Press Release From IRS Regarding First Time Homebuyer Tax Credit

February 25, 2009

Treasury Department Touts Expanded Tax Credit for First-Time Homebuyers

Credit Offers Up to $8,000 to Qualifying Taxpayers Now

Latest Move in Swift Implementation of Administration's Recovery, Stability, Affordability Plans

Washington, DC – In an ongoing effort to deliver on swift implementation of the Obama Administration's recovery, stability and affordability plans, the U.S. Department of the Treasury touted today the availability of an expanded tax break for first-time homebuyers – a provision under the American Recovery and Reinvestment Act of 2009 that will make up to $8,000 available now to qualifying taxpayers who buy homes this year.

First-time home buyers represent a significant portion of existing single-family home sales. In 2008, nearly one out of every two homebuyers were buying for the first time, and the expansion in the first-time homebuyer credit will make it easier for first-time home buyers to enter the housing market this year.

"The expansion of the first-time home buyer tax break as part of the President's recovery agenda gives money to taxpayers when they need it most, while also targeting an important group of buyers," said Treasury Secretary Tim Geithner. "We view our economic recovery plan, our financial stability plan and now this homeowner affordability plan as three legs of the same stool – an integrated whole that represents our immediate response to the current crisis. We remain committed to swift, efficient and effective implementation of all of these components."

The announcement comes on the heels of the first Recovery Plan Implementation meeting led by Vice President Joe Biden at the White House this morning; Secretary Geithner was among several Cabinet secretaries to attend and offer updates on implementation efforts in progress at Treasury and its bureaus. Vice President Biden is overseeing the Administration's implementation of the Recovery Act's provisions.

The Internal Revenue Service (IRS) has posted on IRS.gov a revised version of Form 5405, First-Time Homebuyer Credit to incorporate provisions from the American Recovery and Reinvestment Act. Under the new law, qualifying taxpayers who buy a home this year before December 1 can claim up to $8,000, or $4,000 for married individuals filing separately, on either their 2008 or 2009 tax returns. Unlike the prior first-time homebuyer credit, this is money individuals do not need to pay back.

To view the form and additional information on who can and cannot claim the credit, income limitations and repayment of the credit, please visit http://www.irs.gov./

Details on the Homeowner Affordability and Stability Plan

If you want to see more details on the President's plan to help homeowners, you can look at these links from the U.S. Treasury Department:

Executive Summary;
Fact Sheet;
Questions and Answers for Borrowers; and
3 Housing Examples.

Home Buyers To Be Dinged With New Fees

Beginning April 1, Fannie Mae and Freddie Mac will increase mandatory fees and toughen credit-score and down-payment rules.

Under the new guidelines, applicants will be charged more for down payments of less than 30 percent. Home buyers with FICO scores between 700 and 720 will pay an extra three-quarters of a point. Applicants who purchase a condominium and do not have a 25 percent down payment also will pay a three-quarter point add-on penalty, regardless of their FICO score, for purchasing a condominium instead of a singlefamily home.

Wells Fargo Extends Foreclosure Moratorium

Wells Fargo Home Mortgage, the nation’s largest mortgage originator, announced today it has extended its foreclosure moratorium on loans it owns to March 13.

In a statement, Mike Heid, co-president, said this was done "to give at-risk customers time to explore the new solutions in the Administration’s plan with us for loans Wells Fargo owns, we will not proceed with home foreclosure sales until at least March 13".

Executive Summary - Homeowner Affordability and Stability Plan

THE WHITE HOUSE

Washington

February 18, 2009
Homeowner Affordability and Stability Plan
Executive Summary

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

• Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments — with nearly 6 million households facing possible foreclosure.

• Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

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:

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.

• "Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive "pay for success" fees — awarded monthly as long as the borrower stays current on the loan — of up to $1,000 each year for three years.

• 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.

• Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -­together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund — to be created by the Treasury Department at a size of up to $10 billion — will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

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.

Obama to Announce Plan to Help Homeowners

Later today, President Obama will disclose a $75 billion plan designed specifically to address the problems of homeowners who are having problems making their home loan payments. Once the plan is announced, I will update with the details, but here is some of what is expected to be included:

Refinance assistance for borrowers who owe more than 80% of their home's value;
Cash incentives for for loan servicers to modify loan payments to no more than 31% of borrower's income, and cash incentives for borrowers to stay current on their payments;
Require all financial institutions receiving government funds to participate in a standardized loan modification program; and
Allow judges to modify mortgages during bankruptcy.

Tax Credit For First Time Homebuyers Part of Stimulus Bill

This is an excerpt from:
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 – FEBRUARY 12, 2009 FULL SUMMARY OF PROVISIONS FROM SENATE FINANCE, HOUSE WAYS & MEANS COMMITTEES

Refundable First-time Home Buyer Credit. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000, and removes the prohibition on financing by mortgage revenue bonds, and extends the availability of the credit for homes purchased before December 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $6.638 billion over 10 years.

