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.
Tuesday, February 17, 2009
Realtors® Advocate Quick Implementation of Stimulus Package
Now that the American Recovery and Reinvestment Act has been sent to President Obama for his signature, the National Association of Realtors® is looking forward to swift implementation.
“We are pleased that Congress and the administration have taken prompt action to address the current economic crisis,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage Dallas-Fort Worth. “Job creation and tax cuts are going to help families recover and prosper, and these initiatives will help more people keep their homes and help others become homeowners.”
An economic recovery is not possible without a housing recovery, and the legislation contains two important housing provisions championed by NAR. The final stimulus bill increases the first-time home buyer tax credit to $8,000 and eliminates the repayment requirement of earlier legislation. In addition, the credit availability has been extended until December 1.
“These important provisions will help bring first-time home buyers to the market and reduce housing inventory,” said McMillan. NAR estimates that the home buyer tax provisions could stimulate up to 300,000 additional home sales, helping stabilize home values and potentially preventing some homeowners from being “underwater” on their mortgage, which can often lead to foreclosure.
The bill also reinstates the 2008 higher loan limits for FHA, Fannie Mae and Freddie Mac. “These higher loan limits are important to make mortgages affordable regardless of where you live. This will also help reduce inventory and improve liquidity in the overall mortgage market,” McMillan said.
NAR commended President Obama and Congress for including resource allocation for neighborhood stabilization efforts to help communities purchase and rehabilitate foreclosed and vacant properties. This funding will protect communities across the country and preserve home values from further decline. Realtors® also praised the provision to help America’s wounded warriors who need to move or relocate.
NAR’s housing policy agenda also includes better foreclosure mitigation efforts and lower interest rates for homeowners and buyers. These components in support of a housing recovery are expected to be addressed in the coming days.
NAR pledged to continue to work with President Obama, Congress and the regulators to make housing stabilization a key component of any federal recovery plans.
“NAR will continue representing Americans who are trying to purchase a home, protect their current home or preserve investment opportunities in residential and commercial properties. We believe that positive steps are being taken to improve the housing market, and it is important that we keep moving forward with our efforts,” McMillan said.
“We are pleased that Congress and the administration have taken prompt action to address the current economic crisis,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage Dallas-Fort Worth. “Job creation and tax cuts are going to help families recover and prosper, and these initiatives will help more people keep their homes and help others become homeowners.”
An economic recovery is not possible without a housing recovery, and the legislation contains two important housing provisions championed by NAR. The final stimulus bill increases the first-time home buyer tax credit to $8,000 and eliminates the repayment requirement of earlier legislation. In addition, the credit availability has been extended until December 1.
“These important provisions will help bring first-time home buyers to the market and reduce housing inventory,” said McMillan. NAR estimates that the home buyer tax provisions could stimulate up to 300,000 additional home sales, helping stabilize home values and potentially preventing some homeowners from being “underwater” on their mortgage, which can often lead to foreclosure.
The bill also reinstates the 2008 higher loan limits for FHA, Fannie Mae and Freddie Mac. “These higher loan limits are important to make mortgages affordable regardless of where you live. This will also help reduce inventory and improve liquidity in the overall mortgage market,” McMillan said.
NAR commended President Obama and Congress for including resource allocation for neighborhood stabilization efforts to help communities purchase and rehabilitate foreclosed and vacant properties. This funding will protect communities across the country and preserve home values from further decline. Realtors® also praised the provision to help America’s wounded warriors who need to move or relocate.
NAR’s housing policy agenda also includes better foreclosure mitigation efforts and lower interest rates for homeowners and buyers. These components in support of a housing recovery are expected to be addressed in the coming days.
NAR pledged to continue to work with President Obama, Congress and the regulators to make housing stabilization a key component of any federal recovery plans.
“NAR will continue representing Americans who are trying to purchase a home, protect their current home or preserve investment opportunities in residential and commercial properties. We believe that positive steps are being taken to improve the housing market, and it is important that we keep moving forward with our efforts,” McMillan said.
Monday, February 16, 2009
Senate passes $787 billion stimulus bill
Senate votes to approve the historic legislation aimed at reviving the economy. Bill is now sent to President Obama for signing.
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- It's a done deal. Still controversial, but a done deal.
The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.
The bill got 60 votes -- the minimum it needed to pass. Three Republicans -- Sens. Susan Collins, R-Me., Arlen Specter, R-Pa., and Olympia Snowe, R-Me. -- voted for it. Earlier in the day, no Republicans in the House voted for the legislation, which nevertheless passed 246 to 183, with just 7 Democrats voting against it.
President Barack Obama will sign the recently approved economic stimulus bill on Tuesday in Denver, Colorado, two senior administration officials told CNN.
Both officials cited a desire of Obama's to get out of Washington -- to go, in the words of one official, "out west in an area hit hard economically, away from the politics of Washington." The other official described Denver as "a place that will see the benefits of the bill in hiring workers."
"The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil," President Obama said Friday morning.
The Obama economic team estimates the stimulus plan will create or save between 3 million and 4 million jobs.
"We've done something today that's transformational for the nation," said House Speaker Nancy Pelosi, D-Calif., in a press conference after the House vote.
During the House floor debate earlier on Friday, House Appropriations Committee Chairman David Obey, D-Wisc., characterized the bill as "the largest change in domestic policy since the 1930s."
Republican discontent
The bill's final passage would represent far less than the bipartisan victory Obama had hoped for weeks ago, a hope he tabled as it became clear that Republicans and some fiscally conservative Democrats were adamantly opposed to the size and contents of the bill.
Republican critics believe there are more targeted and effective ways to create jobs than the measures in the bill, including more spending on infrastructure and more tax relief.
They frequently cite the tag line to describe what Democrats have often said makes stimulus measures effective -- that they be timely, targeted and temporary. "This bill fails on all three points," Senate Minority Leader Mitch McConnell, R-Ky., said Friday.
In the House, Rep. Mike Pence, R-Ind., blasted the bill as misguided.
"Republicans are not about saying 'No' but about saying 'Yes' to solutions that put Americans back to work," Pence said. "[This legislation] will not grow our economy. It will grow our government."
And they frequently cite the burden of such an expensive package on the country's record high deficit and the burden that will place on the next generation.
In response to Republican critics, Sen. Dick Durbin, D-Ill., cited provisions in it that will help families facing job loss, education expenses and mortgage troubles.
"Consider the impact on the next generation if their parents lose a job ... if their home is foreclosed upon ... if they're forced out of college because their parents can't pay the bills," Durbin said.
Democrats have also countered the Republicans' debt argument by noting that record deficit levels were achieved as a result of borrowing to pay for the cost of the Iraq war and to finance a series of tax cuts -- both decisions made during a Republican administration.
The compromise bill was crafted after intensive negotiations in recent days between the House, Senate and White House, although Republicans said repeatedly they felt excluded from the process. And on Friday, several said they did not think it was fair that they were being asked to vote on a 1,000-page-plus bill that was posted online only late Thursday night.
How the bill breaks down
The package devotes $308.3 billion -- or 39% -- to appropriations spending, according to the Congressional Budget Office. That includes $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects, according to key congressional committees.
It devotes another $267 billion -- or 34% -- on direct spending, including increased unemployment benefits and food stamps, CBO said.
And it provides $212 billion -- or 27% -- for tax breaks for individuals and businesses, although the biggest piece of that is for individuals. (Here's a quick breakdown of those breaks.)
Depending on how tax measures are categorized, the percentage of the bill devoted to tax relief is 35%, according to the Joint Committee on Taxation.
Unlike the CBO, the committee counts all portions of tax credits that are refundable. A refundable credit is one that may be paid to tax filers even if the credit exceeds a tax filer's liability. In other words, it is money the government needs to spend. The CBO, by contrast, treats that money as an outlay.
Republicans have advocated for more tax relief in the bill -- they wanted at least 40% -- and they often oppose tax credits going to those who pay less in income tax than they receive in refunds.
Democrats counter that the lowest-income families do pay money into the system by way of payroll tax for Social Security and through sales taxes. And they note that it is those low-income families most likely to quickly spend any tax relief they get, thereby making it more stimulative for the economy.
What it can - and can't do
For months, economists -- both liberal and conservative -- have urged lawmakers to act quickly to help stem the economic downturn. They argue that while tax cuts can be put out more quickly than infrastructure spending, they may not be as stimulative as spending because tax filers are likely to save at least a portion of what they receive.
There also has been debate over how large the total package should be. Many economists think it should be larger -- to help combat what is expected to be a $2 trillion shortfall in the country's output this year and next. But at this point, though they're not enamored with every provision in the bill -- they say it's necessary to do something.
Proponents of the bill aren't promising the economic recovery package will be a panacea for the economy. "No one thinks this is the answer," said House Majority Whip Steny Hoyer, D-Md.
But, they say, it's needed to stem the downturn and ease the financial strains hurting Americans. Indeed, Obama's economic team last month said they expect that the unemployment rate likely will go up in the near term but having a stimulus package could bring it down to around 7% by the end of 2010. That's slightly below the rate of 7.6% today.
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- It's a done deal. Still controversial, but a done deal.
The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.
The bill got 60 votes -- the minimum it needed to pass. Three Republicans -- Sens. Susan Collins, R-Me., Arlen Specter, R-Pa., and Olympia Snowe, R-Me. -- voted for it. Earlier in the day, no Republicans in the House voted for the legislation, which nevertheless passed 246 to 183, with just 7 Democrats voting against it.
President Barack Obama will sign the recently approved economic stimulus bill on Tuesday in Denver, Colorado, two senior administration officials told CNN.
Both officials cited a desire of Obama's to get out of Washington -- to go, in the words of one official, "out west in an area hit hard economically, away from the politics of Washington." The other official described Denver as "a place that will see the benefits of the bill in hiring workers."
"The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil," President Obama said Friday morning.
The Obama economic team estimates the stimulus plan will create or save between 3 million and 4 million jobs.
"We've done something today that's transformational for the nation," said House Speaker Nancy Pelosi, D-Calif., in a press conference after the House vote.
During the House floor debate earlier on Friday, House Appropriations Committee Chairman David Obey, D-Wisc., characterized the bill as "the largest change in domestic policy since the 1930s."
Republican discontent
The bill's final passage would represent far less than the bipartisan victory Obama had hoped for weeks ago, a hope he tabled as it became clear that Republicans and some fiscally conservative Democrats were adamantly opposed to the size and contents of the bill.
