Housing BUZZ

Foreclosures coming in 2010

Heading into 2010 the national unemployment rate is at 10.2% (California’s rate even higher) and still climbing, foreclosure activity is finally decreasing, a large volume of ARM resets are looming, and banks have yet to release an unknown volume of foreclosed homes onto the market.  But are things really this bleak…I suggest not.

There are positives looking forward, the first time homebuyer tax credit was just extended and improved to include previous homeowners, the temporary loan limits from 2009 have been extended into 2010, and the government is still sticking with their mortgage backed security purchase program that is keeping interest rates at incredible levels. But there are definitely some unknown factors that will affect our housing market in 2010.

The number one anticipated factor to affect our market this coming year is another anticipated round of foreclosures sure to flood our local markets and kill any price stability we may have gained through the end of this year.  But, although it has been speculated that banks have an insurmountable stockpile of foreclosures on their books, I don’t believe that we’ll see the same affects on the housing market that foreclosures had in 2008.

Market conditions for one should keep banks from flooding the markets with their inventory of REO properties. While local market conditions may seem plausible for banks to begin releasing their stockpiled foreclosure inventory, they may not be willing to release them until broader housing markets show better signs of recovery.

Other reasons may be more logistical in nature… I think it’s more than obvious that banks (that are left) have a lot on their plates at the moment. You may recall that some nationally (some internationally) held banks have recently consolidated with failing banks over the past year (Bank of America acquiring Countrywide, Chase acquiring Washington Mutual, Wells Fargo acquiring Wachovia) and may not be able to liquidate much of their foreclosure holdings until they have implemented systems to handle the workload.

Also considering added strict government oversight due to previous bank failures, banks must now show signs of recovery or face lack of government support. When a bank brings a foreclosed home to market they must simultaneously write down the loss from the asset (the home) which will then show up on their balance sheet and thus affect their gross worth as a company. 

And many banks have finally realized the benefits of short sales and have been implementing new policies in order to expedite these sales. Think about it, if the bank never has to foreclose and market the property as an REO then they don’t have write down the asset on their books until the short sale has been finalized. This will help them avoid being cut off from possible federal lifelines.

Recalling the first wave of foreclosures that rocked our housing market over 2008, the majority of those loans were mostly subprime mortgages from banks that no longer exist (Lehman Brothers, First Franklin, Indy Mac Bank, etc.). Current foreclosure activity is being linked to more stable loan programs from lenders who can offer alternatives for the homeowners to avoid foreclosure, such as loan modifications, short sales, or even lease back programs aimed at keeping families in their homes. All of this will lead to better housing stability.

Taking into further consideration with the recent recovery in the stock market (if you can call it recovery), we are now seeing levels near 10,000 points in the DOW, which means people are beginning to regain losses on their investments. So, unlike homeowners who suffered mortgage delinquency earlier this year when the stock market tanked out at 6,500 points back in March, today’s homeowners have the ability to dip into their stock investments and help pay for homeownership expenses.

Foreclosure activity has also been steadily decreasing for a few months now (according to RealtyTrac.com) from March of 2009 which was the peak of foreclosure activity for CA. This means there will be less defaults moving forward and hopefully the real estate market will gain some real ground moving into 2010.

Homebuyer Tax Credit Extended!!

More good news for consumers, our members, and the housing market recovery. Following the Senate’s favorable vote yesterday, the U.S. House of Representatives just voted 403 to 12 to extend the home buyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. It is expected that President Obama will sign the legislation in short order.

As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. First-time home buyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years. The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.

Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The legislation maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.

According to the National Asociation of Realtors, more than 1.4 million first-time home buyers nationwide were given the opportunity to become homeowners as a result of the Federal Tax Credit for First-time Home Buyers. That number is expected to increase dramatically in the months ahead with this new legislation in place.

 

I'm underwater on my mortgage, can I refinance under the Obama program?

Q: I was reading an article and it stated…

"the Obama Administration's Home Affordable Refinance Program, launched early this year, allowed refinances for those whose first mortgage was as high as 105 percent of a comparable market analysis (CMV). A July expansion now allows participation by borrowers current on payments, but up to 125 percent underwater."

I own a home in San Jose and I've been told that I will not qualify for a refinance because I do not have the equity that is required by lenders in today's market. Will I be able to take advantage of President Obama's program above?

 

A: Yes, it’s true, the Obama mortgage plan does allow homeowners the ability to refinance their current mortgages up to 125% of the current market value…but, you have to read between the lines because your current mortgage MUST be owned by either Fannie Mae or Freddie Mac in order to qualify for the program.

Unfortunately in the Bay Area the majority of homeowners that have mortgages that could benefit from the Obama program are not owned by Fannie or Freddie. Instead these loans tend to be “jumbo loan programs” that were originated during the housing boom and thus owned by institutional investors that purchased them from Wall Street. So the majority of Bay Area homeowners looking to refinance but are unable to due to declining property values will not be able to utilize this program.

