On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.To learn what the new tax credit means to you, take a look at the concise overview below.

ho Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligibleJoint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.What is a Tax Credit?A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.According to the IRS, factors that would demonstrate the ownership of the property would include:1. Right of possession,2. Right to obtain legal title upon full payment of the purchase price,3. Right to construct improvements,4. Obligation to pay property taxes,5. Risk of loss,6. Responsibility to insure the property, and7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

The Federal Reserve has cut interest rates six straight times since September 2007. Most analysts are predicting that the Fed will cut rates even further when it meets at the end of this month. And yet, despite a full 3% in interest rate cuts during this time, mortgage rates are significantly higher now than they were just three months ago. How is that possible? Don’t rate cuts equal lower mortgage rates? Read on as the team at YOU Magazine goes behind the headlines to show you how these Fed cuts do and don’t affect your mortgage.

Here’s the straight story: Mortgage interest rates are dictated by one thing and one thing only — the performance of mortgage-backed securities. Despite what you may have heard in the media, interest rate cuts from the Federal Reserve have no direct effect on long-term mortgage rates.

The True Role of the Federal Reserve
The Federal Reserve, our nation’s central banking system, was put in place to help avoid major financial collapses like the Depression. The Fed has two specific duties: to keep inflation in check and regulate the nation’s financial institutions. And while it has some regulatory power over how the mortgage industry operates, in its 95-year history, the Federal Reserve has never once set or reset mortgage interest rates. It simply has no authority to do so.

But, to control inflation, the Fed has several tools at its disposal, including the ability to adjust the Discount Rate and the Fed Funds Rate, which are very different from mortgage interest rates. By increasing or decreasing these interest rates, the Fed can manage inflation and economic growth according to its financial policy. While movement in these interest rates does affect the Prime Interest Rate – which directly affect things like credit cards, home equity lines of credit (HELOCs), and adjustable-rate mortgages – long-term mortgage rates do not always follow suit.

In the following chart, mortgage rates are shown to have actually increased from March 2007 to March 2008, even though the Federal Reserve cut interests rates six consecutive times, slashing three full percentage points in the process.

What Really Moves Mortgage Rates?
Mortgage rates are set daily by individual lending institutions and are based solely on the trading activity of mortgage-backed securities (MBS), a type of bond that investors trade daily.

Without getting too technical, MBS are bonds that represent mortgages currently in place. For instance, let’s say you have a 30-year fixed rate mortgage of $200,000 at an interest rate of 6%. That loan isn’t worth anything right now, but over a 30-year period, it represents a profit of 6% or up to $12,000 every year for the bank that owns the loan, provided you make all of your payments.

However, instead of waiting 30 years to collect on that profit, your loan is “sold” to a bank where it is bundled together with other similar loans. It’s like winning the lottery and choosing the cash value prize instead of accepting full payments that are spread over 20 years. Of course, you get less money than the total value of the prize if you choose the cash upfront, but you don’t have to wait twenty years to collect it all.

This group of bundled loans then, just like a public company, is split into smaller units or bonds and sold just like stocks in a company to investors. These bonds, secured or backed by the profits from the loans, are called mortgage-backed securities. And just like stocks, investors like you and me can buy and sell them every day.

And it’s the performance of these specific bonds that lending institutions use to set mortgage rates.

The real dynamic at the heart of interest rate movement, then, is the complex relationship between stocks and bonds, supply and demand, inflation, news that moves markets, the economy, employment levels, political events, gross domestic product, and any number of other factors.

And while there exist a number of somewhat reliable economic indicators, if anyone tells you that he or she has the secret formula for predicting these movements exactly, it’s just not true. There is no magic formula, no index, no rate cuts or Fed activities that work 100% of the time.

The best you can hope for is an experienced mortgage professional who truly understands mortgage-backed securities and how they trade. He or she can utilize specific market knowledge and experience to take advantage of daily fluctuations and lock in a rate that could save you thousands of dollars throughout the life of your loan.

If you’re waiting for the Federal Reserve – or worse, the media – to create refinance or new home buying opportunities for you, don’t count on it. Call an experienced mortgage professional and get the facts.

By Paul Jackson

President Bush on Wednesday signed H.R. 5140, the Economic Stimulus Act of 2008, making official a temporary boost to both conforming and FHA loan limits. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

“I know many Americans are worried about meeting their mortgages,” President Bush said prior to signing the bill. “My administration is working to address this problem.”

