Sound familiar?  It should because the Making Home Affordable movement has two refinance programs and a modification program.  So what will make this one different?

We haven’t seen any details on this new “broad” refinance program but there’s a good chance that it will be modified versions of existing programs.  Some of the programs released were a success while others were a huge failure.  Let’s summarize the government’s previous attempts.

FHA Secure (2007-2008)

This program was implemented by the Bush administration.  It was designed to help homeowners who were late on their mortgage due to an adjustable rate mortgage refinance to a FHA fixed rate loan

Success or Failure?

-FAILURE-

One of the program requirements were that the homeowner must be late following a rate adjustment.  When I’ve talked to homeowners, they’ve expressed the importance of getting help before they’re in trouble, not after.  Responsible consumers see their credit as the biggest reason they search for help. Asking them to request help after they’re late is like asking someone to reach for help after their head is under quick sand.  Homeowners want help before their late, not after.  In addition, lenders were more reluctant to participate in a program that required a homeowner to be in default.

HARP- Home Affordable Refinance Program (2009 to current)

This program was part of the 2009 Economic Stimulus package signed by Obama.  The program is designed to help homeowners with conventional loans backed by Fannie Mae or Freddie Mac refinance to new terms with less equity than what is traditionally required for a conventional refinance.  This program has different versions including programs the existing servicer can do and programs that other Fannie Mae/Freddie Mac lenders can do.

Success or Failure?

-SUCCESS-

This program was originally launched with mild lender participation.  They added some features to boost participation, including higher loan-to-values and adjustments to improve rates. Hurdles along the way include 2nd mortgage companies blocking homeowners from refinancing their first mortgage (called a subordination), misinformation about the program (The Making Home Affordable website stated it was only for a primary residence home which is not true) and strict lender overlays.  Lenders began loosening their guidelines and approximately 810,000 homeowners have successfully refinanced under HARP.  Many homeowners are still having troubles refinancing if their loan has private mortgage insurance or if they have a 2nd mortgage where the creditor is unwilling to subordinate.  The program has been extended a second time until June of 2012.  Other than PMI insured loans, the biggest hurdle this program faces is loan-to-value.  Even though they’ve expanded the program to allow 125% financing, few lenders will lend above 105%.  With values continuing to decline, this program is quickly becoming an option that homeowners discover too late.

HAMP- Home Affordable Modification Program (2009-current)

This program was launched the same time as HARP.  The purpose of this program is to help homeowners with loans if the homeowner is facing hardship and does not qualify for a traditional or HARP refinance

Success or Failure?

-FAILURE-

This program has seen some success but not the success that was expected.  One of the largest problems facing this program is that the participating lenders did not have existing professionals in place to service the consumers. As institutions did their best to implement the program, newly hired staff had to stumble their way through a new program they were not familiar with.  Many homeowners have seen some success but there have been too many failures with this program.  One of the biggest problems with this program is the lenders misinformation given to customers.  Many lenders told their clients that they had to be in default to qualify.  Some lenders told their customers they could try a “trial payment” period while they determined eligibility.  Many of these homeowners didn’t understand that this process made their mortgage late.  Lenders also didn’t properly qualify the customers on which program best suited their situation, sending well qualified HARP customers to a HAMP specialist .  These customers unknowingly started a HAMP modification and later find out they not only were turned down, but the “trial payments” disqualified them for HARP.  Improper training and implementing a new type of program has been the largest factors associated with HAMP’s failure.

FHA Short Payoff Refinance (2010-Current)

This program is designed to help homeowners refinance to a FHA loan and reduce their principal balance.  Although the program is still in existence, talks of ending this program have already begun

Success or Failure?

-FAILURE-

Successful refinances on this program are few.  The underlying lenders did not have the infrastructure in place to deal with “negotiations” to take a reduced principal payoff during a refinance.  In addition, there was limited participation from FHA lenders.  The biggest problem with this program is that it removed a viable refinance program for homeowners that already existed. Prior to the implementation of the FHA short refinance, FHA allowed any homeowner to refinance their first mortgage up to 97.15-97.75% of their value with a second mortgage with no limit to value.  Homeowners who had subprime 80/20 mortgages (loans where they financed 100% of their purchase with two loans) could refinanced their underwater house by converting their first mortgage to a FHA fixed rate loan and keep the existing 2nd mortgage if it exceeded their value.  When FHA implemented the short refinance program, they discontinued allowing homeowners to refinance and keep their 2nd mortgage with no limitations.  A regular FHA loan was a great solution for homeowners with subprime or Alt-A 80/20 loans that was removed due this program, causing more harm than good.