Currently there isn’t anything available to help such homeowners unless their current mortgage is owned by Fannie or Freddie. To find out if your mortgage is owned by Fannie or Freddie you can use the loan look-up tools on their websites:

You can fill out an inquiry on the website by Fannie Mae (FNMA) by visiting them at http://loanlookup.fanniemae.com/loanlookup/. Or if you choose you may contact them at 1-800-7FANNIE (1-800-732-6643). If they own the note, they may provide the identity of the investor.

You can fill out an inquiry on the website by Freddie Mac (FHMLC) by visiting them at https://ww3.freddiemac.com/corporate/. If they own the note, they may provide the identity of the investor.

Legislative Update – What can we expect for the housing market come 2010?

As 2009 winds down lawmakers are discussing which key ingredients of last year’s economic stimulus plan to reinstate for next year. Looking back over 2009, the real estate markets have reacted better than expected to the legislatives’ efforts to stimulate the housing market:

• the continuance of the temporary high balance loan limits for both the GSE’s (Fannie Mae and Freddie Mac)and for FHA,
• the implementation of the $8,000 first time homebuyer tax credit,
• as well as the Treasury’s budgeted purchase of mortgage backed securities to artificially keep interest rates at historic low rates

 

But as we head towards 2010 much of the aforementioned has been headed towards an end with no clear hope of extension.

 

Temporary Loan Limits

 

You may recall that these temporary loan limits, set at 125% of local area median home price and capped at $729,750, were first introduced in 2008 and then re-extended in early 2009,  as a way to make up for a fall-out in the jumbo loan market. Up until 2008, the conforming loan limits that allowed Fannie Mae and Freddie Mac to purchase loans were capped at $417,000. Any loans that were more than $417,000 were considered a “jumbo” mortgage and were funded by money invested in Wall Street.

 

When Wall Street failed due to the subprime mortgage meltdown and resulting real estate bubble, jumbo loans all but disappeared creating a huge lack of credit for those homeowners looking to purchase or refinance loans that were higher than $417,000. So, as part of the first stimulus plan back in 2008, the legislature gave Fannie Mae and Freddie Mac the ability to “temporarily” purchase loans up to 125% of local area median home price and capped at $729,750. But this legislature was scheduled to expire at the end of 2008.

 

By the end of the year the legislature had agreed to set the permanent conforming loan limit to 125% of local area median home price but capped at $625,000.  Then, as part of President Obama’s stimulus package at the beginning of 2009, the conforming loan limit was once again “temporarily” reinstated to as much as $729,750 dependant of local area median home price.

 

And now as we head into 2010vwe are faced once again with loosing these higher limits. Currently the temporary loan limits will expire on December 31, 2009 in which case loan limits will be reduced in many markets, the loan limit for Santa Clara County will be reduced to $625,000.

 

That was of course until last week when the House and Senate passed legislation to extend the current loan limits for FHA and Freddie Mac and Fannie Mae (the government sponsored enterprises, or GSEs) through December 31, 2010. The extension is included in the Continuing Resolution (CR) to fund the government for the remainder of 2009. The CR is part of the Department of Interior FY2010 Appropriations bill. As of the deadline for filing this report, the President was expected to sign the bill into law over the weekend.

 

Extending the Tax Credit

 

Currently first time homebuyers are eligible to receive a tax credit equal to 10% of the purchase price (maximum credit of $8,000) of their home when they purchase through December 1, 2009. The tax credit is in addition to any income tax refunds that they may already qualify to receive. But, even though there has been an over whelming response to the credit (as more buyers have taken advantage of the credit than previously anticipated) there has been no clear message that the tax credit will remain an option come 2010 until just recently.

The extension and expansion of the homebuyer tax credit is currently the pending business in the Senate. And after a long week of negotiation on the credit, an agreement on the scope of both expansion and extension has been reached.

 

The extension is part of a larger bill that has not yet gone to a vote, however. A Senate vote on the underlying bill will occur in the Senate during the week of November 1. The package will then go back to the House. The House is expected to accept the Senate amendments, vote on the package and send it to the President for signature.

 

The underlying bill is an extension of unemployment benefits. Other provisions in the bill include expansion of the net operating loss carry-back rules, new requirements for some tax return preparers and noncontroversial provisions that "pay for" these changes.

The agreement on the extension and expansion of the credit is as follows:

• Credit available for purchases before May 1, 2010. Prospective purchasers with binding contracts in place as of April 30, 2010 will be allowed an additional 60 days to complete the transaction.
• Credit remains at $8000 for first-time purchasers. No change to definition of first-time purchaser.
• New $6500 tax credit for repeat buyers who purchase between December 1, 2009 and May 1, 2010. Repeat buyers must have lived in their homes consecutively for 5 of the previous 8 years.
• Income limits are expanded to $125,000 on a single return and $225,000 on a joint return. Current law $20,000 phase-out retained.
• New anti-fraud limitations are imposed.

The White House has indicated that President intends to sign the legislation.