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“The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the country, which means home prices will be rising in more areas as the year progresses.”

—Lawrence Yun, Chief Economist, National Association of Realtors

Strong words from a man who ought to know, but the question is… “Is it true?” Certainly the data contained in the press release containing this quote would lead you to believe this statement is a fact. Let’s review the data he bases his claims upon:
•The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, rose 4.1 percent to 101.4 in March from 97.4 in February and is 12.8 percent above March 2011 when it was 89.9
•First quarter 2012 sales closings were the highest first quarter sales in five years
•The PHSI in the Northeast slipped 0.8 percent to 78.2 in March but is 21.1 percent above March 2011
•In the Midwest the index declined 0.9 percent to 93.3 but is 16.9 percent higher than a year ago
•Pending home sales in the South rose 5.9 percent to an index of 114.1 in March and are 10.6 percent above March 2011
•In the West the index increased 8.7 percent in March to 108.0 and is 9.0 percent above a year ago

If pending sales were the only gauge of the housing market that mattered, then I might agree with Mr. Yun. Unfortunately we have other housing data that aren’t so cheer-worthy. For example the National Association of Home Builders/Wells Fargo April Housing Market Index, which measures home builder confidence showed a different view:
•Overall homebuilder confidence in the housing market declined to 25 from 28 in their Index in which a score of 50 is considered average
•In the Northeast the Index gained 4 points rising to 29
•The Midwest experienced a major decline of 8 points to 23
•In the South, a drop of 3 points to 24 was observed
•Out West, there was no change with the Index holding at 32

Now you will surely notice, as did I, that these reports are for two different months—March and April. If the Realtors® Index experiences the type of drop that the homebuilders’ data did between March and April, Mr. Yun may have to rethink his “turned the corner” pronouncement. While I agree that the housing sector in the US is better than it has been, I see many headwinds that will make the recovery take longer than any of us would like. But…

Americans want to buy homes. They believe in the value of homeownership for their families and their future. That alone makes me confident that housing is beginning to grip the wheel on its huge, bumpy, obstacle-filled turning of the corner.

~ Mortgage Master

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Most people have a credit report, but how many actually know what goes into them? If you listen to educators at the top three credit bureaus — Experian, Equifax and TransUnion — the answer is: not many.

“People don’t understand what is actually included in their credit report,” says Demitra Wilson, director of media relations at Equifax. Consumers will stress over details that aren’t even included and will get themselves into trouble over urban myths like the tale of the magically disappearing delinquency.

It’s a problem, agree educators. Here are just seven of the most persistent myths that the top three credit bureaus say they hear all the time.

Myth: Your credit report includes your credit score.
The truth: “Your credit report does not contain your credit score,” says Wilson.

Consumers often think that when they pull a free copy of their report at AnnualCreditReport.com , they should also get a copy of their score, she says. However, if you want a copy of your FICO credit score (which is the most widely used score by lenders), you’ll usually have to pay up to $19.95 (at myFICO.com ) to get it. The exception is if you are denied a loan or given higher rates based on your credit score. In that case, a lender is required to send you a free copy of the score they used to make their decision.

You can also access a free credit score through a service such as CreditKarma.com. However, those scores aren’t necessarily going to be the scores that lenders use. That’s because “there are many different credit scores,” says Rod Griffin, director of public education at Experian, and the score that gets used depends on the lender and the type of loan they are handing out.

The good news is that even though you can’t control the formulas that lenders use to calculate your many different credit scores, you can influence the information that goes into them. “You as a consumer have the ability to control the information in your report,” says Griffin.

Myth: Intimate details, such as race, income or medical history, are included on your credit report.
The truth: “Your credit report only includes information that’s debt-related,” says Griffin. It doesn’t include your race or ethnicity, your income, your investments and assets or your criminal record, he adds. (It does, however, include your address, your Social Security number, your date of birth and possibly your place of employment.)

