Archive for the 'Legislation' Category
For those contemplating the choice between doing a short sale or a regular foreclosure, the potential tax liability that may result associated with debt relief on a short sale is definite negative. At least one piece of helpful legislation appears to be making its way through the congressional maze.
This yesterday from Peter Miller’s FHA Mortgage Guide:
FHA Mortgages — Senate Passes Bill To End Tax on Mortgage Forgiveness
Posted: 17 Dec 2007 10:43 AM CST
The Senate has passed the Mortgage Cancellation Relief Act of 2007, a measure which would end the income tax borrowers face when lenders forgive up to $2 million in outstanding mortgage debt.Sponsored by Sen. Debbie Stabenow (D-MI), the measure would also extend the deductibility of mortgage insurance for three more years. The current legislation making mortgage insurance deductible applies only to loans made between January 1st and December 31st of this year.Under Section 108 of the Internal Revenue Code, forgiven mortgage debt is seen as “imputed” — and taxable — income. Many of those who negotiate a “short sale” with a lender wind up owing thousands of dollars to Uncle Sam because the forgiven debt is considered to be income under the tax rules.
Previously, the House had passed a similar bill, HR. 3648.
The bills are likely to zoom through the conference process and to be signed by the President. Why? Just how much money can the government collect from distressed, foreclosed and bankrupt borrowers?
This is encouraging news for sellers and agents who wish to pursue this option but were worried about have a big tax bill. Now, I still maintain that a short may be no better for your credit and Fico score than a foreclosure, but we now reasonably expect to see relief from the tax consequence.
Got a question or concern? Contact me here. Or apply for a loan. I do loans in most of the western U.S. and I’ve been doing FHA and VA loans for nearly two decades.
read comments (1)FHA Reform Makes it Through the Senate
The Senate’s FHA Modernization Bill, S 2338 flew through with a 93 to 1 vote yesterday. The House previously passed its own slightly different FHA reform bill in September. The measure will now go to a committee to work out compromises between the two competing version before the final draft is forwarded to the Oval Office for signature.
Two of the key issues are:
- Raises the maximum FHA loan amount to $417,000, putting it in parity with conventional loan limits.
- Lowers the required down payment to 1.5% from 3% (the House version eliminates the down payment requirement altogether)
Passage of this legislation to modernize FHA would complete a series of reforms that began a couple of years ago as FHA began eliminating many of the disincentives that drove buyers and sellers to subprime mortgages.
No longer are pest reports and clearances automatically required for all structures, and the old FHA “non allowable” costs have been virtually eliminated. With the increased loan limits and falling prices, these consumer-friendly loans will be available to more homeowners and will fill the ugly void left by the departure of the sub prime lenders.
Did you know that most lenders today are not approved to do FHA loans? And unless a lender was in the business before 2000, it isn’t likely they’ve ever done a single FHA or VA loan. Do you really want to trust your escrow or your client’s escrow to someone like that?
So ask your lender: Are you HUD approved?
More importantly, ask: how many FHA loans have you actually done?
If you don’t like the answer, Contact me for a quote or apply for a loan here. I do mortgage loans in most of the western U.S., and I’ve been doing FHA & VA loans for almost two decades.
Hank Paulson’s plan to freeze sub prime rates for trouble homeowners was the mortgage topic of the week. Since the discussion–like elevator music–seems to come from everywhere and nowhere at once, I thought I’d link to a menu of sites where you can get more on any particular piece of this issue.
In case you’ve been on vacation or just boycotting the news (for which I couldn’t blame you), the Bush administration announced a plan to freeze the interest rates for homeowners whose sub-prime loans are about to increase. The intent is good: stabilize the real estate market to stop the cycle of declining values, more foreclosures, further declining values, and so on.
First of all, view US Treasury Secretary Hank Paulson’s interview with Maria Bartiromo to hear it from the horse’s mouth.
Here are further Remarks by Secretary Paulson on Actions Taken and Actions Needed in U.S. Mortgage Markets at the Office of Thrift Supervision National Housing Forum.
Here is an article by Felix Salmon discussing the twin risks of litigation and investor perception associated with forcing a revision of mortgage terms on the investors who bought these securities.
The administration claims the plan could help as many as one million homeowners could be saved, though others (myself included) suspect that the real number is a fraction of that.
The questions are many, and the administration is still vague about the details. Here are some of the issues:
As if on cue for Thanksgiving, the Sacramento Bee today announced that governor Arnold Schwarzenegger had obtained agreement from four lenders to freeze rates on California subprime loans that are about to reset. Hey, one more reason to celebrate!
The initial list of lenders include Countrywide, GMAC, Litton, and HomeEq—hopefully more will follow their lead—and the agreement applies to borrowers who a) have not yet defaulted on their payments, b) live in the home, and c) can prove that they will be unable to make their new payments. Rates could be frozen for 5 years or more, depending on the borrower’s situation.
Borrowers should not expect this concession to come without some sacrifice. The article mentions that,
“Lenders have complained at State Senate hearings that some borrowers are loath to give up cell phones and cable TV to help them reach a deal.”
The implication is that lenders will be scrutinizing the home owner’s budget and agreeing to forego the interest rate increase only if the borrower is willing to make concessions as well. That seems fair and reasonable.
I’d like to keep tabs on these lenders to make sure this isn’t just happy talk. If any of you do contact one of these lenders, please come back here and let us know how that conversation went.
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Need help with a loan? I can do loans in most of the Western U.S. Apply for a loan at my website or contact me for help.
Mortgage Reform, U.S. House Bill 3915, & YSP
This morning, the U.S. House of Representatives Financial Services Committee voted on H.R.3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007.
While legislators attempt to erect a defense shield against mortgage lending abuse, this current law strikes wide of the target and is sure to inflict collateral damage upon the very group it seeks to protect.
YSP
One of the primary thrusts of the Act is to outlaw Yield Spread Premium (YSP). This is the mechanism by which consumers are able to obtain zero point and no cost loans. Borrowers elect a slightly higher interest rate in exchange for eliminating points and other closing costs. YSP is a rebate (the Premiumpaid by the lender to the broker for the higher interest rate (the Yield )on the loan. The amount of that premium is determined by difference or theSpread between current interest rates and the rate elected by the consumer. Mortgage brokers must disclose YSP.
It’s a simple trade-off and a valuable tool for consumers. Without YSP, buyers with limited cash may have to postpone purchasing a home. Existing homeowners might be unable to refinance to a better loan if they had to pay all their fees and points out of pocket.
I do a lot of loans for retiring folks relocating from the San Francisco Bay Area to Sacramento. Frequently, their plan is to sell the old homes once they are settled in and pay off the mortgage completely. It makes infinitely more sense to accept a higher interest rate over the short term to save thousands in costs. The math ain’t that hard.