Market Update

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Market Update

The housing market continues its slow recovery without the aid of the now expired tax credit. Sales are slower but growing, and prices remain on par with last year’s levels. Interest rates also hit a new historic low, a major factor in helping  keep mortgage payments low, which is expected to spur sales.

The economy shone a bit brighter in September. It grew faster during the second quarter than expected, and companies continued to hire. Experts believe there is now less risk of a double-dip recession. Now, the Federal Reserve Board’s challenge is not if the economy will grow but how fast.

Experts anticipate both the economy and the housing market will continue their path on the way to a complete recovery. This march back up provides excellent opportunities: an ample selection of homes, affordable prices, and historically low interest rates.

Home sales began to rebound in August. This increase follows a large drop caused by the expiration of the Federal tax credit in July. Sales are expected to slowly rebound as the market finds its footing without leaning on the government for support. First-time buyers fell from 38% to 31% in August from July. Over the same time period, investors rose from 19% to 21%,

Overall home prices fell slightly in August compared to July, but major markets appear to be bucking trend as the Case-Shiller Index shows an increase of 3.2%.

Distressed properties accounted for a slightly larger proportion of sales in August compared to July. The discount in distressed properties helps explain the slight decline in August prices.

Total inventory came back below 4 million to 3.98 million in August, representing 11.6 months of inventory. While still at a relatively high level, months of inventory dropped by nearly a month in August from the 12.5 month’s supply in July.

Housing remains highly affordable, and prospective home buyers stand to benefit from the lowest mortgage rates in decades, as well as advantageous home prices. The ratio now stands at 14.9%, growing closer to the record of 13.6%. 

Source: National Association of Realtors

Interest Rates

Mortgage rates once again set new record lows in early September and remained below 4.4% throughout the month. As economic activity gains momentum, rates will rise to keep inflation at an acceptable level.

Topics For Home Owners, Buyers & Sellers

 

Bonus For Buyers

For Owner Occupants that Buy Fannie Mae Foreclosures

Like a car dealership at the end of its model year, Fannie Mae is offering special incentives exclusively for owner occupants that purchase property from its sizable inventory of foreclosures, also known as HomePath properties.

Owner occupants that purchase a Fannie Mae HomePath property by December 31 will receive up to 3.5% toward closing costs and a home warranty. These incentives for foreclosures are unheard of – banks typically sell foreclosures “as-is” without incentives, warranties, or repairs. This could help buyers to view a HomePath property more like a traditional sale, not a foreclosure, during their search process.

Owners and investors can purchase HomePath properties for 3% down and no mortgage insurance. For homes that are not in tip-top shape, Fannie Mae also offers the HomePath Renovation financing, which works similarly to FHA’s 203(k) mortgage by allowing the cost of light renovation to be included in the mortgage. Furthermore, owner occupants get a 15-day “first dibs” on HomePath properties through the First Look program.

Fannie Mae is also offering agents an additional $1500 for representing owner occupants who purchase these properties, helping to compensate them for the extra paperwork and other potential obstacles that come along with foreclosure transactions.

Buyers should be sure to take a second look at Fannie Mae’s HomePath properties before settling on “the one.” It could mean not just a great deal but an excellent one.

To see Fannie Mae’s HomePath homes, check out HomePath.com

Options for Investors

Not only is it the perfect time to buy a home, but it’s also an excellent time to purchase an investment property. If you already own and are not interested in moving – or you can’t because of the 3-year occupancy requirement to keep your home buyer tax credit – but still want to take advantage of the market, investing can be a great way to do so.

In the current lending situation, lenders often require investor buyers to have six months reserves of mortgage payments and a 25% down payment. This stipulation keeps many would-be investors out of the market.

Here are some little known tips to help investors purchase, regardless of the tighter lending environment:

1.     Investors can purchase a Fannie Mae HomePath investment for 3% down.

2.     Any investor, not just veterans, can purchase a Veterans Affairs(VA) foreclosure with VA’s Vendee Financing for 5% down.

