It’s official! Congress has approved an extension of the $8,000 tax credit for first-time home buyers to sales contracts entered into by April 30, 2010 and closed by June 30, 2010.

This is good news for all those that weren’t quite ready to buy a home this month.  Something to think about if you are expecting a tax return in the first part of the year that you would like to use for a down payment.

And in even bigger news, along with extending the first-time home buyer tax credit, Congress has added an additional $6,500 tax credit for owners of existing homes who are looking to purchase a new home for their primary residence.  It must be a move-up in home, but still is a great deal to anyone looking to buy a nicer home than they currently have.

And in more good news, the income eligibility limits to claim the full credit amount for both groups of home buyers have been raised from $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return to $125,000 for individuals and $225,000 for married couples.

So more people can take advantage of a tax credit next year, new and repeat home buyers alike.

Although H.R. 3044 which would put an 18-month moretorium on HVCC seems to have gotten stalled, but some members of the House Financial Services Committee were able to tack a repeal of HVCC onto H.R. 3126, the Consumer Financial Protection Act (CFPA) as an amendment. H.R. 3126 passed committee 39 t0 29 with most Committee Republicans voting against it.

H.R. 3126 has been fought furiously by banks and credit card companies because is severely limits how they can put the screws to you and I when getting or servicing loan or credit card.

If passed by the House of Representatives it will go on to the Senate. President Obama has requested that CFPA be on his desk for signing into law before the new year.

As a brief review, HVCC is the Housing Valuation Code of Conduct, which was the brainchild of New York State Attorney Andrew Cuomo. He was wrongfully assuming that A) appraisers are all pansies, and B) because they are pansies they could be easily bullied by mortgage loan officers and real estate agents into artificially inflating the value of a home.

Well, for the most part appraisers are a pretty honest bunch and housing bubble was much more than just inflated appraisals due to some unscrupulous loan officers, real estate agents and appraisers. All HVCC did was add an additional layer of cost and time to the process: Appraisal Management Companies, or AMC’s.

AMC’s are the go-between for loan officers, Realtors and the appraiser. A buffer if you will. The AMC’s run interference and isolate the appraiser from talking to the loan officer or Realtor, the idea being that if a loan officer or Realtor can’t talk to the appraiser they can’t pressure them into “hitting a target value” to make the deal work.

Well, the market decides the value, all the appraiser does is compare the subject property to comparable properties that sold within a given period and a given distance from the subject property. In short: it is what it is.

There are a number of problems with AMC’s though:

1. AMC’s increased the price the consumer pays for an appraisal because it added a middleman into the process.
2. Appraisals have to be paid by the borrower before the appraisal is done, it can no longer be rolled-up into the loan like before.
3. AMC’s take up to 60% of the amount collected from the borrower as “administrative costs” and appraisers are making only 40% of what they did just last April.
4. Because of this the good appraisers have exited the business, leaving green appraisers who will work for pennies on the dollar, and thus;
5. We are getting shoddy appraisals using comparatives that are not comparable properties. And, because we can’t talk with the appraiser we can’t go to bat for our borrower by questioning why the appraiser used a short-sale or a bank foreclosure as a comparable as compared to a genuine sales transaction, which represents the true market value of a home.

All HVCC has done is add another layer of bureaucracy, increased costs to the borrower, and hindered refinances that can help a borrower by reducing their interest rate and putting more cash in their pocket each month, thus reducing the chance of defaulting on their mortgage.

You’d think this would be a good thing, huh?

So let’s hope H.R. 3126 passes the House and the Senate and we can start moving forward with real economic recovery and your home will start increasing in value again as real, honest and competent appraisers get back to work doing what they love to do.

Finally a litte ray of sunshine the Home Valuation Code of Conduct (HVCC) initiated by New York Attorney General Andrew Cuomo that has done nothing but decrease the appraiser’s income up to 40% while lining the pockets of these new Appraisal Management Companies (AMC).  AMC’s are charging $75 to $100 more for an appraisal while only paying the appraiser doing the appraisal $200 or less for their work they used to make $350 for.  I had an appraiser friend recently tell me he received a call from an AMC he is signed-up recently trying to negotiate him doing an appraisal for only $75 if he wanted the work.

