Is it Tax Season Already?

Even though it's not yet February, every day's mail seem to bring more statements needed for my 2009 taxes.
Nothing about taxes is easy, and deciding how to fill out your return is no exception. Should you hire a tax preparer or do it yourself? Go with one of the free online options or stick with the old-fashioned paper forms? If you’re like approximately 80% of tax filers, you’ll turn to tax software or a tax preparer. But that doesn’t mean the end result will be error-free. I have the newest version of Turbotax Deluxe installed on my computer, and combined with Quicken, that seems to work for me, but I have a background in tax preparation...admittedly many years ago.
When the Government Accountability Office sent secret shoppers to 19 storefront tax preparers, each and every one goofed up something. More mistakes were found in returns prepared by so-called tax experts than by individuals, the 2006 GAO report found.
The obvious solution is to simplify the tax code, but the IRS can’t change tax law; that’s up to Congress. So instead the IRS is focusing on the oversight of tax preparers. Currently, anyone can be paid to prepare tax returns without registering with the IRS, but the agency recently announced that in future tax seasons, all paid tax preparers will be required to register. Competency testing and 15 hours of annual education will also become a matter of course, although CPAs, attorneys and enrolled agents will be excluded because they already adhere to similar standards to keep the letters behind their names.
But some worry these new rules don’t go far enough.
It’s a valid concern, especially after recent reports of more than 100,000 suspicious claims relating to the first-time home buyer tax credit.
You are ultimately on the hook for your return, even if your tax preparer goofed it up.
So what can you do? Be careful, especially this year, since new tax breaks designed to stimulate the economy: energy-efficient home improvements, the home buyer credit, education tax changes to name a few, will make filing for tax year 2009 even more confusing.
Get recommendations. Ask your family, friends and business associates. Look for someone with experience preparing returns like yours. For instance, if you run a small business or own rental property, look for a preparer who understands the related tax code.
-Ask questions. How do they keep up with new tax laws? Do they have additional credentials? Will they be preparing your return or will they pass it off? Don’t hire a question-dodger.
Find a year-round preparer. For most of us, tax season ends on April 15. But the IRS is open year-round and might send taxpayers letters asking for additional documentation or announce an audit in the middle of summer.
The IRS suggests taxpayers avoid preparers who claim they can get you the most money back or base fees on the size of your refund. And only work with a taxpayer who will sign your return and provide a copy.

Will Major Support for Housing Be Ending?

If the government carries through with its plans, major support for the housing industry could end by April, leaving the sector to fend for itself. That could happen because of two critical decisions: the tax credit for home purchases that will end with contracts signed by April 30 (buyers have until June 30 to complete their purchases, and the possibility that the federal reserve will stop buying mortgages by the end of March.
The central bank indicated at its last rate-setting Fed Open Market Committee meeting that it intended to purchase $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt by the end of the first quarter of 2010, and to "gradually slow the pace of these purchases to promote a smooth transition in markets."
Both dates could be extended, depending on market conditions. The FOMC emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in the financial markets. If the Fed doesn't see private money coming back into the mortgage market, it will either need to change its mind or let mortgage rates rise back to the 6%-plus range they were before the Fed started its intervention.
Mortgage rates are currently below 5%. If they jump back up to 6%, lots of people won't be able to afford a home that may have been within reach at the lower interest rate.
This Could Be Just a Test
Clearly, Congress got the message that the housing industry hadn't yet healed enough to go it alone. With foreclosures continuing to mount, there's no reason to think it will be ready on May 1. Considering the election that's looming this year, it's likely that Congress will decide to extend that tax credit as well.

