Mortgage Insurance Premiums Are No Longer Tax Deductible

The ability of homeowners to write off the premiums they pay for mortgage insurance expired very quietly at the end of December 2011, along with 58 other tax code benefits that Congress failed to renew. Estimates are that this loss could cost individual homeowners between $600 and $1,000 on their annual federal income tax bills starting in 2012.

Senate Bill 332

Under Senate Bill 332 landlords of residential properties may ban the smoking of tobacco products as of January 1, 2012. Landlords have the authority to put restrictions in new leases specifying the areas on their property where smoking is prohibited. If a lease was signed before January 1st and the landlord now wants to ban smoking, it would be a chnage in the terms of the lease. In a month-to-month tenancy, 30 days' written notice is required. In longer term tenancy, the parties will need to enter into a new agreement when the existing agreement expires or they must modify the existing agreement. For the modification to be enforceable, the landlord will need to provide some sort of consideration to the tenant in exchange for the loss of smoking privileges.

Mello-Roos Special Tax Assessments Will Not Be an Allowed Tax Deduction in 2012

Many California taxpayers who have been using the total amount of their property tax bill as a deduction for state income tax purposes will have to discontinue this practice with their 2012 tax bill (taxes due April 2013). Although the law hasn't changed, the Franchise Tax Board's (FTB)software has been updated. I don't think most people really understood that special assessments and user fees including things such as vector control and water district charges were never suppose to be deducted. With a new computer system the FTB will be able to differentiate between these charges. Many of the smaller fees are rather insignificant and for many total less than $20. But the special assessments called Mello-Roos taxes are also no longer deductible, and that could make a big difference in a lot of state income tax payments. For many people in Orange County, the Mello-Roos component of their property tax bill can be close to 40%. Over 20% of the county's residents pay a Mello-Roos assessment and for the 2011-2012 tax year that amounted to about $207.8 million.

A HIDDEN FEE IS SET TO RISE...

From The New York Times By VICKIE ELMER Published: March 1, 2012 INSIDE the interest rate quoted on your home mortgage lies a small hidden fee that has been charged by government-sponsored entities like Fannie Mae and Freddie Mac for more than three decades. It’s an add-on rate known as the guarantee fee. An increase in the fee has been mandated by Congress to occur this spring, and other increases are likely later this year and next. When they happen, interest rates on single-family mortgages resold to Fannie Mae or Freddie Mac are likely to inch up as well. “It’s going to be silently passed through” by lenders when it does increase, said Richard W. Grohmann, a real estate lawyer in Paramus, N.J. The G-fee — as it is known — does not show up in borrowers’ mortgage documents or good-faith estimates, and it is little known outside the industry. “It gets incorporated into the underlying rate that the borrower pays,” said Andrew Wilson, a spokesman for Fannie Mae. An interest rate is usually made up of three parts: the largest goes to the bank or the investors who buy the loan; a smaller portion is for the mortgage servicer that collects monthly payments; and then there’s the guarantee fee. Fannie and Freddie charge guarantee fees as a form of insurance against default for the loans they acquire and resell to investors. The G-fee will rise 10 basis points on April 1; the increase was included in the two-month extension of the payroll tax reduction last December. (A basis point is equal to one one-hundredth of 1 percent, or 0.01 percent.) Keith T. Gumbinger, a vice president of HSH Associates, a financial publisher in Pompton Plains, N.J., says the increase in the guarantee fee will very likely push up mortgage rates on new loans by one-eighth of a percentage point. “While it is most common to build the G-fee into the loan’s rate, it doesn’t have to be done that way,” he said in an e-mail, noting that some lenders might charge a flat fee instead. Already, though, loans with interest-rate locks from the last 45 or 60 days have the higher guarantee fee written into them, according to Tom Kelly, the president of Investors Home Mortgage, a division of Investors Bank in Short Hills, N.J. Lenders say they need the extra lead time because it may take time to close the loan, package it and send it on to Fannie or Freddie. One way to avoid the guarantee fee is to use a lender that does not sell off its loans — for instance, a community bank or a credit union. Besides offsetting risks, the fees provide a primary source of revenue for Fannie Mae and Freddie Mac. Fannie, for instance, made $5.6 billion in single-family guarantee-fee income in the first nine months of 2011, a 4.7 percent increase from the 2010 period, according to its quarterly financial statements. Fannie and Freddie have collected G-fees since the introduction of mortgage-backed securities in the early 1980s. “It was variable from the start, based on the volume level of loans” made by the lender, Mr. Kelly said. Both organizations started raising fee rates in 2008 during the housing crisis, as foreclosure costs rose. G-fees gained modestly in 2010, and also last year. New single-family loans acquired by Fannie Mae were charged a guarantee fee of 31.1 basis points, on average, in the third quarter of 2011, the most recent period for which data are available. That is six points higher than in the third quarter of 2010. Rates on multifamily loans are 15 to 20 basis points higher than on single-families. “We expect that single-family guarantee fees will increase in the coming years,” Fannie Mae said in its third-quarter report to investors, “although we do not know the timing, form or extent of these increases.” In a letter to Congress last month, Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, suggested “continued gradual increases.”

