Wednesday, December 1, 2010

Oh No They Didn't....

The US Debt Commission charged by the president on balancing the US’ budget, remitted their fiscal austerity plan. Within the proposal was a key ingredient which will greatly affect American homeownership, specifically the income-tax deduction for mortgage interest. The 18-member commission has been looking for ways to trim the federal deficit. Among the $3.8 trillion in debt-cutting options being considered by the “National Commission on Fiscal Responsibility and Reform” was initially written to include the eliminating for second homes mortgages of more than $500,000, and home-equity loans. The final release is a bit more aggressive. It includes a 12% non-refundable tax credit available to all tax payers with mortgages now caped at $500,000. NO credit from interest from second homes and home equity loans. As one might expect, the reaction from various housing industry leaders was a strident “Not A Good Idea”. With its release, the Congress and the President “must decide which tax expenditures to include in the tax code” of which mortgage interest for primary residences is specifically mentioned. I’ll highlight a few of the comments I have found around the news wires:

• “For a battered housing industry, which is struggling with a 21 percent unemployment rate among construction workers, this is absolutely the worst time to be considering changes,” said National Association of Home Builders President Bob Jones. Adding that diminishing or ending the deduction would exert further downward pressure on home prices, leaving more homeowners with mortgages larger than the value of their property and fueling even more foreclosures.
• Mortgage Bankers Association Chairman Michael D. Berman said that while his group’s members shared in the growing concern about the federal deficit, limiting the use of the mortgage-interest deduction “will have negative repercussions for consumers and home values up and down the housing chain.” Given “the fragile state” of the housing market, Berman said, “now is not the time to be scaling back incentives for homeownership.”
• Not to be left out, the National Association of REALTORS® has decided to take a wait and see approach.

There are some supports of this action, may of which are in the economics field. “The mortgage-interest deduction is to housing policy what Social Security reform has traditionally been to politics: the third rail,” says Kevin Gillen, vice president at Econsult Corp. in Philadelphia. He shares a consensus among economists is that the deduction is regressive and promotes overconsumption.

Out of pure selfish reasons, it’s no surprise that I oppose anything but a very limited change relating to interest and tax deduction on all types of homeownership. My suggestion would be to eliminate the interest deduction on all mortgages over $1.5 million and all Non-Owner properties as they typically have additional deductions taken with home improvement. This affects the super rich (or over extended) and the “investor”. The fact that it’s mentioned creates a slippery slope down the road should more severe additional cuts are required. The primary-residence tax and interest deduction is the one almost every American homeowner looks forward to as a way to be rewarded for the risks and costs of owning and maintaining a home. With almost half of the recent homebuyers consisting of first-timers, this tax and interest deduction is critical to the on-going recovery. Any changes in my opinion, even my own suggestions should not be implemented until the housing market is operating normally.


Tuesday, November 23, 2010

Does Your Mortgage Start with 4?

The better part of the last 5 months have seen us shift our attention away from Efinity Mortgage towards our Efinity Insurance platform. This was perhaps none more evident than the lack of Efinity Reports during this period. In many ways it should not have been a surprise to us when we were inundated on Friday and yesterday with phone calls from existing clients wanting to confirm their mortgage rates were secure (locked).

First off, major props to our clients who have been paying very close attention to mortgage rates both posted daily on Efinity Mortgage's website and in general new outlets. Rates have started rising by and large because of stronger than anticipated economic reports. The surprise has been that just over the last week rates have risen 0.25%. For some perspective, that's almost $50 a month on a $250,000 mortgage. That's $50 every single month you have that mortgage note and for most of us... that's a while! So if $600 might not be a big deal to you, think about $6,000 over a 10yr period. Since we're not thinking about the ramifications of these savings, might we siggest placing that money with Efinity Financial and allowing them to leverage a secondary set of college savings funds or well placed life insurance or some other proper savings plan. Hopefully we have your attention now.

A friend of mine in the business emailed me and mentioned that some people say good things come to those who wait and others suggest to strike while the iron is hot. In this case, the "iron is still hot" with rates at exceptionally low levels, but it's starting to turn, and quickly. He is correct in his announcement. We are in a new economic paradigm. It may be several decades before we see home loan rates this low again. Don't let apathy get the better of good sense. And hey think of it as a gift to give yourself...and just in time for the holidays!

