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September 13, 2011 – H&R Block, the nation’s largest tax preparer, announced today that it will not be able to offer refund anticipation loans during the 2012 tax season due to an increase in the amount of tax returns the company prepares and the decline in demand for the high-cost loans.
This is the second consecutive year in which the company has not offered these loans, eliminating them last year as a result of an Internal Revenue Service (IRS) regulation that did not allow banks to fund them.
In preparation for the 2011 tax season, the IRS announced that it would no longer provide tax companies with the debt indicator, which was the figure they used to determine the anticipated refund amount.
“Refund Anticipation Loans are often targeted at lower-income taxpayers,” IRS Commissioner Doug Shulman said in a 2010 press release. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”
Last year, only a few smaller tax firms were able to offer the service through a single bank, Republic Bank and Trust in Kentucky. H&R Block expressed concern that regulations were only applied to certain banks and tax preparation agencies, not all.
Regardless, the company maintains that eliminating this service from its offerings did not and will not affect its success.
“We evaluated our options to determine what was best for our clients, the business and our shareholders,” H&R Block President and CEO Bill Cobb said. “Knowing we had a strong 2011 tax season without (refund anticipation loans), our analysis did not present a compelling reason to bring back the product in 2012.”
As evidence of this, the company gained 18.6 percent more first-time clients in 2011.
A refund-backed loan offers the amount of the taxpayer’s federal tax refund with a short-term payback, which was helpful in the times when the IRS took up to eight weeks to issue the refund checks. According to a press release from H&R Block, however, the IRS payments will be issued within a two week period in the 2012 season. This is one reason behind the decrease in demand for the loans.
Another reason H&R Block cited for stopping the service was the high fees associated with the loans. According a release from the Consumer Federation of America, this year the fees for refund anticipation loans were $61 for a $1,500 loan, signifying a 169 percent APR – although it is paid off in just a few weeks.
To compensate for those who would have applied for the loans, the company announced that it would continue to offer other options, such as refund anticipation checks, which allow individuals to use to their refund to pay tax preparation fees.
The spring homebuying season brings low mortgage loan interest rates this week according to Freddie Mac survey results.
The average fixed mortgage rates reversed their course from last week and fell this week.
Len Kiefer, deputy chief economist at Freddie Mac, said the housing market has a strong seasonal pattern that repeats yearly.
“In the winter months, home construction slows due to weather conditions,” Kiefer told loans.org. “Homebuyers typically don’t shop as much as in the winter, but realtors see increased traffic in the spring.”
During the spring and summer seasons, or Q2 and Q3, housing prices and home sales both increase rapidly.
For the week ending March 21, 2013, the 30-year fixed rate for mortgages averaged 3.54 percent with a 0.8 point average, down from last week’s short-term high of 3.63 percent.
If a borrower took out a $200,000 home loan at today’s mortgage loan interest rate of 3.54 percent, his or her monthly payment would be $902.56. After 30 years, he or she would pay a total of $324,921.60.
If a borrower took the same mortgage out one year ago when mortgage loan interest rates were 4.08 percent, they would pay $964.08 monthly, for a total cost of $347,068.80 after 30 years. Using the current mortgage loan interest rate rather than last year’s, borrowers would save $22,147.20.
In addition, the survey found the 15-year FRM averaged 2.72 percent with a 0.7 point average, down from last week when it averaged 2.79 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.61 percent with a 0.6 point, the same as last week. Finally, the 1-year Treasury-indexed ARM averaged 2.63 percent with an average 0.4 point average, down from 2.64 percent last week.
The National Association of Home Builders Index, which tracks builder confidence, decreased in February and fell from 46 to 44. The index found that reduced confidence was due to a lack of buildable land and increased material and labor costs and not a lack of buyer demand.
Frank Nothaft, vice president and chief economist at Freddie Mac, said that low and stable inflation is putting downward pressure on fixed mortgage rates.
On March 20, the Federal Reserve monetary policy committee lowered the upper end of its inflation forecast for the current year.
Although Freddie Mac cannot comment on the Federal Reserve’s decisions to lower the forecast, Kiefer said that for bankers or investors to lend out money for thirty years, which is the most common length for a home loan, they must be compensated for several factors including the “possibility that inflation will erode the real value of the mortgage loan.”
“With inflation very low, and more importantly, expected to remain low, investors demand less compensation to be willing to lend funds over 30 years. If inflation fears increase, banks and investors might well demand higher compensation in the form of higher interest rates,” Kiefer said.