Help Finally Comes to Struggling Homeowners

by Ted A. Greene on February 3, 2016

The 2007 Mortgage Forgiveness Debt Relief Act has been extended through the end of 2016.
On December 18, 2015, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act through December 31, 2016. The extension also retroactively covers mortgage debt cancelled in 2015.
The Mortgage Forgiveness Debt Relief Act (MFDRA) prevents homeowners who went through a short sale from being taxed on the amount of their home mortgage debt that was forgiven. Believe it or not, but normally, debt that has been forgiven by a lender counts as taxable income.

Originally enacted in 2007, the Mortgage Forgiveness Debt Relief Act allows debt forgiveness of up to $2 million to NOT be considered taxable income if:
•    The house has been used as the principal place of residence for two of the last five years.
•    The debt has been used to buy, build, or make substantial improvements to the home.

Obviously, this is a huge relief to owners of distressed properties who are already facing financial burdens, and it eases many of the concerns they may have had about moving forward with a short sale.

There are other ways to avoid the debt such as insolvency or bankruptcy but you really need to talk to both a legal professional and a tax expert.

If you need help with your mortgage please contact Mr. Greene. He has been a leader in helping homeowners struggling with their mortgage and even has been suing the banks to force them to follow California law. He can be reached at (888) 442-2545 or send him an email at

Distressed Outlook: Big Banks Continue to Whittle Down Legacy Loans

Editor’s Note: This story is part of National Mortgage News’ 2015 Outlook coverage. Click here for more stories previewing the industry’s biggest trends for 2015.

The nation’s largest banks have attacked their delinquent loan portfolios with gusto, but they may hit barriers in 2015 as they try to further whittle down their distressed assets.

Some industry experts are predicting a new wave of delinquencies and foreclosures in the coming year if interest rates rise, causing home prices to decline.

Many of the largest banks continue to sell off nonperforming loans. Hedge funds and private-equity firms have bid up the prices of distressed loans as they seek to profit from recent home price increases, which could abate in the coming year.

Bank of America has made the greatest strides in whittling down its distressed assets afterselling off more than $1 trillion in nonperforming loans since 2009. The $2.1 trillion-asset bank in Charlotte, N.C., held 221,000 delinquent loans on its balance sheet in the third quarter, a 44% drop from a year earlier.

About three-quarters of its nonperforming loans are legacy assets from its 2008 acquisition of Countrywide Financial. B of A held roughly $10 billion in nonperforming residential mortgage loans at the end of the third quarter, and $32 billion in delinquent loans inherited from Countrywide. Those totals exclude home equity loans and lines of credit.

B of A has estimated that it will get back to a normal level of delinquent loans by 2016. Some analysts think that is an optimistic assessment, since some loans probably cannot be sold, and working out problem loans — especially those at the bottom of the barrel — is notoriously slow and labor intensive.

Meanwhile, Wells Fargo held roughly $10.7 billion of loans that were 30 days or more delinquent in the third quarter, according to the bank’s 3Q14 earnings. It also holds $46.4 billion in legacy loans in its Pick-a-Pay mortgage portfolio acquired from its 2008 purchase of Wachovia.

Overall, the seven largest banks and one large thrift saw an improvement in the number of seriously delinquent loans held on their balance sheets at the end of the third quarter, as of Sept. 30 according to a December report from the Office of the Comptroller of the Currency.

Roughly 5.2% or 117,673 residential mortgages were seriously delinquent at the end of the third quarter, down from 5.5% a year earlier, the report found. The reporting banks include Bank of America, J.P. Morgan Chase, Citibank, HSBC, PNC, U.S. Bank, and Wells Fargo, while OneWest Bank is the largest thrift.

But the report also noted that about 8% of mortgages held in bank portfolios lack credit scores at origination and are a mix of prime, Alt-A, and subprime mortgages.

“Since 2009, mortgages owned by the servicers have performed worse than mortgages serviced for (Fannie Mae and Freddie Mac) because of concentrations in nontraditional loans, weaker markets, and delinquent loans repurchased from investors,” the OCC said.

Large bank lenders have opted to sell defaulted loans to avoid the high costs of servicing and holding the debt. Large banks in particular have relied on sales of mortgage servicing rights, as well as servicing transfers, pay-downs and payoffs to reduce their holdings of nonperforming loans. An estimated $60 billion in nonperforming loans is expected to have changed hands in 2014.