Some consumers also worry that late payments to their doctor’s office will appear on their reports. However, that’s false, says Griffin. “There’s a law called HIPAA, the Health Insurance Portability and Accountability Act. It prohibits or regulates the sharing of medical information,” he says. So credit reporting agencies are legally barred from including any information about your recent doctor’s visits, the kind of treatment you received or the name of the health care provider that you visited.

That said, if you miss a payment on a medical bill, your health care provider may send that uncollected debt to a medical collection company and the name of that company could appear on your personal credit report, says Griffin. Your lender, however, won’t see the medical company’s name when they pull your report. They’ll just see you have a medical collection listed.

That’s the confusing part, adds Griffin. Consumers often don’t realize that what they see on their personal credit report isn’t necessarily what a lender sees.

The same is true for soft inquiries, he says. A soft inquiry is listed when someone such as a credit card lender who’s thinking about giving you a special deal or a potential employer asks to see your report. However, unlike hard inquiries (which occur when you apply for a new loan or credit and temporarily ding your credit score), soft inquiries aren’t shared with lenders — and don’t affect your credit score — because you haven’t applied for any credit. “We don’t share soft inquiries with anyone but you, the consumer,” says Griffin. “It’s there so you know who’s looked at that report.”

Myth: Checking credit reports too often will hurt your credit score.

The truth: “Viewing your own credit report has no impact on your credit score,” says Cliff O’Neal, senior director for corporate communications at TransUnion. “You could view your credit report every day and it will have no impact.”

However, if you give a lender permission to pull your credit report, that will affect your score, says Equifax’s Demitra Wilson. “Where people get confused is if you actually go into a creditor or merchant and you apply for a loan or apply for credit and you give them permission to access your credit report. That kind of inquiry is called a hard inquiry and that kind of inquiry can impact your credit score,” says Wilson.

Luckily, credit agencies will give you a break if you’re shopping around at different dealers. “If you’re shopping for a loan and are concerned that will hurt a score, know that we realize that you are shopping for a car or a mortgage or something of that nature,” says O’Neal. If the credit agency sees that your report has been pulled multiple times within a 30-day period, they will group those inquiries together and count them as just one hard inquiry.

Myth: If you pay off a delinquent debt, the missed payment will be removed from your credit report.
The truth: The only thing that clears a negative mark on your credit report is time.

“People think that if they pay off an account, it automatically falls off their credit report,” says Equifax’s Wilson. However, that’s just magical thinking, she says.

Instead, it will take up to seven years for a missed payment to disappear from your report and up to 10 years for a Chapter 7 bankruptcy to disappear.

Meanwhile, don’t think that you can just pay a credit repair company to clear those negative marks. Any credit repair company that says they can scrub your credit report clean of accurate but negative information isn’t telling you the truth, say experts.

They may be able to assist you with disputing negative information. However, the cost it takes to do that probably isn’t worth it, says TransUnion’s O’Neal. “Anything that a credit repair company promises, you can do yourself,” he says. There are no quick fixes when it comes to repairing your credit. “Just as it took time to damage your credit, it’s going to take time to improve your credit,” he adds.

The amount of time you’ll have to wait for a black mark to disappear can also be a major source of confusion, adds Experian’s Rod Griffin. “Seven years is a rule of thumb that applies to late payments. The confusion comes in when that seven years actually starts,” he says.

The good news is if you only missed one payment, the math should work in your favor. For example, if you miss a credit card payment, the clock will start on your credit report as soon as the payment is listed as late. Credit reporting companies call that your “original delinquency date.”

If you fail to pay that debt off and the account goes into collections, the clock will keep ticking and won’t reset, says Griffin. “Federal law requires that collection agencies carry over the original delinquency date from the original account and report that” to a credit reporting company.

Where it gets murky is if you make payment arrangements to clear a debt on an overdue account and then later miss another payment. Then the clock will start over from that second missed payment instead of the first one, says Griffin. “It gets a little bit confusing because an account can actually have more than one original delinquency date,” says Griffin. The first missed payment will be deleted seven years from the first time you were late. The second missed payment will then be treated as separate and will be deleted seven years after that one was reported as delinquent.