3.     Investors purchasing a VA foreclosure with Vendee Financing can use 75% of anticipated rent to offset the monthly payment if the investor has experience managing rental properties.

Sources: The Wall Street Journal, Inman News, KW Research

Purchase mortgage originations to grow

The Mortgage Bankers Association projects an increase in purchase originations. It will be driven by modest increases in home sales and stabilizing home prices. In contrast, MBA refinance originations are expected to fall as mortgage rates gradually increase throughout 2011 and 2012.

"Economic growth in 2010 has been subdued and this trend will likely continue for most of 2011. Households remain cautious given the weak job market. On top of that, uncertainty regarding tax rates for next year, and the potential for tax withholding to increase at the beginning of the year, lead us to forecast that consumer spending will remain weak, particularly in the first half of 2011," said Jay Brinkmann, MBA's Chief Economist.

Thank you to Ryan Nelson at Academy Mortgage for this article

The Tradition of Black Friday

Promotions, Tradition Lure Black Friday Shoppers

Updated: Friday, 26 Nov 2010, 9:16 AM MST
Published : Friday, 26 Nov 2010, 9:16 AM MST

By Karen Talley

(Wall Street Journal) - Special sales and a sense of tradition pushed American shoppers out the door early Friday, the day after Thanksgiving, customarily seen as the start of the US holiday shopping season.
Lines wrapped around stores and parking lots across the nation as shoppers sought early-morning deals, especially on consumer electronics and toys. About 138 million Americans were expected to go shopping this weekend, and the Friday after Thanksgiving -- referred to as Black Friday for the profit it can deliver retailers -- was expected to be the busiest shopping day of the year.
"We're off to a strong start," said Jerry Storch, chairman and chief executive of Toys "R" Us. He noted that most Toys "R" Us locations across the country were reporting more customers than last year waiting for the stores to open. "I believe customers are opening their wallets more than last year," Storch said. "Prices are low, and retailers are eager."
Retailers' eagerness for shoppers was reflected in the sharp discounts they offer to lure customers early on Black Friday. Many apparel retailers -- like Gap and AnnTaylor Stores -- were offering blanket discounts during the early morning hours, while retailers like Walmart Stores, Target and Best Buy were offering deep discounts on popular consumer electronics.
Unfortunately for shoppers, the high profile sale items often do not last long. Shopper Henry Diaz got in line at a Target in Hackensack, N.J., at 3:30 am local time, 30 minutes before the store opened, but was still not early enough to secure the 40-inch high-definition television sold at $298, a saving of more than $250. Nonetheless, he found other items to purchase. "You want to save a couple bucks," Diaz said.
"No one goes out at 5 am [local time] for a sweater, but if you put an iPad on sale or 3D TV, you can count on long lines," said Craig Johnson, president of Customer Growth Partners, a retail research firm.
Some $447 billion will be spent during the holiday season, up 2.3 percent from last year, the National Retail Federation predicted, with Black Friday weekend seeing about $41.2 billion in business.
Read more: Wall Street Journal

Short Sales Tips for Sellers

Short Sales Tips for Sellers

If you're thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.
1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary. When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:

• Your property is worth less than the total mortgage you owe on it.
• You have a financial hardship, such as a job loss or major medical bills.
• You have contacted your lender and it is willing to entertain a short sale.

2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won't try to take advantage of your situation or pressure you to do something that isn't in your best interest. A qualified real estate professional can:

• Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
• Help you set an appropriate listing price for your home, market the home, and get it sold.
• Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
• Ease the process of working with your lender or lenders.
• Negotiate the contract with the buyers.
• Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include:

• A hardship letter detailing your financial situation and why you need the short sale
• A copy of the purchase contract and listing agreement
• Proof of your income and assets
• Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period. Even if you're well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:

• If you have only one mortgage, the review can take about two months.
• With a first and second mortgage with the same lender, the review can take about three months.
• With two or more mortgages with different lenders, it can take four months or longer.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)
5. Don't expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:

• You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
• Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
• Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Impact from Foreclosure Freeze

Impact from foreclosure freeze

The recent freeze on home foreclosures by major banks and mortgage firms nationwide is having a mixed impact on home sales generally. It's deterring some prospective home buyers of foreclosed properties who are worried about legal problems related to the freeze, but will boost sales of low- and medium-priced homes, analysts say.

