Beginning January 1, 2009, FHA will insure single-family home mortgages up to $271,050 in low cost areas and up to a maximum of $625,500 in high cost areas. The February 2008 Stimulus Package temporarily raised the FHA maximum to $729,750 through December 31, 2008. The new $625,500 maximum, however, represents a significant increase over the $362,790 limit that was in effect prior to the Stimulus Package.

“In today’s environment where access to credit is being restricted, we need to make mortgage loans readily available to households throughout the country, and especially in high-cost areas,” said Preston. “These new loan limits will ensure FHA can to continue help struggling homeowners refinance into safe, affordable government-insured loans, and allow many first-time buyers take advantage of today’s buyers market”

For several years, FHA’s loan levels were below the cost of the average home in communities across the nation. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process. In some cases, borrowers turned to exotic subprime loans.

FHA mortgage insurance makes home financing more available to low-income and first time homebuyers. This is because the mortgage is backed by the full faith and credit of the government, freeing lenders from assuming the risk of default.

Higher FHA loan limits do not cost the government any money because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA-insured mortgage loans.

The Housing and Economic Recovery Act pegs the national conforming mortgage loan limit to a house price index chosen by the new Federal Housing Finance Agency (FHFA). For 2009, the national conforming limit will remain at the current level of $417,000.

The Act says that the new FHA loan limits will be set at 115% of the median house price in a given area, as determined by HUD, but can not be lower than 65% of the conforming loan limit (the national floor). Also, the FHA mortgage limit cannot exceed 150% of the national conforming loan limit (the national ceiling).

Home Equity Conversion Mortgages

The Act also pegs the national mortgage limit for FHA-insured reverse mortgages to the national conforming loan limit. The FHA product known as the Home Equity Conversion Mortgage (HECM) will therefore have a national mortgage limit of $417,000. Unlike the new forward mortgage loan limits, the new HECM loans limits are effective on loans insured or after November 6, 2008. This is the first time that a single limit applies to these mortgages nationwide. As in previous years, the special exception areas of Alaska, Hawaii, Guam, and the Virgin Islands may have higher loan limits. Starting in January 2009 counties in those areas may have loan limits of 115% of area median prices, where that amount is above $417,000, up to a ceiling of $625,500.

Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit. No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

HUD will inform mortgage lenders and brokers of the new limits through a mortgagee letter posted on www.hud.gov and www.fha.gov.

HUD is making available comprehensive listings of the new loan limits in all counties throughout country. Downloadable files are available for FHA Forward Loans, FHA HECM loans, and Fannie Mae and Freddie Mac purchases on the HUD website. The limits are determined by the county in which the property is located, except that for properties located in metropolitan statistical areas the limit is determined by the county with the highest median home price within the metropolitan area.

For more information, visit www.hud.gov.

Click on the following to read more…Avoiding Foreclosure

Before proceeding, I must clarify a few things. It makes me a little crazy every time I hear or use the term “credit.” You see, the entire initiative is administered by the IRS code, and “credit” is IRS terminology. It means that when qualifying individuals file their federal income tax returns, they get an actual income tax “credit” for 10% of the price of the home up to a maximum of $7,500. It’s only $7,500 when the home’s price is $75,000 or higher.

Let’s assume a qualifying couple purchase a $100,000 home between April 9, 2008 and June 30, 2009, and upon filing their federal tax returns are due for a small refund, say $300. Their $7,500 “credit” is tacked right onto the $300, and they end up with a pretty nice $7,800 income tax refund check.

Recapture

But that’s not the end of the story. This “credit” from the IRS must be “recaptured” over 15 years. Recapture doesn’t start until two years later, with payback at 1/15th of the full amount per year. Starting two years after their very nice check, Mr. and Mrs. Couple’s income tax burden is increased by 1/15th of $7,500, or $500 per year until such time that the IRS is paid back.

