The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
What is FHA Mortgage Insurance?
FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.
Why does FHA Mortgage Insurance exist?
Unlike conventional loans that adhere to strict underwriting guidelines, FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. In most cases, the insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -whichever is longer.
How is FHA funded?
FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue.
The History of FHA
Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development's (HUD) Office of Housing in 1965.
When the FHA was created, the housing industry was flat on its back:
* Two million construction workers had lost their jobs.
* Terms were difficult to meet for homebuyers seeking mortgages.
* Mortgage loan terms were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
* America was primarily a nation of renters. Only four in 10 households owned homes.
During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.
In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA's emergency financing kept cash-strapped properties afloat.
The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.
By 2001, the nation's homeownership rate had soared to an all time high of 68.1 percent as of the third quarter that year.
The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio.
In the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.
Friday, February 27, 2009
Thursday, February 26, 2009
Get off that Fence!
I've been saying it for months, and I'll say it again.
NOW is the time to get off the fence and buy!
And you're doing a huge disservice to your clients if you don't make sure they hear that message loud and clear!
Why am I so convinced that the time is now?
Well, it's a combination of things. Regardless of whether you're building a new deck, or whipping up a batch of cupcakes, you need the right ingredients in order to ensure success. For the buyer considering a purchase, the right ingredients are at hand.
Today, right now, is the time to act. Here's why:
Mortgage rates are low, lower than they have been for many years. In fact, they're approaching historic lows! Yes, you actually have to qualify for a loan now. But I guarantee you there are lenders out there who are ready, willing, and able to lend you mortgage money at very attractive rates.
Inventory levels are high. Unfortunately for sellers, buyers have an enormous number of homes from which to pick. In many markets, inventory is at an all-time high. As a result, buyers no longer have to "settle" on a home that's not what they want.
Sellers are motivated. Whether they are in trouble with their financing, worried about their employment, or having to make lifestyle changes as a result of losses in the stock market, many sellers need to sell and are willing to negotiate accordingly.
First-time buyers can also get a $8,000 non-repayable tax credit from the government. And you can apply it to either your 2008 or 2009 taxes.
We may already have reached the bottom of the market. Some buyers are still waiting, trying to buy at the very bottom of the market. Funny thing about that – you never know you've hit the bottom until prices are on their way back up. And many buyers don't realize that an increase in their mortgage rate will completely eliminate any advantage they may have gained by waiting for prices to decrease by a few thousand dollars more.
NOW is the time to get off the fence and buy!
And you're doing a huge disservice to your clients if you don't make sure they hear that message loud and clear!
Why am I so convinced that the time is now?
Well, it's a combination of things. Regardless of whether you're building a new deck, or whipping up a batch of cupcakes, you need the right ingredients in order to ensure success. For the buyer considering a purchase, the right ingredients are at hand.
Today, right now, is the time to act. Here's why:
Mortgage rates are low, lower than they have been for many years. In fact, they're approaching historic lows! Yes, you actually have to qualify for a loan now. But I guarantee you there are lenders out there who are ready, willing, and able to lend you mortgage money at very attractive rates.
Inventory levels are high. Unfortunately for sellers, buyers have an enormous number of homes from which to pick. In many markets, inventory is at an all-time high. As a result, buyers no longer have to "settle" on a home that's not what they want.
Sellers are motivated. Whether they are in trouble with their financing, worried about their employment, or having to make lifestyle changes as a result of losses in the stock market, many sellers need to sell and are willing to negotiate accordingly.
First-time buyers can also get a $8,000 non-repayable tax credit from the government. And you can apply it to either your 2008 or 2009 taxes.
We may already have reached the bottom of the market. Some buyers are still waiting, trying to buy at the very bottom of the market. Funny thing about that – you never know you've hit the bottom until prices are on their way back up. And many buyers don't realize that an increase in their mortgage rate will completely eliminate any advantage they may have gained by waiting for prices to decrease by a few thousand dollars more.
Wednesday, February 25, 2009
Why to Buy a Home Now
by Phoebe Chongchua
If you're renting and wondering if you should buy a home, consider what bestselling author, David Bach, says, "The average homeowner is worth 35 times more than the average renter."
He advises renters to take action immediately and start saving part of their paycheck every month to help accumulate a down payment. He also encourages renters to borrow 10-20 percent less than what the bank is willing to lend; that way they're only buying as much home as they can afford.