In the wake of the freeze, some buyers are indeed switching their focus from distressed properties to conventional higher priced homes. The overall result of the freeze remains to be seen. Congressional hearings on the subject are scheduled this month (November).

Background: Many mistakes in foreclosure proceedings are causing buyers to have misgivings about property titles and the right of home possession, said Richard DeKaser, chief economist at Woodley Park Research in Washington, as reported by the Bloomberg Professional. Confidence in the legality of repossessions will cut foreclosure sales more than a reduction of available properties because the market already is flooded with repossessed homes, he said.

Bank of America Corp., the largest U.S. lender, extended its freeze on foreclosures to all 50 states as concern spread among federal and state officials that homes are being seized based on faulty data. JPMorgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage unit stopped repossession cases in 23 states where courts supervise home seizures, amid allegations that employees submitted documents with unverified or false information to speed the process.

On October 18, Bank of America announced plans to resume seizing more than 100,000 homes in those 23 states. It said it has a legal right to foreclose despite accusations that documents used in the process were flawed. At this writing, other major banks also announced plans to resume their foreclosure processing, possibly at their peril.

On October 27, Wells Fargo admitted mistakes were made in paperwork for thousands of their mortgages slated for foreclosure. Those mistakes will be corrected by mid-November, a spokesman said. In the meantime, the bank is continuing to process foreclosures.

 Thank you to Ryan Nelson from Academy Mortgage for the Great Article

Looking for something to do this weekend? Check out UltraStar Cinemas in Scottsdale

11/19: UltraStar Cinemas opens at Scottsdale Pavilions

2 commentsby Kellie Hwang - Nov. 15, 2010 03:07 PM
The Arizona Republic

Imagine while watching the latest Oscar-worthy flick at the movie theater, you get a little hungry. Instead of getting up and waiting in line, just press that little button on your armrest. A waiter appears, and a few minutes later, he hands you a hot panini and glass of red wine.

This is what it's like to watch a movie in one of the 21-and-older-only auditoriums at Scottsdale's new all-digital UltraStar Cinemas. The San Diego-based movie theater opens at Scottsdale Pavilions Saturday and offers upscale amenities that can't be found in most movie theaters.

"We want to cater to every movie-going crowd, whether it's kids on a Saturday morning . . . or those who want to watch a movie in a classy, deluxe experience," said Damon Rubio, executive vice president of operations. "The whole mall we are in is getting renovated and soon all of us together will offer a great alternative experience."

The theater has six regular auditoriums on one side, and five StarClass auditoriums that are for 21-and-older guests. There, moviegoers are greeted by a concierge, and can order food and drink from their seats for an extra $2. The menu offers mostly Italian dishes, namely the panini sandwiches with movie-inspired names such as the Marilyn Monroe made with chocolate, brie cheese and basil.

"It's an elevated experience for those who want to see a movie with other adults," Rubio said. "There is a certain demographic, especially in Scottsdale, that were looking for this experience and we are the first theater to offer it."

The theaters also have VIP lounges so groups can rent out an auditorium, relax on the leather couches with drinks watch movies. UltraStar Cinemas offers beer and wine only, and guests will see Valley purveyors such as Four Peaks Brewery, who will offer Kiltlifter and 8th Street Ale.

"We didn't want the trouble of having to make martinis and cocktails for guests," Rubio said. "We're not a bar; the drinks are an amenity and we don't want to create an atmosphere where people are drinking in excess."

Unlike the other UltraStar cinemas in Surprise and Lake Havasu, this one has a distinct Tuscan countryside-inspired theme. The space was previously a United Artists theater, and a giant pillar in the center of the lobby couldn't be removed. So decorators made it a focal-point, a kind of faux-finished stone tower. The ceiling above is painted with puffy white clouds.

