Here’s an informative video on this topic. Watch the Chief Economist of NAHB answer frequently asked questions about both the First Time and the Repeat Buyer  tax credits.

One piece of the Worker Homeownership, and Business Assistance Act of 2009 just signed into law last week by President Obama, was the expansion of the First Time Buyer Tax Credit to include move up and repeat buyers.  The new Move-Up/Repeat Home Buyer Tax Credit gives qualified homeowners a tax credit of up to $6500, and it is effective as of November 6, 2009.  Like the First Time Home Buyer Tax Credit, you must enter into contract before April 30, 2010 and close by June 30, 2010.   Click the link to check out qualifying details.

A note about getting the cash: while the law allows home buyers to “monetize” the tax credit to help with cash to close, this requires that banks be willing to make short term loans secured by a buyer’s future tax credit.  For reasons you can imagine, banks are not rushing to be the first in line to do this.  I don’t expect to see this happen any time soon.

That said, there are two things you can do to speed up receipt of that money.  First, after you buy, you can amend your 2008 returns and claim the credit as though you bought the home last year.  This may also help those lucky folks whose income in 2009 disqualifies them but who would qualify for the credit based on their 2008 income.  Second, prospective buyers can adjust their withholding in advance to save for a down payment.  Of course, you might have to pay that back later if you don’t buy a home, so only do this if you are really committed to buying.

Mortgage rates should improve a bit this morning on news that October job losses of 190,000 were higher than analysts expected.  Unemployment topped 10% for the first time in a long time.  The see-saw continues.  Is the economy healing or isn’t it?

The Fed continues to be the primary buyer of mortgage backed securities (MBS), though their purchases declined by $2b to $16b last week.  Year to date they’ve bought $993 b!  Hopefully the Chinese, Japanese, and the petro-states will get back in the game before the Fed runs out of money or stops buying next April as indicated. For those who don’t know this, banks who make home loans sell those loans in the “secondary market” to recoup their cash and make more loans.  Until the credit crisis, foreign investors with fistfulls of US dollars from all our purchases of their stuff (oil, cars, cheap toys, electronics) bought US Treasuries or MBS as a way to park those dollars somewhere safe and avoid the exchange rate risk.

Finally, the First Time Buyer Tax Credit passed in Congress and heads to Obama’s desk.  A lesser known piece is that also eligible are homeowners who have owned for at least five years.  They get $6500. Of course there are phase-outs rules and restrictions on property types.  You have to have Purchase Contract by April 30, 2010 and close by June 30, 2010 in order to qualify.  Call for details…

Voluntary or “strategic” mortgage defaults are challenging governmental efforts to resolve the real estate crisis.  But what are strategic defaults?

“Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they’ve fallen behind on other accounts.”

In other words, one out of every five homeowners who defaults today is voluntarily walking away from their mortgage, even though they can afford to make the payments.  That’s almost 300,000 people in 2007, and twice that number in 2008. Strategic defaults are higher in markets where home values have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005.

What are the consequences?  Well, the penalties can be stiff.  A consumer with a mortgage default on their credit history will  a) pay higher rates on all loans and credit cards,  b) be unable get a mortgage for at least two years, and  c) have  employment challenges with employers who demand clean credit. Yet 18% of those in default are willing to pay this price…

“Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said, but they appear to look at it as a business decision: “Well, I’m $200,000 in the hole on my house, and yes, I’ll damage my credit,” he said of defaulters. But they see it as the most practical solution under the circumstances.”

Who does this?  You might be surprised at the answer.  Statistically, people with higher credit scores, larger mortgages and/or multiple properties are more likely to walk away.  They seem to have adopted the attitude that ” it’s just business.”

Are you waiting for lower mortgage rates?  Don’t be silly.

Mortgage rates have started to creep slowly northward these past couple of weeks. The normal volatility associated with stock trading and economic news seems like it has produced more upticks than down.  The government has indicated that it will stop buying mortgage securities by the end of the first quarter of 2010,  and analysts are predicting that this could push rates higher by as much as a full percentage point.

Today’s FOMC meeting may offer clues about the Fed’s plans.  Futures pricing is supporting the speculation about higher rates by early next year.  ADP’s employment data this morning is suggesting that the economy is shedding fewer jobs, suggesting that the recession is slowing for the turnaround.  Rates are up slightly this morning.

So, get ‘em while they’re hot.  By next Spring, today’s rates may be a thing of the past…

It  looks like this is gathering momentum…

Senate May Approve Tax Credit Wednesday
The U.S. House and Senate are close to an agreement to extend the home buyer tax credit due to expire at the end of this month.

The Senate is expected to vote Wednesday while the House could approve it later in the week – likely before Friday when the monthly report on the unemployment rate will be released.

The measure that is slated to pass would cover homes under contract by April 30. Also, anyone taking the credit from a home purchased in 2010 would be able to take the credit when they pay their 2009 taxes.

First-time home buyers would be eligible for $8,000, but purchasers don’t have to be first-time buyers. Anyone who has owned a home for at least five years could get a $6,500 credit on a new residence.

Income limitations rise under the new plan with individuals earning up to $125,000 a year and couples earning up to $225,000 eligible. People who earn more would be eligible for smaller credits.

Source: The New York Times, Jackie Calmes (11/4/2009)