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Haven’t We Learned Anything?

Rod Herman — Wed, 21 Apr 2010 03:30:00 +0000

I just got the following email in my spam folder, from a mortgage lender out of Southern California:

Even though we’re not even close to getting out of our nation’s worst financial mess since the Great Depression, we’re already beginning to see a smattering of snake oil salesman peddling loans that look and feel just like their subprime cousins that started this whole economic tailspin.

I guess I was naive to think that those flim-flam men and women who pushed people into homes they clearly couldn’t afford had left our industry for good.

No, it looks like they’ve just been laying low for the last few years.

Yet here they come, even as traditional, institutional lenders are still tightening guidelines to ensure that the only ones who get a loan are those who truly qualify. And as the government government continues to unveil programs to help borrowers caught in the cross-fire of the recent subprime meltdown.

It didn’t take long for these sharks to start peddling their smelly wares again, did it?

Call me naive, but shouldn’t a lender or investor know a little bit about the borrower’s financial ability to repay before giving them hundreds of thousands of dollars?

Yet, according to this email, all this lender wants is a verification of employment (VOE). That’s right, as long as your boss says “yep, Charlie works here” you’ve got yourself a loan.

So as long as I put 20% down, I don’t need to show any paystubs, W-2’s nor tax returns. And with a score of 720, I can borrow almost three-quarters of a million dollars. Plus, I can close escrow in 10 days?

Do the words “too good to be true” come to mind? And you know what they say: if it smells like a rat, it MUST be a rat.

Now let me ask you — isn’t this exactly the type of lending that got us into the economic cesspool we’re in right now?

I wondered how long it would take before the predators would reappear. I was pretty optimistic, I guess, for I figured it might take another 3-4 years before we started to see a rebirth of these smell-like-a-rat loan programs.

Yet, in the last 4-6 weeks, I’ve started to notice a few emails like the one above hitting my spam folder.

Hopefully most of my fellow real estate agents will do just what I did and trash the email right away. And hopefully any borrower who comes in contact with someone peddling one of these loans will run like the wind.

I really thought we’d learned from what’s happened over the past 3-4 years.

Obviously not!

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Will California’s First-Time Buyer Tax Credit Money Run Out Almost Before It Begins?

Rod Herman — Fri, 16 Apr 2010 05:08:33 +0000

$100 Million Could Be All Gone By Mother’s Day

California’s first-time buyer tax credit, which is slated to begin May 1, the day after the federal tax credit goes away, may be very short-lived, according to a just-release analysis by our state trade association, the California Assn. of Realtors (CAR).

According to CAR, the entire $100 million that the state legislature allocated for first-time buyer tax credits could be entirely used up in the first 10-20 days after the credit takes effect.

That means the money could be all spoken for shortly after Mother’s Day, if CAR’s prediction is accurate.

An email I received from CAR earlier today said that its economic team had looked at projected May sales and figured that all $100 million will likely be gone in the first few weeks of May.

Will Some April Buyers Wait To Close In May

It also predicted that some transactions that otherwise would have closed in late April could be pushed back until early May so the buyers can take advantage of both the federal and state tax credits.

The federal credit requires buyers to be in contract by April 30 and close by June 30. The state credit is for either first-time buyers or new home buyers who close on or after May 1.

While CAR’s prediction could be on the money (no pun intended), it’s projection may be based on the assumption that every buyer who’s eligible for the credit will submit their paperwork promptly after escrow closes.

And that’s a big “if.”

For, the way the state tax credit is set up, the Franchise Tax Board MUST receive the completed application and supporting paperwork within 2 weeks of the close of escrow. That doesn’t mean postmarked, it means received by the FTB.

There’s no appeal allowed, either. If the FTB says it didn’t get it, then it’s pretty much “end of story, case-closed.”

Just Because You Close, Doesn’t Mean You Get The Credit

So it’s not hard to imagine a fair number of buyers closing escrow and getting caught up in moving activities only to realize after it’s too late that they missed the 2-week deadline.

Accordingly, if some of those who CAR estimates will use up the tax credit allocation quickly accidentally miss out on the deadline, then perhaps the money will last a bit longer than CAR predicts.

