[(former)FormerSanDiegan]

[quote=deadzone]Are you suggesting that the Alt-As won’t “recast” like the Option ARMs? Because when the reset hits, it’s not just the interest rate. Nearly all of these borrorers are now well under water (See WSJ front page today). This means due to their decreasing LTV, monthly payment will still go up regardless of interest rate.[/quote]

deadzone – DaCounselor explained it well.

Being underwater on an existing loan has nothing to do with the rate on an existing loan. It is not dependent on LTV. Only a new loan is. Your typical 5/1 Alt-A loan made in 2005 will reset in 2010 at a rate determined by the index and the margin. Typical margins were 2.25% on the 12-month LIBOR. If those were to reset today the fully-indexed rate would be ~1.25% (LIBOR) + 2.25% (Index) = 3.5%. Since most have a minimum rate the rate would likely stay the same.
If it was an interest only loan, they would now pay principal. The alt-A resets are not (at least for now, while short-term rates remain below about 4%) the disaster trigger event that was predicted or assumed when short-term rates were nearing 6% in 2006 (which would imply 8%+ reset rates).

[(former)FormerSanDiegan]

[quote=deadzone]Are you suggesting that the Alt-As won’t “recast” like the Option ARMs? Because when the reset hits, it’s not just the interest rate. Nearly all of these borrorers are now well under water (See WSJ front page today). This means due to their decreasing LTV, monthly payment will still go up regardless of interest rate.[/quote]

deadzone – DaCounselor explained it well.

Being underwater on an existing loan has nothing to do with the rate on an existing loan. It is not dependent on LTV. Only a new loan is. Your typical 5/1 Alt-A loan made in 2005 will reset in 2010 at a rate determined by the index and the margin. Typical margins were 2.25% on the 12-month LIBOR. If those were to reset today the fully-indexed rate would be ~1.25% (LIBOR) + 2.25% (Index) = 3.5%. Since most have a minimum rate the rate would likely stay the same.
If it was an interest only loan, they would now pay principal. The alt-A resets are not (at least for now, while short-term rates remain below about 4%) the disaster trigger event that was predicted or assumed when short-term rates were nearing 6% in 2006 (which would imply 8%+ reset rates).

[(former)FormerSanDiegan]

[quote=HLS][quote=sd_t2] a refinance at this point could trigger a very bad consequence…the refinanced balance would be a recourse loan, if the original loan used to buy the house, that is protected by the purchase money exemption and is thus nonrecourse.[/quote]

I do not belive that is correct… My understanding of current tax law, valid through Dec 31st 2012, is that refinance of any loan amount that was used to acquire and/or improve a primary residence remains exempt from becoming recourse debt…
It is true that any cash taken out over and above this amount MAY be considered taxable income (but it may not be enforced)
*Consult your tax adviser for your situation*

“Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681”

Refer to page 7, 3rd column, halfway down:
http://www.irs.gov/pub/irs-pdf/p4681.pdf ..HLS[/quote]

I think there is some confusion here over recourse. Recourse refers to whether the note holder can go after other assets from the borrower in case of default in a judicial foreclosure.
HLS, you are referring to whether the debt “forgiven” as a result of foreclosure is taxable or not for a personal residence. (It is not taxable whether it was the initial loan or a refinance, subject to cash out and other restrictions in the publication HLS linked)

These are two separate (but related) issues.

A refinance (even on a primary) may be a recourse loan, meaning the note holder can attempt to go after other assets. However, in California, because of the single action rule, the lender can either go through a non-judicial foreclosure or sue (judicial foreclosure). Because of the costs, time (12 months or more) and the potential for unfavorable rulings, judicial foreclosures are rare.
I would only worry about recourse if the amount the lender wants to recover is at least several hundred K and if I were a big fish with lots of obvious assets.

Edit : Warning. I am not a lawyer or accountant. The above is not advice. Before refinancing a personal residence, consult the tax laws and perhaps seek counsel, especially if you may be upside down. This stuff is complicated.

