Ramblings of a Baltimore area Realtor

 

 

BUYER BEWARE of Tax Credit

 

The first time homebuyers tax credit of $8,000 has been approved by HUD for all FHA loans. But don't get too excited too quickly. If you get a chance to read the mortgagee letter, ML 2009-15, it states that you can't use this tax credit for the required down payment of 3.5%.

HUD originally put out mortgagee letter 2009-15 on May 12th, but was rescinded the next day. Please read about that here : $8,000 tax credit rescinded by HUD. For some reason, it was prematurely placed on HUD's web site, but apparently wasn't finalized. Now we have a new version and if not read correctly, you could be putting misinformation out there. So what does the new mortgagee letter state?

 

 

 

Here is the positive part about the tax credit. You can receive the first time homebuyers tax credit upfront, but not through the IRS.  This would be illegal. Please read : It's illegal to receive your tax credit before you close on your home.  Buyers - BEWARE, please read that, because too many people are saying that you can get the money directly from the IRS prior to closing. The IRS & HUD both say no!!!

So how can you receive this upfront?  It can be given to you as a second or a silent second from any Federal, State, or local agencies, and any FHA mortgagee or any FHA approved non-profit organization.  People, in layman's terms, this is already acceptable by HUD's standards, except for the lender that is now able to give the monies upfront in a form of a 2nd mortgage. Another terminology is that this can be an advance loan from any of the entities mentioned above.

 

 

Summary :  Essentially, this means that the entities mentioned above, are purchasing this tax credit on your behalf and giving it back to you. The short version of this is that you can use some of the money from the $8,000 Tax Credit as your down payment, but after you put down the first 3.5% of that down payment. Meaning, you have to come up with 3.5% of your own money still. With FHA loans, it can still be a gift from a relative/family member.  It also can come from non-profit or government agencies to be used as your initial down payment, but not used through the tax credit. Overall, the tax credit that is advanced, can be used for all closing costs. But you can't receive monies back at closing. 

And again, keeping in mind, it's illegal to receive this tax credit upfront directly from the IRS. There is more verbiage in the mortgagee letter 2009-15 , but the main point is that you have to have 3.5% of the downpayment yourself, before you can use the tax credit that would be 'loaned' to you.

 

 

THOUGHTS??? - Well, in all honesty, how does this truly help? What is the gov't thinking here? As a buyer, I would still need the initial 3.5% of my monies for the down payment. Again, needing money to buy. I know some of you are for this fact, that buyers should have skin in the game. But keep in mind, this was not the true demise to our foreclosure mess. We need to sell houses to keep this economy going.  Just my opinions and food for thought.  thanks

 

 

 

 

 

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Experience & Knowledge at its BEST !!!

 

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

This is one of those posts that I Know will generate  negative comments from our readers.

And I am OK with that.

We are criticized all the time for sharing info like this with our students..here is an example.

True Story: I received an email over the weekend from a Real Estate Coaching company whom many of you would consider a competitor of ours. The coach (who is a friend of mine so I wont use his name) was very critical of our blog…and the fact that we don’t pump the usual ‘Its a great time to buy a house’ propaganda.

“Tim, why do you post so much doom and gloom?”

He didn’t understand why we post articles like this one….

SO, for our competitors, our students and our future students…here is why we share info with you that may cause some of you to be alarmed and even angered with us.

We do it because no one else seems to have the courage to tell agents the truth about what may happen next in our respective real estate markets.

YOU SIMPLY MUST BE PREPARED FOR WHAT MAY BE COMING NEXT.

It would be vastly easier for us to tell you to ‘get back to the basics’ or ‘its all about how you think’. But, that would be a lie.

Selling homes, being a Realtor is an honorable profession. You are helping people solve a problem and accomplish an emotional and financial goal. Your job (as a Realtor) is to become a great sales person and an even better business person. When you are prepared for the worst but, hopeful for the best..you have an advantage. Once you have that mindset you will do a better job serving your real estate clients.

Here is the question we ask all of our Graduate Coaching students that I want you to ask yourself now: (Warning: reading what comes next may cause anxiety and doubt….but, if you read the whole thing you will find inspiration and strength).

Ask yourself…..

“What if I knew with 100% certainty that the real estate markets were going to get worse…far worse….in the next 6 months…what 3 things would I be doing differently NOW?”

Don’t be afraid of that question…take it seriously. If you KNEW that housing sales were going to plummet what 3 things would you be doing NOW…

If you knew for sure that the darkest days for real estate were still ahead of us…what would you be doing now?

