FANNIE MAE INTENSIFIES PENALTIES FOR STRATEGIC DEFAULTERS

Seven-Year Lockout Policy for Strategic Defaulters

We would like to share this current update on recent Fannie Mae policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. This change will affect homeowners who decides to do a “strategic default,” -- when borrowers are walking away from their homes based on the sheer fact that the property is currently worth less than what is owed, even if they are able to afford their monthly mortgage payments. This phenomenon isn’t looked upon kindly, as it unnecessarily adds to the growing number of foreclosures across the nation.

Under these changes, defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the day of foreclosure.

In addition, Fannie Mae said it will take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company said it will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities, and our approach is meant to deter the disturbing trend toward strategic defaulting.”

On the flip side, Edwards said borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.

According to Fannie Mae, troubled borrowers who work with their servicers and provide information to help the servicer assess their situation can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure. Fannie Mae said borrowers with extenuating circumstances who work out one of these options with their servicer could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances.

Here is the verbiage from the FN Bulletin:

Currently, the waiting period that must elapse after a borrower experiences a
foreclosure is seven years. However, Fannie Mae allows a shorter time period –
five years – if certain additional requirements are met (e.g., minimum down
payment and credit score, and occupancy requirements).

These requirements are being modified to remove the five year option. Unless the foreclosure was the result of documented extenuating circumstances, which only requires a three-year waiting period (with additional requirements), all borrowers will now be required to meet a seven-year waiting period after a prior foreclosure to be eligible for a new mortgage loan eligible for sale to Fannie Mae."

Don't miss the section that says borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe.

You can check out the full text of the announcement here: Fannie Mae's Selling Guide Announcement SEL-2010-05.

What Tax Records Should You Keep and How Long Should You Keep Them?

While tax preparation seems to get a little bit easier each year with the prevalence of online tax prep software, there’s still one question that leaves many Americans scratching their heads: What records should I hang onto for tax purposes and how long should I keep them?

There are a few basic records that everyone should keep, according to the IRS, including documents that provide evidence of your income and expenses. In addition, if you own a home or have investments, the IRS recommends that you hang onto related records. Here’s the breakdown:

Basic Records to Keep

Now that you know what to keep, here’s the low-down on how long to keep them (also known as the “period of limitations”):


How Long to Keep Records*

*Unless otherwise noted, the number of years you should keep records refers to the time period beginning after you filed your return. If you filed your return before the deadline, the IRS treats it as if you filed it on the deadline.

For more details about which records you should keep for tax purposes, the IRS has put together a handy publication on Recordkeeping for Individuals.

GREAT NEWS FOR SHORT SALE FRUSTRATION

On November 30, 2009, the Obama Administration released guidelines and uniform forms for its Home Affordable Foreclosure Alternatives Program (HAFA). Modified HAFA rules for loans owned or guaranteed by Fannie Mae or Freddie Mac will be issued in coming weeks. HAFA does not apply to FHA or VA loans.

HAFA, which will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP), provides incentives in connection with short sales and deeds-in-lieu of foreclosure. HAFA is a complex program with 43 pages of guidelines and forms. We will keep you updated in future blogs and strive to simplify the jargon to see how this program can help you.

The program:

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected under HAMP.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
• Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses a standard process, uniform documents, and timeframes/deadlines.
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders. Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
• Does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements. The program ends on December 31, 2012.
  

Who is eligible for HAFA?
The borrower must meet the basic eligibility criteria for HAMP:

• Principal residence
• First lien originated before 2009
• Mortgage delinquent or default is reasonably foreseeable
• Unpaid principal balance no more than $729,750 (higher limits for two- to four-unit dwellings)
• Borrower’s total monthly payment exceeds 31% of gross income

What else should I know?

• The deal must be “arms length.” Borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.
• The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, forgiven debt will not be taxed if the amount does not exceed the debt that was used for acquisition, construction, or rehabilitation of a principal residence. Check with a tax advisor.
• The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which may hurt credit scores.
• Buyers may not reconvey the property for 90 days.

HOMEBUYER TAX CREDIT CHANGES AT A GLANCE

First-time Homebuyers and Repeat Homebuyers still have time to take advantage of the tax credit available to them. The following quick reference is from the Federal Housing Tax Credit website. We have provided more links to detailed discussions for each.

