HARP program: Underwater Home Owners Get More Refinancing Help

Mortgage giants Fannie Mae and Freddie Mac announced that mortgage lenders will be able to offer up to $2,000 to home owners with little or no equity in their homes who are seeking to refinance their mortgage under the government’s Home Affordable Refinance Program.

The lender incentives may be offered to pay down mortgage balances, closing costs, or other expenses usually required of borrowers who are refinancing using the HARP program.

Up to $2,000 to home owners with little or no equity in their homes

The changes may encourage more underwater home owners to refinance — particularly those who had been reluctant to pay loan-origination fees or closing costs, which could total thousands of dollars.

The latest guidance “simply provides a clarification to lenders on benefits that can be passed back to borrowers on a HARP refinance,” says Meg Burns, a senior policy director for the Federal Housing Finance Agency, Fannie and Freddie’s regulator.

To date, nearly 1.8 million home owners have refinanced under the HARP program.

Need advice to avoid Foreclosure and Short Sale your property?  Let us help you.

Mortgage servicers have 30 days to make a decision on a short sale

Short sales are getting much shorter, Freddie Mac says. The mortgage giant launched a Freddie Mac Standard Short Sale program on Nov. 1 that sought to speed up the short sale process and make it easier and more transparent.“We estimate that the time to complete a short sale will decrease by approximately 50 percent to 75 percent,” as a result of the changes, writes Tracy Mooney, Freddie Mac’s EVP in a recent blog post.

Among the changes that took effect Nov. 1, 2012:

• Mortgage servicers have 30 days to make a decision on a short sale once they receive an application. If they need to negotiate with a third party, they have 30 additional days. A final decision on the short sale must be made within 60 days.
• Mortgage servicers are required to acknowledge they received the short sale application within three days of submission. Servicers must provide weekly status updates if they end up needing more time to review the application past the initial 30-day period.
• Mortgage servicers have authority now to approve short sales when qualifying financial hardships for home owners who are past due or current on their mortgage payments.
• Mortgage servicers are also now able to approve short sales without seeking a separate review by the mortgage insurance company.
• Following a short sale, home owners may be able to qualify for up to $3,000 in relocation assistance.

Each week, there are things going on that impact the short sale process. Sometimes there are big changes to federal and state policies that impact short sale processing and the distressed property world. Other weeks, there is news about government programs for distressed borrowers.

Call me at (425) 330-0663 if you need good solid information about Short Selling your home instead of waiting for the bank to Foreclose on you.

Just Ask For Forgiveness

Something very important is happening on December 31st of this year – something that might impact your life, or the lives of your friends, family or co-workers.

What am I talking about?

The expiration of the Mortgage Forgiveness Debt Relief Act.  The expiration of the Mortgage Forgiveness Debt Relief Act.  As your real estate expert, I talked about the Act in a previous Coffee Break Newsletter.

Oddly enough, many homeowners (including those affected by the Act) are unaware of its existence, or of its ticking clock.

The Mortgage Forgiveness Debt Relief Act applies to debt relief “forgiven” between January 1, 2007 and December 31, 2012. At this point in time, it does not appear the Act will be extended.

What’s really at stake? Money!

Let’s take a step backwards to put this in perspective.

Debt “relief” comes about when a lender “forgives” debt owed by a borrower, as can happen with a short sale, foreclosure, or other type of loan “workout”. Ordinarily, that forgiven amount is taxable. However, under the Act, the borrower’s need to pay taxes on the amount of the forgiven debt is eliminated.

Of course, there are caveats that come along with this tax relief. For example, the debt must be related to a principal residence. In addition, the total amount of the debt can’t exceed the borrower’s original mortgage loan … plus the cost of improvements made to the home.

The implications of this tax relief are huge in dollars and cents! Take a look at an example.

