Upcoming Changes Affecting Housing and Mortgages
We can easily get used to things like Cash for Clunkers without realizing that they were temporary programs. As was well publicized, that particular auto program used up its allocated funds quickly and was terminated. So what about housing?
Since mid-2008, a number of new laws were passed to help boost the housing market. Some aspects of the programs have been notable failures -- features like trying to get lenders to modify loans that are in danger of foreclosure. Not much has happened on that front, but other parts have been more successful. Can we count on them to continue?
The first is the $8,000 tax credit for first-time homebuyers. This is set to expire on November 30th unless Congress extends it. Public opinion is divided on this, with polls I have seen actually favoring not renewing it. The argument is that many of those who got the credit would have bought a home anyway without the credit.
Others say that all it did was move purchasers forward in time, that these buyers would have bought next year anyway. The argument about wastefulness can certainly be raised here because it is silly to give money to people who would have bought anyway. At the other end of the spectrum are those who say that the credit ought to be extended to ALL homebuyers, not just first-time homebuyers.
With signs that the housing market and the overall economy are improving, what Washington will do is anyone’s guess. They are unusually silent about their intentions, so if you are a first-time homebuyer who would qualify for this program, I would hurry to close escrow before November 30th.
On the mortgage scene, things are a bit more complicated. An emergency increase in loan limits for some 250 high-cost counties was instituted in July 2008 as part of the Economic Stimulus Act. That limit was to be a maximum of $729,750 and was in effect until December 31, 2008.
Enter the Housing and Economic Recovery Act, which instituted a permanent high balance loan limit of $625,500, again only for high-cost counties. In February, policymakers seemed to acknowledge that this was a mistake, so the limit was again raised on a temporary basis, back up to the $729,250 limit. That temporary increase is set to expire on December 31, 2009 and unless Congress acts again, the limit will be $625,000 again for 2010. To can see how your county might be affected, view the spreadsheet.
Again, we have no clue as to Congressional intention, so if you are in a high-cost area you should carefully study the limits to see how they might affect your plans. Note that unless extended, lenders are likely to stop funding loans over the $625,500 limit on December 1st so they have ample time to deliver the loans by December 31st.
Fannie Mae and Freddie Mac are also going to be more restrictive in their underwriting. They have announced changes that will have the effect of shutting some people out of the market. More on that topic next week.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower
articles, Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.
Since mid-2008, a number of new laws were passed to help boost the housing market. Some aspects of the programs have been notable failures -- features like trying to get lenders to modify loans that are in danger of foreclosure. Not much has happened on that front, but other parts have been more successful. Can we count on them to continue?
The first is the $8,000 tax credit for first-time homebuyers. This is set to expire on November 30th unless Congress extends it. Public opinion is divided on this, with polls I have seen actually favoring not renewing it. The argument is that many of those who got the credit would have bought a home anyway without the credit.
Others say that all it did was move purchasers forward in time, that these buyers would have bought next year anyway. The argument about wastefulness can certainly be raised here because it is silly to give money to people who would have bought anyway. At the other end of the spectrum are those who say that the credit ought to be extended to ALL homebuyers, not just first-time homebuyers.
With signs that the housing market and the overall economy are improving, what Washington will do is anyone’s guess. They are unusually silent about their intentions, so if you are a first-time homebuyer who would qualify for this program, I would hurry to close escrow before November 30th.
On the mortgage scene, things are a bit more complicated. An emergency increase in loan limits for some 250 high-cost counties was instituted in July 2008 as part of the Economic Stimulus Act. That limit was to be a maximum of $729,750 and was in effect until December 31, 2008.
Enter the Housing and Economic Recovery Act, which instituted a permanent high balance loan limit of $625,500, again only for high-cost counties. In February, policymakers seemed to acknowledge that this was a mistake, so the limit was again raised on a temporary basis, back up to the $729,250 limit. That temporary increase is set to expire on December 31, 2009 and unless Congress acts again, the limit will be $625,000 again for 2010. To can see how your county might be affected, view the spreadsheet.
Again, we have no clue as to Congressional intention, so if you are in a high-cost area you should carefully study the limits to see how they might affect your plans. Note that unless extended, lenders are likely to stop funding loans over the $625,500 limit on December 1st so they have ample time to deliver the loans by December 31st.
Fannie Mae and Freddie Mac are also going to be more restrictive in their underwriting. They have announced changes that will have the effect of shutting some people out of the market. More on that topic next week.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower
articles, Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.
What do you think of modification of a mortgage? Does it only hold for a period of time or can the lowering of the interest which affects the ability to make the monthly payment be permanent? What are you seeing in the area? Is it negotiable or are the people in the middle of the investors and the homeowners the decision makers here? Are they paid to get these loans more manageable for both parties or do they make money on keeping a higher interest rate?
Posted by: Jeannette Medlen | September 28, 2009 at 06:02 PM
Good comment and question.
I wish more modifications were being done. According to the Federal Housing Finance Agency, 500,000 loans have been modified but starting when? Also that is a "gross" number and does not say how many loans re-default or the extent of the modifications they made.
I think that the goal of the lender is to make the minimum modification that it can and still keep the borrower in the house. That's not the same as trying to achieve a lasting, permanent solution. Their efforts must not be enough because over 50% of modifications of loans in default end up re-defaulting in six months.
The TARP program I believe does reward lenders who are successful at modifying loans, but if they were being successful, you would hear more success stories than failure stories.
I still think that lenders are going to have to bite the bullet and start reducing the balance owed on mortgages to achieve any significant success.
Posted by: randy37 | October 01, 2009 at 10:01 PM
I agree with Randy here. If 500,000 loans have been modified, WHERE are they? I've only heard from two consumers that went through hell just trying to get approved and have only recently started the trial phase of the program. If anyone has actually successfully completed a loan modification, we'd love to hear about it so please post and share your story. I'd even like to hear from you if you attempted a loan mod but still ended up in default afterward. This is a glaring problem with the proposed solution and I think Randy's right - in order to achieve any significant success, lenders are going to have to eat some of the balances owed on these mortgages. Somehow, I just don't see that happening... :/
Posted by: Deanna Templeton | October 02, 2009 at 08:38 AM