Fair Isaac, which developed FICO scores, used a comparison between two people to explain how mortgage delinquencies affect credit scores.

Fair Isaac derived these numbers from a theoretical calculation based on hypothetical borrowers – one with an initial score of 680 and one with an initial score of 780. FICO scores range from 300 to 850.

The hypothetical person behind the 680 score had six credit accounts, while the person with the 780 score had 10. The consumer with the 780 score had no missed payments other than the mortgage; the 680 example had two late payments before they failed to pay the mortgage.

After a mortgage payment problem, the two scores would look like this:

• After a 30-day delinquency, the 680 score drops to somewhere between 620 and 640; the 780 score declines to 670 to 690.
• After a 90-day delinquency, the 680 score falls somewhere between 595 and 610; the 780 score goes to 645 to 665.
• After a foreclosure, short sale or deed-in-lieu, the 680 goes somewhere between 575 and 595 and 780 drops to 620 to 640.
• After a bankruptcy, the 680 drops somewhere between 530 and 550; the 780 declines to 540 to 560.

Source: CNN, Les Christie (04/22/2010)

“If you’re in the market for a home, the world is your oyster. Interest rates are at record lows. Housing prices in many parts of the country are still depressed. And you may be eligible for a generous tax break, even if the home you buy isn’t your first.

On Nov. 6, President Obama signed legislation that provides a $6,500 tax credit for some current homeowners who buy another home. The law also extends the $8,000 tax credit for first-time homebuyers, scheduled to expire Nov. 30, until next spring.

A lot of people are interested in taking advantage of this tax break, but the expanded credit also has whipped up a lot of confusion. Here are some answers to frequently asked questions:

Q: How do I qualify for the $6,500 credit?

A: This credit is available for homebuyers who sign a binding contract on a new or existing home by April 30, 2010, and settle by July 1 (deadlines that also apply to the first-time homebuyer credit). You must have lived in your existing home for five consecutive years out of the last eight. The home you purchase must be your primary residence. However, the law doesn’t require you to sell your old home, says Bob Meighan, vice president at TurboTax, the tax software provider. You can use it as a second home or a rental and still claim the credit, he says.

Q: I sold a home I had lived in for more than five years and bought a new one in August. Do I qualify for a tax credit?

A: No. For existing homeowners, the $6,500 credit is limited to homes purchased after Nov. 6.

Q: Does the home I buy have to be more expensive than the one I own now?

A: No. While the real estate industry is hopeful that homeowners will use this credit to buy a nicer place, there’s no prohibition against using it to downsize, Meighan says. That makes this credit particularly useful for seniors who are interested in moving into a smaller home.

If you are planning to move up, keep in mind that you can’t claim the credit if the purchase price of the home exceeds $800,000. Unlike some other tax credits, this one doesn’t slowly phase out once you exceed the threshold, Meighan says. If you buy a home for more than $800,000 – and that refers to the purchase price, not the assessed value or the amount of your mortgage – you are ineligible for the credit, period.

The $800,000 cap also applies to first-time homebuyers, but only those who purchase a home after Nov. 6. First-time homebuyers who bought a home for more than $800,000 between Jan. 1 and Nov. 6 can still claim the credit, assuming they meet the other criteria, Meighan says.

Q: I’m an existing homeowner, and would like to build a new home. Can I claim the credit?

A: Yes, but make sure your builder is good at meeting deadlines. You can claim the credit as long as you have a binding contract in place by April 30 and close by July 1. In the case of a new home, the closing date is the day you move in, Meighan says. If your home isn’t habitable by June 30, you won’t be able to claim the credit, he says.

Q: I bought a home in 2008 and claimed the old $7,500 first-time homebuyers credit, which must be repaid over 15 years. Did the new law change that rule?

A: No. That credit, which was available for homes purchased between April 9, 2008, and Dec. 31, 2008, must still be repaid.

