Yesterday, executives from the The Mortgage Bankers Association testified before Congress that they needed to “shore up” the housing market and could do so by extending the new home buyer tax credit, extending loan limit increases, and a few other items that will help hopefully encourage lenders to lend more money.

According to an MBA press release:

MBA Chief Economist Jay Brinkmann testified that the housing market and the overall economy are “inextricably linked,” and that while in past recessions housing has driven the recovery, this time the housing market will only regain strength as part of an overall economic recovery.

“While our economy is showing signs of recovery, and a number of local housing markets appear to be reaching the bottom, our long-term recovery will be dependent on the creation of jobs,” Brinkmann said. “As we begin to see new employment opportunities, consumer confidence and spending will also return, and a new wave of home buyers will begin to absorb the oversupply of homes.”

One of the hot topics with many people who are considering buying a home is whether or not the 8000 tax credit will be extended – on that topic, here is what Mr. Brinkman had to say:

Brinkmann emphasized that the Internal Revenue Service reported that more than 1.4 million taxpayers have benefited from the first-time home buyer tax credit enacted by Congress as part of the Housing and Economic Recovery Act of 2008, but set to expire Nov. 30.

MBA supports extending eligibility to all primary residence home buyers; increasing the tax credit to up to 10 percent of the home purchase price up to a maximum of $15,000; requiring the tax credit to be repaid in certain instances , such as when a residence is sold within three years; and allow taxpayers to claim and receive the tax credit immediately and facilitate the IRS sending funds claimed by the taxpayer directly to the settlement agent for use in the purchase mortgage transaction.

While it isn’t official yet, one thing is certain – there will be plenty of discussion as to whether or not the new home buyer tax credit will be extended – and possibly expanded.

The reason that this program is so popular here in Arizona is because there are many, many, many properties that are currently bank-owned and people are starting to buy these properties – either as an investment or as a primary residence.

And for people who are considering buying a bank-owned property in Arizona and living in the property, there is currently a fairly large pile of government grant money that is available to them.

Grant as in “free money”.

Now, Arizona is not the only state with the Neighborhood Stabilization Program funds available but because I live and work in Arizona, it is the state that I am most familiar with. There are many – and possibly all — states who have this program right now and here are some of the main ideas and concepts behind the program:

1. It is for people who are going to purchase a home that has been foreclosed on and is currently considered “bank-owned”.
2. To be eligible for NSP funds, you must plan on living in the home and occupying it as your primary residence.
3. How much money you can get in the form of a grant depends on how long you agree to live in the property as your primary residence.
4. The maximum amount of money that you can get is up to 22% of the purchase price of the property.
5. If you don’t live in the property for as long as you agreed to, the “grant” becomes a “loan” and is due and payable at 0% interest — meaning if you got $10,000, you will owe $10,000.
6. You cannot refinance or move, you must keep both the loan and the home or the “grant” converts into a “loan”.
7. You must attend a home buyers education course prior to receiving the grant.

Now, this list is not an exhaustive list – but it gives you a pretty good idea of what kinds of stipulations there are to the Neighborhood Stabilization Program. Also, each state has different rules, so you will want to check into the rules that apply to your specific state.

A great place to start about learning about whether or not you could qualify for a Neighborhood Stabilization Program grant is on HUD’s website for more information about the NSP program. Here is also a handy map of who to contact in your state about the Neighborhood Stabilization Program.

The new change that takes effect on July 30th has to do with the way that loan officers disclose  the TIL (Truth In Lending) disclosure.

The Truth-In-Lending form is a one page form that outlines the APR, Loan Amount, Interest Rate and other important loan terms and the way that the rules are going to be going forward, it will no doubt add more time and frustration to what is already a difficult process at best.

In my opinion, starting in August – loans will take “longer” to close – and it may be wise to be conservative when planning a time line – 45 days might be the new number to shoot for where 30 days was “reasonable” before. Timing will have to be perfect to get a purchase loan done in 30 days after this law takes effect.