Thursday, October 7, 2010

Todays Thought: Does your mortgage rate start with 4?

It’s often said that home is where the heart is. Yet we find that many of our clients fail to realize that a mortgage is at the heart of every good financial plan. Making sure you've got the right one can save you from unnecessary interest payments, which allow for further wealth creation and financial health for your family. Today, October 7th, we reached all historic lows for home loan rates (see NOW is THE TIME to; refinance your current home loan, consolidate your existing home loan(s), access your equity and pay down higher credit rate loans or put home buying on the front burner!

When it comes to determining if your mortgage is still the right one for you, there are some important factors to consider; include the type of loan (or loans) you may need, your timeline for purchase, if you have an existing mortgage the your current loan balance, your existing interest rate, and any recent or upcoming changes to your financial situation (i.e. job change, marriage, divorce, kids going to college, etc). While considering the home loan process may seem like a daunting task, have no fear. Pick up the phone or email now to discuss your options with one of our licensed financial professionals. The time to ask is NOW. Just as rates arrived at historic levels, they very likely won't stay this way forever. On a side note, the importance of these historic rates can be summarized in the following way:

A $200,000 mortgage with a 30yr term at a rate 5.00% has a monthly principal and interest payment of $1,073.64.

At today’s rate, the same payment ($1,074.18) can be had with a $225,000 mortgage.


A $400,000 mortgage, at 5.000%, has a monthly payment of $2,147.28 (P&I).

Today, that same payment ($2,148.37) gets you a $450,000 mortgage. That’s $50,000 more!!

With the disappearance of the capital markets in the residential mortgage space, the majority of all mortgage loans are now being purchased by our federal government. Yes, the same federal government who might seriously consider raising taxes! In closing, allow me to encourage you to spend a little time reviewing your situation today. After all, no one wants to look back and realize that a great opportunity to improve their financial situation has passed them by.

Wednesday, September 22, 2010

Fannie Mae toughens Underwriting Guidelines

Fact: Fannie Mae is the the largest provider of U.S. residential mortgage funding. Fact: Without Fannie Mae or Freddie Mac, mortgage rates would be significantly higher.
Fact: On Monday, Fannie Mae moved to further tighten underwriting guidelines involving income requirements of borrowers to "better assess borrowers' ability to pay".

These changes will now require lenders (Like Efinity Mortgage) to include ALL revolving debts in a borrower's debt-to-income ratio. In times gone by, if there were less than 10 payments remaining on a debt, these items typlically were excluded. What does this mean to you?

The continued shift by Fannie Mae (and Freddie Mac) comes as tighter lending standards have been cited behind a sluggish response by borrowers to record low interest rates. We continue to see many borrowers whom still have mortgage rates ABOVE 5.375!!

Fact: Home loan rates have never been lower.
Fact: Long-term interest rates have never been lower.

With rates as low as they are today, many options exist. Depending on your needs, opportunity exists to either save a lot of money in your monthly payment, over the life of your loan, or both. Many people have recently chosen to refinance into shorter terms – 10, 15, or 20 years – in some cases bringing a large principal reduction payment to closing to get the loan they want.

Whatever your personal situation is, the best thing you can do is to investigate your options. It has been reported that the average rate in effect for all mortgages today exceeds 5.375%. If you or someone you know is currently in this situation, you owe it to yourself to see how you can save today.

Tuesday, July 6, 2010

Financial Reform Bill Update

Congress moved on multiple fronts last week, bringing the financial regulatory reform bill to the edge of enactment and sending to the President's desk a pair of bills extending the flood insurance program and the settlement deadline for the home buyer tax credit. President Obama signed both bills on Friday.

The House approved the Dodd-Frank bill Wednesday by a 237-192 vote, though the week did not go by without some unexpected drama. While the legislation was expected to be approved by both the House and Senate in time to meet President Obama’s July 4 deadline, last-minute objections over a $19 billion bank tax added in the dead of night led to the bill being reopened in order to remove the provision. The passing early in the week of Sen. Robert Byrd, D-W.Va., also changed the vote count for passage.

The Senate is still expected to pass the financial reform package, but not until Congress returns the week of July 12.

House Passes Regulatory Reform Conference Report; Senate Passage Delayed
A week after passing what was thought to be the final Dodd-Frank regulatory reform bill out of the conference committee, prospects for final passage in Congress were complicated by two major events.

