Mortgage Rate News

Today there are a couple of points of interest pertaining to the mortgage market. The first bit of news that interests me is further losses by Fannie Mae. The other is on the somewhat-related topic of a technicality in the housing relief bill.

Fannie Mae posts huge losses

It’s not wholly unexpected. Freddie Mac announced large Quarter 2 losses, and a cut to its dividend. So it was rather unsurprising that Fannie Mae is in the same boat. Fannie is cutting its own dividend by 86 percent, and has posted massive losses as well.

The outlook for Fannie Mae (and Freddie Mac — it’s almost as though one analysis works for them both) continues to be bleak. Fannie expects 2008 to end on a rather low note, with credit-related losses peaking. Fannie is also “managing” its balance sheet in order to preserve the small amounts of capital remaining. (In a side note: Fannie and Freddie have terrible capitalization. The decades old assumption of a government guaranty has enabled the company to gain investors that would normally shun such poor capitalization.)

At any rate, Fannie appears to be trying to avoid having to run to the government for help, but the company may be merely delaying the inevitable.

Buying a house and the housing relief bill

The recently passed housing relief bill allows for a tax credit for first-time homebuyers. The idea is that you get 10% of the price or $7,500, whichever is lower. (Seriously? How many of us are buying a $750,000 home right now?) Here’s the other issue, reports Ren at Accounting Solver:

The tax credit has to be repaid 2 years after the purchase. At the tax credit of $7500, the resulting average increase in your tax bill for 15 years will be $500.

Um, wow. Maybe first-time homebuyers would be advised to avoid the tax credit after all, and just focus on the interest rate and property tax benefits that are already offered.

Tags: mortgage market news, mortgage market, home mortgage loan, housing relief bill,
Fannie Mae, Freddie Mac, buying a home

Mortgage applications are on the rise again, reports the Mortgage Banker’s Association. CNN Money reports on the gains in mortgage applications:

Refinance volume increased 4.4%, while purchase volume grew 1.8% during the week. Refinance applications accounted for 35.9% of all applications during the week, compared with 35.2% during the previous week. …

Application volume rose from its 2008 low as interest rates were mixed. The average rate for traditional, 30-year fixed-rate mortgages fell to 6.41% from 6.46% during the prior week.

This is an interesting trend, and one that may indicate some slow turning around for the housing market. Some buyers are realizing that they can get good deals right now (my next-door neighbor just sold his house for $20,000 less than he bought it for), and are pressing their advantage in this buyer’s market.

Unfortunately, even though mortgage applications are up, it may not mean that more home buying is going on. That will depend on how many of these applications are approved. It is increasingly difficult to refinance, thanks to falling home values, and mortgage lenders have been tightening their standards on all home loans.

If you are looking to buy a home, you will need to have a down payment (3% for FHA loans and at least 5% for many other mortgage lenders) and good credit, as well as a favorable debt-to-income ratio. This means that you may need to plan ahead to prepare your finances and credit situation in order to receive mortgage loan approval.

Here are the steps you should take in order to increase your chances of mortgage approval (and they will ensure that you are more financial stable as well):

• Pay down your consumer debt.
• Work to improve your credit score.
• Save up money for a down payment.
• Avoid a bigger mortgage than you can easily afford.
• Look for state and federal programs geared toward homebuyers.

Tags: mortgage lenders, FHA loans, home mortgage loan, mortgage loans,
mortgage applications, credit score, down payment

One of the big issues right now revolves around foreclosures, and efforts to stop foreclosures. Various programs, from Hope Now and Project Lifeline to the recently passed housing relief bill are designed to help stall the flood of foreclosures and get distressed homeowners out of trouble. (Whether or not they are working is a completely different discussion.)

Part of the efforts to help homeowners include some mortgage lenders offering some measure of canceled debt through partial loan forgiveness or some other means. And, unfortunately, that sort of canceled debt is considered by tax laws to be income. The good news, reports Chris Bibey at the Tax Center, is the following:

If you find yourself in this position, you should be aware of the options for excluding this “extra income” from your tax return. There are three exclusions: one for bankruptcy, one for a case of insolvency, and one for mortgage debt. The mortgage exclusion is most commonly used, and for this reason should be understood by anybody in this position.

A few months ago, Congress passed a tax relief bill aimed at helping homeowners who found themselves in a position where canceled debt may be a reality. The bill prevents these folks from finding themselves in even more trouble as they struggle to pay income tax on money that they never actually got to use as income.

Something to consider, though: The provision expires in 2009. Also, there are some restrictions as to the type of canceled debt that applies. Consumer debt (including cash home equity loans) is not included in the tax relief bill. It is a good idea to consult a knowledgeable tax attorney or accountant so that you know exactly whether or not you qualify.

Tags: home equity loans, home equity, home mortgage loan, mortgage lenders,
tax relief, mortgage forgiveness, tax laws