Archive for the ‘credit news’ Category
Wednesday, March 31st, 2010
Thanks to an a combination of state and federal laws, you could be eligible for up to $18,000 in tax credits if you are a first time homebuyer, or up to $16,500 if you are a non-first time buyer and meet the requirements. But this is only available for a limited time, so if you are in the market to purchase real estate there has never been a better time. Here are the basic requirements for the tax credit programs:
First time home buyers–dual credits:
1. Purchase must be of principal place of residence
2. Escrow must close between May 1, 2010 and June 30, 2010
3. Up to $10,000 tax credit to first time homebuyers under new California law and up to $8,000 credit under federal law
Purchasers of New Homes (Never Been Occupied):
1. Property must be principal place of residence
2. Can be first time or non-first time buyer
3. Up to $10,000 under California law
New California Law:
1. Applies to purchases that close on or after May 1, 2010
2. Must be first time homebuyer or purchaser of new construction (never been occupied home)
3. Up to $10,000 tax credit
4. Must remain in home at least 2 years post sale or pay back money
To make sure you meet all the eligibility requirements, purchase price restrictions, other restrictions and time frames, please visit http://www.car.org/legal/legal-questions-answers/2010-qa/homebuyer-tax-credit-2010/ for a tax credit chart detailing both the Federal and state initiatives.
You can visit the following sites: IRS– http://www.irs.gov/newsroom/article/0,,id=204671,00.html.
California Franchise Tax Board: http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml.
Saturday, March 20th, 2010
Loan modifications have become the preferred method of avoiding foreclosure over the last few years. Although many people are unsuccessful in obtaining them, and the government continues to create programs to entice lenders to grant more modifications, there is one aspect that is not often discussed in relation to those who obtain them: credit consequences.
Everyone knows that credit scores suffer after a foreclosure or short sale, but it comes as a surprise to many that the same occurs after a loan modification. After all, it is an agreement with the lender that keeps the borrower in her home and in good standing, with many of those borrowers never having missed a payment. Once the loan modification is complete it is not abnormal to have a 100 point drop in credit scores. Why?
The argument is that the homeowner is trying to do the right thing in modifying the loan, to avoid foreclosure or even a short sale. He or she has typically not missed any payments. So why be penalized? Everyone wins: the homeowner stays in the home and continues to make payments, albeit more affordable ones that reflect current market values. The lender avoids a short sale or foreclosure, losing thousands (or even hundreds of thousands) of dollars in fees and winding up with a vacant property to sell.
The credit rating industry justifies the hit by arguing that only those with financial difficulties seek loan modifications, thus other lenders and those who extend credit need to be aware of that fact.
This issue is just another thorn in the side of the embattled Making Home Affordable Program, which has only helped about 170,000 homeowners (although initially expected to help millions). For those lucky enough to be admitted to the program, there is a three month trial period under which the homeowner makes the new payments. If they are made on time and without any problems the applicant is granted the modification. The credit drop tends to occur during these three months, which could be a problem if the applicant does not qualify and then has to go through a short sale or foreclosure–at that point their credit score would have dropped immensely, with a potential double hit.
All in all this is just another hurdle for the troubled homeowner facing the possibility of not being able to make house payments. Although with a modification the credit score is not hit as hard as with a foreclosure it is still something to be aware of when deciding what to do.
Monday, March 8th, 2010
There is a new program on the horizon that aims to help homeowners who have not qualified with loan modifications become more likely to obtain their lender’s permission for a short sale. This could be big news for many, possibly eliminating millions of foreclosures. The clincher: homeowners could receive a payment in exchange for leaving their homes. Sound too good to be true?
This new aggressive approach stems from a brutal fact: over five million homeowners owe more than their homes are worth and face the possibility of foreclosure. The government, who has formulated other plans to assist with loan modifications, is hoping that this new plan will prove more helpful than it’s predecessors.
