Plan for 4% interest rates defeated

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028


Democrats defeat GOP plan on mortgage rates

WASHINGTON (AP) — A plan by Republicans in the Senate aimed at pushing mortgage rates lower has gone down to defeat at the hands of Democrats.

The plan by Nevada Republican John Ensign would have encouraged banks to issue mortgages with interest rates of 45 to 4.5%.

The government-controlled mortgage giants Fannie Mae and Freddie Mac would have bought the mortgages on the secondary market. Jumbo loans would have been ineligible.

Democrats killed the idea Thursday night by a 62-35 vote.
The plan also contained an assortment of expensive tax cuts such as cutting the bottom 10% income tax rate in half for two years.

Credited to: www.USAToday.com

Obama to combat mortgage fraud

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028


Obama Budget Plan Boosts Resources to Combat Mortgage Fraud

WASHINGTON -- The Federal Bureau of Investigation and the Department of Housing and Urban Development would get more funds to crack down on mortgage fraud under the fiscal year 2010 budget.

The budget would also boost funding to HUD to promote affordable housing, a key Democratic priority.

The proposed funding comes as evidence mounts that mortgage fraud is on the rise, and scrutiny of illegal or predatory practices intensifies in response to the housing-market crisis.

More Complete Coverage: The Obama BudgetThe number of suspicious activity reports filed by financial institutions related to suspected mortgage fraud increased 44% in the 12 months ended June 2008 compared with the prior year, the Financial Crimes Enforcement Network, a Treasury Department unit, said this week.

The White House budget blueprint doesn't specify the increased spending sought to combat mortgage fraud. Details of the budget are set to be unveiled in mid-April.

The White House has proposed a total budget of $47.5 billion for HUD for fiscal 2010, a $7.4 billion increase over the spending level in a fiscal 2009 "omnibus" bill approved by the House on Wednesday. The agency also gets $13.6 billion in funds through the recently approved economic-stimulus package; about $10 billion of that has already been allocated by the agency.

The White House has proposed $1 billion in funds for an affordable-housing trust fund passed into law last year. Originally, the fund was to have been financed by siphoning a share of profits from Fannie Mae and Freddie Mac, the government-controlled mortgage-finance companies, but that plan was suspended due to their poor financial condition.

The proposal to pay for the trust fund through the federal budget is sure to meet stiff resistance from Republicans, who contend that the fund steers money to community groups friendly to Democrats.

The budget would allocate $4.5 billion to HUD's Community Block Grant Program, which provides federal funds to local governments to develop affordable housing. It would also provide an unspecified increase in funding for rental-housing vouchers for poor and moderate-income families.

The budget would abolish funding for two HUD programs, totaling $16 million: the Section 108 Community Development Loan Guarantees Program and the American Dream Downpayment Initiative.

The White House has decided against including the operations of Fannie Mae and Freddie Mac in the federal budget this year, a decision that could open the administration up to criticism that it isn't being transparent.

The government seized Fannie and Freddie in September, agreeing to pump up to $200 billion total into them as needed to keep them solvent. The Obama administration last week said it would double the financial backstop. The White House budget would cover any cash payments flowing to these enterprises from Treasury.

The Congressional Budget Office last month incorporated the companies' operations in its projections for the 2009 budget deficit. It estimated the seizure of Fannie and Freddie would cost the government $238 billion in fiscal year 2009, widening the federal deficit to $1.2 trillion.

White House budget chief Peter Orszag said the administration would consider including the mortgage giants' operations in its fiscal 2011 budget request next year.

"We have not had time to consolidate the operations of the government-sponsored enterprises into the budget," he said. "As we move into the fiscal year 2011 budget, we will be re-evaluating that question."

Credited to: www.WSJ.com

Mortgage Apps dip as rates rise.....

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Mortgage applications dip as rates rise
'People are still lacking the confidence to commit,' says expert.

NEW YORK (Reuters) -- U.S. mortgage applications decreased last week, reflecting a sharp drop in demand for refinancing as mortgage rates ticked higher, an industry group said on Wednesday

The decline followed recent robust gains, and came amid the unveiling of the strongest government action yet to aid homeowners since the housing market's meltdown began.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications , which includes both purchase and refinance loans, for the week ended Feb. 20 decreased 15.1% to 743.5 after surging 45.7% the previous week.

The MBA's seasonally adjusted purchase index fell 2.6% to 250.5 after rising 9.1% the previous week, and was down 30.1% from its year-ago level. It hit an eight-year low of 248.5 in November.

Overall mortgage applications last week were 11.8% above their year-ago level. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 0.4%.

The Mortgage Bankers' seasonally adjusted index of refinancing applications plunged 19.1% to 3,618.0 after soaring 64.3% the previous week, and it was up 47.1% from its year-ago level.
President Barack Obama last week announced a plan designed to provide much-needed support to the housing market. It aims to support refinancing for good quality borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

Lawrence J. White, professor of economics at New York University's Stern School of Business, said if he were to grade the housing plan he would give it a "B" or a "B-plus."

"The housing plan leaves out a major piece, which is the problem of what to do with somebody who holds a second mortgage, a substantial problem, especially on a lot of these foreclosure or close to foreclosure mortgages," he said on Tuesday. "The housing plan does not go far enough."
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.07% in the latest week, up 0.08 percentage point from the previous week. Six weeks earlier, mortgage rates hit the lowest level recorded in the MBA survey's history, at 4.89%. Interest rates were well below year-ago levels of 6.27%.

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy. Economists contend the economy might not emerge from its slump unless the housing market stabilizes.

"No question about it, buying a home is a riskier proposition right now than it was four years ago, but it can still happen," White said.

"The fact that there is now much more explicit government attention at the mortgage level, rather than just at the bank or troubled securities level, is valuable and can help turn things around," he said.

The adjustable-rate mortgage share of activity increased to 1.9%, up from 1.7% the previous week.

Fixed 15-year mortgage rates averaged 4.71%, up 4.66% the previous week. Rates on one-year ARMs increased to 6.13% from 6.10%.

"With the continued debate over the stimulus package, people are still lacking the confidence to commit and are waiting to really pull the trigger once they are comfortable that prices and rates aren't going to change drastically anymore," said Leif Thomsen, CEO of Mortgage Master in Walpole, Massachusetts.

"We'll still see better movement on the refinancing side but look for it to be more drawn out," he said.

Other data on Wednesday painted a poor picture of the U.S. housing market.
The National Association of Realtors said the pace of sales of existing homes in the United States fell 5.3% in January to a 4.49 million-unit annual rate while home prices and inventories dropped.

Economists polled by Reuters were expecting home resales to rise to a 4.79 million-unit pace from December's 4.74 million rate.

