Home Loan Focus

Archive for the ‘Mortgage Legislation’ Category

You may have heard of the great favor that Congress did for everyone before the break last year.  They made a tax deduction that forgives taxpayers from having to pay income tax on debt that is washed away during a foreclosure. Not much of a relief to someone that loses their house, kind of like getting knocked down and then told that you won’t get a slap in the face too.

Well Congress and the President did do a little thing that will help some borrowers get financed and save money at the same time.  Private Mortgage Insurance can now be deducted from your taxes like mortgage interest.  The deduction will only be around until the end of 2010.

When the Sub Prime market was ramping up out of control most borrowers tried to pen creative ways to avoid PMI, but now many people that could get approved without it before, are finding that if they want financing at all, they have to consider this option.  So by making it tax deductible, the cost is offset by the governments tax revenues.

The legislation is retroactive to Jan. 1, 2007. As a result, homeowners who had mortgage debt canceled this year won’t have to pay tax on it. The tax relief is scheduled to expire at the end of 2009, reflecting lawmakers’ belief that the subprime crisis “is a temporary problem so you only needed a temporary solution,” Schwarz says.

President Bush last week signed the bill, which also extends a tax deduction for private mortgage insurance through 2010.

Hartford Business

Politicians are hoping to help some of those people that took out loans that they could not afford.  Many people took on mortgages with teaser interest rates.  Essentially the mortgages started with interest only payments, or teaser payment rates with escalating payment levels as the loan advanced.

Many of these same loans were also Adjustable Rate Mortgages (ARMs).  As the loans start to include principle payments later on in the life of the loan, the interest rates sometimes start to increase as well.  This serves to hit homeowners with a much higher payment that too many cant afford.

Lawmakers are considering legislation that would lock these payment amounts at their current level, so that people could stay in their home.

How to lock these rates though is problematic.  If banks do not receive a principle payment, the homeowners will never take control of their home and finances.  Some legislators are considering options that would make renters out of homeowners.  Essentially looking at those interest payments as a rental contract and updating the mortgage to reflect this reality with out pushing a homeowner into bankruptcy, foreclosure and a canvas tent.  Its unfortunate that these same lawmakers could not have protected homeowners and borrowers from the predatory lending practices of recent years and even more tragic that lawmakers could not protect US citizens from their own actions when they instituted tougher bankruptcy laws in 2005 that essentially made credit card debt more important than a mortgage in the eyes of the courts and as an indirect result in the eyes of debt holders.

Lower fees, easier process, less credit checks or income verification, all of those things probably mean that you are going to pay a higher interest rate on your mortgage.  Lendors are like the mob in that they always take a sure bet, and their bets can be assured when they charge you enough interest to profit!

This video is a little dated, but the concept can definitely be extrapolated even in today’s mortgage crisis world.  Just because the industry is in ‘crisis’ over sub prime, it doesn’t mean they are not going to have a profitable year.  If Las Vegas could come up with a great idea to run into ‘financial trouble’, I’m sure they would like to go to capital hill for a bail out too!

Robert Steel, Treasury undersecretary for domestic finance, appeared before a House committee.  He told them that the full impact of the upheaval in financial markets “has yet to play out,”, while stressing that the effect will be dampened somewhat by solid economic growth. Stocks fell sharply Wednesday morning, as a nervous Wall Street digested a report showing a large drop in pending home sales. The Dow Jones industrial average dropped about 160 points in morning trading.

Democrats in Congress are planning to introduce bills in the coming days that would exclude a range of practices used
to market sub-prime loans to people with weak credit histories or low incomes.

This bill prohibits mortgage brokers from steering people into sub-prime loans if they qualify for cheaper conventional mortgages.
It also bans hidden brokerage fees that are rolled into higher interest rates and prepayment penalties that make it difficult for
people to refinance.

Federal Reserve reported on Wednesday that the painful credit crunch is taking its worst toll on the already ailing housing market, while its impact on the rest of the economy so far seems limited.  Both Wall Street and Main Street have anxiously awaited the Fed’s survey of business conditions for clues about what the central bank
will do regarding interest rates on Sept. 18, its next regularly scheduled meeting.

Economists increasingly believe the Fed at that meeting will lower a key interest rate, now at 5.25 percent, by at least one-quarter percentage point to protect the economy from the credit crisis. The Fed has not lowered this rate in four years.

The Fed’s report said the following, “”Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.”