It has been a few weeks since the politicians have rattled their sabers at each other and therefore we are due for increased rhetoric. With the State of the Union Address and response behind us, we now approach the deadline to head off draconian budget cuts. By now the markets may be immune to deadlines set by politicians. With the negotiations regarding the fiscal cliff fizzling out and the big fight focused upon raising the debt limit postponed quietly, many are again expecting the same result. We know that Congress may surprise us and the surprise could go in two directions. The first direction would result in both parties digging in their heels as the budget cuts go into effect. The second direction would be actual negotiations to attack the deficit with a balanced plan that would result in more reasonable cuts and a long-term budget plan.
In reality, most market observers are expecting more action to kick the can down the road — again. Meanwhile, we are closing in on another employment report as we start to get more readings as to the state of the economy in 2013. This data will follow readings on the real estate market to be released this week. There was a lot of optimism during January as the stock market roared and interest rates and oil prices climbed. This trend only continues if real estate continues to gain momentum and we continue to create jobs at a pace to bring down the stubborn unemployment rate. As we have contended previously, the rebound in real estate is a requirement of increased job creation. The numbers released last week show that Europe’s recession is actually deepening. This means that it is imperative for the United States to be building momentum that will help lift the rest of the world. As the world’s largest economy, we led the world into recession some five years ago. Now we need to show leadership in recovery.
The Markets. Rates continued to be stable in the past week. Freddie Mac announced that for the week ending February 14, 30-year fixed rates remained at 3.53%. The average for 15-year loans also stayed at 2.77%. Adjustable rates fell, with the average for one-year adjustables rising to 2.61% and five-year adjustables increasing to 2.64%. A year ago 30-year fixed rates were at 3.87%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates remain near record lows and continue to support housing demand, translating into a pick-up in home prices in most markets. The median sales price of existing homes rose 10 percent between fourth quarter 2011 and 2012, the largest year-over-year gain in seven years. Among large metropolitan areas, 88 percent saw positive annual increases in the fourth quarter, compared to 81 percent in the third quarter and 75 percent in the second. The largest gains occurred in Phoenix (34 percent), Detroit (31 percent) and San Francisco (28 percent).” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated February 15, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.13%||0.11%|
|1-year Treasury Security||0.16%||0.15%|
|3-year Treasury Security||0.42%||0.39%|
|5-year Treasury Security||0.86%||0.81%|
|10-year Treasury Security||2.00%||1.91%|
|12-month LIBOR||0.818% (Jan)|
|12-month MTA||0.178% (Jan)|
|11th District Cost of Funds||1.071% (Dec)|
Underwater borrowers who have stayed current with their housing payments now may be able to give up their properties and get their debts erased, according to new guidelines issued by housing agencies Fannie Mae and Freddie Mac. Non-delinquent borrowers who have Fannie and Freddie-backed loans and who can document a hardship, such as an illness, job change, or other situation that requires they must move can apply for a deed-in-lieu transaction. Eligible borrowers also must have a 55 percent debt-to-income ratio. Servicers will be required to confirm that the property has been left in good condition. Borrowers who are eligible will have the debt remaining between the property’s value and size of home loan erased. “The goal is to make sure people who have suffered a hardship have the appropriate options to prevent foreclosure,” says Andrew Wilson, spokesman for Fannie Mae. Borrowers may still be required some repayment, however, if the borrower has the means to do so. “Home owners applying for deed-in-lieu transactions may be asked to make cash contributions of up to 20 percent of their financial reserves, excluding retirement accounts,” Bloomberg reports about the guidelines. “Or, they may be asked to sign a promissory note for future no-interest repayments. The amount and terms can be negotiated.” Fannie and Freddie’s new eligibility for deed-in-lieu of transactions has been met with some criticism, particularly at a time with the government-sponsored enterprises are still underwater themselves from steep losses the last few years. But some argue that past programs tended to penalize borrowers on the brink of foreclosure who kept making their payments, says Julia Gordon, director of housing finance and policy at the Center for American Progress. Mortgage servicers in some cases were even advising borrowers to stop making their housing payment so that they could qualify for more assistance. “Fannie and Freddie are finally recognizing that some people are stuck in their homes,” Gordon told Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their home loan — not the investor, not the home owner, and certainly not the neighborhood.” Source: Bloomberg
Freddie Mac’s fourth quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house, as 84 percent of homeowners who refinanced their first-lien home loan either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table; just shy of the record 85 percent during the fourth quarter of 2011. Of these borrowers, 46 percent maintained about the same loan amount, and 39 percent of refinancing homeowners reduced their principal balance. “On average, borrowers who refinanced reduced their interest rate by about 1.8 percentage points, mark not seen for 27 years,” said Frank Nothaft, Freddie Mac vice president and chief economist. “On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months. Fixed-rate rates on home loan hit new lows during December, with 30-year product averaging 3.4 percent and 15-year averaging 2.7 percent that month, according to our Primary Mortgage Market Survey.” Source: Freddie Mac
If you’re one of the millions of homeowners and renters who work or run a business from the place you live, here’s some good news on taxes: The Internal Revenue Service wants to make it easier for you to file for deductions on the business-related use of your home. Rather than the complicated 43-line form you now have to fill out to claim a write-off — the instructions alone take up four pages of text and involve computations ranging from depreciation to utility bill expense allocations — the IRS has come up with a much simpler option: what it calls a “safe harbor” method that allows you to measure the square footage of your business space and apply for a deduction. The move comes at a time when the use of homes for work is soaring, thanks to technologies such as high-speed Internet and Skype. Last October, the Census Bureau estimated that as of 2010, 13.4 million Americans were making some type of business use of their homes and that home businesses employed nearly 10 percent of all workers. During the same year, the IRS says 3.4 million taxpayers filed for the home office deduction. Kristie Arslan, president and chief executive of the National Association for the Self-Employed, says, that the IRS rules for home offices have been “cumbersome and time-consuming. They also worried that they could be exposed to an audit by the IRS if they made mistakes in filing.” The new IRS option, which will be available for 2013 and beyond, allows owners and employees who work from home to deduct $5 per square foot of home office space per year, up to a maximum allowable space of 300 square feet. The write-off is capped at $1,500 per year, but the hassle factor is negligible. Here’s how it works. The Internal Revenue Code permits you to deduct expenses for a home office that is used “exclusively” and on a “regular basis” as your principal place of business “for any trade or business,” or as a place to meet with clients or customers. Provided you qualify on these threshold tests, the code allows you to deduct home loan interest, property taxes, rent, utilities, hazard insurance and other expenses based on the percentage of the total space of the home that is attributable to your business use. Though this method can produce sizable deductions, critics have long argued that the computations for some of the allowable items — depreciation on the house you own is one — can be tricky and require significant record-keeping and time expenditures to get it exactly right. In addition, the IRS has acknowledged that the presence of a home office deduction on a taxpayer’s filing may increase that taxpayer’s potential for being selected for audit. The new streamlined approach essentially boils everything down to just one measurement: How much square footage that qualifies for business-purpose treatment are you using? Multiply that number by $5 per square foot and you’ve got your deduction amount. As long as this does not exceed $1,500, you can use the new short form write-off. If the total is more than $1,500, you can use the more complicated option. Source: Ken Harney, The National Housing