Mortgage Lending - one step forward and two steps back

Sweeping reform of residential mortgage financing is no big secret, but were you aware that there is a lot more to come? The Qualified Mortgage Rule, a segment of the Dodd-Frank Act, is largely undefined and only vaguely understood. The premise is solid, that all borrowers should be able to demonstrate an ability to repay the money that they are borrowing. But most analysts believe that in its zeal to cure all the ills, and revolutionize our housing industry, it goes way, way too far. The predominate feeling is that too-tight restrictions on mortgage lending may freeze and possibly even reverse the tenuous progress that our country’s real estate market has been making. There is legitimate fear that this may disable first time homebuyers for years to come. In fact nearly 100 rules laid out in the Dodd-Frank Act are yet to be completely delineated and implemented, and countless others have simply been overlooked. Our country had obvious issues as a result of loose lending practices, but over-correction is alarming many experts in the financial industry, and rightly so.

I can tell you from experience that credit-worthy borrowers are already being squeezed out of the market by new regulations that do not take individual circumstances into consideration. You cannot paint the entire home buying public with the same brush, but this is exactly what’s been happening.

Smart lending is a balancing act, and it’s something that’s worth getting right. With unemployment still at an unnerving high and real estate just beginning to recover, the lending industry needs to proceed with extreme caution, but make no mistake, it does need to proceed.

Short Sales No More?

Lost in the shuffle of our perpetually-floundering economy and Washington's frustrating inability to come to any kind of agreement, there is a small but very important issue on the table, the extension of the Mortgage Forgiveness Debt Relief Act.

A quick bit of history will explain just how important this is. In 2007 this Act was passed, renewed in 2008 and due to expire at the end of this year. Let's be clear, this has nothing to do with the tax cuts that also are expiring at the end of 2012. This is a sole and separate entity. What this does is not immediately apparent from the title, this Act does not actually forgive mortgage debt in any way. It merely allows an underwater borrower to not pay taxes on income that they never received in the first place. A little confusing but then this is government, right?

Let me give you an example. Mr. Seller owes $150,000 on his prinary residence. His job has been downsized and he must move to another state to obtain work. The current market value of Mr. Seller's home is $100,000. Mr. Seller's realtor explains that in order to sell his home and move on, Mr. Seller must employ what is called a Short Sale- selling the home and paying the bank far less than is owed. The sale is successful at $100,000. Mr. Seller will now receive a 1099 for the remaining $50,000 (phantom income) that he was short when paying off his mortgage, the same 1099 that you would use when claiming taxable income. You might feel that there is no income here, Mr. Seller is never going to see that $50,000, if he had he would have paid off the bank, correct?  Here's where the Mortgage Forgiveness Debt Relief Act comes into play. Mr. Seller, under this Act, is not required to pay income taxes on that $50,000 that was never really income to begin with.

If the Mortgage Forgiveness Debt Relief Act is somehow overlooked, if it does not get renewed by the end of the year, Short Sales will likely come to a screeching halt. Folks who are forced to sell an underwater home are probably not in a position to pay taxes on the "phantom income". Doesn't sound all that serious to you? Consider the current shortage of real estate inventory in many markets and that a large chunk of the current inventory in countless areas is made up of short sales. Consider the minute but undeniable (and still very tenuous) value-up that our real estate market has only recently realized. Consider what will happen to your own home's value and ultimately the entire economy if there is another real estate crash.

All this over a tiny, independent Act that might be slipping through the voluminous cracks in Washington as we speak. Whether you agree or disagree I urge you to express your opinion to your congressman, because this is how it's done!

Mortgage rates... Lower still

I'm running out of new ways to say this... I can't imagine that housing prices are going to be any better than they are right now. Mortgage rates are also at an unbelievable low. Will there ever be a better time to buy a home? Actually, I hope not. That would mean our economy has tanked even more dramatically than in the recent past.

Take a look at this article from Mortgage News Daily.

If you've ever considered buying a home I believe it would be wise to jump on it right now. I truly do not enjoy saying "I'm sorry but I told you so".

Mortgage rates continue to an all time low

Courtesy of Mortgage News Daily

by Matthew Graham / Mortgage News Daily Matthew Graham

Mortgage Rates Continue Trickling Lower To New All Time Lows

Jul 10 2012, 2:51PM

Mortgage rates continued lower today, marking the third consecutive day at new all-time lows. Broader Bond Markets continued to benefit from a generally skeptical and negative outlook on the European debt crisis. That skepticism helped push the European currency to it's lowest levels in over 2 years, also exerting downward pressure on stock prices and bond yields.

Read the complete text here.