Homeowners who owe more than their home is worth may be receiving some help from the Federal Housing Finance Agency (FHFA).

A recent speech by Edward DeMarco, acting director of the FHFA, alluded to the possibility of implementing write-downs for underwater homeowners.

The idea stems from the findings of an FHFA study which showed that Fannie Mae and Freddie Mac could save up to $1.7 billion if principal deductions were used. Since 2008, FHFA has been the conservator of Fannie Mae and Freddie Mac.

DeMarco has long been opposed to write-downs and he and the FHFA want to make it clear that this is not about attempting to bail out the housing market.

“The anticipated benefit of principal forgiveness is that, by reducing foreclosures relative to other modification types, [Fannie and Freddie's] losses would be lowered and house prices would stabilize faster, thereby producing broader benefits to all market participants,” DeMarco said in his speech Tuesday.

Currently, there are about 11 million underwater homeowners and if this initiative were implemented, less than one million households will benefit. Thus, while it may provide relief for homeowners who are eligible for principal reductions, it will not affect the vast majority of underwater homeowners.

For more details on these write-downs read my full article on CBSNews.com.

Do you think that this initiative will significantly help the economy as whole?

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The federal government and 49 states have reached a landmark $25 billion foreclosure settlement with the nation’s five largest mortgage lenders, the Department of Justice announced Thursday (February 9th).

The joint agreement is the largest federal-state civil settlement ever obtained.
U.S. Attorney General Eric Holder, Department of Housing (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Mill and Colorado Attorney General John W. Suthers announced today the federal government and 49 states agreed to the deal, which has been in the works for more than a year.

“This agreement…is the result of unprecedented cooperation among enforcement agencies throughout the government,” Holder said in a release Thursday.

“It holds mortgage servicer companies accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will ensure the abuses of the past are not repeated.”

The joint federal-state agreement requires mortgage lenders to implement new mortgage loan servicing standards and to commit billions of dollars to resolve violations of state and federal law, including robo-signing, deceptive practices used in loan modifications, failure to offer non-foreclosure alternatives before foreclosing on borrowers and filing improper court documentation upon bankruptcy or foreclosure.

The requirements of the agreement were laid out in Thursday’s press release and you can read them all here: http://www.thinkglink.com/2012/02/09/foreclosure-settlement-states-mortgage-lenders-totals-26b/

Resources:

For more information about the settlement, go to www.NationalMortgageSettlement.com. To find your state attorney general’s website, go to www.NAAG.org and click on “The Attorneys General.”

If you’re a homeowner and have questions about whether you qualify for a loan modification or refinancing under the Home Affordable Refinance Program (also known as HARP 2.0), contact the Homeowner’s HOPE hotline at 1-888-995-HOPE or go to MakingHomeAffordable.gov.

Just one week after President Obama promised “no more red tape” for homeowners looking to refinance, there’s news that mortgage insurance giant Freddie Mac could benefit if banks stonewall their customers.

According to an investigation by NPR and ProPublica, the government-sponsored enterprise has spent billions betting homeowners won’t be able to refinance their high-rate mortgages — and taking some steps to make sure they’re right. While the investment arm of the company was profiting from homeowners with high-rate mortgages, Freddie was making it more difficult for those locked in high-interest mortgages to refinance to a lower rate.

Freddie and its larger cousin Fannie Mae have imposed new rules and regulations, and introduced new fees, effectively narrowing the number of borrowers who qualify for a Freddie-insured mortgage.

How is this possible?

The investigation suggests the investment arm is betting homeowners won’t be able to refinance, while the credit side is making sure lenders have enough money to make loans. The Federal Housing Financing Agency (FHFA) says a wall exists between the investment and credit sides of Freddie.
Read the full story on CBS Moneywatch: http://www.cbsnews.com/8301-505145_162-57368239/freddie-mac-accused-of-betting-against-homeowners/?tag=cbsnewsMainColumnArea

Question:

I signed a contract two months ago for a newly-built house with a leading builder. The home will take about four months to build. The builder has not applied for the permit and has not done any of the ground work on the home.

The builder told me that until I pay him about $9,000 in earnest money and all the money for the upgrades I ordered, he will not apply for a building permit and will not start building the home.

But when we negotiated the terms of our deal, he agreed that I would pay him for the upgrades in four installments over a period of two months. So far I have paid him most of the earnest money and most of the money for the options.

We found another house which we like more. Can we cancel the contract and get my money back? In the contract (obviously it has tons of papers), I believe it states that if we default, the builder will not refund any money. What should we do?

Answer:

It seems that you have new home buyer’s remorse and are now looking for a way to get out of the deal you entered into with the builder.

