Obama’s extension of the 2011′s payroll tax cut should come as welcome relief to the millions of working and unemployed Americans struggling through these difficult times. The $143 billion measure passed with overwhelming bipartisan support in congress earlier this month. The payroll tax cut extension continues the 2 percent reduction in the tax that funds Social Security, cutting it from 6.2 to 4.2 percent for employees. Other provisions in the payroll tax cut include maintaining the current level of reimbursement for doctors treating Medicare patients and extending jobless benefits to the unemployed.

What does this mean in the real world? A worker earning $50,000 a year, for example, will take home an extra $80 a month – higher paid employees could save as much as $2,200 a year from the 2 percent deduction. Benefits for the long-term unemployed average about $300 a week and should last, depending on the State, anywhere from 63 to 73 weeks.

All told, the 2 percent reduction in the Social Security payroll tax deducted from workers’ paychecks is going to cost the Federal government $93 billion through 2022. Additionally, the cost of extending jobless benefits for 63-73 weeks comes out to $30 billion, half of which will be paid by auctioning off portions of the communications spectrum to wireless companies and the other half by increasing federal workers pension contributions from 0.8 percent to 2.3 percent.

A big bone of contention among some homebuyers is a measure that was snuck in to the payroll tax cut bill allowing HUD (Department of Housing and Urban Development) to increase insurance premiums on FHA (Federal Housing Administration) backed loans. This measure will permanently increases the fee government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages by one-tenth of a percentage point, or 0.1%.

Basically what this translates to is a $17 monthly house payment increase for a $200,000 mortgage from Freddie or Fannie. Keep in mind that this increase will only affect people who want to refinance or apply for new loans from Freddie Mac or Fannie Mae from Jan. 1 2012 onwards.

Any rumors of increasing mortgage rates to pay for the 2012 payroll tax cuts extensions are greatly exaggerated. Here are the facts:

- The hike only affects FHA backed loans (i.e. Freddie Mac or Fannie Mae).
- Only new FHA loans that have been applied for from Jan. 1 2012 onwards are affected.
- The increase in insurance premiums for FHA loans will go up by 0.1% – which will be an average increase of $17 a month for a typical Fannie or Freddie mortgage holder.

If you are worried about these new FHA insurance hikes affecting your mortgage or are looking to refinance your home loan for better a better rate, do not hesitate to contact me or Carlos at Team Aguilar today!

Alex Aguilar
Team Aguilar
Real Estate Agent, Blogger!
Alex@TeamAguilar.com
www.TeamAguilar.com
Real Estate Blog
San Diego Real Estate

Many of you have already heard of the huge $26 billion settlement State and Federal governments have reached with five of the largest banks in the country. Technically this money is restitution for improper and potentially fraudulent foreclosure practices (robosigning, seizures made without proper paperwork, etc.) by these banks in the wake of the 2008 – 2011 foreclosure crisis. Most of the settlement money will be used to provide some form of restitution to homeowners who have been directly or indirectly affected by these acts.

The details of the settlement, however, are not entirely clear. Struggling homeowners will have many questions like how exactly will this money be distributed, what is the time frame of the payments and, finally, who is eligible to be compensated? We try to answer some of these questions here.

Details of the Settlement

The settlement came as a result of a 14 month investigation started in the fall of 2010 into the mortgage servicing industry by 49 state Attorney Generals amid uproar over revelations that banks evicted people with false or incomplete documentation. 4 million families have lost their homes to foreclosure since the start of the housing crisis in 2007 and 3.3 million more homeowners are currently undergoing or close to foreclosure.

The settlement involves mortgage servicers Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC), all of whom decided to settle after being investigated for fraudulent foreclosure practices.

The amounts paid by each bank are directly connected to their market share of the mortgage servicing industry. Bank of America has the biggest share, and will provide $11.8 billion to the settlement, followed by Wells Fargo with $5.4 billion, JP Morgan Chase with $5.3 billion, Citigroup with $2.2 billion and $310 million from Ally Financial. Bank of America will also contribute an additional $1 billion for Federal Housing Administration loans.

Keep in mind that out of the $26 billion only $5 billion will be in paid out cash – the remaining $17 billion will be used to reduce the principal for homeowners how are underwater on their mortgages over a period of 3 years. It should also be pointed out that mortgages owned by the Fannie Mae and Freddie Mac are not covered, which excludes about half the nation’s mortgages from this settlement.

The often quoted $26 billion figure might even balloon to $30 billion if the government can bring nine other major mortgage servicers join the settlement – something that is currently under consideration by the government.

Who Is Eligible For Compensation and How Much Should They Expect?

