Mortgage Forgiveness Debt Relief Act

On January 1, 2013, Congress extended the Mortgage Forgiveness Debt Relief Act, or MFDRA, as part of a tax bill designed to address the so-called “fiscal cliff.”

First introduced back in 2007, the MFDRA was supposed to expire on December 31, 2012, but the new bill extends it through midnight on December 31, 2013. This means that the act now applies to any mortgage debt that was forgiven between January 1, 2007 and December 31, 2013.


The Mortgage Forgiveness Debt Relief Act exempts distressed homeowners from paying taxes on any debt forgiven with a loan modification, short sale or foreclosure. This allows homeowners with underwater properties to look for alternatives to foreclosure, such as loan modifications or short sales, without the added stress of owing several thousands of dollars in taxes.

Before the MFDRA passed, financially strapped homeowners often negotiated a loan modification or avoided foreclosure with a short sale, just to discover they owed a huge tax debt afterwards. This act, which is often referred to as the “Debt Forgiveness Act,” relieves them of that tax obligation because the forgiven debt is no longer considered as income.

Qualified Principal Residence

The Mortgage Forgiveness Debt Relief Act allows homeowners to exclude any canceled debt from being taxed as income but only if the debt was incurred on the owner`s “qualified principal residence.” It doesn`t give you any tax relief for business properties, second homes or investment properties.

The act only applies to canceled or forgiven debts on loans used for buying, substantially improving or building your principal residence. Additionally, the debt must be secured by the principal residence.

The good news is that even debts incurred because of refinancing should qualify but only up to the principal amount of your original mortgage.

You can only count up to two million dollars as a qualified principal debt if you and your spouse file jointly. The limit is one million dollars if you are married but filing separately.

Not every state recognizes the MFDRA, however. Several recourse states require their underwater property owners to find other kinds of tax exemptions, prove insolvency or file for bankruptcy in order to prevent taxation after a short sale. Consult with a tax professional or a licensed attorney before committing to a short sale if you live in a recourse state.

IRS Forms

If you have a mortgage debt that was forgiven, the lender is required to send you a Form 1099-C, or a Cancellation of Debt, statement at the end of the year. This form must show the total amount of forgiven debt as well as the fair market value if the property was foreclosed. Notify your lender promptly if the information on the form is not correct.

Those who qualify for debt forgiveness must claim the special inclusion by filling out IRS Form 982, which is called Reduction of Tax Attributes Due to Discharge of Indebtedness. Attach the filled-out form to the federal income tax return for the year in which the qualified debt was actually forgiven.

Increase in Short Sales

Many financial pundits believe that the MFDRA extension is crucial for helping America`s housing industry recover. The federal government is letting the homeowners, real estate professionals and mortgage lenders know that short sales are preferable to foreclosures. Fewer foreclosures should help stabilize the purchase price of homes and lead to a healthier housing market.

The MFDRA offers debt help to struggling homeowners. If you are financially stressed or own underwater property, you have until the end of 2013 to take advantage of this act.

Posted in mortgage | Comments Off on Mortgage Forgiveness Debt Relief Act

Mortgages and design, how to manage your first property development project

Managing one’s first property development project can be a real challenge, especially since few industries have seen as much instability and uncertainty during the current economic climate. With property values on the decline, is there any good news for people who want to invest in real estate? Believe it or not, there is.

Despite the economic climate, property development projects can still be a sound investment, whether it’s looking for America houses to buy, renovating a home or simply putting a house on the market. In fact, the first property development project that most people have is their very first home. Here are some things to keep in mind to make managing such a project a little easier.

Start with your own house

All homeowners are property developers, whether they realize it or not. So, many people are actually managing their first property development projects already! To help keep the project focused, begin by making a list of everything that is good about the house and what things must change. How will these changes affect the house as a whole? Consider the costs and what value such changes would add to the house.

Part of any property management project involves how much value is gained for the money spent, or a return on investment. If starting with one’s own home, length of residence will influence how much money will be spent, the quality of materials used and the labor that is invested into the project. A good rule of thumb is to invest in better materials if the goal is to stay for at least ten years. Using pricier materials for any shorter duration involves too much financial risk, so instead, the focus should be on good quality but cheaper upgrades.

