Housing Tax Credit and Housing Stimulus - Let's break them down
Posted February 23, 2009
The Housing Stimulus Initiative and The Housing Tax Credit… well they’re finally here. So what do we think about the details and how do we think they will impact the current economic scenario?
Let’s discuss the Housing Tax Credit first. Here are a few bullet point details surrounding the credit, and what you should know if you’re a first time homebuyer and are considering purchasing a home in 2009.
• $8000 or 10% of the purchase price of the home – capped at $8000
• Eligibility is for first time homebuyers (defined as one or those who haven’t owned a home in past 3 years)
• Good for purchases after Jan 1, 2009 and through Dec 1, 2009
• Income limits - $75K for single, $150k for married couples
• Recapture – must be returned if borrowers sell home within first three years – exceptions made in certain cases such as death or divorce
Overall, something is better than nothing. The original $15,000 credit would have created a larger buzz with homebuyers, and would have included everyone versus just first time homebuyers.
But now is not the time to be arguing about what could have been – we needed action and we got it.
The message to first time homebuyers is to go out and purchase a home this year – rates are low, inventory is plentiful and your tax liability just got lighter.
Now let’s discuss the Housing Stimulus Initiative. The full details will be available March 4, 2009 when the program is officially slated to begin. Overall I think this is a great start. Certainly there are groups of individuals that have been left out (Jumbo borrowers and those deeply underwater – those owing more than 105% of their home’s current market value).
Here are a few bullet point details surrounding the initiative.
• Full details to be provided March 4, 2009 which is when the program goes into effect
• Underwater provision allows for borrowers who are currently 105% or below of home’s current value eligible for refinance under new Fannie or Freddie Guidelines if current loan is owned by either GSE.
• Total housing payment to be reduced to 31% of Gross Monthly Income – this would be good for five years and would then gradually revert back to conforming rates in place at the time
• Estimated that 3-4 Million Homeowners will be helped by this provision
• Eligible Borrowers will receive $1000 per year for five years for making payments on time
• Jumbo loan amounts not eligible under this program
• Only owner/occupied homes eligible – investors and speculators are not welcomed to this program
• No loans will be modified unless it results in a net savings compared with the costs of foreclosing.
• Rates will not be lowered below 2% in the modification process
Time is the only medium which will provide clarity as to whether or not these programs will work. We don’t know what would have happened if nothing had been done, except we have to feel that left untouched, we would have seen a continuum of downward spiraling in housing, ergo the economy. Given the important role that housing plays in the economy, that simply is not an option.
And we haven’t even begun to discuss what I really believe to be the crux of this fix – JOBS! We’ll save that for another time.
Jeremy M. Salemson
Corporate Investors Mortgage Group, Inc.