Some of you may recall that 45 days ago I predicted the 30 year note to get to 6%. Then 2 weeks after that I again reiterated the stance. Well after the Fed stepped in and took over Fannie Mae and Freddie Mac, we have now seen the rates drop to 6% on a 30 year fixed. That is the good news, here is the bad news.
By taking over these institutions the government has put there finger in the dam. Now they are stuck there with there “finger” in the problem that is our mortgage industry. It is going to cost the tax payers BILLIONS to rescue these two giants. Compared to what we are spending in Iraq, that is a drop in the bucket, but none the less, it is Billions in dollars that could be better used to lower our debt as opposed to raise it. If the gamble pays off, and the money the government invests in Fannie and Freddie has a return, then they have made money. But when was the last time you wanted to gamble Billions of your hard earned dollars and that of your children?
A more realistic scenario is that these two entities become part of HUD in the next 4 years and lending guidelines for the next 4-8 years are slow to loosen. Regional banks and local banks will become the place creative financing, but only for those people that have excellent credit and significant assets or equity.
For questions or comments on this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.
Monday, September 8, 2008
Saturday, September 6, 2008
Even before the government takeover, more changes at Fannie Mae
As Fannie Mae and Freddie Mac await the government takeover, they both continue to tighten lending guidelines. The latest from Fannie Mae limit the combined loan to value for those who have an equity line on their home or are using an equity line to purchase a home. In addition, unless you are putting 25% down or more on investment properties the cost to acquire the loan has gone up. For investors there is even more bad news as the number of properties financed continues to shrink. For all of the changes, please go to this link;
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0822.pdf
For questions or comments on this post, please contact
Wednesday, September 3, 2008
A Quick Thought on Early Retirement
For all my Anheuser-Busch friends, clients and those Financial Planners helping them make the decision on whether or not to take the early retirement offer that has been sent to them. If they are considering restructuring their debt or refinancing, they need to do that prior to accepting the early retirement. Once they have accepted the package, their probability of continued employment has ended, even if they are going to be employed at the time the loan closes. Any severance package that includes income, if the income is not going to continue for 3 or more years will not be used for qualification purposes when attempting to get approved for a loan. In the current underwriting climate, underwriters are getting better at doing their job and with all of the news coverage of the proposed merger, I would hate for some one to have a loan denied because they did not plan ahead.
For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.
Wednesday, August 20, 2008
Mortgage Forgiveness Debt Relief Act of 2007
Earlier this week I had a conversation with an accountant who was asking me about people who were selling their houses in short sales. We discussed the increase of this in the St. Louis area and he suggested that he put together some information that my clients might find helpful regarding the Mortgage Forgiveness Debt Relief Act of 2007. Here is the letter in its entirety.
August 15, 2008
Dear friend:
With the economy in its current challenged state, coupled with the real estate market and its issues, there has been a lot of activity regarding foreclosures, short sales, and debt restructuring. I continue to get a lot of questions regarding the tax consequences for home owners in these situations. The rules have changed in this area. Under the old rules, forgiveness of debt could trigger taxable income for the person being relieved of debt. The new rules drastically help taxpayers needing forgiveness of debt associated with their primary residences, but it only applies to debts discharged from January 1, 2007 to December 31, 2009. With the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on up to $2 million of debt forgiven for a loan secured by a qualified principal residence. More details are highlighted below.
Discharge of indebtedness income: background
For income tax purposes, a discharge of indebtedness (“forgiveness of debt”) is generally treated as taxable income. However, a discharge of indebtedness doesn’t trigger gross income if it: (1) occurs in a Title 11 bankruptcy case, (2) occurs when the taxpayer is insolvent, (3) is a discharge of qualified farm indebtedness, or (4) is a discharge of qualified real property business indebtedness.
The 2007 Mortgage Relief Act excludes from a taxpayer’s gross income any discharge of indebtedness income by reason of a discharge (in whole or in part) of qualified principal residence indebtedness before January 1, 2010. The exclusion applies where taxpayers restructure their acquisition debt on a principal residence or lose their principal residence in a foreclosure.
Here is some of the critical fine print in this new relief provision:
- The tax relief applies to the original purchase price, plus improvements, of the taxpayer’s principal residence. It doesn’t apply to discharges of second mortgages or home equity loans unless the loan proceeds were used to acquire, construct, or substantially improve the taxpayer’s principal residence. Refinanced indebtedness qualifies only to the extent it does not exceed the amount of indebtedness being refinanced. (Cash out from refinancing will not qualify for the exclusion.)
- The indebtedness must be incurred specifically in respect to the taxpayer’s principal residence. The exclusion rule does not apply to second homes, vacation homes, business property, or investment property since these properties are not the taxpayer’s principal residence.
- The relief provision is not a permanent fixture of the tax code. It only applies to forgiveness during 2007, 2008, or 2009.
- Nontaxable forgiven mortgage debt is capped at $2 million ($1 million for married individuals filing separately).
- When the relief provision applies, the tax basis of the individual’s principal residence is reduced by the amount excluded from income. As a result of this basis reduction rule, the discharged indebtedness is technically subject to taxation at a later time. However, in many cases the reduction will not result in any additional tax because any gain on that sale or exchange will qualify for the $250,000 ($500,000 for married couples filing jointly) home-sale exclusion.
Please keep in mind that this is only a summary of this important tax relief provision. If you would like more details about this change, or any other aspect of the new law, please do not hesitate to call. Keep in mind that every taxpayer’s situation is different and should be analyzed with his or her tax advisor and counsel to determine what applies for the given circumstances.