Now, doesn’t that sound like a loan to you? Agreed, the terms of the loan are fantabulous, with no interest due and a full 15 years and an additional two-year grace period to pay back. But in my book, a loan is a loan is a loan, which isn’t the same thing as a “credit.” And it’s a loan from the IRS, to boot!

Moreover, the (loan) recapture is accelerated if the home ceases to become the taxpayers’ primary residence or if the home is sold. The entire balance is due in the tax year of these occurrences. If the home is sold to a non-relative, however, the maximum recapture is limited to the gain on the home.

It is nice to know that the credit is forgiven for those homes sold at a loss. But as with everything that I cover here, always consult a tax accountant.

Who Qualifies and Other Facts

Other aspects of the income tax credit that I did not yet mention include that it applies to first-time homebuyers only. Under the law it is defined as having no ownership interest in a principal residence in the three years prior to the acquisition date of new home. If the borrower constructs their own home, count back from closing date or date of occupancy.

Ineligible borrowers include non-resident aliens; buyers who finance their home with tax-exempt mortgage revenue bond programs, where the home is purchased from a person who is related to the homebuyer, and a married person purchasing as an individual if the spouse is ineligible due to prior homeownership.

The credit is phased out for individuals with a modified adjusted gross income of $75,000 to $95,000, or joint filers with a modified AGI of $150,000 to $170,000.

If home is purchased in 2009 (prior to June 1, 2009), the borrower may elect to claim the credit on their 2008 tax return, and may amend 2008 returns if already filed.

Before I move on, I have barely scraped the surface of what you need to know, and believe it’s wise to read up further before you hit the streets. A couple of excellent resources are the National Homebuilder’s Association at www.federalhousingtaxcredit.com/faq.php or the August issue of my own e-zine, www.MortgageCurrentcy.com. Be wary of your sources, there’s a lot of misinformation out there. And above all else, remember that this is IRS tax code. Always defer to a tax accountant and do not offer tax advice.

Borrowers Short Funds

It’s time to make this credit/loan work for you. Think about using one of the following to get those difficult-to-come-up-with assets for those clients who are short funds:

* Scenario No. 1: the homebuyer borrows from their parents for downpayment, repays them with tax refund. With the Federal Housing Administration program, a loan from one’s parents is fully acceptable.

* Scenario No. 2: The homebuyer borrows from a 401(k) or other retirement plan. They repay in full with the tax refund. Neither Freddie (SS Guide Ch 37.16), nor Fannie (Selling Guide X. 603.15), nor FHA (4155.1 REV 5, 2-10, D.) require the monthly payment to be included in the debt ratio.

* Scenario No. 3: After closing, the borrower changes his/her W-4 withholding to recoup the credit immediately by decreasing the federal tax amount deducted from their paycheck. This can be very helpful to those who know they’ll be squeezed for money after closing.

* Scenario No. 4: Think ahead a few months to 2009. Immediately after the qualified homebuyer purchases, he or she goes to their tax preparer, files 2008 tax returns, and the credit is in his or her hands within minutes.

Realtor/Builder Business

This can absolutely help your Realtors and homebuilders increase their business. Create a handout with information that they need to know. (For a pre-prepared handout that you can personalize, visit Mortgage Talking Points at www.mortgagecurrentcy.com.) You’ll be surprised by how little most real estate agents and builders know about the credit.

Take it to the next level and bring the informational flyer with you to open houses. Take the time to put the property address of the listed house along with the Realtor information on the handout. Not only do you look good when the Realtor looks good, the flyer can be left at the home for future walkthroughs. It’s a great sales tool for the Realtor and the seller, so it’s likely to be left in the home. And it’s got your name and number on it when someone needs a question answered.

Mine Your Past Clients

This income tax credit is retroactive to April 9, 2008, including homebuyers who have already closed. It’s a great reason to stay in contact with prior clients and let them know that the credit exists, that they may qualify, and to talk to their accountant. And by the way, do they know a friend or family member who might benefit from the tax credit that you can help?