Senate Passes Tax Bill That Includes Key Mortgage Deductions

The Senate approved a bill late Tuesday that would retroactively extend over 50 expiring tax provisions for one year, including one that shields distressed homeowners from paying taxes on any mortgage debt forgiven in a short sale.

The Senate approved the bill 76 to 16, which extends the provisions until Dec. 30 of this year (the one-year extension is retroactive). The House passed the bill 387 to 46 on Dec. 3.

At one point, House and Senate lawmakers were close to a deal on a two-year extension. But the White House objected because key business tax provisions were given permanent status while others affecting low- and moderate-income households would still have had to be extended each year.

“In my view, any agreement on permanent tax policies must be balanced between support for businesses and support for working families. A deal that only makes corporate policies permanent — or one sharply skewed in that direction — would have failed the test of fairness,” said Sen. Ron Wyden, chairman of the Senate Finance Committee.

Under the bill, homeowners can deduct the cost of mortgage insurance premiums on their 2014 tax forms. This tax break covers private mortgage insurance premiums as well as premiums paid on Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans. The U.S. Mortgage Insurers welcomed the extension.

“USMI commends passage by Congress last night of a one year extension of vital homeowner tax relief. We are especially pleased that the legislation includes the tax-deductible treatment of mortgage insurance premiums for low and moderate income borrowers. We look forward to working with Congress towards permanent enactment of this important tax relief for homeowners,” according to the private mortgage companies.

About 3.6 million taxpayers claimed the mortgage insurance deduction in 2009, according to analysts at Compass Point Research and Trading LLC.

The bill also ensures underwater borrowers that sold their homes in a short sale in 2014 will not be penalized.

Prior to the housing bust, troubled homeowners had to pay taxes on any mortgage debt that was canceled or forgiven by a lender. The amount of forgiven mortgage debt was treated as ordinary income and taxed accordingly.

The “Mortgage Forgiveness Debt Relief Act is crucial to foreclosure mitigation efforts such as principal forgiveness and short sales,” said Isaac Boltansky, an analyst with Compass Point.

In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act so that distressed borrowers would not be penalized for doing a short sale. Congress extended this tax relief in 2009 and 2012, but failed to pass a tax extender bill at the end of 2013.

Since 2008, more than 800,000 distressed homeowners have taken advantage of this tax break, according to Rep. Charles Rangel, D-N.Y., an original sponsor of the debt forgiveness bill in 2007.

Short sales have been declining over the past few years due to an improving economy, lower foreclosures and the uncertainty over the tax consequences of a short sale or deed in lieu transaction, where the homeowner simply signs over the deed to the house to the bank and vacates the property.

Fannie Mae and Freddie Mac servicers completed 27,800 short sales during the first eight months of this year, compared to 87,740 in 2013 and 125,232 in 2012.

Boltansky noted that the retroactive reauthorization for 2014 also gives Federal Housing Finance Agency Director Mel Watt a shield to resist Democratic pressure to permit principal reductions on Fannie and Freddie loans.

Watt “will have additional political cover to reject calls to embrace the principal reduction through HAMP as the tax consequences could limit borrower participation” he wrote in a Dec. 2 report.


source  Brian Collins

DEC 17, 2014 12:27pm ET

House OK’s Short Sale Tax Break, On to Senate

Daily Real Estate News | Monday, December 08, 2014

looking over documents The U.S. House passed a bill last week that would extend key tax breaks to financially distressed home owners who went through a short sale. The bill now goes before the Senate for consideration, where housing analysts hope for action during the final week of the Lame Duck session of Congress.

The National Association of REALTORS® has been calling on members to urge Congress to renew the Mortgage Debt Forgiveness Act, an income exemption on mortgage debt forgiven in a short sale or a workout for principal residences.

The act expired at the end of 2013. That means distressed home owners could be responsible for paying pay taxes on “phantom income” from any forgiven debt once the properties are sold. That is, if a lender sells a property for less than the amount owed on the mortgage, the home owner will then have to report that forgiven debt as taxable income to the IRS. The tax on a 2014 short sale or workout would be due April 15 of next year if Congress fails to extend the measure. If the Mortgage Debt Forgiveness Act extension is granted, taxpayers will be able to continue to exclude the forgiven debt from their annual income calculations.

The House included a one-year extension of the Mortgage Debt Forgiveness Act in the Tax Increase Prevention Act of 2014, which passed the House on Wednesday in a vote of 378-46.

