Mortgage industry fares well in fiscal cliff deal, debt forgiveness law survives | HousingWire

The mortgage industry can breath a sigh of relief with the final fiscal cliff deal bringing back a popular tax break on mortgage insurance premiums and debt forgiveness for borrowers who go through a short-sale or some other type of debt reduction.

A topic that is still up for discussion and likely to surface later in the year is whether the popular mortgage interest tax deduction will be part of a long-term deficit reduction plan.

Still, the deal passed by the Senate and House on Jan. 1 is one that leaves room for hope in the housing market.

The American Taxpayer Relief Act of 2012 apparently extends a law that expired at the end of 2011, which allowed for the deductibility of mortgage insurance premiums, according to a research report from Isaac Boltansky with Compass Point Research & Trading. The law now applies to fiscal years 2012 and 2013.

"The law dictates that eligible borrowers who itemize their federal tax returns and have an adjusted gross income (AGI) of less than $100,000 per year can deduct 100% of their annual mortgage insurance premiums," Compass Point said.

"Certain borrowers with AGIs above $100,000 may benefit from the deductibility as well but are subject to a sliding scale. The tax break covers private mortgage insurance as well as mortgage insurance provided by the FHA, the VA, and the Rural Housing Service. In 2009, about 3.6 million taxpayers claimed the mortgage insurance deduction," the research firm added.

One of the more watched provisions of the fiscal cliff was the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec. 31.

The fiscal cliff deal extends it for another year, meaning homeowners who experience a debt reduction through mortgage principal forgiveness or a short sale are exempt from being taxed on the forgiven amount.

"The amount extends up to $2 million of debt forgiven on the homeowner's principal residence," Compass Point Research & Trading said. "For homeowner's to qualify, their debt must have been used to 'buy, build, or substantially improve' their principal residence and be secured by that residence. The law, which was passed in 2007 with a 5-year sunset provision, will now be in effect until Jan. 1, 2014."

Another minor win for housing is a provision tied to the government's plan to increase the capital gains tax rate from 15% to 20% for individuals who earn more than $400,000. While in theory, this is harder on higher-income homeowners, Compass Point sees a silver lining through an exclusion.

Compass Point notes the law "states that only gains of more than $250,000 for individuals ($500k for households) are subject to taxes on the excess portion of capital gains. Point being, in order for an individual homeowner to be impacted by the increased capital gains tax rate they would need to have an adjusted gross income above $400,000 and gain more than $250,000 from the sale of the property. Since this exclusion threshold remained intact, the impact of the capital gains tax increase is limited."

kpanchuk@housingwire.com

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Take Action to Save Mortgage Interest Deduction

Title Action Network Urges Action to Save Mortgage Interest Deduction

December 6, 2012

ALTA issued a grassroots action alert to members of the Title Action Network regarding the need to preserve the mortgage interest deduction (MID).

The alert encouraged members of the network to share concerns about any fiscal cliff solution that involves modification or elimination of the mortgage interest deduction. President Obama in December indicated the MID could be at risk.

“The housing industry is a major component in our fragile economic recovery and any modification of the mortgage interest deduction will have negative impacts,” the grassroots letter said. “As our economy continues to recover, it is important to retain the jobs our industry is creating. Changes to the mortgage interest deduction would halt job growth and not allow us to preserve jobs during this nascent recovery. Additionally, the mortgage interest deduction helps homebuyers get into their first home. We must be careful before making changes that will deter homeownership.”

So far, more than 100 members of the Network have informed more than 200 members of Congress about the importance of the MID.

To join the Network and take action, go to www.titleactionnetwork.com.

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There's a home price recovery... but it's really, really slow - Dec. 5, 2012

If Congress can't agree on a fiscal cliff deal, a recession is likely, and that would hit the housing recovery hard.

NEW YORK (CNNMoney)

Just about everybody agrees that the housing market is finally recovering -- but don't expect big price gains.

Nearly two-thirds of the nation's housing markets will see price declines for the year through next June, according to analytics firm Fiserv (FISV). Overall, the gains will be just 0.3%.

One big factor that could weigh on prices: The fiscal cliff.

If Congress can't agree on a deal to halt a series of tax increases and spending cuts, a recession is likely, and that would hit the housing recovery hard.

In addition, if the Bush-era tax cut on capital gains is allowed to expire -- allowing the rate to increase to 20% from 15% on Jan. 1 -- it would take a significant bite out of the profits high-end sellers would realize and give them less to spend on buying a new home, said Celia Chen, an economist and housing market analyst for Moody's Analytics.

"Even people who do have the resources to buy homes will be more nervous," she said.

Related: Home prices: Your local forecast

But even if we avoid the fiscal cliff, there are other factors weighing on home prices.

In order to raise more tax revenue, Congress is considering putting a cap on the mortgage interest tax deduction, a key tax break aimed at encouraging homeownership -- mainly among the upper-middle class.

Most of the benefit of this deduction goes to wealthier households. Mortgage borrowers with incomes of $250,000 or more realize an average annual tax savings of $5,460, according to the Tax Policy Center. Meanwhile, those making less than $40,000 a year, save just $91.

Capping the deduction would discourage buyers from buying bigger, more expensive homes, said Chen.

But it's not just the high-end of the market that could get squeezed.