First-Time Homebuyer Classes

Create yourself a simple PowerPoint presentation for new homebuyers. Team up with an accountant, if possible, and market the class based on the tax credit. I’m sure the many accountants know clientele who may be very interested. Heck, team up with a Realtor and further increase your audience.

Don’t make it complicated, and please, again, put disclaimers on everything.

Leslie Petersen’s Disclaimer

I am not a tax accountant. I am not an attorney. I cannot offer legal or tax advice. I did spend an enormous amount of time researching and investigating the tax credit/loan that I’m covering today, but I do not represent the IRS. I cannot offer guarantees as to the accuracy of anything represented here.

To Your Success

Having said that, I legitimately want to see you succeed at what you are doing. I’ve barely scratched the surface. As mortgage brokers, you must be educated, and to thrive in this business, you must also be educators. The public knows little to nothing about the first-time homebuyer income tax credit. It’s new and thrilling information, and you can be their resource.

The first-time homebuyer income tax credit/loan is a powerful marketing tool and the window of opportunity is narrow. Use your expertise to attract new clients. Whether or not the credit/loan is right for them, you’ve still established new relationships and future business.

Leslie Petersen is a mortgage guideline expert. With over 30 years experience in mortgage lending, she writes an online newsletter, www.mortgagecurrentcy.com, on the changes in Fannie/Freddie, FHA, VA and other regulatory agencies, but with a twist. For originators, underwriters and managers, she also interprets them in plain English and shows them how to make the rules and changes work for them and get more of their loans approved. She can be contacted at leslie@MortgageCurrentcy.com.

How can this be, you say…  Here’s how this lucrative, dirty little secret works.  Let’s say that someone filed a bankruptcy that was discharged five years ago with 15 creditor accounts such as medical collections, credit card balances, etc.  Professional debt buying firms, and factoring companies purchase the rights to this discharged debt through a court process for literally pennies on the dollar (who would even think to sell this, right?).  Then they use the credit bureaus’ systems and sophisticated skip trace software to try and match-up the “debt” to the “debtor.”  In many cases people don’t know this is going on until they try to qualify for a loan, only to find that a firm like LVNV has reported an open collection on their credit files.

When challenged with the credit bureaus, the collector simply updates the notation in the bureau record, causing further damage to the person’s credit rating.  In many cases the “debtor” doesn’t have the time or expertise to fight the entry and instead chooses to pay the collector as a “compromise” to have the debt settled; even without valid proof being offered that the debt was legally collectible.

Here’s where things get really troublesome.  If this “Zombie” debt is not properly settled or proven to be invalid, the collector makes additional profit by selling the same account to another collector, who in turn attempts to do the same thing; and this terrible cycle repeats itself again while the “Zombie Debt,” if not handled properly, never dies.

Dave Sperline @ Eukopia Credit Solutions

To find out, I spoke with Mark Vitner, Wachovia economist; Bill Hardekopf, CEO of www.LowCards.com; and Jeff Williams, a mortgage consultant with Allied Home Mortgage in Raleigh, N.C.

Here’s a breakdown on how they say the low interest rates have-or haven’t-affected some key consumer finance issues.

- Credit cards. Hardekopf said that lowering interest rates doesn’t automatically mean credit card rates will decrease. But over the past year, the rates cuts have kept the average advertised credit card rates stable at about 12%.

In other words, if you have good credit, you can still find low credit card rate offers. In fact, Hardekopf said that Capital One is currently offering zero percent on balance transfers and new purchases for 12 months.

“It’s certainly possible that others (credit card companies) will do the same,” Hardekopf said. The problem is that fewer people will qualify for the lower rates.

“The advertised rates are still low, but they are reclassifying the perimeters of what is considered good credit. Now, more people are falling into the average and poor credit categories,” he said.

