Mortgage Aide leaves some worse off

An Article from the May 18, 2010 Wall Street Journal

The government's mortgage-modification program has left some struggling homeowners worse off than they were before.

The Treasury reported Monday that nearly one in four homeowners who were offered lower payments under the Obama administration's 15-month-old effort have been weeded out of the program. Many people were removed from the trials because they failed to make payments, didn't provide all the financial documents needed to qualify or were found to be ineligible.



Homeowners are first offered trial modifications under the program, which provides incentive payments to loan servicers, investors and the homeowners. If borrowers make the payments and satisfy other criteria, those trials are made permanent, ensuring a cut in payments for five years.

Did Bankruptcy Reform Lead to More Mortgage Defaults The Maddening World of Mortgage Modifications While awaiting answers, some borrowers keep making payments, exhausting their savings in what may be a futile effort to save their homes. They also incur fees from the banks and delay taking action that might give them a fresh start in a more affordable home.

Some borrowers had unrealistic expectations about loan-relief programs, which were never designed to prevent all foreclosures. Another big problem is that banks often take six to 12 months to determine whether applicants are eligible.

Some win modifications, cutting monthly payments by hundreds of dollars. Others who ultimately can't get modifications at least are allowed to stay in their homes for months, making either no payments or reduced payments.

Eager for quick results, the Obama administration last year prodded banks to start people on trials without first obtaining documents proving they were eligible. That has led to many crushed hopes. The Treasury earlier this year changed its rules and told banks to start trials only after getting documents that proved borrowers qualified.

The Treasury said in a monthly report on the government's $50 billion Home Affordable Modification Program, or HAMP, that about 1.2 million trial modifications had been started under the plan, and about 281,000 borrowers had washed out by the end of April.

Only about 30% of borrowers who seek help from the main foreclosure-prevention counseling program at Neighborhood Housing Services of South Florida end up with modifications, said LeeAnn Robinson, chief operating officer of the Miami-based nonprofit. Many borrowers don't have enough income to support even reduced loan payments; others give up before completing the paperwork.

On average, it takes seven months to resolve a borrower's situation, up from four months a year ago, Ms. Robinson said. Banks and other loan servicers can't keep up with the demand for help, she said.

WEITZ: The HAMP program, the centerpiece of the government foreclosure assistance, has been largely ineffective. For some with steady income, it can be a valuable tool. That said, when deciding whether to pursue such an option, it is important to be realistic about your ability to repay the loan. For some, it is simply better to walk away and save the cash.

For more information on the Foreclosure Crisis, consider contacting a Seattle Foreclosure Attorney.

Our Information:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300

Strategic Foreclosures - 60 Minutes Report

A 60 Minutes report that aired on May 9, 2010 outlinging Strategic foreclosures.

Some of the facts that jumped out at me: 7 Million people are currently late on their mortgage, and 1 Million have ALREADY strategically foreclosed.

See story here.


Weitz: I've been concerned about this from the beginning of the credit crisis. Knowing the foreclosure laws that are in place in states like Arizona, California, and yes...Washington....many people will find it economically advantageous to simply walk away from their homes. That will, of course, make a bad problem worse, but its not illegal for homeowners to do just that. Thus, I except we are just in the infancy of this phenomenom (assuming real estate does not drastically improve).

Someday, State Legislatures may change this law to protect the banks, but that will likely just push people into bankruptcy to wipe away the debt and start over.

For more information on Foreclosure law in Washington, consider calling a Seattle Foreclosure Attorney.

Our Information:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300

Freddie Mac needs more money - issues concerning 10Q statement

Below are some excerpts from an article posted on CNBC by one of my favorite sources on Real Estate Diana Olick. See entire article here.

Freddie Mac's request for an additional $10 billion in aid from the Federal Government has debate swirling once again around GSE (Government sponsored entities) reform.

Let me preface by reiterating what everyone from Secretary Tim Geithner on down has said: It isn't going to happen any time soon because of the fragility of the housing market.

But it's just that fragility that we have to dig into a bit deeper, and you find it in the Executive Summary section of Freddie's 10Q.

From the Freddie 10Q:

Mortgage and credit market conditions remained challenging in the first quarter of 2010. A number of factors make it difficult to predict when a sustained recovery in the mortgage and credit markets will occur, including, among others, uncertainty concerning the effect of current or any future government actions in these markets. We estimate that home prices decreased nationwide by approximately 0.9% during the first quarter of 2010 based on our own index of our single-family credit guarantee portfolio. Our assumption for home prices, based on our own index, continues to be for a further decline in national average home prices over the near term before any sustained turnaround in housing begins, due to, among other factors:

• our expectation for a significant increase in distressed sales, which include pre-foreclosure sales, foreclosure transfers and sales by financial institutions of their REO properties, due in part to HAFA. This reflects, in part, the substantial backlog of delinquent loans lenders developed over recent periods, due to various foreclosure suspensions and the implementation of HAMP. We expect many of these loans will transition to REO and be sold in 2010. This may cause prices to decline further as the market absorbs the additional supply of homes for sale;

• the April 2010 expiration of the federal homebuyer tax credit;

• our expectation that mortgage rates may increase in 2010, which will make it less affordable to buy a home; and

• the likelihood that unemployment rates will remain high.

There is definitely more demand and more confidence in the housing market today than there has been in a long time, and that is causing more organic home sellers to finally bite the bullet and put their homes up for sale, not because they have to, but because they want to. While inventories historically always rise in the Spring, this Spring the increase is nearly twice the norm. Add that to the shadow supply that Freddie's report suggests is working its way through the government's flawed loan modification program, and you can see where home prices will still be under considerable pressure.

So while Republicans try to jam GSE restructuring onto the financial services reform bill, the fact is that tinkering with those two at this point in housing's shaky recovery would be something close to negligent.

Weitz: When Freddie states these concerns in a 10Q, its safe to say that we may be in for furthered deterioation of the housing market both locally and nationally. In my opinion, the massive government aide from the 'stimulus' package to the homebuyer tax credit has done nothing more than steal from future demand and prolong our credit problems. While I hate to be so pessimistic, I continue to very skeptical in the proported "recovery" the pundits are celebrating.

Tax Consequences of Foreclosure

We have been getting a lot of questions concerning the tax consequences of Foreclosures. It is definitely an important issue as IRS debt cannot be discharged in bankruptcy, and the income can be significant given the costs of housing in the Puget Sound. For more information, consider contacting a Seattle Foreclosure Attorney.

As a general rule, an debt that is forgiven (COD income)is subject to income tax consequences. Thus, debt discharged in a short sale or foreclosure would be subject to taxation.

There are, however, two very LARGE exceptions to the taxation of this COD income:

1) The 2007 Mortgage Forgiveness Debt Relief Act - this act protects borrowers for up to Two Million in COD income provided the home was purchased BEFORE JAN. 1, 2009 and was used solely to buy/ build repair or remodel a PRIMARY RESIDENCE.

2) The second, less talked about, and more relevant exception is when a taxpayer is deemed to be 'insolvent', defined as liabilities exceeding assets. For many borrowers facing a foreclosure, or short sale, this is often the case and protects many borrowers from tax burdens.

If you are not able to qualify under either of these exceptions, and you are faced with a tax burden, you should consider one of these 3 programs to protect yourself from IRS liens, and potential garnishments:

1) An Offer in Compromise
2) Entering Currently Not Collectible Status
3) A Payment agreement in which the debt can be spread out over 60 months.

See Tax dispute options here.

For more information, consider discussing your issues with a Kirkland Real Estate and Tax Law Firm.

Our Information:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300