The Federal Tax Deduction for Mortgage Insurance Premiums Expires

 I think this slipped under almost everyone’s radar. So I found this article from Kenneth R. Harney of the LA Times to explain what is going on.

 Though its demise drew little attention because of the partisan year-end brawl over the payroll tax cut extension in Congress, a key mortgage financing benefit disappeared at the end of December: the ability of large numbers of home buyers and owners to write off the premiums they pay for mortgage insurance.

The loss of that tax deduction — plus mandatory new fees imposed by Congress on all new conventional and FHA loans — could effectively increase the costs of homeownership this year.

The expiration of mortgage insurance deductibility will hit many low-down-payment conventional loans originated since 2007, plus virtually all new mortgages closed this year whose down payment is less than 20%. Though industry experts do not have precise numbers, their estimates range into the millions for existing owners and new buyers potentially touched by the deductibility termination. Borrowers using guaranteed veterans (VA) and rural housing loans, whose down payments can drop to zero, also are affected.

The change in the law took effect Jan. 1 along with the expiration of 58 other tax code benefits that Congress failed to renew, such as credits for home energy improvements, credits for builders of energy-efficient houses and deductions for state and local sales tax payments. They were all components of what would have been an annual “tax extenders” bill authorizing continuation of relatively noncontroversial expiring benefits for another year or more. Congress could still reauthorize all or some of the write-offs retroactively this year, but the political atmosphere on Capitol Hill raises doubts about the timing of that scenario.

The mortgage insurance premium deduction dates to legislation enacted in 2006. It allows buyers and refinancers who use either private mortgage insurance or federal insurance or guarantees, and who itemize on their federal tax returns, to write off their premiums. Borrowers who are single or married and filing jointly with adjusted gross incomes of $100,000 or less can write off 100% of their annual mortgage insurance premiums. Married homeowners filing singly can write off 50% of premiums. Borrowers with incomes above $100,000 may qualify for partial deductions on a sliding scale.

In many cases, the post-tax savings for these borrowers are significant. New buyers with an income around $100,000 and a mortgage of $200,000 would save between $600 and $1,000 a year, depending on their credit score and loan-to-value ratio, according to MGIC, one of the largest private mortgage insurers in the country. For households with lower incomes, the effect would be less, depending on their marginal federal tax brackets.

David Stevens, who served as Federal Housing Administration commissioner and is now chief executive of the Mortgage Bankers Assn., says the loss of deductibility of mortgage insurance hits a segment of consumers — middle-income and first-time buyers — “where affordability is especially important.”

But mortgage insurance was not the only housing-related casualty of the pre-Christmas skirmishing. As part of the temporary extension of the payroll tax cut, negotiators tacked an unusual provision that raises fees on most conventional mortgages — those originated for sale to or guarantee by Fannie Mae and Freddie Mac.

Starting in April, Fannie and Freddie will impose a surtax on the guarantee fees they charge private lenders equal to one-tenth of 1%. Lenders are virtually certain to pass those fees to consumers in the form of a higher note rate or loan charges upfront. Industry estimates suggest that the surtax could add an eighth of a percentage point to rates and raise costs to borrowers over the life of the loan by more than $4,000 on a $200,000 mortgage.

Unlike standard guarantee fees, which are used by Fannie and Freddie to defray loan-default expenses, the new funds will be sent directly to the Treasury to help pay for the $36-billion cost of the temporary payroll tax cut. FHA loans also will be hit with a fee increase by the payroll bill, raising the annual premiums the FHA charges new borrowers by one-tenth of a point.

At a time when the Federal Reserve is warning that there can be no broad economic improvement until housing recovers, it may strike the public as odd policy to raise costs for home buyers and refinancers to fund unrelated, temporary tax relief. But that’s not the way they saw it on Capitol Hill in the rush to holiday recess.

Bottom line: The mortgage insurance deductibility problem may disappear if mortgage insurance gets included in an election-year “extender” package. But the fee hikes on most new mortgages are here for the foreseeable future, so factor them into your housing budget.

If you have any questions feel free to call or text Scott Groves at (818) 679-5188

Metlife Exits The Loan Business And B of A Makes A Startling Announcement

I wanted to send you a quick update on some rumors that have been circulating around the mortgage industry for a while that were confirmed today.

 Metlife’s mortgage division closed their doors last week.  Most of the 4,500 employees with Metlife will be losing their jobs in the next 90-180 days.   Apparently they will continue to take rate-locks and new submissions until Friday January 13^th and have promised to close out their existing pipeline in a timely manner.

 However, it appears that all pre-approvals and files not locked or submitted by last Friday will be voided. 