In any event, even though the state legislature provided for buyers to apply for the credit as long as they’re in contract by the end of the year, since they only allocated $100 million to the program, it’s a pretty sure bet that it’ll be gone well before then.

For more information on the tax credit, be sure to contact your tax adviser. Additional details are also available on the Franchise Tax Board’s web site.

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Tax Relief For Distressed Solano County Sellers Finally Goes Into Law

Rod Herman — Tue, 13 Apr 2010 23:34:59 +0000

Not only did the rain clouds disappear yesterday, but so too did the dark black clouds that had been hanging over many penniless distress-sale sellers from last year, who were about to incur huge state income tax bills.

But just about the same time the skies parted over Solano County yesterday afternoon, a new tax relief law went into effect, which will save distressed sellers who sold their homes in 2009 thousands of dollars.

The Long Wait Is Over

Prior to the passage of SB 401, most California sellers who received debt relief through a short sale, foreclosure or loan modification would have been required to report the forgiven debt as ordinary income and pay taxes on it.

As I posted last week, state legislators were hoping to enact a new debt relief law before April 15. Alas, they made it with a few days to spare.

Up To $500k In Relief Tax-Free

Now, according to the Franchise Tax Board, those with a “qualified” principal residence will be exempt for up to $500,000 of forgiven debt on loan balances of up to $800,000.

According to the FTB, only the amount you used to buy, build or improve your principal residence will qualify for the exemption. So if you refinanced your home and pulled out cash to use for other purposes, you still may find yourself subject to some tax.

The federal law allows exemptions for loan balances up to $2 million, so at $800,000, California’s law is definitely more restrictive.

Tax Relief Thru 2012

The new exemption applies to distress sellers whose debts are/were discharged between 2009 and 2012. Those who’ve already filed can amend their taxes, says the FTB.

Not every seller who received debt relief through a short sale, foreclosure or loan modification will be able to take advantage of the exemption. Along with the aforementioned borrowers who used home equity for non-real estate purposes, those who sold or lost investment property or a second home could have a tax event, unless the sellers are eligible for one of the exceptions.

The FTB updated its website earlier today with an information page on the new Mortgage Debt Relief Law.

Now, since I’m not a tax expert nor licensed to give tax advice, here’s the big disclaimer: Don’t make any decisions or construe the content in this post as tax advice. It is based solely on information I have received from others. Accordingly, before making any tax decisions, be sure to consult with your personal tax adviser.

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6 Big Real Estate Changes For Benicia-Vallejo Home Buyers & Sellers This Month

Rod Herman — Tue, 06 Apr 2010 01:31:12 +0000

If you’re planning to buy or sell a home in Benicia, Vallejo or even anywhere else in Solano County, you may need a scorecard to keep track of all the changes that either already have occurred or will take place by the end of April.

I’ve been a real estate agent since 1995. And before that I worked in the title and new homes sectors of our business — dating all the way back to 1978. And in all the years I’ve been in the real estate business, I can’t remember another time when this many changes occurred in one single month.

So if you’ve got your scorecard ready, here’s a quick overview of some of the changes that are taking place in April:

1. Government’s MBS Buy-Back Program Ends

April 1 was the first day in over 14 months that the government wasn’t buying mortgage-backed securities, which it had been doing since Jan. ‘09 to keep mortgage money flowing and interest rates affordable.

Without Uncle Sam there to prop up the mortgage market, it’s now up to the free market to to decide just how high mortgage rates should really be.

Some experts have said that rates would skyrocket without the government’s help, while others expect the change to be very subtle.

For more details, see the post I wrote on the final day of the U.S. government’s MBS Buy-Back program.

2. Faster Short Sales Starting Today?

Today is the day the federal government’s Housing Affordable Foreclosure Alternatives (HAFA) program goes into effect.

The Obama administration announced the program last fall but wanted to allow plenty of time for mortgage lenders to prepare for participation in the program.

Among other things, the HAFA program enacts strict deadlines, requires banks to determine the minimum net proceeds they’ll accept up front and provides cash incentives for banks, sellers and even 2nd mortgage holders who participate in a short sale.

Sellers must meet eligibility requirements for the Home Affordable Modification Program (HAMP) in order to participate in HAFA. Lenders who are already participating in HAMP must agree to also participate in HAFA.

