As reported on CBS news, and most recently in the SF Chronicle, the Housing Rescue Plan is expected to widely bypass most Bay Area homeowners. What’s the primary reason?

“Only a small percentage of Bay Area mortgage holders meet the criteria for the low-cost refinances being offered to help stabilize the housing market. To qualify, loans must have been for less than $417,000 if issued more than a year ago, and homes cannot be underwater by more than 5 percent…But that initiative is only available to people who took out so-called conforming loans of less than $417,000 and whose homes are not more than 5 percent underwater – meaning what they owe is not more than 5 percent greater than their home’s value. For instance, someone with a home now worth $300,000 who owes $315,000 could qualify for the refinance – but would be barred if the home’s value dropped further.” Read the full story here.

It’s not all bad news. The new Housing Rescue plan is reportedly dedicating $75 billion to help encourage lenders to cooperate with voluntary refinancing of existing loans that are not eligible for traditional refinancing. The most common reason I’m seeing for that is appraisals that are not penciling out for a new lender. Additionally, a reported $200 billion is dedicated towards helping Fannie Mae and Freddie Mac keep new loans flowing and mortgage rates low.

Bottom line – if you are looking to take advantage of the current interest rates and cannot refinance traditionally – be prepared to spend some time on the phone. There are companies that have sprung up all over the state offering to negotiate with your bank on your behalf, for a fee, but there are just as many people who are falling victim to fraud by such companies. I personally cannot recommend trying that route.

My best advice is to be patient, stay persistent, and if you get a jerk on the line, stay calm and call back to talk to someone else who is either better at their job, or just a more helpful person. I never cease to be amazed how well that works…

STIMULUS SUMMARY—THE WHOLE BILL

President Obama signed the $787 billion American Recovery & Reinvestment Act into law Tuesday, February 17. Funds will be allocated as follows, and consumers can track spending and time lines at http://www.recovery.gov/. The site is a pretty clever re-branding of the package that was branded as wasteful by a unified Republican minority in Congress. These categories aren’t fully defined on the site yet, and this doesn’t include a roughly $1 trillion bank rescue plan that’s forthcoming from Treasury. I cover the housing highlights in a separate section below.
Tax Relief: $288b. State and Local Fiscal Relief: $144b. Infrastructure and science: $111b. Protecting the Vulnerable: $81b. Health Care: $59b. Education and Training: $53b. Energy: $43b. Other: $8b.

STIMULUS SUMMARY—HOUSING PROVISIONS

Below are summaries of key housing provisions of the American Recovery & Reinvestment Act. Housing help that’s not in the Recovery Act explicitly but seems likely to fall in the “Protecting The Vulnerable” category** (unless it is part of the Treasury plan) is a $50b investment plan for borrowers who haven’t yet been late on mortgage payments but are struggling. This is great for individual homeowners and critical for housing overall to stop the foreclosure spiral and stabilize home prices—foreclosures are estimated to top two million this year.

$729,750 Loan Limit Returns: FHA and Conforming loan limits we saw last year for high-cost areas have been restored. But please note that this change will take a few weeks for lenders to implement and price. Remember: the spreads between $417k-cap and $729k-cap loans were a lot wider than the current $417k vs $625k spreads. Note also that reverse mortgage limits have been increased from $417,000 to $625,500.

First-time Home Buyer Tax Credit: The tax credit for first time home buyers was increased from $7500 to $8000 for homes purchased between January 1, 2009 and December 1, 2009. A tax credit is equivalent to money in your hand, whereas a tax deduction just reduces taxable income. The credit no longer needs to be paid back as long as you live in the home without selling it for 3 years. The $7500 version of the credit expired on July 1, 2009, and required home buyers to pay the funds back over a 15 year time frame. If you bought the home in 2008, the credit remains $7500, and it still needs to be paid back over a 15 year time frame beginning in 2011 when you file your 2010 returns.  The credit phases out for couples making over $150k or singles making over $75k. The credit remains refundable. This means that first-time home buyers who owe less than $8000 in taxes for the year are still eligible for the full $8000 credit when they file their tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill. The credit can be claimed on your 2008 tax returns that you file by April 15, 2009, even if you buy the home in 2009.

Home Improvement Tax Credit: The tax credit for making energy efficient home improvements is now 30% of the cost of the improvements up to a maximum of $1500. Eligible improvements include energy efficient exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. Generally, your home improvement contractor and/or the manufacturer selling the improvements issues a certification that clarifies whether the improvements meet the necessary standards for energy efficiency. Most modern windows, furnaces, and air conditioners meet these requirements.

RATE UPDATE

Zero-points rates on conforming loans up to $417k and super-conforming loans up to $625,500 have improved to start this week as stocks have sold off and mortgage bonds have rallied—when bond prices rise in a rally, yields (or rates) drop. With the government participating in mortgage bond markets, lenders are pricing more conservatively than market levels might suggest because it’s harder than ever to predict which way markets will move. So we continue to see favorable terms on points: one point gets .625% to .875% lower in rate, so borrowers break even on a one-point buy down in 12-18 months. Jumbos 30yr fixed loans for SFR loans from $729k to $5m are looking good at 6.625%.

Julian Hebron works for RPM Mortgage and can be reached directly at Julian@rpm-mtg.com

**Editors note –  Washington Mutual/Chase has just set up a brand new department dedicated to recasting loans solely for borrowers who have not defaulted on their loans.   I am told it is so new, many of the bank employees do not yet know of it. Being as I have many clients with Wamu loans, myself included, I’ll let you know if it works.