Homeowners that are renovating their home as an investment should always consider the ceiling price of their home. Generally, spending money on things that will improve the value may not always pay back, because every property has a ceiling price. The ceiling price is based on a home’s age, size and location. Often, one’s mortgage is based on this value.

The key to investing in home renovations and improvements is to keep the mortgage payments in mind as well as any future sale price. It is never a good idea to spend more on the property than what one could possibly gain in the future when selling it.

What projects to focus on

When updating the design of the kitchen, bathroom or backyard, it is easy to get carried away and neglect other aspects of the property, such as replacing bathroom fixtures when there is a leak in the roof causing water damage to the structure. This is where many first-time homeowners and investors get into trouble. It is essential to make necessary repairs to the home before any vanity upgrades; otherwise, one may end up spending more money than planned and hurt the overall value of the home.

Instead of renovating rooms and areas that don’t need to be fixed right away, it is a good idea to address problems that could cause long-term damage to the property first. Once those are taken care of, adding additional space or rooms should be next on the list, followed only by design changes that update the look and feel of the home.

Posted in mortgage | Comments Off on Mortgages and design, how to manage your first property development project

Mortgage Interest Rate Deduction Under Threat

As politicians look for more government revenue, it’s likely that they will curtail the mortgage interest rate deduction.

The American housing market is making a slow and erratic recovery. It’s picking up steam in coastal California, while inland California remains in recession.

The WSJ reports: Mortgage rates are likely to remain near record lows for the first half of 2013, while property values are expected to strengthen, said mortgage-finance company Freddie Mac.

The company expects long-term mortgage rates to rise gradually in the second half of 2013, but to remain below 4%, according to its U.S. Economic and Housing Market Outlook.

Freddie Mac sees house prices continuing to rise next year, with most U.S. house price indexes increasing by 2% to 3%. The company expects household formation to increase households by 1.2 million to 1.25 million in 2013, with housing starts reaching an annualized pace of roughly one million by the fourth quarter.

Posted in Rates | Comments Off on Mortgage Interest Rate Deduction Under Threat

How Did We Get Into This Housing Mess?

George Gilder told Dennis Prager yesterday: “We have capital flight from the United States and human capital flight…moving to more attractive investment environments. This is the wrong time to go over the fiscal cliff in January, rescinding President Bush’s good policies, such as his low taxes on capital gains and dividends.”

Dennis: “Why do we have the recession?”

George: “Because we allowed our government to dictate to the real estate industry to the extent that the entire industry reoriented itself to support subprime mortgages and render those subprime mortgages salable by concocting a whole set of derivatives securities that could be sold all around the world. This was enabled by Fannie and Freddie and dictated by Congress and housing administrations. We compounded the mistake by bailing out all the institutions that perpetuated it. We nationalized Fannie and Freddie. We expanded the FHA. All in the name of creating more housing ownership when Canada, which does not even have deductions for mortgage interest, has higher levels of home ownership, without any of these Fannie and Freddie. It’s a terrible failure of government that can’t be repaired by more government.”

Posted in Banks, mortgage, Politics | Comments Off on How Did We Get Into This Housing Mess?

Two Political Conventions Ignore Housing Policy

The Democrats have demonstrated a more activist housing program than the Republicans. They want more government involvement. They want more government subsidies. They want more government direction of the free market. But both parties have been sobered by the housing boom and crash and large swathes of both parties want to leave housing to recover on its own. With enormous budget deficits, government doesn’t have much room to operate here.

Kenneth R. Harney reports: Call it the political elephant in the room: 1.2 million families across the country are at some stage of foreclosure, 3.8 million homeowners have been foreclosed upon since September 2008, 11.4 million are underwater on their mortgages and $6.5 trillion in home equity has been lost by owners since 2005.

Moreover, home building and sales are intimately linked with job creation. Yet the subject of housing policy was virtually a no-show at the Democratic and Republican conventions and in the party platforms.