On paper, the program looks like it will expedite the process and take away much of the frustration and uncertainty that buyers, sellers and real estate professionals have endured over the past few years.

However, from what I’ve heard, many of the people working in the loss mitigation departments for many of the banks who are supposed to participate claim they’re not yet familiar with HAFA.

So implementation and compliance by the banks may not necessarily be an immediate thing.

3. Higher FHA Mortgage Insurance Costs As Of Today

Borrowers who are using an FHA loan to finance their purchase (which probably includes at least 90% of the first-time buyers in Solano County) will be subject to a costlier up-front mortgage insurance premium (up from 1.75% of the cost of the home to 2.25%). On a $200,000 home that works out to about a $1,000 increase.

However, since most buyers finance the up-front MIP, on a $200,000 home, increasing the loan amount by $1,000 really only adds about $6/mo. to the payment.

So in the big scheme of things, it’s not a big enough change to severely impact most FHA buyers.

4. Smaller FHA Seller’s Credits Starting Today, Too

This change could have a significant impact on many FHA borrowers. For starting today, the most a seller can credit the buyer in an FHA transaction is 3% of the purchase price, which is half of what it was yesterday.

Here in Benicia, Vallejo and vicinity, where so many homes continue to get multiple offers, those FHA buyers who were asking for large closing cost credits haven’t had a lot of success getting their offers accepted in recent times. So from a practical standpoint, the change may not be felt too much for right now.

But if the inventory continues to climb and gets to a point where multiple offers are no longer the order of the day, we could find some otherwise qualified FHA buyers exiting the market due to limited funds beyond their down payment.

5. Federal Tax Credit Going Bye-Bye

Barring a sudden change of heart by Congress, the federal home buyer tax credit will expire at the end of this month. The credit provides up to $8,000 for first-time buyers and $6,500 for move-up buyers.

In order to qualify, you must have entered into a purchase agreement by Apr. 30. You’re allowed an additional 60 days to close escrow. So the clock is definitely ticking.

If you’re not able to get into contract in time to get the federal credit, all may not be lost. For the day after the federal credit expires, California’s recently announced first-time buyer and tax credit goes into effect.

6. New Purchase Contract Coming

And finally, a new standard purchase contract is slated to come out at the end of April, which will change the way some parts of a real estate transaction are conducted.

The form is produced by our California Assn. of Realtors (CAR) and is used for most local real estate sales here in Solano County. It’s the first major change for this form in about 8 years.

One of the changes is that buyers will no longer have to write a deposit check up front. They’ll be able to wait to do so until after the seller has accepted the offer.

Another change: sellers will no longer be automatically on the hook to cover the cost of any lender-required repairs on FHA loans.

The new contract also does a good job of specifying what happens if a closing date or other contractual event falls on a weekend or a holiday. Up until now, that’s always been subject to interpretation.

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Is The Party Over For Low Mortgage Rates?

Rod Herman — Wed, 31 Mar 2010 23:28:43 +0000

Will Rates Skyrocket As Some Previously Predicted?

Today marks the end of an unprecedented era for the mortgage market.

That’s because this is the final day of the Federal Reserve’s 14-month program to buy up mortgage-backed securities (MBS) — a practice that has kept mortgage rates down in the 5-percent-and-below range.

The Fed’s MBS purchase program was initiated by the government in order to keep mortgage money flowing at the time our economy was suffering through its darkest hours.

Buoyed by a consensus that the economy was on the mend, last fall, the government proclaimed that it would end its MBS buy-back program by the end of the first quarter of 2010.

In other words: today.

A New Era Starts Tomorrow

So starting tomorrow, MBS purchases will fall on the shoulders of regular investors, which means that mortgage rates will again be determined by the free marketplace, without any governmental support.

Before I lose you with too much high-finance talk, let me explain what this really means to the average home buyer or mortgage consumer.

In a nutshell, if the people who purchase these mortgage backed securities don’t buy them at the same pace that the federal government has been purchasing them, then mortgage rates will climb.

For weeks now, many “mortgage scholars” have been predicting that we’ll see a spike in mortgage rates as soon as the government exits the MBS arena.

6% Mortgage Rates Overnight?

Some have said that rates, which have been hovering in the high-4% to low-5% range for months now, could rise to the mid-5’s or even 6% within a matter of days or weeks after the Fed’s program goes away.