The settlement money will be doled out under a complex formula created that incentivizes banks to help hardest-hit borrowers. The banks will get varying degrees of credit for different kinds of help.  Banks will get more credit for things like reducing principal owed on underwater mortgages and renegotiating mortgages to help families keep their homes. They will get less credit, however, for short sales or taking losses on loans that were likely to go bad anyway.

To be eligible for the settlement homeowners must have mortgages that are owned and held by the nation’s largest mortgage servicers, i.e. the five big banks mentioned above. Benefits could range from loan modifications, principal reductions or direct payments from lenders. Remember that only homeowners in the states who joined the settlement are eligible for compensation; borrowers from Oklahoma, for example, are not be eligible for direct relief because the Oklahoma state government elected to not take part in the settlement. This table contains the complete list of which states took part in the settlement and how much each state will receive in compensation: http://www.scribd.com/webber3292/d/81077696-State-Settlement-Amounts

The banks participating in the settlement will grant homeowners with underwater mortgages $10 billion worth of principal reduction, $3 billion in refinancing and $7 billion in other forms of mortgage relief such as forbearance for unemployed borrowers. All of this will cover roughly one million borrowers in total. Another $1.5 billion will be spent on direct cash payments of $1,500 – $2,000 to around 750,000 borrowers who lost their homes to questionable foreclosure practices from 2008 to 2011. $3.5 billion will go to various state and federal governments to bolster resources for legal aid, counseling services for borrowers facing foreclosure and to help fund future investigations into mortgage-fraud.

Time Frame of the Settlement

Bureaucracy, as the saying goes, moves slowly. Under the terms of this settlement the banks will have six to nine months to determine who is eligible for relief and three years in which to distribute the aid. This is, of course, little comfort to the millions of struggling homeowners who need help right now.

Long Term Prognosis

Economists have little hope of any immediate boost to the economy from this settlement partly because it affects comparatively so few people (just under 2 million), and the repayment terms are stretched out over 3 years. There is hope, however, that the settlement will have a positive effect in the long term.

Homeowners not directly eligible to get help from this settlement might still see benefits in the form of reduced  foreclosure rates in their area, stabilized home values and powerful new mortgage servicing standards and consumer protections. This settlement is the first step in the federal government’s multi-year fight to hold the big banks accountable for their actions leading up to and during the financial crisis.

The banks involved in the settlement could still be liable to further criminal prosecution related to the housing crisis as well as private lawsuits. From now on banks and other mortgage servicers will have to adhere to tougher standards for servicing loans and executing foreclosures.

California has been hit harder than most by the foreclosure crisis. A disproportionate number of housing loans in the state are either delinquent or exceed the value of the underlying property. In recognition of the extraordinary hardship faced by homeowners in California, the state will get $16 billion of the $26 billion settlement – the largest share of all 49 States.

If you had any questions about your mortgage or wanted to see if you qualify for this settlement, contact Team Aguilar today!

For more information on the settlement please visit: http://www.nationalmortgagesettlement.com/faq

Image sources: http://www.scribd.com/webber3292/d/81059707-Settlement-Graphic

Alex Aguilar
Team Aguilar
Real Estate Agent, Blogger!
Alex@TeamAguilar.com
www.TeamAguilar.com
Real Estate Blog
San Diego Real Estate

Honestly, I am a little surprised more people aren’t talking about this. Short sales in California have been steady for a good part of the last couple years but the one item that seems to stop homeowners from doing anything is the tax consequences on forgiven debt. Under the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) taxpayers will not be taxed upon the cancellation of debt when they sell their primary residence through what we know as a short sale.

Californian’s have still been required to pay the taxes on short sales. The idea is that your gain (the amount of the loss the bank takes) is the banks loss. In recent years homeowners in California would receive a 1099 which can be taxed as ordinary income. This could be a fairly significant amount of money.

Now California seems to be following the same Federal guidelines under the existing Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648). I think this is rather large and I’m surprised more news hasn’t been shed on the new California law. Please refer to all the guidelines for the California Mortgage Forgiveness Debt Relief and BE SURE TO SPEAK WITH YOUR TAX PREPARER OR CPA. If your considering a short sale and your home is in California make sure you know all of the implications. You may not fall within the guidelines and it’s important to note that this is only applicable to your primary residence.

Alex Aguilar
Team Aguilar
Real Estate Agent, Blogger!
Alex@TeamAguilar.com
www.TeamAguilar.com
Real Estate Blog
San Diego Real Estate

IMPORTANT: Contracts must be inked by April 30, 2010 and closed by June 30, 2010 in order to take advantage of the Federal and California Home Buyer Tax Credits Available.

