More on the New Home Buyer’s Tax Credit Bill/ Currently on the Senate Floor…

Here is the Wall Street Journal follow-up article related to the post we had written and hoisted up on Wednesday.

For Wednesday’s post, click here…
For the full article we are commenting on today, posted on the WSJ Developements Blog, click here…

An excerpt from the aritcle at hand…

“Sen. Johnny Isakson has reintroduced a bill that would give home buyers a tax credit worth 10% of the purchase price of a home up to $15,000. The Georgia Republican unsuccessfully tried to get the credit inserted into the $787 billion stimulus package that went into law in February. Congress instead opted for extending and boosting an existing credit, worth up to $8,000, for first-time buyers. That credit is set to expire Dec. 1.

The proposed credit wouldn’t have income restrictions, unlike the current one, which phases out for individuals making more than $75,000 and couples making more than $150,000.

The legislation already has co-sponsors from both parties, including Senate Banking Committee Chair Christopher Dodd, a Connecticut Democrat. In February, congressional budget estimates figured that the $8,000 credit for first-time buyers would cost between $2 and $3 billion, while the $15,000 credit would cost an additional $35.5 billion.

That’s a big hurdle for the bill. Lawmakers would have to justify a considerably larger subsidy for more affluent homebuyers.”

Response…

The removal of toxic mortgage paper (ie: home sales of distressed homeownship situations and the unloading of recouped property assets) from our banking institutions is THE key to unlocking their liquidity, credit confidence, and greed in the form of slightly looser loan qualifying requirements, which would further accelerate the home purchase necessity.

A little recap here if I may… an $8,000 tax credit projected at a tax revenue cost of 2-3 billion has equated to some, if little improvement to home sales. On the other hand, a $15,000 tax credit with no income cap, made available to all home buyers, not just first-timers, has a projected tax revenue cost of 35.5 billion. The amount of proposed tax credit would basically double to $15,000, and in turn so should the tax revenue cost. But it doesn’t! Congress’s own budget estimate for the new proposal projects home purchases to rise almost 6 times the current rate of consumption with those purchases involving the tax credit!

Here’s the math… $3 billion in tax revenue loss doubled to 6 billion, divided by 35.5 billion in projected tax revenue loss for the proposed bill, equals 5.91 times more use of the new tax credit bill, then the current rate of home purchasing being transacted with the existing tax credit as it sits.  

Yes, this bill would be a big hurdle for a Democratic majority whose sole consideration is funding  for their social programs, as opposed to a real solutions for real economic problems, per their own estimates and projections.

The Push for A Real Home Buyer’s Tax Credit to Benefit All…

There appears to be a multi-organization push for the expansion of the home buyers tax credit, an ongoing saga that sees Congress ready to move off of this issue and spend the summer reforming health care. Bearing in mind that housing will not soon recover without the purging of two more years worth of bad mortgage paper, perhaps our appointed representatives should  just stick with the task at hand until the job is finished.

Pending, is the the monetization of the home owners tax credit, another amendment in a series of amendments that would allow first time home buyers to temporarily hold a bridge loan from the IRS/HUD with their tax credit as security, and use the advanced proceeds as a down payment on a home purchase. This may or may not be a great way to improve the rate of home purchase consumption, seeing how hard FHA worked to get rid of the Down Payment Assistance Program (DAP) last year. DAP allowed a seller to contribute 3% to closing costs to a third party “charity organization” who would then transfer the funds to the loan, and this was in addition to the minimal 3.5% down payment required. Many believe the monetization of the current tax credit to be very similar to DAP, in the respect that they are both programs designed to help home buyers get into a home ownership situation with minimum dollars involved. The overlying question: should we be perpetuating this current cycle of distressed home ownership with more probable candidates for the same?

Up to bat, the push for the permanent placement of expanded conforming loan limits to $729,750, and the enjoyment of an increased tax credit to $15,000 for all home purchasers, not just first time buyers. These two are probably the most likely candidates to genuinely yield an increase in purchases, and accelerate the very much needed consumption of toxic paper our banking institutions currently hold. These improvements would be actually helpful, but not the complete answer. Time, coupled with good incentives, will be the most critical components towards the the widely desired direction of a stable housing market.

Please find below two relavent articles from the Wall Street journal that have been merged to omit redundancy.

For the full article posted on the WSJ Development Blog, click here…
For the full article posted online in the WSJ Politics section, click here… 

From the Wall Street Journal..

