They are at it again...
Our elected officials in Washington have been expanding the tax code again... They never really seem to stop...
This will require some explanation.
In the old days (Around 1958) those people who bought houses had to make a down payment of 20% or more to purchase a house. It is the way things were done. Banks were very careful about who they loaned money to.
In the late fifties and early sixties this started to change. The Private Mortgage Insurance industry got started. This industry sold a product (PMI) that allowed purchasers to buy a house with less then 20% down as long as they were willing to pay an insurance payment in addition to their normal mortgage payment. This allowed more and more people to buy homes since they did not have to come up with a 20% down payment.
When PMI was created it was intended to be temporary. Once you had 20% equity in your house the PMI would go away...
In the mid to late nineties it was discovered that as many as one in five Americans were paying PMI on homes that had over 20% equity. In fact, in many case, purchasers were paying PMI for thirty years.
This was outright theft and should have been prosecuted as a criminal action in my opinion.
In 1998 Congress stepped in and strengthened the rules and made it much less likely that purchasers would have to pay PMI for an inordinate amount of time from then on. Congress did actually pass a law that did IMPROVE the system.
Really, they did. I am not kidding, Congress passed a good law that IMPROVED a bad situation.
That is a brief history of PMI. Note the average home purchaser who pays PMI pays about $750 per year in PMI payments...
An industry has popped up in the last few years that sells "piggyback" loans. For example maybe you have a 80-10-10 loan. This would mean that you purchase a house, finance the first 80% of the purchase price in a first mortgage, pay 10% on a second mortgage, and put 10% down. This would allow you to buy a house and NOT pay PMI. The main disadvantage of this type of loan is the 2nd loan (10%) is at a higher interest rate then the first loan.
The PMI industry does NOT like "piggyback" loans because they require fewer people to purchase PMI...
The PMI industry and the "piggyback" loan industry are in direct competition with each other.
The PMI industry has successfully lobbied Congress and got Congress to expand the tax code to benefit the PMI industry. I absolutely hate it when our elected officials pass laws that favor one industry over another for NO REASON.
On December 9th Congress passed another law that needlessly expands the tax code and makes it even more complicated. The bill passed on December 9th, 2006 is large and complicated, I am just talking about one small part of this bill.
This bill will make PMI tax deductible (Just like mortgage interest) for certain people. This will hurt the "piggyback" industry and will help the PMI industry.
This change will only affect a small percentage of homeowners... It will only effect you if all of the following apply to you:
1. You either purchase or re-finance a home in 2007.
2. You pay PMI in 2007.
3. You itemize your deductions on your tax return.
If all of the above apply to you then this tax law change will benefit you on your 2007 taxes.
For example lets say you purchase a house on January 2nd 2007. You buy a house and pay $750 in PMI during 2007. You itemize your deductions. Lets say for this example that you are in the 25% income bracket. This would save you $187.50 on your 2007 taxes.
The PMI industry is hoping that more people will structure their loans with PMI since they can write it off on their taxes. This should expand the PMI business due to new home sales and re-financing of existing loans.
This will shrink the "piggyback" loan industry.
And this will make the tax code even more complicated and ineffective.
When preparing tax returns next year I will have to look at the mortgage statements that my clients give me. I will have to hope that they list PMI on the statement (NOT all do). If the mortgage involves PMI then I will have to determine when the home was purchased or re-financed.
Good grief...
What are they thinking?
Does ANYONE think that this is a good law?
Mike Sylvester
This will require some explanation.
In the old days (Around 1958) those people who bought houses had to make a down payment of 20% or more to purchase a house. It is the way things were done. Banks were very careful about who they loaned money to.
In the late fifties and early sixties this started to change. The Private Mortgage Insurance industry got started. This industry sold a product (PMI) that allowed purchasers to buy a house with less then 20% down as long as they were willing to pay an insurance payment in addition to their normal mortgage payment. This allowed more and more people to buy homes since they did not have to come up with a 20% down payment.
When PMI was created it was intended to be temporary. Once you had 20% equity in your house the PMI would go away...
In the mid to late nineties it was discovered that as many as one in five Americans were paying PMI on homes that had over 20% equity. In fact, in many case, purchasers were paying PMI for thirty years.
This was outright theft and should have been prosecuted as a criminal action in my opinion.
In 1998 Congress stepped in and strengthened the rules and made it much less likely that purchasers would have to pay PMI for an inordinate amount of time from then on. Congress did actually pass a law that did IMPROVE the system.
Really, they did. I am not kidding, Congress passed a good law that IMPROVED a bad situation.
That is a brief history of PMI. Note the average home purchaser who pays PMI pays about $750 per year in PMI payments...
An industry has popped up in the last few years that sells "piggyback" loans. For example maybe you have a 80-10-10 loan. This would mean that you purchase a house, finance the first 80% of the purchase price in a first mortgage, pay 10% on a second mortgage, and put 10% down. This would allow you to buy a house and NOT pay PMI. The main disadvantage of this type of loan is the 2nd loan (10%) is at a higher interest rate then the first loan.
The PMI industry does NOT like "piggyback" loans because they require fewer people to purchase PMI...
The PMI industry and the "piggyback" loan industry are in direct competition with each other.
The PMI industry has successfully lobbied Congress and got Congress to expand the tax code to benefit the PMI industry. I absolutely hate it when our elected officials pass laws that favor one industry over another for NO REASON.
On December 9th Congress passed another law that needlessly expands the tax code and makes it even more complicated. The bill passed on December 9th, 2006 is large and complicated, I am just talking about one small part of this bill.
This bill will make PMI tax deductible (Just like mortgage interest) for certain people. This will hurt the "piggyback" industry and will help the PMI industry.
This change will only affect a small percentage of homeowners... It will only effect you if all of the following apply to you:
1. You either purchase or re-finance a home in 2007.
2. You pay PMI in 2007.
3. You itemize your deductions on your tax return.
If all of the above apply to you then this tax law change will benefit you on your 2007 taxes.
For example lets say you purchase a house on January 2nd 2007. You buy a house and pay $750 in PMI during 2007. You itemize your deductions. Lets say for this example that you are in the 25% income bracket. This would save you $187.50 on your 2007 taxes.
The PMI industry is hoping that more people will structure their loans with PMI since they can write it off on their taxes. This should expand the PMI business due to new home sales and re-financing of existing loans.
This will shrink the "piggyback" loan industry.
And this will make the tax code even more complicated and ineffective.
When preparing tax returns next year I will have to look at the mortgage statements that my clients give me. I will have to hope that they list PMI on the statement (NOT all do). If the mortgage involves PMI then I will have to determine when the home was purchased or re-financed.
Good grief...
What are they thinking?
Does ANYONE think that this is a good law?
Mike Sylvester
posted by LP Mike Sylvester at 10:17 PM
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