You can find the entire story here:

http://www.chicagotribune.com/business/sns-rt-us-metlifetre80929q-20120110,0,5164614.story

http://www.businessweek.com/news/2012-01-10/metlife-exits-mortgage-business-most-of-4-300-will-lose-jobs.html

 I’m always upset to see any company within my industry fail.  However, I can’t help but find these events to be a testament to the sound business practices of my company and the financial strength of our parent company.  Additionally, there are several lenders I know at Metlife that may be migrating over to our company and we welcome these producers with open arms.

 Furthermore, yesterday, B of A announced to their staff that they will no longer be accepting applications for cash-out refinances.  This is just another example of how our competitors are attempting to shrink their mortgage business.

 If you have any questions about these developments, please don’t hesitate to call Scott Groves (818) 679-5188

The Issues Of Buying a Foreclosed Home

While it is possible to get a great bargain on a house by purchasing a home that the bank essentially owns, there are a great number of possible pitfalls, as well. Here are some of the unique issues that you might have to face as the new buyer of a foreclosed home:

1. The home will be sold “as is.” Unlike a traditional home purchase, you can’t necessarily expect a foreclosed upon home to be well maintained. It takes some time for homeowners to default on their mortgage, and generally their finances have been strained for some time prior to the foreclosure. That means they may not have had the funds necessary for maintenance. Also, there have been some (relatively rare) instances of “foreclosure rage,” wherein the defaulting owner leaves the house a mess for the bank and new owner. Once the home is bank owned, the bank may not spend its money on repairs, no matter how badly they are needed. This also means that you cannot expect to get any money from the bank toward necessary repairs (though you can sometimes negotiate for a lower purchase price).

When buying any home, you owe it to yourself to get a home inspection, but it is particularly important when purchasing a foreclosure. The inspection will give you a clear-eyed view of how much work you are getting into by taking over the home.

2. There is a great deal more red tape and paperwork than in a traditional sale. Closing on a foreclosure could take a great deal longer than you might expect if you have only ever made traditional home purchases. First, the bank does not have the same motivation to close quickly that a homeowner does, as it does not need to move in time for the next school year or to avoid carrying double mortgages. So your closing may be held up by a backlog of foreclosures sitting on a bank manager’s desk. Second, it’s vital that you take the time to investigate all liens on the foreclosed property. While this will protect you from nasty surprises (like owing back taxes!), it also lengthens the process of purchasing the home.

Due to the possibility of liens, it is vitally important that buyers of foreclosures acquire title insurance to protect themselves.

3. Remember that the word foreclosure doesn’t mean bargain. Depending on the circumstances behind each sale, you may not be getting the steal you may think you are. Banks want to recoup as much money from the sale of the house as possible, so they will not let the house go for a song if they can help it. It’s important to research the houses in the surrounding area to know what the market value is and if the area has become depressed due to high foreclosures. It’s also important to factor in the cost of repairs and catching up on deferred maintenance into the amount you save by buying a foreclosed home.

Purchasing a foreclosure can be a path to home ownership that will save you money, but it’s vital that prospective buyers keep their eyes open throughout the process.

If you have any questions about foreclosures, please call or text Scott Groves at (818) 679-5188

Metlife

I wanted to do a quick update on some rumors that have been circulating around the industry for a while that were confirmed yesterday.

Metlife’s mortgage division is closing their doors. Most of the 4,500 employees with Metlife will be losing their jobs in the next 90-180 days. Apparently they will continue to take rate-locks and new submissions until Friday January 13^th and have promised to close out their existing pipeline in a timely manner.

 However, it appears that all pre-approvals and files not locked or submitted by this Friday will be voided.

 You can find the entire story here:

 http://www.chicagotribune.com/business/sns-rt-us-metlifetre80929q-20120110,0,5164614.story

http://www.businessweek.com/news/2012-01-10/metlife-exits-mortgage-business-most-of-4-300-will-lose-jobs.html

I’m always upset to see any company within my industry fail.  However, I can’t help but find these events to be a testament to the sound business practices of the company I work for. Additionally, there are several lenders I know at Metlife that may be migrating over to my company and we welcome these producers with open arms.

 If you have any questions about these developments, please call or text Scott Groves at (818) 679-5188

Foreclosures May Become Rentals

There have been talks of this happening and now it looks like the Federal government is going to actually do it. In the next few months, Federal officials hope to launch a pilot program to convert government-owned foreclosures into rental properties. The program would sell foreclosed homes now owned by Fannie Mae and Freddie Mac to investors in bulk. The properties would then be converted into rentals.

This has been talked about since back in August, when the Federal Housing Finance Agency, the Treasury Department and the U.S. Department of Housing and Urban Development announced they were seeking suggestions on ways to dispose of repossessed homes now owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.

In addition to getting the properties off the government’s books, officials are hoping putting the homes back into productive use will stabilize neighborhoods and housing values. Also, it is looking to expand the supply of rentals, which are increasingly in demand. As of right now Administration officials are still trying to iron out the program, stay tuned.

If you have any questions about foreclosures, please call or text Scott Groves at (818) 679-5188