Credited to: www.CNNMoney.com

Homebuilder More Upbeat

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Homebuilders a bit more upbeat

Index shows that builders were slightly more optimistic in February compared to January, but near-record low levels suggest home sales will remain sluggish.

NEW YORK (Reuters) -- U.S. homebuilder sentiment climbed in February but held tightly near all-time lows, suggesting sales of new single-family homes would be meager as long as foreclosures flood the market, the National Association of Home Builders said on Tuesday.

The NAHB/Wells Fargo Housing Market Index eked out a one-point gain to 9 from the record low set in January, the group said in a statement. Economists polled by Reuters had predicted the index would stay at 8, the lowest reading since this measure started in January 1985.

Readings below 50 mean more builders view market conditions as poor than favorable. It was the fourth straight month the builder sentiment gauge clung to single digits, and was less than half of the reading of 20 posted a year ago.

"Homebuilders are especially concerned about the continually rising number of foreclosures and short sales, which are flooding the market with excess inventory and undermining overall home values," NAHB chief economist David Crowe said in a statement.

Concerns about this oversupply worsened the outlook for sales in the next six months, even though home buyer shopping picked up and affordability improved.
Builders are counting on new government stimulus to inject life into the worst U.S. housing downturn since the Great Depression.

New home sales are struggling, but "we are certainly hopeful that the newly passed economic stimulus bill, which includes some favorable elements for first-time homebuyers and small businesses, will have a positive impact that will help get housing and the economy back on track," Joe Robson, NAHB chairman and a builder from Tulsa, Oklahoma, said in the statement.

Two key provisions that should stimulate housing are an $8,000 first-time homebuyer tax credit, and extended 2008 high-cost area limits on loans sold to Fannie Mae, Freddie Mac and the Federal Housing Administration, the trade group said.

NAHB said its current sales conditions index rose 1 point to 7 and its gauge of prospective buyer traffic increased 3 points to 11 in February. But its measure of sales expectations for the next six months fell two points to 15, a new record low.

Credited to: http://www.cnnmoney.com/

Homebuilder More Upbeat

Homebuilders a bit more upbeat
Index shows that builders were slightly more optimistic in February compared to January, but near-record low levels suggest home sales will remain sluggish.

NEW YORK (Reuters) -- U.S. homebuilder sentiment climbed in February but held tightly near all-time lows, suggesting sales of new single-family homes would be meager as long as foreclosures flood the market, the National Association of Home Builders said on Tuesday.

The NAHB/Wells Fargo Housing Market Index eked out a one-point gain to 9 from the record low set in January, the group said in a statement. Economists polled by Reuters had predicted the index would stay at 8, the lowest reading since this measure started in January 1985.

Readings below 50 mean more builders view market conditions as poor than favorable. It was the fourth straight month the builder sentiment gauge clung to single digits, and was less than half of the reading of 20 posted a year ago.

"Homebuilders are especially concerned about the continually rising number of foreclosures and short sales, which are flooding the market with excess inventory and undermining overall home values," NAHB chief economist David Crowe said in a statement.

Concerns about this oversupply worsened the outlook for sales in the next six months, even though home buyer shopping picked up and affordability improved.
Builders are counting on new government stimulus to inject life into the worst U.S. housing downturn since the Great Depression.

New home sales are struggling, but "we are certainly hopeful that the newly passed economic stimulus bill, which includes some favorable elements for first-time homebuyers and small businesses, will have a positive impact that will help get housing and the economy back on track," Joe Robson, NAHB chairman and a builder from Tulsa, Oklahoma, said in the statement.

Two key provisions that should stimulate housing are an $8,000 first-time homebuyer tax credit, and extended 2008 high-cost area limits on loans sold to Fannie Mae, Freddie Mac and the Federal Housing Administration, the trade group said.

NAHB said its current sales conditions index rose 1 point to 7 and its gauge of prospective buyer traffic increased 3 points to 11 in February. But its measure of sales expectations for the next six months fell two points to 15, a new record low.

Credited to: www.CNNMoney.com

President Obama: "Mortgage Help on the Way!"

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028



Mortgage help: Do you qualify?
President Obama's new real estate rescue plan offers two key possible benefits: More refinancing opportunities and greater chance for a loan modification.

NEW YORK (CNNMoney.com) -- The eagerly anticipated foreclosure prevention program unveiled Wednesday by President Obama targets 9 million borrowers for help - are you one of them?

The $75 billion effort, dubbed the Homeowner Affordability and Stability Plan, boils down to two basic solutions:

First, the government is aiming to help more homeowners refinance to take advantage of new low interest rates.
Second, it provides incentives to lenders and servicers to restructure your mortgage to more affordable levels.

Official guidelines won't be unveiled until March 4, but here's how to know whether you'll likely be able to take advantage of either of these options.

Help for those seeking refinancing
This part of the program targets borrowers who have kept current on their mortgages. Many of the homeowners in this group have been unable to lower their housing costs through refinancings because of falling home prices.
Right now, if you're underwater on your mortgage, owing more than the home's market value, forget about qualifying for a refi. In fact, at least 20% equity in your home is now a must, unless you're using an FHA loan.

The new guidelines should help. Even homeowners with debt that exceeds home value by 5% could be eligible. And there will be no prepayment penalties. But your loan must be owned or backed by Fannie Mae or Freddie Mac.

The Administration estimates that this will enable up to 5 million homeowners to obtain lower interest rate mortgages.

Who's not eligible. Homeowners whose property values have dipped severely, putting them underwater by more than 5% are out of luck.

Those with "jumbo" mortgages also don't qualify - only those with "conforming' mortgages do. To be absolutely sure what kind of loan you have, you need to check with your servicer or lender after March 4. But in general, until the past year, loans above $417,000 were considered jumbo mortgages, and Fannie Mae and Freddie Mac were not allowed to buy and guarantee them.
All borrowers will have to prove they have sufficient income to be able to keep up their loan payments, though what would be sufficient proof wasn't yet clear.

Mortgage modification help for at-risk borrowers
Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.

Anyone with high combined mortgage debt compared to income or who is underwater may be eligible for a loan modification.

Borrowers with high levels of other debt, such as car loans and credit card debt exceeding 55% of their incomes, may still qualify for a modification but they'll be required to accept debt counseling in a HUD-certified program.

If you qualify, your servicer or lender will reduce your monthly mortgage payments to 31% of your gross income.

The payment would stay there for five years and then gradually revert back to the conforming loan rates in place at the time.

The reduction would come mostly through interest-rate reductions, though in some cases, principal reduction also would be an option.

Borrowers would also receive incentive bonuses of up to $1,000 a year for five years for making payments on time.

President Obama estimated 3 to 4 million homeowners could benefit from the new modification procedures.

Who's not eligible. Speculators, those who bought homes for investment purposes, do not qualify for help -- all homes must be owner/occupied.