With Congress distracted by the fiscal cliff, there is a real chance that the Mortgage Debt Forgiveness Act of 2007 could expire come January 1. If the act were to lapse, struggling homeowners will have to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction.

Related: Most affordable cities for homebuying

That means homeowners will be on the hook for thousands of dollars in taxes that they likely can't afford. That will force more people who could have sought a less damaging alternative, like a short sale, to choose foreclosure instead.

Fiserv's estimates assume that about half of the fiscal cliff tax hikes and spending cuts will occur, said Stiff. The forecast does not take into account any change to the mortgage interest deduction. Should that deduction expire, Stiff said home prices might be even weaker over the short-term.

Fiserv expects home prices to start heating up again next fall. Between June 2013 and 2014, it expects prices to climb 3.4% and to continue to grow at an annual rate of about 3.3% over the five years through June 2017.

Home prices: Biggest winners and losers

These cities will see the biggest swings in home prices through the 12 months ending June 30, 2013, according to Fiserv's estimates.

City	Forecast change
Medford, Ore.	8.7%
Yuma, Ariz	6.2%
Syracuse, N.Y.	5.2%
Hagerstown, Md.	5.2%
Pittsfield, Ma	4.9%
Naples, Fla.	-7.6%
Fort Lauderdale, Fla.	-7%
Orlando, Fla.	-6.9%
San Jose, Calif.	-5.9%
Phoenix	-5.8%

Source: Fiserv

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First Published: December 5, 2012: 5:25 AM ET

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Interesting comments about the effect of the fiscal cliff

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ALTA President available for Comment on Fiscal Cliff

For Immediate Release                                            

 

 

American Land Title Association President Available for Comment on

 

Fiscal Cliff Discussions and Mortgage Interest Deduction

 

 

 

 

Washington, D.C., December 3, 2012 — American Land Title Association President Frank Pellegrini will be available from 2 p.m. to 4 p.m. Eastern on Tuesday, December 4, to discuss the fiscal cliff and how the effects of sweeping changes in the tax code, including potential modification or exclusion of the mortgage interest deduction, would slow a housing recovery and make buying a home more expensive for first-time buyers.

 

 

 

To schedule an interview, please contact Wayne Stanley at 202-261-2932 or wayne@alta.org. Interviews will be scheduled on a first come, first serve basis.

 

 

 

 

###

 

 

 

About ALTA

 

 

 

The American Land Title Association, founded in 1907, is a national trade association representing more than 4,000 title insurance companies, title agents, independent abstracters, title searchers, and attorneys. ALTA members conduct title searches, examinations, closings, and issue title insurance that protects real property owners and mortgage lenders against losses from defects in titles.

 

 

 

 

 

Wayne Stanley

 

Manager of External Communications

 

American Land Title Association

 

202-261-2932 | wstanley@alta.org

 

        

 

 

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ALTA President available for Comment on Fiscal Cliff

For Immediate Release                                            

 

American Land Title Association President Available for Comment on

Fiscal Cliff Discussions and Mortgage Interest Deduction

 

 

Washington, D.C., December 3, 2012 — American Land Title Association President Frank Pellegrini will be available from 2 p.m. to 4 p.m. Eastern on Tuesday, December 4, to discuss the fiscal cliff and how the effects of sweeping changes in the tax code, including potential modification or exclusion of the mortgage interest deduction, would slow a housing recovery and make buying a home more expensive for first-time buyers.

 

To schedule an interview, please contact Wayne Stanley at 202-261-2932 or wayne@alta.org. Interviews will be scheduled on a first come, first serve basis.

 

 

###

 

About ALTA

 

The American Land Title Association, founded in 1907, is a national trade association representing more than 4,000 title insurance companies, title agents, independent abstracters, title searchers, and attorneys. ALTA members conduct title searches, examinations, closings, and issue title insurance that protects real property owners and mortgage lenders against losses from defects in titles.

 

 

Wayne Stanley

Manager of External Communications

American Land Title Association

202-261-2932 | wstanley@alta.org

        

 

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Housing Recovery Benefits Title Insurance Industry: Fitch

by Tory Barringer
of DSNews.com

The period’s underwriting combined ratio reached 90.7 percent, a level not seen since 2006.

“The title insurance industry is benefitting from an improving housing market that is showing less home inventory and increasing home prices nationally,” Fitch says in its report.

While mortgage originations are expected to fall off somewhat in 2013, Fitch notes that the drop will mostly be driven by a decline in refinance activity, which will be offset by growing purchase originations. As the agency points out, “purchase orders typically bring in twice the revenue of refinance orders for title insurers.”

Additionally, open order counts for title underwriters were 20 percent higher at third-quarter 2012 compared with the same period in 2011. According to Fitch, the order flow should provide a “strong pipeline of activity for the first half of 2013 and a cushion against a potentially weaker second half in an uncertain economic environment.” As a result, revenue is expected to grow in 2013, though at a more modest rate than in 2012.

While capital strength varies from company to company, Fitch says it continues to view the industry as “adequately capitalized.”

The biggest threat to the industry at this point, Fitch says, is Washington’s potential failure in avoiding the fiscal cliff. If that were to occur, economic growth would fall off drastically, leading to sustained mortgage and real estate market activity declines and a “return to sizeable title insurer operating losses and capital deterioration.”

On the other hand, if the cliff can be avoided and the housing market is allowed to grow further, Fitch anticipates an improvement in industry capitalization to historical levels.

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