Republican critics believe there are more targeted and effective ways to create jobs than the measures in the bill, including more spending on infrastructure and more tax relief.
They frequently cite the tag line to describe what Democrats have often said makes stimulus measures effective -- that they be timely, targeted and temporary. "This bill fails on all three points," Senate Minority Leader Mitch McConnell, R-Ky., said Friday.
In the House, Rep. Mike Pence, R-Ind., blasted the bill as misguided.
"Republicans are not about saying 'No' but about saying 'Yes' to solutions that put Americans back to work," Pence said. "[This legislation] will not grow our economy. It will grow our government."
And they frequently cite the burden of such an expensive package on the country's record high deficit and the burden that will place on the next generation.
In response to Republican critics, Sen. Dick Durbin, D-Ill., cited provisions in it that will help families facing job loss, education expenses and mortgage troubles.
"Consider the impact on the next generation if their parents lose a job ... if their home is foreclosed upon ... if they're forced out of college because their parents can't pay the bills," Durbin said.
Democrats have also countered the Republicans' debt argument by noting that record deficit levels were achieved as a result of borrowing to pay for the cost of the Iraq war and to finance a series of tax cuts -- both decisions made during a Republican administration.
The compromise bill was crafted after intensive negotiations in recent days between the House, Senate and White House, although Republicans said repeatedly they felt excluded from the process. And on Friday, several said they did not think it was fair that they were being asked to vote on a 1,000-page-plus bill that was posted online only late Thursday night.
How the bill breaks down
The package devotes $308.3 billion -- or 39% -- to appropriations spending, according to the Congressional Budget Office. That includes $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects, according to key congressional committees.
It devotes another $267 billion -- or 34% -- on direct spending, including increased unemployment benefits and food stamps, CBO said.
And it provides $212 billion -- or 27% -- for tax breaks for individuals and businesses, although the biggest piece of that is for individuals. (Here's a quick breakdown of those breaks.)
Depending on how tax measures are categorized, the percentage of the bill devoted to tax relief is 35%, according to the Joint Committee on Taxation.
Unlike the CBO, the committee counts all portions of tax credits that are refundable. A refundable credit is one that may be paid to tax filers even if the credit exceeds a tax filer's liability. In other words, it is money the government needs to spend. The CBO, by contrast, treats that money as an outlay.
Republicans have advocated for more tax relief in the bill -- they wanted at least 40% -- and they often oppose tax credits going to those who pay less in income tax than they receive in refunds.
Democrats counter that the lowest-income families do pay money into the system by way of payroll tax for Social Security and through sales taxes. And they note that it is those low-income families most likely to quickly spend any tax relief they get, thereby making it more stimulative for the economy.
What it can - and can't do
For months, economists -- both liberal and conservative -- have urged lawmakers to act quickly to help stem the economic downturn. They argue that while tax cuts can be put out more quickly than infrastructure spending, they may not be as stimulative as spending because tax filers are likely to save at least a portion of what they receive.
There also has been debate over how large the total package should be. Many economists think it should be larger -- to help combat what is expected to be a $2 trillion shortfall in the country's output this year and next. But at this point, though they're not enamored with every provision in the bill -- they say it's necessary to do something.
Proponents of the bill aren't promising the economic recovery package will be a panacea for the economy. "No one thinks this is the answer," said House Majority Whip Steny Hoyer, D-Md.
But, they say, it's needed to stem the downturn and ease the financial strains hurting Americans. Indeed, Obama's economic team last month said they expect that the unemployment rate likely will go up in the near term but having a stimulus package could bring it down to around 7% by the end of 2010. That's slightly below the rate of 7.6% today.
Friday, February 13, 2009
Stimulus: How it may affect your wallet
Congress has finalized the economic recovery plan. Here's a look at some of the provisions geared at financial relief for individuals.
By Jeanne Sahadi, CNNMoney.com senior writer
February 13, 2009: 5:38 AM ET
NEW YORK (CNNMoney.com) -- There's still no official legislative text yet, but key lawmakers in the Senate and House have said they've reached a compromise on a final economic recovery package.
The new stated topline price tag: $789.5 billion. That's below both the $820 billion House-passed version and the $838 billion Senate-passed version.
The compromises that the House, Senate and White House made have changed the scope of a number of provisions, including those affecting individuals directly. In some cases, they either reduced or expanded a benefit relative to what appeared in the Senate or House versions of the bill.
Here's a look at some of the provisions that will have a direct affect on individuals in their paychecks, on their tax returns, and with regard to their unemployment benefits and health insurance if they've lost a job.
The information below is based on materials put out by the key committees in the House and Senate as well as House Speaker Nancy Pelosi, D-Calif.
Making Work Pay Credit: The bill provides a $400 credit per worker and a $800 credit per dual-earner couple. The full credit would be paid to people making $75,000 or less ($150,000 per dual-earner couple). A partial credit would be paid to those making above those amounts but no more than $100,000 ($200,000 for couples).
The credit would also be refundable, which means that even very low-income families who don't make enough to owe income tax would be able to claim it.
For most working individuals, the credit will be paid over time at roughly $15 per period, assuming 26 pay periods in a year. Estimated cost: $116 billion.
One-time payments to those who don't work: For retirees, disabled individuals and others who don't work, the bill provides a one-time $250 payment. Estimated cost: $14.2 billion.
Break for higher income families: The bill includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. Estimated cost: $470 billion.
Temporary deduction for car buyers: The bill would let those who buy a new car, light vehicle, recreational vehicle or motorcycle in 2009 deduct state and local sales taxes as well as any excise tax charged in the purchase. The deduction would be available to those earning less than $125,000 ($250,000 for joint filers). Estimated cost:$1.7 billion.
Temporary credit for home buyers: The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009.
The full credit is available to those making $75,000 or less ($150,000 for joint filers). Estimated cost: $6.6 billion.
New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.
The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.
Temporary Pell Grant increase: The bill increases the maximum Pell Grant by $500 to $5,350 in 2009 and $5,550 in 2010. Estimated cost: $15.6 billion.
Temporary expansion of child tax credit: The bill increases eligibility for the child tax credit by lowering the income threshold that must be met for the credit to be refundable. The threshold would be lowered to$3,000 for this year and next. That will allow lower income families to claim more of the credit than under current law. Estimated cost: $14.8 billion.
Temporary increase in earned income tax credit: The credit will be temporarily increased to 45% from 40% of qualifying earnings for low-income families with three or more children. It also includes a marriage penalty relief provision for couples who qualify for at least a portion of the credit. Estimated cost: $4.6 billion.
Direct lifeline benefits
Health insurance help for the jobless: The bill includes provisions to help eligible jobless workers pay for health insurance under Cobra. Cobra coverage allows newly unemployed workers to keep health insurance provided by their former employers for a period of time.
For workers who have been laid off between Sept. 1, 2008, and Dec. 31, 2009, the government will subsidize 65% of their premiums under Cobra for up to 9 months.
Those people laid off between Sept. 1, 2008, and the day the stimulus law goes into effect, and who did not sign up for Cobra, will get an additional 60 days to do so and receive the subsidy.
The subsidy will be limited to those whose income for the year is $125,000 or less ($250,000 for couples filing jointly). Estimated cost: $24.7 billion.
Another provision provides states funding to help pay for expanded Medicaid rolls for workers who've lost their jobs and can't afford health care on their own or can't get Cobra coverage because their former employer doesn't offer a health care plan. Estimated cost: $87 billion.
Unemployment benefits: The bill provides jobless workers with an additional 20 weeks in unemployment benefits, and 13 weeks on top of that if they live in what's deemed a high unemployment state, of which there are now about 30. Estimated cost: $27 billion.
In addition, the weekly unemployment benefit will temporarily increase by $25 on top of the roughly $300 jobless workers currently receive. Estimated cost: $8.8 billion.
Plus, the first $2,400 of benefits in 2009 would be exempt from federal income taxes. Estimated cost: $4.7 billion.
Food stamp payments: The bill includes a provision would increase food stamp payments by 13.6%, so a family of four would see an additional $80 on top of the $588 per month they receive currently. Estimated cost: $19.9 billion.
The bill also provides assistance to help local groups providing food and shelter, elderly nutrition services such as Meals on Wheels, and a program to help food banks re-stock their shelves. Estimated cost: $350 million.
Other help for needy families: The bill provides funding to states to create a contingency fund through 2010 for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. Estimated cost: $2.4 billion. To top of page
By Jeanne Sahadi, CNNMoney.com senior writer
February 13, 2009: 5:38 AM ET
NEW YORK (CNNMoney.com) -- There's still no official legislative text yet, but key lawmakers in the Senate and House have said they've reached a compromise on a final economic recovery package.
The new stated topline price tag: $789.5 billion. That's below both the $820 billion House-passed version and the $838 billion Senate-passed version.
The compromises that the House, Senate and White House made have changed the scope of a number of provisions, including those affecting individuals directly. In some cases, they either reduced or expanded a benefit relative to what appeared in the Senate or House versions of the bill.
Here's a look at some of the provisions that will have a direct affect on individuals in their paychecks, on their tax returns, and with regard to their unemployment benefits and health insurance if they've lost a job.
The information below is based on materials put out by the key committees in the House and Senate as well as House Speaker Nancy Pelosi, D-Calif.
Making Work Pay Credit: The bill provides a $400 credit per worker and a $800 credit per dual-earner couple. The full credit would be paid to people making $75,000 or less ($150,000 per dual-earner couple). A partial credit would be paid to those making above those amounts but no more than $100,000 ($200,000 for couples).
The credit would also be refundable, which means that even very low-income families who don't make enough to owe income tax would be able to claim it.
For most working individuals, the credit will be paid over time at roughly $15 per period, assuming 26 pay periods in a year. Estimated cost: $116 billion.
One-time payments to those who don't work: For retirees, disabled individuals and others who don't work, the bill provides a one-time $250 payment. Estimated cost: $14.2 billion.
Break for higher income families: The bill includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. Estimated cost: $470 billion.
Temporary deduction for car buyers: The bill would let those who buy a new car, light vehicle, recreational vehicle or motorcycle in 2009 deduct state and local sales taxes as well as any excise tax charged in the purchase. The deduction would be available to those earning less than $125,000 ($250,000 for joint filers). Estimated cost:$1.7 billion.
