Tighter Limits for Wealthy Families in Obama’s 2011 Budget Proposal

The Obama administration proposes to raise $291 billion over the next decade by reducing the amount by which wealthy families can cut their tax bills by claiming itemized deductions for mortgage interest payments and other write-offs.

The Obama administration tried and failed to implement a similar change in last year’s budget, after running into opposition from a range of interests ranging from mortgage lenders to charities that benefit from the taxpayers’ ability to claim such itemized deductions.

Currently, individuals with incomes above $200,000 and families with incomes above $250,000 can lower their taxes by an amount equal to as much as 39.6 percent of their itemized deductions. The Obama administration wants to lower the cap to 28 percent — the level in place at the end of the Reagan administration.

Because families in lower tax brackets don’t benefit as much from itemized deductions, the system in place now provides a disproportionate benefit to the wealthy, the administration said in its proposed budget.

“Currently, if a middle-class family donates a dollar to its favorite charity or spends a dollar on mortgage interest, it gets a 15-cent tax deduction, but a millionaire who does the same enjoys a deduction that is more than twice as generous,” the Obama administration said.

The Mortgage Bankers Association issued a statement claiming the proposed tax increase would have a negative impact on housing markets by increasing the cost of mortgages for many potential homeowners, especially in high-cost states like California and New York.

The MBA also expressed disappointment that the budget “did not offer any indications of the administration’s plans for the future of Fannie Mae and Freddie Mac.”

The MBA “strongly supports” a proposed $18 million increase in the Federal Housing Administration’s budget to implement improved risk management systems, $20 million earmarked for the Department of Housing and Urban Development to combat predatory lending and mortgage fraud.

Source: Inman News

Share the wealth:

I almost didn’t post this given it is a bit aged however, if you haven’t done a loan recently, or ever, it’s still relevant so I decided to post it after all, so here goes.

I wanted to make everyone aware of some very important and fairly recent changes that are taking place in the lending industry, about appraisals, that affects all of us in different ways and also the impact I have personally seen due to these changes.

Starting back on May 1 of 2009, most every lender in the country started using an outside appraisal ordering company called an Appraisal Management Company or AMC, for all Fannie Mae and Freddie Mac loans. The AMC’s role is to remove any ‘undue’ influence on the value of a property, that a lender, Realtor, or borrower may have on the value a home being  as collateral in financing a home purchase or refinance.

This new law, is a result of a lawsuit brought against Washington Mutual by the state Attorney General of New York. Washington Mutual was alleged to have systematically pressured appraisers to elevate home values at the risk of these same appraisers losing valuable future business from Washington Mutual if they didn’t comply. The practice was likely more widespread than in just New York state but probably not as widespread as it has been made out to be in the media reports. So Congress decide to act and they passed HVCC or Home Valuation Code of Conduct Act to address this issue for the future.

What this means is borrowers/homebuyers will now have to pay “up front” for appraisals. Lenders of Fannie Mae and Freddie Mac loans now have to comply and be in compliance on all appraisal which now requires borrowers to authorize a payment method before ordering the appraisal. The authorization is then submitted to the “outside” service or AMC, who then randomly selects an approved appraiser from within their network of appraisers (with AMC’s, like the one I use, it’s a bit less random because the appraiser pool that an appraiser is selected from, is made up of appraisers that have been referred into the pool by either myself or one my colleagues, so we have an expectation that our pool has competent appraisers in it, and I am sure some others AMC’s feel the same as we do in this regard).

Lenders are not allowed to have any direct interaction with the appraiser, and borrowers and Realtors are only allowed to provide access to the property.  When I order an appraisal and interact with the AMC, I use a web-based system that allows us to share info, order the appraisal , and then download the appraisal, once it is completed.  It actually works pretty well.

From what I have experienced to date, the result of these changes have been higher appraisal costs, longer time frames to get the appraisal back to the lender, and lower home values (in some cases), which can sometimes lead to problems in financing for the customer.

These changes are very new to the industry, about 8 months now, and as a whole, will still take some time for everyone to get used to, but while not everyone is happy with the changes, the intent of the new law is good for the industry, it’s just that the borrower is being burdened with it’s cost.

As of this writing, there is still talk of HVCC being repealed. When and if  it does. I will have an update immediately.

Some Federal Reserve policymakers last month were conflicted over whether to expand or cut back a program intended to drive down mortgage rates and bolster the housing market, according to a document released Wednesday.

