Congress Allows Mortgage Forgiveness Tax Break to Expire

For the past 6 years, Americans have had access to a mortgage forgiveness tax break that was designed to help those who lost their homes in a foreclosure. However, when 2013 ended, so did this tax break and Congress is under fire for allowing it to slip past them without an extension. This is particularly bad news for struggling homeowners who could have continued to benefit from it. Without it, anyone currently selling their home could get dinged with very large tax bills. There was plenty of bipartisan support for extending this law, however, lawmakers failed to do so before its expiration date was reached on December 31, 2013.

This tax break, called the Mortgage Forgiveness Debt Relief Act, was enacted by Congress in 2007 when the housing market was collapsing. It allowed homeowners to waive taxes related to aid that they received from banks in the form of lessened mortgage debt and short sales. As a result of this law, each household was allowed as much as $2 million in forgiven debt to be exempted from their federal taxes. After all, if they couldn't afford to keep their homes, they probably couldn't afford to be slapped with a large tax bill as well.

The LA Times interviewed Kevin Stein, the associate director of the California Reinvestment Coalition about this law's expiration. He described it as a "hit on people who are meant to be helped." Homeowners will no doubt feel it in 2014. He continued, "it is a big deal and it would be very unfortunate if, due to Congress' inability to act, people will suffer."

While there is still plenty of pending legislation that could potentially extend this tax break through 2015, it is entirely up to lawmakers to make it happen. They will be considering extending dozens of other tax provisions that also expired at the end of 2013. This means that there could be a mortgage forgiveness tax break passed even though it expired. It was originally set to expire in 2009 but was extended twice.

There are critics who say that it is time to move on from this tax break because waiving all these fees means that the federal government is missing out on revenue that could be put right back into the economy. However, there are many others who feel that this tax break is so vital that it should be immediately restored. Even though housing prices are on the rise and there are fewer homeowners currently underwater, there are still more than 1.2 million properties currently in some stage of foreclosure. The National Association of Attorneys General pointed out that there are approximately 7.1 million homes with mortgages with negative equity.

It is good to remember that the housing market has not yet fully recovered. Millions of people will be greatly affected by the loss of this tax break and they will continue to struggle without financial aid.

However, there is a slight silver lining for some homeowners who live in California. The state enacted a law in 2010 that protects homeowners from paying taxes on any benefit from a short sale. This means that any mortgage debt forgiven as part of a lender-approved short sale is not taxable income. However, anyone with a modified mortgage that had part of the principle forgiven would still be hurt by the federal law's expiration.

Generally, money that is borrowed and then canceled because of foreclosure or short sale counts as income and that is what is taxed. For example, if you owe $300,000 on a home and can only sell it for $225,000, the $75,000 difference is considered taxable income. Without the tax break, you would owe on that amount.

Without the tax break, the only possible loophole to avoid owing taxes on forgiven debt would be qualifying for an insolvency exclusion. This may not require you to include your forgiven debts as income if you can prove that your total liabilities exceed your total assets, but again, this is a specific loophole that not everyone will qualify for. Be sure to talk to a tax professional to discover any and all options you may have.

There were 42 attorneys general who wrote letters to congressional leaders in an effort to persuade them to extend the mortgage debt forgiveness tax break and understandably, these same attorney generals are outraged that it was allowed to expire. Senator Debbie Stabenow (D-Mich.) said "it makes absolutely no sense. It is, frankly, outrageous. This is not just about fairness for homeowners. This is about keeping the housing recovery alive."

Despite such passionate and high-powered backing of this tax break, it is a shame that Congress allowed it to expire. According to Jaret Seiberg, a senior policy analyst at financial services firm Guggenheim Partners, Washington is basically tired of lending government support for housing. "As a result," he said, "there is a real risk that the government will prematurely pull back support for housing." However, Seiberg believes that there is still a 60% chance that Congress could change their minds and extend the break once more.

We can only wait to see what happens.

If you are concerned about the loss of this tax break and want more information about your options, feel free to call us at Crosscountry Mortgage at (877) 828-8851. We would love to answer your questions and help you evaluate your situation, if needed.

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Impact of the Shutdown on the Mortgage Industry

As the government shutdown is nearing its end and its employees have a chance to get their jobs back, many are wondering about the effects that the shutdown has had on the mortgage industry. Beyond those who were furloughed being unable to make money, many others were unable to purchase homes or get a mortgage due to the IRS being unable to process the 4506-T form. Additionally, USDA loans were on pause during the shutdown as well.

