The State of Georgia is now offering a tax credit for home buyers.  So, on top of the $8000 tax credit for first time home buyers from the Federal Government, now buyers around metro Atlanta, and the state of Georgia, will receive up to $1800 from the State.

The details are a little complicated, but the basis is that the tax credit is given for owner occupied purchases, which are purchased between June 1 and November 30, 2009.  The credit is for $1800 or 1.2% of the purchase price, whichever is less.  So, to get the full credit the purchase would need to be for $150,000 or greater.  

And, the dates that the home went on the market have an effect on qualifying for the tax credit, as well.  For this I have found the most succinct explanation from the NAMAR Organization:

In addition, eligible single family residences include 1) new single family residences; 2) previously occupied residences that were for sale prior to the May 11, 2009 and are still for sale after May 11, 2009; 3) owner-occupied residences with respect to which the owner’s acquisition debt is in default on or before March 1, 2009; and 4) residences where a foreclosure has taken place and are owned by the mortgagor or the mortgagor’s agent. 

So, more good news if you are a prospective home buyer around Atlanta.

No.  Well, Yes.  Um, Not quite yet.

I have had several Realtors and many borrowers ask the question, “Can I use the $8000 First Time Home Buyer Tax Credit as a down payment?”

First, I did have some borrowers claim their tax credit when they filed their taxes around April 15.  And they received the money, even before they bought their home.

Once taxes are filed, however, then the home buyer can either ammend the filed return using form 1040X, and file the IRS Form 5404 to claim the tax credit this year; or they can wait until they file taxes for 2009.  Either way, the home buyer will need a Settlement Statement to file.

Then, HUD got involved.  Then they didn’t.  And a lot of confusion has sprung up around that in the past few days.  You see, HUD issued a Mortgagee Letter on May 11 stating that buyers can claim the Tax Credit and use it as the Down Payment on a home at the closing table.

Then on May 13, that Mortgagee Letter disappeared from the HUD website - so the tax credit cannot be used as the down payment.

What happened is that HUD jumped the gun.  In principle, they said, it is okay to bring the tax credit to the closing table to serve as the down payment.  In practice, however, entities and means to get the tax credit to the closing table are not available/approved.

So, my best guess is that we will see this revisited by HUD in the very near future; but for now it is not possible.  The next best thing?  Have the first time home buyer get a loan from family, from 401(k), etc, and bring that as the down payment.  Then, file the ammendment to the 2008 tax return, and reimburse the donor for the down payment a few weeks after closing.  So, if you are buying a home around Atlanta, and you have not owned a home in the past three years, then you are a first time home buyer, by definition, and sooner or later you will receive the tax credit, if all other criteria qualify.

I wrote in this blog some time ago about the Hope for Homeowers plan, which went into effect on October 1, 2008 with billions in government funding.  $320B, to be exact.

As of last month, April, an amazing stat came out.  Brian Sullivan of Fox News reported that to date the program has successfully helped modify the mortgages of 1US Homeowner.  And we know, ‘One is the lonliest number that you’ll ever see’.  Especially with that sort of funding behind the program.

There are a lot of reasons for the lack of effectiveness of this program; including that the existing mortgage holder would have to discount the note to 90% of the current value of the home to qualify for the FHA 

endorsed refinance.  That has since been modified to 97% of the current home’s value.  Still, mortgage servicers do not want to discount the notes and take real losses that easily.

But, look on the bright side.  With the extreme effectiveness of this Hope for Homeowners program and the billions in taxpayer funds that were allocated to the program - well, government healthcare is coming for us all.  We’ve got that going for us.

If you are considering buying a property in an outlying county around metro Atlanta, then be sure to check out a USDA mortgage loan, otherwise known as a Rural Housing Loan.

USDA Funds Released - $10 Billion (yes, that’s billion with a B) has been allocated. According the USDA, about 25% have already been used to fund “purchase transactions only” that have been on HOLD since January 9, 2009. When the “dust” settles, money will be released for refi’s.. Not every community qualifies—but if it does, it’s the best thing since sliced bread!. 

I agree, it is the best thing since sliced bread, since a USDA loan is 100% financing, at market rates, and has NO monthly Mortgage Insurance (MI).  I just closed one for a young couple who purchased a home in Winder, GA.  They came to closing, and got a check back for nearly all their earnest money.  Nice.

Source: Zillow.com

I just saw a short video that rang true with me.  It was not on YouTube, and I am no Tech Wizard, so the best I can do to share it with you is to link to it here.

The speaker asked the question, “What’s this housing crisis caused by?” 

And the answers came, as many of us would list off - there are too many foreclosures, or housing prices are dropping too much, etc.

His answer was, “There was a liquidity crisis”.  If more homeowners were savers, and had some six months expenses saved in the bank, then with all the job losses that we have seen and other things hitting homeowners, many more of them would have had the staying power to keep paying their mortgages until the ship was righted.  

And that struck a cord with me, because I have been councelling homeowners for years to follow the Four Step Priority of Cash Flow as they get into their home.  And that is very simple.

1. Have a Rainy Day fund: At least 3 months expenses in a very liquid form, 6 months if you are the only provider for the household.
2. Pay Off all non-preferred debt: meaning, anything that does not carry with it a tax deduction, including credit cards, car loans, student loans, etc.  Pretty much anything but the house for most folks.
3. Save significant reserves: Equal to or greater than one year’s income.  Invest this and do all the great things with it that  a financial planner would recommend, but have it.  Why?  Because good things happen; and because bad things happen.  If you have the cash, you will be ready to act of the good things and invest at the right time; and you will be ready to deal with the bad things life throws at you by making prudent decisions, without money dictating your decision for you.
4. Then, go ahead and pay off the house, and invite all your friends over to burn the mortgage note.