The longer you rent, the longer it may take you to eventually get into homeownership. If the market conditions have scared you, perhaps you're not looking at the other side of the coin. Owning a home becomes part of your investment portfolio, provides tax benefits, allows you to build equity (it still exists), and, if you buy now, you may get an excellent deal.
According to a MarketWatch news article, buying a home now can provide some real negotiating power to request improvements, price reductions, help with closing costs, and more. "People can get a lot of what they need and almost all of what they want today," said Jay Papasan, one of the authors of "Your First Home".
While poor market conditions have created a troubling situation for some homeowners, the downturn has made the buying market ripe for others. The affordability of homes is better than ever. The National Association of Realtors' housing affordability index concluded that homes in December of 2008 were more affordable than at any other point since 1970 (the start of the index). And with numerous foreclosures on the market and prices dropping in many areas, now is a good time to buy. But in order to make your purchase profitable, here are some things you should consider.
How long will you be in the home? Some experts advise that if you are planning to move within a year, buying may not be the best option because of the expenses associated with moving. However, if you're searching for a place to live for, at least, several years, buying now could be a good choice for you.
How much you can afford. Don't let tighter lending regulations scare you off from making a purchase. Instead, understand what you truly can afford. Don't get caught up in buying too much home. In fact, these days, the trend is moving toward smaller homes -- simpler living.
Mortgage rates drop to historical low. How much home you can afford is affected by mortgage interest rates that, right now, are highly appealing. Good credit, documenting your income, and a substantial down payment will make you a better candidate for the better mortgage rates.
Freedom to choose. Now, unlike several years ago, the market has a large inventory in many areas. The market time to sell a home has increased which creates a large inventory of homes, everything including new, existing, and foreclosures. Buyers can peruse the market and have the freedom to select the home they really want. If you're interest is in a new home, know that many developers are getting more competitive with their pricing because they also have taken a hit by the ailing economy.
Quality of life. Buying a home can create a higher quality of life, giving you pride of homeownership, and something to enjoy improving and developing over the years.
Tax credit benefit. Last summer, the federal government started providing up to a $7,500 tax credit to buyers who have not owned a home in at least three years; the tax credit must be repaid within 15 years. But that figure may increase. The National Home Builders Association and National Association of Realtors are pushing for more significant help for all home buyers -- not just those who are buying for the first time. The Senate, as part of a stimulus package, this month approved a temporary new tax credit to be applied to homebuyers' tax bills. The credit would give buyers 10 percent of the purchase price of any home, up to $15,000. Alan Zibel of the Associated Press writes, "Anyone who buys a home within a year of the bill's signature would qualify. To deter speculators, buyers must occupy the house as their main residence for at least two years." At the time of this writing, the stimulus package had not yet gone to the White House.
If you're renting and wondering if you should buy a home, consider what bestselling author, David Bach, says, "The average homeowner is worth 35 times more than the average renter."
He advises renters to take action immediately and start saving part of their paycheck every month to help accumulate a down payment. He also encourages renters to borrow 10-20 percent less than what the bank is willing to lend; that way they're only buying as much home as they can afford.
The longer you rent, the longer it may take you to eventually get into homeownership. If the market conditions have scared you, perhaps you're not looking at the other side of the coin. Owning a home becomes part of your investment portfolio, provides tax benefits, allows you to build equity (it still exists), and, if you buy now, you may get an excellent deal.
According to a MarketWatch news article, buying a home now can provide some real negotiating power to request improvements, price reductions, help with closing costs, and more. "People can get a lot of what they need and almost all of what they want today," said Jay Papasan, one of the authors of "Your First Home".
While poor market conditions have created a troubling situation for some homeowners, the downturn has made the buying market ripe for others. The affordability of homes is better than ever. The National Association of Realtors' housing affordability index concluded that homes in December of 2008 were more affordable than at any other point since 1970 (the start of the index). And with numerous foreclosures on the market and prices dropping in many areas, now is a good time to buy. But in order to make your purchase profitable, here are some things you should consider.
How long will you be in the home? Some experts advise that if you are planning to move within a year, buying may not be the best option because of the expenses associated with moving. However, if you're searching for a place to live for, at least, several years, buying now could be a good choice for you.