Bush cited HOPE NOW and the recently announcedProject Lifeline initiative as examples of ongoing work by the administration to address the housing crisis.

A White House-produced fact sheet covering the new growth package is available here.

The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new ‘jumbo conforming’ or ‘expanded FHA’

loan products.

Of course, that could prove to be bit of a problem in and of itself, given that HUD doesn’t currently independently gather or otherwise publish home price data. Bankrate’

s Holden Lewis was on this right from the start; he and I had chatted briefly on the matter when Congress first passed the bill:

The Office of Federal Housing Enterprise Oversight, or OFHEO, compiles periodic indexes of home prices. Fannie Mae and Freddie Mac use the OFHEO data each November to update the next year’

s conforming limit.

The Federal Housing Finance Board and the National Association of Realtors both collect and publish home prices. The FHA takes information from both entities to calculate the FHA limits for each metro area.

Congress could have pegged the conforming and FHA limits to data collected by OFHEO, the Federal Housing Finance Board or the Realtors. But it didn’t. Instead, the law says: “The secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits … for all areas as soon as practicable.”

The law gives HUD 30 days to publish the database of house prices.

The simplest solution would be for HUD to use the same house price information it uses to calculate FHA loan limits. But a HUD spokesman says: “We have not yet determined if the same data will be used to make the new calculations.”

That leaves lenders in the dark until HUD makes a decision.

While price designations aren’t yet known, a few industry sources close to the process have suggested that the new conforming limits won’

t be as broadly applied as many might expect; just 15 counties in California might be designated as eligible for the loan limit increase, for example.

That’s not the only grey area out there, of course — there’s also the as-of-yet unclear issue of TBA trading in the secondary market that will need to be settled, something HW has covered often recently. (The unconfirmed word from our sources today is still that SIFMA wants to keep the new ‘jumbo conforming’

loans out of TBA pools.)

It’

s also unclear exactly how the GSEs will price the newly-conforming loans, given that neither Fannie nor Freddie have experience underwriting within the jumbo mortgage market.

Similarly, it isn’t exactly clear what the initial underwriting criteria will be, although most expect it to at least sit close to existing ‘traditional conforming’ guidelines — if not ending up more restrictive. “OFHEO has already gone on record saying that jumbo loans are more risky, so I wouldn’t be surprised if the underwriting guidelines end up being tighter than what you’d see for usual conforming products,”

said one executive at a large lender, who asked not to be identified.  

By Jeremy Pelofsky

WASHINGTON (Reuters) - President George W. Bush on Wednesday argued the “genius” of the U.S. economy is its ability to withstand financial shocks, as he signed a bill to put $152 billion in taxpayers’ hands in a bid to avoid a recession.

“I know a lot of Americans are concerned about our economic future,” Bush said during the ceremony at which he signed the $168 billion, two-year economic stimulus package into law. Of that total, $152 billion is earmarked for 2008.

“Our overall economy has grown for six straight years but that growth has clearly slowed,” he said, acknowledging the “rough patch” the financial system has experienced as failing home mortgage repayments fed a vicious cycle of credit pullbacks by lenders in recent months.

Bush said however that the U.S. economy had often overcome a wide range of adversities over the past several years including corporate scandals, war and recession.

“The genius of our system is that it can absorb such shocks and emerge even stronger,” he said.

U.S. economic growth slowed to only 0.6 percent at an annual rate in the fourth quarter of 2007. House prices have been falling, and in January the U.S. job market shrank for the first time in 53 months.

That has led many economists to forecast that the United States will slip into a recession, and some have said it may already be in one. The Bush administration has steadfastly denied that would happen.

To prevent one, the Democratic-led Congress and the Republican Bush administration forged rare bipartisan cooperation to hammer out the economic stimulus package, which includes billions of dollars in tax rebates due to be paid beginning in May, as well as incentives for businesses to buy new equipment.  Continued…

By Roger Showley

UNION-TRIBUNE STAFF WRITER

February 9, 2008

Congress may be issuing $600-per-person tax rebate checks this spring, but the temporary mortgage revisions in the economic stimulus package passed this week could have a greater effect on San Diego’s economy, particularly its beleaguered housing market.

Graphic: Conforming loan limit

That’s because the package, expected to be signed next week by President Bush, could save some homeowners hundreds of dollars a month in mortgage payments and rescue other owners wanting to refinance out of adjustable-rate mortgages.

Specifically, the stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy and market as securities from $417,000 to as high as $729,750 in expensive parts of the country, including some in California.