In recent weeks, some of these experts have scaled back their doom-and-gloom predictions and said that rates will probably go up a bit, but not perhaps as high or as quickly as they previously envisioned.

Before the government started buying MBS’s in Jan. ‘09, the flow of mortgage money had reached a serious bottleneck, as back then, very few investors were excited about putting their money into an investment that was backed by the ability of American homeowners to make their mortgage payments.

And without anyone to invest in those MBS’s, the supply of mortgage financing would have dried up almost instantly, which would have devastated an already punch-weary housing market.

Uncle Sam’s $1.25 Trillion Life Preserver

So in an effort to keep mortgage financing flowing and prop up a weakened housing market, Uncle Sam announced in Nov. ‘08 that it would allocate $1.25 trillion to purchase mortgage-backed securities starting in Jan. ‘09.

The theory was that by the time that money was gone, the investment community would again have enough confidence in these securities to keep mortgage money flowing.

The big unknown at this point, of course, is just how much confidence investors really have in these MBS’s.

Or, more importantly, whether they’ll buy them at the same pace or at the same cost as the government has been doing for the past 14 months.

In anticipation of this day, the government started scaling back its MBS purchases last fall in order to hopefully create a gradual transition from governmental support to free-market investors.

Since rates have stayed in the same general range since the government’s phase-out began, that’s considered a good sign — and one which has convinced some of the doomsayers to reconsider their original predictions of interest rates climbing a full percentage point in a matter of weeks once the government buy-back program ended.

Tomorrow Is Day One

So now we’re at ground-zero. Tomorrow is Day One of a new era. Or should I say a return to the way things were done before the mortgage meltdown.

That means we’re about to find out just how much our economy has recovered.

Most experts seem to think that rates will probably go up at least a little bit — perhaps somewhere between 1/4 to 1/2 percent in the coming weeks.

If such an increase occurs over a 5-6 week period, I wouldn’t expect it to impact the housing market too much.

But if rates were to rise quickly or by more than 1/2 percent, then the real estate market could take a hit — especially since it would coincide with the end of the federal tax credit and the introduction of FHA’s tighter new policies.

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BofA Will Slash Loan Balance By 30% For Some Underwater Borrowers Starting In May

Rod Herman — Sun, 28 Mar 2010 17:08:41 +0000

Bank of America just announced a new loan modification program that could help hundreds if not thousands of underwater Solano County homeowner.

This represents the first attempt by a major bank — and they don’t get much bigger than banking giant BofA — to slash an underwater borrower’s principal rather than simply reducing the interest rate for a period of time.

BofA’s newly announced program is slated to start in May and it’s not available for every BofA borrower. According to BofA’s press release announcing its principal reduction plan, it’s mainly for former Countrywide Home Loan borrowers with “certain subprime and Pay-Option adjustable rate mortgages (ARMs).” (Bank of America took over Countrywide in 2008).

Borrowers Must Meet HAMP Guidelines

In order to qualify, you must fall within the guidelines of the government’s Home Affordable Modification Program (HAMP). Additionally, you must be at least 60 days late on your mortgage payments and have a loan that’s at least 20% underwater.

For those with qualifying loans, rather than modifying the interest rate, as it’s done up until now, BofA will instead look first at reducing the loan amount in order to get the payment down to HAMP’s targeted 31 percent of household income. If it’s necessary to reduce the interest rate, too, that will also be considered.

A Forbearance Program With A Twist

Initially, the principal reduction will be set up as an interest-free forbearance plan.

However, unlike a traditional forbearance program, where the principal and deferred interest must be repaid, under BofA’s new program, borrowers who keep their payments current will have up to 20% percent of the forbearance amount permanently forgiven every year over a five year period.

That means the entire forbearance amount (up to 30% of the current loan amount) will be forgiven for those borrowers who stay current all five years.

To illustrate, let’s say your home is worth $200,000 but your mortgage is $300,000. Under BofA’s new program, your loan balance would be temporarily reduced to $210,000. If you kept your payments current for the next five years, your loan balance reduction would become permanent.

100% Loan-To-Value Requirement

The only caveat with all of this is that the loan amount can never drop below 100% of the home’s then-current value.