In 2006, Mary Jones bought a home for $375,000 and took out a mortgage of $265,000. This month Mary is relocated across the country for work and must sell her home. Her current mortgage balance is $237,000. Luckily for Mary, her lender is a bank that is willing to work with her on a short sale … and she is lucky enough to find a buyer.
Mary and her buyer agree to a sales price of $218,000. However, that amount falls short of what Mary needs to pay off her mortgage, and pay closing costs – all of which is estimated to come to $227,620. Since Mary does not have enough money to bring to the closing table, Mary’s lender agrees to the short sale, forgiving debt in the amount of $9,260.

Prior to the Act, Mary would have been required to declare the $9,260 as income, and pay taxes on it. Under the current provisions of the Act, taxes on Mary’s $9,260 in relief are forgiven. For individuals in a 20% tax bracket, that’s almost $2,500 in tax savings!

And owners of high-end homes – defaults of which are on the rise — could be looking at very substantial tax breaks, depending on the amount of debt forgiven.

Which leads to several questions my clients have repeatedly raised about the Act:

• What is the maximum amount of debt relief under the Act? Up to $2 million may be forgiven for married couples ($1 million if single or if married but filing separately); of course, this must be for a principal residence. If there is debt forgiven above this amount the borrower is taxed at ordinary income rates.
• Does the Act apply to cars, boats, second homes, investment properties, credit cards, or other debt? Not under this provision. Only debt relief for a principal residence applies under the Act, however, bankruptcy debt relief is non-taxable, and that is sometimes true for insolvency as well.
• Do I have to report the forgiven debt, since I won’t be paying taxes on it? Yes! See the IRS and/or your tax professional for additional details.

I’m not suggesting that you hurry up and default on your mortgage loan so you can take advantage of the Act. However, it is important that you understand the implications of the Act and how it may affect you.

I encourage you to contact qualified professionals (such as attorneys or Certified Public Accountants) who can assist you with this program.  I have names of trusted service providers.  I also suggest you visit the IRS site for information on the Mortgage Forgiveness Debt Relief Act, which can be found on the IRS’s website. I used information from that site, in addition to information provided by NAR in preparing this blog post for you.

Most people are not aware of the Act’s existence, and pending expiration.  Call me at 425-330-0663 for more information on this important and expiring topic. Or just click here!

How long until you can buy again after short sale, bankruptcy, or foreclosure?

I get this question all the time and I finally got smart and decided to post it here for everyone. These are general guidelines and change often.

2011 FHA Waiting Guidelines

Bankruptcy – You may apply for a FHA insured loan after your bankruptcy has been discharged for TWO (2) years with a Chapter 7 Bankruptcy.

You may apply for a FHA insured loan after your bankruptcy has been discharged for ONE (1) year with a Chapter 13 Bankruptcy

Foreclosure – You may apply for a FHA insured loan THREE (3) years after the sale/deed transfer date.

Short Sale / Notice of Default – You may apply for a FHA insured loan THREE (3) years after the sale date of your foreclosure. FHA treats a short sale the same as a Foreclosure for now.

Credit must be re-established with a 640 minimum credit score

2011 VA Waiting Guidelines

Bankruptcy – You may apply for a VA guaranteed loan TWO (2) years after a Bankruptcy

Foreclosure – You may apply for a VA guaranteed loan TWO (2) years after a foreclosure

Short Sale – You may apply for a VA guaranteed loan TWO (2) after a short sale, unless it was a VA loan then restrictions apply

Credit must be re-established with a minimum 620 credit score

2011 Conventional Waiting Guidelines (Fannie Mae)

Bankruptcy – You may apply for a Conventional, Fannie Mae loan after your bankruptcy has been discharged for FOUR (4) years.

Foreclosure – You may apply for a Conventional, Fannie Mae loan SEVEN (7) years after the sale date of your foreclosure. Additional qualifying requirements may apply,

Short Sale / Deed in Lieu of Foreclosure – UPDATED 12/16/11 Currently treated the same as a foreclosure with a waiting time of SEVEN (7) years before you can buy again using a Fannie Mae conventional home loan.

TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment

FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

SEVEN (7) Years above 90% Loan to Value | with less than 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

Credit must be re-established with a minimum 660 credit score.

Fannie Mae has reduced waiting periods in cases of extenuating circumstances – The death of a primary wage earner seems to be the only one I have been able to identify up to this point.

Preparing to Buy Again after Bankruptcy, Short Sale or Foreclosure

You should begin looking at your credit at least six (6) months before you are ready to buy again.

Quite often there are things left over on your credit report that can delay your ability to qualify.

With a little head start and good advice, you can get your credit in line, qualify for financing and buy again in the lowest priced real estate market that we’ve seen in years!

We specialize in helping people make sense of Distressed Selling so feel free to drop me an email, call/text anytime.

Top 100 zip codes hit hardest by foreclosures

Is Seattle one of the worst hit neighborhoods?

You can escape all the news about homes going into foreclosure these days.  It’s not all doom and gloom.  But some areas are doing better than others.

According to a report by CNN Money, using RealtyTrac data, it is clear that some areas were harder hit by foreclosures in 2011 than others, with the brunt of the down economy felt on the West Coast, with literally zero zip codes in the Northeast appearing in the top 100 hardest hit zip codes.

Can you believe Las Vegas zip codes account for 60 percent of the top ten list, California for 30 percent and Atlanta for 10 percent, again showing the epidemic is concentrated more highly in specific areas. Sadly, Las Vegas also accounts for all five slots in the top five hardest hit zip codes.

1. 89031 – Las Vegas, NV
2. 89108 – Las Vegas, NV
3. 89121 – Las Vegas, NV
4. 89123 – Las Vegas, NV
5. 89129 – Las Vegas, NV
6. 93535 – Lancaster, CA
7. 92336 – Fontana, CA
8. 89110 – Las Vegas, NV
9. 93536 – Lancaster, CA
10. 30349 – Atlanta, GA

The overall landscape of foreclosures will change in 2012 as the backlog resulting from partial freezes by servicers under investigation for robo-signature fraud (wherein foreclosures were illegally processed without human review), some predicting as much as a 25 percent spike in foreclosure filings as the backlog clears. Recent reporting shows that mortgage delinquency levels in December were unchanged and the levels have been relatively stagnant of late, which again, will not likely be the case for the full year.

Struggling with your mortgage? Help may be on the way.

Did you listen to the President’s State Of The Union Speech the other night?

In his speech he said he was proposing major changes to the Home Affordable Modification Program or (HAMP) which is a foreclosure prevention program.

Among the changes, borrowers who are struggling because of debt beyond their mortgage will be eligible for a secondary evaluation with more flexible debt-to-income criteria, and eligibility will be extended to investor-owned homes that are used as rental properties.

The administration is also giving principal reductions a bigger role within the program, tripling incentives for investors that agree to write down an underwater borrower’s principal and offering these same incentives to the nation’s two biggest mortgage investors – Fannie Mae and Freddie Mac.

The deadline for HAMP will be extended for an additional year through December 31, 2013.

The Murky Waters of Short Selling a Home

With residential real estate prices still depressed, sellers and buyers continue to find themselves navigating the murky waters of a short sale.

A short sale is a sale of property for less than the amount of the debt against it, and where the mortgage lender must agree to release its lien for less than what it is owed.

So why would a lender agree to such a sale? Because this is as good as it’s going to get. If the lender forecloses, it will incur additional costs and delays, and might have to evict its borrower.

In the end, the lender will receive less than what the short sale would produce. Thus, from the lender’s point of view, it’s better to have more money now than less money later.

For sellers, it’s important to understand that a lender’s agreement to release its lien for less than what it is owed does not mean the lender has agreed to forgive the remaining portion of the debt.

To the contrary, the lender may require that the seller sign a new note or an agreement modifying the repayment terms of the original note.