Temporary credit for home buyers: The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009.
The full credit is available to those making $75,000 or less ($150,000 for joint filers). Estimated cost: $6.6 billion.
New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.
The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.
Temporary Pell Grant increase: The bill increases the maximum Pell Grant by $500 to $5,350 in 2009 and $5,550 in 2010. Estimated cost: $15.6 billion.
Temporary expansion of child tax credit: The bill increases eligibility for the child tax credit by lowering the income threshold that must be met for the credit to be refundable. The threshold would be lowered to$3,000 for this year and next. That will allow lower income families to claim more of the credit than under current law. Estimated cost: $14.8 billion.
Temporary increase in earned income tax credit: The credit will be temporarily increased to 45% from 40% of qualifying earnings for low-income families with three or more children. It also includes a marriage penalty relief provision for couples who qualify for at least a portion of the credit. Estimated cost: $4.6 billion.
Direct lifeline benefits
Health insurance help for the jobless: The bill includes provisions to help eligible jobless workers pay for health insurance under Cobra. Cobra coverage allows newly unemployed workers to keep health insurance provided by their former employers for a period of time.
For workers who have been laid off between Sept. 1, 2008, and Dec. 31, 2009, the government will subsidize 65% of their premiums under Cobra for up to 9 months.
Those people laid off between Sept. 1, 2008, and the day the stimulus law goes into effect, and who did not sign up for Cobra, will get an additional 60 days to do so and receive the subsidy.
The subsidy will be limited to those whose income for the year is $125,000 or less ($250,000 for couples filing jointly). Estimated cost: $24.7 billion.
Another provision provides states funding to help pay for expanded Medicaid rolls for workers who've lost their jobs and can't afford health care on their own or can't get Cobra coverage because their former employer doesn't offer a health care plan. Estimated cost: $87 billion.
Unemployment benefits: The bill provides jobless workers with an additional 20 weeks in unemployment benefits, and 13 weeks on top of that if they live in what's deemed a high unemployment state, of which there are now about 30. Estimated cost: $27 billion.
In addition, the weekly unemployment benefit will temporarily increase by $25 on top of the roughly $300 jobless workers currently receive. Estimated cost: $8.8 billion.
Plus, the first $2,400 of benefits in 2009 would be exempt from federal income taxes. Estimated cost: $4.7 billion.
Food stamp payments: The bill includes a provision would increase food stamp payments by 13.6%, so a family of four would see an additional $80 on top of the $588 per month they receive currently. Estimated cost: $19.9 billion.
The bill also provides assistance to help local groups providing food and shelter, elderly nutrition services such as Meals on Wheels, and a program to help food banks re-stock their shelves. Estimated cost: $350 million.
Other help for needy families: The bill provides funding to states to create a contingency fund through 2010 for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. Estimated cost: $2.4 billion. To top of page
Thursday, February 12, 2009
$15,000 for homebuyers
Under the Senate's stimulus bill, homebuyers could receive a $15,000 tax credit if they purchase within a year.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes.
The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)
Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.
"This will bring pent-up demand back into the marketplace," said Jerry Howard, president of the National Association of Homebuilders. "We believe you can't effectively stimulate the economy until you find a way to stop the downward movement of home values."
The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."
That, combined with low mortgage rates, could help reverse the sentiment of many potential homebuyers who are waiting for prices to fall further before they act.
"Consumers are saying, 'Why buy now?' With money on the table, more would jump at the opportunity," said Yun.
The differences
The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.
But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.
Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.
Limited stimulus
Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict - and some have been scathing in their critiques. "This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."
One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."
Plus, he added, it gives a credit to others who would buy anyway.
"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."
He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?
The Tax Policy Center gave the credit a mediocre C+ grade in its Tax Stimulus Report Card.
TPC spokesman Bob Williams agrees that the credit is poorly targeted and does nothing to address the issue that's holding most buyers back: suspicion that prices will keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," he said. "It's not enough to change that."
If approved, 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. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.
Once the Senate passes its stimulus bill, which is expected to happen on Tuesday, a committee will meet with House members to reconcile the differences between the two bills.
Jaret Seiberg, who has been analyzing the stimulus package for the Stanford Group, said the odds favor the Senate provisions because they enjoy broad support among lenders, home builders and lawmakers.
"You have to have something in the stimulus bill to help housing, and there's very little else in there that's on point," said Seiberg. To top of page
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes.
The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)
Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.
"This will bring pent-up demand back into the marketplace," said Jerry Howard, president of the National Association of Homebuilders. "We believe you can't effectively stimulate the economy until you find a way to stop the downward movement of home values."
The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."
That, combined with low mortgage rates, could help reverse the sentiment of many potential homebuyers who are waiting for prices to fall further before they act.
"Consumers are saying, 'Why buy now?' With money on the table, more would jump at the opportunity," said Yun.
The differences
The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.
But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.
Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.
Limited stimulus
Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict - and some have been scathing in their critiques. "This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."
One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."
Plus, he added, it gives a credit to others who would buy anyway.
"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."
He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?
The Tax Policy Center gave the credit a mediocre C+ grade in its Tax Stimulus Report Card.
TPC spokesman Bob Williams agrees that the credit is poorly targeted and does nothing to address the issue that's holding most buyers back: suspicion that prices will keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," he said. "It's not enough to change that."
If approved, 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. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.
Once the Senate passes its stimulus bill, which is expected to happen on Tuesday, a committee will meet with House members to reconcile the differences between the two bills.
Jaret Seiberg, who has been analyzing the stimulus package for the Stanford Group, said the odds favor the Senate provisions because they enjoy broad support among lenders, home builders and lawmakers.
"You have to have something in the stimulus bill to help housing, and there's very little else in there that's on point," said Seiberg. To top of page
Wednesday, February 11, 2009
How stimulus can help your wallet
Congress appears close to finalizing the economic recovery plan. Here's a look at some of the likely provisions for individuals.
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Now it's time to make a deal on economic stimulus: Key members of the Senate and House are in talks to craft a final bill. They hope to reach an agreement ASAP.
Whatever they come up with, there's a good chance it will closely resemble the version passed Tuesday by the Senate.
The Senate provisions carry more weight because the Senate, unlike the House, cannot pass a final package without the support of a few Republicans. Only three Republicans voted for the Senate bill. Should the final package's cost or contents be substantially different, those Republican votes could be lost.
So using the Senate as a guide, we took a look at what the financial rescue package might mean for you.
Here's a rundown of many of the measures that would benefit individuals directly. It's likely that many, if not all, of these measures will make it into the final package. CNNMoney.com will update this list as negotiators hammer out a final deal.
Make Work Pay Credit: The bill provides a $500 credit per worker and a $1,000 credit per dual-earner couple. The full credit would be paid to people making $70,000 or less ($140,000 per dual-earner couple). It would also be refundable, which means that even very low-income families who don't make enough to owe income tax would be able to claim it. Estimated cost:$139.4 billion.
One-time payments to those who don't work: For seniors who don't work, as well as disabled veterans and retired railroad workers, the bill provides a one-time $300 payment. Estimated cost: $17 billion.
Break for higher income families: The bill includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. Estimated cost: $70 billion.
Temporary credit for car buyers: The bill would let those who buy a car in 2009 deduct the interest they pay on their car loan as well as the sales tax charged in the purchase. The full deduction would be available to those earning less than $125,000 ($250,000 for joint filers). Estimated cost: $11 billion.
Temporary credit for home buyers: The bill doubles the size of an existing temporary home buyer credit to $15,000. It also would allow all home buyers to claim it. And it removes the requirement under current law that the credit be paid back. Estimated cost: $39 billion.
New college credit: The bill introduces the American Opportunity Tax Credit, a $2,500 credit for higher education expenses. The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Estimated cost: $10.3 billion.
Pell Grants: The bill increases the maximum Pell Grant by $281 in the 2009-10 academic year and by $400 in the 2010-11 academic year. Estimated cost: $14 billion.
Child care credit: The bill increases eligibility for the child care tax credit by lowering the income threshold that must be met to $8,100. That will allow lower income families to claim more of the credit. Estimated cost: $7.2 billion.
Earned income tax credit: The credit will be temporarily increased from 40% to 45% of qualifying earnings for low-income families with three or more children. It also includes a marriage penalty relief provision for couples who qualify for at least a portion of the credit. Estimated cost: $4.6 billion.
Direct lifeline benefits
Health insurance help for the jobless: The bill includes provisions to help eligible jobless workers pay for health insurance under Cobra. Cobra coverage allows newly laid off workers to keep health insurance provided by their former employers for a period of time.
One of the provisions offers a government subsidy -- 50% of premiums for 12 months -- to help out-of-work Americans pay for healthcare. Estimated cost: $20 billion.
Another provides states funding to help pay for expanded Medicaid rolls for workers who've lost their jobs and can't afford health care on their own or can't get Cobra coverage because their former employer doesn't offer a health care plan. Estimated cost: $87 billion.
Unemployment benefits: The bill provides jobless workers with an additional 20 weeks in unemployment benefits, and 13 weeks on top of that if they live in what's deemed a high unemployment state, of which there are about 30 currently. Estimated cost: $27 billion.
In addition, the weekly unemployment benefit will temporarily increase by $25 on top of the roughly $300 jobless workers currently receive. Estimated cost: $8.8 billion
Plus, the first $2,400 of benefits in 2009 would be exempt from federal income taxes. Estimated cost: $4.7 billion.
Also included in the bill is an incentive for states to provide unemployment insurance coverage for part-time workers and for workers who quit their jobs for compelling family reasons. Estimated cost: up to $2.6 billion.
Food stamp payments: The bill includes a provision would increase food stamp payments by 12%, so a family of four would see an additional $71 on top of the $588 per month they receive currently. Estimated cost: $16.5 billion.
Help for needy families: The bill provides $2.3 billion to states to create a contingency fund through 2010 for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. Estimated cost: $2.3 billion. To top of page
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Now it's time to make a deal on economic stimulus: Key members of the Senate and House are in talks to craft a final bill. They hope to reach an agreement ASAP.
Whatever they come up with, there's a good chance it will closely resemble the version passed Tuesday by the Senate.
The Senate provisions carry more weight because the Senate, unlike the House, cannot pass a final package without the support of a few Republicans. Only three Republicans voted for the Senate bill. Should the final package's cost or contents be substantially different, those Republican votes could be lost.
So using the Senate as a guide, we took a look at what the financial rescue package might mean for you.
