“World's Most Complete Neighborpedia”
Sponsor a Community — What is Localism? | Register or Sign In
Explore:   What's happening in your neck of the woods?
Home Christopher Shearer, Realtor (850) 326-4327

Christopher Shearer, Realtor (850) 326-4327

Blog_tag

Elimination of the home-mortgage interest dedection?

06-15-11
Christopher Shearer, Realtor (850) 326-4327

The home-mortgage interest deduction does not by itself significantly distort housing markets. Too much owner-occupied housing has been built because housing is excluded from sales and other taxes owed by businesses.

The housing boom and bust of the last decade, and government revenue shortfalls, have brought back the topic of whether the government excessively encourages home building. Those discussions invariably mention the elimination of the home-mortgage interest deduction.

This deduction allows taxpayers who own a home, have a mortgage and itemize deductions to reduce their personal income tax by including home-mortgage interest payments in their tax deductions. Homeowners rightly consider this when considering whether and how much to invest in a home and how much they should borrow.

A homeowner who pays, say, one-third of his taxable income in federal and state personal income taxes will recognize that a $3,000 monthly mortgage-interest payment really only costs $2,000, because the mortgage interest reduces his taxable income by $3,000 and thus the personal income tax owed by $1,000 a month. It’s as if he paid $2,000 and the federal and state government treasuries paid the other $1,000.

At first glance, the home-mortgage interest deduction would seem to cause homeowners to borrow excessively for home ownership, and thereby deplete government treasuries. But that ignores the fact that one person’s mortgage interest payment produces interest income for another person or a business. The lender may well owe taxes on the interest income.

More home-mortgage borrowing means more home-mortgage lending, and the latter means more interest income that can be taxed. In theory, home-mortgage borrowing could even add revenue to the Treasury if the lender is in a higher tax bracket than the borrower (or if the borrower is not itemizing her tax deductions).

Interest deductions are present in the business sector, too, and have the same essential properties as the home-mortgage interest deduction. A corporation that borrows to finance an investment project can deduct its interest payments from its taxable income, and that borrowing will generate interest income for whoever made the loan.

Landlords can also take out mortgages on their properties and deduct the interest payments from their taxable income (that benefit may, in turn, affect the rent they set). In that sense, the possibility of deducting mortgage-interest payments from income taxes does not by itself discourage renting rather owning.

In contrast, consumer durable goods do not enjoy the interest deductions that housing and business capital do. Someone who takes out a car loan to purchase an personal automobile cannot deduct the interest payments from her taxable income, even while the Internal Revenue Service may be collecting taxes on the interest income of the lender. In this regard, tax policy discourages investment in consumer durable goods relative to investment in housing and businesses.

This is not to say that housing investment has been efficient. Earlier this year I explained how housing is much less profitable than business capital before taxes, largely because of the host of taxes — like sales taxes and income taxes on profits — that are owed by owners of businesses but not
by owners of homes.

1 Comment
Blog_tag

US Government's Fannie Mae to raise borrowing costs and interest rates

02-02-11
Christopher Shearer, Realtor (850) 326-4327

Borrowers with Fannie Mae-backed loans will face higher borrowing costs and interest rates, even if they have a perfect credit score, starting on April 1.

The agency is imposing a "loan-level price adjustment" on several mortgages, in which borrowers will be charged more in cost or higher interest rate based on the downpayment amount - or the amount of equity in their home if they're refinancing - as well as their credit score, explains mortgage expert Bill Gassett in the Massachusetts Real Estate News.

Prior to the adjustment, a buyer with a 700 credit score and a $160,000 mortgage who was purchasing a $200,000 home may pay an additional $800 in these fees. That cost would now be doubled: The loan's risk-based pricing would equal $1,600, said Cameron Findlay, chief economist for LendingTree.

Borrowers who don't have large downpayments or who have low credit scores will see higher rates. But even borrowers with good credit scores will have to pay more too.

For example, Gassett explains that a buyer with a credit score over 740 who has a 25 percent or lower downpayment will now pay about 0.125 percent more in rate.

For any buyer or refinancers of a condo (excluding detached condos) who have less than a 25 percent downpayment will face an increase in rate of nearly 0.5 percent.

"It certainly says that even with a great credit score, they still see some risk in you," Findlay told The Wall Street Journal.

Some lenders have already started incorporating the higher fees.

Not all loans will be subjected to the fees, experts note. For example, not all lenders sell all mortgages to the secondary market and loans insured by the Federal Housing Administration also will be immune.

0 Comments
Blog_tag

US Federal Trade Commission: Foreclosure rescue and loan modification services, NO UPFRONT FEES

11-24-10
Christopher Shearer, Realtor (850) 326-4327

Companies that help troubled homeowners avoid foreclosure will no longer be able to collect upfront fees under a rule approved Friday by the Federal Trade Commission.

The government issued the rule in response to complaints that for-profit foreclosure rescue and loan modification services often deliver little help.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said. “This rule will protect consumers from being victimized by these scams.”

Under the FTC’s rule, foreclosure rescue companies won’t be able to charge any fees until consumers receive an acceptable offer of help from their lender in writing.

The FTC said it has brought more than 30 cases against mortgage relief services, many of which have official-sounding names that appear to imply a link to the government.