If you have questions specific to your situation, please call us at 702-285-1990 and we would be happy to provide answers.

$8,000 First-time Home Buyer Tax Credit at a Glance

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.
  

To view Frequently Asked Questions, please click here: http://www.federalhousingtaxcredit.com/faq1.php

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
  The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.
  

You can find Frequently Asked Questions here: http://www.federalhousingtaxcredit.com/faq2.php

RECENT RULING MAY HELP HOMEOWENERS TRYING TO AVOID FORECLOSURE / LV HOME PRICES RISE AS SALES TAKE SEASONAL FALL

In a recent report from the Las Vegas Review Journal by reporter John G. Edwards, homeowners fighting back foreclosure may have some hope to delay the process. This ruling made by U. S. District Judge Kent Dawson “makes it harder for lenders to foreclose on home mortgages” as it challenges the electronic system of recording the ownership of residential mortgages for the mortgage banking industry.

About half of all U.S. mortgages “whose loans have been securitized, sliced and diced are now held" by Mortgage Electronic Registration Systems Inc., or MERS, according to a blog posted by securities analyst Barry Ritholtz.

According to the article, “The case, heard by a panel of federal judges in November, concerned whether Mortgage Electronic Registration Systems Inc. could foreclose on residences on behalf of lenders.”

The electronic system records the ownership of residential mortgages for the mortgage banking industry.

Dawson said the company could not foreclose on a home, because it did not provide evidence that it held the note on the residence and didn’t show that it was an agent of the lender.
The case started in bankruptcy court two years ago.

MERS officials asked bankruptcy Judge Linda Riegle for permission to start foreclosure proceedings against a property owned by Lisa Marie Chong. Bankruptcy trustee Lenard Schwartzer objected, saying the electronic system was not a “real party in interest” in the mortgage loan.

Like many mortgages, Chong’s loan had been securitized, meaning it had been pooled or packaged into a security held by investors.

Mortgage Electronic Registration Systems Inc. was unable to show that it had possession of the note. The bankruptcy judge ruled in Schwartzer’s favor. The decision was appealed to federal court.

In his decision Tuesday, Dawson said "the registration system does not lose money when borrowers fail to make payments on home mortgages." Dawson found that the Mortgage Electronic Registration must at least provide evidence that it was a representative of the mortgage loan holder, which it failed to do.

“Since MERS provided no evidence that it was the agent or nominee for the current owner of the beneficial interest in the note, it has failed to meet its burden of establishing that it is a real party in interest with standing,” Dawson said, affirming the bankruptcy court ruling.

Real estate attorney Tisha Black Chernine said the ruling is good news for struggling borrowers and homeowners in general.

“It will have a dramatic effect on lenders being able to foreclose,” she said.

Because the decision makes it more difficult to foreclose, she hopes lenders will be more willing to negotiate with homeowners struggling to meet mortgage payments by approving short sales or making other concessions.

In a short sale, a lender agrees to allow a homeowner to sell his home for less than is owed.
This is particularly helpful, because many homeowners owe far more than their homes are worth since home prices have fallen. Houses sold in short sales typically go for 30 percent more than homes sold after foreclosure, Black Chernine said.

Appraisers looking at the short sale price will use it in determining the market value. Thus, avoiding foreclosure results in higher market values for other houses, she said.
“It should help buoy home prices,” Black Chernine said.

Bill Uffelman, chief executive officer of the Nevada Bankers Association, predicted that most foreclosures will be able to proceed, because the real mortgage owners and notes will be able to be identified in most cases.

However, he said, many homeowners facing foreclosure may be able to stay in their homes longer because of the delay.

“In the end in 99.9 percent of the cases, ownership of the note will be proved,” he said.
While the decision is believed to be the first of its kind in Nevada, the Kansas Supreme Court made a similar finding in a similar case.

LV MEDIAN PRICE RISE, SALES SLOW DOWN TYPICAL OF HOLIDAY SEASON
On another front, the recent statistics released by the Greater Las Vegas Association of Realtors show that Las Vegas’ median price of homes sold in November was $140,000, about $900 higher than October. The median price was $138,000 in September.

