WHAT CONSUMERS SHOULD KNOW ABOUT THIS MARKET

• Interest rates on long-term, fixed, and adjustable mortgages are at historically low levels. The Fed started cutting interest rates to bolster the economy in September, and recently has turned much more aggressive. In eight days in January, the Fed slashed rates by 1.25 percentage points — the biggest single-month reduction in a quarter-century. Since September, the Fed has cut its federal funds rate - what banks charge each other on overnight loans - by 2.25 percentage points to 3 percent. It also cut its discount rate on direct loans it makes to banks by 1.75 points to 3.5 percent. Rates are expected to move lower at the Fed's next meeting on March 18. Despite all this, mortgage rates are starting to creep up. Consumers should lock in low rates now, before they go higher.

• With more homes on the market for longer periods of time, buyers have more choices when it comes to selecting a home today.

• The foreclosure crisis has motivated the government to create more consumer protections against predatory lenders than previously existed.

• A temporary increase in the conforming loan limit means consumers should soon be able to borrow at lower interest rates for higher-priced homes. Prior to the increase, the conforming loan limit was $417,000. The spread between jumbo, or non-conforming mortgage loans and conforming mortgages is about 1.2 percentage points.

Debt Relief Bill Clears Key Senate Committee

A bill that would make it possible for California taxpayers to avoid paying taxes on forgiven mortgage debt through a short sale, short payoff or some other loan modification, recently passed a key senate committee. Senate Bill (SB) 1055, authored by Sen. Michael J. Machado, passed the Senate Revenue and Taxation Committee on an 8-0 vote. The measure would help California taxpayers whose lenders have forgiven a portion of their mortgage debt, by allowing them to exclude the forgiven debt from their incomes for state income tax purposes. Under existing state tax law, forgiven debt on mortgages is taxable to the borrower as ordinary income for the year in which the debt is forgiven. "SB 1055 an example of something the Legislature can do to help mitigate the pain that the mortgage crisis is causing," said Machado. "The last thing we want to do to a borrower who has just lost his or her home is hit them with a higher tax bill." The measure is now before the full Senate.