Here's a rundown of many of the measures that would benefit individuals directly. It's likely that many, if not all, of these measures will make it into the final package. CNNMoney.com will update this list as negotiators hammer out a final deal.
Make Work Pay Credit: The bill provides a $500 credit per worker and a $1,000 credit per dual-earner couple. The full credit would be paid to people making $70,000 or less ($140,000 per dual-earner couple). It would also be refundable, which means that even very low-income families who don't make enough to owe income tax would be able to claim it. Estimated cost:$139.4 billion.
One-time payments to those who don't work: For seniors who don't work, as well as disabled veterans and retired railroad workers, the bill provides a one-time $300 payment. Estimated cost: $17 billion.
Break for higher income families: The bill includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. Estimated cost: $70 billion.
Temporary credit for car buyers: The bill would let those who buy a car in 2009 deduct the interest they pay on their car loan as well as the sales tax charged in the purchase. The full deduction would be available to those earning less than $125,000 ($250,000 for joint filers). Estimated cost: $11 billion.
Temporary credit for home buyers: The bill doubles the size of an existing temporary home buyer credit to $15,000. It also would allow all home buyers to claim it. And it removes the requirement under current law that the credit be paid back. Estimated cost: $39 billion.
New college credit: The bill introduces the American Opportunity Tax Credit, a $2,500 credit for higher education expenses. The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Estimated cost: $10.3 billion.
Pell Grants: The bill increases the maximum Pell Grant by $281 in the 2009-10 academic year and by $400 in the 2010-11 academic year. Estimated cost: $14 billion.
Child care credit: The bill increases eligibility for the child care tax credit by lowering the income threshold that must be met to $8,100. That will allow lower income families to claim more of the credit. Estimated cost: $7.2 billion.
Earned income tax credit: The credit will be temporarily increased from 40% to 45% of qualifying earnings for low-income families with three or more children. It also includes a marriage penalty relief provision for couples who qualify for at least a portion of the credit. Estimated cost: $4.6 billion.
Direct lifeline benefits
Health insurance help for the jobless: The bill includes provisions to help eligible jobless workers pay for health insurance under Cobra. Cobra coverage allows newly laid off workers to keep health insurance provided by their former employers for a period of time.
One of the provisions offers a government subsidy -- 50% of premiums for 12 months -- to help out-of-work Americans pay for healthcare. Estimated cost: $20 billion.
Another provides states funding to help pay for expanded Medicaid rolls for workers who've lost their jobs and can't afford health care on their own or can't get Cobra coverage because their former employer doesn't offer a health care plan. Estimated cost: $87 billion.
Unemployment benefits: The bill provides jobless workers with an additional 20 weeks in unemployment benefits, and 13 weeks on top of that if they live in what's deemed a high unemployment state, of which there are about 30 currently. Estimated cost: $27 billion.
In addition, the weekly unemployment benefit will temporarily increase by $25 on top of the roughly $300 jobless workers currently receive. Estimated cost: $8.8 billion
Plus, the first $2,400 of benefits in 2009 would be exempt from federal income taxes. Estimated cost: $4.7 billion.
Also included in the bill is an incentive for states to provide unemployment insurance coverage for part-time workers and for workers who quit their jobs for compelling family reasons. Estimated cost: up to $2.6 billion.
Food stamp payments: The bill includes a provision would increase food stamp payments by 12%, so a family of four would see an additional $71 on top of the $588 per month they receive currently. Estimated cost: $16.5 billion.
Help for needy families: The bill provides $2.3 billion to states to create a contingency fund through 2010 for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. Estimated cost: $2.3 billion. To top of page
Tuesday, February 10, 2009
Treasury to lay out foreclosure fix
Administration officials to unveil plan to address housing crisis. But details may be lacking.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Treasury Secretary Tim Geithner is expected to announce Tuesday the Obama administration's long-awaited plans to address the foreclosure crisis.
But how much detail he'll reveal remains to be seen.
This much we know -- the Obama administration wants to set aside between $50 billion and $100 billion to address the foreclosure crisis. Loan modifications are expected to be a central part of the plan.
The administration's plan to attack the foreclosure crisis should come as part of its proposal for using the $350 billion remaining in the financial industry bailout package. Obama's officials have said for weeks that they will devote more resources to helping homeowners than their predecessor.
Washington insiders, however, say that Geithner may merely announce an overall framework for foreclosures, but won't get into specifics. Housing and Urban Development Secretary Shaun Donovan told CNN Saturday that the plan's details would be unveiled "in coming weeks."
Finding a foreclosure fix is daunting, experts said. It eluded the Bush administration, which preferred to try to entice mortgage services to voluntarily modify loans without committing government funds.
Obama faces similar hurdles.
"It's been a real challenge," said Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable. "To come up with a widespread approach is very difficult."
Potential plans
Obama's plan may expand onthe Federal Deposit Insurance Corp.'s streamlined loan modification program, which serves as a model for workouts being conducted by several banks and by Fannie Mae and Freddie Mac.
The FDIC's program, which is underway at failed lender IndyMac, calls for making monthly payments more affordable by reducing interest rates, lengthening loan terms or deferring principal. Servicers aim to reduce payments to no more than 31% of a borrower's monthly income. So far, more than 10,000 delinquent loans have been modified, and offers have been made to another 20,000 borrowers.
Larry Summers, director of Obama's National Economic Council, has said that banks that receive bailout funds will be required to implement foreclosure prevention programs.
The Obama administration is expected to put some money behind the modification efforts. It's likely any modification plan will come with incentives for servicers and with some type of backstop in case the borrower defaults again. FDIC Chairman Sheila Bair unveiled a $24.4 billion plan in November that offered servicers $1,000 and provided a guarantee to cover 50% of any losses in case of redefault. The proposal, which she estimates will help 1.5 million people avoid foreclosure, has gone nowhere so far.
Officials may also expand the role of Fannie Mae and Freddie Mac, which the federal government took over in September. Two months later, the mortgage finance companies announced a plan to help delinquent borrowers by reworking their mortgages.
The Bush administration had hoped the agencies' efforts would set a national standard for loan modifications. But the plan, which reduces payments to no more than 38% of a borrower's monthly income, is viewed as falling short because most of the troubled loans fall outside the purview of Fannie and Freddie.
Under the stimulus plan current under debate in the Senate, congressional lawmakers would require the president to develop a loan modification plan.
"Stemming the tide of foreclosures, which are at the heart of this economic crisis, must be one of our top priorities," said Senator Chris Dodd, D-Conn., in a statement late Friday night after the Senate approved his amendment to the stimulus plan that would require the Treasury Department to spend at least $50 billion in funds from the bank bailout on a loan modification program.
"By providing the Treasury with the authority and funds to design and implement a loan modification program, we can help nearly 2 million families nationwide...avoid losing their home," Dodd added.
A major problem confronting the Obama administration, however, is what to do with the rising number of foreclosures stemming from unemployment. Loan modifications don't work for these borrowers.
The only viable solution for these delinquent homeowners is to get the economy moving again so they can get jobs, experts said.
Along those lines, Shaun Donovan, the Secretary of the Department of Housing and Urban Development, said in an interview on CNN Saturday morning that creating jobs was the top way to address the foreclosure problem.
"What is really driving the foreclosure crisis right now is that people are losing their jobs. And so job number one is to pass a recovery bill that will add three to four million jobs in this country," Donovan said.
Beyond bailout
To be sure, the administration's efforts will go beyond the bailout package. Already, it's likely the massive stimulus package will contain measures to spur homebuying, including a $15,000 tax credit for those purchasing a home. On deck is controversial legislation to allow bankruptcy judges to modify loans on primary residences.
Congressional Democrats are also looking to revamp the troubled Hope for Homeowners program, which was designed to refinance struggling borrowers into government-backed Federal Housing Administration loans. Few borrowers have signed up for the program, in part because of its high fees. Lawmakers hope to make it more attractive by easing the terms and providing incentives for servicers to participate.
In his statement late Friday, Dodd said his amendment would reform the program by reducing the upfront and annual premiums for borrowers, lowering the percentage of future equity that homeowners must share with the government and adding incentive payments to servicers.
Whatever the administration chooses to do, it should implement it quickly, experts said. Foreclosures continue to rise, with a new one started every 13 seconds, according to the Center for Responsible Lending.
"Every minute they delay someone is going to lose their home," said Kathleen Day, the center's spokeswoman. "The government has waited too long to act." To top of page
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Treasury Secretary Tim Geithner is expected to announce Tuesday the Obama administration's long-awaited plans to address the foreclosure crisis.
But how much detail he'll reveal remains to be seen.
This much we know -- the Obama administration wants to set aside between $50 billion and $100 billion to address the foreclosure crisis. Loan modifications are expected to be a central part of the plan.
The administration's plan to attack the foreclosure crisis should come as part of its proposal for using the $350 billion remaining in the financial industry bailout package. Obama's officials have said for weeks that they will devote more resources to helping homeowners than their predecessor.
Washington insiders, however, say that Geithner may merely announce an overall framework for foreclosures, but won't get into specifics. Housing and Urban Development Secretary Shaun Donovan told CNN Saturday that the plan's details would be unveiled "in coming weeks."
Finding a foreclosure fix is daunting, experts said. It eluded the Bush administration, which preferred to try to entice mortgage services to voluntarily modify loans without committing government funds.
Obama faces similar hurdles.
"It's been a real challenge," said Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable. "To come up with a widespread approach is very difficult."
Potential plans
Obama's plan may expand onthe Federal Deposit Insurance Corp.'s streamlined loan modification program, which serves as a model for workouts being conducted by several banks and by Fannie Mae and Freddie Mac.
The FDIC's program, which is underway at failed lender IndyMac, calls for making monthly payments more affordable by reducing interest rates, lengthening loan terms or deferring principal. Servicers aim to reduce payments to no more than 31% of a borrower's monthly income. So far, more than 10,000 delinquent loans have been modified, and offers have been made to another 20,000 borrowers.
Larry Summers, director of Obama's National Economic Council, has said that banks that receive bailout funds will be required to implement foreclosure prevention programs.
The Obama administration is expected to put some money behind the modification efforts. It's likely any modification plan will come with incentives for servicers and with some type of backstop in case the borrower defaults again. FDIC Chairman Sheila Bair unveiled a $24.4 billion plan in November that offered servicers $1,000 and provided a guarantee to cover 50% of any losses in case of redefault. The proposal, which she estimates will help 1.5 million people avoid foreclosure, has gone nowhere so far.
