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State and Local Association Government Affairs Directors

State and Local Association Communications Directors

From: NAR Government Affairs

Date: 29 May 2009

RE: Tax Credit Guidance for FHA Loans Announced by HUD

In his speech at the National Association of REALTORS® Housing Summit on May 12, 2009, US Department of Housing and Urban Development (HUD) Secretary Shaun Donovan announced a program that allows borrowers to use the first-time homebuyer tax credit for a down payment or closing costs on a FHA-insured mortgage. The Secretary said “We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit.”

The details of the program were announced today in Mortgagee Letter 2009-15. Government entities and instrumentalities of government may provide a second mortgage. Currently, 10 state housing finance agencies offer a product buyers can use that will effectively monetize the tax credit for down payment purposes. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee Get information on these programs at http://www.ncsha.org/section.cfm/3/34/2920.. State Associations are encouraged to work with their respective housing finance agency to implement similar programs. The 3.5 percent down payment may also be a gift from a family member, employer or nonprofit, charitable organization.

The original guidance permitted lenders and HUD-approved nonprofits and lenders to offer bridge loans via second lien financing or short term loans. Guidance released today allows lenders to offer the monetized tax credit for down payments in excess of 3.5 percent, closing costs and interest rate buy downs. Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers. Lenders will need some time to develop documentation for what will effectively be personal loans to the home buyer.

Read the HUD Mortgagee Letter at http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/LENDERS/MORTGAGEE_LETTERS/2009_MORTGAGEE_LETTERS/09-ML-15%20USING%20FIRST-TIME%20HOMEBUYER%20TAX%20CREDITS.PDF

In his most recent update, posted immediately before this one, he refers to the major gains by Realtors in the bill:

Dear Fellow REALTOR®,

For nearly four months, NAR has been working to deliver to you and to our nation a comprehensive plan to stabilize the housing market.

This week, we saw countless hours of hard work pay off “ in a MAJOR way “ when the federal government implemented NAR’s recommendations to stimulate housing with the signing of the American Recovery and Reinvestment Act of 2009

1. Lower interest rates for home mortgages;
2. A greater ability to get financing through FHA, Fannie Mae and Freddie Mac in high-cost areas;
3. A true tax credit incentive to buy a home NOW; and
4. Foreclosure mitigation and short-sale standards.

As on wag summarized in response to another post of mine on the topic – ‘well, we didn’t get what was on the table but at least we didn’t lose what wasn’t on the table’. So lets’ look at these a little closer.

1. Did we really get lower interest rates? Or have interest rates actually been edging lower since the Fed reduced the prime to .025% last year? Where in the economic stimulus package does it mandate lower interest rates? And are interest rates even the problem right now? Interest rates are, and have been, pretty darn good for awhile now. Banks not loaning money is the problem, not  high interest rates. Sorry, Charles. That dog don’t hunt.

2. Greater ability to get FHA & GSE financing? Well, partly true I suppose. Actually nothing new or the result of the stimulus, but we did get the increased GSE limits extended at least through the end of this year. Of course as Paul Harvey might say, we need to see page 2. That’s the page that talks about Fannie & Freddie increasing mandatory fees and toughening credit score and down payment rules. For example, if an applicant doesn’t have 30% to put down, they pay higher fees. Got a 699 FICO but you can make a 25% down payment? You still get hit with a 1.5% ‘delivery fee’ at closing. If your FICO is between 700 – 720, you’ll still pay an extra 3/4 point. If you’re buying a condo and you don’t have 25% down payment, you’ll pay an extra 3/4 point regardless of your FICO. Does this sound like a ‘greater ability to get financing’ to you? Me neither.

3. A true tax credit? Well, this one is correct. Last year you recall the $7,500 kinda tax credit that you got one time and then paid back over three years. Not so much a credit as an interest free loan that buyers ignored in droves. This year the credit was extended to $8,000 and if you stay in your home 5 years, you don’t have to pay it back. That’s pretty good. Of course it’s still only for first time homebuyers rather than trying to stimulate the full buy-side of the equations. And it’s certainly not the $15,000 carrot that was dangled so enticingly in front of our faces to get us to call our legislators to urge them to vote for the porkulus bill. Heck, it’s not even as good as what the home builders got included in the California budget bill which is a $10,000 credit for buyers of NEW homes - but I guess this is as close to a win as we can get on this one.

4. Foreclosure mitigation and short sale standards? Oh puhleeze. Short sale standards? In what alternative universe do these exist? Have ANY of you seen anything even approaching even modest short-sale cooperation? We can’t even get standards on REO’s and that’s a walk in the park compared to short sales.

Foreclosure mitigation? Hmmmm, that must be the continuing moratoria on deed sales. I guess if you get to live in your house rent free for an extra 90 days that’s a form of mitigation. He can’t be referring to the $275 Billion program announced by Obama last week encouraging banks to modify loans. That’s the one that’s aimed at Fannie & Freddie borrowers, of which there are virtually NONE in our region. That’s the one that makes it incumbent upon banks to modify loans that fall within a loan-to-value range of 80% to 105%. Yeah, that’s gonna be a BEEEG help for people in Southwest County, or California in general, with LTV’s of -150%.