The program will also not reward homebuyers who were irresponsible in their borrowing. All applicants will be closely examined by lenders and those who acted unscrupulously by, for example, misrepresenting their incomes in no-doc loan applications, would not qualify.
And, in order to protect taxpayers from excessive expenses, no loans will be modified unless it results in a net savings compared with the costs of foreclosing. Finally, rates would not be lowered below 2%.

That will disqualify many borrowers who simply can't afford any reasonable mortgage payment because of illness, for example, or job loss.

"[The plan] will not reward folks who bought homes they knew from the beginning they would never be able to afford," said Obama. "In short, this plan will not save every home."
No mortgages for amounts above comforming loan limits would be eligible.

Credited to: http://www.cnnmoney.com/

Aid Coming.....

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Obama: Aid 9 million homeowners
Wide-ranging $75 billion plan will use government money to subsidize rates and insure servicers against falling home prices.

NEW YORK (CNNMoney.com) -- President Obama unveiled a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, on the other hand, will make it easier for homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who've already stopped paying.

While still voluntary, the program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans. The program would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors.

In his speech in Mesa, Ariz., a community hit hard by the mortgage meltdown, Obama laid out how foreclosures hits more than just the troubled borrower. Seeking to drum up support from those who are paying their debts, Obama said that the downturn in the housing market has claimed many companies and jobs. This, in turn, has hurt state tax revenues, which means less money for schools and other public services. And, he said, it has made it harder for everyone to get credit.

"In the end, all of us are paying a price for this home mortgage crisis," Obama said. "And all of us will pay an even steeper price if we allow this crisis to deepen -- a crisis which is unraveling homeownership, the middle class, and the American Dream itself. But if we act boldly and swiftly to arrest this downward spiral, every American will benefit."

Falling home prices
Obama is venturing into new territory to deal with a serious problem plaguing millions of Americans, even those who remain current on their loans. The mortgage meltdown has prompted a steep decline in prices, leaving many homeowners owing more than their house is worth. Nationwide, prices have fallen 17.5%, back to the level they were at in fall 2004, according to Zillow.com.

The administration, which is marketing its plan as help for "responsible homeowners," estimates it can help up to 5 million people.

The plan would help borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments. Lenders generally won't refinance people who have less than 20% equity in their homes.

But only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible. Also, the new mortgage, including refinancing costs, can't exceed 105% of the current market value of the property, excluding many of the hardest hit. So if your mortgage is $210,000, your property can't be worth less than $200,000.

The program, which begins March 4, allows borrowers to refinance into 15-year or 30-year fixed-rate mortgages at the current market rate, which hovers around 5%. This could benefit those whose mortgages carry higher rates or those in adjustable-rate or interest-only loans, groups of people who could see big rate spikes in the future. The plan, however, will not reduce the loan balance.

For instance, consider a family that took out a $207,000 mortgage at 6.5% on a home originally worth $260,000, but now valued at $221,000. If they refinance to a rate of 5.16%, they could reduce their annual payments by more than $2,300.

Homeowner stability initiative
The administration is also creating a $75 billion initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.

It estimates this program, dubbed the Homeowner Stability Initiative, would help up to 4 million people. It also argues that the measure helps stabilize home prices for all in the neighborhood, maintaining as much as $6,000 in value.

Many homeowners who pay their mortgages on time have railed against the government using taxpayer money to bail out borrowers they see as irresponsible. The administration is joining others in saying that foreclosures hurt everyone because they drag down home values.

"I also want to be very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans," Obama said. "It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone."

The effort would help borrowers -- both those current and delinquent -- who live in their homes lower their monthly payments for five years. The servicer would reduce interest rates so that the monthly obligation is no more than 38% of a borrower's income and then the government would kick in money to bring payments down to 31% of the homeowner's income.

Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.

Obama's plan also addresses critics who say that some homeowners need extra help because they are carrying so much debt on top of their mortgages. Those with total debt -- including credit cards and auto loans -- equal to 55% of their monthly income must enter a debt counseling program to qualify for a modification.

In addition to providing incentives to servicers and investors, the administration will also reduce borrowers' loan balances by up to $1,000 a year for five years if they keep up with payments.
To entice servicers to modify mortgages in the wake of continuing home price declines, the administration and the Federal Deposit Insurance Corp. have developed a $10 billion insurance fund that will pay mortgage holders additional funds based on declines in a home price index.

The Treasury Department will also develop uniform guidelines for loan modifications, as well as require all financial institutions receiving government funds to participate in the program. Also, all federal agencies that own or guarantee loans will have to apply the guidelines where appropriate.

The Obama plan calls for legal changes to allow judges to modify mortgages during bankruptcy. Judges would be allowed to reduce the loan balance, a measure the financial industry fears because it would lower the value of the mortgage.

Community advocates say this step is required to aid homeowners who can't get help from their servicers. But, if Congress enacts this provision, they predict there will be fewer bankruptcies because servicers will be more diligent in helping homeowners outside of bankruptcy court.

Keeping mortgage rates low
The administration also plans to build on the Bush administration's use of mortgage financiers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), which were taken over by the federal government in September. The agencies buy loans and securities backed by mortgages from financial institutions, giving them more money to make new loans.

The plan calls for Treasury to strengthen the companies by injecting another $100 billion into each. And it will allow them to buy more mortgages by increasing the size of their portfolios to $900 billion, up from $850 billion.

And, the government will continue to keep prevailing mortgage rates low by buying mortgage-backed securities issued by the agencies. This effort expands a $500 billion purchase plan announced in November that prompted mortgage rates to fall nearly a percentage point.

Credited to: www.CNNMoney.com

First Time Home Buyer Tax Credit

From the desk of:

Rich Storey
Mortgage Advisor
615-260-8028


Final score: $8,000 for homebuyers
First-time purchasers get a tax credit windfall if they buy before December.

NEW YORK (CNNMoney.com) -- There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.

A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to

CNNMoney.com asking:
"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"

The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends.

Here are three scenarios:
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.

Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.

Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)
Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.

Lukewarm reception
The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate's proposal of a $15,000 non-refundable credit for all homebuyers.
"[The Senate version] would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). "We have a lot of reports of people who would be coming off the fence because of it."

Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.

The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. "I think there are many homeowners who would be trading-up but they have had no buyers for their own homes," Yun said.

Who won't benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle - they still have to close the sale before claiming the bonus.

One state, Missouri, is trying to get around that problem by creating a short-term loan on the tax credit of up to $6,750. The state would loan borrowers the money so they could use it at closing as part of the downpayment. Then, when the buyers receive their tax credit from the IRS, they pay back the state. Other states may follow with similar programs, according to NAHB's Dietz.

Many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.

