Angus Beal

Interesting developments in the TARP program and a wrinkle for agent across the country:

RE: Home Affordable Modification Program

The FHA will be offering U.S. banks that are holding mortgages that are underwater (25% or more of existing mortgages--CNN Money.com 2/23), 97.75% of present market value of those mortgage values. This will enable:

1. Banks to use the loss as a lesser "write down", than if the homeowners foreclosed.

2. Offer a lesser payment based on that new value, as a bonus to homeowners to keep their homes.

3. Many unemployed homeowners could receive three to six months of reduced mortgage payments while they look for a job.

4. Results in a more rapid recovery to end this never ending stream of forclosures and glut that we can never seem to get out of.

Keep in mind:

-assuming that the prospective homeowners do NOT have a 2nd lien, HELOC or wotherwise, than the current lender being bought out by FHA WILL RETAIN A SMALL 2nd lien against the property at a level NO MORE THAN 115% of current market value.

-banks have to be willing to participate. The current admisinistration is offering cash incentives at the corporate level to incentivize these banks to get on board.

-this program may not be off the ground until summer.

Here’s how that would work. Say you have a 30-year fixed mortgage with a balance of $250,000, an interest rate of 9 percent and monthly payments of $2,000 a month. Home prices have plunged, however, meaning the house is now worth only $180,000. Under HAMP, your lender will receive financial incentives to reduce the loan balance by roughly $33,000, cutting the monthly payment to $1,300.

There’s no such thing as a free lunch, of course. The government is funding the overhaul with $14 billion in taxpayer funds allocated to bail out banks under TARP. The efforts to plug HAMP also will dent bank earnings, since lenders (and their shareholders) are being asked to swallow larger losses.

My thoughts? Well, with 10-20 miliion foreclosures forecasted to occur within the next 3 years, something HAS to be done to stop this endless bloodshed.

After all, as the saying goes, if you want to live with the classes, you have to sell to the masses. With the middle class having less and less money in their pockets, and less jobs to count on, all agents should be adamant about pushing more programs like this.

Question: OMG! FHA is increasing the upfront mortgage insurance! What does that mean to our clients?

Answer: FHA is increasing the upfront mortgage insurance from 1.75% of the loan amount back to the original 2.25%. On a $200,000 loan amount a difference of……wait for it: five dollars a month. The upfront mortgage insurance was reduced two years ago and HUD is reinstating the premium. No need to get your knickers in a bunch.

The upfront mortgage insurance is refundable, on a sliding scale, if the home is sold; or refinanced out of an FHA loan into a conventional within the first five years. But the home owner is responsible for requesting the refund. FHA will not send it voluntarily.

FHA also has monthly insurance. Today, that rate is .55% of the loan amount divided by 12. That calculates to $91.67 per month on a $200,000 loan amount.

The monthly m.i. is non-negotiable. If your client is putting 20% down, FHA still wants their mortgage insurance. In today’s lending world it may make more sense to place a lower credit score borrower with a hefty down payment in an FHA loan than a conventional. They may not like paying the monthly m.i. but if they want to purchase a home that may be their only choice.

The monthly premium can only be removed if it is paid down. FHA mandates that you are required to have the monthly mortgage insurance for five years. After that time if you have PAID down the loan to less than 80% (78% to be exact) the mortgage insurance can be petitioned to be erased. Appraisals for removal of FHA mortgage insurance are non-existent. It is all about paying the loan down and keeping the mortgage insurance for at least 5 years.

FYI: FHA is fighting to keep the 3.5% down payment requirement. And rumor has it that the monthly mortgage insurance premium may be increased. Stay tuned.

Things your client should know about the tax credit that they aren’t being told:

CPA Shares Little-Known Facts About the 2009 Home Buyer Tax Credit Extension

Like most government legislation, the Nov 6, 2009 homebuyer tax credit extension created more questions than answers. However, according to Doug Geissler, a certified public accountant, the Internal Revenue Service is literally writing the "refund rules" as they go along.

Unbeknown to homebuyers, real estate agents and the mortgage industry, the IRS is giving behind-the-scenes instructions (that are not available to the general public) to CPAs and tax advisors on how to file for the homebuyer tax credit after Nov. 6, 2009. It will be completely different than what you might have advised your clients previously-and your clients are not going to like these changes!

The first shocker? Your clients cannot file a 1040 EZ to claim the tax credit. Nor can they file tax returns electronically if claiming the tax credit.

Why no electronic filing or 1040 EZ forms? It's the first step in stopping fraudulent tax credit refunds. Believe it or not, the IRS never had a way to determine if a person owned a home-no auditing software in place-to determine if they previously claimed a "mortgage interest" deduction within a three-year time period. The IRS is building auditing software now to "catch" previous homeowners who are trying to claim a FTHB tax credit.

Secondly, the IRS now requires that the HUD-1 or closing statement be attached to the 5405 form (and that cannot be attached electronically). Here's the link to the 5405 Revised Form dated December 2009: http://www.irs.gov/pub/irs-pdf/f5405.pdf

And to give them time to audit the document, the IRS is telling tax advisors to expect an average of a 16-week turn around time-which means that it could either be the refund or a request for additional documentation. Mr. Geissler says that one of his clients recently received an IRS notice, requesting a letter from a landlord, a copy of a driver's license and the closing statement on an amended tax return where the client was claiming the FTHB tax credit. Yes, the new law allows them to ask for additional info on amended returns.

According to the ICSC-Goldman Sachs index, retail sales rose 2.9% for the week ending March 6. It was the biggest weekly gain in nine years. On a year-over-year basis, retailers saw sales increase 3.4%, the best showing in two-and-a-half years.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ending March 5 rose 0.5%. Purchase volume increased 5.7%. Refinancing applications fell 1.5%.

The Commerce Department said wholesalers cut their inventories by 0.2% in January following a downward revised 1% drop in December. Meanwhile, sales at the wholesale level rose 1.3% in January, marking the 10th straight monthly gain.

The trade deficit unexpectedly fell 6.6% to $37.3 billion in January from a revised $39.9 billion gap in December. Economists had expected the trade deficit to widen to $41 billion. Exports slipped 0.3% to $142.7 billion. Imports fell 1.7% to $180 billion.

Initial claims for unemployment benefits fell by 6,000 to 462,000 in the week ending March 6. Continuing claims for the week ending February 27 rose by 37,000 to 4.558 million.

Retail sales rose 0.3% in February, following a revised 0.1% increase in January. Economists had anticipated retail sales to decline 0.2% in February. On a year-over-year basis, retail sales increased 3.9%.

The Reuters/University of Michigan consumer sentiment index for March’s preliminary reading fell to 72.5 from February's final reading of 73.6. One year ago, the mid-March reading was 57.3. During the economic expansion that ended in December 2007, the index averaged 88.9.

Upcoming on the economic calendar are reports on the housing market index on March 15, housing starts on March 16 and the index of leading economic indicators on March 18.

Fannie Mae had made a significant change to their policy concerning closing services. In the past, Fannie chose the Title Company or closing attorney. That has for now, come to an END. Effective earlier this month Fannie Mae is allowing the buyer to pick their title company.