Given the huge impact that the housing and mortgage crashes have had on millions of voters and workers, you would think housing would have been high on both parties’ priority lists. They’d say: OK, here’s how we’re going to turn this crucially important situation around — getting builders building again to pre-boom historical levels, helping out the good folks who paid their loans on time even when underwater, plus making sure that banks make loans available to creditworthy buyers who want a mortgage rather than penalizing them for the banks’ mistakes.

Posted in mortgage, Politics | Comments Off on Two Political Conventions Ignore Housing Policy

A guide to landlord mortgages

In light of the problematic nature of the current financial climate, many investors are looking for alternative ways in which to make their capital work for them in raising extra income. Interest rates and returns on cash investments are not necessarily high or stable under present conditions, and so one of the possibilities that more people are looking into is the landlord mortgage, otherwise known as buy-to-let. Whether an investor is acting alone or with the support of an umbrella company, the return on investment that is provided by many landlord mortgages is likely to form a tempting proposition.

What is a landlord mortgage?

In simple terms, a landlord mortgage, widely known as a buy-to-let mortgage, is a loan that is provided to a property buyer so that they can buy a property to rent it out to tenants. The property buyer does not intend to live in the property, but rather to gain income from the rent payments made by their subsequent tenants. As such, the income derived from the property is heavily dependent on the level of rent that is set in a rental agreement, and a large part of the welfare of the property remains in the hands of the tenants. In the past, some people have felt that landlord mortgages constituted a risky investment on this basis, but changes to the law in the United Kingdom mean that the last few years have seen greater security for landlords, and thus greater security for their investments. This, in turn, has had a positive effect on financing for landlord mortgages.

How to obtain a landlord mortgage

The assured short-hold tenancy laws that were passed in the United Kingdom in the middle of the 1990s gave landlords additional protection, and in turn made it more straightforward for prospective landlords to gain funding through buy-to-let arrangements. There are therefore more available deals for landlord mortgages now than there were a few years ago. The backing for a mortgage may still be easier to find by operating through an umbrella company, but there are still some steps to go through. First, the buyer should decide on the primary criteria to match their personal circumstances, perhaps in terms of available capital or required income. After that, it is a question of finding the estimate from a lender that best fits those needs, and of demonstrating that the buyer meets the financial requirements, such as income and capital.

Buy-to-let: a great option in the current economic climate

With investment interest rates often set extremely low and other income difficult to find, buy to let is a promising option for many investors in the current market. The yield on rental agreements has been steadily rising and in many cases outstrips the return on investment that other options offer. In addition, the mortgage rates available in buy-to-let deals have also become more favourable to buyers, making a tempting combination of lower outlay and higher income. For buyers who exercise attention to detail in specifics such as choosing a property and identifying tenants, the landlord mortgage market is better for investors than it has been for many years.

Posted in mortgage | Comments Off on A guide to landlord mortgages

Considering mortgages for investment property

Having a second property for investment purposes can have many benefits. Short term, investment properties can provide a good source of regular income, as they can be let to tenants for rent. Over time, this rent can be used to pay off the mortgage on the property, so that eventually it is owned outright, and there may even be some surplus that the landlord can use to boost his own income. Long term, the value of the property is likely to increase, so its owner will make money on the property. They can then sell it should they need the money in the future.

Financing an investment property

Financing an investment property with cash can be ideal, as it means that all the rent earned on the property can be used as income, however in most cases it is not realistic to finance the purchase of a property solely with cash.

Mortgages can help to finance the purchase of real estate USA, which would not otherwise be possible. Most people do not have a pot of cash large enough to purchase a whole property outright, particularly if it is their first property, and getting a mortgage allows them to start making money on the property while paying off the balance due to the lender gradually, with their payment every month. Before looking for a suitable property, investors should make sure that they are pre-approved for the mortgage by a lender, in writing. This can help them to secure the property more easily. Once the property has been secured, the investor can apply formally to the mortgage company.

Financial Advice

Although house prices are low at the moment, which helps to make buying properties more accessible in some ways, it has also become more difficult to get a mortgage. There are some steps that potential buyers can take to improve their chances of securing the mortgage they need to buy an investment property.