Several Valley artists painted landscape murals and replicas of famous paintings all over the theater and inside the auditoriums. Statues and faux fountains complete the look.

A quaint cafe dressed with strings of outdoor lights offers dessert, wine and beer for those who want to relax before show time. And even if it's opening night for a movie, guests don't need to worry about rushing in early to find a seat because all seats are assigned.

"It's better for the guest because a lot of people have anxiety about fighting for seats when they come to the movies," said Rubio. "The system will pick the best seats for them, or they can choose their own seats."

Guests can also purchase tickets online ahead of time and pick their seats. If a movie is relatively empty, guests don't need to sit in their assigned seats. One theater offers 26 D-BOX seats, which have motion sensors that sync with the action during the films. These tickets are an extra $8 each.

The theater will officially open for the midnight showing of "Harry Potter and the Deathly Hallows: Part 1" Thursday, and patrons can purchase tickets at the theater that morning

Read more: http://www.azcentral.com/thingstodo/movies/articles/2010/11/12/20101112ultrastar-cinemas-opens-scottsdale-pavilions.html#ixzz15kOfp78e

New rules for Appraisers

New rules for appraisers

New rules are finally in place for appraisers - at least for those appraising homes that will be financed by mortgages to be purchased by Fannie Mae and Freddie Mac. A replacement for the Home Valuation Code of Conduct for appraisers has been in the works for a long time. Recently, the new Home Valuation Code of Conduct was implemented.

The new rules, now effective, establish standards for solicitation, selection, compensation, and practitioner independence when it comes to home appraisals. The goal is to ensure appraisers' work is conducted autonomously, without pressure from lenders and real estate agents to manipulate property valuations. Appraisers must be licensed or certified by the state in which the property to be appraised is located.

A seller is not allowed to obtain or use a second appraisal in connection with a mortgage financing transaction unless there is reason to believe the original appraisal is "flawed or tainted." Sellers must provide the borrower with a copy of the appraisal report on the subject property at no additional cost and at least three days prior to the closing of the mortgage. However, the borrower can be required to reimburse the seller for the cost of the appraisal. The seller cannot accept any appraisal report completed by an appraiser selected, retained, or compensated by any other third party, including mortgage brokers and real estate agents.

There must be separation of a seller's sales/mortgage production functions and appraisal functions. In other words, an employee of the seller in sales or mortgage production shall have no involvement in the appraisal.

Thank you to Ryan Nelson from Academy Mortgage for passing this along to  me.

Do you have an HOA? Find out what an HOA Entails

What does HOA Property Management Entail?
Author: John Smith
HOA property management run with a professional style is imperative to the ongoing success of a HOAs principles and legislation. Any time that a resident of a community wants to make a modification to their building, when an HOA property management plan is in place, they must first reach out for approval and documentation. HOA property management strategies are generally put in place to maintain the integrity of a neighborhood and its aesthetic appeal. As a rule, HOA property management helps to uphold the value of homes or properties within a neighborhood by keeping a level of uniformity and maintenance not always seen in neighborhoods with no homeowner’s association. Tenants residing in a neighborhood overseen by any type of association or governing body should be afforded comforts and conveniences superior to those in subdivisions where no additional fees or dues are collected. HOA property management is an effective way to instill pride and status in the residents of a community.
It is the job of an HOA property management group to keep rules standard and enforced without swaying due to personal agendas or friendships. The most successful HOA property management plans are those executed with no bias as to certain regions of a neighborhood or certain tenants. Developing an HOA property management manual that can be referenced for the sake of deconstructing faulty arguments is a good practice among HOA personnel. HOA property management companies can be hired to design and facilitate the roll-out of an HOA property management plan so that the board and other governing bodies are not forced to make decisions that would directly impact their own situation. An unbiased third party would not have anything to lose or gain by policies in the HOA property management guide.
A number of professional and government organizations offer helpful tools for HOA bodies that need assistance in either planning or understanding a property management policy guide. For those organizations reaching out to an HOA management company for assistance with their property management policy, using additional resources can be effective in brainstorm ideas with the contracted management company so that those involved in the HOA have a direct impact on their neighborhood's final guidelines. Regular meetings, once an HOA property management strategy has been established, can be critical to upholding the guidelines set forth under the property management manual and keeping up with current demands of residents. There may need to be changes made to an HOA property management guide, which could be handled as agenda items for an HOA property management meeting. Depending on the size of a subdivision or the types of buildings contained within, an HOA property management guide can cover any number of issues. Among the more common, and items that can become contentious without proper rules, are the installation or construction of fences, pools and lawn art.
Article Source: http://www.articlealley.com/article_1748985_15.html