Consumer Attitudes about Personal Finances and Housing Stabilize Alongside Positive Economic News

By Pete Bakel 202-752-2034 WASHINGTON, DC – Americans' concerns about key economic and housing issues are beginning to subside, according to results from Fannie Mae's February 2012 National Housing Survey. Consumers' attitudes have stabilized across most indicators – including personal finances, housing, and employment – demonstrating their sense that downside risks have abated somewhat compared to late summer and fall of 2011. While Americans' confidence in the direction of the economy has been the most pronounced (35 percent think that the economy is on the right track, up 19 percentage points since November, and 57 percent think the economy is on the wrong track, down 18 percentage points since November), their confidence about personal financial situations, household income, and household expenses, as well as attitudes about homeownership and renting is holding at steady levels. At the same time, Americans' concern about losing their job in the next 12 months has stabilized since the late fall, with 76 percent of Americans saying they are not concerned in February 2012, compared to 70 percent in November 2011. “The pickup in the pace of hiring over the past few months has helped soothe consumer concerns, lifting their moods regarding their personal finances, the direction of the economy, and their views on the housing market,” said Doug Duncan, vice president and chief economist of Fannie Mae. “As a result, we’ve seen more potential for economic upside, creating a more balanced near-term outlook.” SURVEY HIGHLIGHTS The Economy and Household Finances •The rise in confidence in the economy’s direction continued this month, with 35 percent responding that they think the economy is on the right track, a 5 percentage point increase from January. The percentage of respondents who say the economy is on the wrong track dropped to 57 percent, a decline of 6 percentage points. •Only 12 percent think that their personal financial situation will worsen in the next 12 months, a 3 percentage point drop from January and the lowest value in over a year. •Sixteen percent of respondents say their income is significantly lower than it was 12 months ago (down 1 percentage point since January), while 63 percent say it has stayed the same (up 1 percentage point since January). •Thirty-three percent say their expenses have increased significantly over the past 12 months, a 3 percentage point decrease from last month and the lowest level in the past 12 months. Homeownership and Renting •On average, Americans expect home prices to increase by 0.8 percent over the next 12 months (down slightly since last month). •Twenty-eight percent of respondents expect home prices to increase over the next 12 months (consistent with last month), while 15 percent say they expect home prices to decline (down 1 percentage point since last month). Fifty-three percent say prices will stay the same. •Ten percent of Americans say that mortgage rates will go down in the next 12 months, a 2 percentage point increase from last month. •The percentage of respondents who say it is a good time to sell rose by 3 percentage points to 13 percent, the highest level in over a year, while the percentage of respondents who say it is a good time to buy dropped 1 percentage point to 70 percent this month. •On average, respondents expect home rental prices to increase by 3.5 percent over the next 12 months, a slight increase since January. •Forty-five percent of respondents think that home rental prices will go up, a 2 percentage point increase from last month, while 3 percent expect them to go down, a 2 percentage point decrease from last month and the lowest value in over a year. •Sixty-five percent of respondents say they would buy their next home if they were going to move, up 1 percentage point since last month, while 29 percent say they would rent, down 1 percentage point versus last month. The most detailed consumer attitudinal survey of its kind, the Fannie Mae National Housing Survey polled 1,003 Americans via live telephone interview to assess their attitudes toward owning and renting a home, mortgage rates, homeownership distress, the economy, household finances, and overall consumer confidence. Homeowners and renters are asked more than 100 questions used to track attitudinal shifts (findings are compared to the same survey conducted monthly beginning June 2010). Fannie Mae conducts this survey and shares monthly and quarterly results so that we may help industry partners and market participants target our collective efforts to stabilize the housing market in the near-term, and provide support in the future. For detailed findings from the February 2012 survey, as well as technical notes on survey methodology and the questions asked of respondents associated with each monthly indicator, please visit the Fannie Mae Monthly National Housing Survey site. Also available on the site are quarterly survey results, which provide a detailed assessment of combined data results from three monthly studies. The February 2012 Fannie Mae National Housing Survey was conducted between February 1, 2012 and February 27, 2012. Interviews were conducted by Penn Schoen Berland, in coordination with Fannie Mae. Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America. Follow us on Twitter: http://twitter.com/FannieMae.

Disclosures Updated...

Since the explosion of a gas transmission pipeline in San Bruno in 2010, Real Estate Agents throughout California are voicing opinions regarding the disclosure of gas lines in real estate transactions based on the constant 'marketing' efforts of some NHD providers. This type of advertising promotes the perception that disclosing gas pipelines is essential in protecting one's liability. Not so fast! Before jumping on the bandwagon by supporting NHD companies that "disclose" gas transmission pipeline locations in their NHD reports, we need to better understand the likely risks of providing this information in a NHD report. Remember, the NHD Industry is not regulated; essentially allowing NHD providers the freedom to shape their reports with information based solely on their judgment...not the requirements. Often these arbitrary, unauthorized additions to your NHD report only serve to increase your liability...instead of protecting it! Currently, there are no laws in California that require sellers, agents, or NHD companies to provide gas transmission pipeline disclosure to a buyer. In fact, according to disclaimers, the National Pipeline Mapping System (NPMS) maps that are being used for these "disclosures" are inaccurate and incomplete. Pipeline location depicted by the NPMS Public Map Viewer is intended to be used for general reference only. The NPMS limits the viewing scale due to Federal Homeland Security concerns, making precise disclosure of the pipelines virtually impossible. NPMS data consists of gas transmission pipelines and hazardous liquid trunk lines only. It does not contain gathering or distribution pipelines, such as lines which deliver gas to a customer's home. Disclosure of only transmission gas pipelines can give a prospective buyer the impression that only those lines present a potential danger. Since NPMS data location is not accurate; printing a map of the NPMS and tracing the lines onto another map in a disclosure report introduces additional inaccuracies. Not all pipelines in an area are visible in the Public Map Viewer. For example, jet fuel pipelines would not be visible, and therefore not disclosed. So, selecting only the NPMS maps can place additional liability on the agent to discover other maps that show other pipelines.

