The housing market is anything but stable. Decisions by banks, government regulators, the federal reserve, congress, and Treasury department officials have tremendous impact on house prices. For example, decisions at the federal reserve regarding interest rates have imbued the market with such high payment affordability that buyers can finance the still-inflated prices of the previous bubble. Banks decided early this year to slow the rate they took back properties at foreclose auctions thus reducing MLS inventory of REO significantly. Government regulators changed accounting rules in 2009 to allow banks to keep delinquent mortgage squatters in place with delayed millions of foreclosures for many years. The GSEs, now run by the Department of Treasury, are liquidating their portfolios and changing the rules on short sales (more on that today). And congress has enacted various bailout programs and recently approved a series of looser qualification standards which are bailing out speculators and HELOC abusers. Congress has also eliminated any tax consequences for those who took the free money and spent it, and they are discussing extending these benefits further.
The law spares homeowners who receive principal reductions on their mortgages from being hit with hefty federal income taxes on the amounts forgiven.
WASHINGTON — Here’s some encouraging news for financially stressed homeowners across the country: The Senate Finance Committee has approved a bipartisan bill that would extend the Mortgage Forgiveness Debt Relief Act through 2013.
No one should be surprised by this. This will be extended over and over again for years.
Why is this important? Several reasons: The debt relief law spares homeowners who receive principal reductions on their mortgages from being hit with hefty federal income taxes on the amounts forgiven. Without it, millions of owners who go through foreclosure or leave their homes following short sales would experience even more financial stress.
I have no problem with people who couldn’t pay off a purchase-money mortgage. These were victims of bad timing more than bad judgement. However, if HELOC abusers and serial refiancers get debt relief, they are getting a tax break of free money they received from a stupid lender. In other words, they are being rewarded for theft. That will create serious moral hazard issues going forward as more and more borrowers will opt to take totally free money in the future.
The law, which is set to expire Dec. 31, has also provided relief to thousands of people who have debt balances written off as part of loan-modification agreements and is crucial to the $25-billion federal-state robo-signing settlement with large banks. Some Capitol Hill analysts predicted that, along with a host of other special-interest tax benefits, an extension might have trouble making it through the partisan gantlet in an election year.
But the Senate committee managed to pull together enough votes Aug. 2 to pass the debt relief extension, after heavy lobbying by the National Assn. of Realtors and the National Assn. of Home Builders….
realtors and home builders desperately want to see any lingering tax consequences expunged because it will hinder the ability of these recycled buyers to get a home again in the future. Unfortunately, many of these people probably should not get a home again in the future.
Congress has other tax code market manipulations it’s extending.
The mortgage insurance deduction is another key housing benefit that made it into the Senate committee’s eleventh-hour extender bill. … Under a provision in the tax code that expired in December, certain borrowers could write off their mortgage insurance premiums on their federal income taxes, just as they do with mortgage interest. To qualify for a full deduction, borrowers could not have adjusted gross incomes greater than $100,000 ($50,000 for married taxpayers filing separate returns). …
The outlook for the extenders: Given the popularity of the housing deductions and credits, look for supporters to press the full Senate for early action in September to get these issues settled before election day. If there are serious objections in the Republican-controlled House, however, then all bets are off until the lame-duck session, when election losers as well as winners get to write federal tax policy.
Giving loanowners a tax break isn’t the only recent change in government policy. The Treasury department is making changes to wind down the GSE loan portfolios. This is a good move.
Analysts expect Fannie Mae and Freddie Mac to begin unloading more distressed mortgages from their portfolios after the Treasury Department accelerated their wind down.
Both government-sponsored enterprises will now be required to cut their retained portfolios by 15% annually over the next several years until hitting $250 billion. Treasury increased this from a 10% annual reduction. Fannie holds $672 billion and Freddie has $581 billion in their portfolios as of June, according to their latest monthly summary reports.
“However, it should be noted that the GSEs are currently reducing their investment portfolio at least this much,” said analyst Sarah Hu of RBS Securities.
Freddie is already below its target for 2012, but Fannie still has to trim $20 billion this year, according to JPMorgan Chase ($38.04 0%) analysts (click on the graph below to expand).
This move tells me the government is serious about reducing the market footprint of the GSEs. That is great news, IMO.
