Mortgage Debt Cancellation Relief Act - H.R. 3648

Individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between January 1, 2007 and December 31, 2009 will not be required to pay income tax on any amount that is forgiven.

General Provisions of Public Law 110-142:
No income limitation: All borrowers receive the relief, no matter what their income.
Dollar limitation: No more than $2 million of mortgage debt is eligible for the exclusion ($1 million of debt for a married filing separately return).
Relief applies only to an individual's principal residence.
The forgiven mortgage debt must have been secured by that residence.
No relief is available for cash-outs, whether the cash-out takes the form of a refinanced first mortgage, a second mortgage, home equity line of credit or similar arrangement.
Eligible debt is what is called "acquisition indebtedness." This is debt used to acquire, construct or rehabilitate a residence.
Refinanced debt qualifies, so long as the debt does not exceed the original amount of the debt. (Same rule as Mortgage Interest Deduction)
Home equity debt (or second mortgages) qualifies if the funds were used to improve the home. (Borrower must have adequate records, as under current law.)
See cash-outs, above. No amount of a cash out may be treated as acquisition debt.

Additional Provisions of Public Law 110-142:
Refinanced Mortgages: The relief does apply to refinanced debt in some circumstances. The rules seek to assure that any debt eligible for the relief is directly related to the acquisition or improvement (such as rehabilitation, expansion, renovation, reconstruction) of the principal residence. Debt used for furnishings (i.e., any movable property) in the home is not eligible for the relief. When the proceeds of any refinanced debt is used for any purpose other than acquisition or improvement, those proceeds are not eligible for the relief.

Principal Residence: A principal residence is defined in the same manner as the rules that apply to the capital gains exclusion on the sale of a principal residence. An individual may not have more than one principal residence at any given time.

Second Homes: As a general matter, the relief does not apply to any debt forgiveness on any mortgage for any second home of the taxpayer. However, if a taxpayer uses a residence (other than his principal residence) solely as an income-producing rental property, already-existing relief provisions might apply, depending on the taxpayer's situation. If the second home property was acquired as a speculative investment (such as for resale rather than rental), relief provisions are unlikely to be available. In all events an individual who is in a short sale, foreclosure, workout or similar situation on a residence (including condos) other than his principal residence should consult a tax adviser to determine what, if any, relief provisions might be available.

Mortgage Insurance Premiums: The deduction for mortgage insurance premiums is extended through tax year 2010. Income limitations on the deduction will continue to apply.

Surviving Spouses/$500,000 Exclusion: In some circumstances, a surviving spouse is denied eligibility for the full $500,000 exclusion on the sale of his/her principal residence. This most frequently occurs when the residence is not held in joint ownership at the time the spouse who is not on the title dies. In that case, the deceased spouse had no ownership interest, so there is no basis step-up on that half of the property. The surviving spouse is thus eligible only for an exclusion of $250,000. (Had the home been sold during the deceased spouse's lifetime, the full $500,000 exclusion would have applied, so long as they filed a joint return.)

Challenges for the surviving spouse are compounded when this circumstance occurs late in the year. The surviving spouse is often unable to sell the property within the same year that the spouse died. This legislation provides that a surviving spouse may claim the full $500,000 exclusion not only in the year of the deceased spouse's death, but also during the two years after the spouse's death.

Second Homes Converted to Principal Residence: The new law signed by the President does not include a provision limiting the application of the $250,000/$500,000 exclusion when a second home is converted to a principal residence.

Background Information: A fundamental principle of the income tax is that a taxpayer must recognize income and pay tax any time a debt of the taxpayer is forgiven or discharged. Exceptions are provided in several circumstances, including bankruptcy, insolvency (as defined by state law) and for some investment real estate. Until this new rule was enacted, however, no exception applied to any amount debt forgiven on a mortgage for a taxpayer's principal residence. Thus, until now, when some portion of a mortgage debt was forgiven, that amount has been treated as taxable income and the borrower has been taxed at ordinary income rates on the forgiven amount, even though there is no cash.