Today is the Day to Buy a House

 

There are may reasons why NOW is the time to buy a house.  I thought this article by KCM Crew really explains the financial benefits to buying a house.  Please share your thoughts

Financial Planning: 5 Reasons To Buy a House Today

by The KCM Crew

Steve Harney has posted about the importance of homeownership often on this blog. He sees it as part of the American Dream and feels that there is a value in owning your own home that far transcends any economic advantages. He has done a great job of making his case. However, we want to look at just the financial advantages of homeownership in today’s post.

It may seem an odd time in real estate to be making the case for homeownership as an investment. We all know that real estate values in many parts of the country have dropped dramatically over the last four years. Yet, with that being the case, there is still tremendous evidence that buying a home today makes perfect sense … FINANCIALLY!

1. Buying May Be Cheaper Than Renting

Home values are back to 2003 prices in many parts of the country. Interest rates are at all time lows. It may just make economic sense to buy now because your housing expense will be less.
Professor Case, in the article mentioned above, states:

Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000… housing has perhaps never been a better bargain.

In many parts of the country it makes sense to take advantage of the current market and become a buyer at those numbers. A formula to determine whether to buy or rent used by Andres Carbacho-Burgos, a Moody’s economist, was explained in the Palm Beach Post last week:

Carbacho-Burgos looks to a price-rent ratio that considers the buy-vs.-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.
A price-rent ratio less than 20 is considered a sign that it is better to buy.
For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.
According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.

Look at the numbers in your area and decide whether buying is the better option. And, there are tax advantages.

2. There Are Tax Advantages to Homeownership

There are several tax advantages to owning your own home. Karl E. Case, professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index, discussed some of these advantages in a New York Times op-ed piece last week titled A Dream House After All:

(The) yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly… and, you can deduct the interest you pay on the mortgage.

You get a tax break on the interest now and you pay little or no taxes when you sell!!

3. Homeownership Builds Wealth

When you own a home, you are ‘forced’ to save by paying your mortgage every month. Part of that payment goes to paying down the principal on the mortgage money you borrowed. The equity you are creating is a form of savings.  In a recent article, Even in a Stagnant Market, There Are Benefits to Homeownership, Karen Dynan, vice president, co-director of the Economic Studies program, and the Robert S. Kerr Senior Fellow at the Brookings Institution claimed:

I am doubtful that we should be giving up on homeownership as a way for households to build wealth … (because) owning a home induced people to do some saving, first for the down payment and later through paying down principal as part of their monthly mortgage obligations.

You may argue that this only works if the home appreciates over time. Let’s look at this issue.

4. Real Estate is a Good Long Term Investment

The minute you mention a home as an investment today the first thing you hear is – “Go ask what someone who bought in 2006 thinks.” We don’t have to ask. We know what their answer will be. However, any investment vehicle deals with market fluctuations.
A person who placed money in the Dow in 2007 and sold it in January 2009 would have lost 49.3%. Even if they sold today they would still be at a 25% loss. Does that mean that we should never again invest in stocks?
If someone bought gold at the end of 1987 and sold it in 2000 they would have lost approximately 50% of their investment. I am sure there were those in 2000 who decried gold as an investment when it dropped to almost $250 an ounce.  I hope people didn’t listen as gold is now trading for over $1,200 an ounce.
Real estate was never touted as a great ‘short term’ investment. Let’s see how home values compare to other investments over a ten year time span – the last ten years. According to the Case Shiller Pricing Index real estate prices have appreciated 40.3% since their August 2000 report. During that same ten year time period, the Dow Jones Average lost 7.04%.
Obviously, as a longer term investment, it beats the stock market. But, what will happen to prices going forward?

