Green Tip of the Week

Check back often, as I will be posting new Green Tips weekly.

Here is your Green Tip for this Week…

Natural deterrents to ants include dry Cream of Wheat, which they cannot digest and is lethal to them, as well as powdered borax mixed with maple syrup (don’t use the latter if you have children or pets). If the aim simply is to deter, but not kill, then sprinkle the substances they don’t like to cross, such as ground black pepper, chalk, or cinnamon, near doors.

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No More State Tax on Forgiven Debt

NO MORE STATE TAX ON FORGIVEN DEBT

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California’s tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a “qualified principal residence,” borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

“Qualified principal residence” indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage.  The full text of Senate Bill 401 is available at www.leginfo.ca.gov.

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Market News in Real Estate

Governor signs home tax credit bill

Governor Schwarzenegger today signed AB 183 providing $200 million for home buyer tax credits. The bill allocates $100 million for qualified first-time home buyers who purchase existing homes and $100 million for purchasers of new, or previously unoccupied, homes.

Eligible taxpayers who close escrow on qualified principal residences between May 1, 2010 and December, 31, 2010, or who close escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.

This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under the bill, purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state). Buyers also must be at least 18 years old and be unrelated to the seller. First-time buyers are defined as those who have not owned a home in the past three years.

To learn more about the California Home Buyer Tax Credit, click here

The Los Angeles Times Reports

IRS tells homeowners how to get tax relief if a lender forgives part of their debt

Generally, the Internal Revenue Service (IRS) treats debt forgiveness by a creditor as taxable income. However, under federal legislation that took effect in 2007, certain home mortgage debt cancellations—such as loan modifications, short sales, or foreclosures—may be exempted from federal taxes. Other exemptions are also available.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Homeowners considering a loan modification, short sale, or foreclosure should note that the federal tax exclusion under the Mortgage Forgiveness Debt Relief Act of 2007 only applies to mortgage balances on a qualified principal residence and not on second homes, rental real estate, or business properties.

• The maximum amount of forgiven debt eligible under the 2007 law is $2 million for married taxpayers filing jointly and $1 million for single taxpayers.

• The debt reduction only can be for loan amounts used to buy, build, or substantially improve a principal residence, including refinance loans as long as an increase in the total mortgage debt if any is attributable to renovations and capital improvements of the house. However, if refinance proceeds were used for other personal purposes, such as paying off credit card bills, purchasing cars, or investing in stocks, then the mortgage debt attributable to those expenditures is not eligible for tax exclusion under the 2007 law.

• California homeowners who sold their house in a short sale or were foreclosed upon in 2009 still may have to pay state taxes on forgiven mortgage debt. The California legislature did not extend the tax exemption for mortgage debt forgiveness for state taxes. However, lawmakers are working on a bill that would provide the same tax relief on state taxes as the federal government currently offers.

To read the full story, please click here:

Bloomberg Reports

Housing real-estate recovery signaled as Fed unwinds

The U.S. housing market is poised to withstand the removal of government and Federal Reserve stimulus programs and rebound later in the year, contributing to annual economic growth for the first time since 2006.

To read the full story, please click here:

The Sacramento Bee Reports

Option ARM mortgages still pose a risk Inside the fallout from risky housing boom loans in Sacramento, one particularly notorious brand of mortgage, the option ARM, still looms as big potential trouble.

To read the full story, please click here:

The Los Angeles Times Reports

More homeowners are opting for “strategic defaults”
Underwater on their mortgages and angry at banks, more borrowers are choosing to hand over the keys, even if they can afford the payments.

To read the full story, please click here:

The Wall Street Journal Reports

Supply of foreclosed homes on the rise again
The supply of foreclosed homes that banks need to sell is rising again, signaling further downward pressure on home prices in some parts of the U.S.

To read the full story, please click here:

The Mercury News Reports

Mortgages: Congress debates how to revive home-loan market
Lawmakers are starting to wrestle with how to replace Fannie Mae and Freddie Mac, the mortgage giants that nearly collapsed at the start of the financial meltdown.

To read the full story, please click here:

The Press Enterprise Reports

Flip squads take on foreclosed houses, try to turn profits
Each weekday morning, a troupe of opportunists who hope they have the Midas touch unfold camping chairs in front of the old Riverside County courthouse.

To read the full story, please click here:

The New York Times Reports

When not to pay down a mortgage
The Federal Reserve has reaffirmed its intention to stop buying mortgage-backed securities, signaling the likelihood that the mortgage rates you can get today are as good as they’re going to be for a long time. Once the Fed stops buying, after all, rates are likely to go up.