Californians have a small window of opportunity to receive up to $18,000 in combined State and Federal Homebuyer Tax Credits. Californians must enter into a contract to purchase for a principal residence before May 1, 2010 and close escrow between May 1, 2010 and June 30th, 2010. Even if you are NOT a first-time home buyer you still may use the same guidelines and 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 a home that has never been previously occupied.

Why $18,000? This is combining the Federal Home Buyer Tax Credit and the new California Home Buyer Tax Credit. There is a small window of opportunity where they will overlap during this time frame. Once the Federal Tax Credit expires you will still have the California Tax Credit. Please refer to our previous post for all the details on the New California Home Buyer Tax Credit.

The federal first-time homebuyer tax credit that is set to expire soon allows a first-time homebuyer to receive up to $8,000 in tax credits.  Contracts must be inked by April 30, 2010 and closed by June 30, 2010. This leaves you a small window to double dip and take advantage of both the California Home Buyer Tax Credit and the Federal Home Buyer Tax Credit.

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.  Other terms and restrictions apply to both tax credits so please make sure you consult a tax professional to see what would be your options and how they would be applied to your situation.

Alex Aguilar
Team Aguilar
Real Estate Agent, Blogger!
Alex@TeamAguilar.com
www.TeamAguilar.com
Real Estate Blog
San Diego Real Estate

If you missed your chance to reap the benefits of the first-time homebuyer tax credit this past year, you will get one more shot.  The Senate passed a bill on Thursday 98 to 0 that will extend the original first time homebuyer tax credit for another seven months and expand the bill to benefit some current homeowners looking to buy a new home. The bill should reach the House floor by next Thursday and then require the signature of the President.

So what does this new bill consist of? Well, for starters, contrary to many of the proposed bills, this bill does not increase the amount of tax credit. It remains $8000 for first time homebuyers. However this time around, if you are currently a homeowner that has owned your home for at least five consecutive years, you are eligible to receive a $6500 tax credit if you buy a new primary home. In other words, if you are buying a 2^nd home you will not get a tax credit, but if you looking to move and buy a new primary residence, you might be eligible.

Who is eligible? Obviously first time homebuyers, and as previously mentioned, folks that have owned a home for at least five consecutive years. But the bill limits the purchase price of the home to $800,000 and there are income caps, which disqualify any individual who makes more that $125,000 annually and couples who make more than $225,000. In addition, this tax credit offer won’t last as long the second time around. One must sign a contract by April 30 2010, and close on the home by June 30^th to qualify. And if you think they will probably end up extending the offer even further, think again.

According to Dina ElBoghdady of the Washington Post reported that Sen. Johnny Isakson (R-GA), “a longtime advocate of the tax credit, praised passage of the bill in his chamber but said the extension would be the last one. “Tax credits like this only work by creating the sense of urgency to take advantage of them”.  So if you are considering buying a home and are eligible for the tax credit, you better get a move on.

But will this extension of the tax credit really stimulate more home sales? Stephen Ohlemacher of the Associated Press reported that there are those like Senator Kit Bond (R-MO) who question its effectiveness. “For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home,” Bond said. “And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place”.  Though there may be plenty of truth to that statement, it seems that at this point there is nothing else that can be done to at least try and stimulate home buying. And the 98-0 vote in favor of the bill confirms that our Senators don’t think there is anything else that can be done either.

As you all may know, Congress passed the American Recovery and Reinvestment Act of 2009 that authorizes qualified first-time home buyers a tax credit of up to $8,000 provided they purchase their residence between January 1, 2009 and November 30, 2009.

This was a move that was welcomed by would-be homeowners as well as members of the housing industry. Would-be homeowners are now more inclined to purchase their homes because they know that they’ll be getting a savings of $8,000 in the short term. And what’s great about this tax credit is that, unlike the 2008 tax credit, this doesn’t need to be repaid. So, it’s really like getting $8,000 in windfall money. You also have plenty of choices as to which type of home you would like to purchase – whether you want a bungalow, a condominium, a mobile home or even a houseboat. All of these are eligible for purchase.

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The U.S. Treasury Department reported today (August, 4^th) that the Obama Administration’s “Home Affordable Modification Program” has helped modify a whopping 235,247 loans that were at least two months delinquent. That accounts for just 9% of delinquent borrowers who are potentially eligible for loan modification. As a result of these meager numbers, the administration, as well as banks responsible for loan modifications are under quite a bit of fire. So there was a meeting held at the White House last week with members of the Obama Administration and 25 of the largest mortgage servicers who emerged from the meeting with a promise to accelerate the pace of their loan restructurings. Well, I’m glad that’s settled. Did they pinky swear?

