Thursday, September 13, 2012

Tax relief on forgiven debt set to expire Dec. 31, 2012

I've been talking about this and if you need to Sell Short - Get a move on ... Just in case. There are no guarantees that there will be an extension from either the Fed or State, if there is - I promise to report it right away ... Read on for the latest ... Unless Congress and the California State legislature take action, a break for mortgage principal forgiven in loan modifications or short sales will expire at year’s end. The mortgage debt forgiveness issue is only one of approximately 60 expiring tax provisions that Congress appears unable to extend prior to its recess for the November elections. Congress is pushing the extension of any expiring tax provision to the lame duck session, along with any increase in the debt ceiling, and any serious attempts to prevent the mandatory budget cuts agreed to during last year’s debt ceiling deal. California's tax treatment of mortgage debt relief income generally aligns with federal law, and both the California and federal laws are set to expire at the end of 2012. For debt forgiven on a loan secured by a "qualified principal residence," borrowers are exempt from both federal and state income tax consequences, but only until Dec. 31, 2012. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000. "Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to pay off a previous loan that would have qualified. However, these tax breaks apply only to debts discharged from 2009 through 2012. It may be that Congress will take action to extend the federal exemption before year-end, but we will have to wait and see. If the federal law is extended, it is likely that California would follow in due course, as in the past, but it is not guaranteed. The last time the federal tax exemption was extended, California did not conform its tax law until well into the next year. Sellers who have transactions closing after Dec. 31, 2012, need to speak to their own legal counsel or tax advisors about the impact of the expiration of these laws and their potential tax liabilities, including the applicability of other exemptions from debt relief income tax. Keep the faith!!!

Tuesday, September 11, 2012

Why Short Sales, Foreclosures Damage Credit Similarly

Here is an interesting story which relates the reasoning and includes Blog postings from the FICO Web site about why these events hit the credit scoring so hard and there being no real difference between Short Sale, Deeds-in-Lieu and Foreclosures. In my opinion, the fact of the matter is that when you experience financial difficulties to get into a situation to be considered for these alternatives or a Modification, as well, you have usually missed from one to many mortgage payments. This is where the real damage is done in your credit scoring, especially if it takes quite a while to close whichever alternative you end up with. Your late charges go from 30 days to 60 days to 90 days to 90+ then 180 then 180+ and on and on. This is happpening while your credit scoring is spinning downward monthly. The label the final action is given at the end is really immaterial and while there is a difference (certainly future lenders look at the difference in reviewing any application for future credit from 1-7 years down the line, depending on the Agency and loan program) the damage has already been done and nobody told you about that. Read on for the story ... Daily Real Estate News | Friday, September 07, 2012 With short sales, home owners work with a bank on a solution to get out of a house they may no longer be able to afford or have to sell urgently for some reason. That’s why some argue short sales shouldn’t damage a person’s credit score in the same way as foreclosures, which can be much more costly for banks. So should the penalty for a foreclosure more severely damage a borrower’s credit score than a short sale? No, maintains a new FICO study. FICO conducted a study to determine the credit risk associated with “mortgage stress events,” such as foreclosures and short sales, by analyzing data from October 2009 to October 2011. “While it is true that short sales represent slightly better risk than foreclosures, they do not perform well enough to merit a more positive treatment in the FICO Score,” according to a recent blog post on the FICO Web site. The blog post goes on to explain that one out of every two borrowers who undergo a short sale go on to default on another account within two years. Also, according to researchers, an overwhelming majority of borrowers who went through a short sale also had some other mortgage delinquency in their credit history. “From a weighting perspective, all these mortgage events – short sale, foreclosure, deed in lieu – fall into the same heavyweight class, because they correlate with exceptional riskiness,” the FICO blog post notes. “They aren’t alone in that class either. Based on the data, consumers with short sales perform no better than consumers who have a severe delinquency (90-plus days past due), a collection, or a derogatory public record (e.g., bankruptcy, tax lien, etc.) on file.” Keep the faith ...

