Congress Allows Mortgage Forgiveness Tax Break to Expire

For the past 6 years, Americans have had access to a mortgage forgiveness tax break that was designed to help those who lost their homes in a foreclosure. However, when 2013 ended, so did this tax break and Congress is under fire for allowing it to slip past them without an extension. This is particularly bad news for struggling homeowners who could have continued to benefit from it. Without it, anyone currently selling their home could get dinged with very large tax bills. There was plenty of bipartisan support for extending this law, however, lawmakers failed to do so before its expiration date was reached on December 31, 2013.

This tax break, called the Mortgage Forgiveness Debt Relief Act, was enacted by Congress in 2007 when the housing market was collapsing. It allowed homeowners to waive taxes related to aid that they received from banks in the form of lessened mortgage debt and short sales. As a result of this law, each household was allowed as much as $2 million in forgiven debt to be exempted from their federal taxes. After all, if they couldn't afford to keep their homes, they probably couldn't afford to be slapped with a large tax bill as well.

The LA Times interviewed Kevin Stein, the associate director of the California Reinvestment Coalition about this law's expiration. He described it as a "hit on people who are meant to be helped." Homeowners will no doubt feel it in 2014. He continued, "it is a big deal and it would be very unfortunate if, due to Congress' inability to act, people will suffer."

While there is still plenty of pending legislation that could potentially extend this tax break through 2015, it is entirely up to lawmakers to make it happen. They will be considering extending dozens of other tax provisions that also expired at the end of 2013. This means that there could be a mortgage forgiveness tax break passed even though it expired. It was originally set to expire in 2009 but was extended twice.

There are critics who say that it is time to move on from this tax break because waiving all these fees means that the federal government is missing out on revenue that could be put right back into the economy. However, there are many others who feel that this tax break is so vital that it should be immediately restored. Even though housing prices are on the rise and there are fewer homeowners currently underwater, there are still more than 1.2 million properties currently in some stage of foreclosure. The National Association of Attorneys General pointed out that there are approximately 7.1 million homes with mortgages with negative equity.

It is good to remember that the housing market has not yet fully recovered. Millions of people will be greatly affected by the loss of this tax break and they will continue to struggle without financial aid.

However, there is a slight silver lining for some homeowners who live in California. The state enacted a law in 2010 that protects homeowners from paying taxes on any benefit from a short sale. This means that any mortgage debt forgiven as part of a lender-approved short sale is not taxable income. However, anyone with a modified mortgage that had part of the principle forgiven would still be hurt by the federal law's expiration.

Generally, money that is borrowed and then canceled because of foreclosure or short sale counts as income and that is what is taxed. For example, if you owe $300,000 on a home and can only sell it for $225,000, the $75,000 difference is considered taxable income. Without the tax break, you would owe on that amount.

Without the tax break, the only possible loophole to avoid owing taxes on forgiven debt would be qualifying for an insolvency exclusion. This may not require you to include your forgiven debts as income if you can prove that your total liabilities exceed your total assets, but again, this is a specific loophole that not everyone will qualify for. Be sure to talk to a tax professional to discover any and all options you may have.

There were 42 attorneys general who wrote letters to congressional leaders in an effort to persuade them to extend the mortgage debt forgiveness tax break and understandably, these same attorney generals are outraged that it was allowed to expire. Senator Debbie Stabenow (D-Mich.) said "it makes absolutely no sense. It is, frankly, outrageous. This is not just about fairness for homeowners. This is about keeping the housing recovery alive."

Despite such passionate and high-powered backing of this tax break, it is a shame that Congress allowed it to expire. According to Jaret Seiberg, a senior policy analyst at financial services firm Guggenheim Partners, Washington is basically tired of lending government support for housing. "As a result," he said, "there is a real risk that the government will prematurely pull back support for housing." However, Seiberg believes that there is still a 60% chance that Congress could change their minds and extend the break once more.

We can only wait to see what happens.