[(former)FormerSanDiegan]

[quote=HLS][quote=sd_t2] a refinance at this point could trigger a very bad consequence…the refinanced balance would be a recourse loan, if the original loan used to buy the house, that is protected by the purchase money exemption and is thus nonrecourse.[/quote]

I do not belive that is correct… My understanding of current tax law, valid through Dec 31st 2012, is that refinance of any loan amount that was used to acquire and/or improve a primary residence remains exempt from becoming recourse debt…
It is true that any cash taken out over and above this amount MAY be considered taxable income (but it may not be enforced)
*Consult your tax adviser for your situation*

“Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681”

Refer to page 7, 3rd column, halfway down:
http://www.irs.gov/pub/irs-pdf/p4681.pdf ..HLS[/quote]

I think there is some confusion here over recourse. Recourse refers to whether the note holder can go after other assets from the borrower in case of default in a judicial foreclosure.
HLS, you are referring to whether the debt “forgiven” as a result of foreclosure is taxable or not for a personal residence. (It is not taxable whether it was the initial loan or a refinance, subject to cash out and other restrictions in the publication HLS linked)

These are two separate (but related) issues.

A refinance (even on a primary) may be a recourse loan, meaning the note holder can attempt to go after other assets. However, in California, because of the single action rule, the lender can either go through a non-judicial foreclosure or sue (judicial foreclosure). Because of the costs, time (12 months or more) and the potential for unfavorable rulings, judicial foreclosures are rare.
I would only worry about recourse if the amount the lender wants to recover is at least several hundred K and if I were a big fish with lots of obvious assets.

Edit : Warning. I am not a lawyer or accountant. The above is not advice. Before refinancing a personal residence, consult the tax laws and perhaps seek counsel, especially if you may be upside down. This stuff is complicated.

[(former)FormerSanDiegan]

[quote=HLS][quote=sd_t2] a refinance at this point could trigger a very bad consequence…the refinanced balance would be a recourse loan, if the original loan used to buy the house, that is protected by the purchase money exemption and is thus nonrecourse.[/quote]

I do not belive that is correct… My understanding of current tax law, valid through Dec 31st 2012, is that refinance of any loan amount that was used to acquire and/or improve a primary residence remains exempt from becoming recourse debt…
It is true that any cash taken out over and above this amount MAY be considered taxable income (but it may not be enforced)
*Consult your tax adviser for your situation*

“Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681”

Refer to page 7, 3rd column, halfway down:
http://www.irs.gov/pub/irs-pdf/p4681.pdf ..HLS[/quote]

I think there is some confusion here over recourse. Recourse refers to whether the note holder can go after other assets from the borrower in case of default in a judicial foreclosure.
HLS, you are referring to whether the debt “forgiven” as a result of foreclosure is taxable or not for a personal residence. (It is not taxable whether it was the initial loan or a refinance, subject to cash out and other restrictions in the publication HLS linked)

These are two separate (but related) issues.

A refinance (even on a primary) may be a recourse loan, meaning the note holder can attempt to go after other assets. However, in California, because of the single action rule, the lender can either go through a non-judicial foreclosure or sue (judicial foreclosure). Because of the costs, time (12 months or more) and the potential for unfavorable rulings, judicial foreclosures are rare.
I would only worry about recourse if the amount the lender wants to recover is at least several hundred K and if I were a big fish with lots of obvious assets.

Edit : Warning. I am not a lawyer or accountant. The above is not advice. Before refinancing a personal residence, consult the tax laws and perhaps seek counsel, especially if you may be upside down. This stuff is complicated.

