Option 1st Financial Blog

With the deadline for filing taxes approaching, we hope that you find this Blog timely and persuasive enough to consider filing your taxes electronically, if you have never done so before or if in the past, you have opted to secure a loan against your refund through your tax preparer or other company. In these tough economic times, the goal is to receive your refund as quickly as possible, without incurring any fees from a third party and to not give the government a tax free loan by waiting several weeks for your return. 

Electronic filing, referred to as e-filing is an option the Internal Revenue Service (IRS) offers to anyone that would like to forgo filing their return by paper. There are many benefits to e-filing your taxes, but for some reason, many people have resisted this option. After reading today's Blog,  we hope that you understand that e-filing offers a way to receive your refund quickly and without the exorbitant fees charged by tax preparers and others. So, here are the Top 5 reasons to at least consider filing your taxes electronically? 

You'll get your tax refund faster. When you e-file, you could get your refund in two or three weeks. When you file on paper, it typically takes a minimum of six to eight weeks.

Your return is less likely to be stolen or get lost in the mail. I know someone who is still in the process of completing the required paperwork for the IRS because his income tax refund was taken from his mailbox in tax year 2008. There are people who target unsecured mail boxes during income tax season. It can be a lucrative business for predators. In addition, the post office has been known to loose mail so why take the risk with your refund. Theft of your check or lost in the mail refund checks are not an issue if you file electronically. 

You may be able to e-file for free. If you earned less than $56,000 in 2008, you probably qualify for the IRS Free File program. If you have a simple return (standard deduction, using 1040EZ), Turbo and TaxAct have free versions, with free e-file, that you may qualify for.

There's no need to wait at the post office. We've either observed, waited in line or heard the stories of long lines on April 15th, to mail taxes. When you file electronically, you do not have to wait in line and can file your taxes late in the evening if you would like, with no lines to wait in but instead, in the comfort of your home if you file yourself or your accountant's office. 

Your return is more likely to be accurate. When you e-file, you typically do so through software that can double-check your math. Any mistakes you may make with a calculator are checked by the software and remedied before you send your return to the IRS. When you e-file, you'll get an electronic confirmation that the IRS received your return.

So, now that you have the facts, for those of you that have never filed electronically, we hope that you will consider doing so this year. As always, it is our goal at Option 1st Financial to provide you with timely information and tips to help you save money and build wealth. 

Updates on the President's Homeowner Affordability and Stability Plan will be detailed in a future Blog, so keep checking back!   

Best of Luck in the decision making process!

Complete details of the President's plan have not been released but below are a few more details to provide you with a better understanding of whether you qualify for either provision of the plan and to evaluate your options. 

Q: How do I know if I qualify?

A: Your mortgage must predate the start of 2009, you must live in the home and you’ll have to provide proof of income. Then ask two questions. First, are you already behind on payments or even in the foreclosure process? If the answer is no, then ask yourself whether your current mortgage rate is high enough to make it worth your while to refinance to take advantage of today’s low rates for 15-year and 30-year fixed-rate mortgages.

Q: That’s it?

A: No. If you think it’s advantageous to refinance, you must find out who owns your loan. Most mortgages are bundled together and sold into a secondary market, where investors technically own them. If Fannie Mae or Freddie Mac placed your loan into the secondary market, you can contact the company that sends your monthly mortgage statement to discuss the new program. If your mortgage is in the portion of the secondary market where the private sector issued the mortgage-backed securities, you don’t qualify.

Q: How do I know who owns my loan?

A: You’ll have to ask the company that sends your monthly statement. These companies are sure to be swamped with calls this week, so be patient. And be warned: Borrowers have found in the past that mortgage-bill collectors-called servicers-often are less than forthcoming with answers as to who owns the loans.

Q: What if my loan is owned by Fannie or Freddie but I have negative equity?

A: You’re not alone. One in five homeowners nationwide now owes more than his or her home is worth. To qualify under the refinance portion of President  Obama's plan, you can owe up to 5% more than your home is now worth. 

Homeowners in 250 high-cost U.S. counties can seek help under either track, however, provided that they qualify, even if the mortgage is worth up to $729,750. 

Q: What about those of us who are about to lose our homes?

A: A lot will depend on whether the mortgage bill collectors, the servicers, think that they have leeway from investors to modify the loans. They’re being offered an upfront fee of $1,000 and will get “pay for success” fees for three years if a borrower’s modified loan remains in good standing. They’re being offered even more fees if they get homeowners into this program before they fall behind on payments.

Q: What happens if the servicer agrees to modify my mortgage?

A: First, the servicer has to get your monthly payment down to 38% of your monthly after-tax income. It can do this by taking a loss on the loan or stretching a 30-year loan into a 40-year, for example. It’s allowed to reduce interest rates as low as 2%.

Once the 38% threshold is met, the government matches lenders dollar for dollar to get the payment even lower, to 31% of monthly after-tax income.

This percentage is calculated on the value of a first-lien mortgage. If a home carries a second lien-often called a second, or junior, lien-the servicer will get another $250 if it extinguishes the second mortgage.

Q: Is the modification a permanent fix?

A: The new interest rate would be valid for five years. Afterward, it can rise 1% a year until the lending rate hits the conforming loan survey rate at the time of the modification. Given that mortgage rates today are low by historical standards, the loan survey rate is likely to be well below the punishing adjustable rates that are at the heart of many distressed mortgages.

Q: Do lenders have to participate in Making Home Affordable?

A: If they’re getting Wall Street bailout money and hope to get any more, then they have to play ball. Many mortgage servicers are outside this realm, however, and their trade group, the American Securitization Forum, gave only lukewarm, qualified support to the Obama administration’s plan.

As always, we hope that you find this information timely and helpful as you evaluate your options in this challenging market. Please give us a call or send an email should you have any questions.