If you are concerned about the loss of this tax break and want more information about your options, feel free to call us at Crosscountry Mortgage at (877) 828-8851. We would love to answer your questions and help you evaluate your situation, if needed.

Source | Source

Read More

5 Reasons Why You Should Refinance Your Home!

What are the reasons and benefits of refinancing? 

• Lowering your interest rate: Securing a lower interest rate is one of the top reasons for refinancing. This can make a big difference in your monthly out-of-pocket costs for housing and save money on financing fees.
  
• Convert a an adjustable rate mortgage to a fixed term: converting an ARM to a fixed rate mortgage will allow you to keep payments constant and avoid balloon and spiked payments due to interest rate fluctuations.

• Build Equity Faster: if you are in a position to make higher monthly payments as a result of a salary or other good fortune, switching from a 30 year loan to a 15 or 20 year loan structure will allow you build equity faster and save money by paying less interest.

• Improved credit score: If your credit score has improved as a result of making your mortgage payments on time and in full, you may be in a position to take advantage of your improved credit standing. The lender can review your current credit score, the terms of your existing mortgage, and review options for other loan programs that could not only reduce your monthly payment, but also save you money on interest fees paid over the life of the loan.

• Use the equity you have established: A cash-out refinance allows you to tap into the equity you have built up in your home. You may want to pay off revolving credit card accounts, send a child to college, or use the money for home improvements or personal expenses. It is important to consider whether or not you have a prepayment penalty written into your existing loan, and why you are refinancing.  The lender will want to know what the current property value is, how much equity you have built up, and your current credit score

Now that you have the facts, are you ready to get the refinancing process started? Crosscountry Mortgage would be glad to help you! Give us a call at (877) 828-8851! We would love to hear from you!

Read More

What is an FHA loan?

Technically, it itself is not a loan. Rather, it means that the Federal Housing Administration has your back. They will insure your loan even if you have fair or poor credit, a low down payment (at least 3.5%), or have experienced bankruptcy or foreclosure. This makes lenders more inclined to help you out and offer you a loan because it reduces their risk of loss if you default on your payment.

The FHA program has been helping borrowers who normally could not qualify for a loan since the 1930s as a way to stimulate the housing market. Typically, these types of loans have been primarily offered to military families, the elderly, handicapped, or lower-income families, but anyone can get one. They are not just for first-time buyers either.

In fact, the FHA loan is the easiest loan that you can qualify for. They are available for both purchasing a new home and refinancing your existing home. It requires a low down payment and your credit does not have to be perfect, which makes things easier on you. Should you need to sell your home, your loan is "assumable" which means that the buyer can pick up where you left off. 

If this type of loan would benefit your situation, don't hesitate to get the process started! Here is what you need to qualify:

• Have steady employment for the past two years.
• Have a valid Social Security number, be a U.S. citizen and be legally old enough to sign a mortgage depending on your state's age requirements 
• Make a minimum down payment of 3.5% on your new house. Or you can put 10% down if your credit score is between 500 and 579. This money may be gifted, whereas other loans do not allow this.
• Have a property appraisal from an FHA-approved appraiser.
• The mortgage payment will need to be less than 31% of your gross monthly income including principal, interest, property taxes and insurance.
• Monthly debt cannot be more than 43% of your monthly income, including mortgage, credit cards, car payments, student loans, etc.
• Have a minimum credit score of 500.
• Cannot have a bankruptcy within the past two years
• Cannot have foreclosure within last three years

There are a few disadvantages to the FHA loan since it does not hold the same strict standards of a conventional loan. It requires two kinds of mortgage insurance premiums, one of which is paid upfront in full or financed into the mortgage, and the other manifests as a monthly payment. Your house will also need to meet certain conditions and must be appraised.

Read More

Update on Pending Home Sales in November

According to the National Association of Realtors, the month of November saw some stabilization where pending home sales are concerned. They received a slight gain. There were also some monthly increases in the South and the West that managed to make up for certain declines in the Northeast and the Midwest.