Myth: Your credit reports merge when you get married and split when you divorce.
The truth: “Getting married does not cause your previous credit histories to be merged,” says Griffin. “Everyone has their own credit report even after they are married.” So if your spouse has a spotty credit history, it won’t show up on your report.

That said, if you live in a community property state , loans that you accumulate while married may automatically be joined together and show up on both reports.

Any loans that you co-sign with your spouse will also appear, says TransUnion’s O’Neal. “When you co-sign for a loan, activity on that joint account will be displayed on your credit report as well as the person you co-signed with,” he says.

However, simply being married won’t make you financially liable for a spouse’s loans (but it will if you co-signed) — unless you live in a community property state. States with community property laws hold both spouses liable for debts accumulated during the marriage. Arizona, California, Idaho, Louisiana, Nevada, Texas, Washington and Wisconsin are community property states; Alaska is an opt-in community property state. See ” Compare states’ community property laws ” for more details.

Joint debts — in which both of you sign a contract with a lender or credit card company — do make you equally responsible for repayment. Meanwhile, if you split up, the jointly held debt that you acquired as a couple will stay put on both your reports, no matter what you agreed to in the divorce. “People think that if they get a divorce, that automatically severs joint accounts that are listed on a credit report, and it doesn’t,” says Equifax’s Wilson. You’ll both still be on the hook for that debt, unless your creditor agrees to take one of you off the account.

 Myth: Credit agencies are responsible for granting or denying credit.
The truth: “We don’t do that,” says Experian’s Rod Griffin. “We don’t approve or decline a person’s credit application.”

Instead, credit agencies gather your information in one place so that lenders don’t have to do it themselves. “The role of the credit reporting company is to compile information about a person’s debts and put them in a form that lenders can use,” says Griffin. “We don’t make any judgments about the information that is in the credit report.”

Myth: If you pay all your bills on time, you don’t need to check your credit report.
The truth: “It’s always important to look at your credit report from time to time and make sure it is up to date with the most current information that reflects your credit history,” says TransUnion’s Cliff O’Neal.

After all, you may be surprised at what’s in there. “One of the main misconceptions is that people think that if they pay their bills on time, they don’t need to check their credit,” says Demitra Wilson. “Your credit report is changing all the time … You want to make sure that the information that is being reported is accurate and correct. Even though you know that you’re paying your bills on time, the data furnisher may not be reporting it correctly.”

It also helps to know how you’re doing with your money. “When you know what’s in your credit file, you know your financial standing,” says Wilson. “You know your financial health so you’re able to take charge of your credit and know when is the best time to apply for a loan or seek preapproval for a mortgage.”

~ Yahoo Finance

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The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.  The effort will come in stages with the first taking place this June.  The new, aligned timelines include the requirement that mortgage servicers review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer.

“FHFA and the Enterprises are committed to enhancing the short sales and deeds-in-lieu process as additional tools to prevent foreclosure, keep homes occupied and help maintain stable communities,” said FHFA Acting Director Edward J. DeMarco. “These timeline and borrower communication announcements set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”

With the alignment, servicers will be required to do the following:

• review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package;

• provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days;make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.

By the end of 2012, Fannie Mae and Freddie Mac will announce additional enhancements addressing borrower eligibility and evaluation, documentation simplification, property valuation, fraud mitigation, payments to subordinate lien holders, and mortgage insurance.

~The Niche Report

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According to the National Association of Realtors (NAR), existing-home sales were down in March, but continue to outpace levels seen in 2011, while inventory tightened and home prices are showing further signs of stabilizing. Total existing-home sales, defined as completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 2.6 percent to a seasonally-adjusted annual rate of 4.48 million in March, from an upwardly revised 4.60 million in February, but are 5.2 percent above the 4.26 million-unit pace in March 2011.