Worried that rising mortgage rates could damp the prospects for a housing recovery, a business group is making a new push for Congress to boost and extend a home-buyer tax credit.

The National Association of Realtors has said it will join in the push to extend the tax credit through 2010. But it’s not clear that Congress has any plans to address this anytime soon, as it prepares to work on health care legislation this summer.

In February, Congress approved a 10% tax credit for first-time home purchases, up to a maximum of $8,000. The credit, which expires Dec. 1, phases out for buyers with incomes above $170,000 for married couples and $95,000 for individuals.

The business group also wants to see Congress make permanent the temporarily expanded conforming loan limits, which are set at $417,000 and rise to as high as $729,750 in the most expensive housing markets. Those limits are tied to median home prices, which have fallen and should make for lower limits in 2010.

The National Association of Home Builders and other industry groups have long argued that the credit isn’t large enough to help reinvigorate the housing sector. Now the groups are being joined in their efforts by the Business Roundtable, an association of chief executives.

The Business Roundtable is calling on Congress to increase the credit to $15,000 and extend it to all home buyers. “What is being billed as a recovery is not showing up in the cash register yet,” says Richard A. Smith, chief executive of Realogy Corp. and a member of the Business Roundtable. Realogy is the parent of real-estate brokers Century 21 and Coldwell Banker.

The Business Roundtable is also urging policy makers to sustain efforts to keep mortgages at or below 5% for one year. Mortgage rates climbed to 5.74% on Tuesday a six-month high and up from 5.03% two weeks ago, according to HSH Associates, a financial publisher. Rates have fallen since the Federal Reserve stepped up debt purchases earlier this year in an effort to drive down rates.

The Roundtable argues that while the tax credit has succeeded in getting some first-time buyers back to the market, existing homeowners who serve as “trade-up” buyers are sitting on the sidelines. Part of that has to do with the fact that prices have fallen at the bottom end of the market more than anywhere else, thanks largely to distressed sales and bank-owned foreclosures.

A buyer typically needs income of $92,000, assuming a 10% down payment, to qualify for a $400,000 30-year fixed-rate mortgage. With rates at 4.5%, the borrower only needs income of around $84,000, according to an estimate by real-estate firm Long & Foster Cos.

The real-estate industry made a similar push for a $22,000 tax credit for all buyers and interest-rate subsidies earlier this year as Congress considered a range of measures to stimulate the economy. Congress instead opted to increase to $8,000 an existing tax credit for first-time buyers.

Business leaders say that while the first-time-buyer credit has succeeded in jump-starting the bottom end of the housing market, more needs to be done to lure “trade-up” buyers back to the market. Realtors and builders argue that boosting sales among existing owners as opposed to first-time buyers will spur more sales because each transaction involves two home sales. “That ‘move-up’ buyer has got to have somewhere to go,” says Mr. Smith, who warns that without more incentives for existing homeowners, the housing market’s “stalemate will be nasty and protracted.”

The business group’s campaign also pushes for Congress to make permanent recently expanded limits for loans eligible for government backing or purchase.

Congress in February boosted those limits to as high as $729,750 in the nation’s most expensive housing markets, from $417,000, and the February stimulus bill renewed the higher limits through the end of the year. Those limits are set to expire at the end of the year and are tied to median home prices, which have fallen.

HUD to Monetize Tax Credit for Down Payment…

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow first time home buyers to use the $8,000 tax credit as a down payment.

For IRS definitions of the tax credit, and access to Form 5405,  click here…

Said Donovan… “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment”

The proposal, hailed by home builders and Realtors, is drawing some comparisons to the Down Payment Assistance Program that the FHA had worked to shut down. Congress ended the program last year that allowed home sellers to fund down payments to home buyers through nonprofit groups, and the FHA has blamed that program for an outsized share of loan defaults. Under the old program, nonprofit groups would “gift” the 3% minimum down payment to a home buyer, often funded by the seller of the home. Buyers would move into the home without paying any of their own money for the down payment.

The FHA is in the process of finalizing the new program, which will allow approved lenders, non-profits, and state and local governments to fund short-term loans that could be used as down payments to be repaid once the borrower received the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home. This will allow eligible home buyers to access the funds immediately at the closing table. Right now, home buyers must wait until they file their taxes to receive the credit.