More than half of the GSE portfolios are made up of delinquent loans and other mortgages securitized into private-label bonds.
The GSEs could sell more of these loans into rental programs, or they could bundle up previously modified mortgages on their books. Fannie has already started urging attorneys to foreclose faster after all possible options are exhausted, which could clear out more nonperforming mortgages.
When it is determined that “all possible options are exhausted,” the GSEs will ramp up their foreclosure efforts and push out the squatters. The major banks will likely follow suit. Amend-extend-pretend will someday end.
It does place more pressure on Congress to get moving on housing finance reform sooner rather than later. Mortgage industry trade groups used the Treasury action Friday to renew their call to do so gently.The government finances more than 90% of the mortgage market.
“We support efforts to protect the taxpayers, but want to emphasize the importance of ensuring continued liquidity that will provide the affordable mortgage financing necessary to support the housing market. It is critical that the transition of Fannie Mae and Freddie Mac’s role in financing real estate does not limit the availability, or increase the cost, of financing,” said Mortgage Bankers Association David Stevens.
There is no way to wind down a huge government subsidy program without causing an increase in cost or a limit on availability. To even suggest such a thing is laughable. The only real question is how much will a GSE wind down cause costs to go up and availability to be limited.
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Proprietary Irvine Housing News home purchase analysis
$775,000 …….. Asking Price
$330,000 ………. Purchase Price
1/27/2000 ………. Purchase Date
$445,000 ………. Gross Gain (Loss)
($26,400) ………… Commissions and Costs at 8%
$418,600 ………. Net Gain (Loss)
134.8% ………. Gross Percent Change
126.8% ………. Net Percent Change
6.8% ………… Annual Appreciation
Cost of Home Ownership
$775,000 …….. Asking Price
$155,000 ………… 20% Down Conventional
3.55% …………. Mortgage Interest Rate
30 ……………… Number of Years
$620,000 …….. Mortgage
$156,316 ………. Income Requirement
$2,801 ………… Monthly Mortgage Payment
$672 ………… Property Tax at 1.04%
$233 ………… Mello Roos & Special Taxes
$194 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$138 ………… Homeowners Association Fees
$4,038 ………. Monthly Cash Outlays
($626) ………. Tax Savings
($967) ………. Equity Hidden in Payment
$177 ………….. Lost Income to Down Payment
$117 ………….. Maintenance and Replacement Reserves
$2,738 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$9,250 ………… Furnishing and Move In at 1% + $1,500
$9,250 ………… Closing Costs at 1% + $1,500
$6,200 ………… Interest Points
$155,000 ………… Down Payment
$179,700 ………. Total Cash Costs
$41,900 ………. Emergency Cash Reserves
$221,600 ………. Total Savings Needed
The property above is available for sale on the MLS.Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
Cost of Ownership AnalysisAre you ready to make an offer, but you are worried the cost of ownership is really more than you can afford? Don't make a mistake that might cost you the family home, your life savings, and your good credit! Get the advice of a seasoned professional. Contact us at email@example.com today! We produce detailed reports showing the cost of ownership based on the most likely transaction price and current financing terms. You will know how much you will spend each month in out-of-pocket expenditures and the true monthly cost of ownership factoring in tax deductions, loan amortization, and opportunity costs on your down payment. In addition, we show you how this cost compares to a rental of equal quality to make sure buying is the right decision for your situation. An OC Housing News Cost of Ownership Analysis will calm your worries and give you peace-of-mind. Let us show you the way! Reports are available for properties in the Southern California MLS coverage area, and are generally delivered within 24-72 hours. If you wish to receive multiple properties, please contact us at firstname.lastname@example.org, and we will prepare the reports for you.
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4 bd / 2.75 ba
3,150 Sq. Ft.
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3,600 Sq. Ft.
4 bd / 2.5 ba
2,300 Sq. Ft.
4 bd / 2.5 ba
2,907 Sq. Ft.
7 HIGHFIELD Gln
4 bd / 2.5 ba
2,800 Sq. Ft.
3 bd / 1.75 ba
1,553 Sq. Ft.
3 bd / 2 ba
1,539 Sq. Ft.
2 bd / 2 ba
1,185 Sq. Ft.
4 bd / 2.25 ba
2,460 Sq. Ft.
5 bd / 3 ba
2,200 Sq. Ft.