Officials may also expand the role of Fannie Mae and Freddie Mac, which the federal government took over in September. Two months later, the mortgage finance companies announced a plan to help delinquent borrowers by reworking their mortgages.
The Bush administration had hoped the agencies' efforts would set a national standard for loan modifications. But the plan, which reduces payments to no more than 38% of a borrower's monthly income, is viewed as falling short because most of the troubled loans fall outside the purview of Fannie and Freddie.
Under the stimulus plan current under debate in the Senate, congressional lawmakers would require the president to develop a loan modification plan.
"Stemming the tide of foreclosures, which are at the heart of this economic crisis, must be one of our top priorities," said Senator Chris Dodd, D-Conn., in a statement late Friday night after the Senate approved his amendment to the stimulus plan that would require the Treasury Department to spend at least $50 billion in funds from the bank bailout on a loan modification program.
"By providing the Treasury with the authority and funds to design and implement a loan modification program, we can help nearly 2 million families nationwide...avoid losing their home," Dodd added.
A major problem confronting the Obama administration, however, is what to do with the rising number of foreclosures stemming from unemployment. Loan modifications don't work for these borrowers.
The only viable solution for these delinquent homeowners is to get the economy moving again so they can get jobs, experts said.
Along those lines, Shaun Donovan, the Secretary of the Department of Housing and Urban Development, said in an interview on CNN Saturday morning that creating jobs was the top way to address the foreclosure problem.
"What is really driving the foreclosure crisis right now is that people are losing their jobs. And so job number one is to pass a recovery bill that will add three to four million jobs in this country," Donovan said.
Beyond bailout
To be sure, the administration's efforts will go beyond the bailout package. Already, it's likely the massive stimulus package will contain measures to spur homebuying, including a $15,000 tax credit for those purchasing a home. On deck is controversial legislation to allow bankruptcy judges to modify loans on primary residences.
Congressional Democrats are also looking to revamp the troubled Hope for Homeowners program, which was designed to refinance struggling borrowers into government-backed Federal Housing Administration loans. Few borrowers have signed up for the program, in part because of its high fees. Lawmakers hope to make it more attractive by easing the terms and providing incentives for servicers to participate.
In his statement late Friday, Dodd said his amendment would reform the program by reducing the upfront and annual premiums for borrowers, lowering the percentage of future equity that homeowners must share with the government and adding incentive payments to servicers.
Whatever the administration chooses to do, it should implement it quickly, experts said. Foreclosures continue to rise, with a new one started every 13 seconds, according to the Center for Responsible Lending.
"Every minute they delay someone is going to lose their home," said Kathleen Day, the center's spokeswoman. "The government has waited too long to act." To top of page
Monday, February 9, 2009
Stimulus: What's next
Here's how the Senate bill differs from the House version -- and a preview of where the debate could heat up.
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- In the coming days, a compromise version of the economic recovery plan is likely to pass the Senate with a handful of Republican votes.
But a final bill is still a ways off.
If the Senate passes the bill, leaders will need to then negotiate the final bill with the House, which passed a different version nearly two weeks ago.
Senate Democrats can't pass a stimulus package without at least a few Republicans signing on -- unlike, the House Democrats, who passed their version without a single Republican vote. That means the Senate bill will dominate the House-Senate negotiations.
The aim of the plan's proponents: Final votes in both chambers before Congress begins its Presidents Day recess on Friday.
The House and Senate bills are identical in many ways. But there are some key differences in the area of tax breaks, spending measures and direct benefits to people hurt by the recession. Those differences offer a preview of the issues that could arise this week.
Tax breaks
Make Work Pay Credit: The Senate bill would narrow President Obama's signature tax provision. The full credit ($500 per worker or $1,000 per couple) would be paid to people making $70,000 or less ($140,000 per dual-earner couple). Under the House bill, those making $75,000 or less ($150,000 or less for couples) would qualify.
Break for higher income families: The Senate version includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. The House bill has no such provision.
Credit for car buyers: The Senate voted for an amendment that would let those who buy a car in 2009 deduct the interest they pay on their car loan as well as the sales tax charged in the purchase. The House bill doesn't include this provision.
Home-buyer credit: The Senate bill would double the size of an existing temporary home buyer credit to $15,000. It would also allow all home buyers to claim it and remove the requirement under current law that the credit be paid back. The House bill also removes the repayment requirement but leaves the credit maximum at $7,500 and would offer it only to first-time buyers.
Child care credit: Both the Senate and House would expand the eligibility provisions of the child care tax credit, so that lower income families could claim more of it. But the Senate expansion is smaller.
Direct spending
Education funding: The compromise Senate bill allocates $39 billion to a fiscal stabilization fund that states would use in great part to help fund public colleges and universities. That is well below the $79 billion allocated by the House.
The Senate version also provides less funding for Head Start and teacher quality programs, as well as education efforts for the disadvantaged. It would also eliminate funding in the House bill for K-12 construction and higher education facilities.
Health wellness and flu prevention: The Senate bill excludes money allocated by the House for a prevention and wellness program as well as for pandemic flu research.
Green government vehicles: The Senate version offers $300 million to purchase fuel-efficient government vehicles. That's half the amount allocated by the House bill.
Direct lifeline benefits
Subsidy for health insurance for those laid off: Both the Senate and House bills include provisions to help jobless workers pay for health insurance if they choose to stay on their ex-employer's plan. The Senate, however, offers less of a subsidy -- 50% for 12 months -- than the House, which calls for a 65% subsidy over 12 months.
Tax break on unemployment benefits: The Senate bill, unlike the House version, would make the first $2,400 of unemployment benefits tax free. Both the Senate and House bills extend the time that jobless workers can collect benefits.
Overall price tag
The Senate's bipartisan compromise aimed to reduce the package's overall price tag and remove elements that critics argued did not belong in a stimulus bill.
The House-passed version was estimated to increase the deficit by $820 billion over 10 years. The version initially considered by the Senate cost $885 billion, but grew to more than $900 billion after amendments were passed last week.
Now lawmakers and others estimate that the cost of the revised package, including the bipartisan compromise, is between $820 billion and $827 billion, the same or higher than the House package.
But those are unofficial estimates. The final word on the official taxpayer cost of the Senate bill belongs to the Congressional Budget Office and the congressional Joint Committee on Taxation. Their evaluations will likely be released early this week.
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- In the coming days, a compromise version of the economic recovery plan is likely to pass the Senate with a handful of Republican votes.
But a final bill is still a ways off.
If the Senate passes the bill, leaders will need to then negotiate the final bill with the House, which passed a different version nearly two weeks ago.
Senate Democrats can't pass a stimulus package without at least a few Republicans signing on -- unlike, the House Democrats, who passed their version without a single Republican vote. That means the Senate bill will dominate the House-Senate negotiations.
The aim of the plan's proponents: Final votes in both chambers before Congress begins its Presidents Day recess on Friday.
The House and Senate bills are identical in many ways. But there are some key differences in the area of tax breaks, spending measures and direct benefits to people hurt by the recession. Those differences offer a preview of the issues that could arise this week.
Tax breaks
Make Work Pay Credit: The Senate bill would narrow President Obama's signature tax provision. The full credit ($500 per worker or $1,000 per couple) would be paid to people making $70,000 or less ($140,000 per dual-earner couple). Under the House bill, those making $75,000 or less ($150,000 or less for couples) would qualify.
Break for higher income families: The Senate version includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. The House bill has no such provision.
Credit for car buyers: The Senate voted for an amendment that would let those who buy a car in 2009 deduct the interest they pay on their car loan as well as the sales tax charged in the purchase. The House bill doesn't include this provision.
Home-buyer credit: The Senate bill would double the size of an existing temporary home buyer credit to $15,000. It would also allow all home buyers to claim it and remove the requirement under current law that the credit be paid back. The House bill also removes the repayment requirement but leaves the credit maximum at $7,500 and would offer it only to first-time buyers.
Child care credit: Both the Senate and House would expand the eligibility provisions of the child care tax credit, so that lower income families could claim more of it. But the Senate expansion is smaller.
Direct spending
Education funding: The compromise Senate bill allocates $39 billion to a fiscal stabilization fund that states would use in great part to help fund public colleges and universities. That is well below the $79 billion allocated by the House.
The Senate version also provides less funding for Head Start and teacher quality programs, as well as education efforts for the disadvantaged. It would also eliminate funding in the House bill for K-12 construction and higher education facilities.
Health wellness and flu prevention: The Senate bill excludes money allocated by the House for a prevention and wellness program as well as for pandemic flu research.
Green government vehicles: The Senate version offers $300 million to purchase fuel-efficient government vehicles. That's half the amount allocated by the House bill.
Direct lifeline benefits
Subsidy for health insurance for those laid off: Both the Senate and House bills include provisions to help jobless workers pay for health insurance if they choose to stay on their ex-employer's plan. The Senate, however, offers less of a subsidy -- 50% for 12 months -- than the House, which calls for a 65% subsidy over 12 months.
Tax break on unemployment benefits: The Senate bill, unlike the House version, would make the first $2,400 of unemployment benefits tax free. Both the Senate and House bills extend the time that jobless workers can collect benefits.
Overall price tag
The Senate's bipartisan compromise aimed to reduce the package's overall price tag and remove elements that critics argued did not belong in a stimulus bill.
The House-passed version was estimated to increase the deficit by $820 billion over 10 years. The version initially considered by the Senate cost $885 billion, but grew to more than $900 billion after amendments were passed last week.
Now lawmakers and others estimate that the cost of the revised package, including the bipartisan compromise, is between $820 billion and $827 billion, the same or higher than the House package.
But those are unofficial estimates. The final word on the official taxpayer cost of the Senate bill belongs to the Congressional Budget Office and the congressional Joint Committee on Taxation. Their evaluations will likely be released early this week.
Friday, February 6, 2009
Senate OKs $15,000 tax break for homebuyers
WASHINGTON (AP) — The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Obama's recovery plan.
The tax break was approved without dissent and came on a day in which Obama pushed back pointedly against Republican critics of the legislation even as he reached across party lines to consider a reduction in the spending it contains.
"Let's not make the perfect the enemy of the essential," Obama said as Senate Republicans stepped up their criticism of the bill's spending and pressed for additional tax cuts and relief for homeowners. He warned that failure to act quickly "will turn crisis into a catastrophe and guarantee a longer recession."