Currently, the FHA requires a minimum 3.5% down payment on loans backed by the agency, which means that buyers could put little or nothing down on homes up to $230,000.

For full Wall Street Journal Article, click here…
For full Realtor Magazine Article, click here…

Jumbo Loans: Available & Cheaper/ But Not Easily Acquired…

A recent Wall Street Journal article covered the topic of jumbo mortgage products becoming more readily available. Here is an excerpt from this worthy read.

For full article, click here…

Jumbo mortgages became more expensive and harder to come by as the nation’s credit crisis deepened. That might be starting to change.

“Jumbo” refers to mortgages that are too large to be bought by Freddie Mac or Fannie Mae. The “conforming loan limit” for those government-backed entities is $417,000 in many parts of the country, but goes up to $729,750 in high-cost areas of the continental United States.

Bank of America recently began trumpeting its jumbo program, offering 30-year fixed-rate jumbo mortgages with rates in the high-5% range. “We decided it was time to really go after that market,” says Vijay Lala, a product management executive for the bank.

More lenders may soon join in, says Guy Cecala, publisher of Inside Mortgage Finance.

He says Bank of America appears to have lower jumbo rates than its giant banking competitors Wells Fargo, J.P. Morgan Chase and Citibank. “I suspect the others will slowly follow suit,” Mr. Cecala says.

10 New Tax Breaks For Homeowners…

Here is an interesting article from Forbes Magazine that outlines 10 of the new tax breaks, enviormental home improvement incentives, and help in general for distressed home ownership situations. The list of 10 is provided below…

For full article, click here…

1) First-Time Home Buyer Tax Credit

In order to pass the $787 Federal Stimulus Plan, the proposed $15,000 first- time home buyer tax credit was rolled back to $8,000. While that might not entice you to buy a home, Congress did adjust the terms such that the $8,000 loan doesn’t have to be repaid so long as the homeowner stays put for three years.

2) Higher Reverse Mortgage Loan Limits

The Federal Housing Administration previously had $417,000 limits on what they’d insure, but bumping it up to $625,000 means that many more homeowners with depressed stock portfolios and thus little money to draw on will be able to tap into home equity cash.

3) Higher Conforming Loan Limits

The government is also empowering the Federal Housing Authority to insure more expensive loans by upping the conforming loan limit to $729,750. For those under that new umbrella it means access to lower mortgage rates, because this insurance makes these loans less risky for banks to issue.

4) Underwater Mortgages

At around 4.8%, mortgage rates are the lowest they’ve been since the Second World War. Ordinarily, those with debt in excess of their home’s value have not been able to refinance. In an effort to help underwater homeowners, those with a maximum of 105% debt on their home’s value are eligible to refinance as long as Fannie Mae or Freddie Mac backs their loans.

5) Lower Interest Rates

Homeowners who are in owner-occupied units, not those that own second homes, and didn’t misrepresent their income or utilize no-documentation loans, are eligible for a five-year grace period where their mortgage rates are dropped such that monthly payments equal 31% of gross income if the loan is held by Freddie or Fannie and was written before January 2009. Make your payments on time for those five years and you’ll get $1,000 per year in bonuses.

6) Geothermal Heat Pumps

In October, Congress issued a credit to cover 30% of cosys of geothermal heaters up to $3,000, yet few were taking advantage. The reason? Geothermal heat pumps often cost $20,000 to buy and install, making $3,000 nice, but not helpful enough. The stimulus package removed the $3,000 cap, but left the 30% of costs benefit.

 7) Solar Hot Water

Solar water systems are eligible for a 30% credit of the initial purchase and installation cost. That’s good news as systems often run between $6,000 and $10,000. The credit is available through 2016, a sizable window to cash in on the benefits of lower cost energy, and is available to those who use the solar system to heat their home’s water, not that of hot tubs or pools.

Weatherproofing

By design, much of the stimulus money will be doled out through programs at the state level, including $5 billion for weatherproofing homes. Homeowners buying foam sealants, caulk and weather stripping are eligible for up to $1,500 in credits for improving the energy envelope of their home, available through 2016.

9) Fuel Cells

Not many people have fuel cell technology (essentially a giant battery system) in their homes, but if you have enough space, for a cell or microturbine system, the government will kick you back 30% of your costs up to $1,500 per 0.5 kilowatts of power capacity. Put simply, the more energy you can generate, the bigger your credit.

