2009 Housing Incentives

May 3

As goes housing, so goes the economy. To combat housing's recent decline and the impact on consumers and Wall Street alike, the Obama Administration recently released the details of the Homeowner Affordability and Stability Plan (HASP). Whether you own a home or not, the impact of the plan will affect you. In this month's YOU Magazine, read more about how this and other recent legislation will impact you.

Combined with other stimulus packages that have been released, like the American Recovery and Reinvestment Act of 2009, from Washington in recent months, the target is clear: put housing back on its feet. The easiest way to accomplish this is to increase home sales and reduce the number of foreclosures and short sales bringing housing and Wall Street to its knees.
For qualifying first-time home buyers, the American Recovery and Reinvestment Act of 2009 amends the $7,500 tax credit. The credit has now been changed in two significant ways. The first is that the potential amount of the credit has been increased to $8,000.

The second change, which is very beneficial, is that where previously the credit had to be repaid to the IRS over a period of up to 15 years, it now does not as long as the homeowners live in the property for at least 3 years. A tax credit is a direct reduction to an income tax liability. It also allows for any amount that exceeds that liability to be paid directly to you. Example, someone has a tax liability of $4,000. They would then receive a refund of $4,000 if the credit they were eligible for was $8,000. To read more about how the tax credit could impact you or someone you know, the National Association of Home Builders has constructed a website that goes into all the details of the credit which can be seen at www.federalhousingtaxcredit.com.

In details of the Housing Affordability and Stability Plan released this week, four to five million responsible homeowners have been targeted to obtain assistance in lowering their payments. People who now have less than 20% equity in their home have experienced difficulty in achieving lower payments by refinancing. Homeowners with loans that are owned by Fannie Mae and Freddie Mac may now be able to refinance into a lower interest fixed rate. This will also apply to homeowners with an adjustable rate (ARM).

One caveat will be that the new loan amount will be capped at 105% of the value of the home. As many will seek to include their closing costs in the loan amount, this will need to be factored in when considering this as an option.

To pre-qualify for the Making Home Affordable refinance, you must be able to answer "yes" to each of the following four questions.

1. Is your home your primary residence?
2. Do you have a Fannie Mae or Freddie Mac loan?
3. Are you current on your mortgage payments? Current, in this case, means not having been more than 30 days late in the last 12 months.
4. Do you believe the amount you owe on your first mortgage is the same or less than the current value of your home?

To determine who owns your loan, call your servicing company and ask. If you have difficulty reaching them, you can also contact Fannie Mae at 800-7FANNIE or Freddie Mac at 800-FREDDIE between the hours of 8am and 8pm EST. You can also click the following links and request the information online.


Other issues may exist for you in getting this loan. If you currently have a second mortgage or Home Equity Line of Credit (HELOC), the lender will need to re-subordinate their loan to the new first mortgage. Not all second lien holders have been willing to do this.

One other question will involve Private Mortgage Insurance (PMI). Will PMI be required on these new loans as it is required on all other agency loans when the loan-to-value exceeds 80% of the appraised value?

While a new appraisal will not be required, the parameters for determining the value used in the transaction are being delivered to loan servicing companies and additional information can be supplied by your servicer.

The final part of the HASP legislation involves assisting homeowners that will not be able to refinance but are still experiencing financial difficulty. For these borrowers, a loan modification may be warranted and it is expected that 3 to 4 million people may be able to get assistance.

Making Home Affordable modifications are intended for people that can no longer afford their monthly loan payments but still desire to remain in their home. In order to qualify, the affordability of your payment must have been impacted by a hardship. A hardship that may qualify for modification could include, but not be limited to, a change in your interest rate, decreased income, or increased expenses related to issues like medical expenses, increased property taxes and/or hazard insurance.

To qualify for a modification under the terms of the plan, you must be able to answer yes to the following questions:

1. Is your home your primary residence?
2. Is the amount you owe on your first mortgage equal or less than $729,750?
3. Are you having trouble paying your mortgage? Reference above for examples.
4. Did you obtain your mortgage before January 1, 2009?

One item to note is that the program is not available for jumbo loans. In many areas of the country, a jumbo loan is any loan amount between $417,000 and $729,750. Areas of the country where the loan amounts exceed $417,000 and are still considered eligible include high cost areas like parts of California, Florida, WashingtonDC, and the Northeast. Loan modifications included in the program are designed to assist the homeowner reach a new mortgage payment, inclusive of principal, interest, property taxes, insurance and homeowner's association fees of not more than 31% of gross monthly income. In order to arrive at this number, participation from both the lender and the government may be involved.

In order to qualify for either option, the homeowner needs to know that full qualification will be needed to ensure the borrower can meet the new payment. This will include supplying full income documentation and disclosure of assets. They will also be required to provide documentation proving the property is a primary residence. This can include verification through a credit report or other documentation such as utility bills.

To qualify for the modification program, evidence of additional housing expense items will be required including any other loans like cars, credit cards and student loans and their minimum payments, regular household expenses and a hardship letter detailing your situation and inability to make your payment.

Finally, all lender and loan servicers' participation is voluntary in either situation. Just because the programs are now available does not guarantee you will be able to find relief. Not all people in distressed situations will be helped. In these cases, there is a website detailing additional options that can be found at FinancialStability.gov.

The legislation released this week may not assist everyone in need of relief. However, if the bill does what is expected, it could assist in lowering the mortgage payments or save people from foreclosure at the rate of 7 to 9 million homeowners. While the final impact on the economy may not be known for years, the first step is to find out if it will work for you.

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