So while I am busy looking for the silver lining, while I am focusing on the positives and the greatly improved sales figures over twelve months ago, a modicum of reality does need to be interjected into the debate. Lawrence Yun has already been neutered by his continuing Pollyanna pronouncements in the face of reality. NAR runs the risk of being totally marginalized if they continue to blow smoke up our nether regions as if those of us in the field don’t actually KNOW BETTER. If the four points enumerated by Charles McMillan above constitute a ‘big win’ for Realtors, then the sad fact is we got our asses handed to us on a platter and we’re trying to decide which condiment will make the dish most palatable.

Of course, that’s just my opinion. I could be wrong.

Given that motive, many of us held our noses and encouraged passage of a responsible stimulus package that eliminated the pork, the excesses, the waste and contained real provision for economic stimulus. Many of us understand that the collapse of the housing industry precipitated the wider declines in our economy and only by stimulating housing and jobs would we climb back out. Clearly that was not the prevalent sentiment among the Democrats (and 3 Republicans) in DC.

I’ve been awaiting the spin doctors at NAR to put a bright smiley face on this pig and here it is. President McMillans points are valid as far as they go. What is not addressed is the massive waste, the barrels of pork, the true lack of stimulus and the long-term cost to you and me that this bill will produce. Apparently even the large amounts of cash handed out by NAR was not enough to carry the day against the forces of greed, avarice, gluttony and corruption we are seeing played out in our nations capitol. It’s a sad day.

Dear Fellow REALTOR®,

Here’s our take on the Stimulis Bill and Treasury announcements made this week. We look at the Stimulis package AND the Treasury’s package holistically, in compliment with each other – mostly because that’s how the Obama team is looking at it. Your representatives, the NAR Board of Directors, asked us in November to do 4 things (with an unspoken but clearly understood mandate to PRESERVE what we already have). Here they are: 1) get loan limits raised for high cost areas, 2) make the $7,500 tax credit NOT a loan, 3) try to find ways to push interest rates down (which are higher than they should be due to systemic risk right now) by 200 basis points, and 4) help provide solutions to the foreclosure/short sale problem.

So here’s what we have achieved: 1) the loan limits will be raised to $727,000 in high cost areas, 2) the tax credit will be raised to $8,000 with NO payback [a true credit], 3) interest rates have come down 125-150 basis points, and 4) the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES’s thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, we preserved what we have – which some tend to forget is always on the table when these negotiations start up again – mortgage interest deductability, real estate tax deductability, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

We did make a run at the $15,000 credit — and we would have loved to have gotten that or the Homebuilders $22,000 credit idea as well as their 5 year loss carryback deal, but they were considered too rich for this program. What it did do though is totally take the debate off of whether a tax credit should be reinstated at all (it expired last year) and whether it was a true credit or a repayable loan, and kept the conversation on how much it should be. It also kept the debate off of ‘what we are willing to give up to get a $15,000 tax credit’ and kept the debate again, on how much it should be. It’s pretty hard to complain when they give you what you ask for and you lose something you never had.

While we study the Treasury specifics on their major role in providing the rest of the housing solution — there is much more to come and we are working diligently with the Administration to help ‘unclog the pipeline’ and get capital flowing into housing again.

Charles McMillan

Thanks Charles – So we didn’t get what was on the table but at least they didn’t take away what wasn’t on the table. Gotta be thankful for small favors I guess.

Of course that’s just my opinion. I could be wrong.

Regardless of how you and I might feel about the bailout – errrr, stimulus package working it’s way through Congress right now, it is almost certain to pass. Too many people have too much invested in its passage, not the least of which is our new President. The best we can hope for is that they get some of the fat trimmed out of it, dump some of the pork and earmarks and all the worthless stuff which adds billions to the cost without producing a scintilla of stimulus to the economy.

I hope you agree that real estate is worthy of being included. After  all, the collapse of our housing market is what started this whole mess, an upswing in housing will bring us back out. So as long as the bill is going to pass anyway, at least let our Legislators know where our interest and their interest intersects – support for strong housing. NAR has at least two critical elements of our 4 Point Plan included in the Senate version of the bill which would go a long ways toward restoring confidence in the housing market and getting buyers off the fence to take advantage of the phenomenal deals in our local market today. 

If you have not received and/or responded to the NAR Call For Action, please take a moment to respond to it via Gary Thomas’ email below. 

Watching the gyrations going on around the various stimuli/bail-out bills has been nothing short of breathtaking of late. It’s little wonder the average American is totally bumfuddled. I suspect most of the people voting on the bill are equally in the dark. Even at our recent state association meetings you really needed a scorecard to sort out the players.