And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home - a lawnmower, a rug, a sofa - and, in that way, help stimulate the economy.
CORRECTED: An earlier version of this story incorrectly stated how much taxpayers who were owed a refund would receive under the credit.

Credited to: www.CNNMoney.com

Final score: $8,000 for homebuyers
First-time purchasers get a tax credit windfall if they buy before December.

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Last Updated: February 17, 2009: 12:13 PM ET
AMERICA'S MONEY CRISIS
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NEW YORK (CNNMoney.com) -- There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.
A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:
"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"
The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.
To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.
Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)
Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.
Lukewarm reception
The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate's proposal of a $15,000 non-refundable credit for all homebuyers.
"[The Senate version] would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). "We have a lot of reports of people who would be coming off the fence because of it."
Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.
The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. "I think there are many homeowners who would be trading-up but they have had no buyers for their own homes," Yun said.
Who won't benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle - they still have to close the sale before claiming the bonus.
One state, Missouri, is trying to get around that problem by creating a short-term loan on the tax credit of up to $6,750. The state would loan borrowers the money so they could use it at closing as part of the downpayment. Then, when the buyers receive their tax credit from the IRS, they pay back the state. Other states may follow with similar programs, according to NAHB's Dietz.
Many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.
And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home - a lawnmower, a rug, a sofa - and, in that way, help stimulate the economy.
CORRECTED: An earlier version of this story incorrectly stated how much taxpayers who were owed a refund would receive under the credit.
First Published: February 16, 2009: 5:38 PM ET

Housing Fix.....HEAT IS ON!

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028


Foreclosure fix: Heat is on Obama team
Lawmakers and regulators push for moratorium until administration's plans unveiled. Federal officials confer on housing crisis.

NEW YORK (CNNMoney.com) -- A day after Treasury Secretary Tim Geithner said it would be a few weeks before he unveils a solution for the housing crisis, regulators and lawmakers pressed financial institutions to suspend foreclosures until the plan comes out.

Geithner, who laid out a broad overview of the Obama administration's plan to attack the financial meltdown, said Tuesday that the federal government would commit $50 billion to preventing foreclosures by reducing monthly payments. Details would be forthcoming, he said.
Until that loan modification plan is released, foreclosures should be halted, some say.

"I would ask all of you now to please make sure that we have a moratorium in effect," Rep. Barney Frank, D-Mass., told top bank executives at a hearing Wednesday. "It would be until we get that program, and until you know if people can qualify. Having someone suffer foreclosure because two weeks hadn't gone by for this program would be unacceptable."

The chief executives of Bank of America (BAC, Fortune 500) and Citigroup, (C, Fortune 500) two of the nation's largest servicers, told lawmakers they would agree to halt foreclosures temporarily. The head of Wells Fargo (WFC, Fortune 500) said it already has a moratorium in effect for loans serviced by Wachovia, which Wells Fargo acquired last year.

Frank said more banks are likely to comply with his request.
"I believe you will get well over 95% of the banks to hold off," Frank told reporters Wednesday. Banks know foreclosures "are not in their interest."

Meanwhile, the Office of Thrift Supervision urged the more than 800 institutions it regulates to suspend foreclosures until the administration's plan is finalized.
"OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new plan takes hold," OTS Director John Reich said Wednesday.

Several institutions -- including JPMorgan Chase (JPM, Fortune 500), Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) -- had put foreclosure moratoriums in place while they've gotten their loan modification plans up and running. Some states, including Massachusetts, have instituted short-term foreclosure bans. Even Obama during the transition called for a moratorium. The goal is to give borrowers more time to work out an affordable payment schedule.

These efforts are having an impact, at least in the short-term. Foreclosure filings -- default notices, auction sale notices and bank repossessions -- were reported on 274,399 properties during January, down 10% from December, according to RealtyTrac, an online marketer of foreclosed homes. RealtyTrac attributed a large part of the decline to foreclosure moratoriums.
Skeptics, however, say the moratoriums merely delay the inevitable.

Taking industry pulse
Treasury and federal housing officials met Wednesday behind closed doors for 90 minutes with industry representatives and community advocates to discuss the housing plan. The administration listened to proposals for how to address the mortgage meltdown.

A number of people at the meeting stressed the need for a standard model for streamlined modifications, according to participants. They also suggested the administration use part of the bailout funds to help delinquent borrowers get into affordable mortgages by subsidizing interest rates or forgiving principal.

"They are moving at a good clip to get it done, but they want to make sure they get it right," said John Dalton, president of the Housing Policy Council and a founding member of Hope Now, a coalition of servicers, investors and community groups focused on foreclosure prevention.

Officials met Thursday morning with more financial institutions, consumer groups and trade associations to continue the listening session. Geithner was also scheduled to attend a White House meeting with Obama's economic team to discuss efforts to stem the foreclosure crisis.
Still, many in the industry and on Capitol Hill are surprised at the time it's taking the administration to announce a foreclosure fix, particularly since Obama blasted the Bush administration for delay on the issue.

"One thing I'm determined is that if we don't have a clear focus program for homeowners by the time I take office, we will after I take office," he said on "60 Minutes" in mid-November.
Housing advocates, lawmakers and others want him to stick to that commitment. Elizabeth Duke, a Federal Reserve governor, on Wednesday stressed the need to move quickly.

"It is equally important that the government decide how it wishes to move forward, and then do so," she said in a speech. "As long as uncertainty exists as to the scope and terms of the additional steps that likely will be offered, borrowers, lenders, and servicers will continue to hold out in hope of securing a better deal."

Frank on Tuesday said that he's concerned about the level of resources the administration is committing and the time it's taking to debut a plan.

"First, I'm concerned that $50 billion to reduce foreclosures understates the amount that we will need, and we need some assurance that, assuming this works as we hope it will, there will be more money available," Frank said. "Secondly, the secretary said the administration would present details of their foreclosure reduction plan in a few weeks, which is too much time."
Many housing advocates are urging the administration to come out with its fix quickly. They say the economy cannot be revived until the housing crisis is addressed.

"Foreclosures should be Treasury's number one priority, not something to be done when we get around to it," said John Taylor, president of National Community Reinvestment Coalition. "Within the next few weeks, we will see tens of thousands more homeowners go into foreclosure. Treasury must take control of these toxic loans at a discount and modify them so that people can stay in their homes."

Financial institutions need to be more aggressive about modifying loans en masse, advocates say.
Lenders and loan servicers need to reduce payments to no more than 28% to 31% of a borrowers' income, which may entail forgiving part of the principal if need be, said Marietta Rodriguez, director of the national homeownership program for NeighborWorks America.

"They need to modify loans so financially the family has room to deal with other expenses in their lives," Rodriguez said.

Credited to: www.CNNMoney.com

Mortgage Rates Fall

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028


Mortgage rates slide
The 30-year fixed rate falls to 5.34%, as investors trade stocks for Treasurys following unveiling of bank bailout plan.