THE PLAN

As a professional in the mortgage industry, I understand how difficult it is to make new programs with different investors involved.  We cannot make one, simple program to help everybody because every loan is backed by a different entity.  A quick, simple adjustment to all existing loan programs will help most homeowners.

Watching different programs come and go, I’ve found some consistencies in the successes and failures of these programs.

I found that programs that required lenders to create a whole new staff to support were slow in implementation due to training and funding for startup, where programs that relied on existing staff worked well.  Teaching an experienced loan underwriter a “modified” version of a conventional refinance is easy, as is training the loan officers.  Training a person to originate or underwrite a program that has never existed takes time, patience and more funding.

I also found that programs that were designed to help homeowners BEFORE they were in trouble succeeded.  This is one of the reasons HARP has seen a higher level of success than other programs.

In addition, programs designed to be profitable for banks to participate and minimize additional liability were implemented faster by institutions.  It’s not hard for a company to train staff to work on programs that help the company make money.

Lastly, programs that didn’t require any “exceptions” from the underlying lender also have been easier.  From my experience, the biggest problem with the FHA short refinance was the participation of the lenders being paid off, not the lenders funding the new loan.  This also has shown true with HARP when lenders requested subordinations from a second lien holder.  In a related topic, this holds true with PMI HARP loans where the PMI companies may not be willing to issue a new policy on the new loan being funded.  The more entities who need to say “yes”, the less likely the transaction will close.

Here are some ideas:

LOANS BACKED BY FANNIE MAE AND FREDDIE MAC

HARP has seen a substantial amount of success but there are still a few major hurdles to overcome.  As mentioned above, we need to deal with loans with PMI and loans loans over 105% of the home’s value.  Lenders are not willing to lend above 105% even though the program allows it because the lenders share the liability.  Another problem is less lenders are participating in the Freddie Mac HARP program for lenders who do not service the loan.  This has reduced lender participation and homeowners with Freddie Mac backed loans are losing their options to refinance.

Solution

The government should remove any additional liabilities related to funding loans up to 125% of the home value.  They should also increase the eligibility of a homeowner closing these loans without an appraisal.  Some loans are eligible for a HARP refinance without an appraisal but not all of them.  If the guidelines allowed more appraisal-waiver loans and less risk for loans over 105%, more lenders would participate.  To help reduce liability, keep these new, expanded guidelines to homeowners with higher credit and stronger compensating factors.  I’ve found that many homeowners will simply never default on their loan and are extremely responsible, but do not have any options. Allowing them to refinance to a lower rate will help more money enter our marketplace without adding any unneeded risk.  In addition, Freddie Mac should model their HARP program more similarly to Fannie Mae and allow more appraisal waivers and loosen restrictions to participating lenders.

ADDED 9/12/2011

It would also help if Freddie Mac removed their limit on properties financed.  Freddie Mac currently has a limit that keeps homeowners from refinancing if they have more than 4 properties with a loan.  Why would they stick to this guideline when the loan is already owned by them?  Fannie Mae figured this out and removed any limitations related to the number of financed properties when a borrower is applying for a HARP loan.  Freddie Mac should follow the same.

In a press release on Friday, The Federal Housing Finance Agency responded to the press release from President Obama.  The announcement mentioned a “reevaluation” of the existing HARP program.  You can read the announcement here:

http://www.fhfa.gov/webfiles/22607/HARPSTMT9911.pdf 

LOANS BACKED BY FHA

FHA has already had a good solution by allowing homeowners with FHA insured loans to refinance without an appraisal.  However, FHA has recently increased their mortgage insurance premiums making it harder for homeowners to refinance to a lower rate and save money.

Solution

I understand that FHA needs to increase their premiums since more homeowners have begun using FHA loans, but why charge existing FHA homeowners more?  These homeowners are already paying FHA premiums and by not allowing them to refinance, we remove the ability for a homeowner to save money.  If we can allow homeowners to refinance to a new FHA loan without increasing their mortgage insurance premiums, FHA will continue to receive the same premium while putting more money in the homeowners pockets.