In my experience most AMC’s are simply larger appraisal firms that re-designated themselves “Management Companies” and are not giving work to appraisers outside their own employees.

Because of HVCC is it is taking on the average of two weeks to get an appraisal done that used to be done in three business days.  At least that is my experiences with AMC’s in the past two months.  Another huge disadvantage of HVCC and AMC’s is that it’s not only increased the cost to the borrower of an appraisal, it now has to be paid for before the appraisal is done.  In the past the appraiser would bill the loan officer Net 30 and he’d be paid from the proceeds of the closed loan, thus the borrower didn’t have to pay in cash or credit card the cost of the appraisal.  That is no longer the case, which for some on fixed incomes makes refinancing almost an impossibility unless they have the extra cash lying around.

Hopefully our elected officials will see that HVCC has no tangible benefit to the borrower, and in fact harms the borrower.  What sounded good in theory is not good in practice.

Announcement from the National Association of Mortgage Brokers

The last year has seen many changes in home lending, some for the better, some for the worse.  Over the next couple of blog posts I’ll cover these changes and what is required to get approved for a home loan in today’s lending climate.

Full Doc loans only

In today’s lending climate only Full Doc loans are available.  These are loans where documentation to prove income and assets stated on the credit application must be provided.  Documentation includes such items as W2’s, 1099’s, and tax returns.  Assets must be supported by bank statements, IRA statements, statements from stocks and bonds, etc.  All down payment funds must be sourced and seasoned at least for 60 days back from the application date.

At this time Stated Income loans are a thing of the past.  Obviously this puts many self-employed borrowers at a huge disadvantage since many do everything possible with itemized deductions to reduce their tax burden.  Many times tax returns will not reflect the actual income of the borrower, but Line 37 of Form 1040 is the last word on what a lender will base a borrower’s ability to repay the loan on.  Lenders do allow some itemized deductions to be added back-in, however these allowed items rarely increase the Adjusted Gross Income by much.

Hopefully Fannie Mae, Freddie Mac, FHA and VA will change some of their guidelines in the near future to help accommodate the self-employed; maybe by allowing a percentage of Line 1 of  Schedule C as qualifying income or allowing more itemized items to be added back into Adjust Gross Income.

If you have any questions regarding becoming qualified to purchase a new home (and it truly is a good time to do so) or any other mortgage-related item, please do not hesitate to call me at (801) 971-7916.

Just as fast as they gave it, HUD took it away.  In an annoucement Friday afternoon that said, but didn’t say it out loud, HUD Secretary Shaun Donovan didn’t know what he was talking about when he said (for the second time in a month – will somebody please brief him about what’s going on in his own agency) that HUD would be allowing the $8,000 first-time home buyer’s tax credit to me immediately moneytized through certain government agencies and non-profits to be used as the down payment or toward closing costs of buying a new home.

Maybe a good thing anyway, as I said in my last post it will all depend on those government agencies and non-profits stepping-up to the plate and loaning the $8,000 at the closing table.  The big issue was that nobody wanted to do it without a guarantee that they’d be repaid through such avenues as the borrower’s tax credit being sent directly to the lender rather than to the taxpayer.  So even though the offer was on the table, there wasn’t any takers.

The fun part will be seeing how Shaun Donovan puts his foot in his mouth next week.

Today HUD approved the $8,000 first-time home buyer tax credit for buying a new home to be used for down payment or closing costs with FHA loans.  The catch: Finding someone to loan the money up-front against the forthcoming tax credit since no government agency wants to touch it.  We’ll see how this pans-out.  It could be a huge help for may first-time home buyers and those that haven’t owned a home in three years.

News Story

May 21, 2009 the new Home Valuation Code of Conduct (HVCC) came into effect.  This piece of legislation was the brainchild of New York Attorney General Andrew Cuomo who decided for political points he was going so singlehandedly clean-up the mortgage industry.  The general idea of HVCC is to “help assure that borrowers, home buyers and secondary mortgage market investors receive fair and independent property valuations.”

