Economic Stimulus Package, Homeowner Affordability and Stability Plan and Neighborhood Stabilization Program. North Dakota Web-Ex 2/26/2009

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1 Economic Stimulus Package, Homeowner Affordability and Stability Plan and Neighborhood Stabilization Program North Dakota Web-Ex 2/26/2009

2 Overview In 2008 Congress created a $7,500 First- Time Homebuyer Tax Credit. It went into effect April 8, 2008 and was set to expire July 1, The big problem: It had to be repaid over 15 years. People viewed it as a debt and not a benefit.

3 NAR Proposes Changes In 2008 NAR began advocating to: Remove the repayment feature of the credit Extend the credit to the end of 2009 Make the credit available to every home buyer

4 The 2009 Tax Credit Working with Realtors across the country: We succeeded in removing the repayment requirement for The credit has been extended to on or before November 30, 2009 and can be claimed by those who closed on homes on or after January 1, It is still repayable for 2008 purchases. The credit has been expanded to $8,000. But, it is still only for first time homebuyers

5 Credit Details The new Credit is an $8,000 REFUNDABLE Tax Credit (or up to 10% of the purchase price). So if the property is $75,000, the credit is only $7,500. (Assume a property over $80,000 for the rest of the discussion). Refundable means that if your total tax liability in the given year is less than $8,000, the IRS will send a refund for the balance.

6 Refundability Why it s Important Many taxpayers do not have tax liability that exceeds $8,000. For example, according to the 2008 IRS Tax Tables: A single filer would need $46,600 in taxable income to have $8,000 in tax liability. A couple would need $58,600 in taxable income to have $8,000 in tax liability. Those with less tax liability will in most cases get a refund meaning they get the full value of the credit.

7 Who cannot take the credit? If any of the following: Your income exceeds the phase-out range. This means joint filers with Modified Adjusted Gross Income (MAGI) of $170,000 and above and other taxpayers with MAGI of $95,000 and above. You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild. You stop using your home as your main home. You sell your home before the end of three years. You are a nonresident alien.

8 First-Time Homebuyer Definition Defined as someone who owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on January 15, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another home at any time from January 15, 2006 through January 15, So if the last time you owned a home was 2005, you are eligible for the credit even though it is really not your first home. For married joint filers, both must meet the 1 st time homebuyer test to take the credit on a joint return.

9 More on Income Limits TYPE INCOME LIMIT PHASE OUT START Single Filers $95,000 $75,000 Married Filers $170,000 $150,000 This means that for singles making over $75,000 and couples making over $150,000, the credit is proportionately reduced as incomes approach $95,000 and $170,000 respectively. So if a couple makes $165,000, the excess amount is used to create a fraction 15,000/20,000 (.75) times the credit amount. 75% or $6,000 of the credit would be disallowed. They would still get a $2,000 credit.

10 The Home Must be the main home i.e. principal residence. Which is generally considered to be the home where you spend 50% or more of your time. It can be a condo, Single Family detached, co-op, townhouse or something similar. The home must be located in the United States. Vacation homes and rental properties are not eligible. For new construction, the purchase date is the date you occupy the home. So the move in date must be before December 1, 2009.

11 Recapture-3 Year Residency If the home is sold prior to three years of ownership, the tax credit must be repaid. This is an improvement from the prior credit. That credit needed to be repaid in total over 15 years or the balance had to be repaid on sale. This provision is designed to prevent flipping homes in order to get the credit.

12 Other Provisions The new credit is available to residents of the District of Columbia Purchasers who utilize state/local revenue bond financing can now use the credit. Purchasers who bought before January 1, 2009 are still subject to the terms of the repayable credit.

13 When Can You Claim the Credit? It can be claimed on your 2008 Tax Return (to be filed by April 15, 2009), an amended 2008 Tax Return, or your 2009 Tax Return. NAR and industry partners tried to get the credit made available at closing but policymakers balked. In addition, it was explained that even if a system could be devised, it would delay closings by several weeks.

14 Tax Credit Conclusion The new credit is greatly improved compared to the old credit. It is a true credit and does not need to be repaid as long as you occupy the home for 3 years. NAR estimates that hundreds of thousands of potential buyers will take advantage of the credit. For more info on the credit and the 2009 Stimulus legislation visit ic/american_recovery_reinvestment_act_home?l id=ronav0019 or consult your tax adviser.