LOANS BACKED BY VA

The VA already allows veterans with VA insured home loans to refinance with no appraisal (called a VA Interest Rate Reduction Refinance Loan or IRRRL) but there’s a new problem.  The VA has been too loose on their guidelines allowing veterans to wrap expensive loan costs into the loan without an appraisal, increasing the risk to the new lender.  This has resulted in VA lenders requiring an appraisal on a refinance program that doesn’t require one.  Very few lenders still participate in this program without an appraisal and many of the ones that do charge high fees.  Others only offer versions of VA loans like adjustable rate mortgages, limiting a veteran’s option to refinance.

Solution

The VA should increase the insurance on IRRRL loans so lenders are more comfortable lending.  They should also limit the new loan to be near or the same principal balance as the old loan so the lenders do not increase their risk.  Lastly, they should REQUIRE any lender who wishes to participate in VA insured home loans to offer IRRRL loans.  If a lender is not increasing the risk and the loans have more insurance to protect them, the VA has every right to request the lender to offer these loans without the request of an appraisal.  It’s ridiculous that our veterans who are underwater are told by the VA that they qualify for a refinance only to find a handful of options of lenders and programs to choose from.

LOANS BACKED BY THE USDA

These loans require the homeowner to be qualified for a 1% rate reduction, which is a little strict.

Solution

Many homeowners can reduce their rate by .5-.75% while paying almost no fees on other programs.  If the USDA implements the same policy as FHA, which requires the payment to drop 5% from the previous payment, this will help more homeowners in reducing their interest rate.

LOANS NOT BACKED BY ANY OF THE ABOVE AGENCIES

There are many home loans not backed by the agencies above.  Homeowners who seek payment relief and find their loan is not supported by these programs are left with few options.

Solution

This is a tougher problem to fix, but one of the first ways of solving this is by changing the FHA guidelines back to where homeowners can take a FHA loan with a second mortgage behind it without value limitations on the second mortgage.  If we change FHA guidelines to allow second mortgages to exceed the value of the home, we can then implement a government loan program that provides a second mortgage covering the underwater portion of the mortgage.  The loan should probably be limited in size depending on the area and only be offered to very well-qualified homeowners who clearly have an intention of paying their loans back.  A higher credit score requirement for the second mortgage and a balance limited to $50k-100k depending on the area would likely work.  The second mortgages can be controlled and funded by Local Public Housing Agencies (Also known as PHA’s).  These agencies are already in place and fund FHA approved 2nd mortgages for home purchases.  They have the staff and experience to regulate these loans.  Most states, cities or local municipalities has their own local authority that manages down payment assistance programs.  If the government gives them funding to staff the program and cover the cost of funding these programs, we can release a program to help homeowners underwater regardless of who owns their home loan.

It’ll be interesting to find out what Obama’s plan looks like.  Stay tuned for updated information.

The largest impact will be directly to mortgage loans that are being contracted to close during the shutdown. Many new applications will sit stagnant while we wait for congress to come to a resolution. How badly this will affect the housing market will depend heavily on how long the shutdown is. For all the work the government has done to avoid a double-dip housing recession with bailouts and government programs (such as the Making Home Affordable programs) their inability to resolve budget disputes may be the direct cause of another drop in house values. 

WHAT FEDERAL AGENCIES WILL BE AFFECTED AND HOW WILL IT IMPACT THE MARKET?

FHA

Specifically, FHA is getting a lot of attention and rightfully so. FHA has been a savior to the mortgage industry since 2008 at the beginning of the recession providing affordable loans with reasonable credit guidelines. From 2005 through 2007, FHA never represented more than 4.25% of all the home loans originated. In 2010, FHA represented over 19% of all home loans and a whopping 30% of new home sales. These statistics have been published directly by the Department of Urban and Housing Development. FHA will not insure home loans during the shutdown. Lenders may choose in their own discretion to fund the loan and request insurance after the shutdown is over.

VA

As of right now, most reports show that the Department of Veterans Affairs will not be impacted. This is good news for veterans who are currently looking to buy a home.

