The reason this act is important in today’s housing market is that, without the act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. If the legislation is not extended, then it would require homeowners to complete a short sale or modification prior to year’s end in order to avoid a tax consequence. Last week, DSNews reported: “Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007… In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.” The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.” In today’s political environment, the passage of any budget proposal could be considered doubtful. However, both parties seem to be in agreement that this provision should be extended. We can only hope that it doesn’t fall victim to an election year.
Many of our readers have asked whether or not we believe the Mortgage Forgiveness Debt Relief Act of 2007 will be extended past its current expiration scheduled for the end of the year. As a reminder, the legislation ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
Know Who You Are Working With
I have long been a proponent of referrals when choosing whom to do business with. But even with a referral, you owe it to yourself to do some homework. In terms of a mortgage, you have always had the Better Business Bureau and local regulators (like state banking departments) that you could contact. Over the past few years, the internet search engines have become popular ways of finding information beyond a company’s or a loan officer’s website. Two other places I strongly recommend you visit online (one for the company and one for loan officers) are:
1.) https://entp.hud.gov/sfnw/public
This is the website for HUD’s Neighborhood Watch. Neighborhood Watch is where HUD publishes a lender’s loan performance on FHA loans and how it compares to the national and local averages.
A compare ratio of 100% means “average” performance. Numbers greater than 100% are below average. And a ratio under 100% is above average. Understand that theNeighborhood Watch numbers measure the quality performance of FHA loans only. Further, be aware that HUD recently stated that lenders with compare ratios over 200% were subject to suspension from being able to participate in the FHA Program, and lenders between 150-199% were going to be scrutinized very closely and subject to audit. Be wary of “riskier” lenders.
When you go to the website, click on the “Early Warnings” tab and either research an individual lender or look for a list of lenders in an area, and then just follow the instructions. Remember, many lenders nationally have similar names, so make sure you have the right lender.
2.) www.nmlsconsumeraccess.org
Here you can search for loan officer and company licensing status. Recognize that loan officers are individually licensed now. Those who have taken the required courses, passed the required tests and been approved by their respective state licensing authority have all that information verified on this website, along with their employment history. Loan officers who work for federally chartered institutions (like banks) have not yet been required to take the classes and pass exams and are listed on the site with their license number and their employment history.
Make sure you are dealing with a loan officer who is licensed! Ask questions if they have a lot of job changes.
There has been a cleansing in the mortgage industry over the past few years, but there are always a few bad apples in any large group. These websites may help you identify mistakes you can avoid when choosing whom you do business with.
“Foreclosures and short sales can provide important information for appraisers, who develop valuations based on market data and market forces.” On whether an appraiser should use distressed properties as comparables, the Institute was very direct (all items in bold were shown as bold in the original paper): “An appraiser should not ignore foreclosure sales and short sales if consideration of such sales is necessary to develop a credible value opinion.” “A short sale … might have involved atypical seller motivations and so might not be an ideal comp… A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp.” Some will argue that distressed properties should not be used when appraising non-distressed properties. However, there is no longer any doubt that they will be.
Many of our readers ask us if appraisers use distressed properties (short sales and foreclosures) as comparables when doing an appraisal on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Instituteissued a paper on the subject. In the paper, the Institute explained that:
And they explained the possible differences between short sales and foreclosures:
Bottom Line
Here’s my opinion of how the team works best: As with any team, communication is the most important component to getting the desired results. Being the center of the action on the field, the quarterback (you) needs to honestly talk with your coaches and coordinators, so they can help direct you on the proper play calling. Simultaneously, you need to heed the feedback from your offensive line, running backs, and receivers to filter wise advice from emotion. Be the quarterback of your own home-buying process and you’ll be more likely to realize your dreams (and not the dreams of someone else).
Given that it’s Superbowl Week (Go Giants!), I thought we might go with a football theme today. I can’t tell you how many different people I hear proclaim that they are the quarterback of the real estate transaction – the agent, the loan officer, an attorney, accountant or financial planner. But for goodness sake, the buyer/borrower had better be the one calling the shots. Not that everyone else doesn’t play an important role, but the buyer/borrower is the one most impacted by the choices made.
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