The newly-enacted relief for mortgage debt forgiveness is Congress's response to the problems generated by the subprime crisis, short sales, rising foreclosure rates and price corrections in some markets. Thus, when a lender forgives some portion of a borrower's mortgage debt in a short sale, a foreclosure, a workout with the lender or some similar circumstance, the borrower will not be required to recognize income or pay tax on the forgiven amount. This relief applies to debts forgiven between January 1, 2007 and December 31, 2009.

In a nutshell: Individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between Jan. 1, 2007 and Dec. 31, 2009 will not be required to pay income tax on any amount that is forgiven.

Avoid Costly Buyer Mistakes By Attending...

With interest rates back in the 5% - 6% range, who among your family, friends and co-workers would benefit from attending our Free Home & Condo Buyer Class?

They'll learn how to avoid costly home buyer mistakes!

For dates and details, go to: http://www.HomeBuyingClass.com or click on the Yellow Button on the right side of my blog.

Our next class is this Wednesday, January 23rd at 7:00pm.

We have a few seats left!

Taking Action Is Saving Client $138/Month!

A client read my blog the other day and decided to take action.

Now, he'll be able to save $138.00/month on his house payment!

He called Rick Pilger of Union National Mortgage and Rick reviewed his mortgage plan. He was at about a 7% interest rate from buying his home 19 months ago.

He's going to re-finance and lower his rate by about 1%. He's also eliminating Private Mortgage Insurance (PMI) without having 20% equity. It made more sense for him to pay the closing costs instead of adding them to his loan or have Rick to pay them for him with a higher rate. So he'll save $138 per month and his loan balance won't increase 1 cent. Then if he desires, he can keep making the same payment he is making now and pay off the house much faster.

Why is this a great story? Because one of my clients read my blog post on Thursday and took action by calling Rick to find out if it was in his best interest to re-finance or not. If it hadn't been, Rick would have told him that. But watch out, because many lenders would gladly have you re-finance, even if it's not in your best interest. That's one of the reasons I recommend Rick, because he cares and sees himself as a mortgage consultant, not a salesperson.

So are you going to make the call?

What are you waiting for? Pick up the phone and call Rick today at 234-4987. He'll tell you the truth.

Rates Are Back in the 5% Range...Re-Fi Time?

As a valued client and friend, I want to always make sure you know I am going the extra mile in our relationship.

I have twisted the arm of my Preferred Mortgage Consultant, Rick Pilger.

Because I appreciate your support of my family and business, I have asked Rick Pilger for a favor, and he has graciously offered to personally review your current mortgage for a NO COST refinance.

He will take time of of his busy schedule to review your mortgage situation to see if now is the time for you to take advantage of the lower interest rates and get a lower fixed rate mortgage payment.

It is possible for you to save a ton of interest with today's lower rates and not pay ANY closing costs!

A few years ago I re-financed twice in the same year without paying closing costs each time. It all depends on a couple of factors including what your current interest rate is. If it's not the right thing to do, Rick will tell you and make any recommendations for the future.

As rates change daily, it is imperative that you contact Rick quickly. Give Rick a call at (513)234-4987, and mention my name.

Rick treats my clients and friends with kid gloves, and he will take great care of you.

Wishing you the best,

Dan

Some Interesting Mortgage Facts!

Here are some FACTS from the Mortgage Bankers Association:

• FACT: The homeownership rate remains near record levels at 68.2%.
  
• FACT: 35% of homeowners own their home outright; 48% are in fixed-rate mortgages. 15% of homeowners have adjustable-rate mortgages (ARM). Only 5% of homeowners are nonprime borrowers with adjustable-rate mortgages.
  
• FACT: Only about 1.7% of all loans are in the foreclosure process.
  
• FACT: Nonprime borrowers have always had higher delinquency and foreclosure rates, and ARM borrowers have higher delinquency rates even when rates are falling. Nonprime borrowers also represent a higher share of ARM borrowers; it stands to reason that nonprime ARMs have a higher delinquency rate.
  
• FACT: Lenders want to lend money to borrowers who are willing and able to pay the loan back. Each time a foreclosure goes all the way to a sale, net economic losses are in the range of $30,000 to $60,000. Everybody loses when a home goes into foreclosure — the borrower gets a black mark on his or her credit, the lender and investor lose and the community loses.
  
