Record low mortgage rates are being set in the United States as the rate for a 30-year fixed loan fall from 4.09 percent to 4.01 percent in the span of one week. The rate on an average 15-year loan dropped from 3.29 percent to 3.28 percent, making them some of the lowest rates large companies have seen since the 1970s. These falls were the result of a new announcement by the Federal Reserve delcare their plan to further reduce borrowing costs.

The central bank has announced that it will begin a program that is aimed at lowering mortgage rates while boosting the economy. The program, called Operation Twist, will replace the Feds short-term securities with longer-term debt. There are also plans to reinvest mature housing debt into mortgage-backed securities, which is hoped to have a positive impact on the home loan market.

Senior U.S. Economist at Capital Economics in Toronto, Paul Dales, says “Mortgage rates have fallen some ways already, but they probably haven’t fully caught up with the decline in the 10-year Treasury. It’s possible the effects of Operation Twist will drag 10-year yields down further, thereby weighing on mortgage rates more.”

While many homeowners take advantage of the lower borrowing costs in an attempt to lessen their monthly payments, these declining interest rates have not done much to stimulate the housing market. Unemployment remains above 9 percent and the number of contracts to purchase has fallen during recent months.

Photo courtesy of Loan Mortgage Credit

Each year millions of dollars worth of unclaimed cash sit in reserves at the IRS.  This money remains unclaimed in the form of income tax refunds, unclaimed savings bonds, lost life insurance policies, failed accounts in places such as credit unions and banks, misplaced pensions, lost 401k(s) and forgotten retirement money. Each year, this figure increases.

In total, the American government figures there is approximately $32 billion of unclaimed money waiting for rightful owners to make their claim. Some possible reasons for the unclaimed cash could be disabilities, demise or just plain forgetfulness.  Either way the government will only lend a small hand in helping people reclaim their cash. The onus of getting your money is up to you.

To do this, it is a good idea to always keep records of investments and any financial institutions you have put money into. If you are wondering if a piece of this pie belongs to you, check your name against the database at the IRS. To do this you must use your full name. If you see that you are owed money, the IRS provides instructions on how to claim that cash.

Be wary of sites that offer to do searches on your behalf. To do this they will need a lot of your personal information. It is never a good idea to divulge this information to a complete stranger. Try doing a search for yourself. If successful, you will need to fill out Form 1040, 1040A or 1040EZ. This form will define the size of the return. This form can be easily downloaded from the IRS site.

Image c/o ABC News

The Emergency Homeowner’s Loan is a program set up by the Department of Housing and Urban Development to prevent distressed homeowners from losing their homes. As the recession saw the loss of many jobs, it also caused the decline of many property values.

People who lost their jobs or took significant pay cuts were still struggling to make high mortgage payments on houses that had dropped in value. For many, this situation was not ideal and it was for this reason that millions of Americans lost their homes to foreclosures.

Government agencies have since stepped in with a $1 billion dollar aid program meant to help those in need make the payments on their homes. This program has been set up to provide interest-free aid to individuals who meet the program’s qualifications. Loans of up to $50,000 can be taken and repaid over a period of up to two years.

The Emergency Homeowner’s Loan works in conjunction with several federal government financial programs including the Treasury’s Hardest Hit Fund. This purpose of this fund is to assist homeowners and their families that were hardest hit by the effects of the recession.

There are conditions that must be met in order to qualify for the Emergency Homeowner’s Loan Program. First, homeowners must be at least three months behind on their mortgage payments. These payments must be owed to a legitimate financial institution and cannot be of a charitable nature.

The home must be the primary residence of the homeowner. This means it cannot be a second home, weekend cottage or other property that is not the primary residence of the borrower. The homeowner must also be able to show timely payments made in the past. This can be accomplished by providing your mortgage payment records prior to the job loss or event that caused the current condition of missed payments.

This program is granted at a local level and administered through a variety of state and non-profit agencies.

Photo by Findehlp.com

In case you don’t know what a loan modification is, it’s viagra you can call into your current lender when you get behind on your house payments and they will work with you in most cases. They can try and help you lower your payments and help you keep your home.