NEW YORK (CNNMoney.com) -- Mortgage rates fell during the past week, pushed lower from the uncertainty stemming from the bank bailout plan unveiled Tuesday.

The average 30-year fixed mortgage rate fell to 5.34% from 5.70% for the week ended Feb. 11, according to Bankrate.com.

The average 15-year fixed rate mortgage sank to 5.03% from 5.31%, and the average jumbo 30-year fixed rate slipped to 6.98% from 7.12%.

Adjustable rate mortgages also dropped over the past week, with the average 1-year ARM falling to 5.67% from 5.73% and the 5/1 ARM sinking to 5.37% from 5.5%.

Mortgage rates edged off the six-week high set the week of Feb. 4, helped by investor skepticism of Treasury Secretary Tim Geithner's plan to attack the financial meltdown. Jittery investors sold stocks and bought Treasurys, lowering the yields and pulling down mortgage rates, according to Greg McBride, senior financial analyst at Bankrate.com.

"We're going to continue to see volatility in mortgage rates between 5% and 6%. There's a tug of war between the Fed and the Treasury trying to push rates lower, and the volume of government debt issuances that pushes rates higher," McBride said.

Bankrate.com's national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

Credited to: www.CNNMoney.com

Bank Execs: "We are Lending..."

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028


Bank Executives Tell House Panel They Are Lending

WASHINGTON – Eight bank executives told the House Financial Services Committee Wednesday they are lending even in the face of the economic downturn and that government aid has made that possible.

"Make no mistake: We are still lending, and we are lending far more because of the TARP program," said Bank of America Corp. Chief Executive Kenneth Lewis at the hearing. Mr. Lewis said Bank of America next week will make its first dividend payment to the Treasury Department of more than $400 million. Over the year, Bank of America will pay the Treasury about $2.8 billion in dividends alone, he added.

"The bottom line is that we are lending significantly more with that preferred stock investment than we would be without it," he said.

Bank CEOs testify before the House Financial Services Committee on Wednesday. From left: Goldman Sachs's Lloyd Blankfein, JPMorgan Chase's James Dimon, Bank of New York's Robert Kelly, Bank of America's Ken Lewis, State Street's Ronald Logue, Morgan Stanley's John Mack.

Committee Chairman Barney Frank (D., Mass.), in his opening statement, urged the executives to work closely with Congress to address growing public concerns that banks receiving government aid aren't lending enough to consumers and businesses. "I urge you strongly to cooperate with us," Rep. Frank said. "There is substantial public anger" and relieving that anger "is essential."

Rep. Spencer Bachus (R., Ala.), the top Republican on the committee, told the executives that working "as partners" is the best way to address growing public anger.

Goldman's Mr. Blankfein said the financial-services industry must restore public trust. "We have to regain the public's trust and do everything we can to help mend our financial system to restore stability and vitality. Goldman Sachs is committed to doing so," he said.

The CEOs were met with deep skepticism from lawmakers who told tales of furious constituents and aggressively quizzed them on how they have used more than $160 billion in taxpayers' money.

Even so, the banking leaders brought a message of accommodation and gratitude. They applauded the program for making more loans available and promised to pay their share of the money back to the Treasury over time. Anticipating confrontations over their own compensation, several asserted that none of the government's money went to bonuses or dividends.

"We are frugal," said Wells Fargo & Co.'s John Stumpf. "We're Americans first. We're bankers second."

They also generally agreed with lawmakers' calls for better cooperation and better public relations. They were contrite and conceded they face a bitter public. They had little choice but to acknowledge as much, given intense anger by both lawmakers and the public as the troubled financial system continues to spiral downward.

Associated Press
Jamie Dimon, chief executive of J.P. Morgan Chase, speaks at a Crain's New York Business forum Feb. 3. He supports the creation of a new bank regulatory system.

Yet, for all the words of contrition, the CEOs also sought to show they were being prudent.
"We lent more even as customers cut back on their spending" during the last quarter of 2008, Mr. Dimon said. Still, he added: "We stand ready to do our part going forward."

Robert P. Kelly of Bank of New York Mellon Corp. promised "a very good return on the investment for taxpayers" and acknowledged "we still have a long way to go" to jump start the U.S. credit market.

Hearings on the bailout were taking place across the Capitol, with the CEOs appearing in the House while Neil Barofsky, the watchdog of the government's Wall Street rescue package, testified before the Senate Judiciary Committee.

FBI Deputy Director John Pistole told that Senate panel that there are 530 active corporate fraud investigations, and 38 of them involve corporate fraud and financial institution matters directly related to the economic crisis.

Mr. Lewis of Bank of America told the committee he thought the economy was fine until the summer of 2007 and that he credits former Treasury Secretary Henry Paulson with starting up a line of communication with the bank before then.

"To Secretary Paulson's credit, he called in August 2007, when things really started to melt down," Mr. Lewis said in response to a question about when he knew the economy was facing challenges. "Late-July to mid-August was the kind of timeframe when we saw real challenges in the economy," Mr. Lewis said.

He added that going into the third quarter of 2007, Bank of America officials "thought the economy was in relatively good shape" and that the company "became very concerned" when the capital markets started melting down in August 2007.

The hearing had a smooth start but, given the potential for protestors and interruptions, Rep. Frank had to lay down some ground rules. "This is not an audience-participation event," he said. "There are police officers here. People are totally free to go outside and other places. I will enforce that."

The Service Employees International Union had planned to hold a protest outside of the hearing, but at the top of the hearing all was calm and the hearing got under way in an orderly fashion. Still, the SEIU released a statement. "It's time to stop the banks from blocking reforms that would help the people who are bailing them out," union President Andy Stern said in the statement.

Credited to: www.WallStreetJournal.com

$15,000 Home Buyer Credit Info

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

$15,000 for homebuyers
Under the Senate's stimulus bill, homebuyers could receive a $15,000 tax credit if they purchase within a year.

NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes.

The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)

Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.

"This will bring pent-up demand back into the marketplace," said Jerry Howard, president of the National Association of Homebuilders. "We believe you can't effectively stimulate the economy until you find a way to stop the downward movement of home values."
The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."

That, combined with low mortgage rates, could help reverse the sentiment of many potential homebuyers who are waiting for prices to fall further before they act.
"Consumers are saying, 'Why buy now?' With money on the table, more would jump at the opportunity," said Yun.

The differences
The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.

But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.

Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.
Limited stimulus

Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict - and some have been scathing in their critiques. "This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."

One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."

Plus, he added, it gives a credit to others who would buy anyway.
"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."

He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?
The Tax Policy Center gave the credit a mediocre C+ grade in its Tax Stimulus Report Card.
TPC spokesman Bob Williams agrees that the credit is poorly targeted and does nothing to address the issue that's holding most buyers back: suspicion that prices will keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," he said. "It's not enough to change that."