How much you can afford. Don't let tighter lending regulations scare you off from making a purchase. Instead, understand what you truly can afford. Don't get caught up in buying too much home. In fact, these days, the trend is moving toward smaller homes -- simpler living.
Mortgage rates drop to historical low. How much home you can afford is affected by mortgage interest rates that, right now, are highly appealing. Good credit, documenting your income, and a substantial down payment will make you a better candidate for the better mortgage rates.
Freedom to choose. Now, unlike several years ago, the market has a large inventory in many areas. The market time to sell a home has increased which creates a large inventory of homes, everything including new, existing, and foreclosures. Buyers can peruse the market and have the freedom to select the home they really want. If you're interest is in a new home, know that many developers are getting more competitive with their pricing because they also have taken a hit by the ailing economy.
Quality of life. Buying a home can create a higher quality of life, giving you pride of homeownership, and something to enjoy improving and developing over the years.
Tax credit benefit. Last summer, the federal government started providing up to a $7,500 tax credit to buyers who have not owned a home in at least three years; the tax credit must be repaid within 15 years. But that figure may increase. The National Home Builders Association and National Association of Realtors are pushing for more significant help for all home buyers -- not just those who are buying for the first time. The Senate, as part of a stimulus package, this month approved a temporary new tax credit to be applied to homebuyers' tax bills. The credit would give buyers 10 percent of the purchase price of any home, up to $15,000. Alan Zibel of the Associated Press writes, "Anyone who buys a home within a year of the bill's signature would qualify. To deter speculators, buyers must occupy the house as their main residence for at least two years." At the time of this writing, the stimulus package had not yet gone to the White House.
Tuesday, February 24, 2009
Homebuyers Go Green to Cut Bills
By JIM CARLTON
In an attempt to boost sales in a dismal market, homebuilders are turning to what has been one of the most overlooked aspects of a house: improving the way it uses energy.
While the sales results are mixed so far, industry experts say the move could eventually boost business as more cost-conscious consumers seek to save on rising power bills by having a more efficient home. Already, builder Kevin Enyeart, in Lee Springs, Mo., says he has picked up two contracts and possibly a third over the past six months to sell homes to buyers who specifically requested energy-saving features, such as better insulation and tighter-fitting windows. That's rare good news in a market Mr. Enyeart says is so bad that he has had to cut the number of homes he builds to about 20 a year from 40.
[MIichael Klein] MIichael Klein
"I used to be a pessimist about going green, but not anymore," Mr. Enyeart says.
Indeed, the shift may be altering the fortunes of so-called green homes, which often include environmentally friendly building materials and energy-saving features. In recent years, when home prices were high, green homes were a tougher sell because builders tended to charge a premium for them. But now that home prices have dropped, green homes are more attractive, both because the premium has been substantially reduced and because people are more interested in saving money on energy costs over time.
Energy efficiency, in particular, has emerged as a top priority for consumers because power bills have more than doubled in many markets. When asked to list their top 12 influences in buying a home, consumers responding to a National Association of Home Builders survey last year put energy efficiency at No. 2 , behind quality of living space. Five years ago, energy didn't even make the same survey.
Debbie Swank, a 37-year-old financial planner, says energy savings played a "huge role" in the decision by her and her husband to buy a four-bedroom house by KB Home in Austin, Texas, in December 2007 that the company touted as energy efficient. The two-story, $379,000 home includes features such as a radiant barrier roof to reflect the sun's heat and a dual-thermostat cooling system that adjusts the temperature so each floor can get only the air-conditioning it needs. As a result, the couple and their two boys, ages five and eight, have cut their power bills by more than half -- from a high of $400 a month before to a high of $192 now -- even though their new home is 600 square feet larger. "We love the savings," Ms. Swank says.
The industry's new focus on energy efficiency was evident at the International Builders Show in Las Vegas last month. Green materials such as bamboo floors and carpeting made from recycled material of all stripes have been featured at past builders' shows, but this year they seemed to dominate the green space.
But the housing market remains so bad -- single-family starts this year are expected to fall to a record low, after diving 40% last year -- that any sales generated by energy-efficient homes are unlikely to help the industry much for now, industry officials say. Indeed, assistant vice president Carlos Martin says he has received reports of green builders going out of business along with traditional builders in some markets.