IDEAS:  Price reductions, taking FAR more listings, stronger focus on pre-qualifying, master Short Sale listings (finally), become a REO listing agent, follow a schedule?….what would you do if you knew FOR SURE real estate sales were going to decline further? Heres a thought, how about getting the education that you know you must have to learn the skills that this market demands. Make you own list. That is your plan of action for NOW.

Bottom line, Realtors are the only true hope for homeowners….this market is about agents with the skill set to serve and the mindset to be of service.

Next super tough revealing question….

“What are you doing now that you would stop doing if you knew that home sales were going to become far more challenging”

IDEAS: Maybe you would stop waiting for the phone to ring (and make it ring), you would stop waiting for the sellers to ask for a price reduction and start listing homes with pre-planned and agreed upon price changes, maybe you would stop mailing stuff to homeowners in hope that some day…they will call. What 3 things would you STOP doing now if you knew for sure that the real estate markets were going to become much worse?

Maybe now you get it.

If you are prepared for the worst…and the worst never happens…you are in better position.

We don’t want the real estate markets to slide any further. Its truly horrible what is happening to our country. Nothing would make us happier than telling all of you that the worst days for the real estate markets are behind us. Until that day happens we promise to tell you the truth, the whole truth and nothing but the truth. If that offends some of you (and we know it does) we sincerely apologize.

Please don’t be afraid of whats next.

The fact is that if you are still in the real estate business (especially after the epic national washout of thousands of Realtors that took place over the last 2 years) you have already proven that you have the chops to make it through the end of this historic ‘correction’. Be mentally, emotionally and financially prepared for this correction to take another 3-5 years.

HREU Students (and future students) if you need any help…request a Free Coaching Call.

Here is the article from The New York Times.

As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.

Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.

Robert and Kay Richards live in the center of this trend. In 2006, they took a 30-year, fixed-rate mortgage — a prime loan — borrowing $172,000 to buy a prefabricated house. They erected the building on land they owned in the northern Minnesota town of Babbitt, clearing the terrain of pine trees with their own hands.

Mr. Richards worked as a truck driver, hauling timber from a nearby mill. His wife oversaw the books. Together, they brought in about $70,000 a year — enough to make their monthly mortgage payments of $1,300 while raising their two boys, now 11 and 16.

But their truck driving business collapsed last year when the mill closed. Mr. Richards has since worked occasional stints for local trucking companies. His wife has failed to find clerical work.

“Every month that goes by, you get a little further behind,” Mr. Richards said.

Last June, they missed their first payment, and they have since slipped $10,000 into arrears. They are trying to persuade their bank to cut their payments ahead of a foreclosure sale.

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From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000.

Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.

Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure.

But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.”

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In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.

“I don’t think there’s any chance of government measures making more than a small dent,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

Last year, foreclosures expanded sharply as the economy shed an average of 256,000 jobs each month. Since then, the job market has deteriorated further, with an average of 665,000 jobs vanishing each month.

Each foreclosure costs lenders $50,000, according to data cited in a 2006 study by the Federal Reserve Bank of Chicago, so an additional two million foreclosures could mean $100 billion in lender losses.

The government’s recent stress tests of banks concluded that the nation’s 19 largest could be forced to write off as much as a fresh $600 billion by the end of 2010, bringing their total losses to $1 trillion. The Federal Reserve concluded that these banks needed to raise another $75 billion.

Many economists pronounce that assessment reasonable, while cautioning that it could become inadequate if foreclosures continue to accelerate.

“The margin for error is not that big,” said Brian Bethune, chief United States financial economist for HIS Global Insight. “It’s kind of like, ‘Let’s keep our fingers crossed that we’ve seen the worst.’ ”

Among prime borrowers, foreclosure rates have been growing fastest in states with particularly high unemployment. In California, for example, the unemployment rate rose to 11.2 percent from 6.4 percent for the year that ended in March, while the foreclosure rate for prime mortgages nearly tripled, reaching 1.81 percent.

Even states seemingly removed from the real estate bubble are seeing foreclosures accelerate as the recession grinds on.

In Minnesota, three of every five people seeking foreclosure counseling now have a prime loan, according to the nonprofit Minnesota Home Ownership Center.

In Woodbury, Minn., Rick and Christine Sellman are struggling to persuade their bank to reduce their $2,200 monthly mortgage on their five-bedroom home.

Mr. Sellman, a construction worker, found some work putting in asphalt driveways last summer, but he is now receiving unemployment. Ms. Sellman’s scrapbooking businesses shut down last summer. Since then, they have slipped $19,000 behind on their mortgage.

“We were always up on our house payments,” Ms. Sellman said. “You work so hard to keep what you have, and because of circumstances beyond our control now, there’s nothing we can do about it.”