Nov. 30, 2007: Mortgages for the last day of November, with some tax information about foreclosures, and why aren’t mortgage prices better?

Nov. 30, 2007: Mortgages for the last day of November, with some tax information about foreclosures, and why aren’t mortgage prices better? Rob Chrisman

A plan is nearing fruition on a plan to freeze some subprime rates (see below), but that won’t help those already foreclosed upon. As most originators know, in many states, including California, most mortgages that are used to purchase a residence are nonrecourse, but mortgages from refinancing a previous mortgage are usually recourse, based on the note. Can the lender come after the borrower for the difference? If the loan (Deed of Trust) is a purchase money loan secured by a house that is the borrower’s principal residence, the answer is generally “no”. California’s anti-deficiency laws (California Code of Civil Procedure Section 580(b)-(d)) protect homeowners by preventing lenders from doing any more than taking back the property. These anti-deficiency laws were enacted during the Depression to give homeowners a fresh start, without a deficiency judgment hanging over their heads. However, the code section is fairly specific. The loan had to be for the purchase of the property, and the borrower has to occupy it as his or her principal residence. (No non-owner or vacation homes.) The lender can choose to file a judicial foreclosure against the borrower. For loans involving a refinance line of credit (technically not purchase money loans) a lender could go after the borrower for the difference.

Regarding tax consequences, here are some sites that may be of help for you:

Questions and Answers on Home Foreclosure and Debt Cancellation – IRS http://www.irs.gov/newsroom/article/0,,id4034,00.html

Interest/Dividends/Other Types of Income: 1099 Information Returns (All Other) – IRS http://www.irs.gov/faqs/faq4-4.html

Foreclosures and Repossessions – IRS http://www.irs.gov/publications/p544/ch01.html#d0e914

Tax Consequences of a “Short Sale” of Real Estate vs. Foreclosure – CPA’s website http://www.realestateinvestingtax.com/shortsale.shtml

Blog worth checking on http://dirtlaw.typepad.com/blog/2007/02/preforeclosure_.html

What the heck is going on with jumbo prices? In recent weeks they have worsened relative to conforming prices, almost back to where they were when they were “bad” a few months ago, and currently have a difference of roughly 1%. So, as usual, headline-grabbing Treasury yields are improving yet mortgages are plodding along. Conforming rates have improved slightly, jumbo prices hardly at all, while Treasury rates are down. If you’re asked why, the primary reasons are a) continued fear of delinquencies and foreclosures with mortgages (something not present with Treasury securities), b) investors nervous about declining property values in many markets (not a factor with Treasury securities), and c) the fear of early pay-offs on current mortgages if rates continue to move down (also not a factor with Treasuries). The investor perceptions of mortgage companies and FNMA & FHLMC (their stocks are down 50% in recent months), that is not helping either.

That being said, the news today, that “The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.” is helping us somewhat. In fact, financial stocks are up significantly this morning. But the 10-yr continues to dance around 4%, and mortgage prices are roughly unchanged. We also had Moody’s rating agency downgrade UBS’s financial strength rating to B+ from A-, and oil has dropped into the $89/barrel range for the first time in over a month. (Time to buy that Escalade?) The economic news this morning was mixed. Personal Income was +.2 Personal Consumption was +.2%, with no revisions, but the price deflator moved up year-over-year. Unfortunately rates had crept up overnight, given the potential rally in the stock market. 

A little boy wanted $100.00 very badly and prayed for weeks, but nothing happened. Then he decided to write God a letter requesting the $100. When the postal authorities received the letter to God, USA, they decided to send it to the President. The President was so amused that he instructed his secretary to send the little boy a $5.00 bill. The president thought this would appear to be a lot of money to a little boy. The little boy was delighted with the $5.00 bill and sat down to write a thank-you note to God, which read:  Dear God: Thank you very much for sending the money. However, I noticed that for some reason you sent it through Washington, DC, and those jerks deducted $95.00 in taxes.