Monday, September 10, 2012

Modification processs reportedly improving

Mortgage settlement with banks starts to ease foreclosure crisis Nearly 140,000 homeowners have received a total of $10.6 billion in mortgage debt relief from March through June, a federal report on the banks' progress says. Overall, 137,846 struggling homeowners nationwide received some type of monetary relief from the banks during the four-month period starting in March for an average of about $76,615 each. Above, a foreclosed home is on the market last year in Miami. (Joe Raedle, Getty Images / August 30, 2012) August 30, 2012 WASHINGTON — The nation's five largest banks are off to a good start on their promise to help ease the foreclosure crisis, providing nearly 140,000 struggling homeowners with a total of $10.6 billion in mortgage debt relief, according to a government report. But the banks have much more work to do to fulfill their requirements under a $25-billion agreement reached in February to settle federal and state foreclosure abuse investigations, key officials said. And to keep the pressure on, the government released the preliminary report Wednesday — the first look at how Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. were carrying out their commitments. "We will continue holding the banks' feet to the fire in the months ahead, and we will be watching like hawks to make sure they live up to the requirements under this settlement," Housing and Urban Development Secretary Shaun Donovan said. The report from the Office of Mortgage Settlement Oversight showed that Bank of America had faltered in one key area. It did not complete a single modification of a first mortgage from the settlement's start date of March 1 through June 30. The other four banks had completed a total of 7,093 modifications of first mortgages worth $749 million during that same period. JPMorgan Chase completed the most, 2,920, with the highest value, $367 million. Bank of America quickly responded to the report with updated numbers, saying that from July 1 to Aug. 21 it had completed 3,823 first-mortgage modifications, worth $596 million. Bank spokesman Dan Frahm said the modifications were difficult to complete by June 30 because each homeowner must first go through a three-month trial period. Overall, 137,846 borrowers nationwide received some type of monetary relief from the banks during the four-month period for an average of about $76,615 each. Californians received about $4.6 billion in relief, by far the most of any state. "We are happy with California's share of the pie, but the pie needs to get bigger," said Shum Preston, spokesman for California Atty. Gen. Kamala D. Harris, who was a key player in the settlement. "There's a lot of hurt out there." The banks voluntarily provided the preliminary data before the first required report, due in November, and the data were not audited, said Joseph A. Smith Jr., the government-appointed monitor of the settlement. He released the information so the public could track the progress of the banks and the oversight of his office. "Now that the information is out, it is going to facilitate a conversation, so to say, about how they're doing that will have an impact on the banks' motivation," Smith said. "I'm encouraged by where we are. But we're not going to declare victory." The five largest mortgage servicers agreed to provide the relief to struggling homeowners as part of a settlement with federal officials and 49 states to end lengthy investigations into alleged "robo-signing" and other foreclosure abuses. The banks have set aside about $20 billion to lower loan rates and principals and provide other relief directly to consumers, and $5 billion to the states, primarily for foreclosure relief and prevention programs. The banks get credits for various types of homeowner relief. Each dollar forgiven in a short sale, for example, results in a credit of 45 cents if the bank owns the loan and 20 cents if it is held by investors. The report did not say how much the $10.6 billion provided as of June 30 would reduce the $20-billion obligation. The largest amount of relief came in debt forgiveness as part of short sales, in which the bank allows a homeowner to sell a home for less than what is owed on the mortgage. The banks forgave about $8.7 billion in first- or second-mortgage debt as part of short sales. In addition to the $749 million in principal reductions on first mortgages, the banks provided $231 million in principal reductions or outright forgiveness for second mortgages. The banks also are adopting 304 servicing standards required by the settlement, with four of the banks saying that they implemented more than half the standard as of July 5. The report did not identify those banks. Overall, Bank of America had provided the most relief to homeowners for the report period — $4.9 billion, nearly all in the form of short sales. Kevin Stein, associate director of the California Reinvestment Coalition, a housing advocacy group, said he was concerned that most of the relief from the banks was in the form of short sales instead of principal reductions, which allows people to keep their homes. "It's still early, and we want to be hopeful that will turn itself around," Stein said. Donovan said short sales were easier to complete in the first few months of the settlement than principal reductions. But he said short sales are capped and are not as attractive to banks because they result in less credit toward fulfilling the settlement terms. Katie Porter, a UC Irvine law professor who is monitoring the settlement compliance for the state attorney general, said the report showed that the banks had moved quickly to start providing relief, though their performance was uneven. "We need to see more, but the trend is in the right direction," she said.

Saturday, September 8, 2012

HAFA Ending 12/31/12 but FHFA puts brakes on early

FEDERAL HOUSING FINANCE AGENCY STATEMENT For Immediate Release STATEMENT BY EDWARD J. DEMARCO, ACTING DIRECTOR, FEDERAL HOUSING FINANCE AGENCY, ON THE USE OF PRINCIPAL FORGIVENESS BY FANNIE MAE AND FREDDIE MAC I provided a response to numerous congressional inquiries as to whether the Federal Housing Finance Agency (FHFA) would direct Fannie Mae and Freddie Mac to implement the Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). After extensive analysis of the revised HAMP PRA, including the determination by the Treasury Department to begin using Troubled Asset Relief Program (TARP) monies to make incentive payments to Fannie Mae and Freddie Mac, FHFA has concluded that the anticipated benefits do not outweigh the costs and risks. Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today. I have also previewed for Congress several housing-related initiatives to strengthen the loss mitigation and borrower assistance efforts of Fannie Mae and Freddie Mac as well as improve the operation of the housing finance market. These initiatives include new and consistent policies for lender representations and warranties, alignment and simplification of the Enterprise short sales programs, and further enhancements for borrowers looking to refinance their mortgages. The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.7 trillion in funding for the U.S. mortgage markets and financial institutions. Note: The Federal Housing Finance Agency is releasing extensive documentation of its analysis and the basis for our policy conclusions. The documents being released include FHFA’s correspondence to numerous members of Congress, which includes a paper that describes the economic analyses undertaken, including the modeling results and the assessment of related operational costs and costs associated with the effect principal forgiveness may have on future defaults. A technical appendix to the paper describes the modeling work done to assess principal forgiveness and the sensitivity of the modeling results to various assumptions about borrower characteristics and borrower response. Also being released today are separate analyses of HAMP PRA undertaken by Fannie Mae and Freddie Mac and reported to FHFA by each company. AS always ... keep the faith; and if you need any couseling on your California "Coachella Valley" property or loan situation, call upon "Short Sale Sully" 760-610-3245 La Quinta Real Estate