The traditional holiday sales slowdown of homes and condos took place in November while prices edged up slightly again, according to the report.

Analysts say the increase is a further reflection that home prices have stabilized for now. Overall, home prices are down 25 percent from November 2008.

Condo prices fell 2.9 percent in November to $68,000. Prices are 25 percent below where they were in November 2008.

Demand for homes and condos tend to soften in November, December and January because of the holidays, but sales last month eclipsed November 2008.

The GLVAR reported 3,117 sales of new homes in November, a 43 percent increase over November 2008. The 726 sales of condos and town homes was 85 percent higher than November 2008.

Compared to October, however, sales of homes fell by 12 percent and sales of condos and town homes fells by 15 percent.

Despite the slowdown, GLVAR President Sue Naumann said the extension of an $8,000 tax credit for first-time homebuyers and creation of $6,500 tax credit for other buyers should spur sales in 2010.

Investors and first-time buyers continue to dominate the sales market, according to the GLVAR.

The percentage of homes purchased with cash in November was 41 percent, nearly matching October, Naumann said. Many investors rely on cash deals.

The number of sales of foreclosed upon homes continued to drop in a reflection of limited supply that’s on the market, analysts said. The GLVAR reported 61 percent of all sales in November were bank-owned properties, down from 64.5 percent in October.

FIRST TIME HOMEBUYERS’ TAX CREDIT EXTENDED THROUGH APRIL 2010; ALSO OFFERED TO CURRENT HOMEOWNERS

We have some great news for first-time homebuyers! The Senate has agreed to extend the First Time Homebuyers’ Tax Credit through April 2010. The tax credit provides up to $8,000 to first-time homebuyers but is set to expire at the end of November.

More great news: The Senators also agreed to offer a reduced credit to some repeat buyers. Current homeowners looking for a new home could qualify for a $6,500 credit if they have lived in their existing primary residence for at least five years. The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

The tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes, according to a summary of the legislation being circulated among lawmakers.

If you’re thinking of buying, you cannot have a better timing than now. With inventory still at peak levels, and prices and mortgage rates at record lows, this is a totally win-win situation for everybody. The current scenario also bodes well for current homeowners who may be planning to downsize or get a bigger place.

The Dulcie Crawford Group is just a phone call or email away for honest and sensible real estate advice. Please call us at 702-285-1990 or email dulciecrawford@gmail.com.

FED DECISION SHAKES THINGS UP; HOW WILL THIS AFFECT YOU?

This just came in from one of our preferred lenders, Paula Clark at Wells Fargo Home Mortgage: Last week at the Fed’s regularly scheduled Federal Open Market Committee meeting, some major decisions were made that will ultimately impact mortgage rates. But just what did they decide...and what do their decisions mean for home loan rates?

The Fed said they are going to ration out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. There will be no additional buying, but instead, a longer weaning off of the program. There was some speculation about the Fed increasing the amount of buying above the $1.25T committed to, and last week's statement is the Fed's nice way of saying "no." They will not be buying more in quantity, but what they will do is attempt to provide a smoother transition to normal market conditions.

It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher...most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise. This means that waiting to purchase or refinance will very likely mean a higher interest rate.

Their decision also means that the Fed's remaining purchases will all be lower in quantity, as the remaining allotment for purchases will be spread over a longer period of time - and additionally, will not necessarily be spread out as evenly as their past purchases - which could lead to more volatility for rates in the near term.

In other news, Existing Home Sales and New Home Sales were reported slightly less than expected, but both reports continue to show signs of an improving housing market. The inventory of unsold existing homes fell to its lowest inventory level since April 2007, while the inventory of unsold new homes dropped to its lowest level since January 2007. While some of the decline in new home inventory may be due to builders constructing fewer homes - these reports indicate that the housing market is indeed showing signs of life.

Remember, with home loan rates still low - but slated to increase with the Fed's recent decision - as well as a juicy tax credit for First Time Home Buyers that is going to expire on November 30th, it makes sense to get off the fence if you've been considering a purchase or refinance. For sensible home advise, you can contact Paula Clark directly at tel. (702) 868-3920, cell (702) 277-3554, or email her at paula.L.clark@wellsfargo.com.