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.

Second Lien Roadblocks

Obama’s Making Home Affordable Plan has hit a significant speed bump for many borrowers who are depending on it to help them refinance. 

In a nutshell, many second lien holders aren’t playing nice.  They’re not readily agreeing to jump back in line behind a new first mortgage.  But why should they?

They want to get paid off.  They want to get better terms.  And they hold the trump card.

In the event of a refinance, those in second lien positions have to agree to go behind the new primary loan.  If they don’t, no bank will agree to write a new primary loan.

Second mortgages are inherently riskier than firsts.  If a house goes in foreclosure, the first lien holder calls the shots.  They’re going to auction or dispose of the property in a way that tries to get what they have in it.  They’re not too concerned about who else is in line.

What’s left gets dispersed to the second lien holder, and any one else holding a lien against the property, like a homeowners association that wasn’t getting its dues.

The greater risk, the less certainty they will get paid off in a worse case scenario, is the reason HELOCS and HELOANS typically carry higher interest rates than conventional mortgages.

And the equity loan companies have been getting hammered because people have been defaulting on them before they stop paying on their first loans. 

So they want to be taken care of, as well.

The Wall Street Journal is reporting today that this has caught the Administration by surprise.    If so, it betrays shocking incompetence in basic understanding of the mortgage business.  The bureaucrats are now scrambling to come up with a solution. 

Oops!

Full Steam Ahead for HVCC

The National Association of Mortgage Brokers (NAMB) announced today that they were withdrawing their suit against the Federal Housing Finance Administration (FHFA) to block the implementation of the Home Valuation Code of Conduct (HVCC). 

What this means is that the HVCC is coming.  Nothing is going to stop this train.

The intent of the HVCC was to clean up the appraisal process, to keep loan officers from exerting pressure on appraisers to inflate home values.  It attempts to do so by separating the loan originator from the appraiser.

Starting May 1^st, mortgage brokers will not directly be able to order appraisals for borrowers.  They will have to use national clearinghouses to make the order. 

Thus, the new process puts another middleman collecting his ounce of flesh in the process.   Additionally, appraisers will feel less need to be competitive, as their services will no longer be “shopped.”

It will make the process more expensive to the borrower.  And it is unclear what benefit the consumer, or the housing market, will reap from these new regulations.

The NAMB claims their withdrawal was done for strategic reasons.  It hopes to assess its legal options and challenge the HVCC through various means.  I hope they find this route soon.

NAMB press release.

More on HVCC.

Real C'ville Bubble Blog - March Q&A

Real C'ville Bubble Blog's Q&A with yours truly, posted on 3/26.

Charlottesville Real Estate: Mortgage Information Spring 2009

The informed readers of the Bubble Blog provided the questions and I did my best to provide the answers.

Geitner on Meet The Press 3/29/2009

I was impressed with how FED Chairman Geitner handled the questions from David Gregory on Meet The Press Sunday morning. Judge for yourself.

Geitner on the importance of bank lending:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Geitner explains banking plan:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Geitner reacts to Krugman's critiques:

Visit msnbc.com for Breaking News, World News, and News about the Economy

David Gregory: "The rules of this program will not change?"
Tim Geitner: "No, they cannot change."

We'll see if Congress complies.

Fed Continues MBS Buy

The Federal Reserve Bank of New York continues to make large buys of mortgage-backed-securities.  For the week ending Wednesday (March 25), the Feds purchased $47.3 billion from government-sponsored entities. 

To date, the Feds have taken on $341.55 billion in MBS.  

More at the Housing Wire

Investment Properties Affecting New Mortgages

Some homeowners who are looking to refinance their primary residences may find they have some difficulty qualifying for a new loan, even though little has changed in their situation of income and credit over the last year.

They may be hindered by investment property they hold.

Specifically, revised Fannie Mae guidelines apply to borrowers who instead of selling a former home to buy a new primary residence turned it into a rental property.

Fannie Mae now requires that you have at least 30% equity in that former primary residence before you can count the rental income.   This can be a hefty hurdle in today’s soft real estate market.