Frequently, builder contracts contain provisions that deal with the payment of funds from the buyer to the builder over time. In some situations, a buyer will pay a builder a small sum of money when the contract is entered into, then more money when the building permit is obtained, more money when the foundation is poured, then another installment when the house is framed with a final payment at closing when the home is finished and an occupancy permit has been issued.

There are many variations of the method that builders use to get money from their buyers. Builders will generally not want to proceed to the next step of the building process in building a new home unless their buyer has complete steps that are outlined in the purchase and sale agreement.

While you didn’t say so, it may be that your purchase agreement states that the builder will give you time to make payments on the contract, but the builder won’t have to commence construction on the home until those payments are made. If that’s the case, the builder has done nothing wrong under the contract and any delay in the closing date may come from the timing of your payments.

You’ll probably see a provision in the contract that states that the builder is allowed to delay the closing date to accommodate those payments and other delays caused by weather.

Some purchase agreements go so far as indicating a target date for closing but setting a firmer closing date when the builder actually obtains the building permit and commences construction on the home.

If you decide to not buy this home, you’ll have to negotiate a termination of the contract with the builder. You may need to be prepared for the reality that you will lose all the money you gave the builder unless the contract provides otherwise or the real estate laws in your state give you other protections. If you walk away from the deal, the builder will claim that you are in breach of contract or in default and try to keep all the earnest money you have deposited on the contract.

It would be at this point that you would be wise to talk to a real estate attorney and discuss your options. After listening to your attorney, you may decide to continue with this purchase, move in and ultimately enjoy living in your new home.

One last word of advice, when you buy a new construction home, you need to make sure you know who you are dealing with. Once you give money to the builder, that money may be at risk of loss if the builder goes out of business or files for bankruptcy. In the ideal world, you’d want your money held by an escrow company or other entity that would hold your money until closing in a segregated account that could not be touched by third parties.

Please speak to a real estate attorney immediately to understand your legal options.

If you own a home, you might want to start thinking about the IRS. According to Julian Block, author of “The Home Sellers’ Guide to Tax Savings” (PassKey Publications, $19.95), there are ways to lighten your tax load whether you’re living in your home or selling it.

Here are some top home seller tax tips:

1. Marriage penalty? Not when you’re selling a home.

Getting married? Are you a newlywed? The IRS bestows a gift on newlyweds who each own homes that they sell before or after their trip down the aisle. On their joint return, each spouse can exclude as much as $250,000 of gain, provided each spouse could exclude up to $250,000 if he or she filed separately. Unfortunately, one spouse can’t use any part of the others unused exclusion, so as to exclude gain of more than $250,000 per person. (Individuals may exclude up to $250,000 in gain on their home sale and married couples may exclude up to $500,000 when they file jointly.)

2. Bundle ordinary repairs into a bigger job.

If you’re debating whether to save up for a major renovation but still have a few repairs around the house that need attention, think about bundling them together (if your repairs can wait). Block says your home’s adjusted basis (which consists of the property’s purchase price plus the cost of purchase, sale, structural improvements, legal fees paid to defend or to perfect title, zoning costs, and the cost of selling the property) includes only the cost of permanent improvements (including replacing a roof or building an addition) so it might pay to postpone repair projects until they can be done in connection with an extensive remodeling or restoration project. Adding the smaller jobs into the bigger job may allow you to include some items that would otherwise be considered repairs, such as the cost of painting rooms.

3. Don’t forget to deduct points paid when you financed or refinanced your mortgage.

When refinancing an existing mortgage, or if you pay off the loan early, take a deduction in the payoff year for all remaining points you were charged when you obtained the loan. For example, if you refinanced your mortgage and paid points in the amount of $2,000 and have deducted $400 over the years, you can deduct the balance of $1,600 in the tax return for the year in which you refinance the property. If you refinance, check on whether you need to increase or decrease the amount taken out for federal income taxes from your paychecks or to increase estimated payments. If you will need to pay more to the IRS, you should increase your withholding or quarterly estimated payments. And, if you will owe the IRS less, you can decrease those payments to the IRS. To revise your withholding, file a new Form W-4 with your employer.

4. It may make more sense to prepay your credit card debt – not your mortgage.

If you find you’ve got a little extra cash on hand at the end of the month, you might be thinking about throwing a few dollars toward paying off your mortgage. And why not? It would be great to own your home debt-free. But if you also have credit card debt, you should instead take those bucks and pay down your highest interest rate debt. For someone in the 30 percent tax bracket (federal and state), an investment would have to yield a whopping 26 percent before taxes to match the benefit available from just paying off a credit card costing 18 percent. And with mortgage interest rates near historic lows (this week, a 30-year fixed rate mortgage can be had for about 4.5 percent), paying off a credit card makes much better financial sense. And the tax tip: Mortgage and home equity interest is tax-deductible if you itemize on your federal income tax return.

