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Tags: first time home buyers, tax credit

Is There Another Mortgage Fraud is on the Horizon?

In the last two days we have received numerous flyers in our e-mail from local mortgage representatives telling us that First Time Home Buyers can receive their $8,000 credit UP FRONT and use this money as a DOWN PAYMENT. This sounded too good to be true so we checked it out and we were right, this was too good to be true. 

We personally phoned the IRS this morning, February 27, 2009 and spoke with an IRS expert on the First Time Home Buyers Credit.  This is what we learned:

The 2009 tax credit is for $8,000 and for properties purchased in 2009 by first time home buyers and does not have to be paid back provided the buyer lives there for 3 years. 

The buyer can apply for the 2009 tax credit on their 2008 income tax return if they have not filed yet.  If the buyer has already filed their 2008 return and received their refund or paid their taxes, they can file an amended return and receive the $8,000 tax credit without having to wait to file the 2009 taxes. Of course, the buyer can wait and apply for the $8,000 tax credit when they file their 2009 income taxes next year.

This provision, while a little confusing, was designed to jump start housing market. However, under NO CIRCUMSTANCES can a buyer apply for this $8,000 credit BEFORE THEY CLOSE ON THE PROPERTY AND USE THIS MONEY FOR A DOWNPAYMENT.  They are not a FIRST TIME HOME BUYER until they have (bought) closed on the house and have the keys in their hands.

If you think about this logically, you would realize that if in fact this was an $8,000 gift for a down payment, it would be all over the news.  We wouldn’t need some mortgage representative to tell us about it. This very loose interpretation of the First Time Home Buyers credit is just another attempt to get around the rules.

We can think of some serious ramifications of applying for a tax credit you have yet to earn.  We can sum it up in two words TAX FRAUD.  We do not want any mortgage representative telling our  buyers to commit fraud.  We can imagine some nightmare scenarios that we do not wish to be involved, the least of which the buyer does not settle, for whatever reason and has applied for and received the $8,000 credit.  The worst of this is that when the ‘buyer’ is audited the following year, for applying for a tax credit that they did not earn and they tells the auditor that their real estate agent told them to file for the money.

We suggest that anyone who is interested in finding out the FACTS regarding this $8,000 tax credit for first time home buyers, that they call the IRS directly at 1-800-829-1040 and ask to speak to an agent who is familiar with the FIRST TIME HOME BUYERS CREDIT and ask the direct question, “Can a first time home buyer apply for the $8,000 credit before they close on a property and use this money for a down payment?”  The answer will be NO.  But check it out for yourself.  If you have a buyer who has been told this by a mortgage rep and does not believe you when you tell them they cannot apply for this credit before they close on the property, give them the IRS number.  Keep in mind that you are calling the Federal Government and will be on hold for 15-20 minutes.  But it is worth the wait to learn the facts.  Use your speaker phone, the time will fly by.

If something sounds too good to be true, it is our responsibility to wade through the muck and verify, verify, verify.  The last thing we need is another mortgage catastrophe a few years out

Linda Kerr Iwaniw & Terry Iwaniw

RESALES & INVESTMENT REALTY, LLC

Haddonfield, NJ.

Tags: buying a home, first time buyers, first time home buyers, firstv time home buyer credit, homeowners, mortgages, tax credit

Stimulus Advances With Tax Credit Changes

The $790 billion stimulus package hammered out by House and Senate conferees late yesterday increases the home buyer tax credit to $8,000, from $7,500, and drops the repayment feature for buyers who hold on to their property for at least three years.

The NATIONAL ASSOCIATION OF REALTORS ® has sought removal of the repayment requirement because it discourages buyers from taking advantage of the tax credit. The three-year minimum holding period is a safeguard against speculators’ use of the credit.

The legislation also extends the effective date of the credit to December 1 from June 30, and extends eligibility to borrowers who buy their home with the help of state or local financial assistance that comes from the proceeds of tax-exempt mortgage revenue bonds.

The credit remains open only to first-time buyers (those who haven’t owned in at least three years) and some income eligibility restrictions apply, but those are unchanged from the existing program.