 
“The recovery is happening though not at a breakout pace, but we have seen nine consecutive months of year-over-year sales increases,” said Lawrence Yun, NAR chief economist. “Existing-home sales are moving up and down in a fairly narrow range that is well above the level of activity during the first half of last year. With job growth, low interest rates, bargain home prices and an improving economy, the pent-up demand is coming to market and we expect housing to be notably better this year.”

Total housing inventory at the end of March declined 1.3 percent to 2.37 million existing homes available for sale, which represents a 6.3-month supply at the current sales pace, the same as in February. Listed inventory is 21.8 percent below a year ago and well below the record of 4.04 million in July 2007.

“We were expecting a seasonal increase in home listings, but a lack of inventory has suddenly become an issue in several markets with not enough homes for sale in relation to buyer interest,” Yun said. “Home sales could be held back because of supply factors and not by demand—we’re already seeing this in the Western states and in South Florida.”

The national median existing-home price for all housing types was $163,800 in March, up 2.5 percent from March 2011. Distressed homes—foreclosures and short sales sold at deep discounts—accounted for 29 percent of March sales (18 percent were foreclosures and 11 percent were short sales), compared with 34 percent in February and 40 percent in March 2011. Foreclosures typically sold for an average 19 percent below market price in March, while short sales were discounted 16 percent.

“Our members are reporting an increase in foot traffic from a year ago, but more importantly, home shoppers this year are much more serious about finding the right home and making an offer,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc. in Miami, Fla. “Stabilizing home prices and historically favorable affordability conditions are giving buyers more confidence, and Realtors have become more optimistic since the beginning of the year from the positive shift in buyer patterns.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.95 percent in March, up from a record low 3.89 percent in February; the rate was 4.84 percent in March 2011; recordkeeping began in 1971.

All-cash sales slipped to 32 percent of transactions in March from 33 percent in February; they were 35 percent in March 2011. Investors account for the bulk of cash transactions.

Investors purchased 21 percent of homes in March, down from 23 percent in February and 22 percent in March 2011. First-time buyers accounted for 33 percent of transactions in March; they were 32 percent in February and 33 percent in March 2011.

Single-family home sales declined 2.5 percent to a seasonally adjusted annual rate of 3.97 million in March from 4.07 million in February, but are 5.9 percent above the 3.75 million-unit pace a year ago. The median existing single-family home price was $163,600 in March, up 1.9 percent from March 2011.

Existing condominium and co-op sales fell 3.8 percent to a seasonally adjusted annual rate of 510,000 in March from 530,000 in February, and are unchanged from March 2011. The median existing condo price was $165,200 in March, which is 7.1 percent above a year ago.

Regionally, existing-home sales in the Northeast declined 1.7 percent to an annual level of 580,000 in March but are 5.5 percent higher than a year ago. The median price in the Northeast was $228,300, down 1.9 percent from March 2011.

Existing-home sales in the Midwest were unchanged in March at a pace of 1.02 million but are 15.9 percent above March 2011. The median price in the Midwest was $132,800, up 5.2 percent from a year ago.

In the South, existing-home sales slipped 1.1 percent to an annual level of 1.75 million in March but are 3.6 percent higher than a year ago. The median price in the South was $146,500, up 6.2 percent from March 2011. Existing-home sales in the West fell 7.4 percent to an annual pace of 1.13 million in March and are 0.9 percent below March 2011. The median price in the West was $198,300, up 1.6 percent from a year ago.

~National Mortgage Professional

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Everyone wants to get the best rates that they can for their mortgage.  However, without a good credit score, it is impossible to get those low rates.  I’ve listed 5 tips for getting your credit score in tiptop shape!

1. Don’t close credit card accounts to improve your credit score. You might have a good reason to shutter your account — you don’t want to pay an annual fee, you’re concerned about identity fraud, or you want to reduce the temptation to overspend — but don’t do it for the sole purpose of raising your credit score.
One factor in your credit score is your utilization, which is the ratio of balances owed compared to the credit limits on revolving accounts such as credit cards. Utilization is calculated for each credit card you have and across all of your cards. The lower your utilization, the better for your credit score. Closing a credit card account that has a zero balance excludes that credit limit from the overall utilization calculation, which can make your utilization increase and in turn, lower your score.