Here are a few things you need before you make the initial call to your loan modification company.

You need to make a financial statement of all of the expenses your family goes through on a monthly basis. Most banks will need this before they look at the case. This includes groceries, phone bills, etc.

The second thing you want to do is prepare a hardship letter, stating why you need a modification.

The last thing you want to do is make sure you put aside at least an hour for the call. Let them know that you have everything prepared to apply for the modification. Also, make sure to have your pay stubs on hand and a bank statement because they will probably ask you to fax it in along with your other documents.

Keep in mind that it could take anywhere from 15-30 days to hear back depending on how close you are to foreclosure.

You can tell how much your house is worth by looking at what homes in your neighborhood are selling for. The Seven Trees neighborhood is located in South San Jose. According to the 2000 Census, this neighborhood consists of 415 housing units and 9,628.22 people per sq. mile. The median home price in 2000 was $275,00. Prices continued to steadily go up and in 2009, the median home price in the Seven Trees neighborhood totaled $420,049. In 2010 the Seven Trees saw a decline in housing prices. The median price was $392,349. Detached homes in this area saw a median price of $447,688, townhouses and other attached units had an average total of $374,710, and 3-to-4 unit structures saw a median price of $492,454.

As of February of this month, there are 3,893 homes for sale in the Seven Trees neighborhood and the median price is $394,900. Prices are down -0.8% from last month. In addition 4,873 are foreclosure homes homes.

Image c/o:flickr.com

Condos in the area range from the lowest price of $132,00 to the highest at $168,720.

Atlantic Beach, Florida -

A while back, my friend Jerry was returning from his stint as a mercy ship captain, and noticed his oceanfront neighbor had amassed heavy equipment in his yard and on the street.

He asked his wife, “What’s going on at Doc’s house?”

She said, “He’s tearing his house down.”

“What??”

Here was a beautiful home on the Atlantic ocean with one of the longer lots (over 300’ from street to beach sand), but what Jerry found out was that because it was also one of the lots with the most frontage (200’ as opposed to the smaller 75’ and 100’ wide lots of Jerry’s and his neighbors), it was worth more as an empty lot than it was with an older style three-story home on it.

“An empty lot is worth more than the lot and the house…amazing!”

I almost couldn’t believe it, but I’ve never known Jerry to lie. And sure enough, the good doctor demolished his home, split the home site into two lots, and quickly sold each newly-sod lot for over $1.2 million each, or almost double what he could have gotten for both his house and the lot as it was.

Jerry and his neighbors’ houses were worth just a little more than that, and some were worth less. That is the crazy real estate world of the beaches in northeast Florida where I live.

Now, I am not fortunate enough to reside oceanfront as my friend Jerry and his neighbors. We have a condo a bit less than a mile from the ocean, and a little closer to the intercoastal waterway than the Atlantic. The air is still crisp, and there is a sea breeze nearly every day. We overlook an estuary and a salt marsh from our back door. But at less than half the square footage of Jerry and his neighbors, our home is worth less than $50,000 in today’s real estate market.

In fact, a few months back at the height of the decline in home values across the nation, one condo a few blocks west sold for less than thirty thousand dollars. And, I have even heard stories of investors snapping some up for less than $25k, but can’t substantiate them.

There is an oceanfront condo we looked at in 2009 that is back on the market at a reduced price of $349,000 from the over $450,000 that was the asking price then. (And it is just a wee bit larger than ours is on the marsh.) As of last week it is still for sale.

Jerry’s home on the other hand is still valued at over a million. I do not know how those who built on their newly acquired lots six houses south of Jerry’s are fairing. But I don’t imagine they are doing too poorly.

After all, oceanfront is still oceanfront. And for now at least, it seems they have ridden out the economic hurricane better than we have farther inland.

Like the millions on the Gulf Coast, and those along the Atlantic seaboard do year after year, we keep praying the actual hurricanes keep missing us. (So far so good.)

Not so this “economic Katrina”. It seems to have touched all of us in some form or fashion.