In the first three quarters of this year alone, there have been more than 170,000 short sales, representing a total bill of $8.1 billion in mortgage debt forgiveness, according to estimates from RealtyTrac. But the lapse in the extension has caused some home owners to avoid short sales and workouts. Still, more than 5 million home owners remain underwater, owing more on their mortgage than their home is currently worth. Also, nearly 1 million households are seriously delinquent on their mortgages or are in foreclosure.

“Unless Congress acts, hundreds of thousands of American families who did the right thing will have to pay tax on ‘phantom income’ – money they never see,” read an ad issued by NAR last week that ran in select Capitol Hill publications.

Source: “Short Sale Tax Break Passes House,” HousingWire (Dec. 5, 2014)

Wells Fargo, U.S. No Longer Optimistic on Mortgage Pact

Lawyers for the U.S. and Wells Fargo & Co. told a judge they doubt they can reach a settlement in a government lawsuit accusing the bank of home-mortgage fraud, a person familiar with the matter said.

The U.S. sued San Francisco-based Wells Fargo in 2012, claiming it made reckless mortgage loans that defaulted and cost a federal insurance program hundreds of millions of dollars. The government said the bank’s misconduct spanned more than a decade while it participated in the Federal Housing Administration’s program.

The suit by Manhattan U.S. Attorney Preet Bharara is part of a larger effort to recoup losses from defaulted mortgages insured by the FHA. It follows cases against lenders including Citigroup Inc. and Deutsche Bank AG.

At a hearing yesterday, attorneys for both sides told U.S. District Judge Jesse Furman they no longer thought a settlement was within reach, said the person, who wasn’t authorized to speak publicly about the case and asked not to be identified. Both sides had halted the pre-trial exchange of evidence for four months to engage in settlement talks, according to a court filing.

Furman warned lawyers that he wouldn’t give them a four-month extension to collect evidence because they’d agreed on their own to pause the process. The judge said he considered a two-month extension a “gift” to the parties.

“I’m going to give you two months,” Furman said, according to a transcript of the hearing. “You did this at your peril, as far as I’m concerned. And had you asked me four months ago for leave to do this, I might have had a different view, but having taken this upon yourselves, you took the chance and you’re going to suffer some consequences.”

Tom Goyda, a Wells Fargo spokesman, said the bank will continue defending itself against the allegations.

“Our good-faith efforts to work with the federal government on a possible resolution of the complaint have not yet resulted in a settlement,” Goyda said in a statement. “We will move forward with presenting our case in support of our prudent and responsible FHA lending practices.”

Furman last year dismissed some claims because the government filed them too late. The bank had sought dismissal of the entire case.

The FHA program enabled the bank to certify loans for government insurance without prior agency approval.

Jim Margolin, a spokesman for Bharara, declined to comment on the case or the bank’s statement.

In 2012, Wells Fargo agreed to pay $5 billion as its share of a settlement of U.S. and state suit probes into abusive foreclosure practices.

CFPB Proposes to Expand Foreclosure Protections

The Consumer Financial Protection Bureau (CFPB) proposed on Thursday an additional set of measures designed to expand foreclosure protections for mortgage borrowers.

In an announcement Thursday afternoon, CFPB detailed the latest additions to its mortgage servicing rules, which first went into effect earlier this year. Since that time, the bureau says it has continued to engage in outreach with consumer advocacy groups, industry representatives, and other stakeholders to develop additional provisions to protect consumers and make it easier for companies to comply with the rules.

“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” CFPB Director Richard Cordray said in a statement. “Today’s proposal would give greater protections to mortgage borrowers.”

Chief among the proposed rules would be a requirement that servicers must provide additional foreclosure protections to borrowers who have already worked through the loss mitigation process previously and recovered.

Under the current rules, servicers are already required to provide certain protections, including the right to be evaluated under CFPB requirements for foreclosure avoidance options, once during the life of the mortgage.

The proposed rule would require servicers to offer those same protections again for borrowers who have brought their loans current at any time since the last loss mitigation application. The bureau says the rule is largely designed to protect those who obtain a permanent loan modification and then later suffer an unrelated hardship that could create additional struggles, such as a job loss or the death of a family member.

This is a developing story. Check back later for more details.

Ocwen Backdated Thousands of Foreclosure Notices, Lawsky Says

New York’s top banking regulator claims mortgage servicer Ocwen Financial sent more than 6,100 borrowers notices of possible foreclosure only after their payment deadlines had passed.