[(former)FormerSanDiegan]

[quote=HLS][quote=sd_t2] a refinance at this point could trigger a very bad consequence…the refinanced balance would be a recourse loan, if the original loan used to buy the house, that is protected by the purchase money exemption and is thus nonrecourse.[/quote]

I do not belive that is correct… My understanding of current tax law, valid through Dec 31st 2012, is that refinance of any loan amount that was used to acquire and/or improve a primary residence remains exempt from becoming recourse debt…
It is true that any cash taken out over and above this amount MAY be considered taxable income (but it may not be enforced)
*Consult your tax adviser for your situation*

“Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681”

Refer to page 7, 3rd column, halfway down:
http://www.irs.gov/pub/irs-pdf/p4681.pdf ..HLS[/quote]

I think there is some confusion here over recourse. Recourse refers to whether the note holder can go after other assets from the borrower in case of default in a judicial foreclosure.
HLS, you are referring to whether the debt “forgiven” as a result of foreclosure is taxable or not for a personal residence. (It is not taxable whether it was the initial loan or a refinance, subject to cash out and other restrictions in the publication HLS linked)

These are two separate (but related) issues.

A refinance (even on a primary) may be a recourse loan, meaning the note holder can attempt to go after other assets. However, in California, because of the single action rule, the lender can either go through a non-judicial foreclosure or sue (judicial foreclosure). Because of the costs, time (12 months or more) and the potential for unfavorable rulings, judicial foreclosures are rare.
I would only worry about recourse if the amount the lender wants to recover is at least several hundred K and if I were a big fish with lots of obvious assets.

Edit : Warning. I am not a lawyer or accountant. The above is not advice. Before refinancing a personal residence, consult the tax laws and perhaps seek counsel, especially if you may be upside down. This stuff is complicated.

[(former)FormerSanDiegan]

[quote=HLS][quote=sd_t2] a refinance at this point could trigger a very bad consequence…the refinanced balance would be a recourse loan, if the original loan used to buy the house, that is protected by the purchase money exemption and is thus nonrecourse.[/quote]

I do not belive that is correct… My understanding of current tax law, valid through Dec 31st 2012, is that refinance of any loan amount that was used to acquire and/or improve a primary residence remains exempt from becoming recourse debt…
It is true that any cash taken out over and above this amount MAY be considered taxable income (but it may not be enforced)
*Consult your tax adviser for your situation*

“Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681”

Refer to page 7, 3rd column, halfway down:
http://www.irs.gov/pub/irs-pdf/p4681.pdf ..HLS[/quote]

I think there is some confusion here over recourse. Recourse refers to whether the note holder can go after other assets from the borrower in case of default in a judicial foreclosure.
HLS, you are referring to whether the debt “forgiven” as a result of foreclosure is taxable or not for a personal residence. (It is not taxable whether it was the initial loan or a refinance, subject to cash out and other restrictions in the publication HLS linked)

These are two separate (but related) issues.

A refinance (even on a primary) may be a recourse loan, meaning the note holder can attempt to go after other assets. However, in California, because of the single action rule, the lender can either go through a non-judicial foreclosure or sue (judicial foreclosure). Because of the costs, time (12 months or more) and the potential for unfavorable rulings, judicial foreclosures are rare.
I would only worry about recourse if the amount the lender wants to recover is at least several hundred K and if I were a big fish with lots of obvious assets.

Edit : Warning. I am not a lawyer or accountant. The above is not advice. Before refinancing a personal residence, consult the tax laws and perhaps seek counsel, especially if you may be upside down. This stuff is complicated.

[(former)FormerSanDiegan]

On black Friday we splurged for a lunch out.
But made up for it by eating leftovers for dinner.
No other purchases.

[(former)FormerSanDiegan]

On black Friday we splurged for a lunch out.
But made up for it by eating leftovers for dinner.
No other purchases.

[(former)FormerSanDiegan]

On black Friday we splurged for a lunch out.
But made up for it by eating leftovers for dinner.
No other purchases.

[(former)FormerSanDiegan]

On black Friday we splurged for a lunch out.
But made up for it by eating leftovers for dinner.
No other purchases.

[(former)FormerSanDiegan]

On black Friday we splurged for a lunch out.
But made up for it by eating leftovers for dinner.
No other purchases.

[(former)FormerSanDiegan]

I agree 100% with sdduuuude.

[(former)FormerSanDiegan]

I agree 100% with sdduuuude.

[(former)FormerSanDiegan]

I agree 100% with sdduuuude.

[Author]

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