The MID is being challenged
Jan. 10, 2011
HARRY’S WEEKLY UPDATE
A CURRENT LOOK AT THE COLORADO SPRINGS RESIDENTAIL real estate MARKET
HOW ARE WE DOING ?
How is real estate doing now, compared with last month? How did we do in 2010, compared with 2009? How is the Pikes Peak area doing compared with the rest of the country? Well, the two links, below will allow you to examine the sales numbers for 2010 and will demonstrate that our median and average prices are up!!! That’s great news.
But the most encouraging statistics involve appreciation. In their survey of the largest U.S. metropolitan, NAR reports a national decline of .2% in home prices. Our local market, on the other hand, shows an increase of 4.4% in home prices. That’s a great indication that the Colorado Springs market has bottomed out and is on the way back up.
Click here for the latest monthly Sales and Listing statistics for the Pikes Peak area and Click here for the Annual statistics.
Things are definitely looking up.
THE MORTGAGE INTEREST DEDUCTION IS BEING CHALLENGED !!!
There has been much discussion in Washington lately about eliminating the deduction for mortgage interest (MID). The National Commission on Fiscal Responsibility and Reform has suggested that this deduction should be eliminated. We think this move would be disastrous to our economy.
Changing the mortgage interest deduction (MID) will have a long-range ripple effect on everyone, including the nation's 75 million homeowners,with the most immediate impact on the 47 million homeowners who currently take the deduction.
For financially-strapped taxpayers, the ability to deduct the interest paid on a mortgage can mean significant savings at tax time. In 2008, the mortgage interest deduction represented roughly $11,593 for the average taxpayer who had a mortgage. Assuming a marginal tax rate of 25 percent (tax bracket), that mortgage interest deduction translates into an actual savings of $2,898 for the average taxpayer, according to analysis by the National Association of REALTORS® (NAR).
As a specific example, a family who bought a home last year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 5 percent, could save nearly $3,500 in federal taxes when they file next year. That’s real money they can use to pay down other debts, save for their children’s college education, or put away for retirement.
Diminishing this vital public investment in our housing economy will put downward pressure on prices at a time when the housing market cannot take that kind of hit. Any reduction in the mortgage interest deduction will put us in a broader economic recession, according to NAR Chief Economist Lawrence Yun. He has projected that home values could fall 15 percent nationwide as buyers discount the value of the MID in their purchase offers
The tax deductibility of interest paid on mortgages is a powerful incentive for homeownership and has been one of the simplest provisions in the federal tax code for more than 80 years. In a new survey of nearly 3,000 homeowners and renters commissioned by NAR and conducted online in October 2010, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.
Let’s not forget that Homeownership also provides real financial benefit to families as a vehicle for personal savings, wealth creation and of financial advancement. Millions of middle-class homeowners and those that aspire to be homeowners rely on the MID to make homeownership affordable.
And homeownership also benefits communities. People who own their homes vote more, volunteer more and participate more in community initiatives, providing resources and stability to neighborhoods across America.
And, just to clear the record, let’s look at a common misperception that the mortgage interest deduction benefits primarily the wealthy, as argued in the Washington Post’s January 1 editorial, “Trim the Excessive Tax Subsidy for real estate.” In fact, the MID actually benefits primarily middle- and lower income families. Sixty five percent of families who claim the MID earn less than $100,000 per year, and 91 percent who claim the benefit earn less than $200,000 per year. As a percentage of income, the biggest MID beneficiaries are younger middle-class families.
Homeownership has been a boon to our nation - one that policymakers have long supported. Historically, the real estate industry has generated between 15 and 18 percent of the gross domestic product Eliminating or diminishing the mortgage interest deduction, as recently proposed by the National Commission on Fiscal Responsibility and Reform, is a policy mistake that would stop the housing recovery in its tracks, undermine a cornerstone of our economy and chill consumer behavior for years to come.
As we face up to our mounting deficit, we have to be careful not to stifle markets that generate significant economic activity and have a positive impact on the revenue side of the equation. Let’s not mess with Homeownership - that crucial element in our economic recovery.
Please, Washington, let’s not tamper with the deduction for mortgage interest.
THE REALITIES OF FORECLOSURE
Unfortunately, foreclosures are still growing but most homeowners don’t understand the realities of exactly what the decision to walk away from their mortgages will mean to their finances and to their futures.
So, before you decide to go through foreclosure, you should consider a couple of other options:
- Short sale: Both you and your lender must agree to a short sale. ..i.e. selling your home at a moderate loss, avoiding foreclosure and its associated fees and, hopefully, salvaging your credit report
- Talking with your lender: Most banks don’t want you to foreclose, as it would mean they take a loss. So, they may be able to offer you programs, refinancing, or counseling that that might help you avoid losing your home.
- Selling if you are not underwater: If you don’t owe more than you can sell for, then now is the time to call a Realtor. Downsizing or even renting are better options than ruining your credit for the next seven years.
If none of these options work for you, then be aware of some of the myths that surround the foreclosure process. To shed light on what a foreclosure will mean to a homeowner, Freddie Mac offers "Top Foreclosure Myths" and the truth behind those false beliefs. For example:
• Myth: You should stop paying your mortgage so you can leverage assistance with your mortgage payments.