The systems failures that Ocwen outlined previously as “isolated” are much greater in scope than what the company had previously disclosed, according to Benjamin Lawsky, superintendent of the state’s Department of Financial Services.

Lawsky sent a warning letter Tuesday to Ocwen Chairman William Erbey, his counsel and directors, regarding what Lawsky described as a practice that is possibly still ongoing.

“Ocwen must fix its systems without delay,” the letter said.

Officials of Atlanta-based Ocwen are cooperating with the investigation and “deeply regret the inconvenience to borrowers who received improperly dated letters as a result of errors in our correspondence systems,” an Ocwen spokesman wrote in an email. They have identified 281current New York-based customers who were affected and are reviewing the other cases cited by Lawsky, the email said.

Shares of Ocwen were down 20%, to $21, in midafternoon trading.

Ocwen, the country’s largest nonbank mortgage servicer, has been under regulatory scrutiny over the past year, as consumer protection regulators scrutinize nonbank servicers’ ability to adequately administrate loans. Servicers’ portfolios have more than doubled in just a year’s time, as banks attempt to shed their servicing rights before new regulatory capital rules take effect.

In September Ocwen told monitors the backdating issue was an isolated incident, but the issue is far larger, Lawsky’s letter said. There may have been 6,100 problem letters sent to borrowers before Ocwen addressed the issue in May 2014, after an employee alerted a monitor of the problem five months prior. The company told monitors it responded and corrected the issue in May.

“Each of these representations turned out to be false,” the letter said.

The problem may prove to be even more widespread, perhaps affecting hundreds of thousands of borrowers, according to the letter.

The Consumer Financial Protection Bureau has also tightened the screws on servicers. It took its first enforcement action under new servicing rules last month against Flagstar Bank after claiming the Michigan bank blocked customers’ attempts to save their homes.

That enforcement action underscored the regulatory headaches facing nonbanker servicers Ocwen and Nationstar Mortgage Holdings, Guggenheim analyst Jaret Seiberg told clients recently. “The policy environment will make it more expensive to be a mortgage servicer, which will hurt profitability,” he wrote.

Seiberg added in a follow-up note Tuesday, after the release of the Lawsky letter, that “if Ocwen intentionally misdated letters to deprive borrowers of modifications, then it could be exposed to serious legal liability,” especially if the loans in question were backed by Fannie Mae or Freddie Mac.

Highly critical lawmakers in Congress have called for capital requirements on nonbank servicers. Ocwen, Nationstar and others responded last month and are organizing a new trade group in Washington to represent their interests.

Isaac Boltansky, an analyst at Compass Point Research & Trading, believes the Federal Housing Finance Agency will this fall outline capital and liquidity standards for servicers, which could go into effect as early as first quarter 2015, he said last month after Ginnie Mae released a 20-page assessment of the sector.

9.7 Million Homeowners Underwater

Author: Tory Barringer May 20, 2014

The number of underwater borrowers continues to fall, but that was about the only good news Zillow had to report in its latest look at negative equity.

The company released Tuesday its Negative Equity Report for the first quarter, revealing an estimated 9.7 million homeowners continue to owe more on their mortgage than their home is worth. That number, down from about 9.8 million in Q4 2013, represents about 18.8 percent of mortgage-paying Americans, according to Zillow.

Conservative estimates from the company call for a negative equity rate of 17 percent by this time next year as home value growth moderates.

While the continuing downward trend in underwater rates is a welcome sign of improvement in the housing sector, the company notes that the “effective” negative equity rate, which includes homeowners with 20 percent or less equity in their homes, remains elevated at more than one in three.

“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow’s chief economist, Dr. Stan Humphries.

With so many borrowers lacking enough equity to comfortably sell their homes and afford a down payment on a new one, Humphries expects inventory to remain choked, driving home values higher and making affordability a greater concern.

What’s more, Zillow found that homes priced in the bottom third of home values nationwide have a greater negative equity rate, with 30.2 percent of that population currently underwater compared to 18.1 percent of those in the middle tier and just 10.7 percent in the top tier.

For those underwater borrowers who happen to be in the lower tier of home values, listing their home will remain difficult without engaging in a short sale or bringing cash to the closing table—another contributor to the supply shortage and a major obstacle for buyers in search of starter homes.

“It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers,” Humphries said.