To read the full story, please click here:

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Home Buyer Tax Credit Update

$18,000 IN COMBINED HOMEBUYER TAX CREDITS FOR A LIMITED TIME

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits.  To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same time frames to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010.  Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied.  The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)).  California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)).  Other terms and restrictions apply to both tax credits.

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Market News in Real Estate

The Wall Street Journal Reports. . .

Nabbing a bargain-basement mortgage before rates rise
The Federal Reserve has been purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac since early last year. The purchase program has helped maintain low interest rates for borrowers. As planned, the Fed this week announced it will stop purchasing these securities at the end of this month. Many analysts anticipate this will result in a slight rise in rates by year’s end.

Keep this in mind. . .

• Interest rates have hovered at or near historic lows for much of the past 18 months, resulting in lower payments for many borrowers. With the Fed discontinuing its purchase program, some analysts believe a rise in interest rates could range from 0.25 percent to as much as 1 percent by the end of 2010.

• The federal tax credit for home buyers also is scheduled to end April 30. The tax credit combined with the expectation interest rates will increase has created a sense of urgency for many home buyers. In fact, 23 percent of California home buyers purchased a home in 2009 due to the perception that interest rates will rise and they would be priced out of the market, according to C.A.R.’s 2009 Survey of California Home Buyers.

• Rising interest rates will have an effect on home buyers. For example, a qualified couple with a combined pretax income of $100,000 per year and debt obligations (excluding mortgage) of $500 who receive a mortgage rate of 5 percent could qualify for a loan of up to $590,000, assuming a 20 percent down payment. If the interest rate were to rise to 6 percent, as analysts at Barclays Capital predict, the same couple could only qualify for a mortgage of $540,000.

To read the full story, please click here:

CNN Money Reports. . .

Green homes face a red light
Lots of people, especially those trying to battle high utility bills, believe in energy-efficient homebuilding. But there’s something holding green technology back: It simply costs more to include it than it adds to resale value.

To read the full story, please click here:

The Wall Street Journal Reports. . .

Is California’s high-end housing market in trouble?
While sales of low-priced foreclosed homes are sparking bidding wars in some areas and there’s talk of healing in California, a huge storm cloud hovers over the Golden state: The high-end real estate market.

To read the full story, please click here:

The San Diego Union-Tribune Reports. . .

First-timers snap up 47 percent of homes
Nearly half of home purchases statewide last year went to first-time buyers, the highest since 1995, the CALIFORNIA ASSOCIATION OF REALTORS® reported.

To read the full story, please click here:

The Wall Street Journal Reports. . .

Home buyers check out apps
Just in time for spring house-hunting season, smart-phone applications that provide information to home buyers are proliferating.

To read the full story, please click here:

Time Reports. . .

The subprime-lending business survives, even thrives
Poor credit? It’s still no problem for some lenders.

To read the full story, please click here:

The Los Angeles Times Reports. . .

Permanently modified mortgages grow by 45 percent, government says
The Obama administration Friday said its mortgage modification program continued to make progress, with the number of homeowners receiving permanently reduced monthly payments in February increasing by 45 percent to 168,708.

To read the full story, please click here:

The Mercury News Reports. . .

Foreclosure rates up by smallest amount in four years, RealtyTrac says
The foreclosure crisis isn’t over, but the pace of growth may finally be slowing down.

To read the full story, please click here:

The Wall Street Journal Reports. . .

Mortgage fraud declines but remains virulent
First American CoreLogic, a real estate information supplier, compiles an index of the rate of fraud on home mortgages. A version of the index that excludes subprime loans peaked in 2007 at about 112 (on a scale that equates the early-2005 level to 100). It has since dropped to 84.

To read the full story, please click here:

The New York Times Reports. . .

Even high-score borrowers at risk of mortgage default
A high credit score won’t necessarily insulate borrowers fromthe home-foreclosure crisis, according to a new study from FICO, which creates the credit-scoring formula used by most lenders.

To read the full story, please click here:

What you should know about the market. . .

• In today’s economy, many homeowners are looking for ways to reduce spending. One way to do so is by reviewing their homeowner’s insurance policy and looking for ways to cut costs without adversely affecting coverage. Raising the deductible from $500 to $1,000, reducing coverage on the “household contents” portion of the policy, and installing home security devices could save as much as 25 percent every month on premiums, according to the Insurance Information Institute.

• First-time home buyers easily can become overwhelmed with the many loan choices available to them. Experts recommend first-time home buyers apply for a loan with an interest rate fixed for the length of time the buyer plans to live in the home. Hybrid loans may be an option worth considering, as they are fixed for a set period and later change to an adjustable-rate mortgage. This may be a viable option for a buyer planning to stay in the home for just a few years or the length of the fixed-rate period. However, most buyers should give serious consideration to a 30-year fixed-rate loan.

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