For the same reason, it’s also a bad idea to ask for lower credit limits on your credit cards if your goal is to improve your score. Doing so can only push your utilization higher.

Tip: If you must close a credit card account but want to keep your score high, pay down balances on other accounts to mitigate the effect.

2. Paying in full doesn’t hide a high credit card balance from your credit score. If you’re consistently charging near the credit limit on your credit card but pay the balance in full when each bill arrives, you might be hurting your credit score. That’s because your score considers the account balance shown on your credit report. Your credit report will reflect the account balance at the time the issuer supplied it to the credit reporting agency, which will typically be the balance as of your last statement date.

Tip: If you pay in full each month but need to bump your score higher for an upcoming credit check, charge less on your credit cards.

3. Light use of credit cards is best for your credit score. Maxing out your credit cards can obviously have a negative impact on your score. Using the majority of your credit limit is not good, either. Light use of your cards is best. Using 10 percent of your credit limit will be better than using 30 percent, which in turn is better than 50 percent. A small balance is actually slightly better than a zero balance (though it doesn’t matter to the score if you actually carry a balance).

Tip: If you need to raise your credit score, look at your monthly billing statements to see how your balances compare to your credit limits. Consider increasing your payments, or if you pay in full, using your credit cards less often.

4. You have more than one credit score. Your credit score depends on the scoring model used to calculate it. There are numerous scoring models in existence such as FICO and VantageScore.

Each model is somewhat different. Score ranges can vary, as will the weight placed on certain categories of credit data. For instance, FICO scores generally range from 300 to 850 and place the most emphasis on the payment history category, which accounts for 35 percent of the score. VantageScore, a model developed jointly by three major credit reporting agencies, also considers payment history to be the most important category, but it’s worth slightly less at 32 percent. Its scores range from 501 to 990.

Any given score will consider information from just one credit report. The data on each of your credit reports at the three main credit-reporting agencies — Equifax, Experian and TransUnion — can vary and change over time, so your score also can differ from bureau to bureau.

You can’t count on the lender seeing the exact same number you see when you check your credit score. The score you pull today may not be the score a lender pulls one month from now.

Tip: If you’re trying to build better credit for an upcoming credit check, focus on maintaining good credit habits (paying bills on time, paying down card balances, etc.) and keeping your credit reports accurate, and not on which score the lender may be using. When checking your own score, look at the reason your score isn’t higher.

5. Your credit score doesn’t actually change. That is, your score doesn’t really increase or decrease because it’s calculated fresh each time you, a lender or business requests it. FICO’s consumer affairs manager, Barry Paperno, explained in a recent Q-and-A with Bankrate that “scores are calculated each time they’re requested, as opposed to being calculated and stored somewhere and then retrieved.”

Your score is merely a snapshot of your credit behavior. A smarter way to think about score improvement is to concentrate on actions and habits that will result in a higher credit score in the future. For example, paying down card balances will change the balances on your credit report, and a new score would reflect those lower balances.

Tip: Your score isn’t being looked at every day, so there’s no benefit to micromanaging it. Focus on long-term habits that will improve your score over time, and check your credit reports periodically for accuracy. Building good credit is a marathon, not a sprint.

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FHA announced that it will increase FHA Up-Front and Annual mortgage
insurance premiums by 10 bps, while the Up-Front Mortgage Insurance
Premium (UFMIP) for Forward Mortgages will increase by 75 bps
regardless of term or LTV. These changes will affect all relevant
case numbers assigned on or after April 9th. For loans exceeding
$625,000 with case numbers assigned on or after June 11th, the MIP
will be subject to increases ranging from 35 to 60 bps.

HUD has also released guidance on a number of underwriting issues
that will affect all loans with case numbers dated April 1st or
thereafter. If it has been more than one calendar year since a
self-employed borrower has filed a fiscal-year end tax return, the
transaction will require P&L and Balance Sheets. Lenders must comply
with HUD protocol when reviewing income documentation and analyze the
borrower’s business to determine its financial strength and the
general economic outlook for its sector.

