Mortgage Insights Blog

To speed the recovery of the housing market, Fannie Mae announced a new policy on February 6, 2009, to allow investors and second home buyers to own up to 10 financed properties. One of the things that can lead the economy out of a housing crisis is when prices get cheap enough that investors start moving in and buying things.

The new policy takes effect on March 1, 2009, and replaces the current 4-property limit. The restriction applies to the total number of financed properties, not just to the number sold to Fannie Mae.

Investor and second home borrowers that seek to own between 5 and 10 financed properties must meet additional eligibility requirements. Borrowers must have a credit score of at least 720. The maximum loan-to-value ratio is 70% or 75%, depending on specified criteria. Borrowers may not have any history of bankruptcy or foreclosure in the past 7 years, or any mortgage delinquencies of 30 days or greater within the past 12 months. Reserve and other requirements also apply.

President Obama on Tuesday signed the American Recovery and Reinvestment Act of 2009 into law. Among its many provisions, the bill resets the conforming loan limit cap at $729,750, up from $625,500. The bill also increases the first-time home buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years.

Here are the major points of the bill focused on the housing market:

1. 2008 $729,750 High Balance Conforming& FHA Loan Limits Restored in High Cost Areas.

The bill reinstates last year's 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply. In addition, the bill includes language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any "sub-area", i.e.an area smaller than a county. The Secretary's discretion is again limited by the $729,750 cap. These 2009 limits will expire December 31, 2009.

This makes higher cost homes more affordable - especially in the coastal housing markets that tend to have higher than average home values.

How soon can you expect to see changes? Now it’s just going to be a waiting game to see how long the GSE will take to implement the higher loan limits and any additional risk based pricing.

2. Expansion of First-time Home Buyer Tax Credit.

The tax credit available to first-time home buyers was increased from $7,500 to $8,000 for homes purchased between January 1, 2009, and December 1, 2009. Also, the credit no longer needs to be paid back as long as the buyers live in the home without selling it for at least 3 years. The previous version of the credit expired on July 1, 2009, and required home buyers to pay the funds back over a 15 year time frame.

The income limitations remain the same ($75,000 for single tax payers claiming the full credit and $150,000 for married tax payers), as do most other qualification requirements. Also, the credit remains refundable. “This means that first-time home buyers who owe less than $8,000 in taxes for the year are still eligible for the full $8,000 credit when they file their tax returns, and the IRS will write them a check for the difference between $8,000 and their actual tax bill. In fact, the credit can be claimed on your 2008 tax returns that you file by April 15 of this year, even if you buy the home in 2009.

There is one catch, however: if you bought the home in 2008, the credit remains $7,500, and it still needs to be paid back over a 15 year timeframe beginning in 2011 when you file your 2010 returns.

3. Higher Reverse Mortgage Loan Limits.

The loan limits for FHA-insured reverse mortgages have been increased to $625,500 across the entire country-not just the higher cost areas. The previous limit was $417,000 across the country.

This is especially important because the FHA program is virtually the only game in town as private and jumbo reverse mortgage programs have nearly all evaporated. This coincides with another little-known change in the reverse mortgage arena: the availability of reverse mortgages on home purchase transactions.

This is a fantastic opportunity for senior citizens to buy a new home and live mortgage payment-free without having to wait for their old home to sel. Seniors could also use this strategy to buy a new home and turn the old home into a rental or otherwise wait for market conditions to improve before trying to sell the old home.

4. Expansion of Home Improvement Tax Credit

To promote green jobs and energy independence, ARRA invests significantly in efforts to make homes and buildings more energy efficient. Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation up to a maximum of $1500. This means that if the improvements cost you $4,500, you would receive a tax refund of $1,500 when you file your tax returns.

Eligible improvements include energy efficient exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters.

Generally, most modern improvements like windows, furnaces, and air conditioners meet the necessary standards for energy efficiency. If you’ve been holding off on making some of these improvements, now is a great time to get a move on it - especially with all the great deals being offered.

5. Broadband Deployment

The bill creates $7.2 billion in grants to promote broadband deployment in unserved and underserved areas and for mapping the availability of broadband service in the U.S. Any entity is eligible to apply for a grant including municipalities, public/private partnerships and private companies as long as they comply with the grant conditions. The grants are subject to "network neutrality" requirements to ensure that broadband networks be free of restrictions on content, sites, or platforms, on the kinds of equipment that may be attached, and on the modes of communication allowed. The bill also charges the FCC is with developing a national broadband plan that shall seek to ensure that all Americans have access to broadband capability and shall establish benchmarks for meeting that goal.

The Obama administration says 95 percent of taxpayers will get relief. Although there is still a lot of political debate left to go, the new Economic Stimulus Package is edging closer to law everyday and should be enacted as early as next week. Here is what you can expect from the bill – although these items remain speculatory, there exists some common ground among the majority.

Specific changes ahead geared towards the housing market include up to a $15,000 tax credit (or up to 10% of the purchase price, whichever is less) for homebuyers purchasing primary residences during 2009.The tax credit would not have to be repaid and buyers could claim it against their 2008 and/or 2009 tax returns.

The proposed $15,000 home buyer tax credit would replace a much narrower tax credit that was enacted last year and only made available to first-time home buyers, offering a mere $7,500 tax credit that currently works like an interest-free loan that must be repaid over a 15-year period – as of now it is set to expire on July 1.

Other housing-market focused legislation includes:

• Increased funding for the USDA Rural Development loan program, a program that can allow up to 100% financing for qualifying borrowers and ‘rural’ properties. USDA is getting over $10.4 billion for the guaranteed program alone.
• The Hope 4 Homeowners refinance program is being tweaked to allow for hardship in the case of "decrease in income". The private mortgage insurance factors are also being reduced to no more than 2% up front and 1% annual. There is also a provision to entice lenders that have these loans to refinance. They can receive $1000 or more for "performing services associated with refinancing" such mortgages.
• Mandatory mortgage loan modifications and a Foreclosure mitigation section that refer to the $50 billion the Treasury is allocating to mitigate foreclosures. Details are still sketchy but the intent remains in the currently debated legislature. This change could mean that lenders servicing such under-performing mortgages could receive payments not more than $2000/loan as incentive to modify them and seem to be granted the authority to do so if it seems reasonable that not modifying the loan will result in a bigger loss.

These are the most salient points I could find for now but the bill is HUGE! Many sections have been stricken from the bill including provisions continuing the higher FHA loan limits and the reinstatement of seller funded down payment assistance wasn't there; but again, the overall cost of the bill was reduced and that is always a good thing!

I'll let you know when things finalize...