So if property values increased and your home was worth $230,000 by year five, then your permanent loan balance reduction wouldn’t go below $230,000.

Whether this will work out as well in real life as it sounds on paper remains to be seen.

We all remember the high expectations that accompanied the government’s HAMP program when it was unveiled last spring, But in the year since, the number of successful modifications have fallen way short of those lofty expectations.

So we’ll have to wait and see whether BofA’s new 30% principal reduction program really makes an impact.

If it’s successful, it could prompt other banks to follow suit, which could ultimately substantially reduce the number of homes that might otherwise head towards foreclosure.

Stay tuned…

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Are Mortgage Rates Going Up, Up, Up?

Rod Herman — Sun, 27 Dec 2009 22:51:29 +0000

UPDATE (12-28-09): Just came across this Washington Post article, which says that Freddie Mac is predicting interest rates of 6% at some point in 2010.

When you watch the real estate market on a daily basis, as I do, it’s easy to read too much into a few solitary changes over a relatively short period of time.

But every new or emerging trend has to start somewhere, doesn’t it?

And that’s what’s caused me to wonder if the recent uptick in interest rates is just a random blip on the radar screen or instead the beginning of a climb towards higher and higher mortgage rates.

If you haven’t been watching the Freddie Mac Primary Mortgage Market Survey (on the left sidebar of our web site), you may not have noticed, but over the past three weeks, interest rates have turned north.

As of Christmas Eve, interest rates nationally had risen to their highest level (5.05%) since Labor Day. And that was just three weeks after hitting an all-time low of 4.71%.

On a historical or even year-to-date scale, a rate of just over 5% shouldn’t sound like bad news at all. Rather, it should sound pretty darn appealing — especially when you consider they were as high as 5.59% in mid-June.

But what makes the climb of the last three weeks seem potentially a little more ominous is that

1) rates jumped so much in such a short amount of time; and,

2) we’ve been hearing for several months now that rates are going to start climbing after the first of the year.

So that begs the question: Is the uptick in interest rates between Dec. 3 and Dec. 24 just a minor blip on the mortgage rate radar screen or is it a harbinger of things to come?

To be sure, in recent months, I’ve heard, read and seen plenty of talk from many different sources that rates are destined to increase starting in January. But I’ve also seen reports indicating that rates should stay low for the foreseeable future.

So there are two camps of thought.

The ‘Rates Are Going Up’ Camp

As we’ve heard for several months now, the government’s program to buy back mortgage-backed securities will cease by the end of the first quarter of 2010.

Ever since the bailout program began, the government has been buying newly originated mortgages. And since the government has remained a ready-willing-and-able buyer for these MBS’s, lenders have been able to keep interest rates low and mortgage funds flowing.

The problem, though, is that the government’s buy-back program hasn’t necessarily been based on real-world economics. They’ve been buying these securities in order to maintain and stimulate the economy, not necessarily because they represented great investment opportunities for the federal government.

So once the government stops buying, rates will be determined by whatever the real market is for these MBS’s.

If lenders have to raise interest rates to make them more attractive to investors, then mortgage rates could very well rise — and in short order, too.

Those predicting an increase in interest rates say rates could easily approach 6% by early spring.

The ‘Rates Will Be Just Fine’ Camp

Despite what all the MBS doomsayers predict, there are those who believe that the government will do all it can to keep the real estate market humming along.

For that, they insist, is the only way the economy will continue to grow.

If the government were to sit idly by and watch interest rates rise to 6 or 7 percent in overnight fashion, the real estate market could easily come to a grinding halt again.

And since housing would instantly become less affordable, a good number of today’s buyers would exit the market very quickly.

Couple that with the end of the home buyer tax credit in late April, then add in the possibility of the banks suddenly releasing more and more REO inventory at the same time and you have a recipe for disaster.

It could be another ‘perfect storm’ — which could quickly return the real estate market to the doldrums of ‘07 and ‘08.

That’s why many who are paid lots of money to predict these things, say that the government won’t sit idly by and watch the real estate market’s shaky foundation collapse. Rather, they say, the government will do everything it can to keep the recovery underway.

And if that means keeping interest rates from skyrocketing, then that’s what will happen.

At this point, nobody really knows which camp is the right camp.