Credit is also so tight that many builders can't afford the extra 2% or so of a building's costs it can take to go green, or be able to pass it on to customers. In Missouri, Mr. Enyeart says it costs him about $3,500 more after credits and other offsets to build an energy-efficient home, forcing him to transfer funds from his marketing budget.
Still, nascent results are encouraging, builders say. In Las Vegas, Pulte Homes Inc. reports "very good traffic" at a subdivision it opened a few weeks ago where the homes have been outfitted with energy-saving features designed to keep power bills under $100 a month in the summer heat. The homes are among hundreds the Bloomfield Hills, Mich., builder has constructed across the country as part of a "Builders Challenge" issued a year ago by the Department of Energy for the industry to build 220,000 ultra-efficient homes by 2012.
Elsewhere, Dallas-based Centex Corp. this month launched the "Centex Energy Advantage," in which all new homes will include features such as an energy monitor the occupant can use to adjust usage of furnaces and such. KB Home, meanwhile, said that beginning Jan. 1, all of its new homes would be built under strict standards of the Environmental Protection Agency's Energy Star program. KB officials said the move was aimed, in part, at competing better against sales of existing homes, which usually don't include many energy-savings features. "Anything that helps their [consumers] pocketbook has a lot of value," says Jeffrey Mezger, chief executive officer of the Los Angeles-based builder.
Dozens of other builders have signed up for energy-efficiency and other green programs that have been started up in the industry in recent years. Building products giant Masco Corp., for instance, reports between 40 and 50 large builders have signed up for an Environments for Living Certified Green program it sponsors that emphasizes energy efficiency, compared to just 10 two years ago.
"You don't want people to be afraid of heating and cooling their homes," Pierre Le Pendeven, a custom builder from Claremont, Calif., said after standing in line to tour an energy-efficient show home sponsored by Masco Home Services Inc., a unit of Taylor, Mich.-based Masco, at the International Builders Show last month.
Some builders are also moving into the remodeling market to retrofit existing homes to use energy better. Claremont, Calif., builder Devon Hartman says he recently used an infrared camera to help a wealthy homeowner in Los Angeles identify numerous places where air was leaking out of his 7,000-square-foot mansion. Mr. Hartman is now helping to seal the home, which he expects will reduce its energy usage by two-thirds.
And companies that sell energy-savings products are benefiting. Johnson Controls Inc. of Wichita, Kan., has seen a "double digit" increase in sales to builders of devices that modulate the flow of heat out of a furnace to save energy, says Tom Huntington, a company vice president. Even companies whose sales have gone down because of the housing market report energy-saving products have helped cushion the fall. Los Angeles-based PlastPro Inc. said its sales of energy-efficient residential doors -- designed to hold in warm or cool air twice as efficiently as traditional ones -- fell 15% last year from a year earlier, as single-family housing starts plunged a much steeper 40%.
Similarly, business at wood-products giant Georgia-Pacific LLC has generally been in a funk. But officials of the Atlanta-based company say sales of its new XJ 85 Joist -- a beam engineered to contain 40% to 50% less wood, and leave space to run air conditioning and heating ductwork through homes more efficiently -- are taking off. Since unveiling the product three months ago, Georgia-Pacific officials say they are selling upwards of 60,000 feet of it a week now, or enough to fill four trucks. "You can't see it," says Michael Rehwinkel, president of Georgia-Pacific's wood-products business, "but it's what you don't see that matters in the green story."
Write to Jim Carlton at jim.carlton@wsj.com
In an attempt to boost sales in a dismal market, homebuilders are turning to what has been one of the most overlooked aspects of a house: improving the way it uses energy.
While the sales results are mixed so far, industry experts say the move could eventually boost business as more cost-conscious consumers seek to save on rising power bills by having a more efficient home. Already, builder Kevin Enyeart, in Lee Springs, Mo., says he has picked up two contracts and possibly a third over the past six months to sell homes to buyers who specifically requested energy-saving features, such as better insulation and tighter-fitting windows. That's rare good news in a market Mr. Enyeart says is so bad that he has had to cut the number of homes he builds to about 20 a year from 40.
[MIichael Klein] MIichael Klein
"I used to be a pessimist about going green, but not anymore," Mr. Enyeart says.