Set to roll out April 5, the new program focuses on short sales and getting their approval. Here’s how it works: if a homeowner has tried unsuccessfully to obtain a loan modification from it’s lender the lender will now be compelled to accept a short sale. The lender will be given $1,000. If there is a second lien holder it will be given $1,000. And the cherry on the cake: the homeowner will be given $1500 as “relocation assistance.” In return the lender will agree not to come after the borrower for the difference between the sales price and what was owed on the balance (the capital gains).
Assuming this plan actually works, what are the benefits?
1. Less foreclosures. This is good for neighborhoods and homeowners and the housing market.
2. The homeowners’ credit will not be affected as negatively as if there had been a foreclosure.
3. Chances are that the homes will not be left in such a poor state, since the homeowners get a financial gain from the deal (the $1500).
4. Lenders will save money by not having so many foreclosures on their hands.
5. The housing market will likely benefit, as short sales will no longer take mysterious amounts of time, thus reducing inventory and getting more homes sold.
So, will this one be the one that works and benefits all those parties involved? There are naysayers out there but I sure hope so. It sounds interesting and going after the short sale is definitely better than letting millions of homes go into foreclosure. It is not the cure for the housing woes, but it’s a start. Let’s hope it works.
Thursday, March 4th, 2010
Short sales, the sale of property for an amount less than the value owed on the mortgage(s), are a popular option to foreclosure for many underwater borrowers. But if you are considering a short sale or facing foreclosure there are some consequences you should be aware of and questions you need to have answered before you make a decision.
1. What tax consequences are involved in a short sale or foreclosure? There are two different tax issues to consider–federal and state. On the federal level the government used to tax the difference between the amount owed and the sales price–called the capital gains. Yes, this term does not sound appropriate in a distressed sale circumstance, since the seller is not reaping any profits from the sale, but the rationale was that the seller is getting out of an obligation and thus not having to pay part of the balance owed.
In light of the housing industry fall and the economic situation Congress pardoned homeowners from being taxed on the capital gains through 2012. Some feel that this may be extended if there are still great numbers of short sales and foreclosures on the market by the time the exclusion expires.
On the state level, many states followed the path of the Feds and enacted similar exclusions that prevented state taxation on the capital gains. California is one such state, and it allowed the exclusion for short sale and foreclosure borrowers in 2007 and 2008. BUT California did not extend the exclusion for 2009. Sadly, many homeowners had no idea, nor did many short sale Realtors. It was not information that was readily available unless you thought to look for it–many just presumed that they would not be taxed. But that is not the case and now many former homeowners may be hit hard with big tax bills.
California does offer a payment plan option, but charges 4% interest. If the tax is repealed in the long run taxpayers can seek a refund, but they will still be liable for paying any such taxes due by April 15.
2. Can the lender come after my assets after a short sale or foreclosure? Whether this can be accomplished depends on your state. If you live in a non-recourse state like California a lender is not entitled to do so if the loan was for a borrower’s primary residence. But in recourse states the lender CAN go after assets, so make sure you understand your state laws. If you live in a non-recourse state and the loan was taken out on a second home, OR if it was a subsequent mortgage or equity line of credit, the lender CAN try to seek payment from other assets on homes sold through short sales or foreclosures after January 1, 2009, UNLESS you have declared bankruptcy.
3. Are there credit consequences to short sales and foreclosures? Yes. Both short sales and foreclosures have credit consequences. Foreclosures typically have a more detrimental effect on your credit score, usually a drop of 200-250 points and a 7 year stay on your record. Short sales tend to drop the score a bit less, between 100-150 points and offer the ability to qualify for a loan a few years later as opposed to 7-10 years on a foreclosure.
4. Are there any other dangers I should know about? The one other danger that could be a possibility has recently come to light. If you work in an industry in which you are required to have a security clearance and your home is foreclosed on, you may risk losing your job. This is due to the fact that your employer may see the foreclosure as poor management and irresponsibility on your part, which makes you a threat to security.
