prime Rate and so interest rates are expected to fall on these loan types this afternoon.

The Week In Review (December 10, 2007) : What To Watch For

Among lingering doubts about housing and credit markets, and a general uncertainty about the U.S. economy, the mortgage bond market tanked towards the latter part of last week.

As investors moved away from mortgage bonds, mortgage rates forcefully bounced off their two-year lows.

A major factor behind last week's run-up in rates is the market expectation for Tuesday's Federal Open Market Committee meeting.

Those expectations sharply shifted after Friday's strong employment report from the Census Bureau and dragged rates along with them.

Prior to the jobs report, markets were expecting that the FOMC would lower the Fed Funds Rate by a half-percent. After the report's data showed inflationary hints, though, that expectation changed to a quarter-percent.

This is important to mortgage rate shoppers because inflation is the enemy of mortgage bonds. Typically, as inflation rises, so do mortgage rates.

The FOMC adjourns from its one-day meeting Tuesday and will make an announcement to the markets at 2:15 P.M. ET. Expect volatility before and after the press release.

Currently, the Fed Funds Rate sits at 4.500%.

Also hitting the wires this week is the Consumer Price Index (Wednesday) and the Producer Price Index (Thursday). These two reports are closely tied to inflation, too, so if the readings come in hotter than expected, mortgage rates will move higher in response.

CPI is also known as "The Cost of Living" index. PPI is its "business" counterpart.

(Image courtesy: The Wall Street Journal Online)

Great Home For Sale or Rent with the Option to Buy

This is a 4-BedRoom, 2-Bathroom, Split Foyer, Single Family Home in the Queensland community in Upper Marlboro, MD.

Conveniently located near US-301 South, this home is minutes to Andrew's Air Force Base, the National Maritime Intelligence Center, Bolling Air Force Base, Anacostia Naval Station, the Suitland Federal Center, Fort Meade, and many other locations in the D.C. Metro Area.

This home sits on just a little over a 1/4 acre and has a fenced-in backyard and deck. There are new rugs installed upstairs and downstairs. The inside has been freshly painted. The utilities are all electric (no gas), has a dishwasher, brand new electric glass-top range/oven, state-of-the-art water purification system, and comes with a washer and dryer.

There are many financing options available - especially to help those with less than perfect credit.

• Call to find out about a seller-financed second to help keep your loan-to-value at or below 80% to help keep your interest rate reasonable.

• Also, ask about a seller-paid 2-1 Buy-down which, generally speaking, will "buy-down" your interest rate during the first two years and then remain a fixed-rate from year 3 forward.

Buy this great home now for just $330,000.00 (USD), or call to find out how to rent this home with the option to buy. Rent will be $1800.00 (USD) per month.

Call now for more details: 301.702.0190 (x130).

Are you a Realtor with a buyer that's looking for a great and affordable home?
No problem. Earn your full 3% commission with the successful sale of this property.
Call 301.702.0190 and ask for Mr. Wooten.

Mortgage Rate Relief Plan: Who Qualifies For Help?

Thursday, the White House revealed its HOPE NOW program, aiming to help sub-prime borrowers freeze their initial "teaser" rates for a period of five years.

The program is receiving a lot of ink in the newspaper dailies, but sometimes it's unclear exactly what the program offers, and to whom.

Let's look at the details and see who qualifies and who doesn't.

Mortgage loan type

Qualifies: Sub-prime mortgage
Doesn't qualify: everyone else.

Date of mortgage origination

Qualifies: January 1, 2005 to July 31, 2007
Doesn't Qualify: Everyone else

Date of first interest rate reset

Qualifies: January 1, 2008 to July 31, 2010
Doesn't qualify: Everyone else

Previous mortgage delinquencies

Qualifies: No more than one 60-day late in the last 12 months
Doesn't qualify: Multiple 60-day lates, or one 90-day late

Potential payment increase

Qualifies: Payment will increase by more than 10% at first adjustment
Doesn't qualify: Everyone else

Credit score

Qualifies: Less than 660; less than 10% improvement since closing
Doesn't qualify: Everyone else

Because of the restrictions, only a small subset of the 1.8 million sub-prime loans issued between January 1, 2005 and July 31, 2008 are eligible for the rate freeze. A New York Times article estimates that figure to be 360,000.

For homeowners not qualified for the HOPE NOW program, mortgage servicers will attempt to remortgage their loans, or evaluate the homeowner for a rate reduction and/or for debt forgiveness on a case-by-case basis.

If you're not sure whether you have a sub-prime loan, or whether you can benefit from the "interest rate freeze" program, reach out to your loan officer or call HOPE NOW.

Source
Who Qualifies for Help, And What Qualifies as Subprime?
Ruth Simon
The Wall Street Journal Online
December 7, 2007

Your Credit Score Doesn't Cost You Today, But In Three Months It Could Cost You Plenty

Credit scores are the best predictor of how a homeowner will pay on a mortgage, so it's no surprise that credit scores will play a bigger role in mortgage financing in 2008.

Actually "that date" is more clearly defined. It's March 1, 2008.

Beginning March 1, 2008, Fannie Mae and Freddie Mac will subject the bulk of their mortgage products to the interest rate adjustments when the loan-to-value exceeds 70%.

