The Obama Administration Mortgage Market Overhaul Proposal

The Obama administration released its proposal for overhauling the US mortgage market that would limit the government's role in supporting home ownership. The Plan? Slow death for mortgage giants Fannie Mae and Freddie Mac while winding down the government's role in housing finance.

The administration proposed 3 recommendations to the Congress. The Congress will shape the final policy.

The 3 recommendations are:

- No government role, except for existing agencies like the Federal Housing Administration.or FHA.

• A government guarantee of private mortgages triggered only when the market is in trouble.

• Government insurance for a targeted range of mortgage investments that already are guaranteed by private insurers. The government guarantee would kick in only if those private companies couldn't pay.

In September 2008, Fannie and Freddie were seized by regulators as the financial crisis intensified. The Bush administration has instructed a bailout policy for the mortgage giants to help lower the cost, increase the availability of home mortgage financing and to cover the losses on bad home loans. The rescue has cost the taxpayers nearly $150 Billion, making them the most expensive bailout in the US history.  The Republicans said that it is necessary for Fannie and Freddie to be abolished because they were responsible for the collapse of the housing market.

Today, 90% of the outstanding residential mortgages are controlled by the Federal Housing Administration (FHA), the Department of Veterans Affairs, or Fannie Mae and Freddie Mac, which means that the mortgages are backed by the taxpayers.  In a private system, the US taxpayers don't have to guarantee the liabilities - this will be the responsibility of the investors.

Once the proposal is put into action, the privatization would probably end the popular 30-year fixed rate mortgage that the new home buyers are currently enjoying. Or, if it's not completely abolished, it will be more expensive than the current 30-year fixed rate of 5%. Higher mortgage rates could make homes less affordable for buyers.

For more information on Mortgage Market Overhaul Proposal,  please visit http://www.usatoday.com/money/economy/housing/2011-02-11-fannie-freddie-mortgage-overhaul_N.htm

Energy Efficient Homes

Electricity is an essential part of our modern daily lives. In our homes, we use it for lighting, running appliances and electronics and for heating and cooling.

With home buyers getting more and more interested in preserving the environment, energy efficiency is widely becoming a conscious practice for them. The energy used in homes often comes from burning of fossil fuels at power plants, which contributes to global warming. So, the less energy used, the less air pollution generated.  Energy efficient homes are marked by a blue ENERGY STAR. These homes are not only eco-friendly, but they also have lower electricity bills.

Any home with three stories or less (i.e. single-family home, low-rise multi-family homes, log homes, etc.) can earn the ENERGY STAR label if it has been verified to meet Environmental Protection Agency or EPA's guidelines. For a home to qualify for the Energy Star, it must be 20-30% more efficient than standard homes.

Having Properly Installed Insulation, High Performance Windows, Tight Construction and Ducts and Efficient Heating and Cooling Equipment results to even temperature throughout the house, reduced energy use and increased comfort.

Homes may also earn the Energy Star if they have Energy Star qualified products such as refrigerators, washing machines, dishwashers, lighting fixtures and others.

With energy efficient homes, the homeowner can save from $200-$400 in annual savings on utility bills.

Did you know that in Alaska alone, there are already 11,467 ENERGY STAR qualified homes built up to date? And the ENERGY STAR qualified homes built in 2010 are equivalent to eliminating emissions from 9 vehicles; saving 53,352 pounds of coal; planting 15 acres of trees; and saving the environment 104,634 pounds of Carbon Dioxide. (Information taken from www.energystar.gov)

The improved comfort, lower utility bills and improved durability can translate into higher resale value as compared to less energy efficient homes.  More often than not, energy efficient homes can be found in the newly constructed houses. Furthermore, newly built homes offer home warranties. Consequently, it is more beneficial for the home buyers to consider looking at newly developed properties.

For more details on how to make your home more energy efficient, please visit http://www.energystar.gov/.  If you want to save the environment with having low electricity bills, you may want to consider checking out http://hearthstonealaska.com/.

"ANTI-FLIPPING WAIVER" IS EXTENDED FOR ANOTHER YEAR

Federal Housing Administration (FHA) Commissioner David H. Stevens has extended FHA's temporary waiver of the "Anti-Flipping Rule" to help stabilize the current housing market.