USDA

The USDA (US Department of Agriculture) insures affordable home loans for rural areas. The USDA will not insure new home loans and I’ve received reports that their automated underwriting engine (Guaranteed Underwriting System) will not operate. This not only halts the funding of some USDA loans, but will prevent lenders from pre-approving buyers for this program. Although USDA represents a much smaller percentage of loans than FHA, this program is hit the hardest of the three. Lenders can still manually underwrite the files but most will require the assurance of USDA’s program to approve a client. This is unfortunate after the government spent months working on a budget to fund the USDA after they ran out of loan funds for a portion of 2010. It does sound like USDA lenders will be able to close loans with a conditional commitment up to 90 days of the commitment, but new applications will not be processed and new prospective buyers won’t be able to get pre-approved. Like FHA, lenders may choose to close the loan and wait for the shutdown to end before sending the loan to the USDA at their own discretion.

IRS

Now, let’s talk about the big entity nobody is talking about when talking mortgages, the IRS (Internal Revenue Services).

Many of you are wondering, “How does the IRS have an effect on the mortgage industry?” There’s many ways the IRS can affect home loans since we use tax documents to verify income, but not in the most obvious way.

Mortgage lenders rely heavily on tax documents to calculate and verify a homebuyer’s income. Most homeowners will have their tax documents on hand, but the mortgage industry needs more than a copy of the documents.

Prior to the mortgage meltdown, mortgage lenders trusted their consumers that the tax documents they received were accurate and complete. Lender guidelines have since changed. To avoid fraud and also catch amended tax returns, mortgage guidelines require verification from the IRS that the tax documents the lender has reviewed were accurate and complete. These verifications are done by tax transcripts ordered by the lender to the IRS. You can read more about why transcripts are required here.

Lenders are now requiring transcripts on virtually all loans being processed. Specifically, Fannie Mae and Freddie Mac require transcripts for every loan file. I’ve found some reports that state Fannie Mae and Freddie Mac will remain operational, indicating that consumers can obtain a Fannie Mae or Freddie Mac conventional home loans with no issues. That is only partially true. If the government were to shut down, any consumer who’s applying for a Fannie Mae or Freddie Mac loan will not be able to close on a loan unless the lender had already verified the tax transcripts with the IRS. Any Fannie Mae or Freddie Mac loan not including transcripts cannot be closed.

This is an issue that appears to be overlooked and will have a larger impact than many have considered. Yes, FHA will have a huge impact, but adding Fannie and Freddie to the mix is a whole different story. According to Fannie Mae, they are the largest issuer of mortgage related securities in the second market representing 44% of the marketplace in 2010.

Fannie Mae and Freddie Mac represent more than 60% of the home loans originated today, plus FHA represents over 15%. Not including USDA loans, those three entities already represent more than 75% of all home loan issued today. If gone unnoticed, this government shutdown will have a much larger impact than many are expecting.

Do I think this will destroy the housing market? Honestly, I don’t. At one point, the government will realize the size of this impact and implement some type of action plan. I just hope this is noticed before there’s a government shutdown, not after.

TIPS FOR HOMEOWNERS:

Here are a list of items I would recommend be completed based on the type of loan you’re looking to close.

ALL LOANS

· Order your tax transcripts immediately.

· I haven’t been able to find exact details, but I would order any outstanding flood certifications if you haven’t determined if the property is in a flood zone.

FHA

· FHA Connection will still be up to order case numbers but CAIVRS (a program that does a background check on all parties involved in the transaction)will be down, so have your lender order your CAIVRS Reports right away.

USDA

· USDA will only insure loan commitments already issued (90 day expiration). If you still have time, try to get your commitment approved prior to the shutdown.

· GUS will not be operational, so all buyers looking to get pre-approved on USDA should process their pre-approval right away and new loans should be ran through GUS if they haven’t been done yet.

Lender guidelines and participation have steadily grown since HARP’s inception.  Many homeowners don’t know of the program and need this extra time to refinance their home.  I believe this is an excellent decision and should have a positive impact to our housing market.    

According to an article from BusinessInsider.com, only 220,000 homeowners have refinanced under HARP where an expected 4-5 million were projected at the program’s inception. 

UPDATE 3/14/2011

The 220,000 closed HARP loans mentioned in the BusinessInsider.com article is inaccurate.  This figure was published by Alan Zibel on March 5th, 2010, over 1 year ago.  An article from MortgageNewsDaily.com has indicated that 621,083 HARP refinances were closed in 2010 alone.  It’s not the 4-5 million they hoped for but there’s no question that lender participation and consumer awareness have grown. 