There are 38 servicers who are participating in this voluntary program. Together, they comprise approximately 85% of all the mortgages in the country. And NOT ONE of those banks is prepared to deal with the huge number of loan modification applicants. But at the meeting, they all agreed upon a goal of getting 500,000 loan modifications under way by November 1^st. To do this, the banks are going to have to amp up their staff and training, and according to Michal Barr, assistant Treasury Secretary for Financial Institutions, “servicers must treat borrowers with more respect and respond in a more timely manner.” That’s reassuring. Let’s hear from Jean in Michigan who wrote CNNMoney.com and might just need a little more reassurance than Mr. Barr’s passive demand: “Obama’s plan is a joke. The banks are a joke. Fax, fax, fax, call, call, call and no response for months. Even Washington rep can’t get an answer or help, what a sham!!!”

According to Tami Luhby of CNNMoney.com, one way of holding institutions responsible for increasing their performance is through releasing “servicer’s progress reports” every month, allowing the public to see which institutions are lagging in implementing the plan.

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When the President came to California yesterday and announced that the state will receive $145 million to help communities hard-hit by the foreclosure crisis, I thought to myself, “$145 million? That’s pocket change.” I realized then, that with all the stimulus packages, and budgets plans, and financial talk that have been spattered about the news like a massive Pollock painting in the last few months, my perception of the actual worth of $145 million dollars had been greatly skewed. $145 million can go a long way, can’t it?

The funds, as the President said on Thursday, “will be used to purchase and rehabilitate vacant, foreclosed homes and resell them with affordable mortgages.” He goes on to add that the funds “will also provide mortgage assistance and rehabilitation loans for low-income and middle income families.” The program that generated these funds, “was created as part of the Housing and Economic Recovery Act of 2008, which permits state and local governments to purchase foreclosed homes at a discount and rehabilitate or redevelop them”, reports the Associated Press. “Additionally, funds will come from the massive stimulus package.” Who knows how much additional funding from the stimulus package will actually go towards California’s foreclosure problem, and who knows how far this money can go to do all the things that the program is intended to do.

After-all, according to the RealtyTrac research firm, there were filings for 80,775 foreclosures on California properties in February. Oooooowweeeee, that’s a fair bit of foreclosures. How much money are we getting again? Of course, that number is slightly skewed due to the foreclosure moratorium that took place starting at the end of November and ended towards the end of January. For those unaware, the moratorium basically just halted the foreclosure process for that time period in an effort to keep people in their homes during the holiday season. So during that time, the amount of foreclosure filings piled up. But now that it’s over, we’ve got a lot to deal with. It would be interesting to get a number on the average dollar amount that will be spent per foreclosure with this money and see how big of dent the $145 million can actually make.

But I don’t mean to sound like Debbie Downer. $145 million is a fair bit of money. And hopefully a nice chunk of the money that California gets from the stimulus package will help as well. And moreover, this money will certainly help rejuvenate some neighborhoods in the state, and any bit of progress that can be made to lessen the enormity of this foreclosure crisis is a damn good thing.

By Andrew Brentan

No one really knows what’s going to happen. Well, maybe there are, and hopefully those that know are the ones that helped put together the Financial Stability Plan (FSB) that was released Tuesday morning by Treasury Secretary Geithner. But it is kind of scary to think that the morning a plan to help stabilize our free-falling economy was released, the stock market shed 300 points. Economists are saying that the plan lacked too many specific details and that is why it sparked a drop in confidence in the markets. And confidence, it seems, is not in the vocabulary of anyone in the financial world these days. Paranoia might be a better term.

But in such times of financial paranoia, there can be a tendency to become paralyzed by indecision, unsure of what to do or how to approach the situation. This is exactly the time when our leaders need to take charge to make things happen, and I was impressed by President Obama’s speech on Monday to address the need to pass the FSP immediately. “The plan is not perfect. No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans,”. We have never experienced a situation like this in the history of our country and as unemployment continues to rise, there is not enough time for a plan of this importance to get hung up on Capital Hill in a partisan battle of wills. Just look at the State of California to see what happens when two political parties can’t agree on anything. And despite the lack of confidence that Wall Street showed initially in response to the FSP, there were those who felt that despite the lack of details currently in the plan, it might just be exactly what we are all praying it will be. In Tuesday’s Wall Street Journal the following economists commented on the plan:

