Government offers Home Affordable Modification Program

New alternatives to foreclosure unveiled
Government offers Home Affordable Modification Program

Homeowners who can't afford their mortgage payments may want to take a look at the federal government's new alternative to foreclosure: the Home Affordable Foreclosure Alternative program, or HAFA, which intended to encourage lenders to facilitate short sales and deeds-in-lieu, or DIL, as alternatives to foreclosure.

The program, which is a part of the Home Affordable Modification Program, or HAMP, may help some homeowners escape a bad situation, but the rules are complicated and they won't be able to keep their homes.

U.S. Treasury Assistant Secretary Herbert Allison explained the concept in congressional testimony.

"HAMP does not, nor was it ever intended to, address every delinquent loan," he said. "In these instances, the borrower may benefit from an alternative that helps the borrower transition to more affordable housing and avoid the substantial costs of foreclosure."

Here are some details from the government's 43-page directive for loan servicers:

A short sale allows the homeowner to sell the home and use the proceeds to satisfy the first mortgage even if the sale price is less than the loan balance.

A DIL allows the homeowner to voluntarily give up the home to satisfy the first mortgage even if the home is worth less than the loan balance.

The homeowner can get pre-approval for a short sale at a specific minimum price or net proceeds before the home is put on the market.

The homeowner can receive $1,500 for relocation expenses at closing. This sum may be reported to the Internal Revenue Service as income.

The home must be the homeowners principal residence.

The mortgage must be delinquent, or default must be reasonably foreseeable.

The unpaid loan balance must be less than $729,750 for a single house or condominium. Higher limits are allowed for two- to four-unit residential properties.

The homeowners monthly mortgage payment must be more than 31 percent of his or her gross income.

The homeowner must transfer clear title. The lender will allow up to three percent of each second loan or lien, up to $3,000 in total, to help the homeowner satisfy these obligations.

The government's directive excludes loans that are owned or guaranteed by Fannie Mae or Freddie Mac. However, the two government-run mortgage corporations are expected to release their own guidelines.

Homeowners can use the Loan Look Up Tool on the Making Home Affordable Web site to find out whether they have a Fannie Mae or Freddie Mac loan.

The lender cannot require a cash contribution or promissory note, cannot pursue a deficiency judgment and must release the homeowner from all future liability for the debt.

The loan servicer can use the financial information and hardship letter that the homeowner submitted for a loan modification, or request updated information to evaluate the homeowners eligibility.

The loan servicer must assess the current value of the home. If the short sale or DIL isn't completed, the servicer can add the cost of this assessment (e.g., an appraisal) to the loan balance.

The homeowner must sign a Short Sale Agreement or DIL Agreement on or before Dec. 31, 2012.

The home must be listed for sale with a licensed local-area real estate professional. (This requirement doesn't apply to DIL.)

The homeowner must cooperate with the real estate professionals efforts to sell the home and maintain the interior and exterior of the home.

The servicer and homeowner must meet a number of time frames.

The lender may require the homeowner to make full or partial payments on the mortgage, up to 31 percent of the homeowners income, subject to the lender's written policies.

The homeowner cannot have a close business or personal relationship with the real estate agent or buyer and cannot have an expectation of buying back or renting the home after the short sale or DIL closes.

The lender can initiate or continue, but not complete a foreclosure sale while the homeowner is involved in the program.

Homeowners should discuss the income tax consequences of debt forgiveness with a qualified tax professional.

The servicer will report the short sale or DIL to the credit bureaus. That will hurt the homeowners credit score, although not as severely as a foreclosure.

The buyer in a short sale can't resell the home within 90 days of the purchase.

The program launched April 5 and is scheduled to sunset on Dec. 31, 2012. Servicers may elect to implement the program sooner than the official effective date.

Homeowners are encouraged to contact their loan servicers to find out whether they are eligible for the program or call the HOPE hot line at (888) 995-4673 to speak to a government-certified mortgage counselor. More than 100 servicers have signed up for the program.

These servicers are required to participate and write their own policies subject to investor guidelines.

Going up

Mortgage rates jumped for the second straight week.

The average 30-year fixed-rate mortgage rose 12 basis points, to 5.35 percent. A basis point is one-hundredth of a percentage point. Rates have risen 24 basis points in two weeks and are now at their highest point since Nov. 4, 2009.

Meanwhile, this week's average 15-year fixed-rate — a popular option for refinancing — leapt 16 basis points, to 4.69 percent.

The average jumbo 30-year fixed rose 6 basis points, to 5.98 percent.

Adjustable-rate mortgages split this week. The one-year adjustable-rate mortgage remained unchanged, at 4.74 percent. Meanwhile, the popular 5/1 ARM rose 4 basis points, to 4.55 percent.



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Tips on Cutting Your Business Taxes

As the calendar turns to another year, it's time to get 2008 tax information in order. Taking advantage of all opportunities can reduce the burden. Here are some opportunities, courtesy of the Internal Revenue Service, that are not widely known. If they don.t apply to your 2008 returns, this is a good time to consider them for the new year. In hiring, consider taking advantage of the Work Opportunity Tax Credit.

This was designed to provide an incentive to hire from certain groups with particularly high unemployment rates, including urban youths, government assistance recipients, ex-convicts, veterans and vocational rehabilitation referrals. The credit has been extended a number of time. Now it's combined with the welfare to work tax credit and extended through August 31, 2001. The combined credit is available for employers hiring from one or more of nine targeted groups. Depending on the group and circumstances, the maximum credit per employee ranges from $1,200 for qualified summer youth employees to $5,000 for long term family assistance recipients. If you own real estate, you might benefit from cost segregation.

Real estate holdings represent a significant capital investment. Cost segregation carves out shorter lived assets, which qualify for five, seven and 15 year write off periods, normally embedded in a building's construction or acquisition cost, and thus depreciated over 38 years. Reclassifying assets and accelerating depreciation could bring tax savings and easier write offs when items become obsolete. Reclassifying assets is most effective for property valued at $1 million or more. For retailers that are considering buying equipment, enhanced Section 179 may help. The Economic Stimulus Act of 2008 has two incentives for business that purchase, tangible personal property, for use in the business. The first enhancement Section 179 is expensing.

For property placed in use during the 2008 tax year, business can deduct up to $250,000. the deduction begins to phase out if the business spends more that $800,000. Before the Act, the Section 179 expense limit was up to $238,000, with a phase out beginning at $510,000. What property qualifies? Generally, the property must be newly purchased tangible personal property, actively used in the business and for which a depreciation deduction would be allowed. It must be used more than 50 percent for business.

Bonus depreciation is back, offering another incentive to purchase equipment. It is the second incentive in the Economic Stimulus Act. This incentive was used after 9/11 and after the gulf cost hurricanes, to encourage businesses to invest. The new law provides qualifying taxpayers 50 percent first year bonus depreciation of the adjusted basis of qualifying property.

To claim bonus depreciation, the assets must be new, qualified property put into service after December 31, 2007. Qualified property must be: "Property with a depreciation recovery period of 20 years or less." "Depreciable computer software that is not amortizable over 15 years." "Water utility property." "Qualified leashold improvement property." If purchasing equipment isn't practical, there are tax advantages to leasing. If you lease your equipment, you are allowed a full write off of lease expenses each year, no matter the size of your business or the dollar value of the leases.

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