CT Mortgage Blog

New $8,000 First-time Home Buyer Tax Credit

June 5th, 2009 10:42 AM

We figured we would wait till this was ironed out before sending misleading information. Many are now aware that the tax credit has been restructured to allow new home buyers to use it in during the home buying process, rather than waiting to receive the credit at tax time. You still have to have 3.5% of your own funds, but the additional $8,000 is a nice perk. Please search our programs link at http://www.scholasticmortgage.com/programs to learn more about what we have to offer. Happy house hunting!

Notable Date:

Purchase transaction closing prior to December 1, 2009

Industry Participants Affected:

FHA Approved Lenders, FHA Approved nonprofit organizations, Local government housing agencies

Synopsis:

HUD continues to be proactive in their response to consumer needs and identifying ways to increase home ownership, especially for first-time home buyers. HUD has approved the use of the $8,000 first-time home buyer tax credit towards the purchase of a home using FHA financing. FHA approved lenders, FHA approved nonprofit organizations, and local government housing agencies may provide tax credit advances in the form of secondary financing or the purchase of the anticipated tax credit.

Not all first-time homebuyers will receive the full $8,000. The eligibility amount depends on the amount of the mortgage, and the purchase transaction must close by December 1, 2009. In order to calculate the eligible tax credit amount, the borrower must complete IRS Form 5405. Guidelines for secondary financing from approved entities follow:

The amount of the second mortgage may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses

The borrower may not receive any cash back at closing other than reimbursement for closing fees such as the credit report or appraisal fees paid outside of closing

The secondary financing may or may not require monthly payments; if monthly payments are required, they must be included in the borrower’s qualification ratios unless the payments are deferred for at least 36 months
Guidelines for approved entities to purchase the anticipated tax credit follow:

The proceeds from the sale of the tax credit may not exceed the anticipated amount as documented in the IRS 5405 form

The sale of the tax credit may not be used for the required 3.5 percent down payment but may be used for closing costs, prepaid expenses, and additional down payment over and above the required down payment

The purchaser of the tax credit may not charge administrative fees in excess of 2.5 percent of the tax credit amount

Additional data must be input into the FHA Connection:

Name and EIN of the tax credit purchaser

The amount of the anticipated credit

The amount the homebuyer paid for the tax credit purchase service
Lenders and their DE Underwriters must ensure case binders are appropriately documented and underwritten. Requirements include:

Compliance with the guidelines outlined above

Copy of the draft IRS 5405 form completed by the homebuyer and computed correctly

Evidence the borrower(s) meets first-time home buyer eligibility requirements
(Tax returns for the last three years, or tax transcripts obtained with an IRS 4506T form will document the borrower(s) did not own a main home within the last three years)

If secondary financing, a copy of the executed note and security instrument for the second lien

If a tax credit purchase, a signed certification from the borrower that the tax credit is not subject to being offset by other federal indebtedness

If a tax credit purchase, the pay stubs and tax returns confirm there are no outstanding garnishments or outstanding IRS indebtedness

If a tax credit purchase, the credit report does not indicate unpaid student loans, or other obligations that would offset the tax credit
This recent change is a great opportunity for lenders to renew their marketing campaigns that target first-time home buyers as well as being a knowledge source for Real Estate agents and builders. Now is the time to put together information brochures and conduct seminars for your Realtors and builders on how to utilize the tax credit to help consumers become first-time home buyers

Posted by Edward Woodhead on June 5th, 2009 10:42 AMPost a Comment (0)

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The window of opportunity is closing. A must read

June 8th, 2009 11:37 AM

There has been a lot of fence sitters out there not pulling the trigger. There really should be an effort publicly educating everyone that rates will never hit the 4% mark and are surely going up.

Regardless of what you are hoping for...this is true. It may be abrupt if the Fed cant act fast enough or aggressively enough. If we get a rebound, it will be short lived and probably one of the last save the FED is capable of making. Equities are rising to a unsupported peak with core values as strong as paper mache. This is the only light ahead and bitter sweet to consider a huge market loss is really a good thing.

Towards the refinances, people that are floating waiting for a "what if" situation, need some reality checks that they could and will miss the boat.

People that are telling you they are waiting for 4.5% need to be told they are wasting everyones time. The people that were at 6.5% need to be happy with something in the low-mid 5%s and stop questioning the $15/month difference in payment. They also need to be told that if we see an improvement of any kind, its a really good idea to take it. While many people are saying these rates will need to improve to fix the economy, just because they need to, doesn't mean that they can or will. Rates are at the highest point in 6 months, and they will hopefully fall back in line to something reasonable like they did the 6 months before this that brought us into this wonderful refinance boom. But again, rates are on their way back up. I would emphasize to your clients that they will surely miss the remaining opportunities by not ordering an appraisal and signing docs soon.

This is all unraveled at the same time, and it's rolled through the end of last week and this week. Very smart economists are now looking at the money we are printing, the weakening of the dollar, the overwhelming deficit we are creating, and how the result will most likely be massive inflation. These were fears in the early 2000s when rates stayed so low for so long, and why rates started to rise back then.

