IRS Sets New Rules for Tax Credit

The IRS has spelled out guidelines for eligibility for the home buyer credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When unmarried individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

Source: Washington Post Writers Group, Kenneth R. Harney (12/04/2009)

Foreclosures Decline for Fourth-Straight Month

Foreclosures declined 8 percent in November compared with October, but were still up 18 percent from November 2008.

This was the fourth-straight month that U.S. foreclosures have declined since hitting an all-time high in July, according to online foreclosure marketer RealtyTrac.

Default notices, an indicator of coming foreclosures, also were down 8 percent from October, but up 22 percent from November 2008. Bank repossessions were flat from the previous month and down 2 percent from November 2008.

"We don't really believe the underlying problems have been resolved," said Rick Sharga, senior vice president for RealtyTrac. Many borrowers, he told the Associated Press, "simply aren't going to qualify" for government and mortgage servicer help.

States with the highest foreclosure rates are:

• Nevada
• Florida
• California
• Arizona
• Idaho
• Michigan
• Illinois
• Utah
• Maryland
• New Jersey

Should Underwater Borrowers Stay or Go?

Increasing numbers of home owners are struggling with the decision to walk away from their homes because their mortgages are so far underwater.

Whether it is a good idea or not is an open question with strong arguments on both sides of the decision.

Leaving a home and a mortgage ruins a credit score, complicating future transactions, and makes it more difficult to rent another residence and buy a car.

Despite this potential pain, Glenn Kelman, chief executive of Zillow.com, believes that people should consider giving up.

"I think there are a lot of people who don't walk away from their house for moral reasons that are economically irrational," he said.

Some experts believe that credit-evaluation companies will view foreclosures differently in this era. "This is a once-in-a-century real estate market. The question that FICO will be asking itself is, is a foreclosure in 2008 and 2009 the same as a foreclosure in 1998, 1999 or 2003 and 2004?" said Todd J. Zywicki, a bankruptcy expert at George Mason University School of Law in Arlington, Va.

Source: The Los Angeles Times, Alejandro Lazo (11/29/2009)

New Home Sales Rise in October

New home sales rose 6.2 percent in October compared to September, according to a report released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.

This increase was 5.1 percent above the October 2008 level.

"New-home sales are what I am focusing on because they are the ones that are going to drive" gross domestic product, said Cameron Findlay, chief economist at LendingTree.com.

The median sale price of new homes was $212,200 in October with an estimated 239,000 units available at the end of that month, a 6.7-month inventory, according to the government.

Source: The Los Angeles Times, Alejandro Lazo (11/26/2009)

Nine Consecutive Gains for Pending Home Sales

Pending home sales have risen for nine months in a row, a first for the series of the index since its inception in 2001, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2.

Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the home buyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.”

By Region

• Pending sales in the Northeast surged 19.9 percent to 100.2 in October and is 44.2 percent above a year ago.
• In the Midwest, the index rose 11.6 percent to 109.6 and is 36.6 percent higher than October 2008.
• Sales in the South increased 5.4 percent to an index of 115.4, which is 31.6 percent above a year ago.
• In the West, the index fell 11.2 percent to 127.7 but is 21.9 percent above October 2008.
  

Not Out of the Woods Yet
Yun cautioned that home sales could dip in the months ahead. “The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months. Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.

“Still, as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That would mean broad wealth stabilization for the vast number of middle-class families,” Yun said.

Source: NAR

Government Announces Short Sales Guidelines

The U.S. Treasury Department announced new guidelines this week designed to make short sales go more smoothly.

To qualify under these new guidelines:

• The property must be the home owner’s principal residence.
• The home owner must be delinquent on the mortgage or close to defaulting.
• The loan must have been made before Jan. 1, 2009, and be for less than $729,750.
• The borrowers’ total monthly mortgage payment must exceed 31 percent of their before-tax income.

Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their mortgages. Mortgage-servicing companies will get $1,000 for each completed short sale. Second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgage can collect up to $1,000 from the government for allowing the payments.

Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.

Source: Associated Press, J.W. Elphinstone (11/01/2009) and The Wall Street Journal, Ruth Simon (11/01/2009)

One-Fourth of Borrowers Are Underwater

More than 23 percent of people with mortgages owe more on their properties than they are worth, according to a report released Tuesday by research firm First American CoreLogic.

Another 2.3 million homeowners are within 5 percent of being underwater, bringing the total of those who are upside down or close to it to about 28 percent.

About 5.3 million U.S. households have mortgages that are at least 20 percent higher than their home's value, the First American report says. Borrowers owing more than 120 percent of their home's value are the most likely to default, First American calculates.

The majority of underwater mortgages are in the following states:

1. Nevada: 65 percent of home owners are underwater
2. Arizona: 48 percent
3. Florida: 45 percent
4. Michigan: 37 percent
5. California: 35 percent

The report also notes that most U.S. homeowners have home equity, and nearly 24 million owner-occupied homes don't have any mortgage at all, according to the U.S. Census Bureau.

Source: The Wall Street Journal, Ruth Simon and James R. Hagerty (11/24/2009)

15-Year Rate Hits Record Low

The average rate for 15-year mortgages reached a new bottom this week, dipping from 4.40 percent to 4.32 percent—the lowest level since Freddie Mac began tracking rates in 1991.

Rates for 30-year mortgages approached the all-time low of 4.78 percent again last week, falling to 4.83 percent from an average of 4.91 percent a week ago.

Wellesley College economist Karl Case says the Federal Reserve's efforts to purchase mortgage-backed securities from Fannie Mae and Freddie Mac is lowering rates on home loans.

Source: Boston Herald, Thomas Grillo (11/20/09)

Housing at Its Most Affordable in Years

One piece of good news coming out of the Great Recession is the increasing affordability of housing.

The typical U.S. family earning the nation’s median income of $64,000 a year could afford to buy 70.1 percent of all homes sold in the United States during the third quarter, according to a report from the National Association of Home Builders and Wells Fargo. The report relied on the government standard of spending no more than 28 percent on housing. In the same quarter of 2008, only 56.1 percent qualified.

The five most affordable areas are:

• Indianapolis
• Youngstown, Ohio
• Detroit
• Warren, Mich.
• Grand Rapids, Mich.

• New York City
• San Francisco
• Honolulu
• Santa Ana, Calif.
• Nassau and Suffolk, Long Island, N.Y.