Limit on Mortgage Interest Deduction Would Penalize Only a Minority of Taxpayers

 

The idea of limiting the homeowner mortgage interest deduction came up in two of the presidential debates, but specifics about who would be affected and how much they might lose in tax benefits were minimal. To put some rough numbers on the issue, here’s a quick primer on the mortgage interest deduction and related housing write-offs.

How big are they? Very big — which is why they have become such a tempting revenue-raising target for candidates seeking to reduce the massive federal deficit. According to estimates from the congressional Joint Committee on Taxation, the mortgage interest deduction alone will “cost” the federal government $484.1 billion between fiscal 2010 and 2014, including $98.5 billion in 2013 and $106.8 billion in 2014. Homeowners’ write-offs of local and state property taxes account for another $120.9 billion during the same five-year period.

Keep in mind: What “costs” the federal government also represents significant tax savings for the people who take the deductions — in this case, the millions of homeowners who save thousands of dollars a year that they are not paying to the IRS. In fact, according to a new analysis by Jed Kolko, chief economist for the real estate information site Trulia.com, among those taxpayers who itemize on their federal returns, 49 percent of total write-offs are housing-related — primarily mortgage interest and local property taxes. For homeowners as a group, this is a big deal.

But since only about one-third of all taxpayers itemize on their returns — the rest opt for the standard deductions — who’s really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions. Citing the latest data on the subject, published by the IRS in 2009, Kolko found that while just 15 percent of households with incomes below $50,000 took itemized deductions, 65 percent of those with incomes between $50,000 and $200,000 did. Just about everybody with income above $200,000 — 96 percent — itemized on their returns.

In an interview, Kolko said that a $25,000 cap on itemized deductions, as suggested by Mitt Romney in the second debate, would hit people in the $50,000-to-$200,000 income range, since their average total write-off (for mortgage interest, charitable contributions and all the rest) was $24,000. It would take a much bigger bite out of households with income beyond $200,000, of course, where the average total for all itemized deductions came to $81,000 in the IRS data from 2009. Romney’s plan envisions that the losses in deductions for all categories of taxpayers would be offset by the lower payments they’d be making based on a one-fifth reduction in marginal rates. President Obama supports a cutback in housing-related and other write-offs for people with incomes above $250,000, capping the marginal rate at which they can take their deductions at 28 percent.

Where do homeowners who claim the biggest mortgage interest deductions — and would be most vulnerable to caps and cutbacks — live? The Tax Foundation, a nonpartisan research group in Washington, did a study based on 2009 IRS data and found that there are dramatic differences state by state.

As a general matter, residents of states with high housing and tax costs, large average mortgage balances and high household incomes write off the most; states with low housing costs and incomes, the least. Any significant cutbacks on deductions would hit people in the high-cost states the hardest, absent compensating savings from elsewhere in any forthcoming tax code changes.

California ranked No. 1 in the size of home mortgage deductions, with $18,876 on average. Next came Hawaii ($16,730), the District ($16,720), Nevada ($15,502), Washington state ($14,262), Maryland ($14,162) and Virginia ($14,094). At the opposite end were homeowners in Oklahoma ($7,992), Iowa ($8,104), Nebraska ($8,233), Mississippi ($8,301) and Kentucky ($8,345). Maryland is tops in the percentage of taxpayers taking mortgage interest write-offs (37.5 percent), followed by Connecticut (34.7 percent), Colorado (33.7 percent) and Virginia (33.6 percent).

What’s the outlook on cutting back deductions? Two of the traditional political guardians of the housing tax benefits — the National Association of Realtors and the National Association of Home Builders — say they are digging in for battles next year, no matter who wins the presidential election.

“The real debate” on housing deductions, said Jamie Gregory, deputy chief lobbyist for the Realtors, is not on TV between Obama and Romney, but on Capitol Hill next year, where both groups are planning major defenses.

By: Kenneth R. Harney, Washington Post

 


Once-Invisible Inventory Can Be Seen on Zillow

Instead of finding clever ways to chase shadow inventory, Zillow has decided to make things easy for thrill-seeking homebuyers and investors who are trying to track down unlisted, invisible inventory.

The real estate data provider announced Thursday it is now providing information on 1.2 million pre-foreclosure and foreclosed properties at no cost. The homes provided through Zillow are not yet listed and apparently, are yet to be found on any Multiple Listing Service (MLS).

Before, only certain investors were privy to such information.

“For the first time, home shoppers are able to see the entire scope of housing inventory in their area, both pre-market and for-sale, side by side,” the company said in a release.

According to Zillow, 55 percent of homebuyers have considered purchasing a foreclosure, but the problem was where to find the information.

“This is another tremendous step forward in consumer empowerment. Zillow is taking information that was really only available to a select group – in this case, savvy investors – and making it more easily available to interested home buyers,” said Spencer Rascoff, Zillow’s CEO. “What’s more, bringing this information to light, and taking this inventory out of the shadows, can help bring these homes to market faster than ever before.”“

The pre-market inventory includes nearly 1 million pre-foreclosure properties, or homes that have begun the foreclosure process or have been scheduled for auction.

In addition, Zillow’s inventory has more than 260,000 unlisted foreclosed properties.

Zillow will also include its own estimate of the sale price of the home if sold as a foreclosure with the percentage and dollar discount based on fair market value. Foreclosure details will also be included, such as the timeline of the foreclosure process, unpaid balance, and the lender.

Another added feature will be 147,000 Make Me Move properties. For this feature, homeowners name a price for which they might sell their home.

Users can view pre-foreclosure, foreclosed, and Make Me Move inventory by visiting Zillow.com and conducting a search using the pre-market filter. Foreclosure details are available for those who sign in.

Seattle-based Zillow is a real estate information marketplace and provides information about homes, real estate listings, rental listings, and mortgages through its mobile applications and websites.

By: Esther Cho, DSNews


Non-delinquent borrowers soon eligible for short sales

Mortgage giants Fannie Mae and Freddie Mac have issued new rules effective Nov. 1 that will allow short sales for underwater borrowers who have never missed a mortgage payment. Previously, Fannie and Freddie allowed only homeowners who had missed payments to qualify for a short sale.

However, eligible short-sale owners will need to show a hardship to qualify for a short sale under the new rules. Hardships may include unemployment or the death of a spouse.

The new rules won’t help credit scores, however. The non-delinquent short sellers will likely take just as big a hit to their credit score as delinquent homeowners who have missed loan payments and gone into foreclosure, according to Kenneth Harney, writing in Inman News.

“Under current national credit reporting practices, those non-delinquent borrowers are likely to be treated the same for credit scoring purposes as severely delinquent owners who go to foreclosure after months of nonpayment, or who simply toss back the house keys and walk away in strategic defaults,” says Harney.

Credit agencies have no special coding that indicates a short sale occurred without an accompanying delinquency. Therefore, homeowners could see their credit scores drop 150 points or more after a short sale.

However, officials at the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, say they are “in discussions with the credit industry” to explore ways to fix the credit score problem for people who haven’t missed a payment before undergoing a short sale.

Source:  “Damage to Credit Scores Could Trip Up New Fannie, Freddie Short Sale Program,” Inman News as cited on FloridaRealtors.org


Three Bank Failures Raise 2012 Tally to 46

The FDIC’s deposit insurance fund got a little bit lighter Friday as three more banks fell.

GulfSouth Private Bank of Destin, Florida; Excel Bank of Sedalia, Missouri; and First East Side Savings Bank of Tamarac, Florida, were all liquidated, bringing the national failure tally to 46 so far in 2012 and costing the FDIC’s insurance fund a combined total of approximately $86.1 million.

SmartBank of Pigeon Forge, Tennessee, will be assuming the deposits and essentially all of the assets of GulfSouth. As of June 30, the failed bank possessed an estimated $151.1 million in deposits and $159.1 in assets. GulfSouth is the sixth Florida bank to have failed this year.