Credit scores will determine the amount of the rate adjustment.

• Credit scores between 660-679: 0.750% increase to rate
• Credit scores between 640-659: 1.250% increase to rate
• Credit scores between 620-639: 1.750% increase to rate
• Credit scores below 620: 2.000% increase to rate

For example, a person with a 6.250% mortgage rate would see their rate increase to 7.500% just because they carry a 650 credit score. It would jump to 8.000% for a 635 credit score.

Because the credit score adjustment does not go into effect until March 1, 2008, there is plenty of time to be proactive if you think you'll trigger the rate increase.

If you are planning to purchase a home on or after March 1, 2008, it would be prudent to have your credit scores checked as soon as possible. If your scores are below 680, or teetering on the edge, take ownership of your credit and start working to improve your score.

A terrific source of non-biased credit scoring information is myFICO.com.

What Does It Mean To "Escrow" Taxes And Insurance?

As a homeowner, your financial obligations extend beyond your monthly mortgage payment. Periodically, you are also required to pay real estate taxes and homeowner's insurance premiums.

Each month, you pay your mortgage payment to a company called a "mortgage servicer" (because they "service" your mortgage each month).

In addition to the risk of not getting paid by homeowners, servicers also face two other risks related to homeowners:

1. That a homeowner's real estate tax bill will become delinquent and will be sold to a third-party
2. That a homeowner's residence will face catastrophic damages during a lapse in insurance coverage

But these risks can be mitigated.

Rather than assume that homeowners will pay on time, mortgage servicers can pay these bills on the homeowner's behalf when they come due while passing that cost on as a mortgage statement line-item.

This service is commonly called "escrow".

The escrow payment varies from homeowner to homeowner, of course. It's the sum of the amounts due annually for real estate taxes and insurance, divided by 12 months in the year.

That yields a monthly amount which is then added to the homeowner's mortgage statement each month, and added to a bucket of funds held on reserve by the servicer.

For example, a $3,000 tax bill with a $600 insurance policy = $3,600 in costs annually = $300 monthly paid into escrow monthly.

A $1,500 mortgage payment, therefore, would require a $1,800 check to be written to the mortgage servicer each month.

When a mortgage servicer "escrows" on behalf of a homeowner, it knows that taxes and insurance will get paid on time, thereby protecting its own interests. This is one reason why some mortgage lenders offer lower rates and/or fees for borrowers that choose to escrow.

If you're unsure about whether escrowing is right for you, be sure to ask questions. As with all financial decisions, there are reasons to choose either route.

Why New Home Sales Data Doesn't Tell Us Much About The Real Estate Market

October's New Homes Sales report showed a modest month-over-month improvement from September.

Before we interpret that to mean that the housing market is rebounding, though, let's consider the fallibility of the New Home Sales report.

On the Census Bureau's Web site, there is a disclaimer about the validity of the data. Paraphrased, it reads:

A new housing unit is considered sold when a contract is signed and/or earnest money is exchanged. There is no follow up to verify if the sale was closed, or canceled.

Therefore, if cancellations are high, the New Homes Sales data can be overestimated.

Couple that with the 35-45% cancellation rates as reported by builders and you start to get the picture.

However! The disclaimer also includes the following text (again, paraphrased):

A housing unit will never be counted twice so if a previously canceled unit is later sold again, the Census Bureau does not count this sale a second time.

Therefore, when demand is strong, New Home Sales can be underestimated.

In other words, the New Homes Sales report overestimates sales figures in a weak market, and underestimates them in a strong market.

The long-term impact of October's New Homes Sales report is unclear. The only thing that is clear is that the monthly New Homes Sales report doesn't tell us a whole lot.

The Week In Review (December 3, 2007) : What To Watch For

If you enjoy roller coaster rides, last week's mortgage markets were a delight. Up and down mortgage rates went, trying to find a balance between inflation and recession (or maybe neither).

A major cue for markets last week came from a high-ranking Fed official who raised expectations for future cuts to the Fed Funds Rate. Currently, the Fed Funds Rate sits at 4.500%.

For homeowners, it is unclear how changes in the Fed Funds Rate will impact mortgage rates. Contrary to popular belief, changes in the Fed Funds Rate are not tied to changes in mortgage rates.

This chart shows, for example, how the FFR increased more than 3.00% between 2004 and 2006 while mortgage rates only edged higher.

Similarly, the recent drops in the Fed Funds Rate have been accompanied by only a slight reduction in mortgage rates.

Instead, mortgage rates are based on the prices of mortgage bonds and recently the demand for the bonds has been erratic. This is why mortgage rates have been erratic, too. As demand goes up, mortgage rates come down. The reverse is true, too.

This week, demand for mortgage bonds should be tied to expectations from the Fed and its December 11 meeting, and to this Friday's employment data. Many economists believe that the Fed will take some cues from Friday's report so the numbers will take on added significance.

The economy is expected to have added 75,000 jobs in November, and the unemployment rate is expected to rise to 4.8%. If the actual numbers (jobs created) are stronger than the estimates, expect that mortgage rates will increase in response.

Remember, since mortgage rates are tied to mortgage bonds:
Good news for the economy (generally speaking) tends to be bad news for mortgage rates ... While bad news for the economy (again, generally speaking) tends to be good news for mortgage rates.