First-Time Home Buyer Tax Credit Details

The $787 billion stimulus bill that President Barack Obama signed into law Tuesday includes measures designed to help revive the real estate market. Here are six things you need to know about the freshly-enacted $8,000 first-time home buyer tax credit.

1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal floated by the Senate. This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike the 2008 $7,500 home buyer tax credit, this one does not have to be repaid.

2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it. If the home is purchased and closed prior to April 15, 2009, the credit can be applied to 2008 taxes.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.

6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)

Source: U.S. News & World Report/usnews.com

Homeowner Affordability and Stability Plan

Here’s the summary of the Obama administration’s plan aimed at helping Distressed Homeowners. Key components of the Homeowner Affordability and Stability Plan are:

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:
Example: Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
· Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
· No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
· Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
· Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
· Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:

§ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
§ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
§ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

· Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
· Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
§ Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
§ Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
§ Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
§ Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
· Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
· Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
· Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
· Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
· Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
· Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
· No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.

From: Wall Street Journal, WSJ.com Washington Wire

Straight Talk - What The Media Doesn't Want You To Know

Every morning I spend at least a few minutes — and sometimes more than that — scanning selected news and information sites concerning the economy, and the real estate business in particular. I don’t need to tell you that news about our economy isn’t particularly pretty. But I do believe it’s important to recognize that ALL of the information that we read, see, and hear is passing through different filters, and in the process the impact of what we learn can be manipulated. In some cases the real truth can be — and is being — obscured.

Case in point: The daily news concerning besieged mortgage markets.

Julie Straub, Senior Loan Officer for F-M Lending said it well a few weeks ago: “If you listen to the media you would think mortgage money was not available,” Julie wrote me. “I can tell you after almost 23 years in the mortgage industry, that is just not true. We have an amazing number of different loans available with rates at unheard-of lows.”

Mortgages are in the news a lot these days. But here are some facts about the housing and mortgage industry that you might NOT have heard:
● 30% of all real estate in this country is owned free and clear of a mortgage. Putting that in perspective, of the 10 houses that surround you on your block, the homeowners in 3 of them own them outright.
● 93.9% of homes with mortgages are current in their payments. Subtracting those three homes that are paid off, only one homeowner around you has been late or missed a payments to his lender.
● 97.2% of homes with mortgages are NOT in foreclosure. But even that one neighbor isn’t so far behind that he’s in trouble with the bank.
● 40% of foreclosures nationally are non-owner occupied properties (rentals, investments, or second homes). There is a reason that Nevada, California, and Florida are constantly topping the lists of states with the highest foreclosure rates. Those states are meccas for vacation homes or investment and rental property. When the exotic mortgages written to purchase those homes started triggering higher monthly payments within the last two years, the owners quickly went into default on their payments.

The burden for cleaning up the mess falls on all of us, but the media never talks to those four out of ten who walked away from their commitment to their lender just because they decided to give up their vacation home.

Without question, we are under a blizzard of bad news, and I believe we have been for the past two years. Julie Straub has some more encouraging words: “This is probably the best time in most of our lives to purchase a home. Interest rates are at historical low levels. Not since the 1950’s have we seen rates as low as they are today. In addition, we live in an area that is constantly looked at as a place people want to move. North Carolina was the fourth fastest growing state last year. The Triangle is constantly listed on the ‘best of’ lists.”

Also, please remember this: Real Estate is an incredibly local business. The state of things in one part of the country does not translate to ALL parts of the country. What might be true in one area might not be — and probably is not — true in another area. The next time you hear a news report concerning “how bad things are” in the Triangle real estate market, please call me for some perspective… and for the truth.

Robert Flinn, Realtor/Broker
Fonville Morisey Realty, Inc.
919-698-2040 (Direct)
919-402-1242 (Office)

Good News!

WASHINGTON, D.C. - Pending home sales increased as more buyers took advantage of improved affordability conditions, according to the National Association of Realtors®. Big gains in the South and Midwest offset modest declines in other regions.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in December, rose 6.3 percent to 87.7 from an upwardly revised reading of 82.5 in November, and is 2.1 percent higher than December 2007 when it was 85.9.
Lawrence Yun, NAR chief economist, said the index shows a modest rebound. “The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month,” he said. “The biggest gains were in areas with the biggest improvements in affordability.”
NAR’s Housing Affordability Index rose 10.9 percent in December to 158.8, the highest on record. The HAI shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.
“Significant uncertainty still clouds the housing market despite improved affordability conditions. For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers,” Yun added.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the rise in contract signings is encouraging. “However, housing activity remains weak compared with potential demand, and the market is fragile given the economic backdrop,” he said.
“We can’t take our eye off the need to stimulate housing, which can set the foundation for an economic recovery,” McMillan said. “Last week’s actions in the House to eliminate the repayment feature on the first-time home buyer tax credit, and to raise mortgage loan limits, are helpful. However, we need to take additional steps to meaningfully draw down inventory and stabilize home prices.”
Yun said the outlook for housing and the economy is murky. “Although Congress and the Obama administration are taking steps to help the economy, the stimulus package must deal with the root cause of the economic downturn, and apply the right fix to turn it around. If housing is ignored, a significant downward overshooting of home prices would continue to drag the economy down independent of the scale of the stimulus,” Yun said.