In 2003, the Department of Housing and Urban Development (HUD) issued a rule that prohibited FHA from insuring a mortgage on homes that were owned by the seller for less than 90 days. This was issued to protect the consumers from a real estate predatory lending practice called "flipping" on mortgages insured by the FHA. Property "flipping" occurs when a property is resold for a sizeable profit at a falsely inflated price shortly after being purchased by the seller.

In February 2010, FHA lifted the ban for 1 year to attract buyers on foreclosed properties. FHA will be extending the waiver for another year, until January 2012. The waiver will allow homes to resell as quickly as possible.

However, the following requirements must be met before pushing through with the transaction:

1. All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

2. In cases in which the sale price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets controlled conditions.

3. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for Purchase program.

For more information on the Anti-Flipping Rule Waiver, please check out http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-007.

Mortgage Insurance

Mortgage insurance, also known as (PMI) Private Mortgage insurance or (LMI) Lender's Mortgage Insurance is an extra insurance that lenders require from most home buyers who obtain loans that are more than 80% of their new home's value. It is an insurance policy taken to protect the lender against loss if a borrower defaults on a loan and it enables borrowers with less cash to have greater access to home ownership.

The first mortgage insurance payment is paid at the time of closing. The rest will be made each month together with the principal and interest payment.

The insurance payment may be canceled if the borrower has completed the payment of 20% of the total property amount. However, the cancellation must be requested by the homeowners themselves. Consumers themselves have to keep track of their loan balance if they qualify to discontinue the PMI coverage. The borrower also needs to present payment receipts showing that there was no 30 days late payment within a period of 1 year of the request or 60 days late within two years. The lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Refer to https://www.wellsfargo.com/mortgage/faq/privatemortgage for more information.  Or approach a Realtor to learn more about Mortgage Insurance.

Mortgage Interest Deduction

The President's Commission on Fiscal Responsibility and Reform recently proposed changing the Mortgage Interest Deduction law. Under the current law, taxpayers can deduct the interest payments on up to $1 Million of mortgage debt for principal and second residences and they can deduct payments on an additional $100,000 of a home equity loan from their taxable income.

As a result, in 2009, these deductions lowered the tax revenue by about $86 billion and are expected to lower tax revenues by nearly $500 billion from 2010 through 2013. For a home buyer to avail these deductions, he/she must itemize the taxes for deductions. As a rule, if the amount of mortgage interest and points paid during 2010 exceeds the standard deduction ($5700 for single taxpayers, $11400 for married taxpayers filing jointly and $8400 for head of household), he/she will benefit from the tax deduction. The deduction lowers the tax burden by more for those in the higher tax brackets. For more information on the existing Mortgage Interest Deduction check out http://taxes.about.com/od/deductionscredits/a/MortgageDeduct.htm

The proposal recommends to change the deduction (currently available only to those who itemize their taxes) to a non-refundable credit available to all taxpayers. The credit will equal 12% of interest payments on up to $500,000 of mortgage debt for principal residences. The proposed tax credit will not be applicable to second residences or for home equity loans. These changes will increase government tax revenue and will redistribute the mortgage tax benefits from higher-income tax filers toward lower-income tax filers. Check out http://www.cbsnews.com/stories/2010/12/05/eveningnews/main7120630.shtml for details on the proposed Mortgage Interest Deduction.

In the new poll conducted by Wall Street Journal/NBC News says that 60% of Americans found it totally or mostly acceptable to eliminate the mortgage deduction on second homes, home equity loans and any portion of a mortgage over $500,000.

On the other hand, in an online survey conducted by Harris Interactive which was commissioned by National Association of Realtors, said that in the 3,000 homeowners and renters who responded, nearly three fourths of homeowners and tw0-thirds of the renters said that the mortgage interest deduction was extremely important to them. In a country that has recently recovered from the subprime crisis, NAR firmly believes that any change in the current housing policies will hamper the economic recovery, raise foreclosures and hurt banks' abilities to lend and likely push the economy into another recession resulting to more job losses in the country.

NAR said that they will continue to oppose any plan to modify or exclude the deductibility of mortgage interest.

If you need to learn more about Mortgage Interest Deduction, it is highly recommended to consult with a Realtor.