Housing BUZZ

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.

 

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.

Can Loan Modifications help the 'Distressed Homeowner'?

Unfortunately we are currently going through a very tough time - with real estate and stocks all at 5 year lows and now Ben Bernanke, the chairman of the Federal Reserve dropping the "d" word last week (deflation that is), we are surely in for a wild ride over the next year. So with things looking so grim for the time being, what exactly can a struggling homeowner do to get out from under a killer mortgage payment if they cannot refinance?

Call your Lender - The biggest way a homeowner can help themselves is by picking up their phone and pro-actively communicating with their loan servicers. If a homeowner feels that they will not be able to continue to make their mortgage payments they should ask their current lenders for help. And if homeowners feel intimidated to contact their servicers, then there are plenty of free resources available that can provide assistance.

Contact a Non-profit Organization or Local Mortgage Professional - The Hope Now Alliance is one place to turn, as well as their local HUD Councilors who can speak their lenders on behalf of the distressed homeowner. And if you still are not getting anywhere, turn back to the last mortgage professional that helped you with your current mortgage, or even look one up on-line or in the yellow pages, just make sure they are local and know how to help you.

So now that you've made contact with someone that can help you, what exactly are they going to be able to do?  There are several outcomes to a distressed homeowners situation - they can apply for a loan modification, ask for a temporary forbearance, they can sell their home, they can forfeit title to their home back to the lender, or they can do nothing and let the lender ultimately foreclose on their home. In this blog I am only going to discuss loan modifications because their is currently a great deal of confusion surrounding them.

Loan Modifications - Homeowners must qualify for most modifications, which is a written agreement between the borrower and the lender to temporarily or permanently change the terms of their mortgage. There is no standard" modification, each lender has their own policies when it comes to changing the terms of a mortgage - remember, when a borrower signs the mortgage note they are making a promise, which is secured by their home, that they will repay their loan based on the terms provided in the note. In other words, by allowing a loan modification, the lender is allowing the borrower to break their promise.

Types of modifications range from temporary payment reductions, to permanent interest rate reductions and even loan balance forgiveness (which may create a taxable event for the borrower).

Modifications take a lot of time and patience and can be very frustrating for borrowers to negotiate on their own. This is why there are some business that can provide services to distressed homeowners for a fee. In California, only licensed real estate brokers and attorneys may negotiate the terms of a loan for a borrower.

With the rise in defaulting borrowers and foreclosure brings a rise in foreclosure scams - so before a homeowner agrees to pay for loan modification services, it is important for them to understand who is offering to help them.

As mentioned above, some help is free to the borrower - all they have to do is contact their lender directly and try working out a loan modification with their lender's loss mitigation department. Although, a lot of lenders will not even consider a modification unless the borrower is behind on their mortgage payments - this does not mean that anyone should purposely fall behind on their mortgage though! In this situation, a distressed borrower may want to hire a professional to negotiate on their behalf.

I recently assisted a homeowner who had been desperately trying to negotiate their own modification for months prior to contacting me. After sending them through the Hope Now Alliance, within a matter of days that homeowner was offered a modification that allowed them to keep their home.

I you feel that you are struggling to make your payments or know someone that is in trouble, please feel free to offer them my contact information. 

Are we back on track yet?

I must hear this question at least 20 times a day, from past clients to those who are still hanging on in the business. Since I'm an optimist, my answer is always a resounding "yes" and lately I'm believing myself more and more.

Although we've been hearing negative news for quite some time now things aren't as grim as they may seem. This morning was no exception with a nice front page article entitled '1 in 7 Homes is Underwater - Mortgage Meltdown' contributed by the San Jose Mercury News.

While it may be true that 1 in 7 homeowners in Santa Clara County owe more on their home than it is worth, if you look at the statistics you'll see that not every neighborhood is the same - some neighborhoods have larger price declines while other neighborhoods have seen little to no decline at all, like in Cupertino, for example, "only 1 percent of owners who purchased their homes since 2003 were underwater in the third quarter" of this year. And for those borrowers who do owe more than what their homes are worth, as long as they can hold on and make their mortgage payments, the value of their home will eventually rise again. And for the other unfortunate homeowners who find that they can no longer afford their mortgage payments, loan modifications and even short sales are becoming streamlined and easier to negotiate.

By the way, the best thing to do if you find that you are underwater and feel that you cannot or will not be able to make your payments anymore is to call your lender or mortgage servicer and find out what options you have. Other resources exist such as the Hope Now Alliance or you can look up your local HUD counselor who can assist you as well. Don't hesitate to contact your real estate agent or mortgage broker either as they can be helpful as well.

For some positive news, I found an article published by Realty Times, 'Real Estate Outlook: Home Sales Rise' that suggests that home sales are on the rise in California. According to the author, "Resales of existing homes jumped by 5.5 percent last week -- that was the largest monthly increase since July of 2003, in the middle of the housing boom. In the western states, sales were up a record 34.4 percent!"

And according to RisMedia's article, 'Good news for Real Estate? Largest monthly home sale percentage increase in 5 years reported', the month of October showed the highest gain in home sales in 13 months and the highest pecentage gain in over 5 years. Although alot of the gain in sales can be contributed to the increased demand for foreclosure properties, this may be interpreted as a start to a turn-around in our market - the demand for the lowest priced homes is continuing to outpace supply - which should lead to a rebound in price stability accross the board. 

Along with falling inventory, mortgage interest rates are still at historic lows. Buyers can get 30 year fixed mortgage financing in the high 5% to low 6% range, which in historic perspective is outstanding. The hardest lesson to face on the financing side is that programs have been tightening up even disappearing making it difficult for buyers to qualify without perfect credit score or large down payments. Although there is still plenty of useful down payment assistance programs for qualifying first time home buyers.

And for real estate investors, or even those looking to get out of the stock market and into a more secure investment, real estate is looking more appetizing by the day. The credit crunch continues to put upward pressure on the rental market making everything from single family residences to multiple unit properties more attractive than ever, especially if investors can get these properties at 30% to 40% discounts off their 2005 values.

We're in a market where in five years you'll hear everyone saying that they wish they had purchased properties back in 2008. There is only continuing evidence that this may become reality sooner than most people think, especially with the expected decrease in foreclosures to come from additional legislation pointed at assisting delinquent homeowners. As well as news from major lenders such as Chase Bank and CitiMortgage announcing new plans to increase their efforts at modifying their existing delinquent loans while agreeing to stop pre-foreclosure filings for the next 90 days.

With the supply of new foreclosures that may be coming onto the market decreasing, and with home sales already picking up, combined with an aggressive charge led by Capital Hill to loosen our lending standards, we just might feel that sunlight at the end of the tunnel sooner than later!