The big unknown is just how popular these MBS’s will be once the government turns off its spigot.

In recent months, the Treasury has been slowly decreasing its purchases, in hopes that by the end of March, when all of its MBS money is gone, the free market will have gradually filled the void on its own.

And if its pie-in-the-sky dream comes true, by the time the government is out of the MBS game, the real estate market will be humming along at a healthy clip and investors will view these new MBS’s as safe and sound investments and not mere cousins to those troublesome subprime MBS’s of yesteryear.

I tend to be an optimist and have an intuition that one of two things will happen: either the investors will return to the MBS market in greater numbers than the doomsayers predict or the government will take quick action if they see interest rates rising rapidly and threatening the recovery.

Then, too, as I said at the top of this post, the recent 3-week uptick in interest rates may turn out to be nothing more than a blip on the radar.

If so, we may see rates settling back down again in the coming weeks.

If not and if rates continue to climb, the first few months of 2010’s real estate market should have a very big impact on what happens to the overall economic recovery.

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And if its pie-in-the-sky dream comes true, by the time the government is out of the MBS game, the real estate market will still be cranking along at a healthy clip and investors will view these new MBS’s as safe and sound investments and not mere cousins to those ill-fated subprime MBS’s of yesteryear.

HOT NEWS…Congress Extends First-Timer Tax Credit & Adds A New One For Move-Ups

Rod Herman — Fri, 06 Nov 2009 03:27:27 +0000

$8,000 For First-Timers, $6,500 For Some Move-Ups

Congress earlier today overwhelmingly approved long-awaited legislation extending the tax credit for first-time buyers and adopting a new tax credit for many move-up buyers.

Assuming President Obama signs the bill, which he’s already said he’ll do, the new law will go into effect as soon the existing tax credit expires at the end of this month.

So if you’re in escrow and qualify for the current $8,000 first-time buyer credit, as long as you close escrow by Nov. 30, nothing changes.

The new law extends the credit to Apr. 30, 2010 and allows an additional 60 day extension to close escrow for those who are already in contract by that date.

If you’re a thrill seeker, that means you can wait to get an offer accepted until Apr. 30 and close escrow 60 days later, on June 29, and still qualify for the credit.

Here are the major features of the new law:

First-time home buyers (defined as not having owned a home in the last three years) will be eligible for a federal tax credit of up to $8,000.

Move-up buyers who have lived in their current residence consecutively for at least five of the past eight years, will be eligible for a $6,500 tax credit.

Income limits have been expanded from $75,000 to $125,000 for individuals and from $150,000 to $225,00o for married tax filers.

The cost of the home must be $800,000 or less.

For anti-fraud purposes, those claiming the credit now must attach home purchase documentation to the tax credit claim form.

The extension should come as good news to all those first-time buyers who have been patiently waiting for the “right home” to come on the market or for their offer to be accepted in the current multiple-offer environment. They’ll now have another five months to find a home and even an additional two months to close escrow if necessary.

It should also come as great news for those who’ve been in their current home for a while but have been thinking about buying a different home.

To see a chart that shows the major differences between the current credit and the one that goes into effect next month, click here or on the graphic at the top of this post.

These of course are just some of the highlights of the new tax credit. So definitely check with your tax adviser to be sure just how this new law affects you.

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Home Buyer Tax Credit Update: A New Credit May Be On The Books By Week’s End

Rod Herman — Wed, 28 Oct 2009 06:35:29 +0000

Update (10-31-09) Congress is still tweaking the bill and it appears that they’ll now vote on the bill sometime next week. The current proposal now calls for keeping the credit at $8,000 for first-time buyers and giving move-up buyers a $6,500 credit (as long as they’ve lived in their current home for at least 5 of the last 8 years).

Legislators were busy on the home buyer tax credit front earlier today, crafting what may soon be a new and improved home buyer tax credit. Well, not sure about “improved,” but it will definitely be new.

Keep in mind that all of this is still subject to change as Congress and the White House decide how best to keep the housing market moving forward without saddling the country with any extra unnecessary debt.

As of mid-day Tuesday, various real estate and media outlets were reporting that Senators had potentially reached agreement on Tax Credit III.