We had a chat with Capital Markets at SunTrust earlier. They personally feels the 4% rate are done. They feel that the Fed will make one more drastic attempt at correcting rates because quite candidly...they really have to...and then that will be it. After that, rates will need to handle themselves organically or we risk much larger problems down the road. At some point this year, the Fed may even be forced to increase rates to prevent inflation. So again, it becomes our job to educate people to know how this all will surely play out.

WHAT WE REALLY LOVE - The purchase market is about to start jamming. Distressed sales have flooded the market place and are on fire. While unemployment is up, jobless claims are decreasing pretty steadily. The more people can maintain jobs, the less these market killing comps will stop adversely affecting our values. This will take a little time. But there is a 2nd real estate market referred to as the organic purchase market. This is made up of real buyers and sellers, and largely FTHBs. This $8K tax credit is great, but maybe a little too late. According to the national association of realtors, 1 in 4 sellers have dropped their prices. Out of those 1 in 4, they have dropped their prices by 10.6% on average. Since we're approaching the spring, we're also seeing an addition to inventory. When you add rates that are the highest in 6 months, it's easy to see why sellers will be ready to make some deals. Realtors need to push home buyers to find something. A tax credit doesn't help much, and price doesn't matter much, when we know the market is capable of rising rates as fast as we've seen. Their home buying power will be dramatically capped if they don't make a move soon. This information should be all it will take to get them running to the P&S agreements.

We've been through this 5 times. The average consumer forgets the cycles of the people jumping off the fence and freaking out, everyone rushes in and locks as rates get worse, then rates recover and everyone wants to pull their rate locks. Does the average consumer understand, let alone care, what problem this creates? Investors are dealing with massive pull through issues and offer new float down policies, then lenders close a ton of loans, then rates go up again. The difference will start to be, as every time to we do this, the floors will increase steadily and not return us to where we previously were. And this will last for the next couple years to stabilize inflation.

Realtors...Buyers...getting your purchases moving needs to be our focus before everyone is scrambling because they market has shifted, rates are rising, and they are NO LONGER IN THE DRIVERS SEAT.

Posted by Edward Woodhead on June 8th, 2009 11:37 AMPost a Comment (0)

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Recent Interest Rate Fluctuation

June 2nd, 2009 4:18 PM

Well the mortgage Gods seemed angry last week and laid down a huge metaphorical lightening bolt into the heart of rates. While there is wide speculation and people looking around saying "we have no idea why this is happening", this is no accident. How long is it going to take for people to buy homes? Listing times are 10.2 months, and we just keep printing money. All these bond auctions seem great, but the overwhelming supply isn't matching the demand. Maybe they've been hanging out with realtors too long asking their opinions on how to stabilize pricing? Of course 14 months of inventory is the way to fix it!!! But printing money is the only way to support our spending. The government is now emulating the routes that consumers shared that dropped the bottom of this whole thing the past couple years. Its kind of like if I personally incurred a lot of debt, then couldn't support myself, so then my dad comes in and starts paying my bills for me. So I'm drowning, and now my dad is drowning....and we now need to buy a multi family house and sell all our possessions to become stable again. That in a nut shell is what some speculate caused the sell off last week.

But what's interesting is the coupons that got hit. When you sell and hedge mortgages to Freddie and Fannie, they trade mortgage back coupons at 4.00% / 4.5% / 5.00% etc but the deliveries can share some rates in between as you deliver them. the 4.0% coupons lost 206 bps...the 4.50 lost 169 bps...and the 5% coupon lost 146 bps. That shows a trend of upward appetite to the higher returns. Rates can not stay sustained in the 4s. Clearly the fact that the economy cant even absorb a bond auction is a fundamental problem. Clearly the government can no longer just throw money at the problem.

If the government starts playing with the over regulation of lending anytime soon, I'll be chopping apart my house to make a boat and get the heck out of here.

The 4% rate is like the Chupacabra (the southwest version of the Yeti) that everyone thinks they know about, and they all know a friend that has seen it, but no one can deliver one. This right here is why the housing market doesn't catch up. People as a whole can be blindly lead into ridiculous levels of following the actions and words of others. If people don't start accepting rates...and they will go up over the next 12 months steadily....then rates will climb even faster. The government isn't stupid and knows that fast and unexpected rate hike will cause panic, and hopefully more people will be getting off the habitually wall of ridiculousness. That's not conspiracy theory, that's just straight up logical economic theory. If you have a borrower that does not agree with that concept, well, I have to politely tell them they're naive and ruining the world.

Those volatile movements I've mentioned are a sign of lack of rate stabilization. Think wisely, don't chase the market and do us all a favor - stop thinking you know more than the powers to be driving all of this.

Rates are still at historic lows btw...in case anyone has forgotten.

Posted by Edward Woodhead on June 2nd, 2009 4:18 PMPost a Comment (0)

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