Great News for Underwater Home Owners in California

Sacramento, CA – April 28, 2014


Great tax relief news for California home owners considering a short sale. The national media has it all WRONG. I just read an article published in Realtor Mag which is a publication put out by the National Association of Realtors (a link to this article below). The headline was “Homeowners Think Twice About Short Sales”. The article painted a gloom and doom scenario explaining the reason Short Sales have dropped. It put most of the blame on the fact that Congress hasn’t passed an extension of the Mortgage Debt Relief Act and therefore there will be an “increase in taxes borrowers will now have to pay on forgiven debt”.


NOT IN CALIFORNIA. I repeat – not in California. This article does not mention the huge California exception which misleads everyone in California reading the article. They are not the only ones. I daily seem to read articles which don’t properly explain the situation for California homeowners.


I will try to explain in the simplest terms why California homeowners have the best laws in the country and will most likely NOT owe any debt forgiveness income tax after a short sale. First let me state that there are other exceptions to this crazy tax the IRS and state taxing bureaus want people to pay. Bankruptcy and insolvency are exceptions but I will not get into those exceptions in this article due to space constraints – and I don’t want to bore you to death.


In December 2013 the California Association of Realtors and Senator Barbara Boxer announced in a press release that the IRS and the California Franchise Tax Board (California’s equivalent to the IRS) both have agreed that a short sale in California is a non-recourse event and therefore does not create so-called “cancellation of debt” income to underwater home sellers for income tax purposes. This is GREAT news! No other state that I know of has such great laws protecting underwater homeowners.


The national media seems to ignore this when doing their reporting most likely because it is a very complicated subject and it’s easier to paint with a broad brush. I have even talked to tax preparers who still haven’t received the great tax news regarding California short sales. Needless to say you should talk to an expert in this area and do NOT accept legal advice from a realtor. Realtors are not allowed to give legal advice and when dealing with a short sale it’s almost ALL legal.


Most homeowners are very concerned about things such as: what if my bank sues me, can they garnish my paychecks, what about my retirement accounts, will I ever be able to buy another house, etc…


If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation and if I help you with your short sale you pay me nothing. You can call me at 877.442.4577 or send me an email at or just visit my website


Ted Greene
California Attorney and
licensed Real Estate Broker

Legal expenses push Bank of America into $276-million loss

Bank of America CEO Brian Moynihan had reason to grimace as his company announced a $276 million loss. Above, Moynihan during an interview in L.A. last year. (Lawrence K. Ho / Los Angeles Times )

original source: By E. Scott ReckardApril 16, 2014, 8:11 a.m.

Socked by mortgage-related legal expenses, Bank of America Corp. lost $276 million during the first quarter, sending its stock down sharply.

The quarterly loss, its first in 2½ years, came despite lower loan losses and better than expected results in fixed-income trading, a slowing business that hurt rival JPMorgan Chase & Co. during the quarter.

The results included $6 billion in litigation expense, much of it related to toxic bonds backed by housing-boom mortgages from Countrywide Financial Corp., the aggressive Calabasas lender that nearly collapsed before being acquired by Bank of America in 2008.

“The cost of resolving more of our mortgage issues hurt our earnings this quarter,” Chief Executive Brian Moynihan said in announcing the results Wednesday morning.

QUIZ: How much do you know about mortgages?

The loss at the Charlotte, N.C., bank amounted to 5 cents a share, in contrast to a profit of $1.48 billion, 10 cents a share, in the first quarter of 2013. Revenue fell nearly 3%, to $22.7 billion.

Bank of America shares were down 55 cents at $15.84 in morning trading, a 3.4% decline.

A major impact on the earnings was a $9.5-billion settlement related to faulty mortgage securities that had been purchased by home finance giants Fannie Mae and Freddie Mac. The deal was struck last month with Fannie and Freddie’s regulator, the Federal Housing Finance Agency.

That accounted for $3.4 billion of the $6 billion in litigation expense, the bank said. The rest was from additional, previously announced mortgage issues, said  Moynihan, now in his fifth years as head of Bank of America.

Moynihan has spent much of his tenure as CEO slogging through liabilities inherited from Countrywide, acquired by his predecessor, Ken Lewis. The deal has cost Bank of America more than $50 billion in loan losses and legal costs.

Bank earnings have been a mixed bag this quarter, with Wells Fargo & Co. and Citigroup Inc. beating analyst estimates and JPMorgan Chase & Co. coming up short. Wall Street heavyweights Goldman Sachs Group Inc. and Morgan Stanley are to release their financial results Thursday.