Treasury Dept. Unveils Program To Fund Mortgages

The Treasury Department recently unveiled new plans to help more first time homebuyers get approved for mortgage loans. They are hoping to begin selling HFA bonds to the federal government in order to fund additional loans for struggling homebuyers. I’ve included a clip of an article from NPR.org explaining the Treasury Department’s new announcement, but you can read the full article here.

In a normal year, the so-called HFAs, or housing finance agencies, finance about $15 billion worth of mortgages, but the credit crisis has made it difficult for them to raise money for the loans.

Basically, the HFAs work like an affordable housing bank, says Steven Spears, acting executive director of the California Housing Finance Agency.

He explains that the agencies issue tax-exempt bonds to Wall Street and then the HFAs use the money to make loans. But investors have become reluctant to put their money into anything related to mortgages, especially in parts of the country, such as California, where home prices have fallen significantly since the market peak in 2006.

"They were just not interested," Spears said, explaining that his agency has been out of lending capital for a year now.

"Two years ago we had record lending, he said. "We had $1.7 billion in mortgages for first-time homebuyers. We're not making any loans at all really right now."

Treasury's plan is for the federal government to buy the bonds from HFAs, who will in turn have the money to lend to first-time homebuyers such as Natasha Henry, who is looking to buy a foreclosure in Boston's Dorchester neighborhood.

U.S. Mulling Mortgage Aid for Unemployed

As the unemployment problem in the country continues, the Obama administration is looking to help the poor U.S. housing market by offering specific aid for taxpayers struggling to make their mortgage payments. According to a new article from Reuters, the President has prompted policy makers to consider new options “allowing borrowers to delay, defer or skip payments," which are more effective than those currently available in the private sector.

The number of failing home loans has been climbing for three years as risky borrowers have defaulted on their easy-to-get loans, property values have sunk and the unemployment rate has climbed.

But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.

The official said such a program would be in keeping with other measures to help workers who have lost jobs in the current recession.

Tax Credit to Aid First-Time Homebuyers

Earlier in the week, the Internal Revenue Service (IRS) issued a new press release regarding a new tax credit for first-time homebuyers. Below is a snippet form the release, but you can check out the full text including questions and answers by clicking here.

First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

Available for a limited time only, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

Beware the $7,500 'tax credit'

“Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.

But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.

‘It's one of those things that are more complicated than it seems at first blush,’ said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. ‘Consumers have to make sure they understand the credit thoroughly.’

The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit.

The Senate Finance Committee estimates that about 1.6 million people will use the credit.

The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time homebuyers represented about 20% of the market for new homes in 2007.

Realtors are also behind the credit. ‘[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity,’ said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.

The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for homebuyers (about $8,200 in today's dollars).

‘Buyers flocked to market and cleared out a then-record inventory of homes,’ said NAHB president Sandy Dunn. But that credit did not have to be repaid.

And the impact should extend beyond first time homebuyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.”

Continued at Money.CNN.com

Housing Bill to Hurt Small Business Owners?

Although everyone seems to be talking about how much the new American Housing Rescue and Foreclosure Prevention Act is going to help American homeowners, it will to make life harder for thousands of small business owners. According to Sharon McLoone's business blog on WashingtonPost.com, the bill will force credit card processing companies to collect more information from merchants, and will even impose a 28% fee on those who do not comply. Below is a quote from McLoone's blog, but you can read the full thing at Housing Bill Includes Sweeping Data Reporting Provision.

"The housing bill includes a sweeping provision requiring credit and debit card firms to report the transactions of certain businesses to the IRS, sparking privacy concerns and stirring the ire of the small business community.

Small business lobbyists plan to aggressively push back on the language requiring firms like MasterCard and Visa to give the IRS data on businesses that have made at least 200 transactions annually that together total $20,000 or more.

The provision says that any company that processes electronic payment transactions will have to report to the IRS the annual gross receipts of those transactions for each merchant beginning in 2010.

The soon-to-be law 'will have a significant, negative effect on the small business community,' said Kristie Darien, executive director with the National Association for the Self-Employed.

The provision is part of a greater effort to increase business and consumer tax compliance and narrow the 'tax gap,' which the IRS defines as the difference between the amount of tax that taxpayers should pay for a given year and the amount that is paid voluntarily and on time.

The proposal, which originally was included in President Bush's fiscal 2009 budget request, will raise an estimated $9.5 billion over 10 years, according to a summary of the bill by the House Ways and Means Committee."