First East Side Savings’ deposits and assets were picked up by Stearns Bank National Association of St. Cloud, Minnesota. The seventh bank to fail this year in Florida, First East Side Savings had approximately $65.9 million in deposits and $67.2 million in assets as of June 30.

In a release sent out with First East Side Savings’ closing, the Office of the Comptroller of the Currency said the bank “had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices.”

Simmons First National Bank of Pine Bluff, Arkansas, assumed all the deposits and purchased essentially all of the assets of Excel Bank. As of the end of the second quarter, Excel had nearly $187.4 million in total deposits and $200.6 million in assets. The bank is the third to fail in Missouri in 2012.

The three collapses bring the national tally to half of 2011’s total of 92, according to MyBankTracker.com. Eighty of those failures had occurred by mid-October.

By: Tory Barringer, DSNews


Hillsborough Title Would Like to Welcome Cathy Trongeau

Cathy Trongeau, Closer at Hillsborough Title Brandon- Cathy is a native Floridian, born and raised in Dunedin. Cathy has over 25 years experience in the title industry. She got her start working as a receptionist, and after 5 years she reluctantly agreed to try out the closer position- 20 years later, she hasn’t looked back. Cathy has been happily married for over 31 years; together with her husband, they share a beautiful daughter, a wonderful son-in-law, and one precious grandson.

Cathy can be reached by email at: Cathy.trongeau@hillsboroughtitle.com  


Hillsborough Title Would Like to Welcome Victoria Tazwell

Victoria Tazwell, Closer at Hillsborough Title South Tampa- Victoria is a true Yankee at heart, born and raised in New York; she has resided in the Bay Area for over 3 years. Victoria got her start in the mortgage industry working her way up the ranks, and found her home in title over 8 years ago. Victoria represents Hillsborough Title as a closer in our South Tampa office; she is always willing to go the extra mile to ensure her clients have a smooth, stress-free closing. Outside of work, Victoria can be found cheering on her favorite sports teams, enjoying the Florida sun, or spending time with her family.

Victoria can be reached by email at: Victoria.tazwell@hillsboroughtitle.com


Hillsborough Title/Tampa Bay Title Supports Pink

 

Hillsborough Title/Tampa Bay Title recognizes October as Breast Cancer Awareness Month. 1 in every 8 women will be diagnosed with breast cancer at some point in their life; for us at HT/TBT, this statistic sits way too close to home. Among us, we have 2 breast cancer survivors (1 being a two-time survivor). We recently surprised our employees with these pink shirts. They represent all that is important in life- our core company values:

1.            Faith

2.            Family

3.            Friends

4.            TITles

This Saturday (Oct. 20) marks the annual Making Strides Against Breast Cancer walk. Hillsborough Title/Tampa Bay Title will be there walking alongside our Tampa Ta-Ta’s team leader, Marie Combs. There’s still time to register to walk, or to donate to the cause. All funds raised up to the limit of $2,500.00 will be matched by HT/TBT. Because at Hillsborough Title/Tampa Bay Title, “We do good deeds”.

Click here to register or to donate


Is the Industry Seeing Sunlight Break Through the Shadows?

The shadow inventory that previously darkened industry outlook is beginning to fade. In fact, we may soon begin to see the sunlight on the horizon.

In July shadow inventory – unlisted homes that are seriously delinquent, in foreclosure, or held as REOs – declined 10.2 percent year-over-year, falling to 2.3 million homes, according to CoreLogic’s Shadow Inventory Report released Tuesday.

“This is yet another hopeful sign that the housing market is slowly healing,” said Anand Nallathambi, president and CEO of CoreLogic.

Last July’s 2.6 million-home shadow inventory was eerily close to the level recorded two years prior in May 2009. Now, the heavy shadows are lifting.

The current shadow inventory is valued at $382 billion, down from $397 billion in July 2011.

