Sunday, February 12, 2012

Mortgage Market Guide Vol. 10 Issue 7

Last Week in Review: The economic report calendar may have been quiet, but plenty of stories made big headlines.

All's quiet on the economic report front. But that didn't stop last week's news from making headlines. Read on to find out what happened...and how Bonds and home loan rates reacted.

Fed Chairman Ben Bernanke was back on Capitol Hill last week, reaffirming his stance on keeping interest rates low through 2014. Mr. Bernanke said that high unemployment continues to weigh on the housing markets, due to the high number of people who remain out of the labor force or are under-employed. With last week's Initial Jobless Claims coming in at 358,000, lower than the 370,000 expected, there is some good news when it comes to the labor market: It is improving, albeit stubbornly slowly.

Also in the news, an agreement has been finalized with five large banks to settle alleged foreclosure abuses, including the infamous "robosigning." The $25 Billion deal is the largest government versus business settlement since the tobacco lawsuits back in 1998. The deal is expected to include $1.5 Billion in cash payments to borrowers who were foreclosed upon between September 2008 and December 2011, but the larger part of the settlement amount is being directed to potentially help thousands of homeowners who are presently current on their loans but owe more than their homes are worth. It will take some time for the details to be decided and released, and I'll be watching this story closely as more details are forthcoming.

Greece continues to make headlines, as European leaders have now demanded that the austerity measures Greece promises to make be put into law, rather than just be a verbal or virtual handshake. The other valid concern is that there's a big, fat Greek election coming this April. Should new leadership not back these verbal agreements, Germany and the rest of Europe will be throwing good money at a bad and unresolved situation.

While this uncertainty in Europe has led to continued safe haven trading in our Bond Markets, Bonds and home loan rates worsened last week as Stocks are off to their best start to the year since 1987. The Dow Jones Industrial Average is at its highest level since May of 2008. And with the Fed continuing to underwrite the economic recovery, we should expect higher Stock prices still - and this could continue to weigh on Bonds and home loan rates over time.

The bottom line is that home loan rates remain near historic lows and now is a great time to purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week: There’s a full week of economic reports ahead, with news on inflation, manufacturing, housing, and more.

As you can see in the chart below, Bonds and home loan rates have been worsening as investing dollars have been pulled into the Stock Market. I'll be watching closely to see if this continues.
Chart: Fannie Mae 3.5% Mortgage Bond (Friday Feb 10, 2012) 

After last week's quiet economic report calendar, this week has several releases ahead.
  • Tuesday brings a look at the Retail Sales Report for January.
  • We'll get a double dose of manufacturing news with the Empire State Index on Wednesday, followed by the Philadelphia Fed Index on Thursday.
  • Also on Wednesday, the FOMC Minutes from the Fed's January meeting will be released.
  • We'll also get a double dose of inflation news with the wholesale measuring Producer Price Index on Thursday, followed by the Consumer Price Index on Friday.
  • Also on Thursday, another Weekly Initial Jobless Claims Report will be released, plus will get a read on the housing market with Housing Starts and Building Permits.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving - and when they are moving lower, home loan rates are getting worse.

To go one step further - a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. 

View: Some popular tax breaks could be going away in 2012. Check out the details below.

9 Popular Tax Breaks You Can No Longer Count on in 2012

Lawmakers may have extended the payroll tax holiday for two months, but they let a number of tax breaks that might be dear to you expire.

By David Muhlbaum,

You'll face a higher tax bill next spring if Congress doesn't act to revive a series of tax breaks that expired Dec. 31, 2011. Among the breaks that Congress didn't extend in all the sturm-und-drang over the payroll tax holiday are:

Alternative minimum tax patch
The AMT is a parallel tax system created more than 40 years ago to prevent excessive use of tax breaks by the very wealthy, ensuring they pay at least some tax. Taxpayers whose income exceeds the AMT exemption - in 2011, $48,450 for individuals and $74,450 for married couples filing jointly - must calculate both regular tax and AMT liability and pay the larger of the two amounts. But exemption levels have, at least tentatively, dropped to $33,750 for individuals and $45,000 for married couples filing jointly in 2012, which will expose 31 million taxpayers to the higher AMT this year, according to Tax Policy Center estimates.

Higher mass transportation benefit
This one's of particular interest to straphangers, van-riders and other users of public transit. A 2009 federal stimulus provision raised the maximum an employee could receive for transit, tax-free, from $120 to $230. That matched the tax-free limit for parking. With the expiration of this break, the maximum for 2012 dropped to $125. Employees who've asked to have an amount higher than that withheld from their paycheck to cover their total commuting costs will see their net pay come down, as the difference is now taxed.

Deduction for direct IRA payouts to charity
Retirees who are 70½ or older could direct up to $100,000 of their IRA distributions directly to charity and exclude the donated amounts from taxable income. Not anymore in 2012, unless Congress reinstates this deduction.

Write-offs for state sales taxes
This particularly significant expired break allowed you to deduct either state income tax or state sales tax from your federal taxable income.

Teacher's supplies deduction
Teachers, even if they didn't itemize, were able to take an additional deduction of up to $250 for classroom supplies they paid for out of their own pockets.

Tuition and fees deduction
Taxpayers (up to certain income limits) who can't claim the more advantageous American Opportunity or Lifetime Learning credits can still reduce taxable income by up to $4,000 for tuition and other qualifying educational expenses -- if, of course, Congress reinstates this break.

Mortgage insurance premium deduction
Homeowners who don't exceed certain income limits had been able to deduct premiums they pay on mortgage insurance policies issued after 2006 on their primary residence.

Personal tax credits applied against the alternative minimum tax
Credits such as the tuition and dependent-care credits were allowed to offset your AMT liability.

Research and Development credit
Like the AMT patch and direct IRA payouts, this credit, which allowed high-tech companies and others to subsidize research in areas that might go unexplored, has broad support. But it still falls to Congress to reauthorize it periodically.

We think Congress will manage to revive these breaks -- eventually -- with the exception of the transit subsidy, whose chances are no better than 50-50 . But you may spend much, if not all, of 2012 in a state of uncertainty. The political atmosphere in Washington is so toxic that it is doubtful the parties will reach agreement before the end of 2012, when Congress will have to take up the question of extending the Bush tax cuts.

If lawmakers wait too long, in 2013, we may have a repeat of the 2006 and 2010 filing seasons, when many taxpayers had to wait for the IRS to reprogram its computers before they could file their tax returns. In both cases, the start of the filing season was delayed for many until early to mid February.

Reprinted with permission. All Contents ©2012 The Kiplinger Washington Editors. 

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