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    About Mortgage Modifications

    Mortgage Modifications are a change to a bank loan contract between the loan provider and the property owner. The whole purpose is to adjust the terms of the contract so that the mortgage is affordable for the borrower. Bank loan Modifications have changed in the last couple years due to the housing crisis. Previously they existed only in the form of an interest rate reduction for a period of time when a delinquent borrower was suffering from a specific type of hardship, as a divorce, illness or a work loss.  Now bank loan adjustments are provided for a wider set of situations and normally change the terms of the mortgage permanently.
    A key factor that makes a house owner qualified for a mortgage loan modification is the existence of a valid hardship.  A borrower must make sure they could prove the hardship and that it is approved for these individuals to apply for a modification.
    These are examples of hardship that give you a good probability of getting approved: Arms, adjustable rate Home loan reset payment shock, illness of a close family member dependent on you, loss of work (as long as there is proof you will probably manage to meet the altered payments), reduced earnings, death for the borrower , death of spouse or co-borrower, military duty, medical bills, damage to your residence, not being able to sell or rent the house.
    These 3 points are the keys to a of successful mortgage adjustments:
    a) It’s essential to manage to pay for the payments of a reasonable home loan modification.
    b) You will need to be experiencing some kind of valid hardship.
    c) You have to manage to prove it.


    This does have tax consequences

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    The Internal Revenue Service is offering guidance on property finance loan principal reductions in the federal government’s program for property finance loan alterations for borrowers who have fallen behind on their payments.
    The guidance in Revenue Procedure 2013-16 is designed to help borrowers, mortgage loan home loan holders and home loan servicers that are contributing in the Principal Reduction Alternative offered by means of the Treasury Department’s and Department of Housing and Urban Development’s House Affordable Modification Program, also known as HAMP-PRA.
    To guidance financially distressed house owners lower their monthly mortgage payments, the Treasury Department and Department of Housing and Urban Development developed HAMP, which is described at www.makinghomeaffordable.gov.  Below HAMP-PRA, the principal for the borrower’s mortgage loan may be reduced by a predetermined total called the PRA Forbearance Total if the borrower satisfies certain conditions during a trial time period. The principal reduction occurs more than several years.
    Less than this program, should the mortgage is in good standing on the 1st, second and third gross annual anniversaries on the effective date for the trial time frame, the mortgage loan servicing company cuts down the unpaid principal balance due for the mortgage loan by one-third of the initial PRA Forbearance Total amount on each anniversary date.
    The following means that should the borrower continues to make timely payments on the home loan for three years, the entire PRA Forbearance Total is forgiven. To encourage mortgage mortgage loan holders to participate in HAMP-PRA, the HAMP program administrator may make an incentive compensation to the home loan holder, known as a PRA investor incentive disbursement, for each of the 3 years in which the bank loan principal debt is lowered.
    The guidance issued Thursday night by the IRS offers that PRA investor incentive payments made by the HAMP program administrator to house loan loan holders are treated as payments on the mortgage loans by the United States federal government on behalf for the borrowers. These payments are normally not taxable to the borrowers under the general welfare doctrine.
    In the event the principal amount of a property finance loan home loan is lowered by an total that exceeds the overall amount for the PRA investor incentive payments made to the property finance loan home loan holder, the borrower might be required to include the excess amount in gross earnings as income in the discharge of indebtedness. However, many borrowers could are eligible for an exclusion from gross income.
    For instance, a borrower might be eligible to exclude the discharge of indebtedness income from gross income if (1) the discharge of indebtedness occurs (in other words, the mortgage loan is changed) prior to Jan. 1, 2014, and the house loan mortgage is qualified principal address indebtedness, or (2) the discharge of indebtedness occurs when the borrower is insolvent. To get more exclusions that might apply, see Publication 4681, Canceled Debts, Real estate foreclosures, Repossessions, and Abandonments (for Individuals).
    Borrowers receiving assist less than the HAMP-PRA program could document just about any discharge of indebtedness income-whether it is included in, or excluded from, gross income-either in the yr on the permanent modification for the house loan home loan or ratably greater than the 3 years in which the home loan home loan principal is lowered on the servicer’s books. Borrowers who exclude the discharge of indebtedness earnings should report both the total amount for the income and any kind of resulting lowering of basis or tax attributes on Form 982 Decrease in Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).
    The guidance issued Thursday explains that home finance loan mortgage loan holders are needed to apply a Form 1099-C with respect to a borrower who realizes discharge of indebtedness income of $600 or more for the yr in which the permanent modification on the home finance loan mortgage occurs. This kind of rule applies regardless of when the borrower chooses to document the income (that is, in the yr for the permanent modification or one-third each year to be the home loan loan principal is reduced) and irrespective of whether the borrower excludes some or all for the total amount from gross income.
    Penalty relief is provided for home finance loan home loan holders that fail to file and furnish the requested Forms 1099-C on a timely basis, as long as certain requirements described in the guidance are satisfied.