If approved, applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.

Once the Senate passes its stimulus bill, which is expected to happen on Tuesday, a committee will meet with House members to reconcile the differences between the two bills.

Jaret Seiberg, who has been analyzing the stimulus package for the Stanford Group, said the odds favor the Senate provisions because they enjoy broad support among lenders, home builders and lawmakers.

"You have to have something in the stimulus bill to help housing, and there's very little else in there that's on point," said Seiberg.

Credited to: www.CNNMoney.com

$15K Tax Credit

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Farmington Financial is a full service mortgage lending provider.


Home-Buyer Tax Credit A Good Start, But...


Last night the Senate voted to include a $15,000 homebuyer tax credit to the American Recovery and Reinvestment Act (a.k.a. the big Obama bailout).

Heralded through the process by Senator Joe Lieberman (I-CT), the credit doubles the size of a tax credit passed last summer, which did very little to spark home buying.

This credit would likely not have to be paid back over time, as the previous one was.
“This robust tax credit will spark demand in our struggling housing market and offer real hope for economic recovery,” said Lieberman in the press release.

The release also cites:
An analysis by the National Association of Home Builders projects that the Isakson-Lieberman homebuyer tax credit amendment will have the following economic benefits in the first year after enactment:

-Increase home purchases by 499,700 homes,
-Create more than 255,000 jobs
-Generate $12.3 billion in wages and salaries and $9.7 billion in business income, and
-Yield tax revenues of $6.6 billion for the federal government and $2.1 billion for state and local governments.

After the release, J.P. Morgan homebuilder analyst Michael Rehaut put out a note calling the tax credit a “positive”, but adding that “structural challenges remain a greater negative for the industry.”

I tend to agree.
The tax credit, while available to all buyers, is really only going to help a first-time home buyer who has good credit and money to put down on a 30-year fixed. It won't overcome the hurdles facing the bulk of potential buyers out there who either have to sell their current home or don’t have the good credit and downpayment necessary to take advantage of today’s low mortgage rates.

In other words, the tax credit is a good start, but let’s hope it’s not the finish.

Credited to: www.CNBC.com

Introducing the 4% Mortgage

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028 (c)

Farmington Financial is a full service mortgage lender.

Stimulus: Senate's housing hopes
Lower mortgage rates, a foreclosure moratorium and more attractive tax credits to spur home buying are among possible amendments to recovery bill.

NEW YORK (CNNMoney.com) -- As the economic stimulus package moves to the Senate, the drumbeat is growing louder for new provisions that directly address the housing crisis.
Key senators from both parties said they will push for measures intended to spur sales and help homeowners at risk of foreclosure.

"We need to go right at the housing problem. That's what started all of this," Senate minority leader Mitch McConnell, R-Ky., told CNN.

The Senate floor debate is set to begin on Monday.

Here are three ideas likely to show up in amendments:

Create a 4% mortgage:
Senate Republicans are likely to introduce a provision that would encourage lenders to offer a 30-year fixed rate mortgage at 4% for a limited period of time. The loans would only be available to credit-worthy home buyers and homeowners seeking to refinance.

The government would guarantee the loan for a number of years, an aide to McConnell told CNNMoney.com.

Senate Republican Conference Chairman Lamar Alexander, R-Tenn., said on the Senate floor Friday that the measure could involve not only a government guarantee but a subsidy as well.
"If today's prevailing rate were 5.2 or 5.3 percent ... the government would make up the difference."

The cost of such a provision hasn't been determined yet, but the aide said Senate Republicans would seek to structure the proposal in a fiscally responsible way, without specifying exactly what that meant.

Offering government-backed low-rate mortgages "could be very popular politically as it tries to fix the banks by fixing consumers," financial services analyst Jaret Seiberg of the Stanford Group wrote in a research note.

But using government funds to force rates lower "could be very expensive," Seiberg said.
And as mortgage rates rise, which they have in recent weeks, such a proposal could grow even more expensive.

Expand home buyer credit: Senate Budget Committee Chairman Kent Conrad, D-N.D., said last week he would propose an expansion of a temporary $7,500 first-time home buyer credit so that it applies to all purchases of primary residences.

Some Republican senators have called for an increase in the credit to $15,000.
On "Face the Nation," Sen. Charles Schumer, D-N.Y., said Sunday that lawmakers "can do more for housing." The proposal to increase the home buyer credit to $15,000 and make it available to all home buyers is "something that we look favorably upon," he said.

The Senate recovery package as it stands now removes the requirement under current law that the credit be repaid by buyers over time, assuming they don't sell their home for three years after claiming the credit. The credit phases out for individuals making more than $75,000 ($150,000 for joint filers).

Hold off on foreclosures:
Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters last week that he would like a provision in the stimulus package that would impose a 90-day moratorium on foreclosures. Dodd may consider other housing measures as well.

Postponing a foreclosure for three months might allow some troubled borrowers to keep their homes by buying them time to work out a new loan agreement with their mortgage servicer.

Obama housing proposals on deck
Advocacy in the Senate for more housing measures in the stimulus bill comes while President Obama is expected to release a comprehensive plan to fix the financial system within the next two weeks.

Obama has been promising for the past month that he would soon propose a foreclosure prevention program, and many believe that could be part of a plan he announces in the coming week. Indeed, he said Saturday that his plan will include a proposal to lower mortgage costs.

Last month, Obama's economic team promised lawmakers they would use $50 billion to $100 billion of the remaining money from the Troubled Asset Relief Program to prevent foreclosures.
Whether the housing measures proposed by Republicans on the Senate floor are intended to be in addition to Obama's proposals or as replacements isn't clear yet.

One of the ideas likely to influence Obama's plan is a loan modification program put forth by FDIC Chairman Sheila Bair that has garnered support from lawmakers. That plan would require that lenders reduce housing payments for delinquent borrowers to 31% of gross monthly income.

Lenders could achieve that by lowering mortgage rates to as low as 3% for five years, before increasing at an annual rate of 1 percentage point until they hit the prevailing market rate. Loan terms could be extended as long as 40 years.

In exchange, Bair proposed the government would share up to 50% of the losses if a borrower who gets a modified loan ends up defaulting anyway. And it would help foot some of the servicers' loan modification costs.

Credited to: www.cnnmoney.com

Mortgage Applications Surge

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Farmington Financial is a full service home mortgage provider.

Mortgage applications rise
Despite the highest interest rates in more than a month, a refinancing surge sends mortgage applications up 8.6% in the last week of January.