A Brief Explanation of the "Rumored" 3.8% Sales Tax on Real Estate

Every so often I get emails and phone calls from people that have heard about this new sales tax and they are totally freaked out, blaming Obama for his Health Care bill and more taxes. Take a deep breath,calm down, and read the following explantion to put yourself at ease... Section 1402 of HR 4872, the Health Care and Education Affordability Reconciliation Act of 2010 which President Obama signed into law on March 23, 2010, does have some interesting provisions. First, let's be perfectly clear: THERE IS NOT ABOUT TO BE A 3.8% SALES TAX ON ALL REAL ESTATE SALES. It is true that, beginning January 1, 2013, there will be yet another new tax imposed. But it won't be imposed on everyone, and only in certain situations will it apply to income derived from a sale of real estate. The tax only applies to so-called "high income" tax payers: Singles whose adjusted gross income (AGI) is over $200,000 and married couples whose adjusted gross income is over $250,000. The new tax is 3.8%, and it is a surcharge. It is a tax added to the regular taxes paid on income. To understand how the tax works, we need to remember that adjusted gross income (AGI) is a combination of what Washington calls "earned income" (essentially, your day job) and "unearned income" (income from capital gains, net rental income, dividends, and interest). Sometimes "unearned income" is called "investment income". Here is how the tax applies: If you are a "high income" tax payer, then the 3.8% tax will be imposed on the lesser of the following: Either (a) the amount by which your adjusted gross income exceeds the limit($200,000 for a single or $250,000 for a married couple) Or (b) the total of your "unearned income" Example 1: A couple earns $200,000 in their regular jobs; plus they have net rental income of $100,000. Earned income = $200,000 Investment income = $100,000 AGI (adjusted gross income)= $300,000 Excess of AGI over limit= $ 50,000 limit for couples is $250,000) Lesser amount of either (a) or (b) [see paragraph above] $ 50,000 (the total of "unearned income" was $100,000) Tax surcharge due= $ 1,900 ($50,000 x .038) Example 2: A couple earns $400,000 in their regular jobs; plus they have net rental income of $50,000 and also a $50,000 capital gain from the sale of an investment property. Earned income = $400,000 Investment income= $100,000 AGI = $500,000 Excess of AGI over limit= $250,000 Lesser of either the excess over AGI or the total "unearned income" = $100,000 Tax surcharge due= $ 3,800 ($100,000 x .038) So, IF you are a high income earner, and IF the tax surcharge is applied to your "unearned income", and IF that income included capital gains from the sale of real estate, then, yes, the tax will apply to at least some of the proceeds of the real estate sale. Note, if a personal residence is sold, then the capital gains exclusions that now exist will still apply. The only gain that might be taxed would be that which exceeded the exclusion limits ($250,000 for singles, and $500,000 for married couples). The tax surcharge is sometimes called a Medicare Tax. This is because that is where the money will go. The National Association of Realtors (NAR) has put out a couple of brochures on this topic and should you want more information, please contact me and I will forward them to you. The Frequently Asked Questions (FAQ) brochure is probably an easier read. The longer brochure contains a lot of examples. So now you have the skinny on this subject!

OOPS...There Are More FHA Increases on the Horizon...

On June 1st, 2012, there will be an additional increase of the monthly mortgage insurance premium for the high balance areas. Currently, the upfront mortgage insurance, the amount added to the loan amount, is 1.00%. As of April 1st the new upfront mortgage insurance will increase to 1.75%. As an example, on a loan amount of $400,000, the current 1.00% equates to $4,000. After the increase goes into effect the new amount based upon 1.75% equates to $7,000. This increase will essentially add an additional $13 to the monthly payment. The current monthly mortgage insurance premium is 1.15%. On April 1st it will be increased to 1.25%. On a $400,000 loan amount the monthly premium will increase from $383 to $416, or $33 a month more. Add this to the $13 from the upfront increase it totals $46 extra the borrower will be paying for FHA financing on a $400,000 loan amount. As they say on TV, “Wait, there’s more!” Effective on June 1st, FHA has announced that loan amounts greater than $625,500 up to and including the maximum loan amount of $729,750, the monthly mortgage insurance premium will increase another .25% to 1.50%. The government feels these buyers can afford more. As an example using a $700,000 loan, the current monthly premium is $670. Effective April 1st, it will increase to $729, an increase of $59. When the June 1st premium increase takes effect, the monthly premium for the $700,000 loan will increase to $875 which is $205 more from where it stands today. If you are on the fence about purchasing a home, I highly suggest you look at how the cost of financing is about to go up and to take advantage of the terms currently available. Today, there are more loan products on the market so FHA is not the only way...give me a call and we can talk about other options and I can refer you to some lenders that can HELP!

FHA Fees To Increase April 1st

FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent. Current Rate New Rate Up-front charge 1.00% 1.75% Monthly charge 1.15% 1.25% Examples: CURRENT UP-FRONT RATE: $200,000 price at 96.5% = $194,930 loan amount NEW UP-FRONT RATE: $200,000 price at 96.5% = 196,377.50 loan amount CURRENT MONTHLY RATE: 1.15% on $194,930 = $185/monthly MI NEW MONTHLY RATE: 1.25% on $196,377.50 = $201/monthly MI These increases can mean the difference between qualifying or NOT.