FHA...Some Good News, Some Bad

Rising defaults on loans insured by the Federal Housing Administration have led the agency to impose future policy changes to its home loan program.
The FHA is federally mandated to maintain reserve funds at 2 percent or greater. As of November, the agency reported that its fund had declined to .53 percent. The funding is used to cover losses on mortgages insured by the FHA that go into default.
Loans insured by the FHA generally are less expensive to borrowers because of the lower down payment requirements. However, these loans also have fees, such as up-front mortgage insurance. To help the agency raise its cash reserves, the FHA is increasing the up-front mortgage insurance premium from its current 1.75 percent to 2.25 percent. HUD released a Mortgagee Letter today making the premium increase effective in the spring.
The agency also is raising the minimum credit score requirements. Currently, borrowers with FICO scores as low as 500 have been approved for FHA-insured loans. Under the policy changes, new borrowers will be required to have a minimum FICO score of 580 to qualify for the FHA’s 3.5 percent down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10 percent.
The new policy also will reduce the amount of money sellers can provide to home buyers at closing to 3 percent, down from its current 6 percent of the home’s price. The change brings the agency in line with industry standards and removes the incentive to inflate appraisals. The FHA expects these changes to take effect in early summer after it passes the normal regulatory process.
So what was the good news?
HUD/FHA eliminated the need for second appraisals on high balance loans in declining markets effective January 25, 2010.
Loan amounts that exceed $417,000 will no longer need two appraisals.
This benefits our clients reducing costs and increased efficiency in their loan processing. I guess that we should be happy for small favors.

What to Do With that Old Paint

When we are closing on a house sale, there are almost always paint cans and cleaning products left in the garage. If the house was recently painted to facilitate the sale, I ask the sellers to mark the cans and leave them for the new buyers, who usually appreciate the matching paint for any needed touch ups.
But what about the "mystery paint" that is piled in the corner, and may have been there for many years? This needs to go to hazardous waste centers.
I've often wondered what happens to all the latex paint that is dropped off at these centers. It turns out that it's recycled and is being resold at your local paint distributors, Dunn-Edwards and Kelly-Moore, for instance. Recycled paint sells for less, but the quality and viscosity is augmented by blending it with virgin materials. Check out this site for more information and a complete list of distributors.



For more green real-estate-related tips and discussion, visit C.A.R.’s green blog (http://blogs.car.org) and C.A.R.’s Green Web site (http://green.car.org).

What's Happening with Mortgage Rates?

Freddie Mac has made home ownership possible for one in six homebuyers and more than five million renters. It was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets, and supports communities across the nation by providing mortgage capital to lenders. According to Frank Nothaft, Freddie Mac vice president and chief economist, "Mortgage rates eased slightly this week after rising consecutively through December. Current interest rates for fixed-rate mortgages are just about at their annual average for 2009, while ARM rates are considerably below their averages for last year."
The 30-year fixed-rate mortgage averaged 5.09 percent with an average 0.7 point for the week, down from last week when it averaged 5.14 percent. Last year at this time, the 30-year FRM averaged 5.01 percent.
According to Norhaft, "As the economy strengthens further and the Federal Reserve decides to raise its overnight target rate, ARM rates will follow suit because they are typically tied to shorter-term interest rates. However, the federal funds futures market does not anticipate any Fed action until the second half of 2010."
Interest rates can only go up from here. The 30-year fixed rate for a conforming loan ($417,000 or less) hovered around 5% for most of 2009 — the lowest rate in 38 years. Jumbo rates fell to a four-year low (in early November, 5.3% for a conforming jumbo of up to $729,750 and 6% for a traditional jumbo). By mid-2010, conforming rates will rise to 5.5% or above and close the year at 5.75% to 6%, according to mortgage analysts Jumbo rates will be 6.25% or a bit higher by the end of 2010. This forecast assumes that the economy will improve a bit and inflation will reappear.
The wild card in that forecast: whether the Federal Reserve stops buying Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities in March, as planned. The program has probably tamped down rates by about three-fourths of a percentage point. The Fed could carry on if it thinks the mortgage market hasn’t recovered enough.

Local Market Snapshot

The State median price has seen an improving situation: Following a 59 percent peak-to-trough decline, California’s median price surpassed the $300,000 threshold in November, an increase of 2.4 percent in month-to-month comparisons, and the first year-to-year increase since August 2007.
Sales also are in healthy territory: Home sales in California returned to pre-peak levels in late 2008, and sustained them throughout 2009.
The most exciting part of all this is news from our Santa Clara County statistics, released this week....The average days on market are way down, and sellers of both single family homes and condos are now receiving an average 0f 99.5 percent of their asking prices!