Image c/o Homeaway.

Having trouble paying that mortgage each month? You are not alone. Mark Zandi, Chief Economist at Moody’s economy.com estimates that 15 million Americans owe the bank more than the home is worth. (Zillow Real Estate Market Reports says that the percentage of single-family homes with negative-equity mortgages fell to 21.5% last year, but that was due to higher foreclosures!)

According to dailyfinance.com, “…many homes are worth only half of their mortgages. There are 4.1 million homeowners with more than 50% negative equity and another 5 million homeowners with 20% to 50% negative equity.” ( http://srph.it/b2zIRM)

So what to do? Many have tried to re-fi, but are stymied by their bank or mortgage holder because the conditions that make paying difficult also have lowered their credit scores. Home owners are finding to their dismay that even a late or missed utility bill has lowered their FICO scores more than in the past.

President Obama received accolades for putting forth the Home Affordable Refinance Program (HAMP), and two years later we find that the banks and the bureaucrats have, for whatever reason, been dragging their feet to say the least.

According to a report in the Boston Globe January 26, 2011, of the millions of homeowners now facing foreclosure, only a small fraction even stand a chance of receiving ANY help from Obama’s much balyhooed HAMP program. In his testimony before Congress, Neil Barofsky (the Inspector General appointed by President Obama to oversee the $341 billion bank bailout) reported that after two years, “….only 549,620 mortgage modifications have been started”- far short of the 4 million already facing foreclosure. And add the 15 million homeowners who upside-down (or “under water” as the banks say) and you have the formula for disaster all over again.

Abysmally, the Globe reported that of the few who did manage to get their loans modified, there is a “…disturbing number redefaulting” all over again. Congress responded immediately: three members of the House have submitted a bill to yank the $30 billion in bailout money and scrap the entire HAMP program.

Sorry to disappoint you kiddies, but it was Clinton and the Dems who declared that EVERYONE deserves to live in a house. (This debacle goes back to the early 90′s.) Bush and Company tried to put the breaks on in 2002 by trying to reign in Freddie and Fannie, but was blocked by the Democratic Congress. Hey, we all bought into it in the rush for low-money down mortgage money. Conventional wisdom holds that a mortgage on the house you live in is a special kind of debt, one that, mostly because of favorable tax treatment, is so cheap that you should be in no particular hurry to pay it off. 

But there is a popular heresy that opposes this firmly established orthodoxy. It holds that all debt is a bad idea, and paying 3X to the bank so you can save X on your taxes is loopy. Free Money Finance made this case recently. And Dave Ramsey is probably the high priest of this particular sect.  But you should really READ the contract you signed. The contract says that you get to live in the house as long as you pay the bank. If you stop paying the bank, the bank gets the house. Simple. It’s not like the bank didn’t agree to that, or agree to the value of the house at time of purchase. The question to ask is why was the bank so irresponsible in its end of the agreement?

It has to do with “Fractional Reserve Banking”, an esoteric term most have never heard of that allows banks to monetize (read: make gobs of money out of nothing!) all sorts of paper and documents. Banks are regulated and controlled by the Federal Reserve (which, by the way, is a private bank, and no more a part of our government than Federal Express), and the Fed says there must be a “reserve” at all times, a small percentage of what is reported on the balance sheets. (And there is a way they get around that also, by a percentage of the percentage….but that’s another article.) That is the actual Federal Reserve Notes (FRN, or what you have in your wallet…its called fiat banking) that are kept in drawers and vaults. The rest are numbers on ledgers, bits in computers, etc. that are created when you sign a note. Any note. Like a mortgage.