“Outside of the obvious process impacts of submissions, approvals and income there are immediate and lingering tangential impacts to housing and housing finance markets. With over a decade of shenanigans by members of Congress who are not doing their jobs, the consumer and investor uncertainty continues to restrain any meaningful recovery,” said Mark Dangelo, president, MPD Organizations. “Without the extraordinary impacts of the Federal Reserve, the economy would be at zero growth from its 2009 levels and joblessness would have remained at over 8.5 percent.”

Because of the shutdown, it has become a major problem that loans were not making their way to borrowers and that forms were delaying the sale of homes. Everyone who was in the process of buying or selling was essentially put on hold. Specifically, those who needed an IRS verification of income were stopped in their tracks. Mortgages that were beyond that stage and were scheduled to close during the shutdown may have been able to do so but the mortgages in the beginning stages definitely suffered.

Ultimately, even once the shutdown is completely over and everyone is back at work, there will no doubt still be a delay due to the amount of paperwork that has piled up.

“There may be a trickledown effect for anything that may have started the process during the two weeks of shutdown. My guess is now that the shutdown has been ended, they will get back to the way things have been, a relatively positive outlook for housing and lending ... especially purchase transactions,” said  Gregory Teal, president and CEO at Ernst Publishing Company.

Has your mortgage been effected by the shutdown?

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"The Responsible Homeowner Refinancing Act of 2013"

How would you like to be among the millions of responsible homeowners who can refinance their mortgages at a lower rate in order to save thousands of dollars each year? It's within your reach! Especially now that U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) have introduced this legislation in the 112th Congress. It is called "The Responsible Homeowner Refinancing Act of 2013" and it plans to remove the barriers that are currently preventing borrowers from obtaining the lowest rate possible.

This bill would streamline refinancing as we know it for all of Fannie Mae and Freddie Mac's borrowers whether they are underwater or not. Up-front fees would be reduced, appraisal costs for borrowers would be eliminated, and the HARP program would be extended by one year to allow eligible borrowers to take advantage of it.

"We need to bring much-needed relief now to hard working, responsible homeowners who are struggling to keep up with their high interest rate loans" said Sen. Menendez. “We need to do this before interest rates go up again. It’s time that Congress finally put families first and give homeowners who have played by the rules a fair chance to refinance at today’s low rates."

He also adds that this will be done at no cost to taxpayers and that it is intended to stimulate the economy. It has been referred to as a "No-Brainer".

According to Senator Boxer, "this bill is a win-win!" She goes on to say, “Homeowners will have more money in their pockets, Fannie and Freddie will see fewer foreclosures, and the housing market and economy will continue building momentum. That’s why the Menendez-Boxer bill has such broad support from industry and consumer groups. We should take action on this common-sense plan immediately while interest rates remain low so American families can realize major savings.”

With the recent record-low rates for a 30-year mortgage averaging around 3.53%, you could be one of the nearly 12 million homeowners guaranteed by Fannie Mae and Freddie Mac who could refinance! There are many who are not currently able to refinance because of policies and high fees, but if the Menendez-Boxer bill goes into effect, all that red tape would be gone!  In fact, through HARP, the average homeowner saves $2,500 per year as it currently is. The bill plans on increasing that amount by expanding refinancing opportunities for all those who are eligible.

If you are ready to take advantage of the current low rates, find out if you are qualified for a loan now! Call Quest Loans at 888-883-5252 to find out when it is the right time for you to refinance! We will answer all your questions!

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Government Seeks to Shut Down Fannie and Freddie

The FHFA, who oversees GSEs Fannie Mae and Freddie Mac as a conservator, has a plan to shrink their involvement in the housing market over time. They want to create a new market for mortgage-backed securities; something more privately-owned rather than government-backed. Fannie and Freddie have had a major part in keeping the housing finance market going during the country's recession and economic hardship. They currently represent 75% of all new home loans, which equals to nearly $100 billion a month in mortgages.

However, President Obama and Congress seek to shut down Fannie and Freddie so they can ultimately reduce the role that the government plays in the mortgage market. There is not yet an official plan on how to squeeze out the GSEs without causing further damage to the housing market, but the goal is to transition in a new structure of how the housing finance market works.

This all relates to the story we reported on earlier about the FHFA's acting director Edward DeMarco's new plan. It involves building a new infrastructure for the mortgage market, shrinking Fannie's and Freddie's presence in the market, and doing whatever it takes to reduce the amount of foreclosures. It is not possible to simply bring an end to Fannie and Freddie, however. Doing so without implementing a new structure would drive up interest rates and limit the availability of loans.

A year ago, a plan was proposed to slowly shut down the GSEs over a span of 5-10 years. It suggested doing this in one of three ways: providing limited government guarantees of some mortgages, providing an emergency backstop role but only during a recession, or completely pulling the federal government away from the mortgage market. A decision regarding these options has not been made.

