Last month we talked about the direction of interest rates and they continue to remain in a nice trading range. As consumers, when evaluating your options, it’s important to focus on overall savings and not the elusive quest for absolute bottom. Remember, we all want to pick the bottom as far as interest rates are concerned but only a small percentage of borrowers hit it and it's only luck that gets them there. Don’t drive yourself crazy! Focus on savings versus your current situation and if you are eligible to refinance, be proud and grateful. Millions of Americans no longer qualify to refinance due to income reduction or job loss and plummeting property values. Which leads us to this month's topic - the Making Home Affordable and The American Recovery and Reinvestment Act of 2009 mortgage stimulus plans.
Following is a high level overview of the plans. Details have been released and are available at www.financialstability.gov and the IRS website. The key goals of the plans are as follows:
- Provide a tax incentive for first-time home buyers - this obviously has nothing to do with your existing loan - rather it is an incentive to get potential home buyers off the fence.
A tax incentive of the lesser of $8000 or 10% of the purchase price. First time home buyers are defined as those who have not owned a home in the past three years. If you are a couple and your income exceeds $150,000, the incentive begins to get phased out. The same applies if you are single and your income exceeds $75,000. Detailed information from the IRS Website is available by clicking here.
- Keep interest rates at low levels.
As we discussed in December's newsletter, the government is aggressively purchasing mortgage-backed securities (which is generally good for interest rates). Additionally, they are doing their best to increase confidence in Fannie Mae and Freddie Mac. This is scheduled to continue through the end of June and may be extended if the government decides it's in their best interest.
- Helping people who cannot take advantage of today's low rates because they owe more than standard lending guidelines allow - and only if your loan is a Fannie Mae or Freddie Mac loan.
This element is designed for people who cannot take advantage of today's low market rates due to the fact that their home values have dropped. The challenge is that in our area, jumbo loans are the norm and they are more likely to be upside down than the conforming loans – so most of us will not be able to take advantage of this benefit. A frequently asked question is whether or not a balance modification is part of the plan... the answer is no. But it is at the individual lender's discretion as to whether they will modify a balance.
- Helping people who are at risk of losing their homes to foreclosure due to income reduction and/or job loss etc. as well as helping those whose existing loans are resetting to unaffordable levels. This is for primary residence loans with a current balance of $729,750 or less.
This is a combined effort between the government and the lenders. The lender is being encouraged to set the interest rate at a level where the homeowner can meet a 38% payment to gross income ratio and the government will subsidize the loan to get the payment to gross income ratio down to a 31% level. As you can see, the challenge with the stimulus plan is that, outside of the tax incentive and government’s effort to keep rates low, not everyone who needs help will get it.
As always, we welcome you to give us a call or drop us a note anytime so that we can analyze your individual situation and advise what strategy might serve your best interest based on the present market.
Sincerely,Your CWC Financial Loan Team
888-711-5454 Toll Free / 415-454-1130 info@cwcfinancial.com |
