Sunday, March 15, 2009
BY MARY AMOROSO
NorthJersey.com
SPECIAL TO THE RECORD

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Pulling housing out of its slump

Schoolteachers Jon and Eileen Kinne married in September, and immediately started going to open houses when they got back from their honeymoon.

"Moving to Oakland was a goal for us eventually down the road," said Jon. "We didn't think we would be able to do it for some time."

But they found low housing prices and low interest rates and a well-maintained three-bedroom ranch in Oakland that they were able to purchase for $355,000.
First-time home buyer tax credit

* WHO QUALIFIES: First-time buyers, people who haven’t owned a principal residence in the three years before purchasing the home. The principal residence may be a new or resale single-family home, condo, town home, mobile home or houseboat.

* AMOUNT: Ten percent of purchase price, up to $8,000.

* TIME FRAME: You must close on the home between Jan. 1 and Dec. 1 of 2009.

* INCOME LIMITS: Single buyers may earn no more than $75,000 and married buyers no more than $150,000 to claim the whole credit. Above those incomes, buyers qualify for a partial credit up to $95,000 in income for singles and $170,000 for married couples.

* HOW THIS CREDIT DIFFERS FROM A SIMILAR CREDIT OF 2008: You don’t have to pay this new credit back to the government over time.

* For more information on the new first-time home buyer tax credit, go to www.federalhousingtaxcredit.com.

* WHO QUALIFIES: Homeowners who are current in paying their mortgages, whose first mortgage is between 80 and 105 percent of the home’s value, and whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.

* TIME FRAME: The mortgage must have been originated before Jan. 1, 2009. The program runs until June 2010.

* LIMITS: The property must be owner-occupied. The primary mortgage must be no more than $729,750 for a single-family unit.

* WHO QUALIFIES: Homeowners who are either delinquent in paying their mortgage or who can no longer afford the payments, either because their interest rate reset or they suffered a hardship such as reduction in income or medical problems. The primary mortgage payment, including taxes, insurance and homeowner association dues, must exceed 31 percent of monthly income. The aim is to bring the primary mortgage payment down to 31 percent of monthly income by dropping interest rates, extending the loan period or even forgiving principal.

* TIME FRAME: The mortgage must have been originated before Jan. 1, 2009. Borrowers can apply until Dec. 31, 2012. Modified mortgage interest rates can drop as low as 2 percent for five years and rise gradually after that period.

* LIMITS: The property must be owner-occupied. The primary mortgage must be no more than $729,750 for a single-family unit. Borrowers are allowed to have their mortgages modified only once.

* INCENTIVES: The program is largely voluntary for lenders and mortgage servicers. There are cash incentives both for servicers to modify the loan and for borrowers (up to $5,000 over five years) who stay current with their modified mortgage payments. The Treasury Department promises additional incentives to reduce second mortgages when servicers are working to modify primary mortgages.

* SPECIAL CIRCUMSTANCE: When an applicant is at least 60 days delinquent, the servicer must modify the loan if doing so is less expensive than proceeding with foreclosure.

* For more information on the federal program Making Home Affordable, go to www.financialstability.gov.

Not only that, it turns out they will qualify for the new $8,000 first-time home buyer tax credit from the federal government when they close in the spring.

"The tax credit is another bonus," Jon said. "It's great. There's no negative to it. It was just one more reason to buy."

The credit is one of a recent flurry of government actions aimed at jump-starting the housing market and stemming the foreclosure tide. And while the tax credit is great news for people like the Kinnes, other initiatives aren't so popular, or so clearly understood.

Housing counselors and mortgage brokers in New Jersey are fielding a barrage of inquiries from people hoping to get in on the new Obama plan for mortgage refinancing or modification.

"We're overwhelmed with calls," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, the state's largest HUD-certified counseling program. "Everybody thinks they qualify for everything. Very few people understand that, in the Obama plan, certain parts are for people current on their mortgage. Certain parts are for people whose mortgages are through Fannie Mae and Freddie Mac. We're spending hours just doing triage."

Realtors, builders and accountants say that the first-time home buyer tax credit has created a stir and gotten people out house-hunting. Still, because it's limited to first-timers, it won't help all segments of the market.

Some North Jersey Realtors note that the new programs and proposals don't do much for the higher end of the market, where homeowners are also struggling.

For example, the Making Home Affordable mortgage refinancing program for delinquent and struggling homeowners does not apply to jumbo loans of more than $729,750.

Meanwhile, Obama's federal budget proposal would, effective in 2011, set new limits on mortgage interest deductibility for those making more than $250,000 a year.

"The move-up business is still pretty much dead in all towns in our area," said Realtor Jeff Adler of Re/Max Legend in Mahwah.

Sal Poliandro of Re/Max Properties in Saddle River adds: "When you look at Bergen County, there are a lot of people who make $250,000 or more. I'm not sure you would necessarily consider them wealthy. If you bought a $5 million house a couple of years ago, it's now worth $2.5 million If you make $300,000 a year and you lose your job, you can't go on monster.com and replace that job."

The refinancing part of the Making Home Affordable program is aimed at helping people in their primary residence who are current in their mortgage payments but who have been unable to refinance to a better rate because their equity evaporated as home prices have dropped.

The program applies only to mortgages backed by the government-supported mortgage giants Fannie Mae and Freddie Mac, and only to mortgages that are between 80 percent and 105 percent of the home's current value. So if you are seriously "underwater" – your mortgage is more than 5 percent greater than current home value – this program won't help you.

Dan Shlufman, president of FCMC Mortgage Co. in Clifton, said he has a client who has an 8.5 percent interest rate on a $208,000 mortgage who has been unable to refinance because her home value has dropped to $215,000, an almost 97 percent loan-to-value ratio. The new program should help that homeowner, he said.

He is more concerned about the people with mortgages in the 5.5 percent to 7 percent range, a significant group in North Jersey. In the past, he said, Fannie Mae has required increasing rates by 0.25 percent and more for mortgage holders considered riskier, including those with less equity. Will rates be higher for those with 90 percent loan-to-value ratios, and even higher for those with 100 percent loan-to-value ratios? If so, a homeowner may not end up with a better mortgage rate after all.

"In the past, Fannie Mae put too many controls and banks were unable to lend," Shlufman said. "I hope they're smart enough to help the homeowners and don't frustrate [the program's intent] by putting on extra charges and requirements."

One extra charge that won't be included: private mortgage insurance. It has generally been required if the loan is more than 80 percent of the home's value. But a release from Freddie Mac says mortgage insurance is not required for refinancing if the existing mortgage doesn't have it. If mortgage insurance is already in place, coverage on the new loan must be the same as on the existing loan.

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