Minutes of the Fed’s closed-door meeting on Dec. 15-16 revealed that a “few members” thought that the Fed’s $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac might need to be expanded and extended beyond its current end date of March 31. Such an additional dose of stimulus would be especially needed if the economic recovery were to weaken, they argued.

However, one member thought the program could be “scaled back” given the improvement in economic and financial conditions.

The debate over the future of the program comes amid uncertainties about the vigor of the budding economic recovery.

At the December meeting, Fed policymakers decided not to make any changes to the program. At their September meeting, they opted to slow the pace of the purchases, wrapping them up by the end of March, rather than the end of 2009.

The minutes don’t identify speakers by name but seeks to provide a more detailed account of the Fed’s private discussions.

Some Fed officials remained concerned about the economy’s ability to mount a self-sustaining recovery once government supports are removed. To that end, those officials worried that improvements seen in the housing market might be “undercut” this year as the Fed’s mortgage-buying program winds down, the government’s home buyer tax credits expire at the end of April and home foreclosures grow.

Getting the housing market back on firm footing is a key ingredient to a lasting recovery. The collapse of the housing market, which dragged down home prices with it, was the catalyst for the longest and worst recession to hit the country since the 1930s.

“Generally the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness,” the minutes said.

To nurture the recovery, the Fed at the December meeting kept its key bank lending rate at a record low near zero and pledged to hold it there for an “extended period.” The goal: low interest rates will entice people and businesses to boost spending, which will fuel economic growth.

RATES REMAIN NEAR ZERO: Fed left rates unchanged at Dec. meeting

Economists said the Fed is all but certain to leave rates at record lows at its next meeting on Jan. 26-27 and probably for a good chunk of this year.

“Overall, there is nothing here to suggest that interest rates will rise for quite some time,” Paul Ashworth, economist at Capital Economics., said of the Fed minutes. Ashworth is among the economists predicting economic growth will slow in the second half of this year as President Barack Obama’s $787 billion stimulus package of tax cuts and increased government spending fades.

Most Fed officials don’t currently see inflation as a problem because companies have “little ability to raise their prices” in the fragile economic environment. But they had mixed views about inflation risks.

Some noted that rising prices of oil and other commodities could boost inflation pressures down the road. Others thought investors’ expectations of inflation could edge up because of large federal government budget deficits and vast sums of money the Fed pumped into the economy to fight the financial crisis.

However, others predicted that the sluggish recovery and “slack” in the economy — meaning factories operating well below capacity and the weak labor market — would keep inflation under wraps.

At the December meeting, Fed staff gave several presentations on research into “inflation dynamics.”

The biggest challenge facing Fed Chairman Ben Bernanke and his colleagues is to decide when to start boosting interest rates. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation.

(Home)

There are certain guidelines or norms that the U.S. Department of Treasury has come up with for all the lenders who want to participate under the Homeowner Affordability and Stability Plan. There are two main proposals for the Homeowner Affordability and Stability Plan:

In the past twelve months, new home owners and current owners who refinanced have taken advantage of historic low mortgage rates. Certainly lowering one’s monthly payment stabilizes a financial position. Low rates make homes more affordable. But how long will this environment last? I have been recommending homeowners and buyers alike take advantage of this opportunity, because it is coming to and end – soon.

You need to know some history to fully understand what is approaching us. Last November (2008), mortgage rates were pushing 7%. Now, we are hovering around 5%. What happened? Two words – federal intervention. The Fed came to the rescue of Fannie Mae and Freddie Mac (the major buyers of mortgages), as they were on the brink of bankruptcy. The federal government is now the largest (and only) buyer of mortgages. The Fed stepped in again, announcing purchase 1.25 trillion dollars of mortgages in the open market. That program is coming to an end March 30, 2010. I ask – who will be buying these mortgages once the government is done? Few buyers (or no buyers), will drive rates higher as investors will demand higher yields. That is how the debt market works.

We have also been enjoying a period of low inflation. That too may come to an end the first quarter of 2010. Take a look at the employment and GDP figures. They have been improving, and certainly the “spin” has been positive. Any whiff of the economy heating up will force the Fed to raise rates. Any whiff of inflation will drive mortgage backed securities lower, forcing rates higher. Inflation is the biggest enemy of low mortgage rates. The public needs to realize that this low-interest environment has been created by extraordinary Fed action. Without it, rates would be much higher.

We can expect rates to rise swiftly and significantly in the first half of 2010. The time to refinance at historic lows, or to purchase a home while the affordability index is at its highest is running out.