Challenges to Mortgage Interest Deduction are on the forefront

As a new Congress meets this spring, they’ll begin debate on the potential elimination of the mortgage interest deduction… in a continued effort to reduce the federal deficit.

The mortgage interest deduction has been a valuable and popular tax break that has benefited middle-class homeowners for decades.  According to CBS News, currently 75 million Americans are eligible to deduct the interest paid on their home mortgage from what they owe the government at tax time. Those who do save an average of $2,078 per year.

This is at minimum a poorly timed idea… and would place additional burden on an already depressed housing market.  Members of the Federal Deficit Reduction Commission are considering -

• Restricting the mortgage interest deduction to principal residences only.  Therefore, second homes and home-equity loans would no longer qualify.
• Capping the qualifying mortgage amount to $500k (the current amount is $1 million).
• Converting the mortgage interest deduction to a 12 percent non-refundable tax credit.

The mortgage interest deduction has been a powerful incentive for home ownership for nearly a hundred years… with mortgages being the largest loan most people take out during their entire lives.  Tampering with the mortgage interest deduction at this critical time in the housing market could put additional pressure on an already disheartened recovery.  The suggested changes would at minimum make the dream of homeownership less appealing to buyers. 

As stated by NAR President Ron Phipps - “Any further downward pressure on home prices will hamper the economic recovery, raise foreclosures and hurt banks’ abilities to lend and likely tip the economy into another recession resulting in further job losses for the country. It will effectively close the door on the American Dream.”

So whether you currently own one or more homes or are looking to buy, keep an eye on Washington… more reports coming. For more on this subject go to Another Challange to the Mortgage Interest Deduction.

A Satire on 'Explanation of Quantitative Easing' (Click on the box to view the video)

New FHA MIP (Mtg Insur Premium) Changes Take Effect Oct 4th

For the second time this year, the FHA is modifying mortgage insurance.  On October 4th, the Federal Housing Administration (FHA) will implement another round of changes to the premium structures for FHA-backed mortgages.   Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity (financing < 95%) the changes include --

• Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
• Annual MIP increases to 0.850% of the amount borrowed from 0.500% **

** When putting down less than 5% (LTV > 95%) the annual MIP increases to 0.900% (from 0.550%) of the amount borrowed.

In addition, borrowers will also be required to have a higher credit score than before. The FHA loan is popular because its minimum down payment is 3.5%, whereas most conventional loans require a much higher down payment.  FHA will make the premium fee changes on all new case numbers effective October 4, 2010.

Why is the FHA raising Mortgage Insurance (MI) payments now in this market? 

As the graph supports, the FHA’s reserve funds have been rapidly depleting and need shoring up soon to withstand future imminent defaults.  Money generated from these changes should help recapitalize and stabilize this government agency. For additional details see FHA BILL_H.R. 5981.  

Looking for more on the new FHA MI changes (and a little humor) check out Twist on New Home Buyer Tax.

If you’re unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email your loan officer for help.

30-year mortgage at lowest rate since 1971

NEW YORK (CNNMoney.com) -- Mortgage rates continued to decline this week, plunging to the lowest level in decades, according to surveys from Freddie Mac and Bankrate. Freddie Mac's weekly report said the 30-year fixed rate slipped to 4.44% for the week ended Thursday, the lowest since the government-backed lender began tracking the rate in 1971. Last week's rates stood at 4.49%, and a year ago it was at 5.29%.

The 15-year fixed rate fell to 3.92% this week, the lowest since Freddie Mac began tracking it 1991, down from 3.95% last week and from 4.68% a year ago.  Adjustable-rate mortgages also declined, with the 5-year rate falling to 3.56% this week, the lowest since 2005 when the lender began tracking it. 

Mortgage tracker Bankrate.com, which surveys large lenders across the country, said the average 30-year fixed loan sank to a record low for the fourth consecutive week, falling to 4.57% from 4.66% the previous week.

The 15-year fixed rate, which is a popular option for refinancing, also fell to the lowest level in the history of Bankrate's 25-year old survey, dipping to 4.06%, from 4.11% the week before.  While the 1-year adjustable-rate mortgage held steady at 4.8% for a fourth week, the 5-year adjustable rate mortgage dropped to a record low of 3.92% from 3.95% the previous week.

"Low rates are helping to heal many battered local housing markets by increasing home-purchase activity, said Frank Nothaft, chief economist at Freddie Mac.  Mortgage rate applications inched up a modest 0.6% during the week, according to the Mortgage Bankers Association. Applications for purchase rose 0.3% while refinance applications increased 0.6%.

Source:  CNNMoney.com -- By Hibah Yousuf, staff reporterAugust 12, 2010

GFE and HUD Settlement Statement Changes

On January 1^st, 2010 - the U.S. Department of Housing and Urban Development (HUD) released their new Good Faith Estimate and HUD-1 settlement forms.   

Their intention is to make it easier for buyers to understand what they are getting when they apply for mortgage financing - and to minimize unwanted surprises at the closing table with potentially different (higher) charges on the HUD-1 than what was stated on the GFE. 

For those new to these forms, the mortgage originator typically fills out the Good Faith Estimate and the settlement agent (closing attorney’s paralegal) fills out the HUD-1.

Scott Rinn, a senior policy analyst with NAR, thinks the new forms will be easier for consumers to understand and that the tolerances [HUD’s term for how much costs can change between the GFE and the HUD-1] at least in theory, should reduce closing-table surprises. The degree of these improvements will discovered over time.

The forms are not particularly intuitive and will need further clarification.  Even so, the consensus is that these changes are for the better and (as with most things) will continue to improve over time.

The attached video Changes to GFE and HUD Statement (led by Scott Rinn, our RESPA guru) gives perspective page-by-page on the changes within the two forms that took effect January 1, 2010.

Please contact me with any questions you may have regarding these new RESPA forms.