Indeed, the shift may be altering the fortunes of so-called green homes, which often include environmentally friendly building materials and energy-saving features. In recent years, when home prices were high, green homes were a tougher sell because builders tended to charge a premium for them. But now that home prices have dropped, green homes are more attractive, both because the premium has been substantially reduced and because people are more interested in saving money on energy costs over time.
Energy efficiency, in particular, has emerged as a top priority for consumers because power bills have more than doubled in many markets. When asked to list their top 12 influences in buying a home, consumers responding to a National Association of Home Builders survey last year put energy efficiency at No. 2 , behind quality of living space. Five years ago, energy didn't even make the same survey.
Debbie Swank, a 37-year-old financial planner, says energy savings played a "huge role" in the decision by her and her husband to buy a four-bedroom house by KB Home in Austin, Texas, in December 2007 that the company touted as energy efficient. The two-story, $379,000 home includes features such as a radiant barrier roof to reflect the sun's heat and a dual-thermostat cooling system that adjusts the temperature so each floor can get only the air-conditioning it needs. As a result, the couple and their two boys, ages five and eight, have cut their power bills by more than half -- from a high of $400 a month before to a high of $192 now -- even though their new home is 600 square feet larger. "We love the savings," Ms. Swank says.
The industry's new focus on energy efficiency was evident at the International Builders Show in Las Vegas last month. Green materials such as bamboo floors and carpeting made from recycled material of all stripes have been featured at past builders' shows, but this year they seemed to dominate the green space.
But the housing market remains so bad -- single-family starts this year are expected to fall to a record low, after diving 40% last year -- that any sales generated by energy-efficient homes are unlikely to help the industry much for now, industry officials say. Indeed, assistant vice president Carlos Martin says he has received reports of green builders going out of business along with traditional builders in some markets.
Credit is also so tight that many builders can't afford the extra 2% or so of a building's costs it can take to go green, or be able to pass it on to customers. In Missouri, Mr. Enyeart says it costs him about $3,500 more after credits and other offsets to build an energy-efficient home, forcing him to transfer funds from his marketing budget.
Still, nascent results are encouraging, builders say. In Las Vegas, Pulte Homes Inc. reports "very good traffic" at a subdivision it opened a few weeks ago where the homes have been outfitted with energy-saving features designed to keep power bills under $100 a month in the summer heat. The homes are among hundreds the Bloomfield Hills, Mich., builder has constructed across the country as part of a "Builders Challenge" issued a year ago by the Department of Energy for the industry to build 220,000 ultra-efficient homes by 2012.
Elsewhere, Dallas-based Centex Corp. this month launched the "Centex Energy Advantage," in which all new homes will include features such as an energy monitor the occupant can use to adjust usage of furnaces and such. KB Home, meanwhile, said that beginning Jan. 1, all of its new homes would be built under strict standards of the Environmental Protection Agency's Energy Star program. KB officials said the move was aimed, in part, at competing better against sales of existing homes, which usually don't include many energy-savings features. "Anything that helps their [consumers] pocketbook has a lot of value," says Jeffrey Mezger, chief executive officer of the Los Angeles-based builder.
Dozens of other builders have signed up for energy-efficiency and other green programs that have been started up in the industry in recent years. Building products giant Masco Corp., for instance, reports between 40 and 50 large builders have signed up for an Environments for Living Certified Green program it sponsors that emphasizes energy efficiency, compared to just 10 two years ago.
"You don't want people to be afraid of heating and cooling their homes," Pierre Le Pendeven, a custom builder from Claremont, Calif., said after standing in line to tour an energy-efficient show home sponsored by Masco Home Services Inc., a unit of Taylor, Mich.-based Masco, at the International Builders Show last month.
Some builders are also moving into the remodeling market to retrofit existing homes to use energy better. Claremont, Calif., builder Devon Hartman says he recently used an infrared camera to help a wealthy homeowner in Los Angeles identify numerous places where air was leaking out of his 7,000-square-foot mansion. Mr. Hartman is now helping to seal the home, which he expects will reduce its energy usage by two-thirds.
And companies that sell energy-savings products are benefiting. Johnson Controls Inc. of Wichita, Kan., has seen a "double digit" increase in sales to builders of devices that modulate the flow of heat out of a furnace to save energy, says Tom Huntington, a company vice president. Even companies whose sales have gone down because of the housing market report energy-saving products have helped cushion the fall. Los Angeles-based PlastPro Inc. said its sales of energy-efficient residential doors -- designed to hold in warm or cool air twice as efficiently as traditional ones -- fell 15% last year from a year earlier, as single-family housing starts plunged a much steeper 40%.
