Mortgage insurance will be tax deductible for some home buyers

By Holden Lewis, Scripps Howard News Service

Mortgage insurance will be tax-deductible in 2007. For some homeowners, the new law means it will cheaper to get mortgage insurance instead of getting piggyback loans.


The 109th Congress passed the tax law in its final hours. Hundreds of thousands of homeowners will save a total of $91 million when they file their tax returns in 2008, according to estimates by the mortgage insurance industry.

"This is really going to help close to a million Americans who will buy a home next year using mortgage insurance," says Kevin Schneider, president of U.S. mortgage insurance business for Genworth Financial.

Bottom line for consumers: Don't get a piggyback loan without taking a serious look at mortgage insurance, because mortgage insurance is likely to be cheaper in the long run and it might even cost less in the short run.

According to an analysis by Bankrate, a homeowner with a $180,000 mortgage would save about $351 in taxes a year because of the law. That assumes that the borrower has good credit and is in the 25 percent tax bracket.

When you buy a house, lenders consider you a riskier borrower if you make a down payment of less than 20 percent. There are two main ways to make you pay for that risk: mortgage insurance and piggyback loans.

Mortgage insurance is the old-school method. You, the borrower, pay for the policy, but the lender is the beneficiary. If you fall behind on the loan payments and the lender has to foreclose, the mortgage insurance policy reimburses the lender for legal costs and lost income.

The premiums depend on the size of the loan, the percentage of the down payment, your credit score and the type of mortgage insurance you get (private, from a number of companies, or public, from the Federal Housing Administration, Department of Veterans Affairs or Rural Housing Service).

Piggyback loans are the new-wave method of dealing with a down payment of less than 20 percent. When you use a piggyback, you get two home loans: a primary loan for 80 percent of the house's value and a second mortgage for the rest of the money you need. Getting a piggyback eliminates the need for mortgage insurance.

The piggyback can be either a fixed-rate home equity loan or a variable-rate home equity line of credit. The piggyback has a higher rate than the first mortgage.

For years, piggybacks had a big advantage because the mortgage interest on both loans was tax-deductible, while mortgage insurance payments were not. Now that has changed, with caveats.

The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.

There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less.

This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond.

If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you.

"You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction," says Bob Walters, chief economist for Quicken Loans.

In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000.

When you put those complications aside, the new law makes it easier to compare loan offers, says Mike Zimmerman, vice president of investor relations for mortgage insurer MGIC.

"Now everything's on an equal footing: Mortgage insurance is tax-deductible and piggyback is tax-deductible."

Mr. Zimmerman says that in many cases, monthly payments on a loan with mortgage insurance will cost more than piggybacks, even after the tax deduction is taken into account. That makes them more expensive in the short run. But private mortgage insurance can be canceled on loans more than two years old if the home's value has appreciated enough for the owner to have more than 20 percent equity. In contrast, you can't cancel a piggyback loan. You pay it until it's paid off.

LA man to face charges in $50 million mortgage fraud scheme

A local real estate developer accused of running a $50 million mortgage fraud scheme arrived in the United States from Samoa on Tuesday to face federal criminal charges, authorities said.

Charles Elliott Fitzgerald is charged with one count of conspiracy to commit bank and loan fraud, five counts of bank and loan fraud, five counts of money laundering and one count of obstruction of justice, according to a release from the U.S. attorney's office.

Fitzgerald was held in a downtown jail and scheduled to appear in court Wednesday.

Federal authorities say Fitzgerald and four others bilked federally insured mortgage lenders of millions of dollars using an elaborate house flipping scheme.

The group bought expensive homes in some of California's most exclusive communities, recruited accomplices to take out inflated loans using bogus appraisals, and then flipped the properties to the accomplices for double or triple their actual values.

Lenders unwittingly funded some 80 inflated loans for more than $50 million over the actual prices of the homes, federal authorities said.

Fitzgerald and friends selected homes in tony communities - including Beverly Hills, Bel Air, Malibu and Pebble Beach - where a sharp spike in price wouldn't attract attention.

Fitzgerald fled to Samoa in 2003 after a mortgage broker he is accused of defrauding sued him. Samoan authorities deported Fitzgerald when his U.S. passport was revoked after the criminal charges were filed. He was escorted on his flight by an FBI agent.

Fitzgerald faces a maximum sentence of 265 years in prison if convicted of all 12 counts.

Source http://www.mercurynews.com/

U.S. Foreclosure Mortgage Gone Up

Unemployment and risky loans are beginning to affect the Detroit's local housing market badly. This year, over 10,000 residences in the area are in the process of returning to the bank. According to RealtyTrac, this is a 121% increase from last year's data, meaning one in every 80 homes is nearing foreclosure.

The main culprit behind the problems being faced by the local housing market is the decline in the employment rate in the area, especially when big businesses such as Big Three automakers and Kmart cut the number of their workers. Families relying on only one income are now unable to support their housing needs. Since most customers do not make future considerations on buying houses, they are not able to save enough money for the payment of monthly mortgage.

The continuous drop in the prices of real estates is only making matters worse. Because people do not have equal chances of acquiring houses, recent purchasers of houses are finding it difficult to sell their houses in a price enough to pay off their mortgage. The decrease in the price also makes the properties more difficult to liquidate. For that matter, not just low-income neighborhoods are having a hard time with the situation.

The decline in the prices is then blamed to the willingness of the owners to sell their real estates at a lower price just to remove the houses as part of their assets. Because of the competitive nature of the local housing market, the price of the local housing market tends to respond to this decline. However, this is good news to first time buyers of houses because they have got nothing to lose in the first place.

Jade Amethyst www.siestakeyrealestate.com