Market Reports
A Special Mortgage Industry Update from Jay Skwierawski
Hello!
Over the weekend, the U.S. Senate passed a landmark housing bill that is now waiting for the President to sign into law.
The key elements of the bill are:
- A temporary first time home buyer tax credit. This credit, in the amount of 10 percent of the purchase price of a new or existing home, with a limit of $7,500 is expected to stimulate home buying, reducing excess supply in housing markets and, hopefully, shore up home prices. The refundable credit, which is actually a 15 year interest-free loan, is a credit against any Federal income taxes owed. If, for instance, someone owes $5,000 in Federal taxes, they would pay nothing, AND receive a refund check at tax time for $2,500. If they were getting a refund of $1,000, they would receive a refund check for $8,500 (the $1,000 plus the $7,500 refundable tax credit). What's the catch? The refundable tax credit has to be repaid to the government over a 15 year period, at $500 per year. If the homeowner sells the home during the 15 year period, the remainder would be due from the profit of the home sale. If there is insufficient profit, then the remaining payback would be forgiven. The tax credit can be taken on the 2008 or 2009 Federal Tax Return. There are income limits. A first time homebuyer is defined as a buyer who has not owned a principal residence during the three year period prior to the purchase. The home purchase must take place between April 9, 2008 (retroactive) and July 1, 2009. This should help us now and well into the spring market of 2009!
- Modernizes the FHA loan program. There are several key provisions in the bill which will affect FHA financing:
1. Permanently increases the maximum FHA loan amount to 115 percent of an area's median home price, up to $625,000. How this will affect us in our area is yet to be determined.
2. Enables FHA to simplify requirements for condominium loans, which have been burdensome and significantly different than requirements for single family detached properties
3. Expands the FHA reverse mortgage loan program to allow more seniors to tap into their equity. Increases the maximum reverse mortgage loan amount to $625,000 nationwide, while reducing and capping the maximum amount of fees that lenders can charge to originate these types of loans.
4. Permits 40 year FHA amortizations to reduce monthly payments, while still assuring that the loan balance is being reduced, even slightly.
5. Allows FHA to charge higher risk-based mortgage insurance premiums, but places a one year moratorium on implementation of them.
6. Increases the minimum downpayment amount on an FHA loan to 3-1/2 percent from 3 percent. (they're going the wrong way!)
7. Bans the use of down payment assistance programs (Nehemiah, Ameridream, etc.) effective 10/01/2008.
- Allows FHA to provide relief to homeowners facing foreclosure. FHA will guarantee up to $300 billion in mortgages for borrowers that are in danger of losing their homes. With assistance from their current lender in the form of a partial loan reduction, struggling homeowners will be able to refinance into lower cost government-insured loans that they can repay.
- GSE (government-sponsored enterprise) reform. The law changes the way that FNMA and FHLMC are regulated and permanently increases the conforming loan limit to help buyers in high-cost markets. To further reassure financial and global markets of the soundness of FNMA and FHLMC, the government will temporarily expand its line of credit to them and permit the U.S. Treasury to purchase an equity stake in the company through the end of 2009.
- Mortgage Bond Revenue Program. This gives states the authority to issue up to $11 billion in mortgage revenue bonds designed to help strapped homeowners seeking to refinance their home loans.
Other provisions of the bill include:
1. $3.9 billion in Community Development Block Grant funding to allow cities to purchase, rehab and redevelop foreclosed properties
2. A $500 additional standard deduction ($1,000 for married couples) in tax year 2008 for taxpayers who do not itemize their deductions but pay property taxes.
3. Increase the maximum loan amount for VA loans in high cost areas to increase homeownership opportunities for qualified veterans.
4. Increase the amount of time a lender must wait to foreclose upon returning soldier from 90 days to 9 months.
5. Encourage states to establish mortgage licensing and registry systems and directs HUD to step in if the states fail to do so.
That's the Housing Bill in a nutshell. Almost 700 pages condensed into a two minute read! Hopefully it's passage will give the housing market a boost! Now is the time to call your first time homebuyers and let them know about the $7,500 "gift" the government is giving them if they purchase a new home.
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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