Other provisions reportedly in the bill that could help housing markets and communities include:

• FHA and conforming loan limits.
  Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher.  Additional increases in individual communities may also be available at the discretion of the secretary of the U.S. Department of Housing and Urban Development.
• Foreclosure mitigation and neighborhood stabilization.
  Funding for states and localities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized. Some news reports put the funding level at $2 billion.
• Rental assistance.
  Up to $1.5 billion to provide short-term rental assistance and other aid for families during the economic crisis.
• Transportation infrastructure.
  Up to $29 billion for highway construction projects, $8 billion for rail projects, and $5 billion to weatherize low-income homes.
• Rural housing development.
  Increased funding for the Rural Housing Service direct and guaranteed loan programs.
• Low-income housing grants.
  Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations
• Tax-exempt housing bonds.
  Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds
• Energy efficient housing.
  Grants for energy retrofits for federally assisted housing (Section 8), funding for energy efficiency and conservation block grants to states, and Increases in the residential tax credit through 2010 for certain energy efficient upgrades.

Tags: Alternative Minimum Tax, AMT, buyers, buying a home, economic stimulus, Energy efficient housing, grants, tax credit, tax credit for buyers

What’s Going On With Fannie Mae & Freddie Mac

Has everyone heard the news about Fannie Mae & Freddie Mac being placed in ‘conservatorship’?  We may like it or not, the government agreed to pump billions of dollars into Fannie Mae and Freddie Mac and assume responsibility for trillions of dollars of their debt, while handing control of the companies to federal regulators and eliminating stockholder equity. That’s bad news for the shareholders.  As a real estate professional, I along with everyone else is hoping that this latest move restores confidence in the mortgage markets.

The seizure of Fannie Mae & Freddie Mac will cost taxpayers billions of dollars, but what option was there? What has it done to a mortgage loan rep’s day-to-day job, besides make them wonder about the loans they locked in last week?

• The spread between conforming mortgage-backed securities and Treasury securities has dropped dramatically! For example, the 5-yr Treasury Note is worse in price by a point, but a 6% mortgage is better by .75 in price.
• Fannie’s trading desk suspended operations, temporarily, but is now back in business.
• The Government announced that they will make a market in trading MBS securities.
• The stock markets around the world are rallying on the news.
• Fannie Mae & Freddie Mac must cease lobbying efforts.
• Debt interest is expected to be paid.
• Shareholder dividends are expected to cease.
• Future Fannie Mae & Freddie Mac losses would be covered by the US Government, and in turn, the taxpayer.
• The Treasury will lend to both Fannie Mae & Freddie Mac.
• FHFA will gain management control of the two companies and the Treasury will acquire $1 billion in preferred shares in each company.
• Many small banks had capital tied up in the preferred shares of Fannie Mae and Freddie Mac, depending on the dividends for reliable income, and the value of those shares to meet the capital levels required by regulators. Apparently either gone or under consideration.

Tags: Fannie Mae, Freddie Mac, mortgages, shareholders

FHA – Risk Based Interest Rates

Since its inception in 1934, the FHA has been the answer to home ownership for millions of Americans who otherwise would never be able to own a home. The FHA was created as an answer to the Great Depression, where millionsof people lost every cent they owned and most banks went out of business.

The FHA allowed families to purchase homes with very little money and at market interest rates, even if they had a tainted credit history. The FHA was a godsend to what was left of the banking industry in 1934. Since every FHA loan was insured by Up-Front Mortgage Insurance Premiums (UFMIP) and MIP (mortgage insurance premiums) the banks had very little risk. Homeownership was now available to the masses, not just the privileged few. 

In its 74 year history, there have been many changes to the FHA, but the most sweeping change is about to take place in about a year. The FHA has always offered the same interest rate to all its borrowers, regardless of their down payment or credit rating. It did not matter whether you put down 3% or 20%, or your credit scores was 550 or 850, your interest rate was the same. That will not be the case in the very near future.

The FHA is about to implement ‘Risk Based Lending”, just like conventional banks.  Translated this means the lower your downpayment and the lower your credit score, the higher your interest rate.  This would have been implemented on October 1, 2008 but Congress placed a 1-year moratorium on this radical change to allow for the sale of the millions of foreclosed homes clogging up the banks balance sheets.

What does this mean for people who would need to take advantage of the low down payment/lower interest rates now offered by the FHA in order to buy a home? Very simply, if you wait to buy a home until 2009, may very well have to come up with more cash and suffer through higher interest rates and therefore, higher payments. Many people will be forced out of the market altogether, thereby taking homeownership out of the hands of thousands upon thousands of people.

Mr. & Mrs. Charles Humphreys, The First Home Financed
through the FHA

As a professional, my advice to anyone who thinks they will need to finance their home through FHA is to do it as soon as possible.  Once the FHA is allowed to change their guidelines to “Risk Based” financing, people who once relied on old guidelines to qualify for a low, fixed rate mortgage will be out of luck.

Linda Iwaniw
REALTOR Associate First Time Home Buyer Specialist
Fixer Upper Property Specialist
Foreclosure Prevention Consultant
RE/MAX Home Team
609-417-1084
http://www.sjerseyhomes.com/

Tags: fha mortgage, Finances, home mortgages, mortgage qualifications, mortgages

Is Your Municipal Government Suppose To Be A Cash Cow?

I just read an article from my state association of realtors (NJAR) pertaining to the city of Long Branch NJ pursuing its lawsuit in the Supreme Court of New Jersey. Even though the Appellate Division has sent the case back to the Superior Court where the city will have to prove the homes that were designated for redevelopment meet the criteria for a blight designation as previously designated by the state Supreme Court in 2007. But that’s not good enough for the city. Nope. They are DESPERATE for the cash profits that they can make from these deals and want to move forward. So, they want the Supreme Court to consider their case rather than the Superior Court in order to expedite the decision. If they are trying to do this, I think they feel that they will get a favorable ruling. The city knows that in the current market climate that they missed the boat and want to try to get whatever money there is left in the market…at the cost of the small, private homeowners who they probably feel are inconsequential compared to the large developers and builders who have contributed substantially to the politician’s elections.

I for one stand with NJAR and their core belief’s in regards to this issue. NJAR believes that eminent domain is the right of a government to take private property for a public purpose, usually with just compensation of the owner. NJAR®’s position on eminent domain revolves around the protection of New Jersey’s private property owners, and emphasizes community education and public input to defend against eminent domain abuse. NJAR®’s definition (and my own) of eminent domain abuse is when the government takes property away from its owner and gives (although, I have never found that any governemtn”gives” anything away) it to another private owner who will demolish the home or business under the guise of redevelopment. What I have seen is that the demolished homes and businesses are then replaced by higher priced homes and businesses. The former home owners never benefit from this forced windfall nor do they have any place in this new “neighborhood”.

I applaud NJAR®, who has testified in support of those aspects that give homeowners more notice and information about the process, and provide them with adequate compensation should their property be taken through eminent domain.

The Public Advocate urges eminent domain reform to make it easier for municipalities to declare an area “in need of rehabilitation;” requiring 60 days notice to tenants and property owners in advance of a hearing on a blight designation; and redefining the term “blight” to encompass an area’s current condition rather than its potential. Again, we REALTORS are in the forefront with the NJAR® having met with the Public Advocate and is currently working with the Homes for New Jersey coalition to ensure that eminent domain legislation considers the rights of New Jersey residents and property owners.

I agree and stand wholly behind NJAR®’s position on eminent domain and revolves around the protection of New Jersey’s private property owners, and emphasizes community education and public input to defend against eminent domain abuse.

While NJAR® understands that eminent domain can be a valuable tool in redevelopment; it strongly believes policies must be put into place to help ensure the fundamental rights of private property owners are not diminished in favor of economic development. NJAR® strongly believes that the government should not be able to take private property from owners who have lovingly maintained and give it to another private owner who will demolish the home or business under the guise of redevelopment.

It is NJAR®’s position that New Jersey home and business owners deserve proper notification of any redevelopment plans that will affect them which should be clearly defined with a timeframe for implementation. They deserve a voice in the eminent domain process, a process where the burden of proof should rest on the entity taking the property. NJAR® also supports an assessment of comparable, available and affordable housing to meet the relocation needs of residents displaced by redevelopment.

Once the eminent domain process is concluded property owners deserve compensation that will allow them to remain members of the communities they know and love. NJAR® supports the mandate that displaced home and business owners and tenants be given the right of first refusal on new property within the redevelopment project.

For those interested in learning more about recent eminent domain cases, check out the following sites:

Dutch Neck Land Co. V. Newark, 5/14/08

Harrison Redevelopment Agency v. DeRose, et al, 2/25/08

Harrison Redevelopment Agency vs. Amaral Authocenter, Inc., et al 2/25/08

Harrison Redevelopment Agency vs. Harrison Eagle, LLP., et al, 2/25/08

BMIA v. Planning Board of the Borough of Belmar, 2/4/08

Evans v. Maplewood Court Decision, 7/27/07

LBK Associates, LLC, et al. v. Borough of Lodi, et al., 7/24/07

Cramer Hill Residents Ass’n v. City of Camden, et al., 7/17/07

HJB Associates v. Belmar, et al., (Freedman’s Bakery), 7/11/07

Mulberry Street Area Property Owner’s Group v. City of Newark, et al., 7/11/07

Land Plus, LLC, et al. v. Mayor and Council of the City of Hackensack, et al., 6/29/07

Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 6/13/07

Terry Iwaniw
REALTOR Associate
First Time Home Buyer Specialist
Foreclosure Prevention Consultant
RE/MAX Home Team
609-417-1086
http://www.terryi.com/
http://www.snewjerseyhomes.com/

Tags: court cases, due process, eminent domain, municipalities, redevelopment

Summary of the Housing Rescue Bill

The bill that was passed by the House last week, the Senate this week, was signed into law by the President this morning.  The following is a summary of H.R. 3221.  H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:

1. GSE Reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
2. FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The downpayment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
3. Homebuyer Tax Credit – a $7500 tax credit that would be would be available for any qualified purchase between April 8, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).
4. FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
5. Seller-funded downpayment assistance programs – codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.
6. VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.
7. Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.
8. GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.
9. Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.
10. National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.
11. CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
12. LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.
13. Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

That seems to be it in a nutshell.  Stay tuned for another blog that discusses point #5 regarding seller downpayment programs.

Tags: Finances, Foreclosures, H.R.3221, Housing, Housing and Economic Recovery Act of 2008, housing rescue, legislation, mortgages

Senate Passes Housing Rescue Bill

The U.S. Senate on Saturday passed a bill that would stem foreclosures by allowing some 400,000 home owners refinance into affordable, government-backed loans. The bill, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, passed by a margin of 72-13. The House of Representatives approved the bill on Wednesday in a 272-15 vote. “This bill must get to the president quickly, and we urge him to act immediately to sign it into law,” NAR President Dick Gaylord said in a statement last week. NAR says the bill will help bring stability to the housing market and put a dent in the rising rate of foreclosures.

The program will be run by the Federal Housing Administration, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can’t be for more than 90 percent of a home’s newly appraised value. For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

Experts say the success of the program depends on how receptive banks are to writing down a portion of the loan. If passed into law, the program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won’t be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31 percent as of March 1.

House Rescue Bill Passes

On Wednesday, the House of Representatives passed H.R. 322, The House Rescue Bill.  It will now go to the Senate, who is expected to pass it with few or any changes and then send it ot the President for his signature.  Word out is that the President will sign this bill next week and thus making it into law effective October 1, 2008.

What affect does this new law have on the the housing market in Southern NJ?

1.  FHA loans will now require a 3.5% down payment, instead of 3%, and all seller down payment assistance programs will be prohibited. Buyers must invest at least 3.5% of the appraised value into their own home. 

2.  This law gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market.  The credit will begin to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).

3.  It raises the Government Spronsored Enterprise (GSE) loan limits for single family homes to create affordable mortgage loans for moderately priced homes by allowing GSE loans up to 115% of the local area median home price, and to make GSE loans effective in high cost areas by raising the permanent loan limit from $417,000 to $625,500,.

4.  Raises the FHA loan limits to create affordable mortgage loans for moderately priced homes by allowing FHA loans up to 115% of the local area median home price, and to make GSE loans more available in high cost areas by raising the permanent loan limit from $362,790 to $625,500.

You can read the summary of this bill at:

Thomas – Library of Congress

Tags: downpayments, housing market, loan limits, loans, mortgages, Real Estate, real estate market

Housing Bill Clears U.S. Senate

Thanks to the over 2,695 REALTORS^® from New Jersey who had responded to the NATIONAL ASSOCIATION OF REALTORS^® (NAR) Call for Action! On July 11, 2008, the U.S. Senate voted 63-5 to approve H.R. 3221, which includes loan limits up to $625,500 for the government-sponsored enterprises (GSE) and Federal Housing Administration (FHA), as well as an $8,000 homeownership tax credit. The bill also includes broad GSE reform, FHA reform, development of a National Affordable Housing Trust Fund, and creates a new FHA program to help homeowners at risk for foreclosure. Differences remain between the bill passed by the House and the Senate version. These will be negotiated in the next few weeks, and both House and Senate leaders hope to get this bill to the President’s desk before the August recess.

Linda & Terry Iwaniw
REALTOR Associates
First Time Home Buyer Specialists
Foreclosure Prevention Consultants
RE/MAX Home Team

Tags: affordable housing, federal legislation, FHA, GSE, Housing, US Senate