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  • Tax Benefits of Homeownership




    The tax deductions you’re eligible to take for mortgage interest and property taxes greatly increase the financial benefits of homeownership. Here’s how it works.

    Assume:

     

    $9,877 = Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)
    $2,700 = Property taxes (at 1.5 percent on $180,000 assessed value)
    ______

    $12,577 = Total deduction

     

     

    Then, multiply your total deduction by your tax rate.

    For example, at a 28 percent tax rate: 12,577 x 0.28 = $3,521.56

     

    $3,521.56 = Amount you have lowered your federal income tax (at 28 percent tax rate)

    Note: Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.

    If you are looking to buy a home in the US Virgin Islands, be sure to contact the team at Sea Glass Properties to help you through every step of the way.  www.seaglassproperties.com, or jennie@seaglassproperties.com.

     

     

  • Wachovia’s New Pay Option ARM Plan – ‘The Spend’


    Posted on October 8th, 2008 in Daily Mortgage/Housing News – The Real Story, Mr Mortgage’s Personal Opinions/Research

    There is a new pilot program Wachovia recently put into place intended to rid themselves of that nasty $122 billion Pay Option ARM portfolio while keeping borrowers in their home. While this program definitely has its flaws because it does not come close to addressing the real problem (HOUSE PRICES ARE STILL SIGNIFICANTLY OVERVALUED) it is the closest I have seen yet.

    Wachovia’s New Program – ‘The Spend’

    First, Wachovia selected a certain number of Pay Option borrowers based upon internal modeling. Each borrower was assigned to a participating mortgage banker/broker and given what they call ‘The Spend’.  The Spend is how much money that will be used to modify and refinance the borrower into a new 30-year fixed loan, primarily FHA.

    A portion of The Spend is used to buy down a 30-year fixed rate to a level at which the borrower can afford according to present day underwriting guidelines. A portion is also used to reduce the principal balance. From what I am hearing from early cases, the interest rate level on some first mortgages has been as low as 2%.  That’s pretty sad when it takes 2% to get borrowers to qualify for a fixed coming out of an Option ARM and just goes to show how leveraged up the borrowers still are. However, The Spend is not forgiveness of debt. It is put into the form of a silent second for a specified term and at an interest rate as low as zero that has to be repaid at some time in the future.

    The benefits to Wachovia are obvious. They get rid of these toxic assets sitting on their balance sheet; they get rid of predatory lending liability through the refinance, as the borrower must sign away all rights to future claims; they outsource the loan origination staff expense to other firms; and they get to bring back a portion of the loan loss reserves set aside on each loan refinanced IF The Spend is less than the amount reserved.

    If banks are going to start trying to get ahead of the game with proactive loan modifications/refinances, Pay Options are a great place to start. This is because they are truly toxic for the borrower and bank going forward.  Currently, Pay Option ARMs are being valued by the market as poorly as straight Subprime despite default rates being nowhere close…yet. This is because over time, most Pay Option borrowers will default due to the way the loan is structured and massive payment recast that occurs. Because Pay Option ARMs allow ultra-low teaser rates for up to 10-years at Wachovia , their Pay Option implosion could have been spread out over several years.  But, the market was smart with respect to this loan type realizing that despite the ‘high credit scores’ and ‘lower effective original loan to value ratios’ that they like to brag about, these are essentially all Subprime loans.

    But unlike other program types awaiting implosion such as Jumbo Prime ARMs that are still rated and valued as ‘Prime’, Pay Options have been written down to some degree by banks already. This makes throwing money at them more palatable by the bank because if it cost less to make them ‘right’ than the value at which they are currently written down, it can lead to a write-up. Since Pay Option borrowers by and large are of decent quality and if they catch these before they go into default, refinancing them into a new fully documented loan should not be a problem. This may not be the case when dealing with Subprime borrowers, borrowers who are currently delinquent or low documentation borrowers.

    There are significant problems with The Spend, however. Most obviously, they are artificially supporting house prices by giving borrowers extremely low interest rates such as a 2% 30-year fixed and a zero interest rate second. In addition, what if values are not at the bottom? The ‘negative equity effect’ is real and if values continue to tumble what’s to say that the borrower will not just walk at a later date. A good number of these may even turn into rentals because with a 2% fixed and zero% second, the property may cash flow.