Regarding identity of interest transactions (selling within family
members), HUD has upgraded the list of relations that are considered
to be family members of a borrower. This now comprises children,
parents, grandparents, spouses, legal adoptees, foster children,
brothers, sisters, stepbrothers, stepsisters, uncles or aunts.

Please let me know if you have any questions and as always, thanks in
advance for your referrals and support!!!

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The housing market may rise and fall, but one thing never changes: when homebuyers need a loan, they get a mortgage from someone they trust.

Mortgage Master, a Walpole, Mass.-based, privately owned mortage company with offices in 10 states, has been building its reputation in the mortgage business for more than 20 years. It’s done that in part by employing experienced loan officers, many of whom already have a wide base of clients and business contacts.

Scott Kelsey and Tom Gates fit the bill. They are veterans of Princeton’s financing scene looking for a new opportunity, and when they learned Mortgage Master was interested in expanding to Princeton, saw potential in affiliating with the company. The Nassau Street office was licensed as a branch in 2010.

“Mortgage Master was looking for the right people to bust into Mercer County,” Gates said. “They had offices in New Jersey already, but not at all in this marketplace. (The others are in Wayne, Aberdeen and Sea Girt). So we were a good find for them, and vice versa.”

Kelsey and Gates, with 12 and 18 years of experience respectively, have since been joined by four additional senior loan officers. Dan O’Kavage (10 years of experience), Terry Cooper (8 years), Linda Wolfenson (10 years) and John Sine (10 years) have gone on board and all brought clients and solid networks of referral sources with them.

Tom Gates, Dan O’Kavage (front row), Scott Kelsey and Terry Cooper are senior loan officers at Mortgage Master in Princeton. (Photo by Joe Emanski)

Gates said prospective clients should know that Mortgage Master offers “every kind of mortgage product out there”—from fixed-rate mortgages to varying term to adjustable rates. But what really sets Mortgage Master apart, he said, is their diverse portfolio. Mortgage Master loan officers work with 83 different investors who buy loans from them, enabling them to shop around for competitive rates and services.

One consequence of the resounding housing market crash of 2008 is that loans are harder to come by than they used to be, and a client’s poor credit score could put the very lowest rates out of reach. All the staff at Mortgage Master’s Princeton office emphasized that getting clients the best rate, in today’s lending environment, also means being realistic. Even so, they see their ability to shop loans to so many investors as a significant advantage over competing mortgage brokers and banks.

“I’m able to look at 83 places and get not only the cheapest rate for you, but also get you approved,” Gates said. “I’m going to find you the right bank where they’ll get to ‘Yes’ at the most competitive rate.”

O’Kavage said his ability to work with so many investors is also a boon for Mortgage Master’s professionals in the jumbo loan market, where lenders are more hesitant than ever to approve a loan because of the large amounts of money involved.

“It’s an advantage to have 83 different investors to funnel through, to find maybe 11 who are willing to [approve] a jumbo mortgage,” he said.

A year ago, the professionals at Mortgage Masters saw home purchases at an ebb, but with interest rates at historic lows, the refinancing market was strong. O’Kavage and Cooper said even though interest rates remain low, the trend has been reversing in 2011, indicating that the homebuying market may be rebounding. First-time homebuyers have been leading the charge.

“Those folks that aren’t burdened down by having to sell real estate at what they perceive to be depressed prices, now they’re getting into the market,” O’Kavage said.

Mortgage Master loan officers work to soothe prospective borrowers who are concerned about what they have heard about the state of the home financing business.

“I let them know there’ve been changes in our industry that have made it a lot safer for them to acquire loans, and for us as lenders, we’re held accountable, even personally, now,” Cooper said. “Each one of us is individually licensed, and we’re individually accountable.”

Cooper said the federal government has sought to ensure that customers are more informed than ever about what they might be getting into, and has restricted how loan officers can be compensated for the services they provide.

