As budget debates have consumed Washington, eyes have turned towards modifying the mortgage interest tax deduction. Long considered untouchable, changing the way homeowners can deduct their mortgage interest has drawn support from both sides of the political spectrum, though the solutions proposed range from eliminating the deduction all together to reforming the program into a tax credit.
It’s pretty much a given that you’ve seen an advertisement at some point in the last few years telling you that “now is the best time to buy a house!” before quickly moving on to pictures of happy couples and new homes with “Sold!” signs in front of them. While that whole spiel has become rather cliché, it’s perhaps truer now than ever before.
Not only are rates sitting at record lows, but most projections have the cost of a mortgage increasing in the near future as the economy continues its slow but steady recovery. That’s important because even a small change in the market can lead to paying far more for your home over the long term, as we’ll see below. Given experts’ negative outlook for the rental market and many signs that housing market is continuing a turn around, the window to buy a house cheaply might be closing.
Over the last few weeks we’ve documented important changes to the Federal Housing Administration’s (FHA) mortgage insurance program and suggested there might be more on the horizon. Well, it looks like the biggest one yet is about to land: the FHA will likely require a bailout from the federal government. For all 79 years of its history, the FHA has operated without ever taking a taxpayer subsidy. But due to extraordinary losses it is becoming increasingly likely that the agency will have to take one by September 30, when it is required by law to be solvent.
The FHA currently insures mortgages worth more than $1.1 trillion, a large share of the total housing market. To back those loans, the agency maintains the Mutual Mortgage Insurance (MMI) fund, which as of its November 2012 report, held reserves of $32.1 billion. However, the same report projected nearly $48.4 billion in losses for 2013, essentially predicting a budget shortfall of $16.3 billion. Factoring in recent changes, a bailout of around $943 million is being currently planned, though it might require a “little bit more, or a little bit less” according to Carol Galante, the FHA Commissioner.
In the years after the 2008 collapse, the Federal Housing Administration (FHA) has taken on a bigger and bigger role in the mortgage market. Rather than pull back during the crisis years, the FHA continued to back new mortgages, allowing many borrowers to purchase homes they otherwise would not have found loans for.
The effect on the FHA, though, was less positive. For several years running, its Mutual Mortgage Insurance (MMI) Fund has lost money as more and more defaults and foreclosures have hit the balance sheet. The MMI Fund is predicted to have a negative value for the first time ever, spurring aggressive action from the FHA as it tries to recoup its losses.
Back in September, we identified a looming disaster in the reserve mortgage market and concluded that major changes might be needed to prevent the system from collapsing like the larger mortgage market did in 2008. With a few months behind us, it’s starting to look like we hit the mark: the FHA recently announced sweeping changes to their reverse mortgage products, and hinted that more changes could be coming.
Most importantly, the Federal Housing Administration (FHA) will suspend the fixed-rate Standard Home Equity Conversion Mortgage (HECM) on April 1. Better known as the FHA’s reverse mortgage, the program had been the most popular reverse mortgage loan in the country for a number of reasons:
That obviously sounds pretty bad, but it’s unfortunately true. Not only have we incurred at least $35 billion in new credit card debt each of the past two years, but outstanding student loan balances now exceed $1 trillion and mortgage holders continue to default in droves. What’s more, roughly 66% of U.S. adults consume alcohol, and around 1% of the average person’s annual expenditures are on alcoholic beverages.
For some borrowers, saving for the required down payment on a home can be difficult. However, there are programs out there that allow you to receive down payment assistance. Some options for help may be in the form of a low-interest loans, or from grants from a state or local agency.
If you can no longer make the payments on your mortgage, your property will likely be seized by your lender and then sold, so they can recoup some of their losses. This is true for any loan that is secured by your home, whether it is your primary mortgage, second mortgage, or any other type of home equity loan.
In the second quarter of 2012, according to CoreLogic, about 24 percent of U.S. home mortgages were underwater. That’s a lot of homeowners that owe more than their homes are worth.
One of the most difficult and disappointing situations is facing a foreclosure. In the past most homeowners had to simply accept a foreclosure, but scandal after scandal has shifted the legal environment, and today homeowners have several options to defend themselves against foreclosure.
As with all legal procedures, foreclosure defense can take a lot of time. There is a great deal of paperwork to fill out, and a number of procedures to follow. However, during the proceedings, it’s possible to delay your foreclosure until the matter is resolved. If the judge rules in your favor, you might even stop the foreclosure process altogether.