    The thought process is that if the borrower can afford their payments, especially on a 30-year fixed, it does not matter what the value of the home does – they will stay and make their payments. Well, this has obviously been proven wrong, as we are seeing Prime and Jumbo Prime default in greater numbers as values fall. On the other hand with house prices down so far in the areas in which this program is going into effect, there is a much better chance that this fundamental will play out going forward.

    But then there is still the silent second hanging over their head and the fact that home owner is underwater by that large of an amount. This makes borrower repayment patterns totally unpredictable across all paper grades. This also makes typically life circumstances such as job loss or illness almost a guaranteed default.  If you have equity in your property, you have wiggle room.

    One thing is for sure, The Spend is worlds better that the recent BofA/Countrywide settlement scam, in which the AG sold hundreds of thousands of borrowers down the river at a ridiculously low price. Remember gang, once you do something with respect to a mortgage modification or refinance, you lose your rights to come after the lender for predatory lending violations and forced rescission/modification.

    The ‘relief’ the borrowers will get from BofA will be of the kind I mentioned in a recent post, ‘Countrywide/BofA – A Direct Threat to Borrowers’, where Countrywide gave a borrower a $900k five year 2% interest only loan on a $500k home essentially pushing the problem out five years and ensuring a foreclosure at that time.

    That is why it is so important to do it right with permanent principal balance reductions if you are going to do it at all. I talk about this in my new video, ‘Mr Mortgage – Time To Get Your Bailout‘.

    At my independent research firm, Field Check Group Real Estate & Finance, I can watch in real-time each and every loan default from all lenders so I will keep an eye out on how this program is working and how Wachovia’s portfolio is performing and periodically let you know.  If you get a call in the meantime by a Wachovia partner offering you something that is too good to be true, think very carefully because it just may be. -Best Mr Mortgage

  • Welcome to the Oregon Real Estate Round Table


    The Oregon Real Estate Round table welcomes you and encourages you to jump in with both feet.   This blog is for the discussion of real estate, financing real estate, development of real estate and the selling of real estate.   

    This blog is not meant  to be a marketing source, but understand those of you looking for a professional to work with will be able to gain an increadable insight on the dept of the knowledge of the people that post here.   A factual expression of ideas and experiences that we all can benefit from.

  • Bloomberg.com: Crisis Hits Main Street as Employers Cut More Jobs


    By Shobhana Chandra and Rich Miller

    Oct. 3 (Bloomberg) — U.S. payrolls plunged in September, signaling the economy may be heading for its worst recession in at least a quarter century as the 13-month-old credit crisis on Wall Street finally hits home on Main Street.

    Employers cut the most jobs in five years in September as cash-squeezed companies pulled back in an effort to bolster pinched profits. In its last employment report before Americans choose their next president, the Labor Department said the unemployment rate was 6.1 percent, a climb of 1.4 percentage points from a year before.

    “If credit markets remain dysfunctional, the current recession could turn out to be as severe as any in the postwar period,” said former Federal Reserve governor Lyle Gramley, now senior economic adviser at the Stanford Group Co. in Washington.

    The spreading crisis is also having reverberations on the campaign trail, as polls show anxious voters increasingly see Democrat Barack Obama as the candidate best placed to see the U.S. through its economic travails. The unemployment rate has only risen twice in the year leading up to elections since World War II, and in each case the incumbent party lost.

    `This country can’t afford Senator McCain’s plan to give America four more years of the same policies that have devastated our middle class and our economy for the last eight,” Obama, 47, said in a statement.

    McCain’s Reaction

    Arizona Senator John McCain, 72, took the opportunity to paint his opponent as a tax-and-spend liberal, whose prescriptions would exacerbate the crisis.

    “Unlike Senator Obama, I do not believe we will create one single American job by increasing taxes, going on a massive spending binge, and closing off markets,” McCain said in a statement. “Our nation cannot afford Senator Obama’s higher taxes.”

    Job losses accelerated as the credit crisis deepened last month, forcing the failure or government takeovers of Lehman Brothers Holdings Inc., Fannie Mae, Freddie Mac and American International Group Inc.

    The figures came hours before a scheduled vote in the House of Representatives on a $700 billion rescue plan for the U.S. financial industry pushed by Treasury Secretary Henry Paulson. The Senate approved the legislation two days ago after the House rejected an initial version of the bill Sept. 29.