Lets say you walk out with a $100,000 mortgage; you have your signed copies and are feeling pretty good at the rates you got and your payment. The bank now has an instrument. They hold the “note”, and as a matter of rote do several things with it. One of the first seems absurd on the surface: they list it as an asset. Now you or I would not, to us it is a debt, but the bank has your signature, and they can be monetized. That means they are tangible assets, like currency. They report to the Fed that deposits just went up by $100,000 that day by declaring this asset. According to the reserve rule, they must have $10,000 on hand in FRN’s (which we know as ‘money’), but in reality they have only a fraction of that, usually $1,000 (through a complicated play on words and loopholes, but they all do it), but for this example we say the whole $10,000. That means because of the rules of fractional reserve, they have an asset of $100,000, but only have to retain $10,000, so Mr. Vice President tells his loan officers to go make more loans because we just got another $90,000 to lend out! And this happens over and over, every day in every bank. It is how banks “monetize” your signature without you ever being aware of it or authorizing it.

This is now being touted as justification for “strategic defaulting” of one’s mortgage, and articles abound on that as a way out. I am not going to delve in that already deep chasm, but will say one should be aware of their own state laws, for some are a recourse State (like Florida) that allows the lender to go after you and sue for recovery from your assets (which you really cannot hide if you have not already made yourself levy and lien proof, but that also is another post…).  

But before we even get to the walk-away stage, check to see who really holds the current mortgage. There’s a really good chance that the mortgage was already cut up and sold, meaning that the bank already got “paid” the value of the mortgage and you have no contract with the new holder of the mortgage. (Same with credit card debt. Once sold, you have no contract with the collections agency hounding you.) Sure they can sue you, but they wouldn’t win the suit. It rarely happens though because of the fear factor involved in going to court. They usually win by default when you fail so show up in court.

Now let’s get to the really interesting part… the contract! One of the five requisites to a legally binding contract is something called consideration. It basically means that both parties must bring something to the bargain, usually money. And, in the case of mortgage, it is about the money. Here’s the catch. Due to fractional reserve lending, the bank is not actually lending any money to the potential homebuyer, remember? The bank only has a fraction of the reserves it claims to have, and therefore is really lending NOTHING! It’s all accounting columns and electronic digits that are involved in the mortgage. Your signature is what creates the money (i.e., monetized), so the bank has no consideration in the contract. This therefore renders the contract null and void! But believe me, no judge would rule in your favor. (It’s just important to know from a moral standpoint. The entire banking system is immoral!)

So you see why the banks don’t “want their money back in full….” because, truthfully, they never lent any money to begin with. Fractional reserve banking insures that no actual “money” is lent! What the banks want are the houses and properties! They have some value and worth, unlike what is happening to the dollar. When the dollar crashes, the banks want to be holding tangible assets, not worthless paper. The properties go into foreclosure at the owed price so no one bids on them. The bank (or a subsidiary, or even another bank) buys it back, usually for $100 and claims the loss. The bank can buy it for a hundred bucks, but the public can not.

They can now sell the properties at many times over what they bought it for… and sell them they do to bulk buyers or brokers, who even then get lower prices than you or I. Or they auction it off. Or list it with MLS agents. It does not matter, as the profit is built in the moment they take it back for $100!  Along the way through this process the public pays at the appraised price, or more. This happens quite often at auctions. Sometimes hagglers are sent in to get prices up, and sometimes buyers just over bid to get a property.

In any scenario, the banks win. And Rep. Jim Jordan of Ohio leads the charge to “pull the plug” on mortgage modifications. So the questions remains about “ever getting ahead” and “…putting missed payments on the end…”, (I know a church and pastor that have done that for years with late fees, but that also is another post), and logic tells us that no, we cannot keep “missing” this one or that and expect to. The salient crux of the matter is not “…can we get ahead?”, but can we survive building and residing in these “houses of cards” we create, and expect to weather the economic winds?  

I say its time to pray, America.

Winds are blowing from the general direction of Capital hill of a different kind of global warming, and the economic climate change it brings about may make many more start “treading water” as they watch their homes “sinking under water” in this new round of storms.

Image c/o TheTruthAbout

If you are like the small, but growing army of folks who have dumped their homes back on the banks in a short sale—and are feeling pretty good that you managed to get the bank to forgive all that debt you owed—stand by! The IRS is about to dump an even bigger one on YOU!

Ever hear of a 1099-C? Not sure? Well, most people probably haven’t. But some of you will. Soon.

