CAR Publishes Best Guide for all the New Housing Stimulus Laws

California Association of Realtors (CAR) just put out a new Q & A for all the new housing stimulus laws enacted by the federal government and the State of California. It is in my opinion the best single source for explaining all these new Housing Stimulus Programs I have read. I have included some of the highlights here and links to the US government sites to determine if one qualifies for a “Home Affordable Refinance” or a “Home Affordable Modification”. Unfortunately, I haven’t found a way to give the public access to this Q & A. If you would like a copy, please email me and I will email you back a copy in a Microsoft Word 2007 version. If you need it in an earlier version, let me know and I will be happy to send it to you.

US GOVERMENT PROGRAMS

Q 1.  What, in a nutshell, is the $8,000 tax credit for first-time homebuyers under the new law?

A A first-time homebuyer as defined may receive a refundable tax credit up to $8,000 for purchasing a principal residence in the U.S. from January 1, 2009 to November 30, 2009, inclusive (see Questions 5 to 16).  No repayment is required if the buyer owns and occupies the property for 36 months (see Question 17).  This new law enhances the preexisting $7,500 tax credit enacted in 2008 which still applies for purchases from April 9, 2008 to December 31, 2008 (see Questions 18 and 19).

Q 9. Is there an income restriction to be eligible for the $8,000 tax credit?

A Yes.  The first-time homebuyer tax credit may be restricted by the taxpayer’s income.  The tax credit starts to phase out for an individual taxpayer with a modified adjusted gross income from $75,001 to $95,000 (or $150,001 to $170,000 for joint filers).  The tax credit is eliminated entirely if an individual’s modified adjusted gross income is over $95,000 (or $170,000 for joint filers). 

Q 32. What are the eligibility requirements for a Home Affordable Refinance?

A  The eligibility requirements for a Home Affordable Refinance is as follows:

•  Current loan is owned or guaranteed by Fannie Mae or Freddie Mac (see Questions 33 to 35);

•  Owner occupied, one-to-four unit home;

•  Maximum refinance loan amount is 105% of the current market value of the property;

•  Borrower must have sufficient income to support the new mortgage debt; and

•  Borrower must have an acceptable mortgage payment history.

Q 34. How do homeowners determine whether they qualify for a Home Affordable Refinance?
 
A  A self-assessment tool is available for homeowners to determine whether they are eligible for a Home Affordable Refinance or Modification at http://www.financialstability.gov/makinghomeaffordable/.

Q 35. How does a REALTOR® or borrower determine whether a loan is owned or guaranteed by Fannie Mae or Freddie Mac?

A Both Fannie Mae and Freddie Mac have established toll-free telephone numbers and web access to make this information available.  Borrowers will provide or enter information to determine if either agency owns or securitized the loan.  The information, however, is not a guarantee of eligibility for the Home Affordable Refinance.

For Fannie Mae’s Resource Center, the telephone number is 1-800-7FANNIE or 1 800 732 6643 (8 a.m. to 8 p.m. EST) or inquire online at www.fanniemae.com/homepath/homeaffordable.jhtml.

For Freddie Mac, the telephone number is 1-800-FREDDIE or 1-800 373 3343 (8 a.m. to 8 p.m. EST) or inquire online at www.freddiemac.com/corporate/buyown/english/avoiding_foreclosure/avoiding_foreclosure_form.html.

Alternatively, a borrower may contact the lender or loan servicer to inquire as to whether the underlying loan is owned or guaranteed by Fannie Mae or Freddie Mac.

Q 42. How does a Home Affordable Modification work?

A  The Home Affordable Modification program is a government subsidy for loan modifications.  First, a participating lender must voluntarily agree to modify the loan terms for a first trust deed so that the borrower’s monthly mortgage payment does not exceed 38 percent of his or her income.  Next, the federal government will match what the lender did dollar-for-dollar to reduce the debt-to-income ratio down to 31 percent.

The borrower will be put on a trial modification at the new payment and terms for three months.  If a borrower is current at the end of the trial modification period, the loan servicer will execute a modification agreement, including an impound account for taxes and insurance

As an example, assume a borrower pays 45% of her monthly income for her mortgage payment on a $220,000 loan.  If her lender voluntarily agrees to reduce her mortgage payment down to 38% of her income, the federal government will match that, dollar-for-dollar, to bring her debt-to-income ratio further down to 31%.  The loan modification could save the borrower over $400 per month on her mortgage payments.

Q 45. What are the eligibility requirements for a Home Affordable Modification?

A  The eligibility requirements for a Home Affordable Modification are as follows:

•  Borrower occupies the property as a primary residence;

•  Property is one-to-four units;

•  Loan to be modified is a first trust deed;

•  Borrower’s monthly mortgage payment (including taxes, insurance, and homeowners association dues) exceeds 31% of the borrower’s gross monthly income;

•  Borrower has experienced a significant change in income or expense to the point that the current mortgage payment is no longer affordable;

•  Unpaid principal balance is $729,750 or less (for one unit properties and higher for two-to-four units); and

•  Loan was originated before January 1, 2009.

Q 48. How do homeowners determine whether they qualify for a Home Affordable Modification?
 
A  A self-assessment tool is available for homeowners to determine whether they are eligible for a Home Affordable Refinance or Modification at http://www.financialstability.gov/makinghomeaffordable/.

STATE OF CALIFORNIA PROGRAMS

Q 60. What, in a nutshell, is the $10,000 new home tax credit?

A  For the period from March 1, 2009 to February 28, 2010, inclusive, a taxpayer who purchases a qualified principal residence that has never been occupied may receive a tax credit of 5% of the purchase price or $10,000, whichever is less (see Questions 64 and 65).  The total new home tax credit for all taxpayers is $100 million (see Questions 72 to 74).

Q 64. What constitutes a “qualified principal residence” under the new home credit?

A  A qualified principal residence is a property purchased between March 1, 2009 and February 28, 2010, inclusive, that meets the following requirements:

•  It is a single-family residence (attached or detached);

•  It has never been occupied (see Question 71);

•  It is purchased to be the principal residence of the taxpayer for at least two years immediately following the purchase date (see Question 81); and

•  It is eligible for the homeowner’s exemption under section 218 of the California Taxation and Revenue Code.

Q 67. Is a taxpayer who receives an $8,000 federal tax credit as a first-time homebuyer also eligible for the $10,000 new home credit under California law?

A Yes.  A first-time homebuyer as defined can potentially qualify for both the $8,000 tax credit under federal law (see Question 1) as well as the $10,000 new home credit under California law.

Q 72. What is the $100 million dollar limit to the new home credit?

A  The total amount of new home credit for all taxpayers combined is $100 million (Cal. Rev. & Tax Code § 17059(d)).  The FTB will allocate the credit to taxpayers on a first-come, first-served basis (Cal. Rev. & Tax Code § 17059(e)(1)) (see Questions 73 and 74).  Once $100 million has been allocated, the new home credit will no longer be available.  To check on the remaining credit available, go to the FTB website at http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml.