Senate ‘Cliff’ Bill Retains Mortgage Cancellation Relief

January 1, 2013,
by Robert Freedman  

President Barack Obama has signed the agreement into law that tax rates would remain the same for most households and mortgage cancellation relief is extended in a budget package passed by the U.S. Senate to avert the so-called fiscal cliff.

The “American Taxpayer Relief Act of 2012’’ passed on a bipartisan 89-9 vote in the middle of the night and extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers.

For households earning above these limits, tax rates would revert to where they were in 2003, when taxes were reduced across the board. That means taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6 percent, up from 35 percent.

Mortgage Rate Outlook

Oct 5, 2012 — Even though some of the economic news was a little warmer this week, mortgage rates continued their downward drive. However, the decline this week was more muted than last week’s, and with the cumulative benefit of the Fed’s “QEternity” program of purchasing Mortgage-Backed Securities closing in on a quarter-percentage point, we may not have all that much room for rates yet to fall at the moment.

HSH.com’s broad-market mortgage tracker found the overall average rate for 30-year fixed-rate mortgages declined by just two basis points (0.02%) to 3.68%, a new record low, while the FRMI’s 15-year companion shed three basis points to land at a new record low of an even 3%. FHA-backed 30-year FRMs downshifted by just a single basis basis point, as the most viable option for credit- or equity-impaired borrowers trickled to a new low of 3.28%. Finally, the overall average rate for 5/1 Hybrid ARMs held fast at 2.70% for a third consecutive week, remaining at a record low.

The Fed’s program of manipulating mortgage prices is a two-edged sword, or at least a Catch-22. The Fed wants to see more economic growth, so it pushes mortgage rates down to help foster growth. If the economy is improving or does start to improve, the Fed will need to do less to achieve its goals, and mortgage rates would tend to rise with the improving climate… which in turn might temper growth. What to cheer for? Broad-based economic gains which take the Fed out of the picture, letting markets again discover the true price of mortgages? Or to root for interest rates to remain at artificially low levels, so that more homeowners can profitably refinance, or to see home prices reflated though the inducement of affordability-driven sales?
At some point, and for some time thereafter, we are likely to see both. How long such conditions — a rising economy with rock-bottom rates — might last is anyone’s guess at this point. The Fed has pledged to keep its foot on the gas even after the economy gets more fully underway, but that strikes us as a nervous time in the markets, indeed.
It would appear that the decline in rates has softened, at least for the moment. When the Fed announced its program, we reckoned it might have a value of a quarter-percentage point on rates given current conditions, and we’ll stand by that assessment for at least the moment. That being the case, and since much of that expected decline is now in place, we’ll call for rates to be about unchanged next week.

Mortgage Rates Trimmed

Mortgage rates trimmed some of their recent rise last month. Economic news continues to be tepid, although somewhat better in tenor than that seen over the last few months. In a speech before the monetary conference in Jackson Hole, Wyoming, Fed Chairman Bernanke reiterated the Federal Reserve stands ready to adjust policy to foster stronger economic growth. The message was exactly the one the Fed has been using for a while, but since the Chairman himself uttered it, some analysts believe there is an increased likelihood the Fed will embark on a new program to stimulate the economy before too long. As far as mortgage rates go, they could hardly be better, anyway.