The agency also said federal courts have ordered companies, Irvine, Calif.-based U.S. Homeowners Relief Inc. and Baltimore-based Residential Relief Foundation Inc. to stop selling such services.

Seventeen other companies have been banned from settling such services under court judgments and settlements, the agency said.

Consumer advocates and government officials say homeowners should instead seek the help of nonprofit housing counselors who don’t charge any fees.

0 Comments
Blog_tag

Home Mortgage Rates surged in Graceville Florida to highest level in three months

11-24-10
Christopher Shearer, Realtor (850) 326-4327

Home-mortgage rates have surged to their highest level in three months, a reminder of the real-world implications of the recent spike in Treasury yields and another headache for the Fed.

The rate for a 30-year, fixed-rate mortgage averaged 4.39% last week, according to the weekly survey from government-backed mortgage firm Freddie Mac, up from a record-low 4.17% the week before. Rates on 15-year fixed-rate mortgages were 3.76%, up from 3.57%. (The rates assume prepaid interest of 0.9 point and 0.7 respectively.)

This week's average is the highest level since the week of Aug. 19 and marks the biggest one-week increase since June 2009.

The jump could lead to a short-term surge in refinancing activity as fence-sitters rush to lock in low borrowing costs before it is too late. But rates are nearly high enough to put the brakes on a refi boomlet that took root this summer, when rates were falling.

Tie to Treasury

The 30-year mortgage rate closely tracks moves in the yield on the 10-year Treasury note, given that most mortgages are paid off in 10 years or less. As bond prices have fallen lately, the 10-year note yield—which moves opposite to price—has surged from a low of 2.38% in early October to 2.900% on Thursday, near a three-month high.

Rates have risen despite the Federal Reserve's launch of its program, known as "quantitative easing," to buy Treasury debt to keep interest rates low and support the economy. The Fed is also buying Treasurys with cash it receives from maturing mortgage-backed securities in its portfolio.

The Fed is expected to spend about $900 billion on Treasurys through next June, which many observers believe will eventually drive rates lower.

Meantime, however, the recent rate rise is likely not a welcome development for the Fed.

"If long-term mortgage rates go higher, then housing becomes less affordable, and that inhibits the recovery of the housing market," said Kevin Cavin, mortgage strategist at Sterne Agee in Chicago. "There's a lot of incentive here to keep rates low."

Refinance Window

By Mr. Cavin's estimate, about $780 billion of all 30-year mortgage debt outstanding, representing more than 20% of the market, have rates between 4.9% and 5.1%. This is the biggest slice of the market and typically comprises borrowers with pristine credit quality and relatively low ratios of their mortgage debt to their home values.

In other words, these are the borrowers who will have the easiest time refinancing.

If mortgage rates rise just another 0.20 percentage point from here, then many of these borrowers will have no incentive to refinance, assuming they need at least a half-percentage point advantage in rates to make a refi worth the time and closing costs.

With rates so close to that break-even point, many mortgage brokers may push clients to refinance before rates rise further. So far, that has not been the case, however. The Mortgage Bankers Association reported earlier this week that its index of refinance activity tumbled 16.5% from a week ago to its lowest level since July.

The MBA has estimated that refinancings will fall to about $370 billion next year from $921 billion this year and $1.3 trillion in 2009.

0 Comments
Blog_tag

Short Sale are there any unusual or unexpected costs?

11-24-10
Christopher Shearer, Realtor (850) 326-4327

Q: I am interested in buying a short sale, but wonder if there are any unusual or unexpected costs associated with such a sale, compared to buying a regular house.

—Denver

A: It's possible to get a great deal on a short sale–where a home sells for less than is owed on the mortgage–but whenever a seller is in a financial bind, you should be prepared to pay extra costs.

Expect to pay for many of the expenses that a seller would normally pay in the transaction—because the lender, who is taking a loss, may refuse to approve the deal if you don't.

Just what those costs will be varies. For instance, some lenders will agree to assist with a buyer's closing costs; others won't. Some will pay broker's fees—others won't. (If you agree to pay your buyer broker a certain fee for finding the house and handling the deal, and the lender doesn't pay it, it will come out of your pocket.)

Among the other expenses you may have to shoulder: unpaid homeowners association dues, appraisals, inspections, mechanics and other liens, a second deed of trust, transfer and other fees and even the seller's back taxes.

If the price you and the seller agree to is lower than what the bank will accept, you will be asked to make up the difference—though it's worth trying to negotiate this point.

On top of that, if there are any repairs to be made—and since sellers under financial stress often let maintenance slide—you will have to make them. Short-sale homes are almost always sold "as is," although some lenders will agree to pay for termite damage, or to correct safety or building code violations.

Though lenders may take months to decide whether to approve your offer, when they finally respond, beware of a clause that asks for "liquidated damages." That could put you on the hook to pay a daily penalty if you cannot close in a certain period of time after the bank's approval.

Of course, just because you will be asked to assume more of the expenses that traditionally are paid by the seller doesn't mean that you should try to cut corners on items that protect you, even if it means more money out of your pocket.

Specifically, don't buy a short-sale home without springing for title insurance, which will cover you should there be any clouds on the title–always a possibility in any sale, but even more so in a distressed situation when there may be liens or other claims on the property.

And spring for a home warranty, since after laying out all this cash, you shouldn't have to lay out more money to repair a leaky washer or growling dishwasher once you move in.

0 Comments