The short and long answers are YES!  This is a broad and comprehensive plan laid out by the administration that proposes to help between 7 and 9 million homeowners.

There are two parts to this program:

The Home Affordable Refinance Program - This will homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac to refinance even if they own more that the home is worth.  There are not a lot of details released on this program yet except that your first mortgage can not exceed 105% of the current value of the home.  This program is expected to help up to 4 to 5 million people

The Home Affordable Modification Program - This program is expected to help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments.

The details of the Home Affordable Modification Program were released today, here’s a summary:

Your loan needs to be owned by Fannie mae or Freddie mac.  Congress is currently working to allow loans insured by FHA, VA and USDA.  To determine if your loan is owned by Fannie or Freddie, they have set up both toll free numbers and websites for you to check

• For Fannie Mae: 1-800-7FANNIE (8am to 8pm EST) or www.fanniemae.com

• For Freddie Mac 1-800-FREDDIE (8am to 8pm EST) or www.freddiemac.com

You lender needs to “register” to participate in the program by December 31st, 2009. There are significant incentives for your lender and servicer to participate in the program - they can be compensated $1,000 for helping you keep your home!

How the Program works in a “nut shell”

If the lender participates in the program, they are required to take several steps in order to accomplish the goal of lowering your monthly housing payments to within the guidelines of 31% of your gross monthly income (31% DTI).  The lender is actually required to reduce your payments to 38% and then the government will match dollar for dollar the cost to reduce the payment to 31% DTI.
The steps they must follow are:

• Reduce your interest rate in .125% increments not to exceed the floor rate of 2%
• If your payments do not reach 31% by doing that - Extend the term of the loan to 40 years
• If that doesn’t reach 31% - a forbearance of principle not to exceed current market value
  • This means to take the difference between what you owe and the new loan amount necessary to reach target debt to income ratio and put it on the end of the loan - no interest is paid and it is due in full upon sale or refinance of property

If that still does not reach the target DTI, the lender must offer you another option to avoid having to go through the foreclosure process.  This includes, short sale, principle reduction, cash for keys, deed in lieu of foreclosure.  None of these options are required but highly recommended.

Eligibility and Qualifying guidelines:

• Home must be owner occupied - No investment properties, abandoned homes, second homes or vacant land
• 1-4 units properties ok
• Loan must be originated on or before January 1st,  2009
• First Lien loan balance must be under $729,750 for single family - higher for owner occupied units
• You must show the ability to pay your housing payment by supplying these documents
  • Signed 4506T - allows lender to pull last year tax returns from IRS
  • Copy of last year tax returns
  • Two current pay stubs
  • Hardship letter exhibiting reason for challenges with making payments

Here are some other articles and stories I have found around the ‘net that will give you even more details about the program.

Mercury News in Silicon Valley CA - See how you can get mortgage relief available to 9 million American homeowners

US News and World Report - Obama’s Loan Modification Plan - 7 things you need to know

The Associated Press - Obama Administration launches housing plan

Now that you’ve done a little research on your own - Here’s the website set up by the Government to help homeowners determine whether or not you are eligible and what the next step is - www.FinancialStability.gov

All of these programs are FREE to homeowners.  PLEASE - Do your research and learn about this program before trusting anyone that says they can help you for money.

If you do determine that you would like help determining if you qualify, piecing together the financial paperwork or documenting your financial hardship that would make you eligible for this program - www.helpUmodify.org has a very low cost, no upfront fee for taking this first step.  Go to the website and read about this process to better understand and prepare for applying for help.

This is certainly a move in the right direction and I hope that the criteria is flexible enough to make this an effective program.

This Article appeared on The Wall Street Journal’s MarketWatch website today -

“Thousands” may be eligible to take part in the Homeowner Unemployment Assist program in the next two years, Citigroup  said, calling it another way in which it can help people avoid foreclosure.

Under the plan, borrowers will be allowed to pay reduced mortgage payments for three months, with the average required payment for most qualifying customers pegged at $500 a month.

There are many lenders out there that are either uncooperative or have adopted strict policies qualifying for a loan modification.  In these cases, usually when all other options have been exhausted, the reality of letting your home go moves to the forefront of your avaialble options.

This is not a situation where you need to be victim to the bank pushing to foreclose on your home if you are behind on your payments.

In most cases, beginning a short sale will postpone the foreclosure process and keep you in control of the time line much more than if the bank bullies it’s way through a foreclosure.