15 CAVEAT This is information is accurate based on information available as of February 19, As with any tax law change, check with a tax advisor if there are any questions regarding using this provision.

16 Energy Efficiency Repeals $4000 cap on the 30% business tax credit for small wind turbines. Increases from 10% to 30% the residential tax credit through 2010 replacing individual caps on fans ($50), boilers/furnaces ($150), and other items ($300) with one overall cap of $1,500 per home.

17 HOPE for Homeowners (H4H) Effective October 1, 2008 Voluntary for lender and homeowner New loan at 93% current appraised value FHA must approve loans and borrowers National loan limit of $550,400 Incentives to lenders/servicers More information at

18 Homeowners in Trouble Hope for Homeowners GSE Refinancing GSE Loan Modification Other Resources HOPE (4673)

19 Specific Loan Programs Energy Efficient Mortgages FHA Freddie Mac/Fannie Mae Location Efficient Mortgages Freddie Mac/Fannie Mae HECM FHA HECM for Purchase FHA VA ARMs

20 Example: Family took out a 6.5% 30-year fixed rate mortgage for $207,000 on a house appraised at $260,000. Home is now worth $221,000, and they owe $200,000. They would have a hard time refinancing because they don t have 20% equity. They could refinance into today s rates (near 5.1%), reducing their annual payment by $2,300. GSE Responsible Homeowners Refinancing Will allow refinancing for families who owe more than 80% the value of their home Designed for those making on-time payments, but have had their home value fall Loans must be for less than conforming loan limit Estimated to help 4-5 million homeowners

21 GSE Responsible Homeowners Refinancing EXAMPLE In 2006, the family took out a 6.5% 30-year fixed rate mortgage for $207,000 on a house appraised at $260,000. Home is now worth $221,000, and they owe $200,000. They would have a hard time refinancing because they don t have 20% equity. They could refinance into today s rates (near 5.1%), reducing their annual payment by $2,300. Existing Mortgage Refinancing Balance $199,584 $203,575 Remaining Years Interest Rate 6.50% 5.16% Monthly Payment $1,308 $1,113 Savings $196 per month, $2,347 per year

22 Homeowner Stability Initiative For homeowners who are at risk of foreclosure Shared effort to reduce mortgage payments Lender must reduce interest rate, so that the payment is no more than 38% of income Federal government will further reduce interest rate to bring the ratio down to 31% Interest rate stays low for 5 years, then gradually increased up to conforming limit at time loan was made Payment incentives to homeowners to reduce principal (up to $1000/year) Incentives for servicers to participate and for lenders/servicers to reach borrower before delinquent Partial guarantees Guidelines for Loan Modifications

23 Example of Homeowner Stability Initiative In 2006, the family took out a 7.5% 30-year sub-prime mortgage of $220,000 on a home worth $230,000. Today they owe $214,016, but their home is only worth $189,000. One member of the family also had had their working hours reduced, lowering their income. Existing Mortgage Balance $213,431 $213,431 Remaining Years Interest Rate 7.5% 4.42%* Monthly Payment $1,538 $1,132 Savings Loan Modification $406 per month, $4,870 per year

24 What do Homeowners Do? As of March 4, the programs are available The information a homeowner will need to provide: Gross monthly income of all borrowers, including pay stubs Most recent income tax return Information about any second (or third) mortgages (only the first mortgage will be modified) Payment information on all credit cards Any payments on other loans (student, car)

25 CDBG Neighborhood Stabilization Program $4 billion allocated to states/localities based on foreclosure rate, # of subprime mortgages, # homes in default or delinquency additional $2b allocated in ARRA competitive bid Funds provided through the CDBG Program Funds used to: Provide financing Purchase Manage Repair Resell foreclosed and abandoned properties Homes must be: used to assist individuals and families with incomes at or below 120% of area median income. Twenty-five percent of funds must be used for households with incomes at or below 50% of area median income.

26 Resources for More Information

27 NAR Contacts Brad Viator, Political Representative, , Dan Blair, Lobbyist, Megan Booth, Policy Representative-Housing, , Tony Hutchinson, Policy Representative-Financial Services, , Austin Perez, Policy Representative-Enviornment, ,

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