To qualify for these low rates, people have to do everything possible to keep their credit score high, he said. That means pay your bills on time, don’t skip payments, don’t apply for a bunch of new credit cards, and keep credit card utilization low-at most, 30% to 40% of your credit limit.

- Mortgages. Many people assume that if the Fed lowers the interest rate, mortgage rates will also decrease. That simply isn’t the case, said economist Mark Vitner. He explained that mortgages are backed by mortgage securities, which aren’t doing well right now. Still, mortgage rates are hovering at about 6.45%, which is not nearly as high as in previous major economic downturns.

- Home equity lines of credit. This is an area where consumers may see some immediate relief, said Vitner. These loans are more closely tied to the prime rate, which moves in close concert with Fed interest rate cuts and hikes. “The interest cost on (HELOCs) will be less and make it easier on consumers. That frees up a little extra income for spending,” he said.

- Refinancing loans. Clearly, lower rates make refinancing cheaper. But determining whether this is a good option is a little more complex, said Jeff Williams of Allied Home Mortgage. If you have an adjustable home loan, it should be adjusting down, which is good and there is no need to refinance. But if you have an adjustable loan that is scheduled to reset at a much higher rate, refinancing may be a good option.

A number of banks are urging people to use the low rates as an opportunity to refinance into a 15-year or 20-year mortgage loan. But Williams said this may not be a good idea for everyone. He said that unless you are very secure in your job, it may be safer to stay with a 30-year loan, which typically has a lower monthly payment than a 15-year or 20-year loan.

- Car loans and personal loans. If you are shopping for new car or a personal loan, the lower interest rates will likely mean good news for you, said Vitner. “Lower rates means it’s cheaper to borrow money.”

- Saving accounts. Lower rates ultimately mean the money you earn on your savings will decrease. Now is a good time to shop around for the best rates. Hint: Online banks such as E-Trade Bank and HSBC Direct tend to offer higher returns on savings accounts and CDs than many traditional banks.

Posted By Paige On November 3, 2008 @ 4:43 pm In Finance and Economy | Comments Disabled

By Vicki Lee Parker

Essentially the FICO scoring model takes into account intrinsic (individualized) as well as extrinsic (grouped with others) factors when determining score.  Someone that has a broad and deep credit history (5+ accounts, revolving and installment +1 or more mortgages), but has filed bankruptcy in the past, could have a significantly higher score than someone who has very little credit history (e.g., less than 4 active trade lines). 

Because the person that filed bankruptcy is now “grouped” with other bankruptcy filers rather than non-bankruptcy filers, the criteria for having a higher score is lowered, thereby increasing the chance to have a higher score relative to this (BK filer) group.

• Decide to make your decision whether to buy or sell based on your lifestyle and life plans. If you want to buy and are qualified to do so, don’t cheat yourself out of moving forward and obtaining the professional advice you deserve because of what you see on the news. However, you should get educated about your local market and make decisions about how to best execute your plan of buying in a way that takes advantage of current conditions.

• Get your own team of professional advisors, by referral. At the very least, talk with a CPA about the tax implications of home ownership; a mortgage broker regarding the mortgage rates, terms and price you can qualify for; and a Realtor about current, local market conditions and what sort of home you can expect to find at your price range.

• Go on a selective information diet. The recent book, “The Four Hour Work-Week,” sets out a very extreme version, but try to at least limit your intake of real estate information — which can be habit-forming! — to questions you need answered about your home-buying project.

• Ask your professionals where they get their real estate news/information.

• Build a repertoire of reliable sources of unbiased real estate information, rather than opinion. Then, stay very answer-oriented when you consult these sources. Don’t look for news articles to tell you whether to buy or when — look for answers to concrete questions, like how long the average home in your area is staying on the market, common concessions currently being offered by sellers, etc.

As you go through this process of preparing to buy a home, use the real estate news to find strategies and solutions to questions and obstacles that come up, rather than allowing fear to shatter your life goal of home ownership.

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying