Dennis' Mortgage Blog

Question of the week:  Taxes?

Answer:  Pay them.

That was an easy Q&A for the week.

Property tax bills have gone out for California homeowners for the 2009-2010 tax year.  The first half taxes, covering July 1, 2009 to December 31, 2009 are due by December 10, 2009; second half taxes covering January 1, 2010 to June 30, 2010.  This is an interesting year for tax assessors for a couple of reasons. 

First is the volume of transactions that have occurred in the past twelve months.  Beyond the normal real estate transactions of individual(s) to individual(s) is the volume of borrower to bank through foreclosure or deed in lieu of foreclosure, bank to individual(s) through sale or auction.  What burdens the assessor office is the short term of the holding by some owners.  The same property can change hands four times in a few months from foreclosed borrower to bank to investor at trustee sale to new homeowner.  Each owner is responsible for a different assessed value and tax bill.  Multiply this by a few thousand, throw in furlough days and reduced staffs due to budget deficits and one understands how some tax bills may take a while to correct.

Second is the refund aspect of many of the transfers.  Many new homeowners in the last few years have an assessed value below the previous owner.  As a result refunds are due…to who? How much?  When?  Ah, when and how much are the questions most homeowners due refunds are asking as they open their tax bills.  When refunds are sent to customers will vary from county to county, if you have questions call the information number on the top of your tax bill.

For those with impound accounts you should see on your monthly mortgage statement the amount being collected for your property tax bill.  If you are a new homeowner you might want to call your mortgage servicer to be sure they have received your tax bill and while on the line ask when they usually pay the amount due.

To check your tax bill, supplemental amount owed or due, or if your lender’s check has been posted go to the tax assessor’s website for your county where most of them have links to this type of information.

Taxes?  Pay them.

Have a question for me?  Ask me!   

Update on First Time Homebuyer Tax Credit:  The Senate passed their version of an extension of the first time homebuyer tax credit.  The Senate version must be reconciled with whatever comes out of the House of Representatives, probably next week, before we have what the extension will look like.  The Senate version will extend the credit for first time buyers, up to $8000, into 2010, will increase the eligibility limits, will extend a credit of up to $6500 for others buying primary residences; offers must be accepted by April 30, 2010 and close by June 30, 2010.

In the meantime the current tax credit expires on November 30^th.  With Veteran’s Day and Thanksgiving holidays that leaves about 18 business days for transactions to close for the current version.  If you have purchased in 2008 or 2009 and are eligible here are links for you:

Click this link IRS Form 5405 for Frequently Asked Questions click here IRS FAQ

Thanks to Marilyn Kalfus for re-posting on her blog my comments last week about a national lending license.  She ran a poll in conjunction with my comments and 80 out of 100 respondents, as I write this, favor a strict national lending license.  Are you listening (reading) Barney Frank, Christopher Dodd and the rest of Congress?

While the tax credit has been great for those receiving it, including many of my clients and clients of Stratis Financial, it has been my finding that most of our eligible clients were not buying a home this year because of the tax credit, but rather because they could afford to purchase a home they liked at a price and payment they could afford.  As is coming to light the program has significant amounts of fraud, including IRS workers who have made false claims for the credit.  We will not know the true health of the housing markets and mortgage markets until the Fed stops purchasing mortgage backed securities and the Federal government stops giving money, beyond the standard tax deductions, to those purchasing homes.  Politicians, members of the media and others spent two years pointing out the pricing bubble in housing created by cheap and easy financing that led to the housing market and credit crisis; is the tax credit not doing a similar thing—creating a false price/market for homes in certain price ranges?

For those who have received the credit good timing and I hope you spend the credit wisely.  Moving forward however I feel it would be in everyone’s best interest to stop the program.  This is not a popular opinion in the mortgage or real estate industries, but then again I was against option ARMs and no-down subprime financing as well.  For true recovery to enter our industries we need the market forces to separate from government influence and intrusion and let buyers and sellers find prices that satisfy both.