Here’s a copy of the announcement: 

FHFA Extends Refinance Program By One Year   

Washington, DC– Federal Housing Finance Agency Acting Director Edward J. DeMarco has announced an extension of the Home Affordable Refinance Program (HARP), a refinancing program administered by Fannie Mae and Freddie Mac, to June 30, 2012.  The program was set to expire on June 30 of this year.  In addition, Fannie Mae and Freddie Mac will make the following adjustments to their programs:  Freddie Mac will exempt HARP loans from their recently announced price adjustments and Fannie Mae will conform their eligibility date to May 2009.    The program expands access to refinancing for qualified individuals and families whose homes have lost value.  HARP has grown over the past year.  In 2010, Fannie Mae and Freddie Mac purchased or guaranteed more than 6.8 million refinanced mortgages.  Of this total, 621,803 were HARP refinances with LTVs between 80 percent and 125 percent. This is up from 190,180 in 2009, when HARP began.  

Here’s a link to the announcement:   

http://www.fhfa.gov/webfiles/20399/HarpExtended0311.pdf   

I have two suggestions related to this topic for homeowners:    

• One, if I had an investment property, I would try to refinance it as soon as possible.  Certain pricing guidelines that benefit investment properties appear to be a “loophole” in the guidelines.  This helps investment properties price very well but appear to be designed for homeowners, not landlords.  If the FHFA had let those guidelines slide since HARP was expiring soon, they may very well change them now that the deadline has been extended.
• Two, if you have a loan with PMI, this is the chance to let your voice be heard and let the government know that they should loosen guidelines to allow PMI backed loans to be done by outside lenders.  Too many people have their loans serviced by lenders who will not do PMI HARP loans or have their loan serviced by a company who does not originate loans at all.  These homeowners are well qualified and deserve to have their mortgage refinanced.  Being left behind due to an unlucky transfer of servicing to a mortgage company who does not originate new loans is not an acceptable reason for why these people cannot refinance their loan.

One of the changes we’ve seen in the mortgage  industry is lenders requiring the actual transcripts in a loan file before they’ll close.  This means that the tax return filings must be filed and ample time must be given for the IRS to update their database with the filed returns before a consumer can close on the loan.  This process can take several months AFTER the IRS actually receives the tax returns! This has caused issues with consumers buying or refinancing who do not have filed tax returns due to extensions or the tax returns are filed but they’re simply waiting for the IRS to show them in their system.  What happens if they can’t get the transcript?  Simply put, most mortgage lenders will not let the consumer close on a loan.   This is not an issue for many consumers but for the few who have late filings or amended returns, this could be disastrous.

I’VE SENT MY MORTGAGE COMPANY MY TAX RETURNS…WHY DO THEY NEED MY TRANSCRIPTS?

For those who haven’t seen a transcript, it’s basically a summary of everything you would see on a 1040 tax return filing.  1040 tax returns are typically requested for a mortgage application and along with all schedules/worksheets, gives all detail as to how the tax return was filed.  So why would a mortgage company need a transcript?  It’s a good question that I hear often from my clients.  Here are several reasons why lenders request IRS transcripts:

• WAS THERE SOMETHING WE WERE MISSING?- Transcripts will show figures from all applicable schedules that may not show on the 1040 tax returns.  For instance, a Schedule C shows a breakdown of business income and expenses.  Also, a Schedule E shows a breakdown of all investment real estate income and expenses.  Many consumers will only send the 1040 returns and not include schedules.  These figures affect a loan application and the way a lender sees a consumers portfolio.
• DID YOU AMEND YOUR TAX RETURNS?- A consumer may be giving their mortgage company a tax return, but what if their accountant did a small amendment that the consumer forgot to disclose?  The transcripts will show the correct figures as received by the IRS including any updates.
• WE HAVE TO USE THE “F” WORD, BUT HOW DO WE KNOW THE TAX RETURNS AND TAX FORMS AREN’T FRAUDULENT?- Maybe not the “F” word you were thinking of, but in our industry, this word is a million times worse.  One of the reasons lenders now request these transcripts is because when they did order transcripts on OLDER loans that defaulted, they found many of them had fraudulent documents including fraudulent tax forms and returns.
• ARE YOU BEHIND ON YOUR TAXES?-  You can buy a home with taxes due, but you can’t if the IRS files a lien.  The consumer transcripts will show if the consumer had a large tax bill due.  If there was, the lender is likely to ask for proof that the taxes were paid.