• FACT: The marketplace is working. The volume of many nontraditional products is down because investors, rating agencies and lenders have tightened underwriting standards. One side effect, however, has been to trigger a world wide credit market event centered on overleveraged firms within and outside the mortgage market.

There are numerous factors that have caused this housing situation, but the reality is that the greater Cincinnati area wasn't hit as hard as many parts of the country. Home prices were not going through the roof, like in California, where buyers were taking out option ARMs and no-income verification mortgages just to qualify to get into a home. In my opinion, there were many consumers, who should have stayed where they were instead of trying to get these "no way out" mortgage products. Once they had them, with the market slowdown, there was no way to get out of them without extreme measures and in many cases, they're ending up in foreclosure.

The smartest thing for the consumer to do today is to find a mortgage product, preferably a fixed-rate product, that doesn't have an adjustable rate feature or pre-payment penalty in it. Buy a home within your comfort level. Don't spend at the very top of your financial ability. Don't let a mortgage "salesperson" try to "sell" you a mortgage product that could cause you to lose your home in the event of a financial crisis in your life. Make sure the mortgage consultant has your best interest at heart and not their wallet.

Are You Too Busy For Home Maintenance?

Do you have some home repair or home improvement projects that you just never seem to get the time to take care of?

Well, I have a solution for you.

When you think of contractors, do you think of them as being "reliable", "caring", "creative", "responsive" and "fairly-priced"?

Not usually, but Todd Williams, owner of T & T Building Services and Consulting (513-623-6994), has been that person for me and many of my clients over the past 2+ years. Todd has a passion of serving others and he loves what he does.

If you have a project, large or small, that you've been putting off, give Todd a call for a free estimate. Tell Todd I sent you and he'll take great care of you.

Is Your Home Fully Protected?

I was invited to meet with Karen Bastian of American Family Insurance on Friday and we talked about how homeowner's insurance is affected in today's world.

One of the main points was: Is Your Home Fully Protected?

It's vitally important that you have enough insurance coverage to rebuild your home in the event of a disaster. Not sure if you do?

Then ask yourself these questions concerning the 'Replacement Cost' of your home:

• Have you kept your agent informed about any additions or remodeling done to your home?
• Is your current coverage set up to protect any unusual or more upscale design features that might be expensive to replace, such as plaster walls, hardwood floors or detailed woodwork?
• Do you know if there have been any significant changes to the building codes in your area?
• Do you know what it costs to build new homes in your area that are similar in size and quality to your home?

If you answered "NO" to any of these questions, you are strongly urged to contact your homeowner's insurance agent to schedule an appointment to review your coverage.

No one likes to contemplate the possibility of their home being destroyed, but if disaster strikes, this call could end up being the most valuable one you'll ever make.

Are You Registered to Vote?

Are you registered to vote in Ohio's March primary?

If not, here's a link to help you with your registration:

http://www2.cabr.org/files/Voterregistration3JAN2008.pdf

It's An Incredible Time To Buy!

Happy New Year!

I'm really excited about the real estate market this year!

Yes, the real estate market is tough in certain parts of the country, but Cincinnati is holding up reasonably well.

"But, Dan, the news keeps saying the market is terrible and every other home sale is a foreclosure."

Don't believe everything you read and hear!

Home sales in 2007 were higher than those in 2000, 2001 & 2002.

Home sales were only better in 2003 - 2006 during the hot market and building boom.

Real estate will always go through cycles. You can't continue to break records year after year.

Right now, we have a housing supply (also called the Absorption Rate) that's double the norm of recent years. That means it would currently take just over 10 months to sell every property that's for sale right now without adding new listings to the market.

This is because the demand for homes is not rising as quickly as the number of sellers putting their homes on the market.

So, if you're a home seller, you need to price your home properly and have it in top showing condition.

If you're a home buyer, it's an excellent time to buy, because home prices have adjusted themselves, interest rates are great and there's a lot of properties to choose from.

Homes and condos are still selling! I was out over New Year's weekend (Fri - Tues) showing properties to several clients.

Do you have a real estate or mortgage question I can answer? E-mail me at dan@danweis.com.