Democratic leaders have pledged to have legislation ready for Obama's signature by the end of next week.
While they concede privately they will have to accept some spending reductions along the way, conservative Republicans failed in their initial attempts to force deep cuts in the bill.
On another contentious issue, the Senate softened a labor-backed provision requiring that only U.S.-made iron or steel used in construction projects paid for in the bill. A move by Sen. John McCain to delete the so-called Buy American requirement failed, 31-65.
But with Obama voicing concern about the provision, the requirement was changed to specify that U.S. international trade agreements not to be violated.
Democrats also preserved a key priority for Obama, a break of up to $1,000 for couples who pay payroll taxes but whose earnings are so low they do not pay income tax.
Sen. Johnny Isakson, R-Ga., who advanced the homebuyers tax break, said it was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall.
The proposal would allow a tax credit of 10% of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break but only for first-time homebuyers.
Isakson's office said the proposal would cost the government an estimated $19 billion.
Democrats readily agreed to the proposal, although it may be changed or even deleted as the stimulus measure makes its way through Congress over the next 10 days or so.
Other GOP attempts to change the measure went down to defeat. The most sweeping of them, by Sen. Jim DeMint failed on a mostly party-line vote of 36-61. It would have replaced the White House-backed legislation with a series of tax cuts on personal and business income and capital gains at the same time it made cuts passed during the Bush administration permanent.
"This bill needs to be cut down," Republican Mitch McConnell of Kentucky said on the Senate floor. He cited $524 million for a State Department program that he said envisions creating 388 jobs. "That comes to $1.35 million per job," he added.
After days of absorbing rhetorical attacks, Obama and Senate Democrats mounted a counteroffensive against Republicans who say tax cuts alone can cure the economy.
Obama said the criticisms he has heard "echo the very same failed economic theories that led us into this crisis in the first place, the notion that tax cuts alone will solve all our problems."
"I reject those theories and so did the American people when they went to the polls in November and voted resoundingly for change," said the president, who was elected with an Electoral College landslide last fall and enjoys high public approval ratings at the outset of his term.
Obama did not mention any Republicans by name, and most have signaled their support for varying amounts of new spending.
Even so, the president repeated his retort word for word in late afternoon, yet softened the partisan impact of his comments by meeting at the White House with senators often willing to cross party lines.
His first visitor was Sen. Olympia Snowe a moderate Republican lawmaker. Later he met with Sens. Susan Collins and Ben Nelson.
"I gave him a list of provisions" for possible deletion from the bill, Collins told reporters outside the White House. Among them were $8 billion to upgrade facilities and information technology at the State Department and funds for combatting a possible outbreak of pandemic flu and promoting cyber-security. The latter two items, she said, are "near and dear to her," but belong in routine legislation and not an economic stimulus measure.
Collins and Nelson have been working on a list of possible spending cuts totaling roughly $50 billion, although they have yet to make details public.
The tax break was approved without dissent and came on a day in which Obama pushed back pointedly against Republican critics of the legislation even as he reached across party lines to consider a reduction in the spending it contains.
"Let's not make the perfect the enemy of the essential," Obama said as Senate Republicans stepped up their criticism of the bill's spending and pressed for additional tax cuts and relief for homeowners. He warned that failure to act quickly "will turn crisis into a catastrophe and guarantee a longer recession."
Democratic leaders have pledged to have legislation ready for Obama's signature by the end of next week.
While they concede privately they will have to accept some spending reductions along the way, conservative Republicans failed in their initial attempts to force deep cuts in the bill.
On another contentious issue, the Senate softened a labor-backed provision requiring that only U.S.-made iron or steel used in construction projects paid for in the bill. A move by Sen. John McCain to delete the so-called Buy American requirement failed, 31-65.
But with Obama voicing concern about the provision, the requirement was changed to specify that U.S. international trade agreements not to be violated.
Democrats also preserved a key priority for Obama, a break of up to $1,000 for couples who pay payroll taxes but whose earnings are so low they do not pay income tax.
Sen. Johnny Isakson, R-Ga., who advanced the homebuyers tax break, said it was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall.
The proposal would allow a tax credit of 10% of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break but only for first-time homebuyers.
Isakson's office said the proposal would cost the government an estimated $19 billion.
Democrats readily agreed to the proposal, although it may be changed or even deleted as the stimulus measure makes its way through Congress over the next 10 days or so.
Other GOP attempts to change the measure went down to defeat. The most sweeping of them, by Sen. Jim DeMint failed on a mostly party-line vote of 36-61. It would have replaced the White House-backed legislation with a series of tax cuts on personal and business income and capital gains at the same time it made cuts passed during the Bush administration permanent.
"This bill needs to be cut down," Republican Mitch McConnell of Kentucky said on the Senate floor. He cited $524 million for a State Department program that he said envisions creating 388 jobs. "That comes to $1.35 million per job," he added.
After days of absorbing rhetorical attacks, Obama and Senate Democrats mounted a counteroffensive against Republicans who say tax cuts alone can cure the economy.
Obama said the criticisms he has heard "echo the very same failed economic theories that led us into this crisis in the first place, the notion that tax cuts alone will solve all our problems."
"I reject those theories and so did the American people when they went to the polls in November and voted resoundingly for change," said the president, who was elected with an Electoral College landslide last fall and enjoys high public approval ratings at the outset of his term.
Obama did not mention any Republicans by name, and most have signaled their support for varying amounts of new spending.
Even so, the president repeated his retort word for word in late afternoon, yet softened the partisan impact of his comments by meeting at the White House with senators often willing to cross party lines.
His first visitor was Sen. Olympia Snowe a moderate Republican lawmaker. Later he met with Sens. Susan Collins and Ben Nelson.
"I gave him a list of provisions" for possible deletion from the bill, Collins told reporters outside the White House. Among them were $8 billion to upgrade facilities and information technology at the State Department and funds for combatting a possible outbreak of pandemic flu and promoting cyber-security. The latter two items, she said, are "near and dear to her," but belong in routine legislation and not an economic stimulus measure.
Collins and Nelson have been working on a list of possible spending cuts totaling roughly $50 billion, although they have yet to make details public.
Thursday, February 5, 2009
The new rules of mortgage lending
Shopping for a home loan? Things have changed - here's what you need to consider.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- If you're shopping for a mortgage these days, it's a whole new world out there.
"There have been a huge number of changes over the past few years in mortgage borrowing," said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors.
Of course, many of the subprime loans that helped fuel the housing boom - those that didn't require borrowers to show any proof of income, or that let homeowners make minimum payments - are are simply no longer available.
But even buyers looking for a traditional mortgage are now faced with different factors to consider.
Here is what you need to know:
Paying up-front points. Borrowers can pay points - one-time, up-front fees - in order to reduce their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value.
But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That's a mistake, in his opinion.
When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their up-front costs.
But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so.
"Today the spread is worth a half point to a full point on the rate," said Rosenbaum.
It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%.
That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months.
Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan.
Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan.
Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.
Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it?
Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance.
And if a buyer could afford to put more than 20% down, it was generally assumed that they should.
The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that."
High down payments can be wiped out in severely declining markets.
Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble.
"But prices are down so much, the couple still fell underwater," he said. "It would have been better to conserve that cash in case home prices continue to decline."
Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better.
But that's often a mistake.
"We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger.
His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited.
Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house.
"You'll sleep better at night," said Gumbinger.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- If you're shopping for a mortgage these days, it's a whole new world out there.
"There have been a huge number of changes over the past few years in mortgage borrowing," said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors.
Of course, many of the subprime loans that helped fuel the housing boom - those that didn't require borrowers to show any proof of income, or that let homeowners make minimum payments - are are simply no longer available.
But even buyers looking for a traditional mortgage are now faced with different factors to consider.
Here is what you need to know:
Paying up-front points. Borrowers can pay points - one-time, up-front fees - in order to reduce their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value.
But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That's a mistake, in his opinion.
When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their up-front costs.
But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so.
"Today the spread is worth a half point to a full point on the rate," said Rosenbaum.
It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%.
That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months.
Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan.
Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan.
Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.
Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it?
Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance.
And if a buyer could afford to put more than 20% down, it was generally assumed that they should.
The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that."
High down payments can be wiped out in severely declining markets.
Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble.
"But prices are down so much, the couple still fell underwater," he said. "It would have been better to conserve that cash in case home prices continue to decline."
Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better.
But that's often a mistake.
"We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger.
His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited.
Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house.
"You'll sleep better at night," said Gumbinger.
Wednesday, February 4, 2009
Distressed dominate home sales
Repossessed homes and short sales make up a large percentage of sales in many real estate markets.
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Real estate values around the nation have collapsed, and sales of foreclosed and "underwater" homes now dominate many housing markets, according to a report released Tuesday.
The report, from Zillow.com, a real estate Web site, revealed that with foreclosures soaring, nearly 20% of the nation's home sales in 2008 were of bank-repossessed properties. Another 11% were short sales, in which homeowners owed more in mortgage debt than their homes were worth.
Madera, Calif., had the highest percentage of these distressed sales: 54.6% of all transactions there were foreclosed homes, and another 3.4% were short sales.
In Merced, Calif., 53.4% of sales were foreclosures and 4.8% were short sales. In nearby Stockton, 51.1% were foreclosures and 5.4% were short sales.
"As more markets turn down and markets that were already down go deeper, the pace at which value is being erased from the U.S. housing stock is rapidly increasing," said Stan Humphries, Zillow's vice president in charge of data and analytics.
"More value [was] wiped out in the fourth quarter of 2008 than was eliminated in all of 2007," Humphries said.
About $3.3 trillion in home equity was erased in 2008, with $1.4 trillion of that wipeout coming in the fourth quarter alone, according to Humphries. More than $6 trillion in value has been lost since the market peaked in 2005.
Those equity losses have put many homeowners underwater, where they're extremely vulnerable to foreclosure. These owners can't tap home equity for the cash they need to pay bills when they run into rough financial patches, and they often find it impossible to refinance - lenders will not loan more than the property is worth.
In the United States, 17.6% of all homes are now underwater, according to Zillow, as are 41.2% of all mortgages for homes bought in the past five years.
The worst-hit cities are in the once-booming Sun Belt. In Las Vegas, 61.4% of all homes are underwater.