5. Experts Expect Home Price Appreciation Starting Next Year

Macro Markets surveys over 100 housing industry experts each month to determine what they believe will happen to home values over the next five years. Though they believe that prices will continue to soften for the rest of this year (-2.08%), they feel that prices will stabilize next year (.78% appreciation) and then show three more years of increasing percentages of appreciation (2012 – 2.43%; 2013 – 3.2%; 2014 – 3.69%).

Bottom Line

We believe that purchasing a home now will prove to be a sound financial decision for years to come. People who didn’t believed all the hype in 2006 made good economic decisions. People who do not get caught up in the negativity of today’s market and purchase a home now will do the same. As Warren Buffet said, “When others are greedy, be fearful. When others are fearful, be greedy.”

Is Your Mortgage Interest Deduction Doomed?

Here is a great article has a lot of valuable information.

By Carla Fried | Nov 12, 2010 | 1 Comment

Sharply limiting the size and scope of the mortgage interest deduction made it onto the short list — okay, not so short  — of deficit reduction proposals floated this week by Erskine Bowles and Alan Simpson. One of the three tax plans offered up by the co-chairs of President Obama’s fiscal deficit commission would end the mortgage interest deduction on primary-home mortgages above $500,000, down from the current limit of $1 million. The deficit-cutting duo also proposed to completely eliminate the deductibility on second homes and home equity loans and lines; currently up to $100,000 of interest on such loans and lines qualify for the tax break.

There is no question that tinkering with the mortgage interest deduction would be controversial, to say the least, but it’s also a mistake to think this idea has no chance of gaining any traction in Washington. It’s long been on the radar as an inequitable tax break for the wealthy, just the sort of line item that sticks out like a sore thumb if you’re serious about reducing the federal deficit. “It’s really just a gift to the owners of very expensive homes,” says Duke professor of public policy Jacob Vigdor.  “This sacred cow has been targeted for slaughter many times in the past, and one of these days a reform effort will finally succeed.”
So is now the time? Here’s what’s at play:

It’s a $131 billion break for the wealthy. That’s the White House’s official estimate of the 2012 revenue cost of the mortgage interest deduction.  A study that looked at proposals to reform the mortgage deduction put out by the Tax Policy Center at the Urban Institute points out that sum is “much more than the total of all outlays by the Department of Housing and Urban Development ($48 billion).” And studies show that most of the benefit goes to taxpayers in the top 20 percent of the income distribution ladder. Significantly, you need to itemize your deductions to claim the break, a step that only about one-third of Americans take. According to the Tax Foundation, for the 2008 tax year, just 26.8 percent of tax returns claimed the mortgage interest deduction. Among the returns that claimed the deduction, the average amount was $12,221.

Slashing the mortgage interest deduction is not a new idea. A 2005 tax reform panel convened by President George W. Bush recommended scaling back the deduction and partially offsetting it through a tax credit. So this isn’t some sort of out-of-left-field idea. (Side note: It’s hard not to wonder what might have happened if that reform ever saw the light of day in 2005. Maybe it would have provided some counterweight to the then-burgeoning housing bubble.)
It’s not like we haven’t chipped away at consumer-interest tax breaks before. The sweeping 1986 Reagan tax reform bill eliminated the deductibility of credit card and other consumer-loan interest, so don’t think there’s not precedent for this sort of thing. Back then, President Reagan was loud and clear that the mortgage interest deduction was an untouchable sacred cow. But when you’ve got a $1.29 trillion federal deficit that is growing as we speak, you’d think anyone serious about deficit reduction would have to think about winnowing down the herd of sacred cows.