You can see the entire summary at: http://finance.senate.gov/press/Bpress/2009press/prb021209.pdf

FHA Loan Limits Expected To Be Restored

On March 10, 2008, I wrote about the temporary increase in conforming loan limits to $729,750 (see http://realtyramblings.blogspot.com/2008/03/temporary-increase-in-conforming-loan.html). This increase expired at the end of 2008. As part of the economic stimulus plan just passed by Congress, this increase will be reinstated as soon as President Obama signs the bill into law.

Non-conforming loans typically have higher interest rates and loan costs. So this is good news for anyone who wants to purchase or refinance a home in expensive housing markets.

Foreclosure Moratorium Extended

In November, 2008, I wrote how JP Morgan Chase and Citigroup were putting a moratorium on owner-occupied home foreclosures (http://realtyramblings.blogspot.com/2008/11/banks-limit-foreclosures.html). Today the banks announced that this policy will be extended through March 6, 2009.

Citigroup said that its foreclosure moratorium applies to all ”Citi-owned first mortgage loans that are the principal residence of the customer, as well as all loans Citi services where we have reached an understanding with the investor,” until the Obama administration has completed the details of a loan modification program or March 12, whichever is earlier.

Fannie Mae Changes Lending Policy for Investors

In an attempt to encourage investors to purchase real estate, Fannie Mae has announced that it will increase the number of loans a borrower can have. Presently, borrowers are limited to no more than four real estate loans. As of March 1, this number will increase to ten.

Here is the announcement from Fannie Mae:

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.

Fannie Mae is updating the policy that pertains to multiple mortgages to the same borrower. Fannie Mae’s current policy limits the number of one- to four-unit financed properties in which the borrower may have an individual or joint ownership interest to four financed properties when the mortgage being delivered to Fannie Mae is secured by an investment property or second home. The limitation on the number of mortgages currently being financed applies to the total number of properties financed, not just the number of mortgages sold to Fannie Mae. Fannie Mae is
modifying this policy to allow investor and second home borrowers to own five to ten financed properties if they meet certain eligibility and underwriting and delivery requirements as outlined in this Announcement.

New Workout Plan for Delinquent Loans

Freddie Mac has announced a pilot workout strategy for high-risk loans that attempts to use teams of contract loan servicers to match troubled borrowers with the most effective plans to stabilize their higher-risk mortgages.

Freddie says having knowledgeable personnel working with borrowers is key to the program’s success.

"A workout strategy is only as successful as the number of knowledgeable counselors available to answer the phone. Our strategy for high risk loans is designed to help servicers cope with today's unprecedented call volume by directing calls to a specialist with the specific staff and technical resources for handling a high volume of borrowers with these types of mortgages," Ingrid Beckles, Freddie Mac's senior vice president of default asset management, said in a statement.

Ocwen Financial Corp. is one of the first servicers Freddie has selected for the pilot program. Initially, Ocwen will work with an estimated 5,000 reduced-documentation, Alt-A loans from California, Nevada and other states with high delinquency rates. Alt-A loans account for half of seriously delinquent mortgages.

Source: Freddie Mac (02/03/2009)

Loan Brokers Being Phased Out?

If you are looking for a home loan, you have some options when deciding how to start the search. One way is to call or visit individual banks, savings and loans, and credit unions. The other is to use a loan broker.

Loan brokers are like matchmakers. They take your financial data and try to match you up with a lender who can offer you the best deal.

But the days of using a loan broker may be coming to an end. Some banks, the most recent being JP Morgan Chase, have decided that they will no longer accept loans submitted by loan brokers. If you want a loan from Chase, you will need to apply directly to the bank.

Banks claim they are doing this to keep tighter controls on the truthfulness of the application. Since loan brokers only get paid if the loan is funded by the bank, the broker has every incentive to make sure the applicant looks as strong as possible. And some banks claim that brokers have misrepresented the borrower's information in order to get the loan approved.

In addition, the larger the loan amount, the more the broker gets paid. So there have been allegations that brokers steer borrowers into unnecessarily large loans.

But loan brokers insist that the limitation on loans submitted by loan brokers is being done so the banks can cut costs and more easily cross-sell products to borrowers.

Whatever the reason, this will result in fewer options for borrowers and more loan brokers closing down their businesses.

Fannie, Freddie Plan to Limit Evictions

Fannie Mae and Freddie Mac on Friday again extended their moratorium on evictions of borrowers or renters facing foreclosure through Feb. 28.

The companies also announced plans to expand rental options after defaults and to develop a new rent-to-own program.

Details of the programs include:
Month-to-month leases for borrowers and renters;
Property management companies hired by Freddie and Fannie will set market-value rents;
Tenants and homeowners will be asked to demonstrate that they have enough money to pay the rent.

"Keeping foreclosed properties occupied and in better repair will support local property values and promote a faster recovery in the housing market," David Moffett, Freddie Mac's chief executive officer, said in a statement.

Source: Reuters News (01/30/2009)