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Could the approaching Fiscal Cliffs affect the Recovery

November 12, 2012

Now that the election is over,  Wall Street and the media are starting to talk about the approaching fiscal cliffs and the impact they could have on the economy.

What fiscal cliffs are approaching?

- The current unemployment benefits and the payroll tax cut will expire soon, and not likely not get extended again.

- The Bush era tax cuts are also likely to expire this time around.

- The debt ceiling will need to be raised (again). If the Republicans and Democrats play politics and not compromise until the last minute, the ratings agencies may consider another down grade our debt rating.

- A pending increase on dividend and capital-gains taxes.

- The European debt crisis is once again in the news with the recent revision of their potential economic growth forecast. It has gone from a 1% grown estimate to virtually no growth estimate in Europe for 2013.

- Required defense spending cuts.

Could we go into another Recession?

We could but this time it will be much different. Our banking system is a lot stronger and real estate market has pretty much worked through a lot of inventory. Home values are starting to rise in most markets and a housing shortage seems very possible in a growing economy.

So what do I do?

Live within your means. If you do not own a home, buy a home as home values are lower and interest rates are at a near historic low. You will also gain a tax deduction from the interest on the home loan. If you own a home now, look to refinance and lower your monthly payment. Rates will rise if the United States credit rating is downgraded again, so low rates wont be around forever.

Two things feel very certain.

  1. Rates are at historic lows and you will most likely never see this again in your life.
  2. The down side risk is very limited compared to the upside opportunity.
  3. Debt ceiling The Mortgage Blog

Whether you own a home now, looking to buy a new home, OR simply buy your first home, now is the time to take advantage of the lower home prices and historically low interest rates. If you are looking to buy or refinance a home in the state of Georgia, contact me and we can get started today.

Consequences of a debt ceiling standoff

As weve all been hearing and reading about over the last several weeks, a standoff is brewing in Washington DC between political parties involving the debt ceiling. One side wants to raise it. The other side doesnt unless spending cuts occur. Unless a compromise is reached, many government services will be forced to shut down once government spending reaches the debt ceiling (technically we reached it weeks ago and creative accounting will get us to early August before the shutdown would become official).

US Debt Ceiling

Specifically relating to the mortgage industry, there are two consequences that wont be a lot of fun a potential suspension of FHA loans and no tax return verification services from the IRS.

FHA loans are funded by banks across the U.S. so this doesnt mean the money to fund FHA loans is going to disappear. What it does mean is getting the government-insured mortgage insurance policies will be all but impossible while a government shut down is in place.

If pressed on the matter, lenders could probably fund and the float FHA loans until they could get the mortgage insurance from the government on the FHA loans once the shut down is over. The larger issue would be the suspension government services. Most government offices will close with the exception of social security, medicare, and the military. This means the IRS will temporarily close its doors.

Lenders require a verification of filed tax returns on all borrowers, and these requests are fulfilled by the IRS. Closing a loan without verifying the filed tax returns through the IRS in our cautious lending environment is a risk that many lenders may be unwilling to accept. Since the IRS would not be able to fulfill these requests, one can argue that this could effectively shut down the mortgage industry until the debt ceiling situation is resolved.

Hopefully nothing will come of this the two sides will compromise the shut down avoided the housing market can continue to move along. That said, the potential shut down date is estimated to be only a few weeks away. What can should you do?

First, if the plan is to buy a home this summer, I would recommend getting started today. There is enough time to find a home and close on it prior to the end of July. Next, I wouldnt have an extended closing date. If you can be ready to close before the end of July, do it to ensure your plans wont be impacted by anything taking place in D.C.

Lastly, get started :-). If you plan to buy a home in the state of Georgia, I know just the person to help get you going!

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