Let The Duel Begin --
Again
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.
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
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
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