The $8,000 first-time homebuyer credit, available for homes purchased after Dec. 31, 2008, doesn’t have to be repaid as long as you remain in the home for at least three years. Existing homeowners who qualify for the $6,500 credit don’t have to repay that money, either, as long as they meet the three-year requirement.

Q: We have a rental home and would like to sell it to our son, who has never owned a home. Would he qualify for the first-time homebuyer credit?

A: No. The legislation specifically prohibits taxpayers from claiming the credit if the sale is between “related parties,” Meighan says. A home sale to a parent, grandparent, child or grandchild would fall into that category.

Q: I sold my home this year and have been renting since. If I buy a new home, do I qualify for the expanded credit?

A: Yes, as long as you meet all of the other requirements, says Mel Schwarz, partner with Grant Thornton in Washington, D.C. The eight-year period used to determine eligibility ends on the day you buy your new home, he says.”

For millions of Americans, “consultant” or “freelancer” is a euphemism for “unemployed.”

But whether you’re self-employed by choice or circumstances, there’s a lot you can do between now and year’s end to reduce your 2009 tax bill. One of the advantages of self-employment is that you have more control over your tax destiny than folks who have their taxes withheld from their paychecks. Some examples of tax-saving steps you can take before the end of the year:

Purchase needed materials. When you’re self-employed, everything you buy for your business, from manila envelopes to a new computer, is deductible. By making those purchases now, you can deduct the expense on your 2009 tax return instead of waiting until next year, says Mary Canning, dean of the school of taxation and accounting at Golden Gate University in San Francisco.

“If you’re thinking your laptop isn’t functioning very well or you need a new scanner, this might be the time to do that kind of purchase,” Canning says.

A purchase made with a credit card counts as a 2009 expense, even if you don’t pay the bill until 2010, Canning says.

Make sure you keep receipts and other records for these purchases, says Justin Ransome, partner in Grant Thornton’s National Tax Office. If you’re audited, the IRS will ask you to prove that these were legitimate business expenses, he says.

Delay income. If you’re employed, your company probably won’t agree to hold on to your last paycheck until Jan. 1 (although this sometimes works if you’re due a bonus or commission). But if you’re working for yourself, your clients may be happy to wait until next year to pay you for recent services.

Use health insurance tax breaks. Most workers who are covered by their employer’s health insurance can’t deduct their portion of the premium. Out-of-pocket expenses aren’t deductible unless they exceed 7.5 percent of adjusted gross income.

For the self-employed, though, 100 percent of health insurance premiums are deductible, says Mark Luscombe, tax analyst for tax publisher CCH. You can also deduct the cost of providing health insurance for your spouse and your dependents. However, the deduction can’t exceed the net income of your business.

If you purchased an individual insurance policy, you may be eligible to contribute to a health savings account. Contributions to a health savings account can be used to pay for deductibles and other costs that aren’t reimbursed by your insurance plan.

Unlike the flexible spending accounts offered by many employers, money remaining in HSAs at year’s end can be rolled over to future years. Self-employed workers can deduct contributions to an HSA, and withdrawals are tax-free as long as the money is used for qualified health care expenses, says Eddie Gershman, a partner with Deloitte Tax.

To qualify for an HSA, you must have a high-deductible insurance policy, which the government defines as one with a minimum deductible of $1,150 for an individual or $2,300 for a family.

The maximum you can contribute is $3,000 for an individual or $5,950 for family coverage.

Save for retirement. For the newly self-employed, saving for retirement may seem like an unaffordable luxury. But squirreling away even a small amount can reduce your 2009 tax bill.

There are several retirement-savings plans available to the self-employed, but the SEP-IRA is the easiest to set up, Gershman says. Contributions are deductible, and you can contribute up to 25 percent of your earned income, up to a maximum of $49,000 in 2009.

You have until the due date of your 2009 tax return to set up and fund a SEP-IRA, so you can wait until April 15, or even longer if you file for an extension. But the sooner you start saving, the sooner you’ll start earning money.

Start planning now. Finally, this is a good time to review your records and start planning for 2010, says Gale Northrop, a financial consultant for Schwab. If taxes aren’t withheld from your paychecks, you’re supposed to pay estimated taxes every quarter.