The current shadow inventory equates to a six-month supply, according to CoreLogic.

The analytics firm also reports the rate of distressed sales taking homes out of the shadows is close to matching the rate of newly seriously delinquent homes falling into the shadows.

Seriously delinquent homes – those 90 or more days delinquent – are the most common type of home in today’s shadow inventory, making up 1 million of the 2.3 million-home total.

About 900,000 homes are currently in foreclosure, and another 345,000 are in REO.

Despite fading shadows nationally, some states continue to struggle with long foreclosure timelines.

“While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country causes these pools of shadow inventory to remain in limbo for an extended period of time,” said Mark Flemming, chief economist at CoreLogic.

Forty-five percent of the shadow inventory is concentrated in five states – Florida, California, Illinois, New York, and New Jersey.

By: Krista Franks Brock, DSNews


Shadow Inventory Down…in Most States

 

 

 

 

 

 

 

 

 

 

CoreLogic, in their most recent foreclosure report, revealed that approximately 1.3 million homes, or 3.2 percent of all homes with a mortgage, were in the national foreclosure inventory as of August 2012 compared to 1.4 million, or 3.4 percent, in August 2011. Month-over-month, the national foreclosure inventory was unchanged from July 2012 to August 2012.

CoreLogic identifies foreclosure inventory as “the share of all mortgaged homes in any stage of the foreclosure process”. Their report revealed that 32 of the 50 states have seen their percentage of foreclosure inventory decrease compared to last year. Though foreclosure inventory is slowly shrinking nationally, some states are headed in the opposite direction.

The four states with the highest foreclosure inventory as a percentage of all mortgaged homes according to CoreLogic:

  • Florida – 11%
  • New Jersey – 6.5 %
  • New York – 5.2%
  • Illinois – 4.8 %

These numbers coincide with those reported by LPS in the recent Mortgage Monitor which revealed that foreclosure starts in judicial states increased by 21% month-over-month while decreasing by 3% in non-judicial states. All the states listed above are judicial states.

LPS ranked states by how long it would take to clear their shadow inventory at that states’ current sales pace for foreclosed properties. Using that measure, New York and New Jersey have a much larger pipeline of distressed properties than any other state. (Florida and Illinois are not on this list because they are clearing their distressed properties at a much faster pace. Their pipeline is shrinking more rapidly).

These facts caused Mark Zandi, chief economist of Moody’s Analytics, to report:

“Shadow inventory is falling in much of the country –except for the Northeast. The implication is that house prices will be much weaker in the Northeast in coming years as these distressed properties eventually get sold.”

 

By: The KCM Crew, KCM Blog


The Mortgage Forgiveness Act: Will It Be Extended?

As the year winds down, we are getting more and more inquiries about the Mortgage Forgiveness Debt Relief Act of 2007 and whether or not it will be extended past its original expiration date of December 31, 2012. This is important as people who are selling their home through a short sale may be faced with a tax liability if they don’t close by the aforementioned date.

Here is the way the IRS explains the tax liability:

“If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.”

What does the Act accomplish?

Let’s go back to the IRS for the explanation:

“Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

(For more information on the ACT from the IRS, click here)

This relief also applies to most short sales. Therefore, the question of whether or not the Act will be extended is crucial for anyone considering selling their house through the short sale process.

Will the Act be extended past the end of the year?

No one knows for certain. Diana Olick of CNBC recently reported on the issue:

“So what is the possibility of congress extending the tax relief? One Hill-watcher puts it at 60-40. The Senate Finance Committee passed a package of tax extenders right before the recess, including a one year mortgage relief extension, but leadership in the House of Representatives has not figured out how it wants to handle these extenders. With the looming ‘fiscal cliff,’ tax cuts are an increasingly tough sell. This particular extension does have bipartisan support, but that doesn’t always mean passage in Congress, especially around a presidential election.” 

Without knowing whether the Act will be extended, we suggest anyone considering selling via the short sale process do it now.

By: The KCM Crew, KCM Blog