    Wells Fargo Mortgage Help

    It’s no secret that the economy has hit many people hard.  Families who used to be able to pay their bills on time are falling behind on mortgage payments; some are even facing the loss of their homes through foreclosure.  There is hope, however, for those who have their mortgages through Wells Fargo.  Wells Fargo offers several programs to help those who have fallen behind on their mortgage.

    Wells Fargo, founded in 1852 in San Francisco, is estimated to have insurance, mortgage, and investment dealings in one out of every three households.  Wells Fargo’s commitment to help its customers succeed financially has allowed the company to offer the following mortgage relief programs.

    1. Debt consolidation: Debt consolidation allows a homeowner to combine many higher interest credit card payments and loans into one lower payment.  While not eliminating your debt, it makes payments more manageable.  A debt consolidation loan will free up more money to bring a mortgage current and maintain timely payments on it.  Wells Fargo will study a homeowner’s payment history, credit history and ability to pay before extending this form of mortgage help to homeowners.

    2. Refinancing:  Refinancing a mortgage can allow a homeowner to lower monthly payments, get longer term loans, and change mortgage types.  Wells Fargo cautions that there may be origination charges, including processing and application fees, as well as discount point that can be used to further lower interest rates.

    3.   Repayment plan: It may be possible through Wells Fargo to redistribute back payments and repay them in future loan payments.

    4.  Attorney General’s Settlement:  Wells Fargo entered an agreement with the Attorney General’s office that permits them to help homeowners with their mortgage woes.  It allows the expansion of first or second loan modifications.  For homeowners with no equity in their home can qualify for an n extended first lien program.  The extended first lien program will not lower the principal, but it can help to lower interest rates for struggling homeowners.

    In order to qualify for the Attorney General’s settlement, homeowners must:

    In addition, the Attorney General’s agreement will allow a modified short sale of the home if necessary, with debt forgiveness to qualified homeowners.

    5.  Independent Foreclosure Review: IF the homeowner was involved in a foreclosure during 2009-2010, Wells Fargo promotes the Independent Foreclosure Review that will help to determine if the foreclosure was a legally valid one.

    Wells Fargo at https://www.wellsfargo.com/ offers many types of relief to a struggling homeowner.  They have a team of experts ready to answer any and all questions regarding any of the above options and can guide a homeowner in the direction of the relief program most appropriate to their circumstances.

    Want an AAA+ Investment? Pay Off Your Mortgage? Last year rating agencies reduced the U.S. credit rating and now it is AA rather than AAA even though the U.S. government has the means to print money legally. Investors these days would rather hold on to their money than pay to keep it in the vaults. Investing in a 10- year Treasury bond with the present inflation rate of 2·3 % means losing more than 60 basic points or 0·60% which is not a winning proposition. This does not mean that a AA-rated bond is not a good investment because even BBB could be considered investment worthy. However the investors are looking for more than such small Treasury returns in order to compensate for the higher credit risk involved. The problem is that carefree investing is hard to find and there is no real substitute for AAA-rated government bonds to be found at the present time. Some investment-grade corporates can return nearly 8% over 10 years, but these are in the category of BBB and certainly not AAA. The best returns for AAA 10-year corporate are in the region of 2% which is a negative real return because the inflation rate is 2·3% as of April 2012.

    Your home mortgage may be the best investment. Better than even the AAA-rated Treasuries in times past. The value of the credit rating you already have is possibly the best there is. Your mortgage is in fact an opportunity for investment with an exceptionally good credit rating so we are calling it AAA+. The only possible risk in repaying a debt is if there is a prepayment penalty, and we are assuming that this is not the case , so anyone with a mortgage is in control of their investment. This can be considered riskless as you don`t depend on the credit rating of the other party as you do when you invest in bonds. Mortgage rates are better than those of any other investment which means that your best investment is to call in your mortgage.

    In the situation where the borrower has taken out a 30-year mortgage for $300,000 at 3·75% the principal and interest payment is $1,389 per month. The present balance on the loan is $250.000 and the borrower is in the 33% marginal tax bracket making $250,000 a year. The question is whether it is better to invest the lump sum or to pay off the mortgage?

    First it is important to find an investment with a credit rating as good as the mortgage which we have given a AAA+ rating. There is nothing comparable but the best available would be a government guaranteed investment perhaps a Treasury bond. Calculating the after tax returns on a 10-year bond and comparing that with paying off the mortgage shows a 1·17% higher rate of return if you chose to repay the debt.