Highlights of the new Truth-In-Lending law:

1. No upfront fees can be charged to the customer, except for a credit report charge until they have received the TIL. ( No more up front fees for those lenders who still charged an up front “commitment fee” or anything like it)
2. TIL must be disclosed to the buyer within 3 days of application.
3. Once they receive the TIL, then there is an additional 7 day waiting period before the loan can close.
4. Any changes to the loan that result in a change to the APR, you will need to get a new TIL disclosure and then there is another 7 day waiting period.

Generally speaking, the numbers in a loan transaction that frequently change and can impact the time line under the new law include: loan amount, fees such as title company charges, appraisal charges, etc.

So starting next week, it is more important then ever, that you work with an experienced and knowledgeable mortgage loan officer and know that there are new disclosure rules regarding the Truth In Lending disclosure process that will take some time to “get used to”.

“While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages – and that should set off alarm bells,” Dugan said. ” I believe that now is the time to get out in front of this issue – before real problems develop – so that reverse mortgage providers make these loans in a way that is prudent for both lenders and borrowers.”

Reverse mortgages have grown in popularity recently and will most likely continue to grow in popularity simply due to the sheer number of people who are reaching retirement age. The baby boomer generation was not known for their saving – and it is probable that they are going to depend on their home equity as a source of retirement income.

Dugan went on to describe some of the potential problems with reverse mortgages:

Mr. Dugan said the ability of consumers to access their home equity through immediate and large lump sum payments can pose substantial risks. For example, lenders may simultaneously and aggressively market investment, insurance, or annuity products or, worse, attempt to condition loan approval on the purchase of such products. Likewise, with access to large lump sums upon closing, elderly borrowers can be particularly vulnerable to coercive sales of annuity and long term care insurance products that are expensive and may not be appropriate to their needs.

“Another risk is that reverse mortgage borrowers, because they have no immediate repayment obligations, may overlook substantial fees that are attached to the loan,” Mr. Dugan said. “And consumers who spend their loan proceeds quickly or unwisely may end up short of the funds they need for home maintenance or property taxes, with disastrous consequences: the failure to make those payments can result in foreclosure.”

While there may be some regulation loopholes that need to be closed, almost all reverse mortgages are insured by FHA and are originated through the FHA mortgagee program — meaning that FHA has the authority to change the regulatory problems as needed.

So if someone is worried about FHA insured reverse mortgages becoming “the new subprime”, then this is something that can be avoided by FHA stepping in and making the needed changes.

One of the most popular topics with new home buyers is the new 8000 tax credit for new home buyers. There is no doubt that for first time home buyers, this tax credit has been a strong incentive to purchase a home – and the entry level home market has seen improvement as a result.

Now there is talk about extending the 8000 tax credit until 2010 and raising it to $15,000 as well.

According to Bernard Baumohl, an economist at the Economic Outlook Group:

“I’m fairly confident that (Congress) will extend the tax credit, because it is so important that housing come back, but raising the tax credit will be difficult because it reduces taxes even more.”

Current Proposals:

• A Senate bill to expand the tax credit to $15,000 for any home buyer regardless of income was introduced this month by Sen. Johnny Isakson, R-Ga. It is co-sponsored by Senate Banking Committee Chairman Chris Dodd, D-Conn.

• A House bill to keep the $8,000 credit in place until June 2010 and expand it to all home buyers was introduced last month by Rep. Kenny Marchant, R-Texas. It also would provide a $3,000 credit to homeowners who refinance.

• Another bill in the House, introduced by Rep. Eddie Bernice Johnson, D-Texas, would extend the credit to all home buyers through 2010.

Generally speaking, it seems to be a very popular idea to extend the tax credit deadline and a somewhat popular idea to increase the tax credit from 8000 to 15,000 — but, as we learned when the initial tax credit was passed into law, it ain’t over until it is over — so anything can happen.

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