The Mortgage Forgiveness Debt Relief Act of 2007 is Expiring

So what are other homeowners doing? Many homeowners that are considering a short sale or a loan modification have decided that instead of waiting for the market to come back they are opting to sell their house now and get out while the getting is good!  If you owe more than your house is worth, it will take years to break even. If you decide to sell your house BEFORE you break even, there will be debt that is settled by the lender. Pursuit of a short sale AFTER this deadline expires will be subject to additional tax liability.

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Many homeowners and real estate investors are asking if the housing market has hit its bottom yet. Will we ever see recovery? If so, when? Goldman Sachs Group released a statement in December 2011 proclaiming, "The home price bottom [is] in sight." If that is so, however, when will it start, exactly? National home price data seems to suggest that the worst is now behind us. Clear Capital, a real estate research firm in Truckee, California, explained that, "2011 saw a national decrease of 2.1% in home prices when compared with 2010." Yes, this is still a loss. However, a 2.1% decrease is rather paltry when compared to the double-digit drops we suffered in the preceding years. Dr. Alex Villacorta, the director of research and analytics at Clear Capital argues, "Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years." He thinks that "the current balance the market has found will continue through 2012." 

If you are thinking of purchasing a home in the near future and you keep wondering if now is the right time for you to jump, remember that the comparatively "flat national average" is made up of metro markets that have been anything but "flat." Clear Capital advises, "Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets returning year-over-year price movement that can be considered stable." What is meant by "stable price movement"? It means shifts and swings of less than 2.5%. Clear Capital believes that less than half of America's largest metro areas will reach stability in 2012, Denver among them.

Although this is good news for fellow Denverites, we still have to unload the troubling influx of distressed inventory still flooding the market.

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Now that HARP has been revamped by the government, new fraudulent schemes are on the rise. Many homeowners are beyond stressed -- receiving mortgage delinquency notices and facing eviction and foreclosure, so it's a wonderful time for scammers to sharpen their deceitful teeth and sink those teeth into desperate borrowers. Tim Gallagher, chief of the FBI's Financial Crimes section explains, "We call them home rescue schemes. The targeting right now by the bad actors out there, we're seeing an upswing in directing it at individuals who are underwater."

Con artists prey on underwater borrowers who are having problems modifying or refinancing their current home loans. They promise a successful loan modification in exchange for a payment in advance of between $3,000-$5,000. Once they receive the payment, this "business" will simply disappear -- leaving the homeowner in an even bigger lurch. Gallagher says that rescue schemes and other refinance scams make up ten percent of the FBI's mortgage fraud cases. He goes on to explain that that figure would be even higher were it not for the FBI's one-million-dollar "threshold when it comes to the amount of money involved in a particular scheme." Gallagher clarifies it further, "It's easier to arrive at that amount with someone accused of mortgage loan origination fraud on four or five houses than it is for homeowner bailout schemes, which tend to involve lower dollar amounts."

Now that the government has implemented the second phase of its HARP program, the FBI is continually working with HUD as well as the FTC to further awareness in an effort to prevent borrowers from becoming victimized in this manner. These types of schemes are now a top priority for the FBI, and they will prosecute scammers as such.

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Times are indeed changing when it comes to the mortgage game. Federal Reserve Chairman Ben Bernanke, at a recent press conference, said, "The bottom third of people who might have qualified for a prime mortgage in terms of, say, FICO scores a few years ago cannot qualify today," because of stricter standards from mortgage providers. In 2010, about one in four applicants was denied for a mortgage loan. This represents an 18% increase since 2003, reports the Federal Financial Institutions Examination Council. Bob Ryan, acting commissioner for HUD (U.S. Department of Housing and Urban Development) said that money is "flowing, its stable, its tightened from the boom years, but its there." Keith Gumbinger of mortgage information provider HSH Associates says there is a belief that you cant get a new loan, but thats not the case at all. According to Tuck Bradford, in order to have your mortgage backed by "the big guys" i.e., Fannie Mae or Freddie Mac, a borrower must meet the following guidelines:

• Be able to pay 20% of purchase price as a down payment, plus any closing costs.
• A credit score of at least 620.
• A high-enough income to cover monthly mortgage payments usually no more than 28% of gross income should go to mortgage payments.
• A loan-to-value ratio of at least 80% in order for the home value to be greater than the loan balance in the event of default.

Oddly enough, however, some potential borrowers are finding it difficult to get funding even with great credit. A loan officer in Westport, Connecticut had a client who was trying to refinance his home and ended up having to do a short sale due to one imperfection on his credit report. Since the homeowner ended short selling his home, hell have an even bigger blemish on his credit report for several years.

The Federal Housing Administration can help those who have been rejected by conventional lenders. The FHA is intended to help working-class Americans achieve home ownership, and therefore, has less stringent lending rules. FHA requires minimum credit scores of 580 for a 3.5%-down loan and 500 for a 10%-down mortgage. There are, of course, some banks that require higher credit scores in order to protect their investments. If you have less-than-perfect credit, FHA is willing to overlook it as long as you have other favorable factors to counter-act the bad. You may even see borrowers with a bankruptcy or even a past foreclosure on their records receive FHA financing. Such stains make any financing more difficult but not impossible.

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June 2011 had the distinction of boasting the largest increase in applications for mortgages in the last three months. The MBA reports that record-low interest rates are to thank for this surge in mortgage applications. Their seasonally-adjusted index of application activity grew 13 percent for the week of June 10th, 2011. This was largest boost since March 2011. We must mention that most of this influx is for refinance applications, rising 16.5 percent from the week before. Purchase applications saw a small rise -- 4.5 percent. Michael Fratantoni, the Mortgage Bankers Association's vice president of research and economics, says about the boom, "Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November."

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