Alan's Blog

Will The New Stimulus Package Help The Housing Market?

Yesterday President Obama signed the 2009 stimulus package into law. There are a number of provisions that will effect the housing industry. Will this legislation put a floor on real estate values and start moving the industry towards recovery? Let's look at the portions of the plan that will effect the real estate market.

$8,000 Tax Credit for First-Time Homebuyers:

The original proposal was for a $15,000 tax credit for all purchases of homes. The new package contains an $8,000 tax credit restricted to first-time homebuyers. There is talk of reintroducing separate legislation to modify the tax credit. Here's a breakdown of the legislation signed yesterday:

* The tax credit is for first-time homebuyers only. (Cannot have owned a principal residence over the three years prior to purchase.)
* The tax credit does not have to be repaid. (There is a recapture clause. If the home is sold within three years of purchase the entire amount of the credit is recaptured on the sale. This applies only to homes purchased in 2009.)
* The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.
* The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
*  Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. The credit phases out for incomes above these levels.
* The tax credit does not need to be paid back to the government unless the property is sold within three years, at which point the entire amount of the credit will be recaptured.

Higher Loan Limits:

The ceiling for Fannie Mae, Freddie Mac and FHA loans was increase to $729,750 in high cost areas through December 31, 2009. The factor for high cost areas is increased back to 125% of the 2008 median home price for markets between the floor and ceiling limits. The limits will maintain the current floor limit of $271,050 for FHA loans and $417,00 for conventional loans. For the few markets where the 2009 limits were higher than 2008, those markets will maintain the higher limit. As I write this the web sites for Fannie Mae, Freddie Mac and FHA (HUD) have not been updated to reflect the new limits.

Reverse Mortgages (HECM)

Reverse mortgage allow qualified borrowers to refinance or purchase homes without having to make any payments while living in the home. The new legislation raises the maximum loan amount to $625,000. While FHA loan maximums are set depending on the properties location, the HECM maximum loan amount is the same throughout the country. It's been tough to find information about the new HECM rules but I believe the new loan limit  will expire on December 31, 2009 and will then return to the current limit of $417,000.

Call me with any questions you have concerning the current market.

To keep up with the trends in interest rates you can visit my Daily Market Report at www.mtg-info.net/DailyMarketReport.

PMI Mortgage Insurance Company Eliminates Loans Originated By Third Parties

Remember Private Mortgage Insurance (PMI)? It was insurance required by mortgage lenders on conventional loans when the borrower had a loan-to-value (LTV) greater than 80%. PMI was established to help borrowers with little cash buy or refinance houses. Then along came 2nd mortgages and home equity lines of credit. With these loans borrowers could borrow up to a combined loan-to-value (CLTV) of 100%. Terms such as 80/10/10, 80/15/5 and 80/20 became common. PMI became an afterthought.

It was thought during the boom years of secondary financing that PMI cost to much and the companies that issued PMI were making to much money for to little risk. Well, as the saying goes, "the worm turns." Now PMI companies are losing $Billions and 2nd mortgages and home equity lines are a thing of the past because of the perceived risk of the investors that used to buy these loans.

Recently one private mortgage insurance company aptly named PMI announced that it would not longer insure loans originated by third parties (brokers.) If one mortgage insurance company has done it, expect the rest to follow. According to the announcement these changes become effective February 20, 2009. PMI, the company, also announced other changes effective February 20, 2009. See PMI Eligibility and Guideline Changes.

What does this mean for homebuyers and homeowners wanting to get a loan with less than 20% equity in the property? Be sure you are working with a lender that is not brokering your loan.

Where Are Mortgage Interest Rates Headed?

The questions I get asked the most concerns where interest rates are today and what direction are they headed. It been a tough couple of months to provide answers to these questions. Back in November the Federal Reserve (FED) announced that it would be buying Mortgage-Backed Securities (MBS). The effect was to move mortgage interest rates down. Rates moved on a downward path through early January, when despite the efforts of the FED they began to move up again. Despite predictions of lower rates this trend has continued into February. As of today the FED has purchased about $91 billion of the $500 billion allocated to buy MBS's.

So where are we headed? Some experts expect interest rates to move back down. William (Bill) Gross is a co-founder of The Pacific Investment Management Company, LLC (PIMCO), one of the worlds largest bond funds. PIMCO is one of the companies contracted to assist the FED's purchase of MBS's.

Bill Gross appeared today Monday February 9th on CNBC's Squawk Box. When asked about mortgage interest rates he said he felt they were going to head down again. To see a the full interview go to Bill Gross on Squawk Box 2.9.09.

Let's all hope Bill is right. Getting the housing industry moving in a positive direction is one of the first steps needed in turning the economy around.  It's going to be a very interesting couple of weeks. As the old saying goes "Hold on to your hats."

Fannie Mae Revises Investment Property Guidelines

Last year Fannie Mae reduced the allowance for the number of properties financed from 10 properties to 4 properties. On February 6th they released Announcement 09-02 revising the allowance for the number of properties financed back to 10 properties. To see the full amendment to the Fannie Mae Selling Guide go to Announcement 09-02.

In Fannie Mae's words "Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery and Fannie Mae’s continued support for investor borrowers is consistent with its mission to provide stability, liquidity, and affordability to the nation’s housing system."

When more than 4 properties are financed the borrower must have a minimum credit score of 720. For 1 Unit Second Home or Investment Properties the maximum Loan-to-Value (LTV) will be 75%. For 2-4 Unit Investment Properties the maximum LTV will be 70%.

Announcement 09-02 also includes new reserve requirements for second homes, investment properties and multiple financed properties.

When the borrower will own one to four financed properties (including the subject property) the reserve requirements are:
- two months reserves on the subject property if it is a second home,
- six months s reserves on the subject property if it is an investment property, and
- two months reserves on each other financed second home or investment property.

When the borrower will own five to ten financed properties (including the subject property) the reserve requirements are:
- two months reserves on the subject property if it is a second home,
- six months reserves on the subject property if it is an investment property, and
- six months reserves on each other financed second home or investment property.

Will There Be a $15,000 Tax Credit For Homebuyers?

A new amendment to the economic stimulus package working it's way through congress was unanimously approved on February 4th. The amendment proposed by U.S. Senator Johnny Isakson, R-Ga. would increase the current "tax credit" of $7,500 to $15,000.

The amendment would provide a direct tax credit of 10% of the purchase price up to a maximum of $15,000 for the purchase of a home. The property purchased must be used as a primary residence. The credit would allow taxpayers to claim the credit on their 2008 tax return. Under the amendment the tax credit would have to be repaid if the home is sold within two years of the purchase. Purchases would have to be made within one year of the legislations enactment. The tax credit will not be limited just to first time homebuyers.

The legislation would sunset the current $7,500 housing tax credit.

“It is time to fix America’s problem, not throw money at the symptoms. It is time to fix housing first. It is rare that we have a road map to success in times of difficulty, but this country has once before realized a housing crisis every bit as bad as the one we have today and economic troubles every bit as dangerous,” Isakson said. “We have a pervasive housing problem, and we have a historical precedent that works. I am proud this Senate has joined together, learned from history and repeated a method that worked by adopting this amendment.”

To view the press release: Senate Unanimously Approved Isakson Amendment to Stimulate Housing Market.

This amendment could have positive effect on real estate sales in 2009. I will continue to monitor the progress of the legislation and keep you posted on it's progress.

Call me with any questions you have concerning the current market.

To keep up with the trends in interest rates you can visit my Daily Market Report at www.mtg-info.net/DailyMarketReport.