Yesterday, I got a Realtor Action Center “Call to Action” asking me to send mail to my Senator in support of protecting the Mortgage Interest tax Deduction MID.

The problem is, I support reducing the availability of this Deduction, and possibly removing it altogether over time.

I also support removing a bunch of other tax deductions and loopholes at the same time… especially those that primarily benefit large companies like our friends in the oil industry.

But, I won’t be a hypocrite and say cut the deductions that benefit them, and not cut the ones that benefit me.

We face a looming financial crisis greater than our current one, because of the incredible debt level our government (and we citizens) maintain and the deficits we continue to run.

I don’t see it as possible we will ever agree on cutting spending enough to fix the problem. I believe we need to cut spending also, but by itself, it won’t be enough.

That means tax increases in some form or fashion.

Modifying, limiting, or removing the MID over time, is a good example of how this can be done reasonably.

NAR and the various Mortgage Industry orgs all make similar arguments (http://www.houselogic.com/articles/mortgage-interest-deduction-vital-housing-market/)

Despite news articles like this one (http://www.dailyfinance.com/2011/04/20/eliminate-mortgage-interest-tax-deduction/) almost no one is suggesting that the MID go completely away in the near term. 

Most of the current proposals for modifying the Mortgage Interest Deduction involve:

• Cutting it off for higher incomes and higher mortgage amounts
• Cutting the amount of deduction
• Cutting the deduction for 2nd homes and 2nd mortgages

These sound great!  These deductions won’t hurt the ‘average’ home owner. How many average homeowners have a 2nd home?  How many average homeowners have a $1,000,000 plus mortgage?  And, of those that do, how many of them would really be hurt by not being able to deduct that interest?  Give me a break! 

As an additional benefit, reducing the deduction for mortgage interest would encourage lower debt levels by homeowners. It would encourage people to stop treating their homes like a credit card, which was a major factor in the recent real estate/financial crisis.

The average homeowner doesn’t have to get negatively affected by changes to the MID.  I would like to see NAR focus their energies on helping find the best way to make an MID reduction work for everyone instead of a knee-jerk fight against any change in the status quo

A lot of people are in danger of losing their home due to inability to pay their mortgage. Sometimes its job loss or pay cuts, sometimes its because of rates resetting. Maybe its due to healthcare or other bills. Maybe its because they are a real estate agent…. or they are part of some other business that is affected by the economic downturn.

So, our company, CENTURY 21 North Homes Realty, is starting a series of classes to teach people how to work with their lender to modify their home loan to get payments they can afford. 

Now, no one can guarantee they can get a loan modified. (And that is a sure sign of someone trying to scam you.) But, our agents have taken professional training and have joined the networks that keep them informed of the banks’ latest forms, processes, timelines, and standards.

What is Loan Modification?

A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, it allows the loan to be reinstated, and results in a payment the mortgagor can afford.

We will teach people the loan modification process, how to negotiate with their bank, and how to avoid being scammed. These classes are free to the public and we encourage anyone to attend who is facing interest rate adjustments, possibly thinking of short selling their home, thinking of bankruptcy, or considering just walking away.

Options people might have:

• Lower Interest Rates
• Lower Principle
• Length of Contract
• Type of Loan ( arm to a fixed, fixed to an arm)

And, if a loan modification can not be worked out, they’ll need to figure out what their other options are to avoid foreclosure (like a short sale).

What is the process?  Instead of just describing the process, I thought I’d give you a more personal view into the process by working through the process myself now and talking about my experience. After all, like a lot of real estate agents the current market has meant a downturn in my income, which I sure hope will be temporary. Now, since I own other businesses, rentals, and also am an employee, my finances may be a bit more complex than yours.  I won’t really go into the exact details of them.  But, I’ll take some time over the next few weeks to go through the process and try and get into the details of the process and maybe pass on some helpful info.

First step, working on a personal budget. Yep!  The dreaded budget. 