Following are a powerpoint presentation and a YouTube video (same presentation) about you options and the advantages of choosing a short sale and keeping some control during what is already a challenging situation.

If you have additional questions about your loan modification options, do your research first!  Never pay anyone an upfront fee for the promise of modifying your loan.  www.helpUmodify.org focuses on consumer empowerment through education.  There are many do-it-yourself tips available and if you do need help, they offer a very affordable progress payment type program for contacting and negotiating with your lender, AND there are never any up front fees.

Visit www.helpUmodify.org for more information or call 1-888-271-9767

This is a great article that I came across today at Bloomberg.com - The FED’s Troubled Asset Relief Program looks like it’s taken a big step today toward preventing “avoidable foreclosures”.

The Fed “Draws the Line” with this program adopting the FDIC modification guidelines which are much more strict than most troubled homeowners would like to see.

Once the definition of “avoidable foreclosure” is set in stone, which is what they are appearing to do here, my opinion is that we will begin to see a rather significant shift in universal policy from lenders wishing to participate in the government’s TARP plan.

Here is a copy of the article as it appeared on Bloomberg today:

Jan. 27 (Bloomberg) — The Federal Reserve will ease terms on residential mortgages acquired in the rescues of Bear Stearns Cos. and American International Group Inc., seeking to stem foreclosures.

The Fed policy is targeting borrowers who are 60 days or more overdue on loan payments and covers modifications of interest rates and payment plans. The program uses the Fed’s authority in the $700 billion Troubled Asset Relief Program and was released today by the House Financial Services Committee.

“It reflects the understandable desire of the Federal Reserve to have some cooperation” with the Obama administration, House Financial Services Committee Chairman Barney Frank told reporters today in Washington. “This is a very big deal.”

Frank, a Massachusetts Democrat, and other leaders in Congress have criticized the Treasury for failing to act on the foreclosure-relief provisions in the TARP law Congress approved in October. This month, Congress released the remaining $350 billion in rescue funds to the Obama administration.

“The goal of this policy is to avoid preventable foreclosures on such assets through sustainable loan modifications and other actions that are consistent with the Federal Reserve’s obligation to maximize the net present value of the assets for the benefit of taxpayers,” according to the document.

The Fed’s “Homeownership Preservation Policy” lets the central bank or its agents “promptly” review applicable mortgages to determine whether the borrowers should be offered a loan modification, the document said. Qualified borrowers must be at least 60 days late on their payments.

Modifications

Modifications will include cutting the interest rates, extending the loan terms, and deferring or reducing the outstanding principal balance, the Fed said.

The policy applies to the residential-mortgage assets the Fed acquired in its rescues of Bear Stearns in March and AIG in September.

The Fed will distinguish between loans in which the central bank may hold only a fractional interest along with other investors, the Fed said. It will encourage the servicers of those residential mortgage-backed securities “to implement a loan-modification program that is consistent with this policy,” according to the document.

“Treasury and Federal Reserve know that they are going to need more” than $350 billion, Frank said. “They also understand that they will not get any further authority for any kind of intervention if they don’t build up some political support.”

Fed Chairman Ben S. Bernanke will appear at a committee hearing on Feb. 10, Frank said, adding he plans to meet with Bernanke on Feb. 2.

“I’m very pleased that the Fed is stepping up,” Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, told reporters today about the Fed’s policy.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net;

For additional information about the FDIC guidelines and valuable research tools that may assist you in better understanding your specific options - visit www.helpUmodify.org You will find many self help options available to you as well as third party assistance services if that turns out to be the next step in your attempts for avoiding preventable foreclosure.

It seems that there are more and more major lenders willing to step up and support solutions to the housing crisis that so many American home owners are a part of.

Citi today announced that it is supporting a proposal that allows bankruptcy judges to order principle reductions to current market value in order to help make payments more affordable for troubled home owners.

This article appeared today on CNNMoney.com -

NEW YORK (CNNMoney.com) — Citigroup reached an agreement with Democratic lawmakers Thursday on legislation that would allow judges to reduce mortgage debt for individuals who have filed for bankruptcy.

Sen. Dick Durbin of Illinois, the bill’s architect, said he hoped the participation of Citigroup would entice other mortgage lenders to sign onto the program.

“I hope other institutions will follow suit,” he said. Durbin appeared at a press conference along with fellow sponsors of the bill, Sen. Christopher Dodd of Connecticut and Sen. Charles Schumer of New York.