An investment property could’ve easily declined in value over the last three years. 

Furthermore, to show that the 30% equity value exists, borrowers will need to get an appraisal of that former property, as well as a rental analysis performed by a licensed appraiser.

As it is and was, underwriting guidelines only allow borrowers to count 75% of their rental income on investment properties.  The other 25% is ignored, chalked up to property maintenance costs and possible tenant lapses. 

But that 75% is golden when it comes to getting a new loan, even on the primary residence.  Many borrowers need to count those rent checks in their overall income.  Otherwise, their debt to income ratio (DTI) is too high to qualify for a new loan.

In this situation, the borrower may not be in any financial trouble.  They may be bringing in enough money from their salary and rental income to handle all their obligations.  But the underwriter can’t see it this way. 

She looks at the two mortgages and other debt.  And she can’t balance this with any of the borrower’s rental income.    She can’t approve the loan because the borrower, on paper, doesn’t make enough money.

Thus some borrowers trying to refinance their present home can’t qualify.

Again, this specific requirement only occurs on rental properties the borrower once resided in.  It does not apply to houses that were bought and never lived in by the owner.

FED Announces $750 Billion More and Poof!... MBS Prices Surge, Rates Drop

'Rambo Fed' Will Buy Treasuries To Combat Crisis (Bloomberg, 03/19/2009)

"Yesterday’s decisions will add $750 billion in purchases this year of mortgage-backed securities issued by government- sponsored enterprises Fannie Mae, Freddie Mac and Ginnie Mae, for a total of $1.25 trillion. The Fed has already announced $217.1 billion in net purchases out of $500 billion planned through June, under a program unveiled in November.

The central bank will also double to as much as $200 billion this year its planned purchases of debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks. The Fed bought $44.4 billion of the so-called agency debt as of March 11."

And here's a snapshot of what happened in the Agency MBS market:

Fannie Mae 4.5 coupon


Rates improved by .125% to .25% yesterday afternoon.

Do You Have A Fannie Mae Loan?

One of the first requirements in qualifying for a refinance or modification through Fannie Mae's Making Home Affordable program is actually having a Fannie Mae Loan.

Now you can find out with Fannie Mae's recently release online tool:

Fannie Mae Loan Lookup


And if you're loan isn't with Fannie Mae, it could be with Freddie Mac (who also has Making Home Affordable programs):

Freddie Mac Loan Lookup

HASP Refinances Clarified - GSE's Home Affordable Refinance Program

Along with the Obama Adminstration's announcement of the Homeowner Affordability and Stability Plan on Wednesday, Fannie Mae & Freddie Mac has also released information about their role in the plan.

Termed the "Home Affordable Refinance", the two GSEs will be relaxing certain guidelines and price adjustments on refinances to help homeowners reduce their housing costs. Here are the significant features of the new refinance program:

1.) Allows up to 105% Loan to Value (LTV) and no maximum Combined LTV (1st and subordinate loan combined).
2.) No minimum credit score.
3.) May not require an appraisal (appraisal waiver) or exterior-only appraisal.
4.) Eligible property types - primary residence, 2nd/vacation home & investment properties
5.) Limited cash out only - no additional equity allowed to be taken out, but closing costs and up to $2,000 may be included. Existing subordinate loan(s) must be re-subordinated.

The BIG Caveat: The Home Affordable Refinance is for existing Fannie Mae or Freddie Mac mortgages only. No subprime, Alt-A, Jumbo, Reverse or Government loans.

Want to know if you're eligible? Visit www.financialstability.gov/makinghomeaffordable

Here are the new Matrices, showing the credit score, LTV & property type price adjustments.

The Homeowner Affordability and Stability Plan Unveiled (sort of)

The Homeowner & Stability Plan (HASP), courtesy of USTreas.gov:



Treasury's Executive Summary (PDF)

Section 1, the part about low cost refinancing, is still unclear. Apparently 3 to 4 million homeowners could benefit, but they still haven't said how. Details of the details are forthcoming, I guess :-)