Have you ever heard of the Pending Home Sales Index? Well, if not, it is based on contract signings of existing homes on a large national sample that makes up about 20% of all transactions in the country.  According to that index, the number of signings increased by 0.2% to a score of 101.7 in November. Keep in mind that it does not account for closings, just contracts. This is good news for the economy.

NAR's chief economist, Lawrence Yun, had plenty to say about the market in a recent interview. He said, “We may have reached a cyclical low because the positive fundamentals of job creation and household formation are likely to foster a fairly stable level of contract activity in 2014. Although the final months of 2013 are finishing on a soft note, the year as a whole will end with the best sales total in seven years.”

As of now, mortgage interest rates are a bit higher but still relatively low when compared to years past. We have also seen strong gains in home prices that add to the overall market growth that we should expect to continue to see in 2014.

The market is still kind to buyers right now which means that we could see as much as $5.1 million in existing-home sales for 2013. That figure is nearly 10% more than 2012 experienced, and it is expected that 2014 should be similar.

Read More

Housing Market Predictions for 2014

Good news! It is predicted that through 2014, existing-home sales are expected to stay on the up and up! 2013 has been a great year full of healthy gains and that momentum looks like it will continue.

According to the National Association of Realtors (NAR), existing-home sales have show a 20% cumulative increase over the past two years! Home prices have gained 18% too!

“We’ve come off of record high housing affordability conditions in the past year, and are now at a five-year low, but conditions are still the fifth best in the past 40 years,” said Lawrence Yun, chief economist for the NAR. “While the median-income family in many areas will still be well positioned to buy a home in 2014, income is barely budging given growth in consumer prices.”

Other issues include limited housing inventories that make it hard for homeowners to find an affordable place that they love. Once they do find the perfect home, they then have to face unnecessarily strict mortgage lending standards. These restrictive policies stem from Fannie Mae and Freddie Mac's rising fees, higher premiums from the FHA, and the Dodd-Frank banking regulations.  All of these have had a negative impact on community banks. Larger banks are said to be holding on to funds just in case they are sued by the Department of Justice. This takes away from available to mortgage borrowers, thus the tighter qualification requirements.

“Although home sales have recovered over the past two years, mortgage purchase applications have been flat for the past four years, even with rising sales,” Yun said.

2014 may see a dramatic decrease in refinancings because of higher mortgage rates. It may even hit the lowest levels we've seen in 15 years! To counterbalance this collapse, purchase applications will really need to rise.  “This is an incentive for banks to increase mortgage origination, especially considering the low default rates in recent years. But even with cheap mortgages for the past four years, all-cash buyers stayed high, accounting for over 30 percent of sales,” he said.

According to Yun, the only way that higher mortgage interest rates can be tolerated is if there is an increase in job creation as well as a relaxation of restrictive lending standards. And the only way to alleviate housing inventory shortages is to have an increase in housing starts. They need to rise 50% in order to meet the underlying demand!

Right now, the best thing we can do to help the housing market is to consider purchasing a home in 2014. Lock in the lowest rate possible and pay the mortgage every month. The more stability we can individually achieve, the better the whole economy can be in the long run.

If you are in the market for a new home, give us a call at 877-828-8851. We'd love to help you get through the mortgage process and into your dream home!

Read More

Issues the Housing Market is Currently Facing

Recently, a group of realtors pinpointed the biggest issues that are currently impacting the housing market. These are issues that could have consequences for homeowners, realtors and mortgage professionals alike!

Right now, the biggest issue concerns interest rates. Historically, low interest rates have always driven the economy and in turn the real estate markets. Since the rates have increased recently, capitalization rates could also rise. That refers to the ratio between the income produced by an asset and the cost of it. This could lead to investors and homeowners becoming more and more wary of their purchases.

Another concern revolves around healthcare. As the population continues to age, there will eventually be a demand for more senior housing. This will have an affect on available housing inventories and the building industry for both medical facilities and senior housing.

