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Monthly Archives: March 2009

Chins’s Remarks and Mortgage Interest Rates!

The mortgage market got off to a very strange start Friday.

China’s Premier Wen Jiabao said publicly that he’s concerned about the safety of U.S. government debt. He went of to say he thinks China should aim to “fend off risk” by more broadly diversifying its $1.95 trillion investment portfolio. China holds almost a third of their foreign exchange reserves in U.S. Treasuries.

The “so what” factor attached to this event is significant. Now that the Chinese, one of the largest foreign buyers of U.S. debt instruments, are hinting that they may not be quite as aggressive buyers at future Treasury auctions — the prospects for notably lower mortgage interest rates ahead has faded a bit more. The connection between the price of government debt instruments and the trend trajectory of mortgage interest rates is incontrovertible. You can “take-it-to-the-bank” that mortgage investors, already fretting about the gargantuan amount of government debt that has yet to make its way into the capital markets, will pace the floor a little more briskly as they consider the “what ifs” related to the potential diminished appetite of a major financier of American debt. Mortgage investors are keenly aware of the irrefutable connection between rising yields on Treasury obligations and the corresponding rise for mortgage interest rates.

Whether the Chinese Premier’s comments were nothing more than a bit of off-the-cuff personal crumbling or truly a “heads up” with respect to a change in the Chinese government’s attitudes toward U.S. Treasury debt has yet to be determined. Even so, it will likely serve to limit (at least near-term) the ability of mortgage interest rates to move notably lower from current levels.

Looking ahead to next week the Federal Open Market Committee will meet in a two-day session beginning on Tuesday and ending on Wednesday at 2:15 p.m. ET with the release of the committee’s post-meeting statement. Market participants are virtually certain that the Fed will choose to leave short-term interest rates unchanged — but observers will be interested to see what, if anything the Fed has to say regarding the possibility of the Federal Reserve Bank becoming a direct buyer of Treasury obligations. Next week’s economic calendar includes the release of the Producer Price Index on Tuesday and the companion Consumer Price Index on Wednesday. Both measures of inflation pressure are expected to remain benign and should therefore exert little if any influence on the direction of mortgage interest rates.

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Posted by on March 15, 2009 in Uncategorized

 

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Making Home Affordable Plan Expected to Help 4-5 Million Homeowners Refinance

I have been inundated with calls and emails from my client base as to how the new homeowner relief program, President Obama’s Homeowner Affordability and Stability Plan can help them. I have spent many hours researching the specifics so I could coach my clients with full knowledge of their options… here’s what I found.

Like so many of the bills, proposals, proclamations, and guideline changes that have come out over the last 9 months, the official documentation that surfaces from the specific agencies (or Congress), reads much like a press release, and not a detailed prescription or recipe on how it will work and, more importantly to many, when. The answers to these very important questions are not available at the date of this post, however, the program is broken doen into two (2) areas:

  1. The Home Affordable Refinance
  2. The Home Affordable Modification


The Home Affordable Refinance

Who Qualifies:

  • In short:If the home you want to refinance is your primary residence,
  • The loan on your home is controlled by Fannie Mae or Freddie Mac (it must be a conforming loan — you can call Fannie at 1-800-7FANNIE and Freddie at 1-800-FREDDIE or submit online forms with Fannie and Freddie), and
  • If you’re current on your mortgage payments (meaning you haven’t been more than 30 days late on your mortgage in the last 12 months)
  • If you have sufficient income to support a new mortgage…

.. then, you might qualify.

It gets a little more complicated, though: You can’t be too far underwater on your mortgage (owe more than the home’s market value) to qualify for the refinance. You can owe between 80-105% of the current value of your home, but no higher than 105%. (This plan assumes that if you owe less than 80% of your home’s value, you probably can refinance without government assistance.)

What Do I Need to Provide?

If you think you might qualify to refinance, you’ll need to give the following documents to your mortgage lender:

  • Your monthly gross (before taxes) income of your household, including recent pay stubs.
  • Your last income tax return.
  • Information about any second mortgage on the house (you can only refinance your first mortgage under the plan, but having a second mortgage won’t automatically exclude you).
  • Account balances and minimum monthly payments due on all your credit cards.
  • Account balances and minimum monthly payments for all your other debts, like student loans or car loans.

How Will They Decide What My Home is Worth Today?

Official word on how your home will be valued for the refinance portion of the Obama housing plan hasn’t been released yet. It’s possible that lenders are expected to use their traditional procedures, but it hasn’t been spelled out in the documents. One lender has some ideas how they will arrive at 105%.

When Will This Help Me?

When it comes to refinancing under the Making Home Affordable plan, patience is going to be a virtue. With so many homeowners in some sort of distress (one in six American homeowners has negative equity, and foreclosures and home values fell 11.6% nationwide last year), there is likely to be a flood of applications and queries for lenders.

What If I Don’t Qualify to Refinance?

Don’t lose heart — you might qualify for a loan modification under the plan. Another blog post with the ins and outs is coming in a later post.

 

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Is Credit Repair An Ethical Solution To A Big Problem?

Many wonder if it’s unethical to attempt to remove valid bad credit issues from a credit report. I say, “Yes, it is,” and here’s why.