Similarly, business at wood-products giant Georgia-Pacific LLC has generally been in a funk. But officials of the Atlanta-based company say sales of its new XJ 85 Joist -- a beam engineered to contain 40% to 50% less wood, and leave space to run air conditioning and heating ductwork through homes more efficiently -- are taking off. Since unveiling the product three months ago, Georgia-Pacific officials say they are selling upwards of 60,000 feet of it a week now, or enough to fill four trucks. "You can't see it," says Michael Rehwinkel, president of Georgia-Pacific's wood-products business, "but it's what you don't see that matters in the green story."
Write to Jim Carlton at jim.carlton@wsj.com
Monday, February 23, 2009
Mortgage help: Do you qualify?
President Obama's new real estate rescue plan offers two key possible benefits: More refinancing opportunities and greater chance for a loan modification.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- The eagerly anticipated foreclosure prevention program unveiled Wednesday by President Obama targets 9 million borrowers for help - are you one of them?
The $75 billion effort, dubbed the Homeowner Affordability and Stability Plan, boils down to two basic solutions:
First, the government is aiming to help more homeowners refinance to take advantage of new low interest rates.
Second, it provides incentives to lenders and servicers to restructure your mortgage to more affordable levels.
Official guidelines won't be unveiled until March 4, but here's how to know whether you'll likely be able to take advantage of either of these options.
Help for those seeking refinancing
This part of the program targets borrowers who have kept current on their mortgages. Many of the homeowners in this group have been unable to lower their housing costs through refinancings because of falling home prices.
Right now, if you're underwater on your mortgage, owing more than the home's market value, forget about qualifying for a refi. In fact, at least 20% equity in your home is now a must, unless you're using an FHA loan.
The new guidelines should help. Even homeowners with debt that exceeds home value by 5% could be eligible. And there will be no prepayment penalties. But your loan must be owned or backed by Fannie Mae or Freddie Mac.
The Administration estimates that this will enable up to 5 million homeowners to obtain lower interest rate mortgages.
Who's not eligible. Homeowners whose property values have dipped severely, putting them underwater by more than 5% are out of luck.
Those with "jumbo" mortgages also don't qualify - only those with "conforming' mortgages do. To be absolutely sure what kind of loan you have, you need to check with your servicer or lender after March 4. But in general, until the past year, loans above $417,000 were considered jumbo mortgages, and Fannie Mae and Freddie Mac were not allowed to buy and guarantee them.
All borrowers will have to prove they have sufficient income to be able to keep up their loan payments, though what would be sufficient proof wasn't yet clear.
Mortgage modification help for at-risk borrowers
Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.
Anyone with high combined mortgage debt compared to income or who is underwater may be eligible for a loan modification.
Borrowers with high levels of other debt, such as car loans and credit card debt exceeding 55% of their incomes, may still qualify for a modification but they'll be required to accept debt counseling in a HUD-certified program.
If you qualify, your servicer or lender will reduce your monthly mortgage payments to 31% of your gross income.
The payment would stay there for five years and then gradually revert back to the conforming loan rates in place at the time.
The reduction would come mostly through interest-rate reductions, though in some cases, principal reduction also would be an option.
Borrowers would also receive incentive bonuses of up to $1,000 a year for five years for making payments on time.
President Obama estimated 3 to 4 million homeowners could benefit from the new modification procedures.
Who's not eligible. Speculators, those who bought homes for investment purposes, do not qualify for help -- all homes must be owner/occupied.
The program will also not reward homebuyers who were irresponsible in their borrowing. All applicants will be closely examined by lenders and those who acted unscrupulously by, for example, misrepresenting their incomes in no-doc loan applications, would not qualify.
And, in order to protect taxpayers from excessive expenses, no loans will be modified unless it results in a net savings compared with the costs of foreclosing. Finally, rates would not be lowered below 2%.
That will disqualify many borrowers who simply can't afford any reasonable mortgage payment because of illness, for example, or job loss.
"[The plan] will not reward folks who bought homes they knew from the beginning they would never be able to afford," said Obama. "In short, this plan will not save every home."
