Some Homeowners Will Receive Permanent 2% Interest Rates Thanks to Bank of America Mortgage Settlement

Today, Bank of America reached a historic agreement with the U.S. Department of Justice to pay the largest settlement in U.S. history related to toxic mortgage loans it knowingly sold to investors.

In short, the company admitted that it misrepresented the quality of the loans it packaged and sold to investors via its Merrill Lynch and Countrywide Mortgage brands, as well as through Bank of America.

Additionally, the bank has taken responsibility for its faulty loan origination practices that resulted in Fannie Mae, Freddie Mac, and the FHA taking on countless bad loans that eventually hurt American taxpayers (not to mention homeowners).

The bank also settled a case with the SEC in which it knowingly “shifted the risk” of wholesale loans originated by mortgage brokers that were described internally as “toxic waste.”



Simply put, the bank and its affiliates made trillions of very bad loans that they tried to pawn off, and now they must pay.

Speaking of payment, the company has agreed to pay $9.65 billion in cash, including $5.02 billion in civil monetary penalty and $4.63 billion in compensatory remediation payments.

Additionally, BofA will provide $7 billion in consumer relief, which will come in the form of loan modifications, including principal balance reductions, forbearance, and second mortgage extinguishments.


 How Does a 2% Interest Rate Sound?

Most significantly, some lucky homeowners will receive principal reductions that lower their loan-to-value ratio to 75%. But that’s not all. They’ll also receive a 2% interest rate on their mortgage that is fixed for the life of the loan.

The Department of Justice provided an example where a homeowner with a $250,000 mortgage balance would see it fall to just $112,000 on a property worth only $150,000 today.

That’s a pretty good deal, regardless of what may have happened to the homeowner.

Let’s be honest, a lot of borrowers knew they weren’t providing proper income documentation either, or that their home appraisal was a tad bit steep. But I’m sure they looked the other way, just like everyone else at the time.

The DoJ also negotiated a tax break for those who receive relief under the settlement assuming the Mortgage Forgiveness Debt Relief Act isn’t extended.

They created a so-called 25/25 Tax Relief Fund where 25% of the value of the relief will be made available to offset any tax liability, up to $25,000. But the amount of money set aside is limited, so not all homeowners will be able to take advantage.

During his speech, Associate Attorney General Tony West called on Congress to extend the Act so homeowners won’t be on the hook for phantom income.

Bank of America will also be required to provide more low- to moderate-income mortgage originations, expand affordable housing initiatives, and provide community reinvestment for neighborhoods experiencing or at risk or urban blight.

The settlement is expected to reduce the company’s third quarter pre-tax earnings by $5.3 billion and reduce earnings per share by 43 cents.

Obviously the stock was up on the news, because that’s how the stock market works. But really, investors are probably happy to see the bank move forward from the mortgage mess once and for all.

And its current price of under $16 a share is still just a fraction of what it was during the previous housing boom when shares traded in the low $50 range.

source: thetruthaboutmortgage.com

California Homeowners Finally Get Tax Relief for Mortgage Debt Forgiven in 2013

It took a lot longer than expected, but California homeowners who received mortgage debt relief last year won’t be on the hook for state taxes tied to so-called phantom income.

California Assembly Bill 1393, introduced by Assembly member Henry T. Perea (D-Fresno), extends tax relief on the forgiveness of mortgage debt by conforming California law to federal law.

The California State Senate approved the bill on June 30th, passing it with an overwhelming 33-0 vote, which was later followed by a 68-0 vote by the Assembly last Thursday.

Thanks to this bill, which should be signed into law by Governor Jerry Brown shortly, California homeowners who had certain debt canceled or forgiven last year will be able to amend their taxes and get refunds.




Early last year, the Mortgage Forgiveness Debt Relief Act of 2007 was given a one-year extension, meaning those who were foreclosed on or sold short didn’t have to worry about federal taxes on gains they never actually realized.

Typically, mortgage debt that is forgiven by a bank or lender must be included as ordinary income on your tax return, but the Mortgage Forgiveness Debt Relief Act allows borrowers to exclude certain canceled debt tied to a principal residence.

Additionally, debt reduced through mortgage restructuring such as a loan modification (principal reduction) also qualifies for tax relief.

But while federal taxes may have been avoided last year, some California homeowners were still subjected to state taxes in certain cases.

It’s unclear how many homeowners actually got taxed thanks to anti-deficiency laws already in place that protected many of those who sold their homes for less than what they were worth, but the state estimates taxpayers will save roughly $39 million.

The bill also protects homeowners from penalties regardless of whether they reported the discharged debt on their 2013 tax return.

Unfortunately, this bill will only cover transactions that occurred in 2013, meaning uncertainty still looms for mortgage debt forgiven this year. Another extension will likely be necessary…

The same goes for federal tax relief, which also hangs in the balance as politicians work on a tax extenders package.

Of course, much of the mortgage relief has already been doled out, with short sales, foreclosures, and loan mods all dropping in numbers considerably as home prices continue to rise.

Still, the passage of this bill should give homeowners a lot more confidence to move forward with such an action without fear of being on the hook for state taxes.

However, even if the discharged debt isn’t taxable, a taxpayer may still have to deal with taxes if there was a gain from the sale or foreclosure of the property.

As always, be sure to consult with a lawyer, CPA, and/or tax preparer to ensure you understand the implications of this bill and other related laws.  It’s certainly complicated, so enlisting a professional is probably not a bad idea.

source: thetruthaboutmortgage.com