Until recently, members of the banking industry, including Citigroup (C (C, Fortune 500), Fortune 500), as well as other housing-related groups like the National Association of Realtors, have criticized the notion of allowing the courts to have a say over their mortgage portfolios.

The Mortgage Bankers Association is extremely resistant to this idea. The trade group insists that so-called “mortgage cram downs,” which allow bankruptcy courts to reduce the size of a home loan, will add considerably to future borrowing costs.

“We remain opposed to bankruptcy cram-down legislation because of the destabilizing affect it will have on an already turbulent mortgage market,” said John Courson, president and CEO of the Mortgage Bankers Association.

Under the proposed mortgage bankruptcy bill, judges could treat the portion of the mortgage balance that exceeds a home’s newly appraised value as unsecured debt - loans not backed by collateral. If a homeowners owes $400,000 on a house worth $300,000, $100,000 would be unsecured debt and eligible to be dismissed.

In addition, judges would have the discretion of lowering mortgage interest rates. They would also be allowed to extend the term of the loan to as long as 40 years, which would reduce monthly payments as well.

Change of heart

Opposition to the bill has been eroding. Long time opponent the National Association of Home Builders recently did an about-face.

“This crisis is so severe that every possible solution must be on the table,” said Jerry Howard, president of the National Association of Home Builders, in a prepared statement released on December 31. “To be clear, we don’t support any specific legislation that would implement cram downs, but we are willing to discuss this tactic and any other solutions with Congress, the administration and other stakeholders.”

Lawrence Yun, chief economist for the National Association of Realtors, indicated that his organization may also be backing away from its opposition.

“In general, tinkering with mortgages by judges will tend to lead to higher interest rates,” he said. “But by handing judges this authority now, perhaps some of the foreclosures, which can lead to even larger financial hits, can be mitigated.”

Who qualifies

Under the proposed plan, only homeowners with existing mortgages would be eligible to have their loans reduced. Additionally, homeowners would have to certify that they attempted to contact their lender about modifying their loan before filing for bankruptcy.

An earlier version of the bill proposed in 2008 only made this option available to borrowers who held either a subprime or non-traditional mortgage, such as an adjustable rate loan.

The Center for Responsible Lending backs the bill, and expects that it could help more than 600,000 households across the country avoid foreclosure.

Credit Suisse estimates that more than 8 million homeowners could face possible foreclosure over the next five years. More than a million homes have been lost to foreclosure since the housing crisis took off in August 2007.

“We don’t think this will remedy the whole [housing] situation, but we think this is an essential and necessary tool,” said Kathleen Day, a spokeswoman for the non-profit group.

Objections

The bill’s opponents charge it would add to risk for investors in mortgage backed securities. Allowing borrowers to have some of their mortgage debt written off reduces the value of those securities, according to cram-down critics. Investors would demand an extra risk premium to offset that risk, raising the costs of mortgage borrowing for everyone. That could add as much as a percentage point and a half to rates, according to the Mortgage Bankers Association.

Bill supporters deny that the risk premium would be anywhere near that. For one thing, relatively few homeowners would take advantage of the bankruptcy protections. There were only about a million bankruptcies filed last year in the United States, and not all of them involve mortgage debt.

Of those that do involve mortgage debt, not all of the homeowners are upside down, owing more on their mortgages than their homes are worth, so the cram down would not apply to them. And, only existing mortgages, not newly issued ones, would qualify for cram downs under the bill, so no risk premium should come into play.

In the past, according to Adam Levitin, a Georgetown University law professor who examined historic interest rates during periods when judges were authorized to reduce mortgage debt, the impact of cram downs on mortgage rates was probably not more than a negligible 0.15 percentage point.

Supporters also claim that the mere threat of bankruptcy may be enough to encourage lenders to voluntarily offer at-risk borrowers more sustainable mortgage workouts. Critics have consistently charged that lenders are dragging their heels on mortgage modifications, which has led to continued high rates of bank repossessions. Faced with the threat of having judges step in and alter the terms of their loans, banks may be more willing to make the adjustments themselves.

As a leading mortgage lender, Citigroup’s approval of this bill may appear puzzling. But participation in the program could go a long way to helping the ailing institution, which has been one of the hardest-hit banks during the housing crisis. It is expected to report a fourth-quarter loss later this month, due in part to its exposure to the U.S. housing market.

It remains to be seen whether other lenders will back the cram-down measure, but Durbin is hopeful.

“There is clearly a need to try something new,” he said. 