No mortgages for amounts above comforming loan limits would be eligible. To top of page
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- The eagerly anticipated foreclosure prevention program unveiled Wednesday by President Obama targets 9 million borrowers for help - are you one of them?
The $75 billion effort, dubbed the Homeowner Affordability and Stability Plan, boils down to two basic solutions:
First, the government is aiming to help more homeowners refinance to take advantage of new low interest rates.
Second, it provides incentives to lenders and servicers to restructure your mortgage to more affordable levels.
Official guidelines won't be unveiled until March 4, but here's how to know whether you'll likely be able to take advantage of either of these options.
Help for those seeking refinancing
This part of the program targets borrowers who have kept current on their mortgages. Many of the homeowners in this group have been unable to lower their housing costs through refinancings because of falling home prices.
Right now, if you're underwater on your mortgage, owing more than the home's market value, forget about qualifying for a refi. In fact, at least 20% equity in your home is now a must, unless you're using an FHA loan.
The new guidelines should help. Even homeowners with debt that exceeds home value by 5% could be eligible. And there will be no prepayment penalties. But your loan must be owned or backed by Fannie Mae or Freddie Mac.
The Administration estimates that this will enable up to 5 million homeowners to obtain lower interest rate mortgages.
Who's not eligible. Homeowners whose property values have dipped severely, putting them underwater by more than 5% are out of luck.
Those with "jumbo" mortgages also don't qualify - only those with "conforming' mortgages do. To be absolutely sure what kind of loan you have, you need to check with your servicer or lender after March 4. But in general, until the past year, loans above $417,000 were considered jumbo mortgages, and Fannie Mae and Freddie Mac were not allowed to buy and guarantee them.
All borrowers will have to prove they have sufficient income to be able to keep up their loan payments, though what would be sufficient proof wasn't yet clear.
Mortgage modification help for at-risk borrowers
Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.
Anyone with high combined mortgage debt compared to income or who is underwater may be eligible for a loan modification.
Borrowers with high levels of other debt, such as car loans and credit card debt exceeding 55% of their incomes, may still qualify for a modification but they'll be required to accept debt counseling in a HUD-certified program.
If you qualify, your servicer or lender will reduce your monthly mortgage payments to 31% of your gross income.
The payment would stay there for five years and then gradually revert back to the conforming loan rates in place at the time.
The reduction would come mostly through interest-rate reductions, though in some cases, principal reduction also would be an option.
Borrowers would also receive incentive bonuses of up to $1,000 a year for five years for making payments on time.
President Obama estimated 3 to 4 million homeowners could benefit from the new modification procedures.
Who's not eligible. Speculators, those who bought homes for investment purposes, do not qualify for help -- all homes must be owner/occupied.
The program will also not reward homebuyers who were irresponsible in their borrowing. All applicants will be closely examined by lenders and those who acted unscrupulously by, for example, misrepresenting their incomes in no-doc loan applications, would not qualify.
And, in order to protect taxpayers from excessive expenses, no loans will be modified unless it results in a net savings compared with the costs of foreclosing. Finally, rates would not be lowered below 2%.
That will disqualify many borrowers who simply can't afford any reasonable mortgage payment because of illness, for example, or job loss.
"[The plan] will not reward folks who bought homes they knew from the beginning they would never be able to afford," said Obama. "In short, this plan will not save every home."
No mortgages for amounts above comforming loan limits would be eligible. To top of page
Friday, February 20, 2009
Younger investors can profit from the crisis
Baby Boomer pain is Gen Y’s gain. The harrowing market slide that is a punch in the retirement-portfolio stomach for the 50+ crowd is actually great news for younger adults.
“If you are in your 20s and 30s you should be dancing in the streets right now,” says financial advisor Frank Armstrong, president of Investor Solutions in Coconut Grove, CA. “This is just a tremendous time to be able to invest in stocks at sale prices. You’ve then got 30 years or more to leave the money alone. We don’t know what is going to happen over the next few months and years, but over decades we’re confident you are going to make money.”
The catch is that you need to invest now. To make out well in the future means scooping up stock shares today at those sale prices. But it seems that plenty of investors are doing just the opposite; choosing to reduce their investments in stocks and hide out in cash. What feels good today (lower risk in a volatile market) actually works against you over the long-term; stocks, not cash or bonds, offer the best shot at inflation-beating gains over the long term. There is no question that the markets may continue to falter in the coming months or even years, but when you are in your 20s or 30s that’s practically irrelevant. You are investing for 2040 or 2050, not 2011.