This is one of the reasons it’s so important that both the client and lender follow due diligence and collect ALL documentation prior to committing to a closing date on a loan.  Especially on a home purchase where there’s a seller involved.  Lenders should be requesting these transcripts at the beginning of the loan process, not the end.  I’ve heard too many horror stories of “Approved” consumers who are turned down at closing because the tax transcripts are not available.  It’s fairly new, so more mistakes will be made now than later.

I NEED A MORTGAGE AND MY TRANSCRIPTS ARE NOT RECEIVED BY THE IRS…WHAT CAN I DO?

Every lender policy regarding tax transcripts will vary but for the most part, most lenders want these to close. on a loan  If you need a mortgage now and haven’t filed your returns, be sure to disclose this to your lender and prepare your returns for filing as soon as possible.  When they’re completed and ready to be filed, you can get your returns expedited to the IRS through their local Taxpayer Advocate Service (TAS) office.    For those that don’t know who TAS is, here is an excerpt from their website:

The Taxpayer Advocate Service is Your Voice at the IRS!

Taxpayer Advocate Service (TAS) Mission:  As an independent organization within the IRS, we help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems. Here are seven things every taxpayer should know about TAS: 1. TAS is your voice at the IRS. 2. Our service is free, confidential, and tailored to meet your needs. 3. You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn’t working as it should. 4.  TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals. 5.  TAS employees know the IRS and how to navigate it. We will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. 6.  TAS has at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico.  You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS, and on our website atContact Your Advocate.  You can also call our toll-free case intake line at 1-877-777-4778. 7.  You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www.taxtoolkit.irs.gov

From my experience, a local TAS office can rush the filing, provide receipt of the filed tax returns, provide accurate dates as to when the transcripts will be available and sometimes even write letters in behalf of the consumer stating the returns were filed and received by the IRS.  This can be very helpful if you need to close on your home loan quickly.

The changes took effect on November 7th, 2009 which was the day after President Obama signed the bill into law.  This means that any transaction closed AFTER November 7th, 2009 will include all of the changes.  This includes the provisions for Move-Up Buyers and the income limits which were raised from $75,000 single/ $150,000 married to $125,000 single/ $225,000 married. 

Other details of the new bill can be found at the National Association of Realtors announcement.

In the coming days, I will be discussing all of the details.  In the mean time, here are the details I currently have.

The extension and expansion of the tax credit was included in an unemployement benefits bill that also includes assistance for businesses (HR 3548). 

• The extension will continue until the end of April to have a COMPLETED CONTRACT.  This means you do not have to close by the end of April, but at least have a mutually accepted contract between the buyer and seller.
• After the transaction has been mutually agreed upon by all parties, the transaction must be closed and finished by the end of June. 
• The tax credit will remain at $8,000 for First-Time-Home-Buyers
• The income limits for the tax credit have been raised to $125,000 for single and $225,000 for married couples, expanding the credit to higher income buyers
• The bill also includes a $6,500 tax credit for Move-Up-Buyers, which I believe includes a provision that the Move-Up-Buyer have lived in their current resident for at least 5 of the last 8 years (I will confirm this later)

The reports were given by Senate Majority Leader- Harry Reid’s office to CNBC.

Earlier this week, negotiations of the credit included multiple variations of an extension as mentioned in a related blog post.  The new bill is different than any of the previously mentioned bills.

The credit is to extend through April 30th for first time home buyers.   Early news reported the credit would reduce to $7,290 but more recent reports state it will remain at $8,000.

The new bill also includes a $6,500 credit to “move-up buyers”.  This is designed to motivate existing homeowners to sell and buy new homes.  Spencer Rascoff, COO of Zillow.com,  talked in his interview on Bloomberg about how approximately One-Third of all home-owners would consider selling under the right circumstances.  These homes are what he called “Pent Up Supply.”  Giving a tax credit to move-up buyers may help boost the market further.

The current plan is to include the tax extension in the Unemployment Extension Benefits Bill scheduled to be voted on in the next few days. 