This is done by adding a middleman in the appraisal process which runs interference between the loan officer and the appraiser in an effort to prevent the loan officer from “influencing” the appraiser’s opinion of a property’s value.  Since the loan officer can not communicate directly with the appraiser the appraiser can’t be given a “target number” for the value of the home.  Of course, in reality it doesn’t do this since in the case of a purchase a copy of the Real Estate Purchase Contract (REPC) has to be given to the appraiser because the appraiser has to be aware of any concessions being given by the seller.  So exactly what HVCC was meant to accomplish, it does not.

As you can see, this is legislation that was enacted by people with no knowledge of the real estate industry other than they once bought a house themselves.  People like Andres Cuomo have no idea how we get from Point A to Point B and he’s able to move in to his new home.  All HVCC has done is add a middleman, what is called an Appraisal Management Company or AMC, into the appraisal process.  Appraisal Management Companies manage appraisers, so if an appraiser wants business he has to be signed-up with an AMC who then assigns appraisal orders as they come-in to the appraiser who is next on the list.  The AMC then forwards the completed appraisal to your loan officer.

Starting May 1, 2000 all appraisals for Conforming Loans (those under the Fannie Mae/Freddie Mac umbrella) have to be ordered through an AMC.  FHA and VA are not included in this legislation and appraisals for FHA and VA loans are still ordered by your loan officer.  Because of the AMC being in the middle of the appraisal process for Conforming Loans the cost of an appraisal has risen from $350 to $425 here locally.  Also, appraisals with now be C.O.D.  Before an AMC will assign an appraisal order to an appraiser the appraisal must be paid for.  No longer can the appraisal be done then paid for through the closing of the loan.  So be prepared to front the $425 in cash or on a credit card when refinancing or buying a home.

Another change is that no longer can your loan officer call an appraiser and ask him to pull comparatives so that an idea of where an appraisal will come in at can be determined before actually ordering the appraisal.  This service used to be provided for free by appraisers.  Under the new legislation a Restricted Use Appraisal (RUA) can be ordered for $50, which is actually a documented comp search.  The RUA can not be used as an actual appraisal.  Again, the cost of this will have to be paid up-front by the borrower.

The good thing is that your loan officer can arrange your loan so that you get back this money at the close of your refinance, or it will simply be less money you have to bring-in to close the loan for your new home purchase.  In the long run you break even, but be prepared with that money available to refinance your current mortgage or to get an appraisal on a home your are buying if you are using a Conforming loan rather than an FHA or VA.

The government has given homeowners, and potential homeowners some ways to save on their taxes this year.  Here are just a few of them:

Buy a new home

If you are a first-time home buyer you are eligible for up to an $8,000 tax credit when you file your taxes for 2009.  This credit only has to be paid-back to the government if you sell your home within 3 years of buying it.

P.S. If you haven’t owned a home in the past 36 months you are a considered a “first-time home buyer”.

Even if you are not a first-time home buyer, but are buying a new home this year, you can write-off any points you pay to a broker or to buy-down your interest rate.*

Refinance

Again, you can write-off any points you pay to a broker or to buy-down your interest rate while enjoying a lower payment through current low interest rates (the lowest they’ve been since World War II).*

Home Improvements

The government is offering tax breaks for sprucing-up your home.  Congress issued a credit up to 30% of the cost of installing a geothermal heat pump system in your home.  Also, the purchase and installation of a solar water system is eligible for a 30% tax credit.

Homeowners buying foam sealants, caulk and weather stripping are eligible for up to $1,500 in credits for improving the energy efficiency of their home.

Install fuel cells in your home and the government will kick you back 30% of your costs up to $1,500 per 0.5 kilowatts of power capacity.  The more power you produce, the more you get back.

Add new, energy efficient window and doors to your home.  The government will cover 30% of purchase and installation costs up to $5,000 for windows, doors and roofs that improve energy efficiency.

Looking beyond the obvious mortgage interest write-off could save you lots of money come next April.

You see APR after every interest rate quoted, whether it’s for an auto loan, credit card or a mortgage loan.  What does mean?  How is it calculated?  Does it really matter in the larger scheme of things?  All good questions.

