By Diana Hill, Online Trading Academy Real Estate Investor Instructor
As we start the new year, I'll take this opportunity to give you an update on some of the current legislation related to the real estate industry.
An update on the Home Valuation Code of Conduct – HVCC (follow-up to article dated December 8th, 2009):
Congress took a major step the second week of December to eliminate what has been a painful thorn in the side of all real estate professionals, buyers and sellers. As part of the Financial and Mortgage Industry Reform Bill, the House voted to terminate the HVCC but only once a new Consumer Financial Protection Agency begins operations. The new agency would have primary responsibility for equal opportunity in credit, financial disclosures to borrowers, settlement procedures, and be the watchdog for unfair and deceptive marketing in this industry.
The Financial and Mortgage Industrial reform bill is gigantic. The bill that now heads to the Senate from the House is over 1300 pages long. As the bill sits now, Fannie and Freddie will be prohibited from using the HVCC. This code has been criticized for producing low ball and inaccurate valuations, and also, for cutting appraisers' fees to the point where most experienced professionals refuse to accept the low pay assignments, thus encouraging the use of inexperienced appraisers often unfamiliar with local markets.
Under the House bill, the rules would require lenders to compensate appraisers their full fees. It would also allow mortgage brokers and loan officers licensed by the state and registered under the Federal "SAFE" law (Secure and Fair Enforcement for Mortgage Licensing Act of 2008) to order valuations and discuss them with appraisers, which they currently aren't allowed to do. The bill also permits home sellers, buyers and realtors to ask appraisers to consider various market data without being treated as "interference."
We'll see in the early part of the year whether the Senate ultimately goes along with the Consumer Protection Agency.
An update on Loan Modifications (follow up to article dated September 9th, 2009):
As of the middle of December, only 4.3% of homeowners whose mortgage payments were cut under the Home Affordable Modification Program, known as HAMP, received a permanent reduction. In a report released December 10, the Treasury Department said that only 31,382 of 728,408 active loan modifications had achieved permanent status. The low conversion rate has drawn sharp criticism from lawmakers and oversight bodies who feel that these efforts have done little to ease pressure on homeowners struggling to avoid foreclosure.
Two new rules took effect at the end of December with efforts to speed the loan modification process:
- Allows mortgage servicers to waive the escrow requirements for first-lien home equity lines of credit (HELOC) and home equity loans during the trial period. The waiver applies to all servicers that, "due to system and technology limitations," are not able to collect escrow payments on home equity loans or lines of credit. "By eliminating the need to convert these loans during the trial period, the loan can begin the trial modification process faster," according to a statement made by HAMP.
- This waiver eliminates the process of restarting a trial mortgage modification if the borrower's income "exceeds by 25%" of the income information used initially to start the trial. Borrowers are subject to revaluations of their income status after a certain trial. "Therefore, a borrower who is currently in a restarted trial period can be immediately converted to a permanent modification if they have made at least three trial period payments under their combined original and restart trial periods" as stated in the new guidelines.
An update on military personnel and federal help with short sales:
Many military personnel are finding themselves forced into short sale situations due to the fact that they must sell because they are being relocated or deployed. They now have a tool to help them through the situation supplied by Homeowners Assistance Program (HAP) through the Department of Defense.
Congress expanded HAP when they passed the American Recovery and Reinstatement Act of 2009, and now, nearly every military personnel involved in a short sale can get financial help if they find themselves upside down.
The assistance is limited to military personnel that were reassigned within about a 5 ½ year period between 2006 and 2012. Here are some of the other criteria:
- Permanent reassignment requires a move of more than 50 miles.
- Reassignment to be ordered between February 1, 2006 and September 2012.
- Property purchased or having signed contract before July 1, 2006.
- Property was the primary residence of the owner.
- Owner has not previously received these benefit payments.
The execution of this program is a little tricky; it requires the assignment of the contract to the Department of Defense, via the U.S. Army Corps of Engineers. In essence, the seller conveys the house over to USACE and then the purchaser buys the house from the USACE all at the same time.
I'm also keeping my eye on what happens with Estate Taxes as Bush's bill has run its course and, if new action isn't taken, there will be NO exclusion for 2010 and taxpayers will have to pay capital gains on any property inherited. Then in 2011, the law will revert back to 2000, which allows a $1 million exclusion and a 55% tax on everything above that. So that you have perspective of how important this is, the law in 2009 allowed the first $3.5 million to be excluded and the excess was taxed at a rate of 45%.
So stay tuned for news on that front.
Great Fortune!
- Diana Hill
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