Lenders and real estate agents said that change in the “conforming loan” limit will allow more people to buy homes and refinance existing loans at a lower interest rate. Buyers needing bigger loans typically have to sign up for “jumbo” loans that have higher interest rates and tougher qualification requirements.

“For San Diego and other high-home-price areas, that part of the package is definitely more important than the tax rebate,” University of San Diego economist Alan Gin said.

The consumer reaction has been almost immediate, said Sherm Harmer, president of the San Diego County Building Industry Association.

At two downtown projects Harmer oversees, several potential buyers said they are ready to sign sales contracts now that the higher loan limits will reduce their costs.

“They’re paying attention,” Harmer said. “Everybody wants to own a home. Who doesn’t?”

However, the exact loan limits for San Diego are unknown, because the U.S. Department of Housing and Urban Development won’t announce them until early next month. Until then, mortgage brokers said they expect lenders to approve some loans in anticipation of what the new limits might be.

The amounts, which will be tied to median home prices in each metropolitan area, can vary between 125 percent and 175 percent of the median, but can be no higher than $729,750. The legislation says eligible loans must be made between July 1, 2007, and Dec. 31 of this year, when the limits would revert to existing levels unless Congress extends the cutoff date.

For San Diego County, the median price set by the Federal Housing Administration is $505,000, said David Ledford, vice president for housing finance and housing policy at the National Association of Home Builders.
That means the limit for conforming loans in the county could rise to at least $630,000, unless HUD issues other maximum loan limits for the area.

The gap in interest rates between jumbo and conforming loans has been stubbornly large for months. Last week, it was close to a full percentage point, compared with 0.2 of a percentage point in July, according to financial publisher HSH Associates. Freddie Mac’s most recent weekly national mortgage survey placed the average 30-year, fixed-rate conforming loan at 5.67 percent.

Lower interest rates are crucial to determining whether some buyers can afford the homes they want. They also affect owners who want to refinance out of adjustable-rate mortgages that are resetting to higher levels.

Martin Lopez, a loan officer at Park Avenue Mortgage, said several of his clients are eager to take advantage of the higher loan limits. One buyer in Poway stands to save as much as $400 a month on a $625,000 home, he said.

Lori Staehling, president of the San Diego Association of Realtors, called Congress’ action “incredibly good news.”

“I would anticipate a spike up in sales,” she said.

In the past two or three weeks, lenders have reported an increase in prequalification loan applications, Staehling said.
“That’s the first sign for us (of a possible turnaround),” she said. “I’ve also heard signs from real estate agents that open houses are being much more heavily attended.”

According to DataQuick Information Systems, nearly 50,000 San Diego County homeowners who bought or refinanced in the past two years stand to benefit from the higher loan limits. If their credit is sound and they have the required equity in their homes, they could refinance their jumbo loans to lower-priced conforming loans. That was about 20 percent of the 258,607 home loans of all sizes and types made in 2006 and 2007.

The significance of the conforming-loan-limit increase becomes clear when comparing San Diego’s housing prices and loan limits over time.

In 1988, the first year DataQuick began tracking San Diego housing, the median price stood at $138,500, well below the conforming-loan limit of $168,700. But starting in 2002, the local median exceeded the loan limit – $320,000, compared with $300,700.

As prices skyrocketed to a peak $517,500 in November 2005, more and more buyers were forced to sign up for jumbo loans, peaking at 55.2 percent of the market that year, DataQuick figures show. Last year, 32 percent of buyers used jumbos.

Now, with the new limit higher than the local median, buyers will have more wiggle room.

“It’s going to open up a window of affordability,” said Greg Wickstrand of Home Services Lending.

The Associated Press contributed to this report.Roger M. Showley: (619) 293-1286; roger.showley@uniontrib.com
“That’s the first sign for us (of a possible turnaround),” she said. “I’ve also heard signs from real estate agents that open houses are being much more heavily attended.”

Thanks in part to the lobbying by C.A.R. and NAR members; the Senate passed their version of an economic stimulus package on Thursday, February 07, 2008.  The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package.  The House has already announced that they plan to vote on the Senate version of the stimulus package and expect to quickly pass the stimulus package with a bipartisan vote.  The President is expected to sign the legislation early next week, ahead of the Congressional self-appointed deadline of February 15^th.   The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform,  making these increases permanent. The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas.  By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales.  Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably. Increasing the FHA loan limits is critical to bolstering California ’s housing market.  Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan.  The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.   Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets.  For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.

 The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today.  The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets.  Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.