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Taxpayers get good news from IRS on home equity lines of credit

Taxpayers can “often still deduct interest on a home equity loan, home equity line of credit or second mortgage, regardless of how the loan is labeled,” said the IRS, provided the borrowed funds are used to “buy, build or substantially improve the taxpayer’s home that secures the loan” and the total debt on the house does not exceed statutory limits. The amount of the first mortgage on the property, combined with the home equity or HELOC debt, cannot exceed $750,000, the newly revised limit for mortgage interest deductions by taxpayers filing joint returns; married owners filing separately have a new ceiling of $375,000. Previously, the limits were $1 million and $500,000.

So what does all this mean in practical terms? Here’s a quick example. Say you and your spouse own a $500,000 house and have a $250,000 first mortgage with an interest rate in the mid-3-percent range. You want to put on a family room addition estimated to cost $100,000 and do bathroom upgrades estimated to run another $50,000. However, you’d prefer not to give up your superlow interest rate by refinancing into a new, larger first mortgage. Another option, now fully sanctioned by the IRS: Take out a $150,000 HELOC that will permit you to draw down periodic amounts to pay contractors as they complete scheduled construction benchmarks, leaving your first mortgage intact.

The risk lurking in the US mortgage market - Mar. 8, 2018

In the past few years, the non-bank mortgage sector has exploded because of low interest rates and commercial banks "happy" to supply lines of credit to non-banks at favorable rates, the authors write.

But with it comes serious risk.

Non-banks face a higher risk that lines of credit will be pulled quickly in time of financial stress. Financial institutions often offer non-bank lenders short-term lines of credit to fund mortgage loans.

They are also exposed to so-called liquidity risk: They still have to pay mortgage investors even when borrowers skip payments. They also can't tap the Federal Reserve and the Federal Home Loans Banks to meet their liquidity needs like banks can.

What's more, these non-banks tend to originate mortgages that are less sound — less likely to be repaid — to minority and low-income borrowers. Those borrowers are likelier to be vulnerable to delinquencies triggered by economic shocks like a fall in house prices, according to the authors.

Can someone please explain the correlation between credit/mortgage fears and the stock market?

"Major gauges tumble on credit and mortgage market fears; Dow, Nasdaq, S&P 500 all down 10 percent off highs - reaching market correction levels."

This was the headline on CNN.

I work for one of the largest (still standing) mortgage banks in the county. I've been in and out of the industry for 10 years. I got out in the last crash in 1998. By the looks of things, it's a lot worse than it was 10 years ago.