The credit reporting and ranking system has been and continues to be unfair to American consumers. We are forced to participate in something we did not volunteer for and are punished for mistakes whether they are ours or not. We cannot opt out of this system and no consideration is made for circumstances that are beyond our control. However, “credit repair” is a term that has gained a negative reputation, and has been connected with credit fraud and credit schemes. As a result, I’m often put in the position of having to defend my efforts to help others repair their credit.

Problems contained in a credit report can lead to feelings of being in credit prison; however, there are solutions. A credit report should not be viewed as proof of bad credit, but rather simply an allegation.


Unfortunately, consumers rarely challenge the allegations. When my clients sign on to use our preferred attorney network for their defense, they are basically saying “prove it” to the credit bureaus and entering a plea of not guilty.

Putting the credit bureaus in the position of having to prove their allegations is one of the functions of our preferred attorneys. If the bureaus say they have already looked into and confirmed the charge then our attorneys will appeal the decision. It is eventually discovered that most credit report allegations are falsely based, and at that point the negative items are removed.

Our society has its roots in capitalism and the credit bureaus feed on this and use consumer information to their advantage. The bureaus are not motivated by the terrible consequences bad credit can have on a consumer. Profit margins – not consumer rights – are what motivate them.

Our legal system takes an oath to truth, equity and the common good; credit bureaus do not take this oath. Why should any citizen be obliged to support any company, let alone massive public corporations, when doing so could ruin his credit and financial standing? The credit bureaus would cling to every bit of credit data, true or false, forever if federal law didn’t force them to delete many items after seven years time. Lucky for us, the government forces the bureaus to correct your credit at the end of seven years. If an item HAS to be removed after seven years, what would be wrong with removing it sooner?

My contention is you cannot always judge someone’s credit worthiness by their credit history. It hurts and affects everyone when good people are pegged as deadbeats. The policies of the credit bureaus have been so grossly unfair to the consumer and that is why I feel it is fair to oppose the current system of credit reporting. It is just totally unfair to punish the consumer with seven years credit bondage (10 years for bankruptcy and some court decisions). Especially when there have never been any studies that say seven years is magic number for the time it takes to restore good credit.This seven-year mark is completely random.

“It is our understanding that computer models that predict credit information find that most information that is more than 2 year sold is nonessential,” says Dr.Bonnie Gution, consumer affairs advisor to President Bush.


I totally agree. Many of my clients feel that seven years is way too long. Most consumers are able to recover fully from a financial crisis within 2 to 3 years. Despite this, for the next 4 to 5 years they are often forced to live a reduced life-style, rent homes and pay high interest on other loans while being denied credit based on bad reports.

Although credit bureaus claim an error rate of less than 1%, that isn’t necessarily true. Studies performed by independent agencies show that mistakes occur at a rate nearing 79%!!!! One credit bureau admits to an error rate of more than 50%, but they still choose to err on the negative side than the positive.

Credit reporting systems are commonly used in other countries. However, unlike America, most countries doll out credit based on a consumer’s current credit status. For example, in England, Equifax and Experian are not allowed to keep credit information for more than five years. The point to all of this is this – the American credit reporting system needs changing. With this in mind, realize that it’s not unpatriotic to want to ensure your credit report is accurate. And it is NOT unethical either.

When people can’t buy things because of a poor credit report, our country’s financial system suffers. That’s why I offer to help my clients recover from this devastating hardship. My clients are excited to fix their credit and to return to the credit economy and be fiscally trustworthy. My goal is to help my clients escape from people who prey on people with bad credit.

Bad credit costs a person thousands and thousands of dollars and forces many into a vicious cycle that is very difficult to escape. They are forced to rent (where they pay someone else’s mortgage), to buy items at a higher interest rate (cars, credit cards) or to take unfulfilling jobs. Sadly, even one negative item on your credit report can have far more impact than a lifetime of good credit!

In short, because of poor data collection, reporting and validation, many people suffer unnecessarily from the ill effects of a bad credit report. So to answer the question posed at the beginning of this article, yes, it is ethically sound to remove the record of a negative credit item from your credit report.



Larry Benton, Certified Mortgage Consultant® with 1st Metropolitan Mortgage, specializes in helping release his clients from the “credit prison” that too many people find themselves in. If you, a friend, a family member or a colleague find yourself needing real answers and real solutions to credit issues, you can confidentially contact him at 877-805-2905 or at larry@themortgagecoach.net .

 

FAQ’s About the 2009 Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. The following questions and answers provide basic information about the tax credit. If you have more specific questions, I strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1) Who is eligible to claim the tax credit?

First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

2) What is the definition of a first-time home buyer?

The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter.

Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3) How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

4) Are there any income limits for claiming the tax credit?

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5) What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted.

On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6) If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7)  Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8) How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?

The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

9) How do I claim the tax credit?

Do I need to complete a form or application? Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

10) What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

11) I read that the tax credit is “refundable.” What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12) I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?

Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

13) Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009. In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

14) Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15) I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?

No. You can claim only one.

16) I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

17) Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18) I bought a home in 2008. Do I qualify for this credit?

No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

19) Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.

Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

20) If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

21) For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

 
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Posted by on March 2, 2009 in IRS, mortgage, Real Estate, Tax

 

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