Let’s see, our Senator Boxer, who has been a frequent target of Republicans, Realtors and damn near any thinking human being is suddenly a ‘good guy’ because she has stepped up to fill Hillary’s sensible medium heel shoes in sponsoring the Community Choice In Lending Act, otherwise known as “get Banks the Hell Out of Real Estate Act’. She has apparently become quite a friend to housing and as such has now gone off-limits and become one of the ‘good guys’.

Barney Frank, whose pronouncements on the health of Fannie & Freddie have been the butt of YouTube humor for months is also shown a friendlier side to housing – certainly a much more sympathetic countenance than former Chairman Oxley, who in spite of being a Republican with a Realtor wife was a constant thorn in the side.

Our Federal liaisons and NAR reps are tripping over themselves trying to figure out who’s who and who’s on our side at any given time on any given bill.

The stimulus bill itself, widely gaining disfavor, it still highly favored to pass in spite of the copious layering of lard slathered on it’s infrastructure. So rather than fight against the passage of this bill which will mortgage our future, and our children s future to the 3rd generation at least, everybody is lining up to make sure they get their share of the pie. Makes sense.

So if we’re going to make the best of a bad situation, we better all make our voices heard for Real Estate. Some of NAR’s 4 Point Plan appears to be making progress and that’s good. The GOP is said to be coalescing around the NAR/BIA plan to incent banks to lower mortgage interest rates to 4% – 4.5%. I kn ow NAR was actually pushing to get that to 3% for 1 year and 4% for a 2nd year, but if we can get a 4% mortgage and incent banks to actually loan the money, that’s a good thing.

Then there’s the plan to extend a $15,000 tax credit for homebuyers through the end of the year. The current $7,500 tax credit is faltering because it’s just for 1st time buyers and it must be paid back. This $15,000 credit would apply to all home buyers and would not needs to be paid back. This beats the BIA proposal which was for $10,000 but only for new home buyers and even trumps the NAR plan which was only $10,000 for every home buyer.

We also won a small and hardly noticed victory last week on GSE reform. We were finally able to get the upper loan limits increased just as the market was collapsing around our ears. But the increases were tied to a percentage of the median house price. Our concern was that now that housing prices have declined so precipitously in most major markets, the GSE limits would start ratcheting down as well. Last week they decided to keep the limits where they are for the time being – sparing us from once again fighting that battle when the market comes roaring back again.

And it will. You know it will. It actually probably would rebound faster if we could just keep the government from interfering continually. But regardless, it will be back. But in the meanwhile, Realtors would be damn fools to walk away from the smorgasboard of gratuitous pork. After all, housing precipitated the current slump, housing will lead the way back out. If we’re not at this table, we will be on the menu.

As I finish writing this I hear we may have reached a compromise on the stimulus package. Let’s see if Republicans sold their soul for a bail-out or if Demivcrats actually managed to forego some of their addiction to pork-fat. Film at 11 no doubt.

Members recently received a ‘thank you’ from NAR President Charles McMillan for our support of NAR’s Four Point Plan to Congress. The two week effort generated over 330,000 letters to Congress, one of the highest percentages of participation ever logged for an NAR Red Alert.

“On behalf of NAR, I want to thank you for being engaged in our legislative efforts to offer solutions to turn the current economic climate around and get things back on track,” stated McMillan. “I know many of our members are struggling to handle the current economic challenges. NAR will continue to work hard to ensure the right housing stimulus measures will be included in any ongoing legislation being considered by Congress and the new administation.”

This response was especially timely since there are many new members of Congress just starting their jobs on Capitol Hill this week who may not be familiar with the Realtor Grassroots organization or have an appreciation for the power of over 1 million strong. This serves as an introduction to them as well as a wake up call to some of the existing members who may have misplaced their priorities. 

There was an article in the paper today about the National Association of Homebuilders, who are requesting some of the bail-out money on behalf of their beleaguered industry. In it the statement was made that the NAHB is hoping Congress will lower mortgage interest rates to as low as 3% this year for a fixed rate as part of a housing market stimulus.

The NAHB had initially wanted an interest rate in the 4.5% range but the Four Point Plan discussed and voted on at our NAR Mid-winter meetings set a target rate of 2.99% for the first year (fixed) followed by a 3.9% rate for a second year (fixed). We felt that while a rate of 4.5% was certainly attractive and might stimulate some buyer activity, a tipping point would definitely be reached at 3% to would act as a catalyst to get the market moving again, increase absorption of excess inventory and speed our return to more normal market conditions. 

By the way, if you haven’t yet let YOUR voice be heard by Darryl Issa, Mary Bono, Ken Calvert, Barbara Boxer or Dianne Feinstein, you can follow this link to the a description of the Four Point Plan and the Realtor Action Center. It’s never too late to make the call – and it’s never too late to make YOUR $49 investment in the Realtor Action Center. At the federal, state and local level this will be a challenging year for Realtors trying to avoid becoming the target of revenue enhancement schemes by legislators. Invest $49 to help us protect the rest of your income.