The 1099-C (pdf) is the form you should get for the total amount your lender lost on the deal for your house. And, guess what? The IRS has its own view on this: It considers this “loan forgiveness” as a source of taxable income for you.

That’s right. If you short sold on your house, you are more than likely to get a bill from the IRS to pay up taxes on the amount of the forgiven debt, or else!

Now, while I am not an accountant (I don’t even play one on TV!) – you should consult with one! I can tell you there are some handy but painful ways to avoid coughing up the money to the feds you saved on your short sale.

If you are bankrupt…like really…as in court discharged…you will probably get a pass from the IRS on this one. Also, if you were legally broke (read: insolvent) before any agreement was actually reached on the value of the short sale, you may not have to pony up a dime. Maybe.

Ever heard of the Mortgage Forgiveness Act of 2007 that extends into 2012? (http://www.irs.gov/irs/article/0,,id=179073,00.html) In most cases the borrowers in a short sale are insolvent, because they had to prove hardship in order to qualify for the short sale in the first place. According to the IRS:

“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.” (http://www.irs.gov/individuals/article/0,,id=179414,00.html)

Simply put, if you completed a short sale between 2007-2012 on your personal residence up to $2 million ($1 million if married filing separately) the debt may not be treated as income subject to taxation. (The IRS wording above is general.)

You will need to complete a sale of a home to calculate and prove your loss or gain.

You need to complete form 982 for the 1099-C. (In case the IRS requests it.) This should help you understand about the debt relief act: http://www.irs.gov/individuals/article/0…

You report the sale of your home on schedule D. If this is your personal residence and you have a loss, it is not deductible.

You then get a copy of form 982 and publication 4681. If this is your personal residence and your debt is entirely from the original loan you exclude the debt and luck out on the federal return. The form 982 prevents the cancelled debt from being income.

Your state may or may not recognize the 982. (For instance, Florida is a recourse state, but that is the subject of another post.) The best thing is to check with your accountant.

Just be sure to ask a lot of questions, and take notes. Not all accountants are up to speed on this stuff. The 1099 shows Cancellation of Debt (COD) income, and this automatically is a flag in IRS computers.

Words matter – COD income arising from debt used to acquire or improve the home is easily avoided.  COD income arising from debt used to cash-out and buy plasma screen TV’s is another story.  Sometimes you can get around it – and sometimes not.

Many preparers think that they know what they are doing with these rules.  Most of them are mistaken.  Of key importance is to have your preparer add a statement to the return explaining what happened and why you do not owe the income reported on the Form 1099, including legal citations.

The object is to persuade the IRS employee who is reviewing the return (after the computer flags it because it cannot find where the 1099 income was reported) that the income is exempt from taxation.  Without an explanation, the IRS has a tendency to come looking.

Even with an explanation attached to the return, a computer may generate an automatic letter, looking for the 1099 income.  In the event such a letter arrives, a prompt and cogent explanation will normally put the matter to rest.

But hey, that’s the current and eddys that must be navigated from the swirls and whirlpools of all the homes “underwater”. Just be sure to have an expert “scout” guide you.

And I don’t mean a Boy Scout.

Although this is a terrible time for many people as far as foreclosures go, it is a great time for those who have some cash to spend and want to buy a house.

There are many more homes on the market these days and almost all of these houses are listed for prices well below what the property is actually worth.  It’s a buyers market and in every neighborhood across the country you can find hundreds of houses for sale.

If you are really looking to invest you can even pick up apartment buildings for a fraction of the usual price. Owners are anxious to sell and will work with you just to be able to sell the building rather than have the banks foreclose on these properties.

The real estate market has been in trouble for some time now and people who were holding out for asking price are lowering prices more often than not. If you can afford it now is the time to buy that first property or starter house.

Image c/o:  www.thedigeratilife.com

With all the other economic issues plaguing the U.S, there can be a lot of confusion when it comes to assistance programs. The Homeowner Assistance program was recently expanded, and with it came more confusion. In this video, the new program is explained in detail, and homeowners can learn how to use this free program to help keep their homes.