Busy, busy, busy week in economic news.  Mortgage backed securities (MBS) markets broke below a narrow band of resistance and support last week and continued dropping on Monday with no support.  An early rally on Tuesday offered an opportunity to pare some losses in rates.   The rally continued to pick up steam breaking back into the trading range of early last week on Wednesday.  Yesterday and today the MBS market dropped (yesterday) and has climbed (today) and is bouncing around in the the range between support at the 10 and 50 day moving averages and resistance at the 25 day moving average.  Confusing? You bet, the market this week has not patterned at all as I thought it would given the large amounts of significant economic news.  Here they are, not as released but as they impact the economy and rates.

Another half million people filed for unemployment in a week. While the number was less than expectations and can be good news in that regard, try explaining to one of the 525,000 Americans that their job loss was part of good economic news.  Total job loss for the year through September is over 4 million. 

Not surprising then is that personal income for September was flat, zero growth after an increase of 0.1% in August.  Since unemployment continues to increase and personal income was the same in September as it was in August it means that the slight rise, 0.4%, in the Employment Cost Index for the quarter was mostly concentrated in July and August through higher overtime and benefit costs.  With personal income flat in September from August those who were getting the overtime in August saw it continue in September.  How many months will employers continue to pay overtime before hiring a new employee or two? 

Following the path of our national paychecks (or lack thereof), least surprising of the economic news was the big drop in personal spending.  In August personal spending increased 1.4% from July—those with jobs spending the increased overtime.  In September personal spending declined by 0.5%, a drop of almost 2%.  While 2% may not seem that big, consider the U.S. Gross Domestic Product (GDP) is about $14 trillion.  Consider further that consumer spending composes, or historically composes, 70% of our GDP.  That means that $9.8 trillion is the contribution of consumer spending.  One percent of $9.8 trillion is $98 billion—a lot of money unless you are a member of Congress spending American tax dollars.  From August to September American consumers spent about $200 billion less on video games, meals out, haircuts, dry cleaning, shoes, computers, Post Its, Cheerios and Titleist golf balls to name a few goods and services.  One month, $200 billion.

Great news!  Some media outlets and members of certain political parties could not contain their glee at the news that the GDP for the 3^rd quarter (July 1 through September 30) rose 3.5% on an annualized basis!  For the first time in 4 quarters (that is a year for those challenged in either calendar or math or both) GDP did not shrink.  A recession is defined as two consecutive quarters of economic shrinkage, a recovery is defined as two consecutive quarters of growth.  So we are half way to recovery.  Or are we?

What do you call growth in a quarter that say personal spending drop, unemployment increase and government spending explode?  Take away this summer’s Cash for Clunkers program, a couple of hundred billion from tax credits and spending from the stimulus bill, and other government spending and there was no GDP growth, maybe not a loss but definitely not a $500 billion growth.

So any celebrating over the growth appears to be for your tax money being spent by your government.  In a large way.  At a growing rate. 

Once consumer spending recovers and joins the huge government spending, which is slated to continue at least through 2012 at this point, our economy will be awash in cheap dollars.  How will investors react?  Higher interest rates to stem and hedge against inflation. 

For the week Money flows out of stocks and into bonds today pairing any losses from late last week and earlier this week.  Stocks and bonds ripped up and down this week as the pros try to dissect the news presented above.  What is a future economy to look like, where is the best place to maximize returns, minimize risk, not lose my fortune…again? For a Friday our mortgage rates are flat from last Friday after bumps and dips. 

Rates for Friday October 16, 2009:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.75%                              FLAT

30 year conforming-jumbo 5.125%                   FLAT

30 year FHA    4.75%                                      FLAT

30 year FHA jumbo 5.125%                            FLAT

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount. 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

A blue ninja and a bird.  No that’s not the punch line to a joke but what the girls are dressing as tomorrow.  Dad? I’ll be dressed as a Phillie phan looking for back-to-back World Series victories!  Harkening back, 35-40 years for me, was there a better feeling than a full size Milky Way hitting the bottom of your bag?  Not being a big fan of nuts back then my Snickers were always on the market, at a discount mind you as my brother and sister knew I did not like the nuts, I had to dump them on the restricted market where my buyers knew they could get them on the cheap. The curse of being the youngest and having a well known abhorrence for certain candy bars Today not so much and I think instead of a junior size 3 Musketeers or two Tootsie Pops I might be able to trade even up for a Peppermint Patty or two Baby Ruths. 

Thanks Mike and Sharon for those early lessons in negotiations and market value!

Have fun, be spooky but not spooked!

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.

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