Homebuyer Tax Credit - extended

Federal Housing Tax Credit
courtesy of NAHB


$8,000 First-time Home Buyer Tax Credit at a Glance

* The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
* The tax credit does not have to be repaid.
* The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000. * The tax credit applies only to homes priced at $800,000 or less.
* The tax credit now applies to sales occurring on or after January 1, 2009 and or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
* For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
* For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.


The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

* To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
* The tax credit does not have to be repaid.
* The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. * The tax credit applies only to homes priced at $800,000 or less.
* The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by May 1, 2010, the home purchase qualifies provided it is completed prior to July 1, 2010.
* Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

HVCC and Me

A perspective on the HVCC (Home Valuation Code of Conduct) from loan officer and colleague Randy Sawyer:

HVCC has been all around the blog world and the press of late. When it first rolled out on 5/1/09, HVCC reminded me of 10CC in that “I’m not in love” came to mind. After having experienced some of the ramifications of the HVCC, I offer this as an originator.

While I think the idea of an HVCC is good, I am not sure the idea is producing the desired outcome. An appraisal should be a justifiable and objective report. Whether there is the HVCC or no HVCC the goal of the appraisal is to quantifiably report a realistic property value. This protects lenders and borrowers which is a good thing especially these days.

Allow me to enumerate some issues I do have with this new process. First of all, appraisals now cost more money as there are more moving parts in the process, ranging from lenders, Appraisal Management Companies and their staff, the actual appraiser, and loan originators. This has ultimately added expense to the appraisal process, generally anywhere for 10% -20% more than this time last year. So the customer and/or the loan officer are straddled with the extra expense. Unfortunately, the appraisal now has to be paid for via credit card which can hurt a borrower who has no credit card, no credit limit left, or keeps a balance that will accrue more interest charges. I suppose one could dispute the charges for good reason, but that’s another issue.

Secondly, the process can take a little longer. An appraisal used to take a week, now it is probably closer to two weeks. Not a huge difference, but maybe enough of one to delay or derail a conventional mortgage loan.

Finally, we as originators are not allowed to have any contact with the actual appraiser. Sure we can call the AMC (Appraisal Management Company) but not the actual appraiser. Hence, more layers, more potential delays. I could go on about more disclosures needed with this new process, but that is really my problem not yours.

<5% Rates Were So Last Month

We all knew it was coming. Mortgage rates could only stay so low for so long. So why is it such a shock that they've jumped up nearly 1% in just two weeks?

Whenever rates increase 1% in such a short period of time it tends to make people scratch their heads (or bang them on the wall - take your pick). Back before the week of March 25 the 30yr fixed rate was ~4.5%. Now, at the beginning of the week of June 8, the 30yr fixed is ~5.5%.

Although there is no natural law that states, "what goes down must go up," the rate move was a sure thing.

What has caught many off guard is that they spiked so quickly and before many were expecting it. We were getting so used to sub 5% rates that we just assumed they would be around for a while (with the FED in such control and all!). But now we've learned a valuable lesson all over again - take it when you can get it.

So for now, 5.5% is the new 4.5%.

Articles that explain the situation much better than I can:

Bond-market rout lifts mortgage cost (AP, 06/06/09)

Bernanke Conundrum Threatens Housing On Mortgage Rate (Bloomberg, 06/08/09)

MBS Free Fall

FNMA 30yr 4.5 Coupon


The MBS 4.5 coupon is off nearly 160 basis points from yesterday's close, dropping 100 bps just since 1:30pm.

30yr fixed rates have jumped .25% - .375% on the price decline.

The Treasury market is suffering as well:
Bonds turn lower (CNNMoney.com, 5/27/09)

WSJ: "Fed Open to Buying More Securities"

As reported in the Wall Street Journal today, apparently there's talk among some members of the Fed's FOMC regarding the idea of purchasing more Treasury bonds and Mortgage Backed Securities (MBS). In other words, they want to see low rates for a longer period of time.

Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they have already committed to buying, according to minutes from the Fed’s April meeting.

“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” according to the minutes of the April 28-29 meeting, released Wednesday with the usual lag. (Read the full minutes.)

The Fed can achieve low mortgage rates by increasing its purchases of MBS - when prices rise, yields (rates) fall. But it takes money, and lots of it. So the longer rates are artificially kept low, the larger the Fed's tab grows.

Thetruthaboutmortgage.com adds a perspective to the issue with it's most recent post about the Fed's slowing MBS purchases:

In a bid to keep interest rates on mortgages lower for a longer period of the time, the Fed has apparently decided to slow its purchase of mortgage bonds, according to a research note from Credit Suisse.

The analysts said they believe Fed involvement in the mortgage-backed securities market will be necessary well into 2010, and as a result, they’ll need to slow buying so it there’s enough purchasing power to remain engaged next year.

As the government reduces its purchases of MBS (and assuming investor demand stays the same), MBS prices will drop and mortgage rates will go up.

So are these two actions incompatible - slowing down purchases of MBS but increasing purchase funding? Not necessarily, because Fed could do both at the same time, all in an attempt to keep the low rate train rolling on.

The Home Valuation Code of Conduct In Full Effect

The HVCC, or Home Valuation Code of Conduct (link: Fannie Mae FAQs), went into effect on Friday, May 1, 2009.