Once again, here is another example of so called “modification” companies out to make money off homeowners in trouble. I saw this story today, which is posted online at The Rocky Mountain News

Unfortunately, this is a story that we hear much too often.  There are certain truths that you must be accepted when considering a loan modification.  Many times these truths are not what you want to hear:

• There are no guarantees that your lender will participate
• Lenders are getting more and more strict about qualifying criteria for modification eligibility
• You must show the ability to repay under a modification agreement
• Many times the modification options offered do not lower your payments
• Lenders are not very cooperative toward home owners and many times require a third party intervene

It is for these reasons that many challenged home owners find themselves drawn to over promising loan modification companies asking upfront fees for guaranteed results.

Here is the original article as it appeared in the Rocky Mountain News -

Lee Monson said she and her husband, Rich, paid a San Diego-based loan modification company almost $3,000 in June to keep from losing their Parker home to foreclosure.

Their home now is in foreclosure and she has turned for help to the Colorado Division of Real Estate, which is in the midst of a major investigation of loan modification outfits.

“I think they should be put out of business,” Monson said about Peoples First Financial in San Diego, the company that she said kept their money and did nothing for them.

She said the company originally agreed to get them a deal that would combine their high-interest mortgage payments into a single 30-year-fixed rate loan with a lower rate, something a person at the company denied Tuesday.

Erin Toll, the Colorado director of the division of real estate, recently sent out 16 subpoenas to loan modification companies in Colorado, California and Arizona.

Typically, private loan modification companies promise, in exchange for an upfront fee, to be the homeowners’ advocate with the lender to get them a lower mortgage rate. But the service is provided for free by Housing and Urban Development-certified counselors, such as those that work with the Colorado Foreclosure Hotline (1-877-601-HOPE).

It appears that in many cases, if not most of them, the loan modification companies pocket the money and do nothing for the homeowners who typically already are in financial despair.

Disappointing outcome

Millions of homeowners across the country, saddled with quickly rising adjustable-rate mortgages and homes that are worth less than the mortgages, are facing foreclosure. They turn to these companies as a way of keeping their houses and are often disappointed with the results, according to state housing officials.

Monson said a company official told her not to talk to their mortgage company during the process and not to make more mortgage payments, so it would be easier to renegotiate. That is not atypical, Toll said.

The Monsons are now five months behind on their $236,300 in loans - a first mortgage of $191,300 with a 9.25 percent interest rate and a $45,000 second mortgage at 11.5 percent. Their home had been appraised at $250,000, but now is probably only worth $185,000.

A person who answered the phone at Peoples on Tuesday said, “That is totally inaccurate. We don’t consolidate loans. We modify loans.” He declined to give his name.

However, a free and unedited site for consumer complaints, complaintsboard.com, contains numerous Peoples complaints.

The company responded to Web site posts: “Even after reading slanderous remarks posted from the client with no validation or information to support these claims - we are willing to review all cases in an attempt to restore said Clients faith in Peoples First Financial.”

Peoples First Financial was not one of the companies subpoenaed, but Zach Urban, spokesman for the real estate division, said he’s not surprised.

“There are a lot of companies out there who are not even on our radar yet,” Urban said. “It appears to be as rampant as the foreclosure problem is. The number of solicitations out there is staggering.”

It is not uncommon for someone behind on their mortgage to receive “dozens” of calls with promises to help, he said.

Getting the word out

In addition to the subpoenas, Toll also recently entered into what she calls an “unprecedented collaboration,” with Jeff Davi, the division of real estate director in California.

“(Davi) has agreed to work closely with us to shut down illegal loan modification companies that prey on consumers when they are most vulnerable,” Toll said. “Mr. Davi is well aware of the problem and will do everything possible to ensure Colorado consumers are not harmed by unlicensed California companies.”

Only mortgage brokers licensed in Colorado may provide home loan modifications in this state, Toll said. Many of the companies doing business here are not licensed, she said.

Davi, in a phone interview Tuesday, said he is “very pleased with our relationship with Colorado and Erin,” and hopes to build similar relationships with state real estate divisions across the country, because the practices have become so widespread.

“These companies are based everywhere,” Davi said. “I heard of one yesterday where a 75-year-old California woman gave her last $2,000 to a company out of Massachusetts. It is the saddest thing I ever heard.”

Davi said that he would prefer people to deal with HUD-certified counselors, who do not charge a fee. “Under no circumstances, should a homeowner ever pay someone a fee upfront in exchange for a promise of a future service,” Davi said.