If you want to go through this process you are going to have to figure out where you are spending your money, where can you cut things that are not necessary, and in the end… how is a modified loan going to help you keep your home.  I’m finding it to be a little painful (no surprise) but also rewarding. I’m already seeing that there are ways for me to cut my personal financial costs. 

First thing I’m cutting… the home phone. My wife and I have a cell phone and I can’t really see why I need a landline anymore.   I’m also seeing that the credit card balances have built up to where we are getting maxed out on a few.  I think its time to cancel the cardss and call the credit card companies to see if they are willing to offer us some help with lower rates, etc. 

I’ll need to verify against the bank accounts to accurately reflect what we are spending against the budget. The bank won’t be letting us get by without being honest about our spending.  And, once that is done, then we’ll have to start looking at the future budget.  But, maybe I’ll make that the next post.

Cheers!

Jason

Puget sound convergence zone. Olympic rain shadows. Valleys, rivers, lakes, etc.  All make for really odd weather in western Washington. Fog all day in the Snoqualmie valley and bright sunny skies in Redmond, just a couple miles away. 3 inches of snow in Tacoma and dry as a bone in Snohomish.

Gardeners know all about the microclimates.  On one street the flowers are blooming but on the next, they still think its winter. You can raise palm trees in one neighborhood and they die from the cold in another.

Well, as many microclimates as we have, we have as many micro real estate markets.  During a good market, maybe it doesn’t matter as much or maybe it is less noticeable… like in the summer when sunny skies make it seem like the weather is the same all over the Sound.

But, the current market really emphasizes the difference in the various neighborhoods and areas. I’ve been doing BPOs in different neighborhoods and its really shown me the amazing variety of markets we have.  For example, I looked at one of the older (1970’s) neighborhoods in Marysville. Every comparable property was either a short sale or REO.  In a 4 month period, prices dropped almost $100K, almost 30% lower in just a few months.

Compare this to Hollywood Hills in Woodinville.  Sales there have been slow. But, there are no comp REOs or shortsales on the market. Current market asking prices are lower, but not 30% lower. Maybe somewhere between 10% and 20%. Market times are long but they seem to always be long in that area, even during a “hot” market.

In Duvall, prices are also lower, but again, not by a huge amount. The market doesn’t seem to be short-sale driven and even new construction is still selling.

The commercial markets are all over the place.  Some shopping centers and strip malls are half empty.  Some are filling up as quickly as they become available. 

The point being… no one can make a blanket statement or generalization about the market and be truly accurate. Its fine to say “its down” or “its up” when talking in general conversation. (I still like the standby answer of “Its incredible”… no one has to say ‘incredibly bad’ or ‘incredibly good’).  But if someone wants a realy answer, I hope agents take the time to give a real answer.

Do agents have to specialize in micro-markets?  I don’t think so. I think it does require recognizing they exist. Agents have to take the time to study the local or micro market and find out what is really going on and what is driving sales.  Just like the weather, the market varies greatly in just a few miles. So, you or your agent better always carry their mental umbrella! 🙂

Thanks for letting me ramble

Jason hershey
http://jasonhershey.activerain.com
http://www.jasonhershey.com
Twitter: @PlumCrazyRE

My friend Jeff Nance sent me an update on residential rates just before Christmas.

Here they are:

Courtesy of
Jeff Nance, Branch Manager
Golf Savings Bank
Cell: 425.772.3341
Fax: 866.299.2454
jnance@golfsavingsbank.com

Rates opened this morning on the conventional 30yr fix slightly lower, and the FHA/VA rates were just slightly higher. The biggest move was in the short term adjustable rates. We saw a significant worsening in these to start the week. We were pricing interest only 5/1 Arms last week at 5.5%, and today we are pricing them at 6.0%. So, we are again in the mix of an inverted yield curve, which means there is a better value with the long term rates.

– Jeff