Dennis' Mortgage Blog

Question of the week:  What preparation do we need to do for filing our taxes?

Answer:   DISCLOSURE:  I am not a tax professional nor a certified public accountant.  Any tax advice is my opinion and you should not rely solely on my information or opinion for filing your own taxes but rather should consult with a tax preparation professional. 

The basic homeowner deductions for homeowners are deductions for primary residence mortgage interest (with limitations) and property taxes.  If you have a second home you can, with limitations, generally claim similar deductions.  If you have investment property then you have a slew of deductions, but also have income you must declare to off-set the deductions. 

Regarding the mortgage interest deduction make sure you have the proper number.  Many banks and mortgage servicers were bought or taken over by other banks or loan servicers.  For instance anyone with a mortgage with Washington Mutual in 2008 had it go to Chase in 2009, or those paying Countrywide are now paying Bank of America.  Lenders send out IRS Form 1098 to borrowers stating the amount of interest paid on the mortgage they hold.  With the transfer of mortgages some lenders may not fully disclose interest paid prior to the transfer.  As I say to the answer to many questions in this industry, do the math.  Does the interest on the 1098 add up to what you paid in 2009 to the lender for interest?  A quick ballpark test is to look at your recent mortgage statement, see how much of your payment is going to interest and multiply by twelve.  Is the answer close to what the 1098 is? It probably is not exact due to principle reduction causing your interest payments to decline, but it should be somewhere in the ballpark.

Note that you do not need a Form 1098 to file a deduction for interest, just as you do not need and do not get a statement from the County for your taxes paid.  But if filing without a Form 1098 to support the interest paid make sure you have proof as to the interest you paid in case you get audited.

If you sold a home, had a short-sale, loan modification or foreclosure in 2009, I suggest you consult with a professional tax preparer to assist you with your tax filing.  The U.S. tax code runs to a couple of thousand pages, several deal with homeownership transfers and mortgages.  With a “non-standard” scenario such as a sale or loan modification or foreclosure you want to ensure you are making the proper claims and deductions.

If you co-own a home with someone other than your spouse or do not file a joint return with the co-owner, make sure the combined claims for eligible deductions equals the amount available.  If the total interest and taxes paid on a primary residence is $27,000 then the deductions can be split between the co-owners however you want, 50-50, 60-40, 95-5, as long as the total claimed deductions do not exceed the total paid—but also make sure you do not underclaim eligible deductions.

If you are eligible for one of the homebuyers tax credits from 2009 make sure you have the proper forms for filing.

If you purchased or refinanced in 2009 have your final HUD-1 closing statement from escrow or settlement agent to provide your tax preparer so you can get the proper deductions for points, origination fees, etc.

No one likes tax preparation, except paid tax preparers! But having your information organized and checked to ensure you receive the proper deductions and claims on your Federal and State tax returns.

Have a question for me?  Ask me!

FHA REMINDER! Today is the last day case numbers can be ordered for FHA transactions with broker/lender able to select appraisers on certain transactions.  All FHA transactions after today with case numbers ordered after today will have to have appraisals done through the same, wonderful HVCC process we have used for Fannie and Freddie transactions since May. 

For those of you into technical stuff this was a fun week in the Mortgage Backed Security markets as moving day averages converged creating a squeeze between levels of support and resistance and bonds have been rebuffed from cracking through either way.  Not just bonds either as the stock markets have been flitting around this week and even more so today.  For stocks it appears 10,000 the support level for the current market. 

This week we saw the Treasury sell many more billions of U.S. debt.  Unlike previous offerings this week’s sales were not that well received by investors.  Could it be the troubles in Greece and Europe focusing on pulling that nation back from the brink?  Could it be the Chinese Army leadership’s comments about punishing America for selling weapons to Taiwan by selling U.S. bonds kept the Chinese from buying? Could it be the market is saturated with American debt and with a huge supply in the pipeline for the coming year(s) investors are holding out for cheaper prices and higher rates of return?  Or could it be the weather? 

Whatever the reason(s) for the relatively poor performances of the auctions one this is for sure, Treasury rates got a bump up as a result of the lack of enthusiasm.  Future auctions will let us know if this week’s results were an anomaly or a trend.

Economic data this week was somewhat positive, or less negative.  While first time unemployment claims dipped to 440,000 in January from 480,000 in December, that is still 440,000 Americans who filed to receive unemployment insurance benefits.  Retail sales in Janaury barely beat expectations, but still a paltry 0.5% increase.  So while we spent more as a nation, mostly due to post-holiday sales and inventory clear-outs, we are not consuming as we were a few years ago.  Spending is still down and savings are still up.  Good for long term economic stability, not so good for short term economic recovery.  Finally, consumer confidence is weaker than expectations—which means we still will put extra money aside for the rainy day instead of buying the new pair of shows or latest electronic gadget.

The road ahead is rocky for interest rates.  China appears to be raising its rates and tightening its banks’ lending criteria which should reduce their demand for bonds.  Short term this is good news for rates as investors dump stocks of companies that sell and trade with China and purchase bonds.  Long term the loss of Chinese demand given how they have dominated the market will need to be filled from somewhere if bond prices are to stay stable or increase.

The biggest rock in the road however is the Fed and the end of its mortgage purchase program of $1.25 Trillion that commenced in January 2009 to prop up MBS and keep rates low and stable.  The plan worked in that regard.  With $66 billion left to spend and only six weeks to spend it the markets are looking at April 1^st as a huge question mark.  The Fed has purchased 80% of the MBS in the past fourteen months, who will fill the void and at what price will they have to be lured to market? 

The impact on rates from the Fed purchase program has ranged from 0.75% to 1.5%.  That means that for the past year where we have seen rates pretty much at or below 5%, without the Fed program the rates would have been 5.75% to 6.5%.  How would our housing recovery and bank rehabilitation gone if that had been the case?  For a more practical look at the impact, a $360,000 mortgage (about the average for our company for 2009) at 5% has a monthly principle and interest payment of $1933 per month, at 5.75% it is $2101 and at 6.5% it reaches $2275.  A difference of $342 per month has a big impact on income to debt ratios and loan qualifying.

Mortgage applications nationwide for the first week of February dipped with the decline due to a drop of over 7% in purchase applications.  Currently refinance applications are approximately 68% of the national volume, with the prospect of higher rates and the pending end (again) of the homebuyer tax credit in April we should see an increase in purchase activity the next few months perhaps enough to see the total purchase volume push above 35% and get closer to 40%.

This week in rates conforming ($417,000 and below) remain flat while hi-balance/jumbo ($417,001 - $729,000 for some counties) increase from last week.

Rates for Friday February 5, 2010:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.75%                              No Change

30 year conforming-jumbo 5.00%                     Up 0.125%

30 year FHA    4.75%                                      No Change

30 year FHA jumbo 5.00%                              Up 0.125%

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.

Happy Valentine’s Day to everyone!  It is my hope that everyone has as special a Valentine as me!

Who was St.Valentine?  Here is link to story on History Channel Website.

Have a great weekend, let me know how I can be of service to you,

Dennis