If you happen to be a parent (or grandparent) looking to help your grown child navigate these volatile times, go for the “you’ll thank me later for this” approach: any way you can impress on younger adults to keep (or start) investing in stocks right now is going to pay off for them decades for now. Send them over to this calculator and have them plug in how money invested today might grow at say a reasonable 7% or so annualized rate over the next few decades. (Yes, that’s reasonable. The long-term historical rate of return for stocks over the past eight decades is about 10%; and that return takes into account the severe buzz cut in the S&P 500 over the past 15 months or so.)
If you have some extra cash to help jumpstart a child or grandchild’s investing, you can gift them money to put into a Roth IRA. As long as a child/grandchild has earned income, the money for an IRA can come from any source.
–Carla Fried
“If you are in your 20s and 30s you should be dancing in the streets right now,” says financial advisor Frank Armstrong, president of Investor Solutions in Coconut Grove, CA. “This is just a tremendous time to be able to invest in stocks at sale prices. You’ve then got 30 years or more to leave the money alone. We don’t know what is going to happen over the next few months and years, but over decades we’re confident you are going to make money.”
The catch is that you need to invest now. To make out well in the future means scooping up stock shares today at those sale prices. But it seems that plenty of investors are doing just the opposite; choosing to reduce their investments in stocks and hide out in cash. What feels good today (lower risk in a volatile market) actually works against you over the long-term; stocks, not cash or bonds, offer the best shot at inflation-beating gains over the long term. There is no question that the markets may continue to falter in the coming months or even years, but when you are in your 20s or 30s that’s practically irrelevant. You are investing for 2040 or 2050, not 2011.
If you happen to be a parent (or grandparent) looking to help your grown child navigate these volatile times, go for the “you’ll thank me later for this” approach: any way you can impress on younger adults to keep (or start) investing in stocks right now is going to pay off for them decades for now. Send them over to this calculator and have them plug in how money invested today might grow at say a reasonable 7% or so annualized rate over the next few decades. (Yes, that’s reasonable. The long-term historical rate of return for stocks over the past eight decades is about 10%; and that return takes into account the severe buzz cut in the S&P 500 over the past 15 months or so.)
If you have some extra cash to help jumpstart a child or grandchild’s investing, you can gift them money to put into a Roth IRA. As long as a child/grandchild has earned income, the money for an IRA can come from any source.
–Carla Fried
Wednesday, February 18, 2009
Final score: $8,000 for homebuyers
First-time purchasers get a tax credit windfall if they buy before December.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.
A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:
"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"
The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.
To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.
Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)
Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.
Lukewarm reception
The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate's proposal of a $15,000 non-refundable credit for all homebuyers.
"[The Senate version] would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). "We have a lot of reports of people who would be coming off the fence because of it."
Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.
The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. "I think there are many homeowners who would be trading-up but they have had no buyers for their own homes," Yun said.
Who won't benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle - they still have to close the sale before claiming the bonus.
One state, Missouri, is trying to get around that problem by creating a short-term loan on the tax credit of up to $6,750. The state would loan borrowers the money so they could use it at closing as part of the downpayment. Then, when the buyers receive their tax credit from the IRS, they pay back the state. Other states may follow with similar programs, according to NAHB's Dietz.
Many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.
And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home - a lawnmower, a rug, a sofa - and, in that way, help stimulate the economy.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.
A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:
"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"
The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.
To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.
Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)
Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.
Lukewarm reception
The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate's proposal of a $15,000 non-refundable credit for all homebuyers.
"[The Senate version] would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). "We have a lot of reports of people who would be coming off the fence because of it."
Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.
The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. "I think there are many homeowners who would be trading-up but they have had no buyers for their own homes," Yun said.
Who won't benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle - they still have to close the sale before claiming the bonus.
One state, Missouri, is trying to get around that problem by creating a short-term loan on the tax credit of up to $6,750. The state would loan borrowers the money so they could use it at closing as part of the downpayment. Then, when the buyers receive their tax credit from the IRS, they pay back the state. Other states may follow with similar programs, according to NAHB's Dietz.
Many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.
And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home - a lawnmower, a rug, a sofa - and, in that way, help stimulate the economy.
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