A lot of interest has been bubbling up about the $750 billion dollars that the Obama Administration has earmarked for loan modifications for borrowers who are under water on their home values. And, lots of homeowners around Atlanta are underwater, so it affects a lot of us.

The way it works is that it is a true loan modification, not a refinance.  And those eligible are those who are current on their mortgages, but owe more of the home than the home is worth, AND the mortgage is owned by either Fannie Mae or Freddie Mac.

That’s where most people stop.  ”How do I know if my mortgage is owned by Fannie or Freddie?”  Well, now it has been made simple.  You can look it up online or by a simple phone call.

Fannie Mae has set up this website to check if your mortgage is owned by Fannie.

And, to check with Freddie Mac, just call 1-800-Freddie, and press option 5, then option 4.  Then ask.

If the answer is positive, then you can contact your current servicer to ask them to begin the process of modifying your mortgage.

Good luck!

Housing starts, or the number of new residential properties that began construction, jumped 22.2% last month.  That is a big jump, especially in the midst of a housing crisis.  

So, could this spell the bottom of the housing crisis?  Well, it probably points to something close to a bottom.  However, the majority of the gain, 82.3% in fact, came in multi-family housing starts, not is single family construction.

It is still good, but indicates a rise in demand for rental properties as opposed to a rise in the demand for homes to purchase.  

So, good news comes where it will.  And we will take this bit of news as good for buyers around Atlanta and around the country, as the bottom of the housing market is in sight.

A lot of people used to use their homes as ATM machines, cashing out every so often to consolidate the debt that they used to finance their lifestyles - which demanded more money than their incomes provided. 

Those days, thankfully, are over.  Yet, I am meeting a lot of people around Atlanta who, for whatever reason, have credit card and other debt that is holding them back from getting ahead.  They want to move forward and start saving, but the minimum payments due are not allowing them.  So, they look to consolidate that consumer debt into a new, low interest mortgage to help the household cash-flow.

Deadline: March 31

Conforming loans have been more and more difficult to do high Loan-to-Value debt consolidation loans.  First, because the days of adding a Home Equity Line of Credit (HELOC) were over.  Then, because Fannie Mae and Freddie Mac cut back debt consolidation mortgage loans to 85% of the appraised value of the property.  Then, because Mortgage Insurance Companies (read: PMI) refused to insure those loans in markets they considered “declining markets”.

So, for the average homeowner around Atlanta, the only option for a debt consolidation refinance was and FHA Mortgage Loan.  FHA would go to 95% of the appraised value of the home in a cash-out refinance.  But even FHA got tougher.  If you were to exceed 85% of your property’s value, then you would now need two appraisals.

And now, things are getting even more difficult.  For mortgage applications taken on or after April 1, 2009, the max cash-out refinance for even FHA mortgages will be limited to 85% of the home’s value - and then only if you have owned the home for 12+ months.

So, if you have been considering a cash-out refinance, and you will need a high loan-to-value, act this week to make sure that we can do it for you.  Call me if you have been considering an FHA debt consolidation refinance, and your home is in Georgia.

Jamie Dimon, the CEO of J.P. Morgan Chase, gave a talk to the US Chamber of Commerce meeting today.  And, what a breath of fresh air!  I have not heard the whole speech, so I cannot comment on it globally.  But, he was an avid proponent of a change in the “Mark-to-Market” accounting rule, something instituted by Congress after the Enron scandal, but that has proved far, far over-reaching.

And, the mark-to-market comment was covered here by CNBC. And here is an excerpt from that article:

 

Dimon, speaking at a U.S. Chamber of Commerce economic conference, also supports mark-to-market accounting, but banks may have applied the fair value rule “to a ridiculous point.”

The mark-to-market accounting rule, which requires assets to be valued at market prices, is defended by investor advocates and some lawmakers as giving a clear picture of the assets held on banks’ books. But the banking industry, which has been forced to write down billions of dollars’ worth of hard-to-value assets in illiquid markets, has pleaded for a suspension or modification of the rule.

 

For a long time, I have advocated a change, not an abolishment, of the mark-to-market rule.  In valuing financial instruments, they should be valued on cash performance, not on comperable sales.  I have a short video on that concept here.  

Watch that video, entitled “Refinance Now”.  The SEC met in January to explore changing or doing away with ‘mark-to-market’, and did nothing.  But the video explains what will happen if, indeed, there is a significant change to the flawed accounting rule.  And, a wave is growing that suggests there will be that change, and quite soon.  

Be ready.  If you are up for a refinance, lock today.  If you are not in the stock market, be ready, because when (if) the ‘mark-to-market’ rule is changed, we could well see a 1000 point bounce that day.  You will want to be ‘in’ at that point.

Could it be a simple as a mathematical formula that expresses only optimism?  This article from Wired Magazine explains rise and fall of the CDO and CDS markets, and the ensuing pain for all Western economies, possibly better than I have read before.

We’ve all heard that Credit Default Swaps (CDS) were at the root of the problem.  But when the one offering the explanation begins to define CDS and the WHY of the problem, our eyes glaze over and we begin drifting off, wondering who will be voted off American Idol this week.

This is a bit technical, but this article by Felix Salmon is well thought-out to be a good, palitable explanation.