Fiscal Cliff helps Underwater Home Owners

FISCAL CLIFF NEGOTIATIONS HELP SOME UNDERWATER HOMEOWNERS IN 2013 Courteay of Al Clark's Home Action Newsletter

Topic Summary:  Five years ago, at the start of the housing crisis, Congress passed a law called the Mortgage Forgiveness Debt Relief Act.  The MFDRA would prevent homeowners from having to pay federal and state tax on the amount of any debt forgiveness provided.  ( see IRS Resource) This provision was set to expire, as designed, on Dec. 31st.  It was extended for one more year. This means that homeowners who get underwater workouts this year will not be liable for paying taxes on the amount of forgiven dept.  A few editions ago we covered the issue. Many readers chimed in with the new HomeActions MEMBER VOICE advocacy tool. In a few seconds homeowners got  guaranteed message delivery to their elected officials and were able to see what other readers thought. Click the image below and you can see how it worked.  Several weeks ago, 43 state Attorneys General crafted a request letter (pdf) to Congress, asking that the extension be made. They said that if the relief was not extended, it  would hurt the $25 billion robo-signing settlement they negotiated with the largest mortgage companies, forcing the companies to offer homeowners principal reductions. The thought of IRS and State tax leans may make a homeowner cautious of the workouts that may be available. How does the tax provision work? Without the tax measure, a homeowner who owes $400,000 on his mortgage and sells his house "short" for $300,000 would owe income taxes on the difference of $100,000, the amount that's forgiven. The $100,000 would have been considered regular income by the Internal Revenue Service and in many states. The reason being, many state tax income sources the same way as the IRS.   FULL ARTICLE SAVE ARTICLE EMAIL ME SHARE THIS Your Comments   Is this article valuable to you? Yes No Maybe Is this item worth sharing with other friends? Yes No Maybe Can you see this item helping you with homeownership? Yes No Maybe Comments:

WHERE IS THE MORTGAGE INTEREST DEDUCTION IN FISCAL CLIFF TALKS?

Mortgage Deduction on Fed Taxes   With a desire to keep you in the loop on the impact of the Financial Cliff' s impact on your pocket book and even your ability to afford a home, I have looked for more information to post here. Al Clark's Home Action Newsletter had this poignant article on the impact of eliminating or downsizing the Mortgage Interest Deduction.  You will note that it saves lots of money for many families and probably the discussion will cause even more home buyers to take the deduction(amazingly,some were never told about it...or they would be taking the tax savings! We can't fault, though, the discussions around eliminating the deduction for those making over $500,000.  But that second home, if not tied to income, would hurt the "average" citizen looking to invest in rental properties for a cash income stream.  I am sure a few of you would hate to have that happen. Read and let me know if you believe this must be protected. If not a fan of keeping the deduction, why not? WHERE IS THE MORTGAGE INTEREST DEDUCTION IN ALL OF THIS?

The Fiscal Cliff has one of the most cherished tax breaks for many homeowners "on the table." Since 1933, homeowners have been able to deduct interest paid on their mortgages as well as some other home-related borrowing from their income.  This longstanding tax break encourages and supports home ownership. For families with middle and below-average incomes, the deduction helps too; this includes 65% of families who claim the mortgage interest deduction earn less than $100,000 per year. In addition, American homeowners already pay 80 percent to 90 percent of U.S. federal income tax. Roughly 40% of all homeowners rely on the deduction. The USA TODAY has published very helpful facts on the issue, state by state. On The Table Interest deduction is a very popular issue in every conversation held in Washington concerning the Fiscal Cliff. While no one in authority is calling for outright elimination right now, several options are being offered to deal with the $80-90 billion tax break. If the tax break was eliminated entirely, it would raise over $98 billion in 2013, according to estimates by the congressional Joint Committee on Taxation. Currently being discussed is a type of limit or cap on how much households can deduct based on their income group. There are feasible ways to increase tax revenue by aiming at high-income earners. For example, the interest deduction based on owning a second home could be ended. Also, the maximum mortgage debt eligible for the interest rate deduction ? now at $1 million - could be reduced. The most popular amount discussed for a remedy is $500,000. In its proposed budget, the Obama administration plans to focus on high-income taxpayers,  those earning more than $250,000. The administration wants to cap all deductions at 28 percent for this group. Currently, a high-earning household deducting $20,000 in interest payments (at a 35% tax rate) would receive $7,000 in tax savings. The Obama budget would cap that rate at 28 percent. In the end, that $20,000 of interest payments would result in a smaller tax break of $5,600. The Treasury Department proposes that over the next 10 years, a 28 percent cap would raise $584 billion. The Fears Many housing economists and industry trade groups offer that now is not the time to mess with home ownership incentives. The depressed real estate market is making a steady comeback with home values rising in almost every market. US home prices recorded the biggest jump in 6 years this past October. The National Association of Realtors is mobilizing its membership with a theme of "Do No Harm To Housing." Their rationale for supporting home ownership incentives can be thoroughly examined with the "Home ownership Q and A" on House Logic Next Steps- Get Your Views Across Before The Decisions Are Made....Click Act Now! Right now, there is no legislation specifically dealing with the interest deduction. Legislators want to hear from you on this issue so your feedback as a constituent is invaluable to them. We have set up a unique widget that lets you assert your opinions and (at the same time) view how others feel about the decisions being made, pro or con.  As the talk heats up in Washington the next few days we will keep you updated with alerts.