Craig Joynt, of the American Modification Group in Centennial, one of the companies to receive a subpoena from Toll, said the company “is taking steps to be fully in compliance. We are absolutely legitimate.”

Asked how many people his company has helped, he said: “I will not have any further comment.”

And Traci Myers, president of the Carlsbad Real Estate Group in California, said her company received a subpoena from Toll’s office, but it does not conduct any business in Colorado.

Rather, she said, the company has advertised in Colorado and across the country.

But she said she welcomes a crackdown on the industry.

“I think that needs to be done,” Myers said. “The industry absolutely needs to be regulated. We get calls on a daily basis from people who say companies took their money and they have no idea what they’re doing for them.”

helpUmodify.org is a consumer advocacy project created as an alternative to free “counseling” services that tell you what you should be doing and as a soldier in the fight against predatory sub prime modification companies that are simply out to make as much money as they can off home owners in trouble.

Before deciding which direction to go for help - visit www.helpUmodify.org for information and research about what options may be available to you.  You will find many self help options available to you as well as third party assistance services if that turns out to be the next step in your attempts for avoiding preventable foreclosure.

Friday, December 12th,  2009

Fannie Mae Announcement 8-33

Today, Fannie Mae Announced it’s Streamlined Modification Program underwriting guidelines to lenders and servicers.  Following are excerpts from this announcement that outlines the qualification requirements for consideration of a loan modification under this program.

EXCERPTS FROM FANNIE MAE ANNOUNCEMENT

A mortgage loan is considered eligible for the SMP if it is owned or is securitized by
Fannie Mae and all of the following criteria are met:

• The mortgage loan is a first lien conforming conventional mortgage loan that was
  originated on or before January 1, 2008. Jumbo-conforming mortgage loans are also
  eligible.
• The mortgage loan is at least three full payments past due (or at least six payments in
  the case of a biweekly mortgage loan). This may include loans in foreclosure.
• The mortgage loan is secured by a one-unit property that is the borrower’s principal
  residence (two- to four-unit properties are excluded).
• The current mark-to-market loan-to-value (LTV) ratio is equal to or greater than 90
  percent based on a valuation provided by Fannie Mae or an appraisal, or an estimated
  sales price from a broker’s price opinion (BPO). (Refer to the “Determining Mark-to-
  Market LTV” section for additional information.)
• The borrower documents a financial hardship by completing the Streamlined
  Modification Program Hardship Affidavit (Form 1023) and by providing income
  information. The documentation supporting income may not be more than 90 days
  old (as of the date the servicer is determining SMP eligibility).
• The borrower agrees to set up an escrow account for taxes and insurance prior to the
  beginning of the trial period if one does not currently exist and, in the event the
  escrow analysis uncovers a shortage, the servicer shall fund the shortage. The
  borrower agrees to pay the servicer any shortage amount over a 60-month period.
  The mortgage loan is not insured or guaranteed by a federal government agency
  (FHA, HUD, VA, and Rural Development mortgage loans).
• The mortgage loan is not a daily simple interest mortgage loan.
• The property securing the mortgage loan must not be abandoned, vacant, condemned,
  or in a serious state of disrepair.
• The borrower on the mortgage loan is not currently subject to a performing
  repayment plan or a loan modification or other workout relating to the applicable
  mortgage loan.
• The borrower must not be currently involved in litigation regarding the mortgage loan
  other than a routine foreclosure action.
• The borrower must not be currently involved in a bankruptcy proceeding.
  Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving
  the first lien mortgage are eligible, but if the borrower did not reaffirm the mortgage
  debt under applicable law, the following language must be inserted in Section 1 of the
  SMP Agreement: “I represent that I was discharged in a Chapter 7 bankruptcy
  proceeding subsequent to the execution of the Loan Documents. Based on this
  representation, Lender agrees that I will not have personal liability on the debt
  pursuant to this Agreement.”
• Regular servicing option MBS pool mortgages and portfolio mortgage loans subject
  to lender recourse are ineligible for a Fannie Mae SMP. (Servicers are encouraged to
  offer the SMP for these mortgages; however, when a servicer decides to use the SMP
  for such mortgages, the servicer will be expected to obtain any third-party approvals
  and Fannie Mae will not be responsible for any losses or expenses the servicer incurs
  and will not pay incentive fees for these mortgages.)

In reviewing these qualifying guidelines I am left feeling that there are many distressed homeowners that will not meet these requirments. If you feel that you do not fall into this very small window of opportunity, do not lose faith!

There are still many modification options and resolutions available to you.  For a free modification analysis to determine what option are available, start by visitng helpUmodify.org or call 1-888-271-9767

I found this great article about the tax liabilities of short sales and foreclosures as posted on the Home Warranty of America website

You Need to Know the Details of the Mortgage Forgiveness Debt Relief Act Nov 4, 2008

by Chris Kaucnik, Director of Marketing for Home Warranty of America and Michael J. Greenen, CPA, CFP

No matter the circumstances, there’s a lot of stress a homeowner goes through in a foreclosure or a short sale. The loss of the home itself and any equity can add a lot of anguish to a situation that may be beyond the control of the homeowner from job loss or illness to changing market conditions.

Brief Background

Prior to December of 2007 if a homeowner lost his house due to a bank foreclosure, and the bank forgave any difference between the price it was sold for and what was owed, the homeowner would owe additional income tax on that portion. Yes, it’s hard to believe, but true.

Let’s say the homeowner owed $300,000 on the mortgage, but the foreclosure sale only brought in $200,000. Then the bank forgave the $100,000 shortfall. The homeowner would have been liable for the income tax on the $100,000 debt forgiveness from the bank.

The IRS considered this money effectively paid to the homeowner, and it would be taxable in their top bracket. The special reporting form 1099-C depicts the explanation of this exactly - the “C” stands for cancellation of debt and the law said this was taxable income.

Now, because of the unique stresses in the housing industry lately and on our whole economy, last December Congress stepped in to provide temporary relief in the form of forgiving this debt, but only for the 2007, 2008 and 2009 tax years. After that, the old rule applies again.

But Wait, There’s More

To be eligible for this tax relief, the mortgage must be for your principal residence. It does NOT apply to vacation, investment or other properties. And no more than $2,000,000 of forgiven debt can be excluded from taxable income. Well, most of us would fall below that threshold anyway.

Home Equity Loans

Another very important detail in this temporary tax break is if part of the forgiven debt was a home equity loan and used for purposes other than to build, buy or substantially improve the property, that portion is STILL taxable. In other words, home equity loans used for vacations aren’t included.

Short Sales

Now, what happens in a short sale? In brief, this can occur when a borrower is behind on the mortgage payments and the lender agrees he can sell his house for less than what is owed on the mortgage. But all proceeds must be turned over to the bank.

The portion of the mortgage the bank forgives, PLUS any commission expenses or other selling costs ARE taxable income if this debt is canceled. Yes, even the commission and selling expenses count. No free rides. But, again for taxable years 2007, 2008 and 2009 Congress has provided the same temporary relief in this short sale situation.

A short sale is not always the answer. First, the bank must agree to it and generally will weigh the cost of the short sale against the cost of a foreclosure.

Other Scenarios

There are situations where the bank sees a homeowner with a great credit history, but who is having trouble making mortgage payments for a legitimate reason. If the bank agrees to reduce the mortgage by say 25%, this is again considered a cancellation of debt and would have been subject to income tax. But for the above stated tax periods, this new, temporary tax provision forgives this income.

Why is there always a catch! If the homeowner does take advantage of debt cancellation by the lender, they are required, when they do eventually sell, to reduce the basis (original price of the home) equal to the amount forgiven.

What does that mean? A homeowner can now receive a $250,000 (single) and $500,000 (married) capital gain exclusion on the sale of their primary residence.
Here’s an example where the home was originally purchased for $300,000, there was a $100,000 debt cancellation, and a married couple is selling the home:

Home Sells for $750,000
Less Original Basis* ($200,000)
Less Capital Gain Exclusion ($500,000)
Gain on Sale $50,000
Capital Gains Tax at 15% $7500 (Owed by homeowner)

*This is the original basis or price of home $300,000, less the $100,000 debt cancellation from the lender.

While $7500 capital gains tax is surely a lot less than the $100,000 cancelled by the lender, the homeowner may not think of this or be aware it could happen down the road, perhaps just prior to retirement. And capital gains taxes are always subject to change.

It gets a bit more complicated when one spouse dies and the other is left to sell the home. Consult your tax accountant or attorney for planning purposes.

Mortgage Insurance Affected

It is important to also note that this act extended mortgage insurance as an itemized deduction all the way through 2010. Yes, there’s a restriction. The mortgage contract has to be entered into between December 31, 2006 and January 1, 2011.