The approach, called a "strategic default," can become a tactical trap.
It isn't necessary to default on your mortgage payments in order to qualify for help.
If you are struggling to stay current on your mortgage, you may be eligible for a loan modification or other assistance program.
You signed a contract that binds you to making regular mortgage payments. If you don't make your payments, you will be exposed to foreclosure, subsequent black marks on your credit report and years of financial recovery.
If you can financially afford to make your mortgage payments, even if you've been declined a mortgage modification , short sale or other work out, do so to maintain your credit standing.
If you need help, contact us. We will be happy to discuss your situation and your options.
• Myth: After a foreclosure, you'll never get another mortgage.
Well, sure. You blew it. Perhaps you borrowed more than you could afford or your ability to pay for what you thought you could afford went away. You may not qualify for a home for as long as seven years, but that's not "never."
Work to create a spending and savings plan that will rebuild your credit. Get approved counseling that will reveal your effort to recover.
• Myth: Workout options are over once you get a foreclosure notice.
Lenders would prefer that you keep your mortgage and continue to make payments because they lose money when they foreclose on you. Even if foreclosure proceedings have begun, it's not too late to be considered for a workout or other alternative.
• Myth: You need to leave your home as soon as you're notified that your property is in foreclosure.
A notice of foreclosure is the first step in the foreclosure process. There are procedural and legal guidelines and applicable state and federal laws that servicers and lenders must follow in every foreclosure. Foreclosures take months to complete.
• Myth: If you're late on your monthly payments, you'll lose your house.
You will if you stick your head in the sand. If you have a financial hardship and fall behind, it's possible to keep your house and get back on track if you tell someone who is able to help. Contact your lender to discuss your options.
• Myth: All the offers for help are probably all scams.
Scam artists do often target homeowners who are struggling to meet their mortgage commitment or who are anxious to sell their home.
Deal with your lender first, rather than an outside party. If you do deal with an outside firm avoid those that ask for a fee in advance to work with your lender to modify, refinance, or reinstate your mortgage. Ignore guarantees from outside firms that claim they can stop a foreclosure or modify your loan.
Legitimate offers will have specific information identifying your current mortgage, including the loan number of your mortgage. Shy from offers that come from a company other than your current lender or an authorized agent of your lender.
• Myth: Give up if your lender is not responding to your inquiries.
Never give up. Lenders are deluged. It may take longer than you'd like to reach your lender, which is why you should contact your lender at the first sign of trouble. The process of obtaining a loan modification or other foreclosure alternative may require diligence in the form of multiple calls and multiple submissions of documents between you and your lender. The process isn't perfect, the procedures continue to change.
If you’re facing foreclosure, remember, it’s not the end of the world; it’s just a new page in the story of your life. Don’t forget, Abraham Lincoln was defeated in his first five attempts to be elected to public office.
The moral of the story: Hang in there …and don’t go to the theater.
WANT TO MAKE MONEY LIKE WARREN BUFFETT ? BUY A SECOND HOME
In the Winter Edition of Bottom Line, the author discusses how Warren Buffett takes advantage of the opportunities that a “down market” offers. One of the tips Mr. Buffett lists is to take advantage of the current slowdown in the real estate market by buying a second home.
As Mr. Buffett points out, “Over the long term, the American economy is strong and resilient, which causes stocks (and real estate values) to go up”.
Sounds like a good idea. Call us.
JOKE OF THE WEEK
SOME THOUGHTS ABOUT OUR RECENT FOOTBALL SEASON
Mike Singletary is reported to be moving to Denver. He says he wants to get as far away from football as he can.
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On the latest Wheaties box, General Mills is running a contest where you can win tickets to the Super Bowl next year. The fine print states the odds of going to the Super Bowl are about 460,000 to 1. Funny, that’s about the same odds as for the Broncos going.
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Q. What do you call 50 people sitting around a TV watching the Super Bowl?
A, The Denver Broncos
Q. Where do the Broncos go in case of a tornado?
A. Mile-High Stadium. They never get a touchdown there.
Q. How many Broncos does it take to change a flat?
A. Only one, unless it's a blowout -- then the whole team shows up.
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Three guys from Colorado died and went to heaven. At the pearly gates, they were met by St. Peter, who explained that although it was late and God had retired for the evening, he had asked Albert Einstein to show them around so they wouldn't get bored before they met God in the morning.
After Einstein had introduced himself to Slim, he asked, "By the way, Slim, what was your IQ when you were alive?"
"159", said Slim.
"Great!", said Einstein. We'll discuss my general theory of relativity and maybe a little unified field theory as I show you around."
"What an exciting opportunity!", said Slim.
Einstein then introduced himself to Billy-Bob, and when he was done he said, "Tell me, Billy-Bob, what was your IQ when you were alive?"
"141", said Billy-Bob.
"Good," said Einstein. "If you'd like, we can discuss a little mathematics and philosophy as I point out the heavenly sights."
"Nothing I'd like better!" was Billy-Bob's reply.
After Einstein had introduced himself to Bubba, he asked, "What was your IQ when you were alive, Bubba?"
"Duh. Huh?" said Bubba.
Punching him on the arm, Einstein said, "Hey, Bubba - How 'bout them Broncos?