Most homeowners would still reap a full benefit. Last I checked, the median price of a new home was hovering around $200,000. The Bowles-Simpson proposal would retain the deduction on mortgages below $500,000. Assuming a 10 percent down payment, we’re essentially talking about the proposal hitting only folks who buy homes for more than about $550,000; that’s more than double the median home price these days. Now as someone who lives (and owns) in a high cost area where the median price is well above $500,000, I am already hearing the NIMBY yowls. But when we’ve got such a huge federal deficit, is subsidizing expensive homes really all that defensible? (Yes, the comments field is open below).

The hit to home values likely wouldn’t be catastrophic. My MoneyWatch blogging colleague John Keefe has an informative analysis of earlier proposals to reduce the mortgage interest deduction. He cites a study that posits “at the extreme, [researchers] estimate an upper-bound estimate of the effect on prices at 10 percent.” Moreover, if there were some kind of offsetting credit for homeowners, that would reduce the pocketbook hit. (Howard Gleckman, at the Tax Policy Center has more detail on the impact of a credit along with a cut in the mortgage interest deduction.)
It’s time to talk. Of course, as Michael Berman, chairman of the Mortgage Bankers Association dutifully pointed out after the Bowles-Simpson proposal went public: “Given the fragile state of the nation’s housing market, now is not the time to be scaling back incentives for homeownership.” No argument there. But that doesn’t mean now is a bad time to start having the discussion about making hard choices today that can be implemented later, an approach Mark Zandi, chief economist at Moody’s Analytics, recommends. After all, that’s how we handle most change — just look at health care reform, which passed this year, but most of the provisions of which don’t kick in until 2014.

Purchase a Home with 1% Down Payment

Here's How: Click the Link and follow the instructions.

www.houzoo.com/affiliates/lt.asp?B=18&A=2350&Task=Click

Phoenix Home Loan Modification Delayed For Many

Here is a great article published recently in the Arizona Republic that sheds some light on the truth behind loan modifications.

Phoenix Home Loan Modification Delayed For Many

The federal government's 15-month-old home-loan modification program has not been the foreclosure rescue plan many Phoenix-area homeowners expected. Slow lender response, piles of paperwork and drawn-out trial periods have frustrated many struggling homeowners. Tens of thousands are still trying to have their mortgage payment lowered through the government's Home Affordable Modification Program, or HAMP. Meanwhile, foreclosures in Phoenix hit an all-time high in March. Delays plague the program. Homeowners who applied for loan modifications last summer are still waiting. Other homeowners landed temporary loan modifications and make reduced trial payments as they wait for lenders to finalize the deals. Trial payments are intended to see if the homeowner can afford the reduced rate. Cries about banks dragging their feet arose almost as soon as the program went into effect in 2009, and the complaints haven't let up since. Homeowners facing foreclosure are furious over the glacial pace of the program. Some give up and walk away from their mortgages. Others hang on only to have their requests denied after months of trial payments. As of March 31, 10,533 loan modifications had been granted in metropolitan Phoenix. Since the federal program began, more than 60,000 homes in the region have been foreclosed on. The U.S. Treasury Department is in charge of the program and has heard the anger and seen the low numbers of modifications. The agency has pressured lenders to offer and complete more modifications. The number of home modifications has increased. But still fewer than 10 percent of U.S. homeowners eligible for a government-backed loan modification have received one. Local housing advocates say the number of loan modifications granted in metro Phoenix is also less than 10 percent of those eligible, though no figures on eligible homeowners here have been released by the federal government. A new round of federal funding is going to Arizona and four other states hardest hit by falling home prices. Most of Arizona's share will go toward loan modifications. The money could be available in July. Longtime Arizona banker Bill Randall has been working with a Phoenix woman trying to obtain a loan modification for the past eight months. "A loan modification for the typical homeowner is excruciatingly difficult," said Bill Randall, former president of First Interstate Bancorp., one of the nation's biggest lenders before it merged with Bank of America. "Lenders are deferring, buffering and deflecting as people diligently make payments on their temporary loan modifications month after month and can't get their phone calls returned or a permanent offer to end their fear of foreclosure." Randall, who is now retired, said his friend's request for a loan modification was approved as a temporary modification. She has been making reduced trial payments for eight months. But now, no one at her lender seems to be able to find her paperwork or answer questions about why her loan modification hasn't been made permanent.