First, the death of Sen. Robert Byrd, D-W.Va., June 28 cost Senate Democrats a crucial vote for the legislation, and necessitated the Senate adjourning early for memorial services. Byrd’s passing, coupled with an announcement by Sen. Scott Brown, R-Mass., that he would oppose the legislation after a bank tax was added to the bill at the end of the conference process, left congressional leaders scrambling to wrap up the legislation before the July 4 deadline set by President Obama.

In an attempt to win back Brown’s vote, as well as several other moderate Republicans, the conference committee reconvened on June 29 and removed the bank tax, replacing it with an increase in Federal Deposit Insurance Corp. fees and an earlier sunset of the Troubled Asset Relief Program. With these changes, the House passed the conference report Wednesday evening by a 237-192 vote.

The Senate, however, delayed a final vote on the legislation until after the Independence Day break. That period will be critical to determining if the most recent legislative changes will sway enough Republicans to break the expected filibuster, and it will also provide time for the governor of West Virginia to fill that state’s vacant Senate seat.

MBA sent a letter to the conferees stating that while changes to the conference report modestly improved the legislation, it still believes that additional improvements can be made to limit the negative impact the bill will have on businesses and consumers. MBA will continue to monitor this issue as it develops over the next 10 days.

Tuesday, April 6, 2010

Most Americans Say Now Is Time to Buy a House

The Efinity Report rarely posts news articles, however; we thought we would the following report from Reuters is a good indication of the mired direction of the housing market.

"Nearly two-thirds of Americans think the time is right to buy a house, with a majority believing prices will be the same or higher over the next year, according to a Fannie Mae survey released Tuesday.

The 64 percent that said it is a good time to buy is just shy of the 66 percent that said the same thing in 2003 as the U.S. housing market was racing higher, said the survey.

However, most of the 3,451 polled said that it would be tougher for them to get a loan than it was for their parents.

The survey comes amid signs that the U.S. housing market is recovering after suffering the worst downturn since the 1930s.

But, while home prices in some regions are rising, soaring delinquency rates across the nation mean foreclosures will keep persistent pressure on the market, according to analysts.

Fannie Mae, the largest U.S. mortgage finance company, said that the public still "strongly believes" in upholding their financial commitments, though that weakens once people know someone who is defaulting.

Those who know someone in default are more than twice as likely to have seriously considered stopping payments on their own mortgage, Fannie Mae said.

Monday, April 5, 2010

Housing Tax Credit in it's Final Legs

Tax breaks, get them while they are hot!! There is a potential to save thousands of dollars but time is running out. If you're thinking of taking advantage of the government's home buyer tax credits you must have a contract to purchase a home by the end of this month. The opportunity is sizable. First time home buyers can get a credit of up to $8,000.

The exclusively government funded program is designed to ensure we have a sustainable economic recovery as homeowners don't see further destruction of their homes. Many of which are the backbone of their wealth.

The government also offered a tax credit to long-time residents who buy a new principal residence — no credits for vacation homes. They're eligible for a credit of up to $6,500. If you're convinced a new home may be in your future, consider some of the basic rules outlined in the tax credit.

Who qualifies

First-time home buyers: To qualify as a first-time home buyer, you must not have owned a home in the last three years. The tax credit is 10 percent of the purchase price of a home up to a maximum of $8,000. This applies to a single taxpayer or a married couple filing a joint return. Married couples filing separate returns qualify for half that amount. The $8,000 credit applies to sales in 2009 and through the end of April. Homes bought in 2008 also get a tax credit, but the rules are different.

Of course, your particular situation may not be so clear cut. The IRS outlines many different scenarios and how they effect the home buyer rules here.

Long-time residents: To qualify as a long-time resident, you must have owned and used the same home as your principal residence for at least five consecutive years of the eight-year period ending on the date you bought your new home. The maximum credit is $6,500 for a single taxpayer or a married couple filing a joint return, or $3,250 for a married couple filing separate returns.

The deadline
You must enter into a binding contract to buy a home before May 1, 2010, and close before July 1, 2010. If you're building a home, the purchase date is considered to be the date you first occupy the home.

How to get the credit
The credit is claimed on IRS Form 5405, First-Time Home buyer Credit, which was revised in December. It must be filed with your 2008, 2009 or 2010 federal income tax return, depending on which year you're claiming the credit. If you have already filed a 2008 or a 2009 tax return without claiming the credit, but bought a home that qualifies, you can amend your return to claim the credit using Form 1040X with the December 2009 Form 5405 attached.