Economists have even started accounting for a future housing boom! Between 1982 and 1995, there were 80 million Americans born. They are calling this an "echo boom".  Those that fall into this age range tend to prefer urban lifestyles that are flexible and active. However, there are also plenty who prefer the suburbs. This could lead to a future need for even more mass transit for those commuting between the suburbs and the city. There will be money pouring into bike paths and public transportation, as well as homes with great locations!

Right now, commercial real estate is doing well. There have been increases in transactions for these properties and plenty of credit is available. Also, the underwriting for commercial real estate is less restricted than in the past and plenty of debt options are in place.  However, the residential market is still seeing tough underwriting rules. But the rates are still relatively low and affordability in general is high!

Extreme weather and the changing climate are another issue. Areas that are continuously affected by storms and hurricanes, like those in the path of hurricanes Katrina and Sandy, are facing changes in code and zoning standards. They are also having to pay much higher insurance premiums. All of this has a strong impact on coastal homes.

An issue that is harder to calculate includes global events like terrorism, war and debt crisis. It is hard to anticipate what could happen but economists agree that the impact of major events can lead to drastic changes. But that goes without saying.

An issue that is a bit easier to analyze concerns the increased natural gas and oil production in the US. This is having an impact on the economy and the environment. On one hand, the increase of these productions have lead to more employment opportunities and reduced America's dependence on foreign oil supply, but climate changes and potential contamination have a big affect. If there are communities in nearby areas, it could really change the value of the homes.

Lastly, technology is changing the world as we know it. Many offices and corporations are choosing to employ people to work from home. This can cause some companies to downsize their office space which has an affect on commercial real estate. With less retail space needed, there will be fewer and smaller stores. Retail demand is down across the country due to an increase in internet sales.

All of these issues have a play at this game of tug-o-war that is balancing the housing market. While the market is recovering overall, trained economists are required to keep an eye on this delicate balance.

There will be many changes in the future. Right now, some of the best advice we can give is to lock in low mortgage rates while they are still low.

If you have any questions or would like more information about how all of these issues can impact your local housing market, give us a call at 877-828-8851.

Read More

Tight Mortgage Requirements Rough on Singles and First-Time Buyers

According to a study by the National Association of Realtors (NAR), there are still some unnecessarily restrictive mortgage lending standards in place that are not allowing some singles and first-time buyers to financially qualify for a home. These tend to have to do with tight credit requirements. Since 1981, NAR has been evaluating the demographics, preferences, motivations and plans of those who have recently bought or sold a home. This data includes only owner-occupants, not investors or vacation homes.

“Single home buyers have been suppressed for the past three years by restrictive mortgage lending standards, which favor dual-income households who are more likely to have higher credit scores,” said Lawrence Yun, NAR chief economist. “Not seen in this survey is the elevated level of investors in recent years. The housing recovery would have been much weaker without investors, who often purchase with cash.”

According to the survey, 66% of buyers are married couples. In 2010 that number was 58%. The survey also saw that 16% of homebuyers are single women but only 9% are single men. Compared to 2010's 20% single women and 12% single men, the data shows that the overall market share of single buyers has declined from 32% in 2010 to 25% in both 2012 and 2013.

“Given that mortgage interest rates are expected to gradually rise, we need greater access to credit for a sounder housing recovery," said Yun. "Affordability conditions remain favorable in much of the country, but consumers need access to safe and sound financing, particularly the 30-year fixed-rate mortgage, and with low downpayment options for first-time buyers."

When looking at the averages that date back to 2981, it shows that 4 out of 10 purchases come from first-time buyers. In 2012, first-timers accounted for a 39% market share, but that number has slipped to 38% this year. This means that there are fewer first-time buyers in today's market than average. It is important to note that first-timers are very important for the housing market's recovery because they are the ones that help existing home owners to sell.

If you are in need of a home soon, we can help! If you are a single and/or first-time buyer, please don't hesitate to call us! We'd love to do everything we can to help you get into a home! Call Crosscountry Mortgage today at (877) 828-8851.

Read More