    Market Reaction

    Stocks rose and Treasury securities fell on optimism the rescue plan would pass the House. The Standard & Poor’s 500 index rose 2.9 percent to 1,146.1 at 11:08 a.m. in New York. The yield on the benchmark 10-year note rose to 3.72 percent from 3.63 percent late yesterday.

    Today’s report showed that hours worked — considered a good proxy for the state of the overall economy — matched the lowest level since records began in 1964. That indicates the likely current recession may be at least as severe as the 1981-82 slump, during which gross domestic product shrank by 2.7 percent.

    Payrolls fell by 159,000 in September, the Labor Department said in Washington. Aside from a 9,000 gain in government payrolls, all major categories showed declines except education and healthcare.

    “The really bad news here is that job losses are now widespread,” said Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. “The problems in housing and manufacturing are now spreading everywhere. We are in a recession, there is no debate about that.”

    Health Services

    Even the vibrant health-services industry is showing signs of succumbing to the economy’s troubles. Health care employment rose 17,000, about half the average monthly gain for the prior 12 months.

    Walgreen Co., the largest U.S. drugstore chain, reported Sept. 29 that its profits rose less than analysts estimated after it posted its smallest sales increase in a decade.

    A private report today showed that services-industry growth remained stagnant in September. The Institute of Supply Management’s non-manufacturing index slipped to 50.2 from 50.6 the month before. Fifty is the dividing line between growth and expansion.

    Total payrolls were forecast to drop 105,000 after declining by a previously estimated 84,000 in August, according to the median of 76 economists surveyed by Bloomberg News. The jobless rate was projected to remain at 6.1 percent.

    Rate Forecasts

    Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said the unemployment rate may eventually rise to more than 7 percent as the credit crunch takes its toll on the economy. If that happens, that would make the overall rise in unemployment the biggest since the early 1980’s.

    Workers’ average hourly wages rose 3 cents, or 0.2 percent, to $18.17 from the prior month. Hourly earnings were 3.4 percent higher than September 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from August and a 3.6 percent gain for the 12-month period.

    After today, the total decline in payrolls so far this year has reached 760,000. The economy created 1.1 million jobs in 2007.

    Americans will go to the polls on Nov. 4 and the October jobs report is due Nov. 7.

    `Angry’ Voters

    “Voters are extremely angry, and they want someone to blame,” said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.

    Obama has opened up a lead over Republican rival John McCain in the aftermath of their first debate and amid growing concerns about the economy, according to a Pew Research Center survey taken Sept. 27 to Sept. 29. A mid-September poll from Washington- based Pew had shown the candidates were in a statistical tie.

    Earlier in September, a Bloomberg/Los Angeles Times poll showed more respondents said Obama would do a better job handling the financial crisis than McCain, and almost half of the voters believed he had better ideas to strengthen the economy than his rival.

    Factory payrolls fell 51,000 after decreasing 56,000 in August. Economists had forecast a drop of 57,000.

    Today’s report also reflected the housing slump. Payrolls at builders declined 35,000 after falling 13,000. Financial firms decreased payrolls by 17,000, the most since November last year.

    Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 82,000 workers after eliminating 16,000 in the previous month. Retail payrolls slid by 40,100 after a 25,400 drop.

    Hewlett-Packard

    In the past month, Hewlett-Packard Co., the world’s largest personal-computer maker, announced it will cut 24,600 jobs, and auto-parts maker Federal-Mogul Corp. said it would eliminate 4,000 positions globally.

    Marriott International Inc., the world’s largest hotel chain, yesterday reported third-quarter profit fell 28 percent as U.S. companies and consumers cut back on travel.

    Without action from Congress, “the resulting credit squeeze could threaten businesses,” Chief Financial Officer Arne Sorenson said on a conference call. There are “tens of thousands of jobs at stake in our company alone, and we are typical.”

    Mounting job cuts will further limit consumer spending, which accounts for more than two-thirds of the economy. A Bloomberg survey in September predicted spending will be unchanged this quarter, the weakest performance since 1991.

    The ISM on Oct. 1 said manufacturing shrank in September at the fastest pace since the last recession in 2001. The odds the central bank will lower its benchmark rate by a half percentage point, to 1.5 percent, were almost 100 percent today, up from 32 percent a week ago.

    To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net