Having a larger down payment can help to make buying an investment property easier. Most lenders offering investment mortgages will require a down payment of at least 20 or 25 percent. Having a down payment that is even larger than this can further help to increase the chances of obtaining a mortgage, and reduce the interest rate that is chargeable.

Similarly, many lenders require that borrowers have at least six months worth of reserves in their bank account to cover all their expenses, in case they are unable to let the property straight away, or have a period during which the property is empty. Saving these reserves before applying for a mortgage can be really helpful.

Credit ratings are hugely important when obtaining a mortgage, so investors should check their personal credit rating before they apply for a mortgage, and try to improve it if required. A borrower with a good credit rating is much more likely to be offered a mortgage, on better terms, than a borrower with a bad credit rating.

Posted in mortgage | Comments Off on Considering mortgages for investment property

Why Do Liberals Hate George Bailey?

“Prager H2: Dennis talks to his good friend and fellow talk show host, Mike Gallagher. His new book is 50 Things Liberals Love to Hate.”

Dennis: “Why do liberals hate George Bailey, the lead character in It’s A Wonderful Life? After all, he took on the banks.”

Mike: “George Bailey was a prudent lender. He was a nice guy, he wasn’t a sucker. He wasn’t an irresponsible lender. He had money to lend in the first place because the borrowers kept current with their mortgage payments. To liberals, this is a terrible way to run the financial system. Liberals say it is a terrible way to decide to lend money based on something so silly as their ability to pay it back. So to liberals if you can’t make the monthly payment, if someone has a spotty credit history, the government steps in to help. Liberals fired George Bailey and the prudent lending he represented, so they hired Fannie Mae instead.”

Posted in Politics | Comments Off on Why Do Liberals Hate George Bailey?

Obama’s Pioneering Role In The Subprime Bubble

When he was a community activist and a lawyer in 1995, Barack Obama led a discrimination lawsuit against Citibank that secured subprime mortgages for 186 African-Americans in Chicago.

The Daily Caller reports that as few as 19 of these 186 homeowners still own their homes with a clean credit report. Most of the 186 lost their homes.

So what’s the point of pushing people into mortgages they can’t afford? And then upraid the banks for so-called predatory lending when they’re forced to extend loans to people with a low chance of repaying such loans?

The Daily Caller reports:

Progressive activists’ ambition instead contributed greatly to a housing bubble that burst in 2007, crashed the nation’s economy in 2008, wiped out at least $4 trillion in equity, kept unemployment above 8 percent for four years, and damaged the intended beneficiaries of looser mortgage lending standards.

In the White House, Obama has continued to intensify regulatory pressure on banks to provide more risky loans to African-Americans and Latinos. He has used lawsuits to fund his allies. And taxpayers are now unwittingly contributing to a re-inflation of housing prices.

Meanwhile, the president has blamed the housing bubble on supposed GOP deregulation, even though President George W. Bush expanded the regulation-expanding, anti-redlining policies established by progressives during Bill Clinton’s presidency.

“Governor Romney’s plan would… roll back regulations on big banks,” Obama says of his Republican challenger Mitt Romney in a 2012 TV ad titled “The Choice.”

“But you know what? We tried that top-down approach. It’s what caused the mess in the first place.”

Read more:

Posted in Politics, Subprime | Comments Off on Obama’s Pioneering Role In The Subprime Bubble

Million Dollar Home Sales Surge

California’s most expensive homes have been the least affected of the Golden State’s real estate crisis.

From the LAT: Million-dollar-or-more home sales statewide surged in the second quarter to the highest level since the third quarter of 2007 as the economy and mortgage availability improved.

The year-over-year increase was nearly double the gain for the overall California housing market, according to San Diego-based DataQuick. Higher prices pushed some homes into the million-dollar-plus category, said DataQuick president John Walsh.

The 7,763 homes sold at $1 million or more from April to June represented an 18.5% increase from the same period last year. It was the most sales in this price range for a quarter since 2007, when 10,946 closings were recorded.

Posted in mortgage | Tagged , , , , | Comments Off on Million Dollar Home Sales Surge