Because so many homes are worth less than their mortgage balances, an increasing number have to be sold short. But short sale transactions can take a long time to complete, because lenders have been having trouble keeping up with the flood of requests.
"The speed of short sales is a function of the resources being allocated to them by lenders, and those resources are being stretched to the limit," Humphries said.
That means lenders may not act on approving short sales for months. The deals cannot go forward without their approval, because the banks must agree to forgive the difference between what they're owed and what the sale brings in.
As the time it takes to arrange short sales lengthens, they become harder to complete.
Time and money wasted
One example of how price declines can doom a short sale occurred recently in Phoenix. Curtis Johnson, a real estate broker there, worked with a health care worker whose hours were being cut and who could no longer afford her mortgage. She fell behind and decided to sell.
Johnson was able to find a buyer willing to pay $183,000, and got an approval form the lender. The owner confidently moved out, got a new place and started a new life. But the lender folded and the mortgage went to a new servicer, who took six weeks to approve the deal.
"Unfortunately, the buyers who were approved were no longer interested because the real estate market had dropped significantly," Johnson said. "They wrote a new offer, considerably lower then the first, and it was time to start over."
Two more offers eventually fell through before a new buyer was found and the owner's bank approved the price, this time at $163,000. On the day of that closing, however, the parties discovered that the buyer's lender had run out of funds and dropped out of the deal. The home went to foreclosure auction before another sale could be arranged.
The house is now on the market for $139,900.
"[The house is] listed for less than what would have been received had the bank been willing to work with us, and still has not yet sold," Johnson said.
Distressed sales like that depress the market for all homeowners. Regular sellers in cities dominated by foreclosures have to adjust their prices downward to compete.
The percentage of homes sold for less than what their owners originally paid has leaped up in the past couple of years. In the United States as a whole, 34.6% of the sales made in 2008 were done at a loss. In Merced, 71.6% of all sales last year were for less than the seller paid. Stockton, Modesto and Las Vegas all had in excess of 68% of all homes being sold at a loss.
Foreclosures beget more foreclosures by adding inventory to the market, which depresses prices, which increases foreclosures, according to Humphries.
"The vicious cycle continues," he said. To top of page
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Real estate values around the nation have collapsed, and sales of foreclosed and "underwater" homes now dominate many housing markets, according to a report released Tuesday.
The report, from Zillow.com, a real estate Web site, revealed that with foreclosures soaring, nearly 20% of the nation's home sales in 2008 were of bank-repossessed properties. Another 11% were short sales, in which homeowners owed more in mortgage debt than their homes were worth.
Madera, Calif., had the highest percentage of these distressed sales: 54.6% of all transactions there were foreclosed homes, and another 3.4% were short sales.
In Merced, Calif., 53.4% of sales were foreclosures and 4.8% were short sales. In nearby Stockton, 51.1% were foreclosures and 5.4% were short sales.
"As more markets turn down and markets that were already down go deeper, the pace at which value is being erased from the U.S. housing stock is rapidly increasing," said Stan Humphries, Zillow's vice president in charge of data and analytics.
"More value [was] wiped out in the fourth quarter of 2008 than was eliminated in all of 2007," Humphries said.
About $3.3 trillion in home equity was erased in 2008, with $1.4 trillion of that wipeout coming in the fourth quarter alone, according to Humphries. More than $6 trillion in value has been lost since the market peaked in 2005.
Those equity losses have put many homeowners underwater, where they're extremely vulnerable to foreclosure. These owners can't tap home equity for the cash they need to pay bills when they run into rough financial patches, and they often find it impossible to refinance - lenders will not loan more than the property is worth.
In the United States, 17.6% of all homes are now underwater, according to Zillow, as are 41.2% of all mortgages for homes bought in the past five years.
The worst-hit cities are in the once-booming Sun Belt. In Las Vegas, 61.4% of all homes are underwater.
Because so many homes are worth less than their mortgage balances, an increasing number have to be sold short. But short sale transactions can take a long time to complete, because lenders have been having trouble keeping up with the flood of requests.
"The speed of short sales is a function of the resources being allocated to them by lenders, and those resources are being stretched to the limit," Humphries said.
That means lenders may not act on approving short sales for months. The deals cannot go forward without their approval, because the banks must agree to forgive the difference between what they're owed and what the sale brings in.
As the time it takes to arrange short sales lengthens, they become harder to complete.
Time and money wasted
One example of how price declines can doom a short sale occurred recently in Phoenix. Curtis Johnson, a real estate broker there, worked with a health care worker whose hours were being cut and who could no longer afford her mortgage. She fell behind and decided to sell.
Johnson was able to find a buyer willing to pay $183,000, and got an approval form the lender. The owner confidently moved out, got a new place and started a new life. But the lender folded and the mortgage went to a new servicer, who took six weeks to approve the deal.
"Unfortunately, the buyers who were approved were no longer interested because the real estate market had dropped significantly," Johnson said. "They wrote a new offer, considerably lower then the first, and it was time to start over."
Two more offers eventually fell through before a new buyer was found and the owner's bank approved the price, this time at $163,000. On the day of that closing, however, the parties discovered that the buyer's lender had run out of funds and dropped out of the deal. The home went to foreclosure auction before another sale could be arranged.
The house is now on the market for $139,900.
"[The house is] listed for less than what would have been received had the bank been willing to work with us, and still has not yet sold," Johnson said.
Distressed sales like that depress the market for all homeowners. Regular sellers in cities dominated by foreclosures have to adjust their prices downward to compete.
The percentage of homes sold for less than what their owners originally paid has leaped up in the past couple of years. In the United States as a whole, 34.6% of the sales made in 2008 were done at a loss. In Merced, 71.6% of all sales last year were for less than the seller paid. Stockton, Modesto and Las Vegas all had in excess of 68% of all homes being sold at a loss.
Foreclosures beget more foreclosures by adding inventory to the market, which depresses prices, which increases foreclosures, according to Humphries.
"The vicious cycle continues," he said. To top of page
Tuesday, February 3, 2009
Realtor® Recommendations Make Headway in House
The U.S. House of Representatives has taken a significant step toward economic recovery in passing H.R. 1, The American Recovery and Reinvestment Act of 2009.
“On behalf of NAR and its 1.2 million members, I’d like to thank Chairman Frank, D-Mass., Chairman Rangel, D-N.Y., and the House of Representatives for passing legislation that will help create market stability,” said National Association of Realtors® President Charles McMillan. “However, our work is far from finished and much more needs to be done in the coming days and weeks.”
Late last year, NAR presented Congress with its core principles for stabilizing the housing market to launch an economic recovery. In the current legislation, NAR strongly supports the provisions to reinstate the 2008 FHA, Fannie Mae and Freddie Mac loan limit increases through 2009. NAR also strongly supports eliminating the repayment requirement on the first-time home buyer tax credit. “This is critical to stimulating home sales and shrinking the housing inventory, which will in turn help stabilize home values,” McMillan said.
Although Realtors® support these provisions, a number of enhancements are needed to make them more effective. In a letter sent to Congress earlier this week, NAR encouraged Congress to make the loan limit increases permanent so that secure, affordable, safe financing is available for American families regardless of where they live. NAR is also pressing to expand the tax credit to all home buyers and extend the expiration date to December 31, 2009.
Other provisions in the bill will help communities across the country, including the expansion of the tax-exempt housing bonds, increased funding for rural housing loan programs, additional funding for neighborhood stabilization activities, more grants for low-income housing construction and rehabilitation, and energy efficiency incentives for housing.
“We think this bill is a great first step in helping our economy on the road to recovery. It is also important that Congress and the new administration refocus the use of Troubled Asset Relief Program dollars to add liquidity to the mortgage market and make mortgage loans and other loans more available to America’s working families,” said McMillan.
NAR will continue to emphasize the need for a mortgage interest-rate buydown and improved foreclosure mitigation programs as key components to improved stability in the housing market. NAR is also asking Congress to concentrate efforts on strengthening the commercial real estate market to protect the nation’s economy.
“Real estate has always led this nation out of economic downturns,” McMillan said. “A renewed, revitalized and robust housing market is essential to generating commerce and helping families build wealth and stability. We are eager to see this happen and look forward to working with the Obama administration and Congress to quickly implement H.R. 1 and enact other stimulus efforts for residential and commercial markets.”
“On behalf of NAR and its 1.2 million members, I’d like to thank Chairman Frank, D-Mass., Chairman Rangel, D-N.Y., and the House of Representatives for passing legislation that will help create market stability,” said National Association of Realtors® President Charles McMillan. “However, our work is far from finished and much more needs to be done in the coming days and weeks.”
Late last year, NAR presented Congress with its core principles for stabilizing the housing market to launch an economic recovery. In the current legislation, NAR strongly supports the provisions to reinstate the 2008 FHA, Fannie Mae and Freddie Mac loan limit increases through 2009. NAR also strongly supports eliminating the repayment requirement on the first-time home buyer tax credit. “This is critical to stimulating home sales and shrinking the housing inventory, which will in turn help stabilize home values,” McMillan said.
Although Realtors® support these provisions, a number of enhancements are needed to make them more effective. In a letter sent to Congress earlier this week, NAR encouraged Congress to make the loan limit increases permanent so that secure, affordable, safe financing is available for American families regardless of where they live. NAR is also pressing to expand the tax credit to all home buyers and extend the expiration date to December 31, 2009.
Other provisions in the bill will help communities across the country, including the expansion of the tax-exempt housing bonds, increased funding for rural housing loan programs, additional funding for neighborhood stabilization activities, more grants for low-income housing construction and rehabilitation, and energy efficiency incentives for housing.
“We think this bill is a great first step in helping our economy on the road to recovery. It is also important that Congress and the new administration refocus the use of Troubled Asset Relief Program dollars to add liquidity to the mortgage market and make mortgage loans and other loans more available to America’s working families,” said McMillan.
NAR will continue to emphasize the need for a mortgage interest-rate buydown and improved foreclosure mitigation programs as key components to improved stability in the housing market. NAR is also asking Congress to concentrate efforts on strengthening the commercial real estate market to protect the nation’s economy.
“Real estate has always led this nation out of economic downturns,” McMillan said. “A renewed, revitalized and robust housing market is essential to generating commerce and helping families build wealth and stability. We are eager to see this happen and look forward to working with the Obama administration and Congress to quickly implement H.R. 1 and enact other stimulus efforts for residential and commercial markets.”