Housing Market Stabilization

All of this is being done in an effort to stabilize our housing market and should help many homeowners in these situations. Always consult with a professional tax accountant or attorney to be sure you are taking the right road to solving your mortgage crisis and will be covered under this new tax relief act.

Michael J. Greenen is a Certified Public Accountant and Certified Financial Planner located outside of Chicago, IL. For the past decade, his firm has been working with small to medium businesses as well as high net worth individuals who need comprehensive tax and financial planning. Michael and his staff take pride in their commitment to helping their clients achieve their financial goals. Contact: Michael@GreenenCPA.com or at 630.365.1647.

Home Warranty of America, Inc. of Buffalo Grove, IL, was founded in 1996 to provide home warranty coverage for houses, town homes, and condominiums. The Company has experienced remarkable growth to become a leading supplier of home warranties across the United States. More information is available at www.hwahomewarranty.com.

For more information about loan modifications or short sales contact www.helpUmodify.org or call us at 888-271-9767

Press Release today from Fannie Mae -

WASHINGTON, DC — In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae (NYSE:FNM) today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.

The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie Mae.

The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.

“The streamlined modification program by Fannie Mae, Freddie Mac, Hope Now and 27 mortgage servicers is an important step forward in addressing the systemic issues driving the increase in foreclosures,” said Fannie Mae President and Chief Executive Officer Herb Allison. “Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes. We encourage other servicers of non-GSE mortgages to participate in the streamlined modification program to bolster our collective efforts to stem the foreclosure crisis.”

Fannie Mae will be working with foreclosure attorneys and servicers to reach out to the more than 10,000 borrowers the company estimates would be affected during this period. Borrowers who have Fannie Mae loans that are scheduled for foreclosure between November 26, 2008 and January 9, 2009, will be contacted directly by the attorney handling the foreclosure. If the home is occupied, Fannie Mae has instructed servicers and attorneys to suspend the foreclosure.

Allison also said Fannie Mae’s loan servicers are prepared to work with borrowers during this period, even if previous workout efforts have been unsuccessful. As part of the company’s “Second Look” initiative, Fannie Mae personnel have been reviewing seriously delinquent loans to determine if the borrower has been contacted and all workout options have been exhausted.

The streamlined modification program and temporary suspension of foreclosures are two of a series of steps Fannie Mae has taken to expand its foreclosure prevention efforts, which are designed to give loan servicers and foreclosure attorneys tools to find the best solution for a borrower in financial trouble. Fannie Mae and its many partners in the housing industry urge borrowers in financial difficulty to reach out to their loan servicers, regardless of whether they are facing imminent foreclosure. Solutions may be available that could make an existing mortgage more affordable.

“Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures,” Allison said. “We must and will do more.”

 http://www.fanniemae.com/

I found this great article on CNN News earlier today and blogged about it.  Here is a re-print of my blog from www.goviegovernment.com

In our continued efforts to bring to your attention the fact that you must be extremely careful when considering a loan modification company, here’s another great article that warns of the “red-flags” you should look out for when searching for help.

Here is a great article from CNN Money that you must read:

NEW YORK (CNNMoney.com) — If mortgage lending was the Wild West during the boom years, foreclosure-prevention counseling is the lucrative new frontier of the bust.

Nearly 1.6 million borrowers are in jeopardy of losing their homes this year, according to economist Mark Zandi of Moody’s Economy.com, and thousands of new foreclosure-rescue companies are rushing in to offer the troubled homeowners loan work-out assistance. For a price.

Usually homeowners seeking mortgage modifications call their lenders directly or work with non-profit community groups. But many borrowers are now turning to for-profit companies as their mailboxes are flooded with work-out offers.

Each day private firms go online or visit courthouses across the country to pore over foreclosure filings, which are public records. “By 10 or 11 o’clock, they’ve mailed out solicitations to anyone with a foreclosure filing that day, promising to save their homes,” says Jeff Hart, a prosecutor with the Ohio attorney general’s office.

Once a borrower contacts a foreclosure-prevention company, the counselor takes their financial information, analyzes how much the client can afford, and then contacts the lender and negotiates new mortgage terms.

Those modifications can involve reducing interest rates, lengthening the term of the loan or even lowering principal. In exchange, the consumer agrees to pay a fee, generally between a month’s mortgage payment and 1% of the mortgage’s principal.

“We attack the case from many different angles,” said Justin Pane, vice president of Amerimod Modification Agency, which Pane said has been doing foreclosure prevention modifications for about three years. “We may do a forensic document audit, for example,” he added, which involves examining original mortgage papers to see if anything illegal or unethical was signed during closing. If so, it can be used as leverage for a better deal from lenders.

