Charlatans, scam artists all vying for a piece of the pie, loan modification is a very serious business and crooks are smart and quickly come up with strategies. I wanted to fill you in on some important information and this video will answer al of your questions.

Always remember to USE CREDIT WISELY

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The most differentiating factor between purchase money and refinance money is the legal recourse that the institutional lending agencies have against you. You see when you make the original purchase loan for your piece of real estate your agreeing that if you default that you are not liable. The money is what’s known as non recourse (meaning the bank cannot go after you for the lost portion of the principle.)

The first time you decide to refinance your mortgage to lower your rate, modify the principle amount or performing any type reduction in principle you loose the non recourse clause on your purchase money. Now you enter into a recourse position where you become liable for the debt or the offset in principle when you perform a loan modification.

Even on a short sale if you have refinanced and now you are in a position where you are forced to sell due to financial hardship. You are going to receive a 1099 at the end of the year showing you made a gain. Now you are in a position for a lawsuit, taxable events and a whole slough of financial hardships.

The only way to possibly get out of this scenario is if you are insolvent and you can prove beyond a shadow of a doubt that you cannot repay the debt. Now you’re forced into bankruptcy and you now face more financial hardships than you started with.

On the other hand if you are using a purchase money loan and you are forced into the same scenario of a short sale or loan modification you are not on the hook for the banks loss. I’m not saying that you should never refinance but you need to know why. If you are living on liquid equity squeezing every dime out of your home’s equity then you know you’ve created a financial nightmare.

You have been living in a world where money appeared almost magically especially if you lived in California. Appreciation made equity seem as if it was never ending and then the worst happened. Some savvy marketers created an awesome campaign on adjustable loans that enticed people to buy homes far out of reach, created a frienzy of refinances in the market place.

So now you’ve given up your protection from recourse and you are faced with some huge tax burdens. There are only so many chances for finding a way to pull money out of your home. Now that you have run out of equity, appreciation is gone and you’re under water you’re faced with many choices for help.

The one thing thats failed to be mentioned is the TAX consequence. Be aware of your situation and make your financial choices wisely. Seek out the assistance of qualified professionals for guidance. Your financial house must remain in order no matter what. It’s your life and your future why spend it worried about money and consequence when you can worry about the finer things in life.

Tax consequences don’t go away just by ignoring them, the IRS will garnish your wages and that can have an effect on your over all take home pay, your quality of life and even your employment. You know as well as I that Uncle Sam always get his cut first.

Money isn’t everything, however keeping every sliver of it you can is! Wealth is a concept of it’s not how much you make it’s how much you keep. Know your position and tax consequence before you make a choice that can have a negative effect on your life.

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The president has just signed the Federal Housing and recovery Act of 2008. Legislation that will overhaul the Depression-era FHA and provide mortgage relief for 400,000 homeowners struggling with foreclosure woes.

This bill is also designed to quiet the jitters on Wall Street by offering some financial relief and additional accountability for the troubled, government-sponsored mortgage companies Fannie Mae and Freddie Mac.

While the bill started with a battle between the White House and the Democrats in Congress, bi-partisan support eventually led the President to withdraw his veto threat. Below are some highlights of this far reaching legislation.

Homeowner Relief Measures (Hope for Homeowners Act of 2008)

• The law creates a new program to back FHA-Insured mortgages for debt-laden homeowners. Up to $300 billion will be available through the voluntary program operated by a board consisting of the HUD and treasury secretaries, and a chairman of the Federal Reserve Board and the Federal Deposit Insurance Corporation. (FDIC)

• In exchange for new mortgages, homeowners will share future appreciation with the FHA. Borrowers must also meet a payment burden test to determine if they can afford a new mortgage.

• Banks must agree to relinquish their claims for a payment equal to 85% of the current value of the home.

• The homeowner relief program begins Oct. 1^st 2008 and ends on Sept. 30^th 2011.

New regulator for FHA

• The law creates a new, independent regulator called the Federal Housing Finance Agency to govern GSE’s (government sponsored enterprises). It will oversee Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

• The Treasury Department has been granted temporary authority to purchase debt and equity of Fannie Mae and Freddie Mac through 2009 to provide financial stability for the mortgage giants.

Modernization of FHA

• The law increases the FHA loan limit to 115% of area median home price with a cap at $625,000.

• Down payments of 3.5% will be required for any FHA loan

• Seller assisted down payment programs (such as Nehemiah) will end October 1^st

• The FHA mortgage insurance premium will increase to 3%.

• The FHA’s program for reverse mortgages is expanded with higher mortgage limits.

Tax Credits

• Provides new first-time home buyer tax credit which is equivalent to an interest free loan of 10% of the purchase price of the home (up to $7500) to be repaid over the course of 15 years. It will be available through July 2009 for taxpayers who meet adjusted gross income levels.

• Rules relating to the Low Income Housing Tax Credit will be simplified and states will see increased housing tax credit in 2008 and 2009 depending upon the size of the state.

• Allows a new standard deduction for homeowners who do not itemize on their tax returns.

Other Provisions

• The bill lengthens the time a lender must wait before starting foreclosure after a sooldier returns from service (from 3 to 9 months) and also provides returning soldiers with one year of relief from increases in mortgage interest rates.

• Enhances mortgage disclosures requirements to require lenders to inform borrowers of the maximum monthly payments possible under their loans.

• Provides additional funding for housing counseling and legal services to distressed borrowers.

• 44 billion will be provided for emergency Community Development Block Grant money to purchase and clean up abandon homes in areas blighted by foreclosures.

Source www.banking.senate.gov/public/_files

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