If nothing changes between now and the time President Obama signs it, according to what I’ve read and heard, here is what the new credit might look like:

It would provide a maximum $7,290 credit (10% of the sales price).. So as long as the house sells for $73,000 or more, it would qualify for the maximum credit.

It would allow a credit for home purchases that are in contract by Apr. 30, with a provision that they must close within 60 days of that date (June 29).

It would cover first-time buyers as well as move-up buyers who have lived in their current home for at least five years.

For first-time buyers, the maximum income limits would remain at $75,000 for individuals and $150,000 for married couples.

For move-up buyers, the income thresholds would be $125,000 (single) and $250,000 (married).

The credit would only apply to homes that sell for $800,000 or less.

Apparently, the House is willing to go along with whatever the Senate decides. And there was word that a vote on the new tax credit might occur by mid-week.

If the new credit is passed, it would go into effect on Dec. 1, which is the day after the current $8,000 first-time buyer tax credit expires.

I imagine some of what I just wrote will change after legislators massage and try to fine tune the bill. But there seems to be ever-growing support for the credit, even though some question whether many who have used the credit would have bought anyway simply due to low interest rates and low prices.

I’ll update things as I hear more.

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Tax Credit Update: Will It Stay Or Will It Go?

Rod Herman — Sun, 25 Oct 2009 23:46:20 +0000

With only 36 days to before the $8,000 first-time home buyer tax credit expires, the winds surrounding its fate are swirling all around Capitol Hill these days, as lawmakers try to decide whether to extend it or let it fade away.

From what I’ve been reading and hearing, there seems to be strong sentiment in Washington to extend the credit. But for how long or in what form still seems very much open to debate.

The options that have been bandied about in recent weeks include:

1) letting the credit expire on Nov. 30

2) expanding the credit to include more than just first-time buyers

3) increasing the amount of the credit from $8,000 to $15,000

4) extending the current credit, but only until mid-2010

5) extending the credit until the end of 2010, but phasing out the amount of the credit as the year progresses

6) increasing the income threshold so that more higher-income buyers can also qualify for the credit

Several bills have been floating around Congress. Perhaps the biggest proponent of extending and expanding the credit is Senator Johnny Isakson of Georgia, a former real estate agent. He authored legislation to extend the credit back in June.

That bill originally called for increasing the credit to $15,000 and expanding it so most owner-occupants would be able to claim the credit.

Late last week, however, several news accounts quoted Isakson as saying he will introduce an amendment to that bill which would only extend the credit for just six months and keep it at $8,000 instead of the originally proposed $15,000.

The proposed amendment would also raise the income limits so those with incomes all the way up to $150,000 (single) or $300,000 (married) would still be able to claim the credit.

Meanwhile, Nevada Senator Harry Reid is proposing a plan that would keep the tax credit through the end of 2010, but with declining credit amounts as the year progresses. His plan would keep the credit at $8,000 for the first three months of the year, then drop to $6,000 in April, $4,000 in July and $2,000 in October, thus creating an incentive for those who qualify to buyer sooner rather than later.

There doesn’t seem to be a huge outcry against extending the credit. Several congressmen have questioned whether the tax credit has really been as big an incentive to first-time buyers as people think. HUD secretary Shaun Donovan recently addressed the Senate Banking Committee and echoed those sentiments.

Several studies have suggested that many of those who qualified for the tax credit probably would have bought anyway, even without the government’s $8,000 subsidy.

So right now, it’s all just a lot of rhetoric from the political set. Which means that at this point, it’s still 36 days and counting.

If you qualify for the current credit and are already in contract and set to close escrow by Nov. 30, then what happens in Washington in the coming weeks probably isn’t a big deal.

On the other hand, if you qualify and haven’t yet gotten into contract, you may already be too late to get a deal closed in time to beat the Nov. 30 deadline. It’s not impossible, but everything would have to go like clockwork, which may be wishful thinking, especially since Thanksgiving holiday-related work closures are sure to cause added last-minute delays for many buyers.

Hopefully Congress will make some decision about the fate of the tax credit in the next week to 10 days. If so, and if the credit is extended (and perhaps even expanded) as many expect will happen, that would certainly make life a lot more enjoyable for many first-time buyers. And maybe even for some non-first-timers, too.

I’m keeping a close eye on things and will post an update as soon as I hear anything new.

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