Fannie and Freddie have relied on bailout money in recent years, and it is hindering the country's economic recovery. The housing market will continue to have issues until these government-backed mortgage-finance companies are replaced with a private-market solution. Once this is accomplished, the government hopes that efforts to repair the damage to homeowners and the housing market will boost in effectiveness.

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FHFA's Next Step Regarding GSE Conservatorship

In February 2010, the FHFA's Acting Director Edward J. DeMarco wrote a letter to Congress regarding conservatorships of the GSEs Fannie Mae and Freddie Mac. Recently, he has also released the next phase of his plan that builds on what he wrote in that letter 2 years ago. It is meant to update and extend the goals of these conservatorships.

First of all, what is a conservatorship? The FHFA is the conservator, or an organization that has legal control over another entity, which would in this case be the GSEs. Fannie Mae and Freddie Mac have received $180 billion in taxpayer support since they have been placed into conservatorship in September 2008.

DeMarco's plan will establish objectives that the FHFA is to take in order to meet its obligations as a conservator. It consists of three strategic goals. First of all, the FHFA will build a brand new infrastructure for the secondary mortgage market that will be consistent with existing policy. Second, they hope to contract the GSEs' dominant presence in the marketplace by simplifying and shrinking their operations. And lastly, they will work to maintain foreclosure prevention activities and credit availability for mortgages, both new and refinanced. The end goal is to come to a resolution for the conservatorships and to review the housing finance system.

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Is Freddie Mac Betting Against You?

The Government-Owned Mortgage Company, Freddie Mac who specializes in helping homeowners get affordable mortgages, has reportedly been "betting" against homeowners. The "bet" comes in the form of investing in securities called "inverse floaters" that will receive all the interest payments from specified mortgage-backed securities. Basically, the bet will pay off if people cannot refinance. The shocking thing is that these investments are actually legal.

If people were to pre-pay their old loans and refinance them to receive cheaper new loans, Freddie Mac would lose money. However, the more people that cannot refinance, the more money Freddie makes because it will receive money from these older loans with higher interest payments.

The thing that is causing such an outrage among Americans is that Freddie Mac, and it's counter-part Fannie Mae, are not privately owned entities anymore. They are part of the government since Congress adopted them in 2008. Therefore, these highly offensive investments that Freddie is making to generate profit are using taxpayer dollars. You are paying for them to bet against you. Many Americans are already blaming these companies for the housing boom and the subsequent bust, so adding this bet to the picture does not make for happy citizens.

Popular opinion in the finance world is that the number of foreclosures would drop if Americans could refinance their high-interest rate loans. Freddie Mac is supposed to help with that. They actively campaign to get borrowers to realize the benefits of refinancing. However, this is not profitable for them which is where these bets have come into play. Despite Freddie's activity, though, President Obama himself has recently mentioned his commitment to helping homeowners with their mortgage worries.

In his State of the Union Address, he noted that he will be sending a plan to Congress that would give "ever responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates." Obama even promised that there would be "no more red tape. No more runaround from the banks."

So what do you think? Relief for homeowners is promised, but will it happen? Do you think it should be illegal for this government-owned company to be "betting" against you as a struggling homeowner?

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Congressional Push for Fannie/Freddie Principal Reduction

Congressional Democrats are currently pushing for a Fannie Mae and Freddie Mac Principal Reduction. If a settlement with banks isn't helpful enough for homeowners, they want a federal housing regulator to write down mortgage principal for these government-backed loans.

The federal government is actually very close to coming to an agreement with mortgage servicers that could help nearly a million homeowners. The deal would require the nation's five largest banks -JP Morgan Chase, Wells Fargo, Bank of American, Citigroup and Ally Financial- to spend more than $25 billion to help borrowers who had signed off on foreclosure paperwork without reviewing the documents properly.

It is not yet clear who would be eligible for this settlement that would offer 1 million borrowers an average of $20,000 in principal reduction.

If this settlement doesn't help those who are with Fannie Mae and Freddie Mac, more than likely the Democratic lawmakers will continue to push the Federal Housing Finance Agency (FHFA) to provide homeowners with these principal reductions. They especially want to help those who owe more than their houses are worth.

This settlement is expected to be the largest principal reduction of the housing crisis and will hopefully boost the economy and housing market. However, this deal could take several more weeks to complete. The White House was hoping for a resolution by Christmas, but they are now hoping it will be resolved by Tuesday's State of the Union address. They want to have all 50 states sign on to a final deal but they may not meet that goal.

For more information about this, view our source.

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