As reported by CAR, distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure or loan modification. Enacted into law yesterday, Senate Bill 401 generally aligns California’s tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by a “qualified principal residence”, borrowers will now be exempt from both federal and state income tax consequences. The existing federal exemption is for indebtedness up to $2 million, whereas the new CA exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.
“Qualified principal residence” indebtedness is defined as debt incurred in acquiring, construction or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to pay off a previous loan that would have qualified.
The tax breaks apply to debts discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be except under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.
For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill’s 401 is available online.
Each month since the end of last year we have heard nothing but good news for the struggling U.S. housing market. What economic event aided to retain our low mortgage interest rates this time you ask? Well all the accolades go to the European debt crisis, specifically Greece, Spain and Portugal. But hey let’s not single them out. With the easy entry policy into the European Union and Euro Dollar other countries may just follow suit. So what does this mean to you, the U.S. home consumer – mortgage rates are at historic lows.
The current average rate for a 30 year fixed loan is 4.87%, according to Bankrate.com. That’s the lowest rate for a 30 year loan since Bankrate started keeping track 25 years ago. One could not find a better time in our generation to buy or refinance a home especially with home prices rolled back to the beginning of the millennium.
So how did the European crisis directly impact how we got to these low rates? Unsteady investors are concerned about their investment so they moved heavily into to the safety of U.S. Treasury’s. That in turn forced down the yield and influences a variety of consumer interest rates, especially mortgages. The decline is also good news for homeowners looking to refinance, particularly those who owe more on their mortgage than their house is worth. We have a large window of refinancing, call it even a door way sized opportunity. There is also the government’s Home Affordability Refinance Program (HARP) that provides homeowners the ability to refinance into a low rate mortgage, even with a depressed property value. This program has been extended to qualified homeowners through June 2011.
Let’s not take a good thing for granted though. These moments in market time do not last forever. Move swiftly to purchase or refinance today. How long we have you ask? The summer can easily cover your window of opportunity, but the market could stabilize in the next month to put a small increase in rates, perhaps upwards of 5.5% on 30 year fixed confirming loans by end of June. It is also a natural market response to the buying season for real estate.
Here are more reasonable reasons to the market:
- The European Union will deliver market stabilizing news with an action plan to calm the markets on a timed basis in the months to come.
- BP Oil – want some low priced crude? Grab a boat and a bucket and you can just scoop it up for free. The Feds won’t let BP get away with much more time whether BP fixes it or the government does. Either way the leak will eventually be capped.
- Existing Home Sales for April beat expectations by rising 7.6% after a pop of 7% in March. The annual rate increased to 5.77 million units, topping expectations. The median price of a home rose 4% to $173,100. It all sounds good, right? Well first of all, investors are a bit wary of the housing data. So the negative is the “inventory” increased to an 8.4 months supply. That’s the bad news. The good news is that we are at least eating into that inventory we all know exists out there. The banks are finally getting a bit smarter in handling their inventory and also directing and accepting more short sales than in recent past.
- Unemployment is another long term beast of the market that from reporting to reporting period causes momentary shifts in our mortgage rates.
- The Feds still have toe holds on the market from corporate stocks, corporate loans stimulus programs. Sooner or later Wall Street will want to see divesture. And let’s not even go to the budget…nothing like printing money.
- Hey how about another war with the North and South Korea. The countries decided to do some real saber rattling just to keep our world markets on their toes. When we see improvement expect a war or at least some serious jawing over who gets to have the bath tub rights. This is very serious as the North Koreans military went to combat alert.
Believe it or not the bright spot in all this wild news that has kindly kept our rates low is that our nation’s people are feeling better. Yes, consumer confidence is a bright. The Conference Board’s consumer confidence index rose for the third straight month, climbing to 63.3 in May from 57.7 last month.
So the market is playing out national slow recovery against the world as it turns more negative. The plan is to invest in the good news nationally or what might happen later this year in the world that affects world economic recovery or recession. That is why we have low rates today. Investors in the market are nervous about the world and they want some ROI safety until the world economic drama plays into the second half of the year.
Back in the old, pre-financial market meltdown days, mortgages used to be among those products that benefited from these kinds of flight-to-quality moves. Today’s new securities, of course, have market and interest rate risks, but are built from mortgages comprised of much better borrower stock than those of a couple of years ago. This being the case, and with risks associated with investing in mortgages at the beginning of what should be a long decline, they may be become more attractive to investors seeking to park some cash. If so, that’s good news for housing market moving forward. We’ll see.
