Making Home Affordable Is Law

The Making Home Affordable Program has been passed into law and an expected 7 to 9 million homeowners should benefit from it. There are two ways for at-risk homeowners to benefit. The first is the Home Affordable Refinance and the second is the Home Affordable Modification.

The Home Affordable Refinance program will be available to homeowners with a good payment history on their existing Fannie Mae or Freddie Mac mortgage. Under this program homeowners will be eligible to refinance up to 105% of their current home value to today's lower mortgage rates. This program ends in June 2010.

For those that don't qualify for the Home Affordable Refinance program there is the Home Affordable Modification Program. The servicers of these loans are encouraged to work with homeowners to modify their mortgages so that at-risk homeowners can better afford their payments. Institutions that received TARP (Troubled-Asset-Relief-Program) money are required to work with homeowners whose loans they service.

The modification program is available to those who live in their homes and took out their mortgage prior to January 1, 2009. Modifications can be done through this program until December 31, 2012 and a homeowner can only modify his or her loan once.
The loan servicer will first seek to reduce the interest rate (subject to a rate floor of 2%). Then, if necessary, the lender will seek to extend the term of the mortgage up to a maximum of 40 years. Finally, as a last resort, the lender can forgive a portion of the mortgage owed in order to achieve a goal of a mortgage payment that represents 31% of the homeowners' gross monthly income.

Key distinctions to remember are as follows:

• The loan must be a Fannie Mae or Freddie Mac loan.
• All refinances or modifications require full documentation of income.
• The home must be occupied by the homeowner. No investment properties allowed.
• Loan payments must be current with no past late payments allowed.

There are more provisions to the program than I covered here and I enourage you to visit my Borrow Smart website at www.iborrowsmart.com/sperkins for all the details. Just click here to go to the website where you will find NIFE (National Institute of Financial Education) Classes you can view and listen to that give all the details you will need including guidelines and qualifications you can download. As always feel free to call me or e-mail me with any questions.

California Comes Up With Its Own Homebuyer Tax Credit

Not to be outdone by the Feds, the Governator, Arnold Schwarzenegger, signed into law California's own homebuyer tax credit. There are several distinctive differences between the two homebuyer tax credits as I will point out.

The California Homebuyer Tax Credit is open to ALL homebuyers, not just first-time homebuyers. However, it is limited to homebuyers purchasing a home that has never been occupied. In other words, NEW CONSTRUCTION ONLY. The credit is available on purchases made between March 1, 2009 and March 1, 2010.

The tax credit is equal to 5% of the purchase price with a maximum credit of $10,000. However, the California tax credit can ONLY be used to offset your actual tax bill. Additionally, the credit is paid in three equal and annual installments of $3,333 for the first three years of homeownership and can never exceed the tax owed. For example, if you owe $4,000 in tax, your credit is $3,333 and you still owe the other $667. However, if you owe $2,333, then the credit is $2,333 and you lose the other $1,000 because at the time of this update there is no carryover provision. No repayment of the tax credit is necessary as long as the home purchased is the homebuyer's primary residence for at least two years. The Federal Homebuyer Tax Credit allows the homebuyer to receive the credit whether taxes are owed or not, but any tax owed must be paid first and the homebuyer must live in the property for three years.

There is NO income restriction like there is in the Federal program, which has a phase out of the credit for singles making more than $75,000 and married couples making more than $150,000.

First-time homebuyers purchasing a new construction home in California would be able to take advantage of both tax credits for a total credit of $18,000 provided they met both state and federal limitations.

Personally, I think this is a bad idea. It is really nothing more than the Governor pandering to the home building industry. The home builders want this credit so they can unload all of the homes they built that didn't sell before the correction. But they also want to use it as a means to finish building the tracts that they started and couldn't finish before the correction.

Who stands to benefit from adding more homes to an already overbuilt state? This is a simple supply and demand issue and keeping builders building when we need to clear out the overabundance of home we have now makes no sense. I guess the good news is that some in the construction field can go back to work but the credit should be made available to all if the goal is to get the economy back on its feet.