Or, the lender could file a lawsuit against the seller seeking a judgment for the unpaid balance of the original note. With a judgment in hand, the lender is then in a position to garnishee wages and bank accounts; have the sheriff sell the debtor’s possessions; and take other collection action.

If the lender does agree to forgive the balance of the debt — and this sometimes happens — the seller has another worry. Will the amount of debt being forgiven be treated as taxable income by the IRS?

In keeping with the tradition of the Internal Revenue Code, the rules here are technical and seem to change from time to time, so a property owner considering a short sale needs to check with a tax professional to determine the latest position the IRS has taken on this issue.

Because short sales are fraught with legal baggage of this nature, the Real Estate Division of the Washington State Department of Licensing and the Department of Financial Institutions have issued two bulletins about short sales. The DOL Short Sale Advisory is for home sellers but really should be for both sellers AND their Realtors/real estate brokers. DFI’s companion advisory is titled “Short Sale Guidance for Licensees” and contains many Q&As for both loan modification and short sale negotiation services.

Remember, Time is Not Your Friend when it comes to Short Selling your property. Call me today for solid answers to this very complex issue.

Should I stay or should I go?

I met with a couple the other night and they were facing some tough choices

Question: Should We Walk Away From Our Home?

They bought a home at the height of the market and now it is worth less than they paid for it. Not only has their value dropped, but they owe more to the mortgage company than the home is presently worth.

They both have good jobs and are not behind in our mortgage payments. But some family members are saying they should walk away. That it’s not a big deal, and they could start over. Is it really that easy? Should they walk away from their home?

Answer: You need a place to live. There are plenty of good reasons to own a home. For another, you made a promise to repay a loan, and most people feel an ethical, if not legal, obligation to follow through on their word. It’s a matter of personal integrity.

And yet another reason is markets move in cycles. You can’t time the real estate market. Eventually, what goes down comes back up. Historically, real estate values appreciate over time.

You have better alternatives to Buy and Bail.

Internet Sites for Walking Away From Your Home

For some people, walking away is the only solution because they can no longer afford to make an increased mortgage payment due to an adjustable-rate mortgage loan. So, they look online for a solution.

There are no honest solutions online from these walkaway profiteers. These are companies that prey on troubled borrowers’ misfortune and perpetrate the myth that walking away and going into foreclosure is a logical, foregone alternative.

You don’t need the help of an online company to help you do what you can do for yourself. Don’t line the pockets of opportunists. There are plenty of nonprofit organizations that can help you negotiate with your lender or offer up other viable options, and they don’t charge you:

You don’t need the help of an online company to help you do what you can do for yourself. Don’t line the pockets of opportunists. There are plenty of nonprofit organizations that can help you negotiate with your lender or offer up other viable options, and they don’t charge you:

• National Credit Foundation for Credit Counseling
• Hope Now
• HUD Approved Counseling Agencies

You can also find local nonprofit agencies that will give you free advice regarding foreclosure. Call your local council member’s office to get this information.

Foreclosure Scammers – If you fall behind on your payments, suddenly, plenty of foreclosure scams will find you. These companies will strip title from you faster than you can say, “What’s a quitclaim deed?” Don’t do business with them. Call a trusted friend or a real estate lawyer before agreeing to accept “help” from a company who wants to steal your home by making promises it can’t fulfill.

Stopping Foreclosure – If you’ve reached the point where a Notice of Default has been filed and you are headed into foreclosure, there are ways to stop foreclosure. Again, deal with reputable companies that don’t have a dog in race. Ask yourself, if the company stands to profit from helping me, how much help is it likely to offer?

Bottom Line on Foreclosures – Foreclosures will ruin your credit. That derogatory credit will stay on your credit report for 10 years. Short sales affect credit in an identical manner. Doing a short sale won’t save your credit report.

You may qualify to buy another home in two to three years, but the interest rate offered to you will be higher. If you are facing a situation like this and have questions, don’t hesitate to call me. We have been helping people in this area for many years and we can help you too.