Tax tips for everybody else

While taxpayers who work for an employer have fewer options, there are year-end steps they can also take:

Give to charity. Donations are deductible as long as the charity or non-profit is qualified to receive deduction contributions (IRS Publication 78 includes a list of qualified organizations, but doesn’t include many religious groups that are also eligible.)

Timing is important if you want to claim the deduction on your 2009 tax return. Contributions made by check are considered delivered on the day they’re mailed, according to Grant Thornton. Contributions paid with a credit card are deductible in the year the charge occurs, even if you don’t pay the bill until next year. In general, pledges – no matter how heartfelt – aren’t deductible until you make the payment.

Buy a car. OK, you probably shouldn’t buy a car just to get a tax break. But if you’re in the market for a new vehicle anyway, buying one before year’s end could lower your taxes. You can deduct sales and excise taxes on new vehicle purchases of up to $49,500. You can claim this deduction even if you don’t itemize.

Harvest investment losses. Last year’s market meltdown and the economic downturn incinerated a lot of companies. If some of the securities in your portfolio are smoldering, you may be eager to ditch them and claim a loss for worthless securities. But if the stock continues to trade – even if it trades only infrequently in informal markets such as the Pink Sheets – it’s not considered worthless. In addition, the IRS requires you to claim the loss in the year the security becomes worthless, which is often difficult to figure out until well after the fact.

There are, however, other ways to claim a loss on securities that you believe are beyond redemption, says James Van Grevenhof, tax analyst for Thomson Reuters. One is to sell the security to an unrelated third party, which could include your broker, a cousin or a friend (you can’t sell it to a parent, child or sibling). You can claim the difference between the amount you paid and the proceeds from the sale as a loss on your tax return.

If no one is willing to buy your securities, you can abandon the stock, Van Grevenhof says. You must permanently relinquish all rights to the security, he says. You can accomplish this by contacting your broker or the company that issues the security.

Capital losses can be used to offset capital gains from the sale of securities.

If you had no capital gains this year, you can deduct up to $3,000 of your losses against ordinary income. Losses that exceed that amount can be carried over to future years.

The extension is part of a $24 billion economic stimulus bill that will extend the $8,000 tax credit for homebuyers who are purchasing their first home from the current November 30 deadline and expands the program to offer a credit of $6,500 to homeowners who have lived in their current home for at least five years and are seeking to relocate.

The following details apply to the homebuyer tax credit expansion:

Who is Eligible
-First-time homebuyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, may be eligible for up to an $8,000 tax credit.
-Existing homeowners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence (“repeat buyer”), may be eligible for up to a $6,500 tax credit.
-All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits
Homebuyers who file as single or head-of-household taxpayers can claim the full credit ($8,000 for first-time buyers and $6,500 for repeat buyers) if their modified adjusted gross income (MAGI) is less than $125,000.
-For married couples filing a joint return, the combined income limit is $225,000.
-Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.
-The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI that exceeds $245,000.

Effective Dates
-The eligibility period for the tax credit is for homes purchased after Nov. 6, 2009, and before May 1, 2010. However, home purchases subject to a binding sales contract signed by April 30, 2010, will qualify for the tax credit provided closing occurs prior to July 1, 2010.

Types of Homes that Qualify
-All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as their principal residence. Vacation home and rental property purchases do NOT qualify.

Tax Credit is Refundable
-A refundable credit means that if the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference.

-For example:
-A first-time buyer who qualifies for the full $8,000 credit who owes $5,000 in federal income taxes would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 refund, you would receive $9,000 ($1,000 plus the $8,000 first-time homebuyer tax credit).
-A repeat buyer who owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If you are due to get a $1,000 refund, you would get $7,500 ($1,000 plus the $6,500 repeat buyer tax credit).
-All qualified homebuyers can take the tax credit on their 2009 or 2010 income tax return.