Certain additional supporting documents will be required to be filed with your tax return, including a copy of the settlement statement used to buy the home or a similar document.

Those seeking as credit for long-time residents will need to prove they have lived in their home for five consecutive years by providing mortgage interest statements, property tax records or home owner's insurance records for five consecutive years.

Income limits for full credit
Purchases after Nov. 6, 2009
Single taxpayers — up to $125,000
Married couples filing jointly — up to $225,000

Purchases before Nov. 7, 2009
Single taxpayers — up to $75,000
Married couple filing jointly — up to $150,000

The IRS uses your modified adjusted gross income, which for most people is the adjusted gross income on your tax form with student loan, tuition and fee deductions added back in.

Many additional questions are answered by the IRS on its Web site.

Tuesday, March 23, 2010

The Future of Mortgage Lending

There have been a hundred's of articles written over the last 12 months outlining what might happen to Mortgage Lending Industry if/when the federal government slows it's heavy participation through Fannie, Freddie and the Federal Housing Administration.
To say there would be no housing market without the government is an understatatement. thankfully, Washington has taken extraordinary steps to keep home loans available and affordable over the last 24 months. That caused a tentative housing recovery last year. Home sales reversed their four-year descent, while prices stabilized.

Now comes the hard part. Fannie, Freddie and the Federal Housing Administration are massive entities that purchase home loans, package them into investments and guarantee them against default. The price tag has been huge — $126 billion and growing.

The Obama administration has been surprisingly mute on the subject which makes me all the more neervous. Congress will hold its first today on how to restructure the mortgage system in the wake of the current financial crisis. How to manage change when the housing recovery remains too fragile and feeble for the government to step away. Even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run don't see that happening anytime soon.

"The housing finance system clearly cannot continue to operate as it has in the past," said Treasury Secretary Timothy Geithner in testimony prepared for Tuesday's hearing held by the House Financial Services Committee. He added that any restructuring should wait until "a time of greater market stability."

My interpretation: See National Health Care. Get your cheap mortgage rates now!!!

Saturday, February 27, 2010

Housing's Continued Weakness (Existing Home Sales)

Earlier this week the Commerce Department reported a 7.2 percent decline in existing home sales. No surprise to anyone, this reflects continued evidence that high unemployment and tight lending standards are undercutting the government's attempts to prop up the market.

I would like to make a few points regarding the existing lending standards. First, we need to keep in mind that the government is currently buying roughly 93% of all residential mortgage activity in the US via Fannie Mae and Freddie Mac. Without a robust capital markets outlet for mortgage backed securities, politics get to determine who obtains a home and who does not. Given the financial crisis of the last three years and the added negative press surrounding mortgages in general it's not surprising to see credit requirements sitting at their highest points in 15 years. While housing is not the largest employment industries in our nation, it does serve several critical needs of our country and must play a participatory role in our nations recovery. Out of reach lending standards is not going to help matters.

So back to Friday's report. Since the for forecast was so much worse than forecast and suggest the housing recovery will sputter without government support. The government has spent billions to keep mortgage rates low and give buyers tax breaks, but both programs are set to end this spring.

The National Association of Realtors said that home sales fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million from a downwardly revised pace of 5.44 million in December. Economists expected a slight increase to a rate of 5.5 million.

Home sales have been sluggish this winter even though the deadline for a tax credit for first-time buyers was extended. It had been set to expire on Nov. 30. That caused sales to surge last fall. Then Congress extended the deadline until April 30 and expanded it to existing homeowners who move.

The housing report was another sign that consumers still aren't feeling comfortable making sizable purchases. With jobs still scarce, weak consumer spending is a key reason why economic growth is expected to be feeble this year.

Home sales are still up nearly 12 percent from the bottom, but are down 30 percent from their peak more than four years ago.

Last month, sales declined throughout the country, falling the most — nearly 11 percent — in the Northeast. Sales fell by about 7 percent in the South and Midwest and by more than 5 percent in the West.

Nationally, more than a quarter of buyers last month paid all cash, reflecting a surge of investors buying low-priced foreclosures, the Realtors group said.

