Tag Archives: underwater

Underwater Homeowners Awaiting Law Extension

Congress is back from its summer vacation, so the burning financial question on thousands of homeowners’ minds right now is this: Are you guys finally going to help out people who are underwater on their mortgages, many of whom face crushing federal tax bills if they accept — or have already accepted — principal reductions by their lenders?

This question is especially sensitive in the wake of the $16.65 billion toxic loans settlement reached last month by Bank of America and the Justice Department. Roughly $7 billion of the deal is earmarked for direct borrower relief, and a large chunk of that is expected to involve principal write-downs for underwater owners. Earlier settlements with JPMorgan Chase and Citigroup also included debt reductions.

But here’s the problem: Under current tax law, when most of these owners accept reductions in what they owe, the amount forgiven by the bank gets reported to the IRS and the owner is hit with taxes as if it were ordinary income. Congress created a temporary exception to this tax code rule solely for distressed homeowners — the Mortgage Forgiveness Debt Relief Act of 2007 — but that law expired last Dec. 31 and has not been renewed for principal reductions during 2014, whether they are obtained through loan modifications by lenders, short sales or foreclosures.

If Congress does not extend the law retroactively, according to Attorney General Eric Holder, “hundreds of thousands” of underwater owners could be hit with tax burdens they may not be able to handle. Equally troubling, the nine-month lapse in the debt relief act already has prompted large numbers of owners to avoid the possibility of a huge tax bill altogether. Deeply in the hole on their mortgage debt, they have opted for bankruptcy rather than trusting Congress to renew the law.

“I’m seeing a lot more bankruptcies because of [the expiration],” says Kevin B. Tolbert, a realty agent with Keller Williams in Port St. Lucie, Fla., who has specialized in helping underwater owners do short sales. Tolbert estimates that he handled more than 300 short sales from 2010 through 2013, but he has avoided them this year. With the potential for heavy tax levies on clients who opt for principal reductions, Tolbert says, until Congress renews the law “I really can’t recommend” that owners take the chance. Nor can he recommend that they declare “insolvency” under the tax code to avoid having to pay money to the IRS.

So back to the main question: What’s happening in Congress on mortgage debt forgiveness? It’s complicated. Before heading out for summer vacation, it appeared that action was imminent in the Senate. The Finance Committee approved a so-called “extenders” bill that would have renewed the debt forgiveness law along with 50-plus other expired tax code programs such as credits for alternative energy and for research and development.

But before a vote was taken by the full Senate, Majority Leader Harry Reid, D-Nev., prohibited consideration of a Republican-backed amendment that would have repealed an excise tax on medical devices that is a source of funding for the Affordable Care Act. That knocked the entire extenders bill off track. Sources on Capitol Hill say Reid now wants a vote on the extenders — and is willing to take up the Obamacare amendment — but plans to delay action until the lame-duck session after the November elections. Since the extenders bill has bipartisan support, it has a good chance of passage then.

Read more at: http://www.telegram.com/article/20140909/COLUMN69/140909925/0/business25&Template=printart

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Beware of Snags in Federal Refinance Program

The most ambitious federal mortgage program to date aimed at millions of underwater homeowners is poised to take off in the coming two weeks, yet some key issues could hinder borrowers’ participation. One of them involves something most owners know nothing about: Who was your mortgage insurer on your underwater loan?

Though it was announced by the Obama administration late last year, the so-called HARP 2.0 — the second version of the Home Affordable Refinance Program — will only hit full stride around the middle of this month, when Fannie Mae and Freddie Mac finish tweaking their automated underwriting systems to accept applications, and lenders and mortgage insurance companies start handling large volumes of requests.

The revisions are crucial for owners who have outstanding mortgage balances in excess of 125 percent of the current resale values of their homes. Under the second version of HARP, there is no upper limit on permissible loan-to-value ratios (LTVs). You can owe twice or even three times the value of your home and still qualify for a refinancing at today’s low interest rates. The earlier version imposed a limit of 125 percent, which cut out millions of the hardest-hit victims of the real estate bust.

Read more: http://www.utsandiego.com/news/2012/mar/04/tp-beware-of-snags-in-federal-refinance-program/

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Even Without Congress, Some Refi Help May Be Coming

Though it was pronounced dead before arrival by opponents on Capitol Hill, President Barack Obama’s new mortgage refinancing package contained far more than legislative proposals.

In fact, significant portions of it that have received little media coverage require no prior approval from a hyperpartisan Congress and could begin affecting consumers within weeks. Here’s a quick rundown on key segments of the housing proposals with a handicapping of their likely impact this year:

Going nowhere: If you’ve got an underwater mortgage that isn’t owned or guaranteed by Fannie Mae or Freddie Mac, the president’s marquee proposal to help you refinance into a 4 percent mortgage is not likely to be of assistance. The plan’s core concept of funding your rate cut by levying a fee on the largest banks — “based on their size and the riskiness of their activities” — would be a nonstarter politically even if this weren’t an election year. R.I.P.

Moving fast: Refinancings can be speeded up administratively by key executive branch agencies, and the new program directs them to do so within the next few weeks wherever possible. For example, the Federal Housing Administration will be removing a major barrier for lenders to “streamline” refinancings for current, non-delinquent borrowers who want to take advantage of today’s low rates. The FHA no longer will count streamlined refis — where some standard underwriting requirements are waived — against lenders’ performance ratings on delinquencies. The fear of getting a poor rating is a powerful deterrent for many lenders against doing streamlined refis, because they can lose their eligibility to do loans for the FHA altogether. Removing ratings as a barrier should help significant numbers of FHA borrowers get into a better deal.

At the same time, the White House has ordered all the other federal agencies with homebuyer programs to clear the decks for streamlined refis of their existing customers. For example, the Agriculture Department, which runs the third-largest and fastest-growing program — last fiscal year, its loan guarantees funded more than 130,000 home purchases in communities on the fringes of major metropolitan areas — is expected to waive requirements for new credit reports, appraisals and other documentation for streamlined refinancings. The main requirement for hundreds of thousands of existing USDA borrowers who want to switch to a lower loan rate: Just be on time with your current payments.

Read more: http://www.utsandiego.com/news/2012/feb/12/tp-even-without-congress-some-refi-help-may-be/

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