Whttp://www.usatoday.com/story/news/politics/2012/12/04/fiscal-cliff-mortgage-deduction/1737611/Tell Bryan Cerny What You Think

After reading, Jim's Mortgage Matters below, you might think
my key observation that we again are hearing about how the fiscal cliff will really hit our pocket book.  Yet, this has gotten to be well stated(just hope they get it resolved).

Yet the message to be noted is:

In short, we don't see mortgage financing becoming meaningfully cheaper, even though rates have eased a few basis points each week for the past month. In fact, mortgages could become more expensive in 2013.

This statement comes after a lengthy dialogue on housing market and controls on mortgage financing.  Though the housing market improves monthly, it may not be long that mortgage rates will begin to make "housing more expensive".  Yet,  I don't expect that to dampen the pent up demand for homes that has formed over the past six years of caution among home buyers and sellers.

But again, the fiscal cliff's resulting higher taxes could no doubt take the "marginal" buyer out of the market due to tighter finances.

Thoughts????  What are your plans in 2013?

Keeping you updated on the market! For the week of  December 10, 2012 MARKET RECAP New-home sales inspired some recent consternation after it was reported that both volume and prices declined in October. A few commentators opined that one month could turn into two, and possibly more. Color us skeptical; new-home sales remain far below their historical pace, while pricing remains robust in many local markets. And when looking at the aggregate national trend, pricing for both new and existing homes is decidedly up. On pricing, CoreLogic's latest data show prices, which include distressed properties, rose 6.3% year over year in October. This marks the largest increase since June 2006 and the eighth-consecutive year-over-year increase in 2012. Arizona was the standout market in CoreLogic's data, with prices rising 21.3% year over year. But guess which market is catching up? Nevada, where prices are up 12.4%. When prices were continually dropping in Nevada ( Las Vegas, in particular), we continually mentioned that it was a matter of time before they would reach a point where markets would clear and prices would rise. When Las Vegas finally showed signs of recovery, we also posited that the real estate recovery would likely have become a country-wide phenomenon. This appears the case today. The housing market is trending positively, to state the obvious, and it would likely trend even better if we could get more financing to more buyers. Mortgage purchase applications have been trending higher in recent weeks, but they still have a lot of room for improvement. Unfortunately, we are still mired in a risk-averse lending market. That said, we are seeing a pick up in private participation. In the private-label residential mortgage-backed security (RMBS) market, issuance is up to $6 billion this year. That's not much, but it's more than double the $2.8 billion issued last year. Looking to next year, the market is expected to expand to $15 billion. Discussing RMBSs might seem like delving into the arcane, but RMBSs matter because they're an indicator of private investor interest in the mortgage market. We've stated many times that more participation in mortgage lending is better than less participation. But more participation means mortgages could get more expensive. In order to contract Fannie Mae's and Freddie Mac's presence in the mortgage market, as well as encourage the return of private capital investment, the FHFA aims to increase G-fees by 30 to 50 basis points to match recent private-label execution. In short, we don't see mortgage financing becoming meaningfully cheaper, even though rates have eased a few basis points each week for the past month. In fact, mortgages could become more expensive in 2013.   Economic  Indicator Release  Date and Time Consensus  Estimate Analysis Mortgage Applications Wed., Dec. 12, 7:00 am, ET None Important. The trend in purchase applications suggests underlying strength for home sales. Import Prices (November) Wed., Dec. 12, 8:30 am, ET 0.3% (Decrease) Moderately Important. A slightly stronger dollar reflects lower import prices and lower inflation. Retail Sales (November) Thurs., Dec. 13, 8:30 am, ET 0.2%  (Increase) Moderately Important. Sales are tacking higher with the economy. Consumer Price Index (November) Fri., Dec. 14, 8:30 am, ET All Goods: 0.3% (Decrease) Core: 0.2% (Increase) Important. Consumer prices remain non-inflationary, which means no increase in interest rates any time soon.   The Rise of Uncertainty More than a few housing-market observers are concerned the fiscal cliff – the impending array of tax increases and spending cuts due January 1 – could derail the housing recovery. These concerns aren't unfounded. If nothing is done between now and the end of the year, income tax rates will rise, and not just for the rich. The lowest marginal income tax rate, at 10%, will increase 50%, to 15%. Everyone in every tax bracket will have fewer dollars to spend and invest. Tightened personal budgets could force many marginal home buyers out of the market. The greater concern, at least from an immediate perspective, is the expiration of the Mortgage Debt Relief Act of 2007. The act allows borrowers to exclude certain canceled debt on their principal residence as income. If the act isn't extended, many short sellers could be hit with a big tax bill for forgiven debt. This would be a serious impediment to the short-sale market, which has contributed mightily to the housing recovery. The good news is that it appears likely the Mortgage Debt Relief Act will be extended. The bad news is that we continue to barrel toward the fiscal cliff, with no resolution in sight. The remaining weeks heading into January will be interesting, to say the least, and could be very impacting on the housing and mortgage markets.

