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Some borrowers hoping to refinance with HARP loan face delays

The government’s revamped Home Affordable Refinance Program could save many owners from foreclosure, but computer-related problems will prevent some from getting help until next spring.

Q. We were excited to read your recent column about changes to the federal government’s HARP program, which stated that homeowners whose loan balance exceeds even 25 percent of the value of their house can now qualify for refinancing help to lower their monthly payments. Our loan balance is about 30 percent more than our value, but the new lender we contacted about refinancing says we can’t qualify for help even though our current mortgage is owned by Fannie Mae. Are homeowners like us getting scammed again by promises that the government can’t fulfill?

A. No. You’re not being “scammed” by the reforms to the low-rate (but awkwardly named) Home Affordable Refinance Program that was approved by Congress and signed by President Barack Obama several weeks ago, but your refinancing attempt may be delayed until the spring.

As I wrote earlier, only borrowers whose loans are owned by financing giants Fannie Mae or Freddie Mac are eligible for the revamped HARP. The plan offers to lower a homeowner’s interest rate and waive many of the usual upfront refinancing costs, even if the outstanding balance of the mortgage is higher than the property’s current market value.

Many homeowners are unaware that their loan may be owned by Fannie or Freddie because they typically are required to keep sending their monthly payments directly to the lender who originally issued the mortgage. Borrowers can find out if their loan is owned by either of the two agencies and thus qualify for HARP help by calling Fannie Mae at (800) 732-6643 or Freddie Mac at (800) 373-3343.

Here’s the wrinkle that you and many other borrowers have discovered: Owners can refinance today if they’re deeply “underwater” on the loan as long as they keep the same lender. But borrowers like you, who plan on changing lenders, will have to wait a few more months while both Fannie and Freddie continue to update their computer software programs.

The upgrades are expected to be completed around March of next year, but it wouldn’t hurt to start gathering the needed documents and perhaps even fill out the refinancing loan application now.

Q. My husband and I have lived in the same house for 13 years, but now we are planning to sell it and then rent a home in a retirement community. Can we still keep up to $500,000 in our resale profit tax-free, or is this tax break only available to people who buy another house instead of renting one?

A. Don’t worry. All of your resale profits likely will be tax-free.

Internal Revenue Code 121 allows most married couples who file their taxes jointly to keep up to $500,000 of their home-resale profit away from the clutches of the IRS. Single tax-filers can keep up to $250,000.

You and your spouse won’t need to buy another house to qualify for this important tax break. Renting a new place would be OK — as long as you meet the IRS’ “residency rule.” It requires that sellers who want to keep their profit tax-free must have used their old home as their personal residence for at least 24 months in the previous five years before the sale.

Your letter states that you and your husband have lived in your current home for more than a decade, so you obviously meet this important IRS requirement. For more details, visit the website that’s operated by the IRS (www.irs.gov) and then discuss your personal situation with an accountant or other tax professional.

Q. We own a house and also own a second home in another state. If we create the type of simple living trust that you recently wrote about, should we put both our properties into the trust or only include our primary residence?

A. It probably would be best to put both homes into the trust.

Many people have bought or inherited a home, land or other property in a different state. When they die, their estate usually must go through separate probate proceedings — one for each state in which the properties are located.

If you instead create a simple and inexpensive trust to hold title to both properties, your heirs will save money and get the homes faster because trusts (unlike wills) are exempt from the long and costly probate process.

Ÿ For the booklet “Straight Talk About Living Trusts,” send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.

© 2011, Cowles Syndicate Inc.

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