There are other tax deductions and perks available for homeowners. In his book, which is available at Amazon, Block takes homeowners through foreclosure and short sale tax issues. And for more personalized information, consult with your tax preparer, accountant or enrolled agent.

Q: How can we take money out of 401(k), pay off our mortgage and not pay taxes on it all if we do it all at the same time? Can any of it be deferred? The amount we’d want to take out is $105,000?

A: Unless you’re in danger of losing your house, you generally shouldn’t take money out of a 401(k) and use it to pay off a home loan.

Why? Because your money is growing inside your 401(k) at a faster rate than you’re paying out for your loan. Also, your mortgage interest may be deductible if you itemize on your federal income tax return.

If you’ve recently refinanced, you’re probably paying less than 5 percent for your mortgage. (I just refinanced to a 15-year at 3.75 percent.)

If you itemize, your net interest rate is somewhere around 3.5 to 4 percent. That’s basically like free money, and over time you’ll do a lot better by keeping the cash inside your 401(k).

In addition, if you’re under 59 1/2, you’ll not only pay taxes, but you’ll also pay a 10 percent penalty on your withdrawal.

So the real question is why would you want to take out that much money to pay off your mortgage? And if you did, that much of a withdrawal from your 401(k) would probably put you in a higher tax bracket causing you to pay even more federal income taxes on the amount you take out.

The only way to get tax-free cash is to borrow from your 401(k). But, again, I don’t recommend it. If you lose your job, you’ll have to replace all the cash within 60 days, plus you’ll be losing out on any return your retirement cash would generate inside your 401(k). The risks are extremely high that you could be caught short and wind up losing your home if you can’t come up with enough cash.

My suggestion is to keep your 401k money where it is and focus on finding additional ways to save in your budget to throw more cash at your mortgage.

A reader asked me about how job history affects getting a home and I wanted to share that information:

A W2 is probably all you need to buy a house in terms of proving that you are employed. The two-year rule is generally for self-employed people, those in cash businesses or those that own their own businesses. Lenders do want to see that your employment is stable, however, but if you move from one job to another and the replacement job pays more, that’s usually something that a lender views as a positive.

The assumption mortgage lenders make is that if you’re employed, you’ll continue being employed.

Lenders are looking for homeowners to put down much more cash and have even better credit in order to get the best mortgage terms and the lowest possible interest rate available.

Be sure you have enough cash saved up and then go out and find a nice house that you’ll want to stay in for the next 5 to 10 years. Property prices continue to fall nationwide, so there are some great deals around.

This would be a good time to find a mortgage lender to review your finances and other documentation you’ll need to buy a home.

If you are not ready to buy a home, don’t go through the full application process, but take your credit score and credit history, if you have one, and show that to the lender or broker. Then you can have a discussion on what would be best for you going forward and if your job history would be a problem for you.

A new data set published last week by CoreLogic, a provider of real estate information and analytics, indicates that the real estate market still faces a number of substantial problems – and not all of them contain the word “foreclosure.”

U.S. homeowners who are regularly making mortgage payments, and have no current desire to buy or sell, may still have a home equity crisis on the horizon. That could spell big trouble for anyone who used their home as a piggy bank, expecting future home value appreciation would make things right.

According to CoreLogic’s data, a full 23 percent of borrowers are considered to be “underwater” in their homes. How much underwater?

CoreLogic says U.S. homeowners have a whopping $750 billion in negative equity.

If you live in Florida, Michigan or the Southwest, the situation is much more dire. Here are the top five states that, according to CoreLogic,  average the most underwater properties.

Top 5 States for Underwater Mortgages

1. Nevada: 65 percent of homeowners are underwater
2. Arizona: 51 percent of homeowners are underwater
3. Florida: 47 percent of homeowners are underwater
4. Michigan: 36 percent of homeowners are underwater
5. California: 32 percent of homeowners are underwater

The numbers are awful, but it seems we haven’t hit bottom yet. CoreLogic’s report mirrors an industry consensus that home prices will fall an additional 5 percent to 10 percent in 2011, with a similar rise in negative equity averages.

It’s tough to swallow the fact that two-thirds of Nevada’s borrowers, who may have never been in trouble with their mortgages, still have less than nothing to show for their investment – and would have a doozy of a time selling their property.

If you sold your house today, would you turn a profit?

To view the full CoreLogic report, click here.