Monday, February 2, 2009
Snag a great deal on a short sale
Short sales - where a lender agrees to take less than it's owed on a mortgage - are rising sharply. Here's how you can profit.
By Joe Light, Money Magazine staff reporter
(Money Magazine) -- When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.
The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood ("Even now, you don't see FOR SALE signs up anywhere," says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.
The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.
Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.
If you're in the market for a home today, you're almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages, calculates real estate website Zillow.com. And in many areas, it's far more: In the Gavitts' zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts' realtor.
The good news is that short sellers are likely to still be living in the home and some may even be current on their payments. That means these aren't the run-down, distressed properties that you often find among foreclosures; in fact, there's a good chance that some of the most deluxe homes for sale in your market are underwater.
Before you get too excited about buying a short sale, know that they generally aren't, well, short. For the sale to go through, the seller's lender must approve the price and agree to take the shortfall as a loss. That extra step can cause the process to drag on three times as long as a normal home sale.
But as the Gavitts discovered, the hassles can be well worth it. Some buyers and realtors don't want to deal with short sales, leaving many choice homes with very few bidders. So if you're willing to brave the intricacies of the process, you'll be far more likely to land the home you always wanted. The key to snagging a good deal is knowing how to avoid the land mines.
Know what you're getting into. In a short sale, you are dealing with several parties: the sellers, their agent and the sellers' lender. That's why a short sale can take anywhere between two and six months to execute, compared with about 30 days for a typical sale. Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, with so many owners trying to unload properties, the lender's negotiators are flooded with short-sale offers. So if you're moving or selling another property, keep in mind that you'll likely need to budget for a few months' worth of rental payments so you have somewhere to live in the interim.
Find the right pro. Lenders often make realtors who work on short sales take a hit on their commission, so some brokers may be loath to show you the listings. But don't even think about going solo. These deals take a lot of work and persistence, says Loni Parmelly, author of Success in Short Sales. Before you sign up with an agent, ask him how many short sales he's closed. If he hasn't done at least two, find someone more experienced.
Weed out candidates. In most cities, home listings will indicate in the description whether the property is a short sale. Ideally, you want to knock off ones that come with extra complexities. If possible, pass on any home that has more than one lien against it; having to negotiate loans with two lenders can greatly increase the amount of time it takes to complete the deal. Also avoid homes where the seller has other offers. That's because if another offer is pending, the seller's agent isn't likely to even submit yours for approval until the first one is rejected, meaning you'll have to wait for another negotiation to play out before you even get a chance.
Set the right price. The first step is to have your agent submit your offer to the seller. Don't just rely on the current list price to come up with your initial bid, says Bill Richardson, a district sales manager for the Keyes Co. Realtors in Boca Raton, Fla. The seller's agent may have far underpriced it in hopes of attracting buyers, but the bank likely won't accept a lowball offer. Ask your agent to determine the home's fair market value by searching comparable sales in the area, with an emphasis on other short sales and foreclosures (or get a rough estimate yourself at zillow.com). If the fair market value is lower than the list price, set your offer 10% lower than that.
At this point, you'll also want to get pre-approval for a mortgage; many banks won't even consider your offer if you don't have one, says Schwindt.
Protect yourself. Next, the seller's agent will submit your offer to the seller's lender. At this point, you'll be asked to sign a sales contract. See if the lender will agree to pick up all closing costs as part of the contract, says author Parmelly. Also ask your realtor to specify that you won't do an appraisal or inspection of the property until the offer is approved. That way you won't have to shell out hundreds of dollars until you know you realistically have a good chance of getting the home.
Finally, though most lenders will require you to make some kind of deposit along with the contract, don't put down more than $3,000 before your bid is accepted. That will give you room to put offers on other homes or even to pull out of the sale if it drags on for too long.
Be a pain in the neck. After your offer is submitted to the lender, you're likely to hear nothing for weeks, if not months. This is no time to relax. Call your agent at least once a week, and make sure the seller's agent is contacting the bank's negotiator nearly every day.
"These negotiators may have 400 files on their desk. They'll want to get rid of the squeaky wheels," says Parmelly, who worked as a loan negotiator for lenders for 16 years. To help the seller's realtor in her negotiations with the lender, it's a good idea to have your agent show her which comparable homes you used to arrive at your number.
If the clock keeps ticking and you're reaching the end of your rope, try playing hardball. After months, the lender the Gavitts negotiated with was still dragging its feet and their pre-approved loan rate was about to expire. "We said, 'We need an answer by Friday or we walk,' " Gayleen says. The bank responded by week's end.
Keep your eye on the market. When the bank finally sends its counter-offer, use it as a guideline rather than an ultimatum. Most of the time, the lender's number is based on its own research, that of a local realtor it hires and the outstanding loan balance. Usually its goal is to sell for at least 90% of the home's value, says Amy Bohutinsky, a spokes-person for Zillow.com.
The lender's offer may not be what you'd hoped for, but don't despair: You have a chance to counter. If the market has been flat since your initial bid, try for 5% to 10% less than the bank's number. If the market has been sinking rapidly, however, you may be able to prove that the home's value has shrunk further and offer even less. Once you have the lender's ear, the new offer should take less time to process.
Despite all the legwork and wait, the Gavitts are thrilled with their new home. "I'm glad people are turned off by short sales," says Brian. "It just means more choices for the rest of us."
By Joe Light, Money Magazine staff reporter
(Money Magazine) -- When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.
The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood ("Even now, you don't see FOR SALE signs up anywhere," says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.
The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.
Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.
If you're in the market for a home today, you're almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages, calculates real estate website Zillow.com. And in many areas, it's far more: In the Gavitts' zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts' realtor.
The good news is that short sellers are likely to still be living in the home and some may even be current on their payments. That means these aren't the run-down, distressed properties that you often find among foreclosures; in fact, there's a good chance that some of the most deluxe homes for sale in your market are underwater.
Before you get too excited about buying a short sale, know that they generally aren't, well, short. For the sale to go through, the seller's lender must approve the price and agree to take the shortfall as a loss. That extra step can cause the process to drag on three times as long as a normal home sale.
But as the Gavitts discovered, the hassles can be well worth it. Some buyers and realtors don't want to deal with short sales, leaving many choice homes with very few bidders. So if you're willing to brave the intricacies of the process, you'll be far more likely to land the home you always wanted. The key to snagging a good deal is knowing how to avoid the land mines.
Know what you're getting into. In a short sale, you are dealing with several parties: the sellers, their agent and the sellers' lender. That's why a short sale can take anywhere between two and six months to execute, compared with about 30 days for a typical sale. Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, with so many owners trying to unload properties, the lender's negotiators are flooded with short-sale offers. So if you're moving or selling another property, keep in mind that you'll likely need to budget for a few months' worth of rental payments so you have somewhere to live in the interim.
Find the right pro. Lenders often make realtors who work on short sales take a hit on their commission, so some brokers may be loath to show you the listings. But don't even think about going solo. These deals take a lot of work and persistence, says Loni Parmelly, author of Success in Short Sales. Before you sign up with an agent, ask him how many short sales he's closed. If he hasn't done at least two, find someone more experienced.
Weed out candidates. In most cities, home listings will indicate in the description whether the property is a short sale. Ideally, you want to knock off ones that come with extra complexities. If possible, pass on any home that has more than one lien against it; having to negotiate loans with two lenders can greatly increase the amount of time it takes to complete the deal. Also avoid homes where the seller has other offers. That's because if another offer is pending, the seller's agent isn't likely to even submit yours for approval until the first one is rejected, meaning you'll have to wait for another negotiation to play out before you even get a chance.
Set the right price. The first step is to have your agent submit your offer to the seller. Don't just rely on the current list price to come up with your initial bid, says Bill Richardson, a district sales manager for the Keyes Co. Realtors in Boca Raton, Fla. The seller's agent may have far underpriced it in hopes of attracting buyers, but the bank likely won't accept a lowball offer. Ask your agent to determine the home's fair market value by searching comparable sales in the area, with an emphasis on other short sales and foreclosures (or get a rough estimate yourself at zillow.com). If the fair market value is lower than the list price, set your offer 10% lower than that.
At this point, you'll also want to get pre-approval for a mortgage; many banks won't even consider your offer if you don't have one, says Schwindt.
Protect yourself. Next, the seller's agent will submit your offer to the seller's lender. At this point, you'll be asked to sign a sales contract. See if the lender will agree to pick up all closing costs as part of the contract, says author Parmelly. Also ask your realtor to specify that you won't do an appraisal or inspection of the property until the offer is approved. That way you won't have to shell out hundreds of dollars until you know you realistically have a good chance of getting the home.
Finally, though most lenders will require you to make some kind of deposit along with the contract, don't put down more than $3,000 before your bid is accepted. That will give you room to put offers on other homes or even to pull out of the sale if it drags on for too long.
Be a pain in the neck. After your offer is submitted to the lender, you're likely to hear nothing for weeks, if not months. This is no time to relax. Call your agent at least once a week, and make sure the seller's agent is contacting the bank's negotiator nearly every day.
"These negotiators may have 400 files on their desk. They'll want to get rid of the squeaky wheels," says Parmelly, who worked as a loan negotiator for lenders for 16 years. To help the seller's realtor in her negotiations with the lender, it's a good idea to have your agent show her which comparable homes you used to arrive at your number.
If the clock keeps ticking and you're reaching the end of your rope, try playing hardball. After months, the lender the Gavitts negotiated with was still dragging its feet and their pre-approved loan rate was about to expire. "We said, 'We need an answer by Friday or we walk,' " Gayleen says. The bank responded by week's end.
Keep your eye on the market. When the bank finally sends its counter-offer, use it as a guideline rather than an ultimatum. Most of the time, the lender's number is based on its own research, that of a local realtor it hires and the outstanding loan balance. Usually its goal is to sell for at least 90% of the home's value, says Amy Bohutinsky, a spokes-person for Zillow.com.
The lender's offer may not be what you'd hoped for, but don't despair: You have a chance to counter. If the market has been flat since your initial bid, try for 5% to 10% less than the bank's number. If the market has been sinking rapidly, however, you may be able to prove that the home's value has shrunk further and offer even less. Once you have the lender's ear, the new offer should take less time to process.
Despite all the legwork and wait, the Gavitts are thrilled with their new home. "I'm glad people are turned off by short sales," says Brian. "It just means more choices for the rest of us."
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