10) Windows, Doors & Roofs

In bringing back the tax credits of 2007, the government will cover 30% of costs up to $5,000 for windows, doors and roofs that improve energy efficiency. However, homeowners will have to demonstrate that their improvements are expected to last at least five years through the inclusion of a product warranty included with their tax form.

B of A Cuts Rates on Jumbo Financing ($625,500 and Above)…

In an aggresive move to capture market share in the jumbo financing market, Bank of America (B of A) has cut interest rates significantly, now in the high 5’s, for loan amounts over $625,500 (over what Fannie & Freddie will buy). Interests rates are subject to market movement, and can change as often as three or four times a day. As is the case with the few remaining banks we have left, availability for these B of A  jumbo loans are only offered through bank-direct loan officers, as opposed to mortgage brokers. We highly advise that you check with a bank-direct professional for current rates on any given day.

Additionally, with higher loans amounts comes higher risk, so not everyone will qualify. With B of A, these products can be used for both purchases and refinancing. Here is a short overview of some of the requirements to be considered for loan approval at B of A…

Strong Credit (a 720 FICO score or above)
Down Payments of 20 Percent or More
Documented Income
Full Appraisals
Assets Sufficient to Cover Six Months of Payments

Information gathered from Inman News.
For full article, click here…

South Orange County Deals are Everywhere…

REO’s Driving the Market…

Kelli Hart at the South Coast Homes blog just posted a new article pertaining to drops in south county home pricing driven by REO listings. This short article includes the chart below. Click here for the full story…

Feeding Frenzy in San Juan…

If you thought the days of multiple purchase offers on MLS listed properties were over, check out this article on San Juan Capistrano REO properties.

Percentage of Distressed Home Sales in 10 South County Cities 

City	Listed	distressed	%
Aliso Viejo	241	137	56.8
Dana Point	284	56	19.7
Irvine	679	217	32
Ladera Ranch	188	96	51.1
Laguna Beach	345	24	7
Laguna Hills	155	78	50.3
Laguna Niguel	367	142	38.7
Laguna Woods	391	15	3.8
Mission Viejo	339	171	50.4
San Clemente	456	126	27.6
San Juan	232	97	41.8

High-End Real Estate Financing Woes…

Washington, it would appear, has chosen not to be  inclusive in it’s considerations of higher loan amounts, snubbing a very large market segment in several parts of the country. Certainly, in southern California. The banking industry, without Fannie/Freddie guarantees, refuse to deploy a more balanced risk spread into their mortgage product mix, in an attempt to offset  the  property assets that continue to swell back onto their own books. Meanwhile,  those with higher loan amounts who are in appropriate credit, income, and equity positions are being left out, un-acknowledged in terms of their own refinancing of adjustable rate mortgages. And this, is to say nothing of those who are ready with similiar preparedness to purchase in the upper price ranges.

True to his word, President Obama has deployed himself  as a Robinhood crusader who’s housing policy, at least for the moment,  is exclusive to the middle class. The banking industry seems to be content with the continued use of over-responsive tightening of mortgage product guidelines, that do little more than perpetuate the current cycle. Banking institutions in this market, seem unable to breath the air of tempered and even balance in an effort to help themselves.

An article written today by Nick Timiraos, in the Wall Street Journal, covers the perils of todays jumbo home financing ($729,750 and above).

Here’s a couple excerpt’s…

“If somebody has the income, the equity and the credit rating,” they should qualify for a loan.”

“Many homeowners in high-priced markets are experiencing similar difficulties, and are left with few options other than to raid their savings or retirement accounts and use the cash to “buy down” their mortgages. In some cases, home buyers need to put up a large down payment, often 25% or more, to qualify for a jumbo mortgage. Others are bypassing jumbos altogether and putting up enough cash to become eligible for a lower-rate conforming loan.”

“Real-estate professionals say that the lack of financing for high-income consumers is putting extra pressure on affluent communities and causing prices to fall even further. “The million-dollar-and-above market is sinking like a lead weight”

“ING Direct, a unit of ING Group NV, is one of the few lenders that is boosting jumbo originations, though it requires a minimum 30% down payment in the most expensive housing markets, up from 20% earlier last year. For condos, ING requires a minimum 45% down payment.”

“If you have been able to … save for a down payment, that to us speaks volumes about your character,” says Bill Higgins, ING’s chief lending officer.”