Fiscal Cliff and Housing

Read the post from a real estate newsletter from Al Clark.  No doubt there is lots to read about the impacts of the Fiscal Cliff...here is a thought on the Housing Market Hear about the Texas woman proposal not to pay anyone in Washington(President or House) until they resolve the Fiscal Cliff.  Perhaps that is a place to start to have them look at the severe impact to you and me. FISCAL CLIFF TALKS POISED TO IMPACT HOME OWNER TAX INCENTIVES

Front and center now in Washington is the "Fiscal Cliff" and the talk of reducing the incentives of Home ownership. Many are intent on scaling back or outright eliminating long cherished tax breaks such as the Mortgage Interest Deduction (MID). Recently we covered the topic of the "Fiscal Cliff" in this article. Home ownership has long been a pillar of the American Dream. For more than 100 years, Americans believed that building and buying homes is a ticket to a stable, productive society. In this same period, the government has provided tax breaks meant to stimulate home ownership and the housing industry.  For most, the home represents their biggest social and economic investment.  The number of housing sales and starts is a commonly used barometer of economic health. Many economists believe a robust housing market has lead us out of several recessions, and evidence now suggests that this expanding housing recovery we are in now may be helping our overall economy. So we are going to offer a few snippets or factoids that get at the rationale for sustaining home ownership incentives in light of the discussions in Washington. We are going to closely monitor these discussions and offer you an ability to weigh in with your elected officials. New Home Building: 15 percent of the U.S. Gross Domestic Product (GDP) comes from housing, and nothing packs a bigger local economic impact than home building. Constructing 100 new homes creates more than 300 full-time jobs, $23.1 million in wage and business income and $8.9 million in federal, state and local tax revenue. (1) This whole process is called the Domino Effect. Click on this video (2) and see all that Home ownership means locally.  ( It was designed for Florida, but the local impact is the same nationwide)   Equity and Home Values: The national median existing-home price for all housing types was $178,600 in October, which is 11.1 percent above a year ago. Rising home prices have already resulted in a $760 billion growth in home equity during the past year.Given that each percentage point of price appreciation translates into an additional $190 billion in home equity, we could see close to a $1 trillion gain next year. (3) When homeowners feel their equity is rising they are more likely to renovate or move up to a larger home. Renovating When homeowners experience greater home equity, they tend to improve on what they have. Remodeling activity has climbed to its highest point since the third quarter of 2005. In the 4th quarter of this year, homeowners will spend over $120 billion improving and renovating their homes. Every $10 million in remodeling expenditures yields the following economic benefits:(4) - 111 jobs - $8.3 million in wage and business income - $3 million in taxes and revenue for state, local and federal governments Supporting The Local Tax-base Today, home owners pay 80 to 90 percent of the income taxes in the U.S. and, among those who claim the mortgage-interest deduction, nearly two-thirds are middle-income earners. Sources: (1)  Ahbaonline.com (2) Florida Assoc. of Realtors (3)  National Assoc. of Realtors (4) National Assoc. of Home Builders YOUR SPONSOR Al Clark