NEW YORK (Reuters) -- U.S. mortgage applications rose in the last week of January, reflecting a jump in demand for home refinancing loans even as interest rates rose to their highest levels since early December, data from an industry group showed Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Jan. 30 increased 8.6% to 795.4 after slumping 38.8% during the previous week.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.28%, up 0.06 percentage point from the previous week. Three weeks earlier, mortgage rates were 4.89%, the lowest level recorded since the MBA survey began in 1990.

John Lonski, chief economist at Moody's Investors Service in New York, said the recent trend higher in mortgage rates is a setback for the U.S. housing market and not what the economy needs right now.

"In this environment, we cannot afford to have mortgage rates going up, especially because of how critical the stabilization of housing is to any steadying of the overall economy," Lonski said on Tuesday.

"We cannot have a bottoming of the macro economy without first stabilizing home sales," he said. Indeed, enticing mortgage rates impacts demand. The National Association of Realtors said on Tuesday its Pending Home Sales Index, based on contracts signed in December, surged 6.3% to 87.7 in December, the first increase since August.

The index, a key gauge of future home sales activity, tracks signed, not closed, contracts, so it is influenced by changes in mortgage rates.

The MBA's seasonally adjusted purchase index fell 11.2% to 261.4 in the latest week. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2%. The Mortgage Bankers seasonally adjusted index of refinancing applications, meanwhile, jumped 15.8% to 3,906.3.

Mortgage rates up with Treasury yields

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.
"Extraordinarily low mortgage yields are absolutely necessary to compensate potential home buyers for home price deflation risk and heightened unemployment risk," Lonski said. "That will probably require more intervention from the government."

The recent rise in mortgage rates can be tied to U.S. Treasury yields, which are linked to mortgage rates. Treasury yields have risen sharply on fears over surging debt issuance to fund a ballooning budget gap and an array of government rescue programs.

Before the recent rise, 30-year mortgage rates had mostly been on a downward trend ever since the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The adjustable-rate mortgage share of activity decreased to 2.1% in the latest week, down from 2.4% the previous week. Fixed 15-year mortgage rates averaged 5.15%, up from 4.98% the previous week. Rates on one-year ARMs increased to 6.09% from 5.96%.

Credited to: www.cnnmoney.com

Republican push for mortgage incentives....

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Credited to the Associated Press


Republicans want mortgage relief, larger tax cuts
By DAVID ESPO – 15 hours ago

WASHINGTON (AP) — Senate Republicans circulated a sweeping plan to drive down the cost of mortgages by expanding the federal government's role in the industry, officials said Monday night as debate opened on an economic stimulus bill at the top of President Barack Obama's agenda.

The emerging proposal also relies on a bigger and more widely available tax break for homebuyers than is now available, those officials added as Senate Republicans staked their claim to a different type of economic recovery measure than Democrats and the administration favor.

Democrats already are under pressure from moderates in their own party to scale back spending in the $885 billion bill, and Obama met with party leaders at the White House late in the day to discuss strategy.

"What we can't do is let very modest differences get in the way" of swift enactment of the legislation, Obama said several hours earlier as new layoffs rippled through the economy and the Commerce Department reported an unexpectedly large sixth straight drop in personal spending.

In the Capitol, Republicans said their goal was to change the bill, not to block it. "Nobody that I know of is trying to keep a package from passing," said Sen. Mitch McConnell of Kentucky, the Republican leader.

"We need to fix housing first," he said. Republicans are expected to seek a vote on their proposals this week as part of the debate on the overall stimulus measure.

Officials said the GOP was coalescing behind a proposal designed to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, which were seized by the federal government in September, would be required to purchase the mortgages once banks have made them to consumers.

Officials said loans to credit-worthy borrowers on primary residences with a mortgage of up to $625,000 would qualify, including those seeking to refinance their current loans.

Separately, Republican officials said they intended to press for a $15,000 tax credit for homebuyers through the end of the year. Current law permits a $7,500 tax break and limits it to first-time homebuyers.

Republicans generally dislike government intervention in the workings of the private marketplace, but their opposition has eroded in recent months as the crisis in the financial industry and economy have deepened.

The officials who described the emerging proposal did so on condition of anonymity, saying they were not authorized to discuss it.

McConnell also said Republicans favor cutting the two lowest tax brackets as a way to " put money back in people's hands directly." If adopted, that would reduce the tax rate from 10 percent to 5 percent for the first $8,350 in individual income for the current year, and $16,700 for couples. The tax rate would be lowered from 15 percent to 10 percent on income between $8,351 and $33,950 for individuals and between $16,701 and $67,900 for couples.

Obama and the Democrats favor a different approach. The legislation provides a cut of $500 for workers and $1,000 for working couples, even if they do not earn enough in wages to pay income taxes.

Separately, Democrats privately conceded they may wind up reducing spending that has come under withering fire in recent days from Republicans.

Last week, House Democrats jettisoned money to reseed the National Mall and a provision to make it easier for states to offer family planning services to the poor under the Medicaid program.

Democrats hold a commanding 58-41 majority in the Senate, but some of their more moderate and conservative members are pushing to trim spending. There was additional pressure on the leadership in the form of bipartisan amendments to reduce spending.

As a result, the outcome of the debate on the measure is far less clear than it was in the House, where leaders had the votes to enforce their will.

The political environment also has changed since House Republicans voted unanimously against the bill last week. Public opinion polls show strong support for a package of tax cuts and spending increases to remedy the worst economic downturn since the Great Depression. But Obama is now on the spot, having pledged personally to GOP lawmakers that he would make changes in the bill once it reached the Senate.

The $885 billion Senate bill is larger than the House-passed version, principally because it includes a one-year tax cut to prevent upper-middle income taxpayers from falling victim to the Alternative Minimum Tax. The so-called AMT initially was created a generation ago to make sure the super-wealthy did not avoid taxation, but inflation has expanded its reach over the years.

In all, the Senate measure provides for roughly $560 billion in spending and $325 billion in tax cuts.

Much of the spending is in the form of health care for the poor; education funds for the states to avoid the impact of their own budget cuts on schools, and more money for food stamps, unemployment insurance and worker retraining funds.

Additionally, the bill includes a down payment on two of Obama's domestic initiatives. They include expanding health information technology and providing spending and tax cuts to encourage development of new jobs while increasing reliance of alternative energy sources.

Whatever the breakdown, Republicans said there was far too much spending, and not enough in tax cuts.

Obama made his comments at the White House, where he met with Vermont Gov. Jim Douglas, the Republican vice chairman of the National Governors Association.

"If I were writing it, it might look at little different," said Douglas, trying to keep faith with Republican critics in Congress while saying his state needed help. "But the essence of a recovery package is essential to get the nation's economy moving."

The White House issued a statement late Monday saying the president and Democratic congressional leaders had a productive meeting and that they agreed on the urgent need to pass legislation. They also pledged to continue working together to achieve a bipartisan consensus.