“We’re lending experts,” Cooper said. “It’s most important now that people get good advice in this environment, especially with the fears of how many foreclosures there are. We’re not part of the problem—we’re part of the solution.”

Mortgage Master (mortgagemasterinc.com) is located at 215 Nassau St. in Princeton Borough. Phone: (609) 454-3482.

~ Mercerspace.com

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As shocking as it may sound, sometimes it may  make sense to say no to a mortgage modification, even when your house in underwater.

As you may have heard, some of the nation’s biggest lenders will be offering loan modifications to their customers, and some of those deals will include reducing the amount the borrower owes.  It’s part of a multi-state settlement struck with some of the nation’s largest lenders. (It has not been finalized.)

While some of those principal reductions will be too small to put homeowners above water, one lender, Bank of America, will be offering to write down the loans of more than 200,000 underwater homeowners to market value.

Sounds like a good deal? Maybe not. There are times when a loan modification may make things worse.

If you have a second mortgage and your first mortgage is entirely underwater, then your second mortgage is essentially unsecured. In many cases, these second mortgages can be “stripped,” or wiped out, in bankruptcy. But if the lender reduces the balance owed on a first mortgage, then the second mortgage may no longer qualify for this relief.  If there is even a penny of value in the home that would go to a second mortgage when the property was sold, the loan cannot be valued as unsecured.  That means it must be paid during the Chapter 13 case and it also survives the Chapter 13 as a lien on the property until it’s paid off. (Source: Bankruptcy Law Network)

For instance,  if you have a first mortgage of $150,000 with Lender A and a second mortgage for $50,000 with Lender B. You owe a total of $200,000, but your home is worth only $125,000. Let’s say Lender A writes down your balance to $124,500. Your first loan is then no longer underwater, but your second loan still puts you underwater to the tune of $45,500.

However, let’s say that you file for bankruptcy and wipe out the $50,000 second mortgage. You still are underwater on the first by $25,000, but you’re better off than you were if you took the loan modification. Either way, though, you’re still at risk of drowning financially.

There is a third alternative that may solve that problem. There is nothing to stop a loan from being modified during a Chapter 13 bankruptcy, after the second has been stripped. So, you file Chapter 13 bankruptcy, wipe out the second loan of $50,000 then work with the lender to try to get a loan modification on the first that will bring you back onto solid ground again.

Another reason you may want to think twice before you accept your bank’s loan modification?  Taxes. When a lender forgives part or all of a loan balance totaling $600 or more, that “income” must be reported to the IRS. You may be able to avoid paying taxes on that income, if you qualify for an exclusion. But if you don’t, you could find yourself with a hefty tax bill.

In the case above, where Lender A writes down the balance on the loan by $25,000 or more outside of bankruptcy, that debt could turn into “income” that could in turn, result in a tax bill of several thousand dollars, depending on the taxpayer’s tax bracket. Debts discharged in bankruptcy, however, are not taxable.

Sound complicated? It is. But that’s why it is important to get good advice, and meeting with a bankruptcy attorney would be the place to start. But timing is crucial, and missteps can be costly. So before you accept your mortgage lender’s offer to modify your loan, you may want to consult your attorney first.

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A note from a very happy realtor when I was able to ‘save the day’ and help her get the sale closed.

Hi Dan,

Thank you so much for coming to the rescue for the buyers of my listing in Millstone and getting us all to the closing table. As you know, finding out a few days before closing that their loan had been denied by a large, well-know mortgage company really caused an upset. When I spoke with the buyers’ agent, I strongly suggested her clients give you a call, because I knew that if anyone could put this together it would be you. I must say in all the years we have worked together, I don’t think you have ever dropped the ball or failed to close a deal you said was going to work. You have exceeded the expectations of both myself and my clients and I thank you for your excellent service.

Regards,

Diane Schilke

RE/MAX Preferred Professionals

Just an example of the customer service that you can expect from me.  Let me help you master your mortgage.  The best compliment is a referral. I appreciate you passing along my name to your friends, family and co-workers!

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