The bottom line is that you must make sure you learn all the facts before you opt for any type of distressed sale. Talk to an attorney and your accountant. Obviously in some situations a foreclosure is inevitable and there is nothing one can do, but in those circumstance where you have a choice knowledge is power.
Friday, January 1st, 2010
In the last weeks of 2009 there were quite a few conflicting stories on the state of the real estate market, and what we might expect in 2010. Several articles claimed that the bottom of the market was reached, that prices were rising and buyers were plentiful. They said this year would be the year the market began to recover.
Other articles (some published simultaneously) claimed that the bottom is not even in sight, that prices will continue to drop, and that because of several key factors (more foreclosures, the end of the homebuyer tax credit in the spring and the probability of rising interest rates this year), the market will not recover soon.
So, who do you believe? It is frustrating to try and decipher the messages in the opposing viewpoints, but one thing is clear: no matter which view you choose to believe, now may be the best time to sell your home to get the best price. Let’s look at the three biggest housing factors that will affect us in 2010 and you will see why.
1. Foreclosures. Many warn that we are on the precipice of another foreclosure iceberg. Option ARM mortgage rates will be adjusting for many homeowners this year, and many will not be able to pay the high mortgages. This could lead to a large number of defaults, as values will be much lower than the amounts owed on the properties. Loan modification programs have not been as successful as intended, and many homeowners will end up walking away from attempts to modify their loans (or the lenders will just give up and issue a foreclosure notice).
2. Homebuyer Tax Credits. The tax credits, which were recently extended and expanded to cover not only first time home buyers, will expire in April 2010. The credit has been a great help to the market and is one of the main reasons buyers have been buying once again. What will happen when they expire? Will buyers still be as willing to shop for homes? Many recent articles claim that the end of the tax credits will devastate the housing market. While I personally disagree with this theory (I think there will be more inventory and those with down payments will be able to get some fantastic deals and utilize negotiating power), if we combine loss of tax credits with a lot of new foreclosure inventory it may not be a jolt to the market. BUT if the job market improves these factors could prove positive for buyers.
3. Rising Interest Rates. Many economists have predicted that interest rates will rise in 2010, likely once the tax credits have expired. The Federal Reserve has kept interest rates low for a long time, and this has helped the market to stabilize in many areas, but programs to purchase mortgage-backed securities (which have kept the rates low) will end in March.
If the rates rise, will homes still sell? No tax credit, higher mortgage rates, and the possibility of many lender-owned properties on the market….this may not be good news, nor provide any incentives to buyers (who may just choose to sit back, watch the market and wait, creating a big fence sitter syndrome). This is the area where there are a lot of negative predictions, but we also have to keep in mind that on a historical level interest rates will STILL be low even if they crawl above the 6% mark, as some predict.
So…how does this make it a great time to sell? Because NOW the tax credits are still in place, the inventory is still historically low, and rates are low. If you are thinking of selling in the Spring of 2010, you really should consider selling at the beginning of the year while all these factors are in your favor. Chances are you will get a better price for your home before the Spring…something to think about.
Monday, November 9th, 2009
An article in the Huffington Post today announced that banks are planning to raise credit card rates and annual fees. The reason? The banks say doing so will protect consumers from sudden rate hikes. Many of these changes are scheduled to take effect February 22, 2010.
These changes will apparently apply both to risky borrowers as well as to the prime borrowers who maintain good credit histories. So, does this make sense to you? It sure doesn’t to me.
People are struggling–losing houses, losing jobs, making due with so much less. Banks are not loaning money and now they want to make us pay more to have the privilege of using our credit cards–? Demand for bank loans grew for the third straight quarter, yet banks have admitted they are hesitant to start loaning freely again because of fear of returning to the problems that arose the last time they tried that.
What can be done? It seems a vicious Catch-22 but banks and consumers need to return to a more normal sense of business. On the one hand, the economy is in dire straights because of an overuse of credit, but on the other hand we cannot pull out of the economic pot hole unless the banks DO lend money and encourage people to spend it as well.