Best regards,
HOFFMAN CLARK, LLC
Bryan Shaw, CPA
Thursday, August 7, 2008
Miracles Never Cease!
Back by popular demand, at least in my mind! I will be returning to the airwaves on Tuesday, August 12, 2008 on the mighty mox; that is KMOX for all of you who are not hip to the lingo of
At 10:20 in the morning, please tune your radio to 1120 on your am dial or go to www.kmox.com to listen live over the internet. I will be on the air with Dave Simons of Merrill Lynch discussing the new legislation that was signed by the President on July 30, 2008.
Thanks for your support! By the way, if you know anyone who is looking to purchase or refinance please send me their information and I will be happy to keep you posted on how things go!
As always, for questions or comments please contact
Monday, August 4, 2008
The Housing Act
On July 30, 2008, President Bush signed into law the “Housing Assistance Tax Act of 2008” (the Housing Act). It includes a $15.1 billion package of housing tax incentives.
Here are the highlights of the bill for homeowners and first time home buyers.
Property Tax Deductions for Non-Itemizers
The Housing Act created a new, temporary property tax deduction for non-itemizers (i.e., for taxpayers who claim the standard deduction rather than itemizing their deductions).
Highlights include:
· The provision creates a new standard deduction for state and local real property taxes paid by non-itemizers. Since most homeowners who are paying on a mortgage have enough deductions (e.g., mortgage interest and property taxes) to justify itemizing them on their return, this new provision chiefly benefits homeowners who have paid off their homes.
· The deduction is currently only available for tax years that begin in 2008.
· The amount of deduction will be as much as $500 for single filers and $1,000 for joint filers. Since this is a deduction and not a credit (i.e., a dollar-for-dollar reduction in tax liability) the actual tax benefit will not be all that substantial. For example, it only proves a maximum of $100 to a couple in the ten percent tax bracket and $150 to a couple in the fifteen percent bracket (and only $50 and $75, respectively, to singles in those brackets). Granted, in this economy every little bit helps.
Credit for First-Time Homebuyers
The single largest provision in the Housing Act is a measure allowing taxpayers buying their first home to take a tax credit of up to $7,500 of the purchase price. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy a home and even get a refund if the credit exceeds their tax. However, they are then required to pay the credit back over fifteen years. The result is that the credit resembles an interest-free loan that must be repaid to the government.
Here are the details of the new credit:
· The home must be located in the
· The home must be purchased between April 9, 2008 and June 30, 2009. Purchases from certain related persons and acquisitions by gift or inheritance do not qualify. A home constructed by the taxpayer does qualify if the taxpayer moves in between April 9, 2008 and June 30, 2009.
· There is also a special rule that allows taxpayers who purchase a qualifying principal residence in the first six months of 2009 to treat the purchase as if made on December 31, 2008. This allows the credit to be claimed on the taxpayer’s 2008 taxes rather than waiting to claim it on the taxpayer’s 2009 taxes.
· The credit is equal to ten percent of the price paid for the home, up to a maximum of $7,500. The $7,500 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can only claim a maximum credit of $3,750.
· The credit is phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Taxpayers with modified AGI over $95,000 ($170,000 for joint filers) can't claim the credit at all.
· The credit is refundable, which means that households with incomes too low to owe any income tax can still benefit as the excess credit available after applying to any income taxes will be refunded to the taxpayer.
· In the second year after purchase (note that the payback doesn’t immediately start in the subsequent tax year), taxpayers who took the credit must start paying back the credit in equal interest-free installments over fifteen years. For example, suppose a first-time homebuyer purchases a home for $100,000 in December 2008 and claims the maximum credit of $7,500 on his 2008 tax return. He would then be required to pay back $500 (one-fifteenth of the credit) on his tax return for 2010 and for each subsequent return for the following fourteen years, finishing in 2024.
· If the taxpayer sells the home (or the home ceases to be the principal residence of the taxpayer or the taxpayer's spouse) before the complete repayment of the credit, any remaining credit is due on the tax return for the year in which the home is sold (or ceases to be the principal residence). If the home was sold at a loss to an unrelated person, repayment of the remaining credit is forgiven to the extent of the loss.
· No credit is allowed if certain conditions exist: the taxpayer was ever entitled to a District of Columbia homebuyer credit, the home purchase was financed through tax-exempt mortgage revenue bonds, the taxpayer is a nonresident alien, or the taxpayer disposes of the residence (or it ceases to be a principal residence) in the same year as it was purchased.
For a chart of the tax credit information, click here:
For Questions or Comments, please contact
Sunday, August 3, 2008
New MHDC
Here we go! It is actually going to happen! The new rates for the 2008B are as follows:
NON
NON
The window for reservations will open at 8 am on Monday August 4th. As soon as you have a confirmed reservation you may close loans. All loans in this bond issue will be sold to the new master servicer US Bank. Training with the master servicer will start on Tuesday August 5th in
Rates
As you can see we will have 4 rates instead of 2 due to the conventional market. Only Fannie Mae's My Community Mortgage or Freddie Macs Home Possible programs can be used with this bond issue. There will be no charge of 1.25% for LLP and adverse market fee in this issue only. However, there will have to be a $175 servicing fee charged to the borrower for the all
Down payment Assistance
As you can see I have changed the acronym from CAP to
For Questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.
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