There are other tricks of the trade, too. Pane said it’s often beneficial to apply for modifications near the end of fiscal quarters when lenders want non-performing loans placed back in the performing columns. The more loans they can transfer, the better their numbers look in SEC filings. As a result, lenders will often be more generous in their modification offers at that time.

Lifestyle counseling is another often-necessary service. “We tell people what they have to do,” said Donnie Shorts, owner of Mortgage Mitigation Services in Dallas. “Get rid of that cable. Sell that Escalade. If we can’t present a good case to the lender that these borrowers have changed, we’re dead in the water.”

But is it wise for troubled borrowers to pay stiff premiums for services they can get for free? Especially when paying for a modification can make one harder to obtain because borrowers have less cash to spend on reducing debt.

“Folks need to be really careful,” said Chris Kukla, a spokesman for the Center for Responsible Lending. “In many cases, these are no better than scams. You should look at all your low-price or free options before signing on with a for-profit company.”

One of the main criticisms of for-profit foreclosure counselors is that they are not regulated, with oversight laws varying state by state. As a result, some marginal characters are drawn to the industry, ones who use high-pressure sales tactics and play on fear.

Many firms demand hefty up-front fees, which they keep even if a loan is not successfully modified. Only a dozen states, including Minnesota, New Jersey, New York, Nevada, Massachusetts and Maryland, prohibit that tactic.

“Loan modification is a growth industry, with too few rules governing those selling loan mod services,” said Kurt Eggert, a law professor at the Chapman University School of Law.

And, in fact, many consumers who sign on with a for-profit counselor later ended up at a non-profit. “A lot of people come in [to our offices] who have paid money, a couple of thousand sometimes, for foreclosure prevention and nothing is done for them” said Jenelle Dame, a counselor for the East Side Organizing Project (ESOP) in Cleveland. “These companies are sending out postcards to people saying they can help. Some borrowers get like 50 a day.”

“The lenders still make the same calculations,” added Eggert. “Whether they’re better off modifying a mortgage or letting the loan go to foreclosure is not affected by who’s arranging the modification.”

Terry Souers, who handles many mortgage-modification cases for Genworth Financial, the private mortgage insurer, said his company will work with a for-profit if a client asks, but those requests are minimal. “We don’t recommend them,” he said. “We can do what they do for free.”

Borrowers can protect themselves several ways. Start by checking with the Better Business Bureau and state attorneys-general consumer-protection offices for complaints against the firms. Also ask any potential foreclosure-prevention counselor how many cases they’ve successfully completed and what kinds of loans are winning workouts.

“These companies don’t seem very transparent about their credentials. If you’re not getting answers you trust, look elsewhere,” said Marietta Rodriguez, director of homeowner programs for NeighborWorks, a community development group.

“Be leery of up front fees,” advised Don Lampe, a North Carolina attorney who has testified before Congress on mortgage issues. Many companies who charge them simply take the money and run. The fees should be contingent on a successful modification.

Finally, watch out for extravagant promises. “If they claim they can save your home before even speaking to you, they’re making it up,” said prosecutor Hart.

Before contracting with a for-profit company, at-risk borrowers should contact their lenders or the Homeowner’s Help Hotline (1-888-995-HOPE) run by the Homeowner’s Preservation Foundation. They might get a comprehensive, affordable mortgage modification that won’t cost them a dime.”

It is certainly true that there are free options available for home owners in trouble, however, many of these services are not always as successful as for profit services due to thier motivation.

At HelpUmodify.org we speak with frustrated home owners every single day that have reached thier wit’s end with trying to deal with lenders, servicers and counceling services.  The simple fact of the matter is that there is no motivation for these folks to work with you.  I know, it’s a crime, but it’s true!

Don’t get me wrong, i’m not telling you that those options do not work, i’m only saying that I’ve heard the same stories over and over again about lenders being rude and stand offish and free counceling services simply reading a pre-prepared “guideline” for you to use while approaching the lenders to ask for help.

If this path works for you and you are able to get results - that’s FANTASTIC!  I am going to assume though that you are not reading this because you have found a solution to your families challenges.

Take a look at our web site - www.helpUmodify.org We are a low cost, progress payment solution based on results.  There are never any up front fees and we are committed to consumer protection by educating you about your options.

We understand that these are challenging times and I hope that this information finds you and helps you to navigate this event in a way that works for you and your family.