Payback Provisions
The tax credit is a true credit. It does not have to be repaid unless the home owner sells or stops using the home as their principal residence within three years after the purchase.

The www.federalhousingtaxcredit.com site is being updated. Check the site next week for more detailed information on the new tax credit.

For more information, visit www.nahb.org.

That consensus comes from leading forecasters in a survey by the National Association for Business Economics released Monday.

“The survey found that the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines,” said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.

The forecasters upgraded the economic outlook for the next several quarters, but cautioned that unemployment rates and the federal deficit are expected to remain high through next year. Forecasters now expect the U.S. economy, as measured by gross domestic product, to advance at a 2.9 percent pace in the second half of the year, after falling for four straight quarters for the first time on records dating to 1947. They expect a 3 percent gain in 2010.

Still, the federal deficit has ballooned and the jobless rate is expected to lag behind, as employers remain cautious.

The unemployment rate rose to 9.8 percent in September from 9.7 percent, the Labor Department said earlier this month, the highest point in 26 years.

Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010.

The recession, the worst since the 1930s, has eliminated a net total of 7.2 million jobs. More job cuts were announced last week. Thermo Fisher Scientific Inc., which makes industrial and scientific equipment, said it will close a plant in Dubuque, Iowa, next year, costing 350 jobs.

Worries about unemployment are likely to continue to constrain household spending. Personal consumption spending likely began rising in the second half of this year, but is expected to remain low in 2010. Still, Americans aren’t expected to save as much as they have in past decades. The savings rate is expected to be above the 2 percent average of the past four years, but below the 9 percent average in the 1970s and 1980s.

The housing recovery is one bright spot. Forecasters expect 2010 to be the first year since 2005 that the housing sector will contribute to overall growth. Home prices are expected to rise 2 percent in 2010, but panelists do not believe that will stifle the housing recovery.

Inflation is expected to remain low due to the weak labor market and other factors. Thus, the NABE panel — which consists of 44 economists surveyed Sept. 2 through Sept. 24 — expects the federal funds rate to remain at its current record low near zero until late next spring, before a gradual rise begins.

“The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation,” said Reaser.

Click here for the complete article.

But the road to recovery will be uneven. Economists say that an uptick in business spending will lead the way, followed by federal government stimulus projects that will create some jobs. Consumers, unfortunately, are likely to be the last to see good times return, because widespread unemployment – which is now just a notch below 10 percent – won’t start to go down until after the recovery is well under way.

It has been rough, but economists say it’s always that way for Florida.

“It performs better in good times, but during bad times, in recessions, it is one of the worst performing states in the nation,” said Moody’s Economy.com economist Chris Lafakis. “And during times of expansion it is one of the best.”

Some experts say they already see the early signs of such progress.

“The negative numbers just start getting smaller or they stop falling or they fall at a slower rate,” said SunTrust Chief Economist Gregory Miller. It’s like you tumbled out of a boat a while ago and “now we’re at the stage of swimming back to the surface.”

Other economists agree that the worst may be over as soon as this summer. Consumers surely have had enough, judging by the strong jump in Floridians’ consumer confidence this month.

Here’s how economists say the state will find its way out of the slump:

Business-led recovery

Economists say the recovery will begin with an increase in business capital spending, as companies rebuild inventories or upgrade technology or send business travelers back out on the road.

At some South Florida companies, capital spending already has increased and begun to pay off. Last year, Stress Free Corporate Housing, which provides temporary living arrangements for executives, says the audio-visual equipment it installed in its new Weston office is helping to bring in new business.

The firm wanted to hold employee conferences and save on travel expenses. But it also began using the equipment for Webinars – seminars via the Internet – for its clients.

President and Chief Executive Officer Darin Karp said his firm is about to sign a deal with a Fortune 500 company to provide temporary housing for executives from Asia and the Middle East who need to come to Florida for training.

“We’re definitely seeing glimmers of hope off the first quarter and the beginning of this quarter,” Karp said. “We have some big stuff on our plate, and it’s attributed to doing the Webinars.”