Until then, what does this mean to you – you’re kidding right – go buy a house and enjoy the deal of a generation. Of course if you already have a home, then go refinance your property and sake a few thousand a year. That could be vacation money. Greece I heard is real cheep this year.
For further information on how you can take advantage this market opportunity regarding home financing please contact Desmond Elder at Pacific Mortgage Consultants, Inc. by e-mail e-mail or phone 530-582-4238.
Great news! Gov. Schwarzenegger signed Assembly Bill 183 into law on March 25, 2010, providing millions of dollars to Californian’s purchasing a home in 2010 and 2011.
Overview: AB 183 provides $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010 and on or before December 31, 2010, OR who purchase a qualified principal residence on or after December 31, 2010 and before August 1, 2011 pursuant to an enforceable contract executed on or before December 31, 2010 will be allowed to take the credit.
The Credit Amount: The credit is equal to the lesser of 5% of the purchase price or $10,000, in equal installments over three consecutive years. Purchasers will be required to live in the home for at least two years or forfeit the credit which means it must be repaid to the State of California.
The Difference in AB 183 versus Last Credit: Unlike last year’s legislation, AB 183 adds a tax credit for purchasing an existing home by a first-time homebuyer. As you may recall, the State ran out of money at the end of June, 2009. So, enjoy the low interest rate environment and consider leveraging this State homebuyer tax credit!
Info source: CAR, 3/25/10
Historically mortgage rates trend higher during warmer months. This is not only a market driven from Wall Street but also a real estate driven market event as well. We all know that the peak purchasing season is during the summer months. From the time school lets out until the time it starts up again, consumers looking to move or invest in a vacation home traditionally have done so during warm periods of the year. Mortgage rates tend to climb with the mercury. It’s been the case in each of the last 4 years. As spring months turn into summer, the average 30-year fixed mortgage rate rises. This year should be no different. In part because of both market influences.
The market is ripe for rates to increase albeit nominally. With mortgage rates artificially low and U.S. inflation in check, the current mortgage rates have been extremely consumer friendly. Very few market analysts had expected rates to be in the 5% range this far into our economic recovery. With the economy showing initial signs of recovery like retail sales improving, Job loss moving towards balance or even growth, home values beginning to stabilize and fuel costs rising are all signs of economic improvement. The means that rates are not far behind this curve. Yes rates will start to rise.
One impact to the bond market which effect mortgage rates is the Fed’s Buyback program ending at the end of March. This means that the market for buying mortgage securities on Wall Street will not have it largest buyer outside of China leaving the market open for other institutions to pick up the slack. Without the Fed’s involvement rates would have been at least 1% higher. Now that they are stepping out the normal market buyers will effect bond investments driving the value down (Yields increasing) thus increasing mortgage rates based on less initial demand and perceived market risk.
So what does this mean to the home buyer or home owner seeking to refinance? Do it now. Buy, refinance and lock your rate in March and April for the best rates of the year. If you are waiting until the summer to buy then do it in the summer of 2010 as rates will still be near historical lows and no ones crystal ball is clear enough to project similar rates in 2011. This is the perfect spring and summer storm, low home prices and rock bottom rates.
Get a lock on your rates before Labor Day and save.
For more information regarding home financing please contact Desmond Elder at Pacific Mortgage Consultants, Inc. by e-mail e-mail or phone 530-582-4238.
Mortgage rates continue to run into a floor at sub 5.0%. This has held true for the month of January and just into February. The big picture outlook, barring a major shift in market sentiment that drives benchmark Treasury yields lower, is that mortgage rates should move higher in months to come. While in any given day can result in small reductions in borrowing costs, the risk of rates rising is almost a guarantee. The longer term projection is if you are looking to hedge your bets for a lower rate than what you can secure today then keep an eye on the stock market.
If stocks extend recent weaknesses then you could capture the momentary drop and pick up that extra .125% savings in your interest rate. To do this you must have already have your credit package prepared with your broker and have a bit of luck. The reality though is just like in the stock market…few people truly buy a stock at its lowest cost and sell at the highest price. That said, take advantage of mortgage markets lowest levels in recent history.
For everyone that is looking to purchase a home or refinance their current home, expect a rise in mortgage rates over the next few months as the Fed exits the Mortgage Backed Securities (MBS) buying program. This is in line with recent guidance issued on Mortgage News Daily.
Don’t wait for mortgage rates to decline! 4.75 to 5.0% rates could very well be the lowest mortgage rates offered in 2010…unless there is a fundamental shift in economic horizon. If you have been waiting to refinance or to buy, get out there and start the process before you miss the boat of 5% rates
Contact Desmond Elder with Pacific Mortgage Consultants for current financing rates and to help you determine your best options.