UPDATE

The bill has already been voted on and has passed through the senate.  The details of the bill are finalized and I expect the bill will be signed by President Obama in the upcoming weeks.

We’re now just waiting for the Republican and Democratic party to agree to the terms of the extension, which may be reached by the end of this week.

There is talk of opening up the credit to all buyers, which I believe could be helpful in moving first-time homebuyers to purchase as well as homeowners who need an incentive to sell their house.

A full article can be found here on www.CNBC.com

Fri. Oct. 23 2009 | 8:15 AM ET
Discussing extending the homebuyer tax credit, with Howard Glaser, former HUD secretary counselor; Shari Olefson, Fowler White Boggs; and CNBC’s Trish Regan.

The IRS (Internal Revenue Service) is reporting there are more than 100,000 suspicious claims involving the $8,000 first-time-home-buyer Tax Credit.  Currently there are 167 criminal cases regarding the tax credit.

As the December 1st, 2009 deadline for the tax credit nears, many hope Congress will extend and even potentially increase the tax credit.  With over one million claims submitted, there’s no question of it’s success.

Abuse of the tax credit may affect whether Congress decides to extend the credit.  Here’s an excerpt from a related article on the Wall Street Journal.

“I am concerned about recent reports that there have been fraudulent schemes involving the credit,” Rep. John Lewis (D., Ga.), chairman of a House Ways and Means oversight subcommittee, said in a statement. The subcommittee is planning a hearing on the problems on Thursday.

READ THE COMPLETE ARTICLE HERE

It’s sad to hear news of this sort.  Many of my clients have told me that the tax credit weighed heavily in their decision to buy a home.  Most first time home buyers said it’s an influence that’s originated from their parents, who are usually the first ones to mention the credit to them.

Let’s hope that these inquiries aren’t as negative as they appear.  100,000 of one million claims is 10% of the current tax credit claims submitted.  That’s an overwhelmingly high percentage.  Hopefully the tax payers simply made small mistakes when amending their 2008 returns, which is likely.  First Time Home Buyers have the option of amending their 2008 returns or applying the credit to their 2009 returns.

LINK TO INTERVIEW HERE

He felt that we won’t hit the floor for values until late 2010, but it varies by region.  He gave an example, showing that Boston had hit it’s floor in early 2009 and is already rising.  This is an important factor for homeowners to consider when looking to buy or sell a home

Another point he makes, which I’ve been dreading for months, is rates will likely not stay as low as they are right now without another intervention from the Federal government.  Currently, inflation appears to be under control and the government is still purchasing mortgage backed securities.  This helps the price of mortgage backed securities stay high which keeps mortgage rates low.  However, the government’s current commitment to buying mortgage backed securities will end soon.  We also should expect many of the government funded programs to increase inflation.  As the price of mortgage backed securities drop and inflation kicks in, mortgage rates will start moving up.

Let’s do a review.  Rates are low, but are expected to go up soon.  Values are low and are expected to hit their rock bottom (nationally) in 2010.  This leads to the question of many first time home buyers, “When is the right time to buy?”

It’s hard to pinpoint the best time to buy a home, but it is easy to make a decision if you want to base your decision on facts alone. 

Here are some facts to consider:

• 30 year Fixed mortgage rates have stayed between 4.5%-5.25% for almost a year. 
• Home Values have continued to decline but recent signs show the value reductions are slowing
• First time home buyers have a $8,000 tax credit that is currently set to expire on December 1st of this year

Is there a chance that values will continue to drop?  Depending on the area, absolutely.  Can interest rates maintain these levels for a little longer?  Sure they can.  Will the government extend the first time home buyer tax credit?  Potentially, and maybe even likely. 

That said it’s hard to imagine that all three factors will continue to exist in perfect harmony as they do now.  Whether it is rates, values, or the tax credit; something will give eventually.  My guess is that rates will be the first thing to change.  In any event, every buyer must consider the consequences of sitting on the sidelines for too long.  Buying a house for 5% less in price next year at an interest rate 1% higher will raise the cost of home ownership considerably.

I can’t tell anybody when the right time for them is.  Personal, financial and professional factors are different for everyone.  One thing we know for certain -  there will be thousands, if not millions of Americans wishing they had made a different decision

What that ultimately means is if you can, you should start asking yourself “When?”