Archive for October, 2012

Super low interest rates have allowed today's homebuyers to bid home prices up near peak levels in many areas. This helps lenders recover more capital from the bad loans they made during the housing bubble, which is why the federal reserve is intent on driving mortgage interest rates even lower. As a result of all this artificial stimulus, price-to-income ratios have remained elevated far above historic norms. Unless interest rates are going to remain this low forever, one of three things must happen: either house prices must go down further, debt-to-income ratios must increase, or wages must go up. Higher debt-to-income ratios proved disastrous because borrowers cannot sustain the payments, so that outcome isn't likely. Since the federal reserve will…[READ MORE]

Ordinarily, if a borrower has debts forgiven outside of a bankruptcy, the amount of the forgiven debt is taxable income. This makes perfect sense if you think about it. If one party gives another money, it is either a gift or it's income. Even if it's a gift, if it's over a certain threshold, the government taxes it as income, largely to prevent wealthy people from avoiding inheritance taxes. When a borrower gets a large amount of money from a lender, it's not income because the money is repaid. If it isn't repaid, it's either a gift or it's income. Anyone who received debt relief from a lender between 2007 and 2012 was able to treat the money as a…[READ MORE]

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