APR means “Annual Percentage Rate”, which is a number that is supposed to somehow tell you the “true” cost of a loan.  The idea is that this number reflects the actual cost of a loan based on any fees required to originate and fund it.  With credit cards the interest rate and the APR are almost always the same because they just give you the credit card and there are not  closing costs involved.  Same with most auto loans.  But with mortgages the quoted interest rate and the APR are almost always different.  Here’s why.

APR is figured by subtracting the fees associated with originating a loan from the loan amount than re-amortizing the payments you’ll make to come-up with “true” cost of the loan.  So if your loan is $200,000 and there are $7,000 worth of fees associated with the loan, the APR would be the dollar amount of actual payments over the term of the loan recalculated into $193,000 rather than $200,000, hence the sum is a higher percentage.

Originally, our government came-up with this figure in an attempt to simplify the home loan shopping process since a borrower could go around to various lending institutions armed with this one figure to see who had the best deal.  However, it doesn’t really work that way because there are way to many variables, both in loan products and in what is considered an “APR item”.

First lets look at what are considered APR items.  HUD says that any fee associated with originating a loan that would not be associated with a cash transaction is an APR item.  However even that is left to the lender’s discretion.  For instance, on the Good Faith Estimate anything in the 800-series section should be considered an APR item as well as Per Diem interest (the interest that has to be prepaid from the closing date of your loan to the first day of the next month) and of course things like up-front fees for mortgage insurance or funding fees through the VA and escrow fees from a title company or attorney.

Some of these items are self-explanatory, such as “Loan Origination Fee”, “Credit Report”, “Mortgage Broker Fee” and “Underwriting Fee” because you wouldn’t have those fees if cash were exchanging hands.  However some other such as appraisal and title escrow fees could or could not be included, and lenders use this to their advantage when quoting you so that their fees/APR will look more competitive.  They will leave-out appraisal and title fees since in a cash transaction you may not get an appraisal done or have a title company handle the money transaction or issue a title insurance policy.  But lets face it, it would be financial suicide to buy a home without knowing how much it’s really worth and having a third party handle the transfer of funds from buyer to seller is the safest way to go since they won’t release the funds to the Seller until the title is recorded with the County Clerks office the the Buyer is the legitimate owner of the property in it’s entirety.   Also, title insurance guarantees the buyer that the title is clean and free of encumbrances (liens from collection agencies, bail bonds, contractors, angry neighbors, etc.) and guarantees that if one shows-up for the Seller after the transaction that it won’t effect the Buyer.

So the smart move, even in a cash transaction, is to get an appraisal and use a title company or attorney to complete the transaction and get title insurance.  So legitimately these fees should be included, but many lenders don’t to be more competitive in their quotes.

Second, APR is calculated assuming the loan will be held to term (10, 20, or 30 years) and never refinanced or the house sold.  The fact is that people move on the average of every 7 years and refinance every 4, racially skewing the APR calculation and making it worthless in the real world.

So in my opinion, the only figures that matter in a purchase or refinance transaction are:

1. What’s the interest rate?
2. What’s the monthly payment? (Remember, the lowest interest rate doesn’t always equal the lowest payment)
3. What are the closing costs involved?
4. How long will it take to amortize and recoup the closings costs? ( In a refinance scenario)
5. Who is paying the closing costs? (In a purchase scenario)

This is where a mortgage professional can sit down with you in person and answer these questions for you and show you the mortgage options available to you.

Who is Eligible

• The $8,000 tax credit is available for first-time home buyers only.
• The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase.
• All U.S. citizens who file taxes are eligible to participate in the program.

Payback Provisions

• The tax credit is a true credit. It does not have to be repaid.
• The only repayment requirement is if the home owner sold the home within three years after the purchase.
  Income Limits
• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000 credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with a MAGI that exceeds $170,000.

Effective Dates for the Tax Credit

• First-time home buyers would receive an $8,000 tax credit for the purchase of any home on or after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on the sale of the home during this period.
  Tax Credit is Refundable
• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $3,000 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
• Buyers can take the tax credit on their 2008 or 2009 income tax return.

Types of Homes that Qualify for the Tax Credit

• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a principal residence in the prior three years. This also includes newly-constructed homes.

For more details on the tax credit, go to www.federalhousingtaxcredit.com