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Housing Market News (American
Recovery and Reinvestment Act of 2009)
The President
signed the bill on February 17, 2009. The bill is a
$780 billion package, with roughly 35% of the package
devoted to tax cuts (mostly for 2009) and the rest to
spending intended to occur in 2009 and 2010.
The number of
short sales and foreclosures should decrease over the
next quarter. This is due to loan modifications, and
also the changes to the refinancing requirements.
Home owners
with a Fannie Mae or Freddie Mac loan would be
eligible to refinance as long as their mortgage
doesn't exceed 105 percent of the home's current
market value. Currently owners need to have at least
20 percent equity. Now if you are upside-down by more
than 5% the lenders have strong incentives to do a
loan modification. All terms of the loan are up to
negotiation including the amount of principal. For
lenders that voluntarily agree to lower a borrower's
payment so that it makes up no more than 38 percent
of the borrower's income, the government would share
the cost of lowering the mortgage burden to 31
percent of income. Incentives to lenders to
participate include a $1,000 payment. Borrowers can
receive up to $1,000 as an incentive to stay current
on their new mortgage. Still in the works is a
proposed provision that would allow bankruptcy judges
to require loan modification (known as a cram down)
as part of a household's restructuring. That
provision requires legislation by Congress.
First time home
buyers are still defined as those who have not owned
a home during the past three years. Last years
program for a $7,500 tax credit (that must be repaid
to the government) has been replaced by an $8,000
credit that does not need to be repaid if you live in
the house for three years. This credit presently is
only good for home purchases made prior to December
1, 2009 and the full amount applies to any house
greater than $80,000. Those who may have claimed the
$7,500 credit on this year’s tax will be allowed to
amend the return if they qualify for the $8,000.
FHA, Fannie Mae
and Freddie Mac Loan Limits -The bill reinstates last
year's 2008 loan limits for FHA, Freddie Mac, and
Fannie Mae loans. These limits were equal to the
greater of 125% of the 2008 local area median home
price or $271,050 for FHA and $417,000 for Fannie and
Freddie, with an overall maximum cap of $729,750. For
the few areas where the 2009 limits were higher, the
higher limits will apply. In addition, the bill
includes language providing the HUD Secretary with
the discretion, if warranted, to increase the loan
limit for any “sub-area”, i.e.an area smaller than a
county. The Secretary's discretion is again
limited by the $729,750 cap. These 2009 limits will
expire December 31, 2009.
Commercial Real
Estate - Commercial real estate is impacted primarily
through those provisions of the bill focused on green
building and energy efficiency as well as business
tax incentives. H.R. 1 provides significant funds for
state energy programs, which could be used to support
commerical property owners' investment in energy
efficiency upgrades while commercial property owners
seeking to invest in alternative energy systems for
onsite power generation would benefit from the
Department of Energy Renewable Energy Loan Guarantees
Program. Of particular benefit to small businesses
would be certain provisions of the bill that provide
tax relief in the area of bonus depreciation and
capital expenditures, as well as the 5-Year carryback
of net operating losses for small businesses.
Rural Housing
Service – The bill provides an additional $500
million to existing USDA Rural Housing programs. The
RHS provides both a guaranteed loan program and a
direct housing loan program for those meeting the
program’s eligibility criteria. The direct loan
program will receive $270 million while $230 million
will be allocated for unsubsidized guaranteed loans.
It has been reported that this level of funding would
provide for an additional 192,000 homeowners. USDA
Rural Development is a good source of funding in the
rural areas. Some areas as close as St. Charles
county and Jefferson county on out have areas
supported by USDA for affordable housing development.
Applicants may borrow up to 100% of a new or existing
homes value.
VA loans also
support 100% no money down financing.
FHA's 203(k)
Mortgage Program permits homebuyers to finance an
additional $35,000 into their mortgage to improve or
upgrade their home before move-in. With this product,
homebuyers can quickly and easily tap into cash to
pay for property repairs or improvements, such as
those identified by a home inspector or FHA
appraiser. The most popular FHA home loan is
the 203(b). This fixed-rate loan often works well for
first time home buyers because it allows individuals
to finance up to 97 percent of their home loan which
helps to keep down payments and closing costs at a
minimum. The 203(b) home loan is also the only loan
in which 100 percent of the closing costs can be a
gift from a relative, non-profit, or government
agency.
62 or older
perhaps a reverse mortgage to purchase a new house
and rent out the old.
1. Down
payments are critical. Borrowers should expect to put
down at least 10 percent for a “conforming loan” – a
mortgage that Fannie Mae and Freddie Mac will
purchase.
2. Credit scores count. A 720 on the 850-point FICO
rating scale will get a borrower access to the best
rates. Rich Bira, branch manager of FCM Direct Lender
in Chicago, says: "A score between 720 and 739 gets
0.125 percent added to the rate, a score between 700
and 719 gets 0.375 percent added to the rate, and a
score between 680 and 699 gets 0.5 percent added to
the rate.”
3. Consider VA and FHA. Borrowers without down
payments or with less than stellar credit scores
should consider these government-insured loans
offered through the Federal Housing Administration of
the Veterans Administration.
4. Unearth the records. Before applying, borrowers
should organize tax, banking and other records that
prove income, savings and debts. They should also
expect to be patient about what may seem to be
endless requests for information.
5. Get rid of debts. Limiting debts, including what
borrowers expect to pay for the mortgage, to less
than 43 percent of gross income is important.
Property Casualty Insurance Overview
Property casualty insurance has become increasingly
more expensive and more difficult to obtain. in the
conventional and government assisted housing and the
commercial markets. A number of factors account for
this problem. These issues include natural disasters,
mold, terrorism, market share competition and the
slumping value of insurance investment portfolios. In
an effort to retrench, insurers are declining to
write new policies, refusing to renew existing
policies, and increasing premiums on existing
policies.
The availability and affordability of property and
casualty insurance is essential to the real estate
market’s functioning. Property casualty coverage is
an underwriting requirement for conventional,
government-assisted and commercial mortgages. Without
insurance, lenders will not lend; without mortgages
the great majority of sales transactions cannot be
consummated. Without continuing insurance coverage,
existing homeowners cannot remain current on their
mortgage obligations and may find themselves subject
to expensive lender forced-place coverage or possibly
foreclosure.
Recognizing the major challenge that finding
affordable and adequate insurance has become for
REALTORS®, the NAR leadership has created an
Insurance Task Force. Comprised of REALTORS®
representing all specialties, the Task Force is
charged with assessing state of affairs, exploring
solutions and developing an appropriate role for NAR
to help its state associations address what is now a
very predictable, cyclical availability/affordability
problem. The task force will meet with experts from
other real estate, insurance, lending and regulatory
industry organizations and firms who share our
concerns. Among the topics to be considered: What is
the quantifiable scope of the problem? What are the
causal factors? What approaches have state insurance
regulators or REALTOR® state associations taken to
deal with the problem? What role, if any, is there
for the federal government?
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