Home Prices Increase 5.5% Nationally and 11% in Detroit Metro Area

Nationally home prices rose 5.5% in November from a year ago, the strongest increase since the peak of the housing boom in August 2006, according to the Standard & Poor’s/Case0Shiller index.  A survey from Lender Processing Services Inc., which tracks about 600 cities, showed home prices were up an average of 5.1% in November from a year ago. Prices are rising after housing inventory fell precipitously over the past year. While much of this was driven by investors who buy homes in bulk and pay cash, the flurry of activity put a floor under prices and made regular consumers more confident about buying again. Many economists expect home prices to keep rising in 2013 because those two forces- low interest rates and a slender inventory of homes for sale. Locally, statistics reflect that home prices in the Detroit Metro Area have risen by 11% from a year ago.

Home Affordable Refinance Program (HARP) helps struggling Homeowners and drives up Bank of America revenue

Bank of America claims to be the nation’ s largest home loan lender based on number of loans.  In the last quarter of 2012, Bank of America originated about $22 billion worth of mortgages.  That’s about a third of what it produced in the first quarter of 2011. Even with a third of the previous year’s production, Bank of America was able to generate nearly 50% more revenue.   The product which is driving the increase in revenue is the refinancing of existing loans which is showing signs slowing down.  After absorbing billions in losses associated with its 2008 purchase of Countrywide Financial, Bank of America in 2011 said it would bring mortgage origination completely in-house and no longer purchase loans from other banks.  Much of the re-financing  is likely being done through the government’s HARP program.   HARP loans, designed to help struggling homeowners refinance, can in some instances qualify an existing homeowner loan for a re-finance without credit approval or income verification.   According to Federal Housing Finance Agency there were nearly 800,000 HARP refinances in the first 10 months of 2012, double the number for all of 2011.

For more information on whether you may qualify for HARP check out the government website below or contact a qualified mortgage broker.

http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx

Estate Tax Update

On January 1st, Congress agreed on permanent estate tax rules that are much more generous than previously expected. Under the new rules, a taxpayer may shield  up to $5.25 million from estate taxes ($10.5 million for couples), and must pay 40% on amounts over the exemption, up to 35% from last year. Had Congress done nothing, the exemption would have fallen to $1 million ($2 million for couples), and the rate would have jumped to 55%.   On top of that, the estate and gift tax remain unified, meaning an individual can use his entire exemption to make gifts while alive.  

There was a burst of activity late last year, when people rushed to lock in favorable tax rules before the possible change on January 1st.   U.S. Trust has published that it created six times as many trusts in December 2012 as in December 2011.   

Most people making financial gifts or creating an estate plan choose to set up trusts.  Trusts are helpful because they pass funds along to the next generation and  can shield assets from divorce or other legal actions.   The trust must have a “trustee”- a banker, lawyer or family member or friend responsible for managing its finances and making decisions about funding heirs’ needs, from college to wedding and mortgages.   Trusts also provide flexibility to distribute assets to children or beneficiaries at dedicated ages such as 30 or 35.  This can be helpful if a concern exists about spending the money too quickly.

With the estate tax exemption made permanent, families with less than $10.5 million who had set up trusts to hold annual gifts to kids and grand kids might be tempted to cancel them and distribute the money under the new lifetime gift-tax exemption of $5.25 million ($10.5 million for couples). But there are some big caveats to liquidating a trust. If your heir or beneficiary gets divorced, an ex-spouse could get part of the money.   

If you are interested in learning more, contact one of our estate planning attorneys at 248-656-6800 to discuss creating or reviewing a trust.

NEW MORTGAGE RULES TO AID STRUGGLING HOMEOWNERS

In 2011, regulators found abuses of foreclosure processes at 14 lenders.  Ten of those lenders agreed to a $8.5 Billion settlement with regulators.  A new federal agency “the Consumer Financial Protection Bureau” (“CFPB”) has been created to develop rules and act as a watch dog on how lenders treat defaulting borrowers.  Mortgage loan servicers, which collect loan payments, will have to evaluate troubled borrowers for all loan assistance programs permitted by federal loans through Freddie Mac and Fannie Mae as well as private investors.  Currently, no national standard exists for how defaulted borrowers are treated by their lenders and mortgage servicers.  The CFPB seeks to standardize rules over all mortgage lenders and servicers to prevent another housing bust and to crack down on abuses against homeowners and their loans.  

The agency’s move is the latest in a string of state and federal efforts to regulate the mortgage industry which came under fire after reports in 2010 found banks were foreclosing on borrowers without properly reviewing the documents.

Under the new rules, lenders would be prevented from starting foreclosure proceedings until borrowers have missed at least four months of payments and are required to issue a written notice within 15 days of the second missed payment which explains alternative to foreclosure.  Most importantly, servicers are barred from completing a foreclosure if a borrower submits an application for aid more than 37 days before the home is to be re-possessed.

If you have questions about how these new rules may affect you please call 248-656-6800 to speak to one of our real estate attorneys.