Nationwide, the median sales price was $164,700, unchanged from a year earlier and down about 3 percent from December. The inventory of unsold homes on the market was down slightly. There is a 7.8 month supply at the current sales pace, up from a recent low of 6.5 months in November.

The bleak report comes after the government reported Wednesday that sales of newly built homes plunged 11 percent to a record low in January. The report, which measures signed contracts to buy homes rather than completed sales, also came as a surprise to economists.

Another question hanging over the housing market this year is whether interest rates will rise, and by how much. The Federal Reserves $1.25 trillion program to push down mortgage rates is scheduled to expire on March 31. This is a MAJOR concern for us here at Efinity. The affordability of homes right now is critical to this nation's recovery.

Tuesday, January 12, 2010


The few remaining banks left on Wall Street aren't the only banks having a banner year. The Federal Reserve made record profits in 2009, as its unconventional efforts to prop up the economy created a windfall for the government.

The Fed will return about $45 billion to the U.S. Treasury for 2009, according to calculations by The Washington Post based on public documents. That reflects the highest earnings in the 96-year history of the central bank. The Fed, unlike most government agencies, funds itself from its own operations and returns its profits to the Treasury.

The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy — though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms.

This turn of events comes as the banks that benefited from the Fed's actions are under the microscope: Major banks are expected to announce massive earnings and employee bonuses starting at the end of this week, and anger in Washington is at such a high boil that the Obama administration is likely to propose a fee on financial firms to recoup the cost of their bailout, officials confirmed Monday.

As it happens, the Fed's earnings for the year will dwarf those of the large banks, easily topping the expected profits of Bank of America, Goldman Sachs and J.P. Morgan Chase combined.

Much of the higher earnings came about because of the Fed's aggressive program of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth. By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on those investments was a major source of Fed profits — though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply.

Emergency loans
The Fed also made money on its emergency loans to banks and other firms and on special programs to prop up lending, such as one that supports credit cards, auto loans, and other consumer and business lending. Those programs impose interest and fees on participants, with the aim of ensuring that the Fed does not lose money.

And while the central bank in its most recent financial report had recorded a $3.8 billion decline in the value of loans it made in bailing out the investment bank Bear Stearns and the insurer American International Group, the Fed also logged $4.7 billion in interest payments from those loans. Further losses — or gains — on the two bailouts are possible as time goes by. The Fed also charges fees for operating the plumbing of the financial system, such as clearing checks and electronic payments between banks.

From its revenue, the Fed deducts operating expenses, such as employee salaries, then returns almost all of the earnings that remain to the Treasury. The largest previous refund to the Treasury was $34.6 billion, in 2007.

"This shows that central banking is a great business to be in, especially in a crisis," said Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former Fed official. "You buy assets that have a nice yield, and your cost of funds is very low. The difference is profit."

The Fed plans to release its estimate of 2009 earnings Tuesday. The Post's calculation is based on combining data through September from the Fed's monthly balance sheet report with more recent data from the Treasury's daily budget statement.

Fed officials do not make policy with an eye toward maximizing profits. They are charged by law with managing the nation's money supply to keep employment high and prices stable, and earnings fluctuate depending on a wide range of factors as they pursue that goal. In the crisis, the central bank's policy has been to create money and use it to buy a wide variety of assets, which in turn pay interest.

Exotic investments
In effect, the unprecedented range of actions taken to address the crisis has made the Fed's balance sheet more like that of a private bank. A firm such as Bank of America takes money from depositors, whom it pays little or nothing in interest, and lends it out at significantly higher rates. The Fed, similarly, takes money that banks keep on deposit, at a rate of 0.25 percent, and lends it to the U.S. government by buying Treasury securities and, lately, to home buyers and other private borrowers though more exotic investments.

While that resulted in higher earnings in 2009, it exposes the Fed to more risks down the road. "They've moved up the risk-return curve, as they have more long-term assets and more things that involve credit risk," said Diane Swonk, chief economist at Mesirow Financial.

If the price of Treasury bonds or mortgage-related securities issued by Fannie Mae and Freddie Mac were to fall in the years ahead, and Fed leaders decided they need to drain money from the financial system by selling off some of their portfolio, the central bank would lose money. "If they do enough asset sales and rates go high enough, that could eat into future profits pretty substantially," said Michael Feroli, an economist at J.P. Morgan Chase.

Question is, I wonder if the tax payer will recieve a refund?