Stimulus spending

An increase in government spending is expected in the fourth quarter, as states and cities pump out the $787 billion in federal stimulus money to build roads and other projects. That influx of cash will lead to more jobs, at least in construction.

Even though the stimulus law was enacted in February, government is still crafting detailed plans and regulations for the federal package, so it’s unclear precisely how many millions will be earmarked for Florida.

“We will begin to see some impact of the stimulus legislation in the last quarter of this year,” said economist Antonio Villamil, dean of the School of Business at St. Thomas University.

Confidence rises

Consumer confidence – a measure of how willing people are to spend on big-ticket items – is already rising. The University of Florida consumer confidence survey issued earlier this week showed the index jumped to 71 in April, up from 65 in March, which is close to the low reached during the last recession in 1991.

The importance of the jump is that consumer confidence is a forward-looking economic indicator, one that is often a sign that consumer spending will rise, too.

Employment to lag

Employment rates aren’t expected to rise until recovery of other sectors is under way. Only after growth returns in the overall economy will businesses be comfortable enough to begin to create jobs again. Employment is key to consumers’ recovery. Don’t look for consumer spending to increase until after employment stabilizes, economists say.

“Every business cycle is unique, but they get going in fits and starts,” said economist Manuel Lasaga, president of Strategic Information Analysis in Miami. “This [recovery] will be weaker than normal.” Strong growth, he said, won’t appear until 2010.

And some sectors seem to be hurt so badly, their recovery is not at hand. Surely, housing remains deeply troubled. Manufacturing, too, is waiting for signs of recovery.

“We’re not seeing that [any increase in demand] yet frankly,” said Tom Kennedy, a CPA who is chairman of the South Florida Manufacturers Association. Kennedy is controller of R.L. Schreiber in Pompano Beach, which produces food products for the food service industry. The credit crunch, he said, is making the business environment even more difficult.

When will it end? The economy should begin to pull out of recession around the end of summer, according to several economists. At the latest, look for it early next year, others say.

“We are in the fourth phase of the recession,” said SunTrust’s Miller. That’s the pre-recovery phase, he said. Next is the turnaround.

It’s a little early yet, and the signs are still faint.

“You really have to look long and hard to find any signs of strength in the economy,” said Mark Vitner, Wachovia’s senior economist. “But it’s not so hard to find areas where the economy had been in a free fall and now is just merely declining.”

For those businesses looking forward to the turnaround, they’ve set their sights on year’s end.

“People are getting new budgets for purchasing at the end of the third quarter, the fourth quarter. A lot of lights are coming on,” said Joel Ledlow, chief executive officer of ScheduAll, a Hollywood firm that produces management software systems for broadcasters and media. “People are saying they have cut about as much as they can cut. Now they’re ready for some very strategic investments.”

Reprinted from Sun Sentinel

But Bernanke also said major sectors of the economy remain weak, there will likely be “further sizable job losses,” and the recovery will be slow.

“We continue to expect economic activity to bottom out, then to turn up later this year,” he told the Joint Economic Committee of Congress.

He said he expects unemployment – at 8.5 percent in March – to peak early next year short of 10 percent, but it could stay high for a time.

Some economists have forecast a 10 percent jobless rate.

In February, the Fed chairman predicted a recovery later this year, but on Tuesday, he ticked off fresh signs to back that view. Consumer spending rose 2.2 percent in the first quarter after falling sharply the second half of 2008. And the housing market shows “signs of bottoming,” he said.

While businesses are swiftly liquidating inventories, hurting growth, Bernanke said that clears the way for increased production when demand rebounds. A key index released Tuesday showed service industries shrinking more slowly in April.

Bernanke’s earlier forecast “was much more sketchy,” says Brian Bethune, chief economist at IHS Global Insight.

Bernanke said the economy remains weak. Gross domestic product fell at an annual rate of more than 6 percent the past six months. “A relapse in financial conditions” could stall a recovery, he said.

Financial markets are nervously awaiting results of “stress tests” of 19 large banks.