Michael wrote about its imminent arrival in an April post as the National Association of Mortgage Brokers (NAMB) had just announced the withdrawal of their lawsuit versus FHFA, thus ending their legal battle against the HVCC.

After months of preparation by lenders and appraisers alike, we're just past the May 1st start date and now submitting files according to the new guidelines. At this point, any appraisal ordered or paid for by loan production staff members (loan officers and processors at brokerages and banks alike), homeowners or real estate agents will not be accepted by Fannie Mae or Freddie Mac.

While NAMB was vociferously opposing the Code, the reaction was mixed in the appraisal industry (as far as I could see).

But the grumbling in the appraisal industry is picking up: HVCC Appraiser Talkback Survey: What's Really Going On? (Appraisal Scoop, April 30th)

The intentions of the HVCC were admirable. Everyone wants a better appraisal system. The reality of the new rules? So far the biggest beneficiary has been AMCs, or Appraisal Management Companies - the companies through which lenders order/pay for appraisals. Business is booming for them. Borrowers pay $50-75 more for appraisals, the AMC takes their cut, and the appraiser gets paid approx. $100 less for the same report they did back in April.

But I guess only time will tell if the HVCC is the appraisal panacea, or if it was just an ill-conceived solution to a complicated problem.

Rates Ease, Pipelines Clog

In its Primary Market Survey, Freddie Mac reports that 30 year fixed rates eased back down for the week ending April 16.  We slid down to 4.82% with 0.6 point origination from 4.87 the week before.  For comparison’s sake, one year ago the rate was 5.88%.

Meanwhile, bank pipelines continue to fill up as tens of thousands take advantage of this historic opportunity.  Underwriting turn times have slowed to crawl.  Banks that a few months ago had 2-day waits for underwriting are now 9-10 business days out.  Conditions and stipulations are at least 48 hours per cycle, in many cases 4 days.

The Right of Recission steals up to six days from a 30-day lock.  If a refinance closes on a Tuesday, it can’t fund until the following Monday, because Saturday can’t be a funding day.  So mortgage brokers and bankers have to plan on being able to do a loan in 3 weeks if they want to make a 30-day lock.

That’s become almost impossible unless you have a full package ready to go when you make your lock.  That means having an appraisal, all signed documents and supporting income and assets ready to submit to underwriting.

For that reason, our company Crown Mortgage Services now prefers to take only 45-day locks on refinance loans without a full package ready.

Second Mortgage Subordination

As I wrote about last week, 2^nd mortgages are gumming the works for Obama’s Making Home Affordable program.  Second lien holders have to agree to subordinate their loans to the new firsts in refinancing.  And in many cases they aren’t, or are not making it easy.  The Administration was scrambling to correct this egregious oversight.  

But homeowners in Virginia have their state government to thank for a partial solution.  During the year 2000 legislative session, the General Assembly enacted a statute that, if certain conditions are satisfied, makes subordination automatic.

The most salient conditions include:  the original second mortgage must be for $50,000 or less.  The property is residential and contains no more than one dwelling unit.  The original deed of trust being refinanced was recorded prior to the subordination deed of trust.  The refinance mortgage amount is not more than $5000 than the current balance of the original mortgage.  And the interest rate of the refinance mortgage does not exceed the rate of the replaced mortgage.

The situation must meet all of these conditions and others, as well.

So this automatic process only applies to rate and term refinancing, not to cash out.

But thanks to Virginia Code § 55-58.3, subordination can happen in these instances without the lengthy delay it would otherwise entail.  A good lawyer can do it at closing.

Have We Finally Hit Bottom?

Not of housing prices.  Not of the economy.  I’m wondering if we have hit bottom on mortgage rates. 

Freddie Mac reports that rates bounced up from a historic low during the week ending April 9, 2009.  Their Primary Mortgage Market Survey found that 30-year fixeds averaged 4.87% for an average .7 point.  The prior week was 4.78% for the same instrument.

Meanwhile, the Federal Reserve Bank of New York revealed Thursday that it had gobbled up another $74.7 billion in GSE mortgage-backed securities for the week ending April 8.  It’s hard to imagine that the Fed can put any more downward pressure on mortgage rates.

Dr. Frankenstein plays Van Helsing

It’s a grand irony American politics often engenders.  Representative Barney Frank, chairman of the House Financial Services Committee helped create the subprime monster.  Now, he wants to drive a stake through its heart.

“Affordable Housing,” has been jokingly defined as housing people can’t afford.  The good intentioned push sought to provide extraordinary ways and means for otherwise unqualified people to attain home loans.

Yet, like the Irish proverb says, the good intentions paved the road to hell.  The political actions contributed mightily to the creation of the subprime industry and the current housing mess.  For years, if not decades, Barney Frank stood as a cheerleader and political quarterback for Affordable Housing. 

But now, he has decided to slay the very beast he helped sew together.  “We will bring a bill out in April that will stop people from getting loans in the future that they cannot repay,” he promises.

He fears that Congress must act, driving a stake through the heart of this industry. Otherwise, the monster will rise Dracula-like again.

"It won't be dead forever," Frank said of subprime lending. "It would be a grave mistake to think it's never going to come back again."

More here and here.