For those who have lost a home or defaulted on other debt, the salt in the wound might be the income liability associated with cancellation of debt.   As you may know, when you are relieved of debt, the IRS considers the amount to be taxable income.   And this is the time of year when those 1099C notices show up.

But if you were insolvent at the time, you may have an easy way out.  Here’s a good article for those facing an income tax liability due to cancellation of debt.

To read the news, you would think mortgage rates had suddenly fallen through the floor.   While the slide has been steady in recent weeks, owing to the Fed’s fat wallet and their promise to shill at the Treasury auctions, the decline is clearly not as dramatic as portrayed by the headline-hungry media.

Here’s what I mean.  These are the weekly national averages for 30 year fixed rates taken from Freddie Mac’s weekly Primary Mortgage Market Survey published each Thursday.

• March 26:  4.85%
• March 19:  4.98%
• March 12:  5.03%
• March 05:  5.15%
• February 26:  5.07%
• February 19:  5.04%
• February 12:  5.16%
• February 05:  5.25%
• January 29:  5.10%
• January 22:  5.12%
• January 15:  4.96%
• January 08:  5.01%

Hmmm….not so much.   Year to date, rates have fallen just 16 basis points, less than two tenths of one percent!  Not exactly the plunge describe in our own Sacramento Bee last week.

The details are common casualties of the hype, but remember, that’s where the devil lives.   For example, banks are not pricing the old “zero points” loans favorably these days.  Home owners  accustomed to eliminating points with a small increase in interest rate find that today the rate offered is 5.5% or higher.

If you are pulling cash out or your credit scores have fallen below 740, you’ll pay a higher rate as well.    Those buying duplexes and condos also pay higher rates.   And if you’re are an investor, rates and fees look nothing at all like the advertised rates.   These risk-base price adjustments have been implemented by Fannie Mae and Freddie Mac this year in reponse to the high mortgage default rates, and the effectively mean that only a narrow cross section of today’s borrowers have access to those really low rates.

And don’t pay attention to the rumors that the government is going to somehow push rates down to 4% or lower–I hear that one a lot lately–because it just isn’t going to happen.  The only reason rates aren’t rising already is that  a) the economy is deflating rather than inflating, and  b) the Fed is standing by to buy MBS and Treasury securities to keep rates in check.

The California State legislature recently approved a 90 day moratorium on foreclosures.  Exempted are banks with loan modification programs.  Although opponents vehemently denounced the new law as merely delaying the inevitable, the exemption could apply needed pressure on the banks to more actively modify loans.  Other critics argue that there are too many loopholes and that  having a loan modification program and actually doing loan modifications  are two different things.  Here are some details.  Here’s the SF Chronicle article.

With the First Time Home Buyer Tax Credit that was first passed last Fall, and the recent House and Senate versions that modified that further, some people are still confused about the details.  How much is the credit, when does the home have to be purchased, and can the tax credit still be taken for the 2008 tax year?

Here’s a good site where you can find quick answer to most questions.

Last week’s announcement by the Fed that it was committed to buying an additional $750b of mortgage-backed securities (MBS) and up to $300b of Treasuries had a brilliant one-day impact on mortgage rate. For the remainder of Wednesday, mortgage rates “plunged” (in the words of the Sacramento Bee) by one-quarter to one-half percent. Okay, we all define “plunge” differently perhaps.

But since then, we have given some of that back.  Today, Wall Street appears to like Geithner’s plan for the purchase of bank toxic assets because the stock market is rallying, nudging mortgage rates up slightly from Friday.

I recommend checking Freddie Mac’s Primary Mortgage Market Survey to cut through the advertising hype to see what mortgage rates are truly doing.  If someone is quoting something substantially different, there is more to the story.

The fed announced its intent to purchase an additional $750b of mortgage-backed securities AND $300b of 2 to 10 year Treasuries. Mortgage rates have responded positively but not dramatically. More to follow as we see rates today…..

The financial rumor mill has been churning out speculation that the Fed may start buying Treasury securities as a means of pushing mortgage rates lower.   Investors have long equated the risk associated with mortgage-backed securities (MBS) to that of longer term Treasuries, particularly the 10 yr T note.  So, the argument goes, pushing treasury yields lower will push mortgage rates down as well.

The fly in that ointment is that investors have recently learned a lesson:  mortgage-backed securities (MBSs) are a helluva lot riskier than Treasuries, and we’re not just talking about subprime MBSs.  Once the cycle got into full swing, even prime loans began defaulting at an alarming clip.  Couple that with derivatives cooked up by financial alchemists and rating agencies who dissembled Wall Street greed by stamping AAA ratings on the swill, and MBSs began to look more like Frankenstein than sweet old Uncle Sam. In fact, investors have been completely scared off.  The U.S. government is currently the only investor buying MBSs.

So the Fed buying Treasuries may push those yields down without having any effect on mortgage rates.  In fact, we’ve recently seen increases in “delivery fees” (read risk premiums) and Loan Level Price Adjustments (read risk premiums) as the market “prices in” the previously unforeseen risk.  All the internal pressures seem to me to be pressuring rates higher, and they are currently held in place only by the remaining $300b or so the Fed still has in its wallet to buy MBSs.   But what happens when that money runs out?  We print more?  Mortgage rates skyrocket?

Somebody help me here.  Got an opinion on this?  You see that “read comments” thingie below?  Click that and leave your thoughts.  I’m not an economist; maybe you are. Or maybe you have some knowledge or insight to share.  Let’s hear it!