The results, to be released after stock markets close Thursday, are expected to show whether they have enough capital to withstand a worsening economy.

Banks that need more cash will have six months to raise it before tapping government bailout money. A report from Friedman Billings Ramsey predicts at least 11 banks will need more funds.

Bernanke said many should be able to raise equity or use other means to increase their capital without getting more federal money and that he hopes the program “will restore confidence” in banks.

Some are skeptical. “A lot of people who participated when banks raised capital in the last year know what bad investments they turned out to be,” says Alan Villalon of First American Funds.

Reprinted from USAToday.com

The New York-based Conference Board said Tuesday that its Consumer Confidence Index rose more than 12 points to 39.2, up from a revised 26.9 in March. The reading marks the highest level since November’s 44.7 and well surpasses economists’ expectations for 29.5.

The consumer confidence survey showed a substantial improvement in consumers’ short-term outlook, including even their assessment of the job picture.

Some encouraging news in areas like retail sales and housing have helped fuel a recent stock rally. Earlier Tuesday, a housing index showed that home prices dropped sharply in February, but for the first time in 25 months the decline was not a record – another sign the housing crisis could be bottoming.

Economists closely monitor consumer sentiment because consumer spending accounts for more than two-thirds of economic activity.

Existing home sales rose 30 percent last month with a total of 13,085 homes sold statewide compared to 10,080 homes sold in March 2008, according to FAR. Statewide existing home sales in March were 32.7 percent higher than February’s statewide sales.

Florida Realtors also reported a 25 percent rise in statewide sales of existing condominiums in March, continuing a trend in recent months for higher statewide sales of both the existing home and existing condo markets compared to year-ago levels. Statewide existing condo sales last month increased 37.2 percent over the total units sold in February.

Fifteen of Florida’s metropolitan statistical areas (MSAs) reported increased existing-home sales in March and 13 MSAs also showed gains in condo sales. It marks the ninth consecutive month that a majority of markets have reported increased sales.

Florida’s median sales price for existing homes last month was $141,300; a year ago, it was $201,700 for a 30 percent decrease. Industry analysts with the National Association of Realtors® (NAR) report there is a significant downward distortion in the current median price due to many discounted sales, including a large number of foreclosures. The median is the midpoint; half the homes sold for more, half for less.

The national median sales price for existing single-family homes in February 2009 was $164,600, down 15 percent from a year earlier, according to NAR. In California, the statewide median resales price was $247,590 in February; in Massachusetts, it was $252,500; in Maryland, it was $253,200; and in New York, it was $210,000.

NAR’s latest housing industry outlook reported that entry-level buyers are seeking bargains, which resulted in sales of distressed properties accounting for 40 to 45 percent of February’s transactions. “Given the downward distortion in price comparisons due to distressed sales, it’s important for owners to keep in mind that this doesn’t equate to a similar loss of value for traditional homes in good condition,” said NAR Chief Economist Lawrence Yun.

In Florida’s year-to-year comparison for condos, 4,388 units sold statewide compared to 3,503 units in March 2008 for a 25 percent increase. The statewide existing condo median sales price last month was $108,700; in March 2008 it was $172,300 for a 37 percent decrease. In the latest data available at press time, NAR reported the national median existing condo price was $172,200 in February 2009.

Interest rates for a 30-year fixed-rate mortgage averaged 5 percent last month, down significantly from the average rate of 5.97 percent in March 2008, according to Freddie Mac. FAR’s sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

Among the state’s large to medium-size markets, the Melbourne-Titusville-Palm Bay MSA reported a total of 539 homes sold in March compared to 445 homes a year ago for a 21 percent increase. The existing home median sales price was $123,700; a year ago, it was $159,000 for a 22 percent decrease. In the year-to-year comparison for the existing condo market, a total of 113 units sold in the MSA last month, up 24 percent compared to 91 condos sold the previous March. The market’s existing condo median price was $123,100; a year ago, it was $164,300 for a 25 percent decrease.

Reprinted from the Florida Association of Realtors