The latest layoffs were announced by Macy's, the Cincinnati-based department store chain, which said it was cutting 7,000 jobs.

ATTN: First Time Home Buyers....FREE MONEY!!!

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Credited to: www.CNNMoney.com

Farmington Financial is a full-service home lending organization.

Homebuyers get a bonus in the stimulus bill
First time buyers could receive a $7,500 tax credit if they purchase soon.

NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.
Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.

"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."

A 10% increase would yield an extra half million sales this year.

Who qualifies

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.

The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.

Buyers beware

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card.
Williams argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway. (See correction, below).

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."

The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.

"By the time it's implemented," said Trupo, "there could be very few months left to act."

Lending Environment Update

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Credited to: www.CNNMoney.com

Farmington Financial is a full-service home lending organization.

Banks loosen standards, but credit still tight
Federal Reserve survey reveals that fewer banks tightened their lending standards in latest quarter; loan demand remains weak.

NEW YORK (CNNMoney.com) -- Credit continued to remain tight at the nation's banks in the final three months of 2008, according to a report published Monday by the Federal Reserve. But a smaller percentage of institutions toughened their lending standards.

In its latest survey of loan officers, the Fed revealed that the number of banks that tightened their lending policies on both consumer and commercial loans fell during the fourth quarter when compared to the previous quarter.

The survey, which is widely viewed as an accurate assessment of bank lending activity, also revealed that demand for consumer and business loans continued to weaken as the U.S. economy deteriorated further.

Banks' willingness to lend money has become a focal point in the ongoing crisis after the U.S. government provided nearly $200 billion in government funds to financial firms in an effort to get credit flowing again.

Both lawmakers and taxpayers have expressed concerns that instead of lending, many banks are hoarding the cash, using capital to fund acquisitions or paying lavish bonuses.
Some industry executives have maintained that they are still making new loans and extending existing credit lines to both consumers and businesses.

But those rebuttals have provided banks little relief from Congressional scrutiny as lawmakers prepare to release the second half of the $700 billion financial rescue package.

Hoping to deflect some of that criticism, Bank of America (BAC, Fortune 500), which has received $45 billion in government aid, said last week it planned to publish reports that would track its lending activity in multiple areas.

Considering a Refinance?? Have a clear goal in mind...

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Credited to: www.WashingtonPost.com



Is It in Your Best Interest?
Before You Join the Flock Trying to Refinance, Determine If a New Loan's Terms Fit Your Goals


On its face, deciding whether it's worth it to refinance your mortgage seems simple enough.
Shop for the lowest rate possible. Figure out what your monthly payment would be at that new rate. Compare it with what you're paying now and decide whether the savings (assuming there are any) offset the closing costs of the loan quickly enough.

But as with most money matters, nothing is that simple. Refinance applications have soared in recent weeks as interest rates hit record lows. The rush has slowed somewhat as rates have leveled off, but it may pick up again now that the Federal Reserve this week has renewed its commitment to try to push down consumer interest rates. While the gyrations in the credit market have made it tough for many people to take out a loan for a new home, it's less of a hassle to refinance, especially for owners with good credit who have built up equity over time.
If you're contemplating joining in, think about what you are trying to achieve by refinancing and how best to do so.

"It's not a one-size-fits-all type of thing. It's barely a one-size-fits-most," said Keith Gumbinger, a vice president at mortgage research firm HSH Associates. "You have to have a goal in mind."
Are you refinancing to save money by minimizing the total interest expense during the life of the loan, or are you trying to free up cash by lowering your monthly payment?
Are you rushing to pay off your loan as quickly as possible and, if so, are you short-changing your cash needs in the process or eating into your emergency fund?

Maybe you're eager to ditch an adjustable-rate mortgage before it resets, switching to a more predictable fixed-rate loan, as many consumer advocates advise. But have you considered that your loan may reset to a lower rate if it is tied to a Treasury index? Can you stomach holding on to it longer? Should you?

Answers to many of these questions are a function of timing.
Let's assume you live in Maryland and took out a new loan that saves you $50 a month. The average closing costs in that state last year were $3,117 on a $200,000 loan, according to Bankrate.com, a personal finance Web site that compiles an annual closing cost overview. It would take a little more than five years to break even on that loan. The goal is to get beyond the break-even point.

"If you're planning to sell the house within that period, it doesn't make sense to refinance," said Ric Edelman, a financial adviser in Fairfax. "But if you're planning to stay for 10 more years, it does make sense."

The same reasoning goes into deciding whether to pay points, which are the upfront fees borrowers pay to reduce the rate on the loan. A point is 1 percent of the loan amount.

Brian Ng knows all that, but he was still conflicted. He wanted to refinance and take out cash to spend on remodeling his home. A lender quoted him 4.875 percent on a 30-year fixed rate mortgage for $357,000. If he paid 1 point, he could reduce his monthly payment by roughly $54. But it would take him 5.5 years to recoup that cost.
"I plan on being in the house at least that long," Ng said. "Should I pay 1 point or keep the cash to help me pay for home improvements?"

First, find out how much that 1 point is buying, said Steve Calem, president of Capital Funding Group, a mortgage consulting and advisory firm. Typically, a point shaves an eighth or a quarter percentage point off the interest rate. Ng was offered a quarter point. But these days, a point can buy closer to half a percentage point, Calem said.

"If you're getting more than a quarter percent for the point, that's a real bargain and it's worth serious consideration," Calem said. He suggested that Ng try to have his lender increase the loan amount to accommodate the cost of the point, which would eat up only $15 of the $54 in monthly savings. "With such a low interest rate, I don't think he'll get cheaper money."

But there's another consideration for borrowers who pay high closing costs when they refinance.
"What if you want to refinance in another year because rates have dropped further?" Edelman said. "You will not have recovered the cost of the first refinance by then."
Ng concluded the same. This week he closed on a no-point loan.

For all those reasons, it is best to press your lender to waive fees and bring down the closing costs as much as possible, which some lenders are willing to do to win your business or keep it. They may fold the costs into the loan so you can avoid paying cash upfront, if you have enough equity. Even then, there may be some cash charges that are tough to duck, including an application fee of several hundred dollars.

By law, borrowers must receive from their lenders a good faith estimate of the closing costs and other charges within three days after applying for a loan. But it is only an estimate and it will not be as transparent as many consumer advocates would prefer. There's an effort underway to make these estimates less confusing.

"The lender is not required to let you know at the time of application what the estimate is, but I wouldn't sign any papers until I have a good idea of what the costs might be," said Jeff Douglas, president of Douglas Mortgage Services in Fairfax. "I would go over every line item with the mortgage loan officer so you can better understand what is being charged."

If you want to figure out some of the math up front, plenty of refinancing calculators can help you do that. But even with the numbers at hand, the best course of action depends on your goals.