Don't Believe Everything You Read

For some time, the San Jose Mercury News weekend real estate section has been a compendium of articles gleaned from national wire services. The problem with this is that the local market is not really served, or even reflected well.
When a buyer or seller in Santa Clara County reads a huge front page headline (accompanied by a cute picture of young buyers) that says, "No Harm in Asking...Buyers have more leverage than ever to get sellers to come to their terms,"
they think that they are still in a buyers' market.
They are likely to read the headings and miss the part that says "How much give there is depends on the market. Despite current tough times, there are areas where many homes are selling above the list prices since there's little inventory....There are homes receiving 15 offers, with all above listing price."
This is a perfect description of our section of the Bay Area. Right now, there are a total of 2200 properties on the market in all of Santa Clara County...including houses and condos. A year ago, there were around 6000. Until inventory increases, this will remain a sellers' market.

Spend Now, Worry Later

In his State of the State address on Wednesday, Governor Schwarzenegger called on the legislature to extend last year’s first time home buyer tax credit and expand it to include the purchase of existing homes as well. This complements the California Association of Realtors' already introduced legislation, SB 206 (Dutton) that would provide an $8,000 tax credit to those who purchased a bank-owned property that will be used as a principal residence.
The problem that I foresee is where the funds will come from for all this largess, especially now that the courts have overturned the unpaid days off for government workers, and the governor is also promising more money for schools. Last year, the State ran out of tax credit money very quickly.

Uncle Sam Makes it More Complicated

In federal rules that took effect Friday, Jan. 1, mandate a new standard, three-page Good Faith Estimate that urges consumers to shop around for the best loan and helps them compare lenders’ offerings. The rules are an update of the Real Estate Settlement Procedures Act, a 1974 law known as RESPA.
This seems to make a lot of sense, but Sue, our in-house lender says that the new rules are so complex that she is planning to take the training for the third time!
Although Good Faith Estimates have been in use for a long time, there never has been a standard form required of all lenders. Under the new rules, lenders and mortgage brokers are required to give consumers the standard estimate forms within three days of receiving a loan application.
Lenders are prohibited from increasing the origination fee from the estimate. Some additional charges, including title services and recording charges, can increase by as much as a combined 10 percent. Estimates for other charges, such as homeowner’s insurance and other services provided by third parties selected by the borrower, aren’t subject to such limits.
A finance professor emeritus at the University of Pennsylvania’s Wharton School recommends that borrowers focus on two items as they shop: the interest rate and the “adjusted origination charge,” which includes any points paid to lower the rate.
It seems like a good idea, but The Good Faith Estimate form requires lenders to combine all of the bank’s fees into one “origination charge,” which is supposed to enable consumers to compare one lender’s fees with another’s. The problem is that by lumping all the charges together, there is no breakdown in the form.
Sue says that her company, Princeton Capitol, is adding a second page with a full listing of charges. Sounds like a plan.

Maybe 2010 Isn't the Best Year to Die

For years, financial advisers have been joking that if you have to die, 2010 was the year to choose. This was because of the way the Bush era estate tax rules were structured. If the U.S. Senate doesn't pass a new estate tax bill, this tax disappears on Jan. 1. But it's not all good news, because the tax will reappear in 2011 with higher rates and lower exclusions.
Under the law that takes effect Jan. 1, taxpayers will face capital gains taxes on inherited property. The tax will be calculated on the original cost of the property to the person who has died. This could be extraordinarily complicated. It may not be so easy finding out what your grandfather paid for the property sixty years ago.
It is likely that the Senate will pass a one-year extension of the current law, with a retroactive date to Jan. 1, 2010, buying time to fix the situation. But that will almost certainly result in a rash of lawsuits that could make inheriting property in 2010 really complicated.