The “comprehensive” financial rescue plan – Financial Stability Plan – released by Treasury Secretary Geithner this morning is still missing significant detail, including an implementation date. There are far too many missing details to make this a satisfying announcement. Nonetheless – at first blush and without the benefit of key detail – the plan does appear to address the key problems of the financial markets at this point in time. -Ward McCarthy, Stone & McCarthy

It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation. The plan deserves praise for what isn’t in it, at least as far as I can tell. There doesn’t seem to be provision for mass purchases of toxic waste at premium prices; there also doesn’t seem to be a massive “ring-fencing” guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect… So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place. -Paul Krugman, Princeton University

The size and breadth of the package show that the government recognizes the scale of the problem and suggests that it will be prepared to do more if necessary. And the terms of the new cash injections appear to have a greater chance of boosting lending than those seen in other economies. Overall, while the FSP may not be perfect, it is likely to have a beneficial impact on the financial system and increase the chances that the US economy sees a decent economic recovery in 2010. -Paul Dales, Capital Economics

I’ve said it once, I’ll say it again: I’m no expert. So if these people are telling me that this plan, though lacking some specifics, looks like it will address the problems that need addressing, then I’m 100% for it. In the mean time, someone please tell Wall Street to RELAX. The FSP is designed to help, so please refrain from causing the further diminishment of our retirement accounts simply because it lacks a few details. Thanks.

By Andrew Brentan

It’s happening. The State of California is broke, they can’t balance the damn budget, $4 billion of scheduled state payments are being delayed, people’s lives are being severely affected as a result, and it makes me want to shake somebody! I wish that all the law makers in Sacramento, including the Governator, would form a single file line outside my office door, and one by one I would invite them in so that I could SHAKE THEM. How much more helpless can we feel as citizens? Listen, I think it’s all good and fine that Democratic lawmakers want moderate spending cuts and tax increases, and it’s all good and fine that Republican lawmakers want no new taxes and deep spending cuts, but for the love of all that is good with the state of California, can you not come to a compromise already?!

The well publicized $42 billion budget deficit California is projected to reach by mid-2010 is resulting in spending cuts that are turning heads and causing uproars. Just last Thursday Sacramento County Superior Court Judge Patrick Marlette ruled that Governor Schwarzenegger does indeed have the authority to force tens of thousands of state workers to  take days off without pay. According to the Associated Press, “The two-day-a-month furloughs are scheduled to start Feb. 6 and would apply to all 238,000 state workers”. This move will result in the budget being cut down by a whopping $1.4 billion. But cuts like this seem like somewhat reasonable solutions given the emergency circumstances the state is facing. However, it is the stalemate in Sacramento that is now resulting in further hardships for people that depend on the state for a number of financial needs.

Nearly $4 billion of scheduled state payments are being delayed in an effort to prevent the state from running out of cash. Bobby White and Stu Wood of the Wall Street Journal interviewed the Controller John Chiang last week about this delay, which is expected to last 30 days. “I am very concerned about the potentially devastating impact to individuals, to families, to businesses,” he said. But “my principal responsibility at this time is to make sure that California does not go into default.” What a mess. So while the state lawmakers are “trying to hammer out a solution”, there are a lot of people undeservingly getting screwed. Income tax refunds are an expected and depended on stimulus for citizens, and local retailers and businesses. College students won’t be paid their educational grants, and welfare checks will be put on hold. Entire counties and cities, many of whom don’t have much money themselves, will be required to cover the costs of social service programs normally included among the state payments. When it rains it pours and this is a serious storm.

I do not know what goes in to balancing a state budget. If I did, I might be able to provide some concrete examples of how lawmakers might get over this hurdle. Or maybe, if I knew about balancing a state budget I’d understand more fully just how difficult it is to make it work. But we, the citizens of California (more specifically, those of us on the lower end of the tax bracket), are truly paying a hefty price for this budget stalemate. I learned the value of compromise a kid, why are extremely intelligent adults having such a difficult time giving up a little in order to reach a common goal? On family road trips, my brother and I would get into shouting matches over where we should stop for lunch. I wanted McDonald’s because I loved their chicken nuggets and he always wanted Burger King because he liked their burgers better. And boy oh boy, were we stubborn about it. But there were two ways that we handled such situations (or more matter-of-factly, how my parents handled such situations): 1.We would agree that we would stop at McDonald’s on the way there and Burger King on the way back, or 2.We’d go to Wendy’s. And there you have it ladies and gentlemen: A compromise! Chicken nuggets and tax increases, Whoppers, and huge spending cuts, it’s all the same in this, my fast-food metaphor for how to come to a compromise. If only it were that simple right? But, lawmakers of California, does this really need to be as difficult as you are making it? I can’t for the life of me believe that it is.

By Andrew Brentan