Frustrations rise

When the federal loan-modification program was announced in February 2009, many people were given hope of holding onto their homes. Most lenders started taking applications last May. They were deluged with applications and weren't able to keep up. The goal for the program was to help 4 million homeowners in four years. About 300,000 U.S. homeowners have received permanent loan modifications so far. There are no figures on how many loan modification applications are pending. But there are plenty of horror stories. Joe Alexander applied for a loan modification on his Phoenix home last August. "In October, my lender requested I update my paperwork, which I did," he said. "Shortly after that I was told my loan was with an underwriter and I would hear back soon." Alexander receives a notice about every two weeks that his application is still under review. In April, he received a letter from his lender saying more documentation might be required. The letter also asked him to keep making his trial payments on time. "That sentence really gets me," he said, because his lender never offered him reduced trial payments. Thomas and Arlene Burkman requested a mortgage modification on their Sun City West home more than a year ago. Thomas said the lender told them to stop making payments and promised an answer in four months. The couple still haven't received an answer. They resumed making their payments, but now their credit record shows the couple is four-months delinquent on their mortgage. Abby Menino lost her job at a Chandler technology firm in December 2008. She works temp jobs as she searches for a new permanent position. Menino applied for a loan modification last year. In June, she said her lender approved a temporary modification and told her she must make reduced trial payments for three months. She just mailed her 10th trial payment. "If my final modification documents don't come in the mail this month," Menino said, "I don't know if I will pay in June. I feel like my lender isn't going to come through."

Temporary Help

Lenders began offering temporary loan modifications last summer as a way to quickly help homeowners facing imminent foreclosure. The temporary modifications were originally approved by the government to run three months. By September, temporary modifications and the reduced trial payments became a fixture of the program with many lenders. As of March 31, almost 31,000 metro Phoenix homeowners were in temporary loan modifications, according to the Treasury Department, compared with those nearly 11,000 homeowners who received permanent modifications. Most homeowners given temporary loan modifications sign legal documents agreeing to the trial payment, terms and requirements of the loan. Some people mistakenly think this paperwork represents a permanent loan modification, which can lead to misunderstanding and frustration if the trial period ends in foreclosure. Temporary modifications ending in foreclosure, mortgage experts say, usually occur when the lender looks more closely at the loan and decides it can't be modified to the government's guidelines and still be a money-making decision. So the homeowner is denied the permanent modification. Critics allege that in some cases banks plan to foreclose on the homes but are just stringing owners along for extra payments until the lenders get around to taking the homes. Program guidelines require that loan modifications drop to monthly payments of no more than 31 percent of a borrower's income. Lenders receive federal incentives of $1,000 and more for modifying loans. Lenders can cut interest rates, extend the term of the loans and reduce the principal amount owed to bring the payment down. So far, only the first two of those options have been adopted by most lenders for loan modifications.

False Hopes

In March, federal regulators held a meeting on mortgage fraud in Phoenix. Attending was U.S. Attorney General Eric Holder, Arizona regulators, lenders and real-estate industry experts. At the end there was time for only one question from the audience. A woman asked why many lenders were misleading homeowners by giving them temporary loan modifications when those lenders have no intention of making them permanent. Phoenix real-estate data analyst Tom Ruff, who was in the audience, said there was a lot of discussion among the panel and audience about the question but no one answered it directly. "It's a good question a lot of us are wondering about." Housing advocates are concerned some lenders are taking advantage of people with trial payments because they give those homeowners false hope and keep them paying for a house that they will still lose to foreclose. Since last fall, several metropolitan Phoenix homeowners have seen their homes sold at foreclosure auctions while they were making payments on their temporary loan modifications, according to public records and Phoenix real-estate attorneys. "I cannot figure out lenders' motivation with loan modifications," said Randall, the retired banking executive. "They are being paid by the federal government for these deals, and they are handling them like debt collectors looking for the best liquidation method."