Figuring out the home-buyer tax credit

Is there a home-buying tax credit in your future?

Columnist Kathy M. Kristof details the changes that will allow millions of additional people to take advantage of the $8,000 tax credit for first-time home purchasers, under legislation signed Friday by President Obama. The new law raises the income restrictions for first-timers, creates a $6,500 credit for longtime homeowners and launches more-accommodating rules for members of the military.

The fine print, particularly for current homeowners, can be more than a little confusing.

If you have owned and lived in a home for at least five consecutive years of the last eight years, you could qualify for a $6,500 tax credit, if you buy a new home between now and April 30.

The "five-of-eight" requirement means that this credit could accommodate people who lost their homes in the last year or two to foreclosure or even sold a house and didn't immediately replace it, said John. W. Roth, senior tax analyst with CCH Inc., a Riverwoods, Ill., publisher of tax information.

Would you have to sell your residence for it to qualify for the $6,500 credit, if you wanted to buy a new one? Not necessarily, Roth said. The home you purchase must become your principal residence, so you would have to move there. But nothing in the law says you cannot keep your existing residence as a second home or rental, he said.

If you do choose to sell your existing residence, you need to pay close attention to how much you earn on that sale, Stretch said. That's because taxable profits from the sale of your residence will be added to your other earnings to determine whether your adjusted gross income exceeds the allowable thresholds.

To read more, click here.

-- Nancy Rivera Brooks

 

BofA says it will meet goals under Obama foreclosure plan

The big banks that provide customer service on most U.S. home loans had egg on their faces in August, when the U.S. Treasury reported that they had made little progress toward modifying mortgages under President Obama’s then-newly implemented anti-foreclosure program.

The No. 1 servicer, Bank of America Corp., was the slowest of all to generate what the administration called Making Home Affordable modifications. Bank of America had offered three-month trial modifications to just 4% of the customers deemed likely to qualify, compared with 9% for all servicers combined, the Treasury announced.

The Treasury is set to release its third monthly report on the program Thursday. And this time, Bank of America says that it has gotten up to speed and will meet an Obama-set goal of starting 125,000 trial mortgage modifications by Nov. 1. (In all, the company services 14 million home loans.)

Bank of America, including the Countrywide Home Loans operations it acquired last year, had started more than 27,000 Obama-style trial modifications as of the end of July. That number reached 59,000 by the end of August, about 95,000 as of Sept. 30, and is now well above 100,000, said Steve Bailey, the bank’s home-retention strategies executive.

"Obviously, we’re feeling pretty good about the program," Bailey said.

Before the federal foreclosure-prevention plan emerged, Bank of America already was doing loan modifications to comply with its settlement of lawsuits brought against Countrywide by state regulators.

That program involved lowering and suspending interest payments, as well as extending the payback time on certain subprime and exotic loans. The goal was to get first-mortgage payments down to 34% of borrowers’ incomes.

The Obama program introduced some twists, including bonuses for borrowers who stay current on loans and paying servicers to reduce the first-mortgage payments (including taxes and interest) down to just 31% of borrowers’ gross earnings.

It also mandated the three-month trial modifications, during which time borrowers would prove they could make the lower payments and provide additional documentation before qualifying for long-term loan restructurings.

Bailey said Bank of America had done hundreds of thousands of modifications outside the Making Home Affordable plan, although the federal program is its first alternative these days.

It wasn’t possible to obtain details Wednesday on how modifications are going at mortgage rivals Wells Fargo & Co. and JPMorgan Chase & Co.

But there should be a lot more information Thursday in the Treasury report, which presumably will be posted on the department’s press release site.

-- E. Scott Reckard

Are loan modifications merely postponing default?

Consumer advocates expressed some skepticism today about a Fitch Ratings study predicting a high redefault rate for mortgages that are restructured to avert foreclosure.

The study, which I wrote about in today's Times, looked at mortgages bundled up on Wall Street during the housing boom to back debt securities. It projected that 65% to 75% of subprime mortgages in these loan pools would be at least 60 days delinquent within a year of when they were modified.

Center for Responsible Lending officials said the study doesn't adequately account for the more drastic lowering of payments expected as Obama administration loan-mod programs kick in. The buzzword here is "sustainability" -- getting the loan payment to a level at which the borrower can realistically be expected to afford it over time.

The Obama programs aim at persuading lenders and loan investors to reduce payments on first mortgages to 31% of a borrower's income. The initiatives include financial incentives for mortgage customer-service firms to accomplish this by lowering interest rates, extending loan terms and sometimes suspending interest payments on part of the principal of the loan.

"The Fitch report applies to non-Obama plan mods," Center for Responsible Lending spokeswoman Kathleen Day said in an e-mail. "So this just shows the need for real sustainable mods."

Any thoughts on whether Fitch was overstating the potential problems?

-- E. Scott Reckard

Online town hall references refi lifeline

Was this online town hall question for the president from L.A. Land? From the Associated Press:

WASHINGTON -- As rates on 30-year mortgages fall to their lowest levels on record, President Barack Obama is pointing to refinancing as a lifeline for homeowners being stung by plunging home values.

Obama was asked as part of his first online town hall meeting about what help is available to Americans who are still making their mortgage payments but are struggling. He replied that his administration has made it easier for Americans to refinance. He says 40 percent of mortgages are now eligible for refinancing. And he said homeowners need to take advantage of that.

Obama says the number of refinanced mortgages is already starting to go up "significantly."

He says it's a way for homeowners to cut their monthly payments.

Commenter RZ, who watched the event, reports on the earlier thread that very few questions were asked and only the one regarding housing.

-- Lauren Beale

Thoughts? Comments?

Photo: President Obama holds the first online town hall done in the White House. Credit: Ron Edmonds / Associated Press

Take your housing complaints to the president

Got a beef about housing prices, loan mods, jobs or otherwise? The White House is standing by to field your comments .

The White House is inviting you to post your questions on the economy and vote on submissions from others. The President will answer some of the most popular in an online town hall on Thursday.

Those of you who would like to let us know what you sent can post it here too. Thanks to commenter NoHoDolphin, who alerted L.A. Land on another thread.

-- Lauren Beale

Thoughts? Comments?

Photo: President Barack Obama speaks during a town hall meeting  March 18 at the Orange County Fairgrounds in Costa Mesa. Credit: Luis Sinco / Los Angeles Times

More housing help for California?

The fact that California won't be helped as much as most states by President Obama's housing plan hasn't been lost on folks. "Obama administration is urged to expand mortgage rescue," at latimes.com today, looks at one lawmaker's call for expanding the parameters of the plan:

Amid concern that many Californians would not qualify for assistance from the federal anti-foreclosure plan, a powerful state legislator called on the Obama administration to make more homeowners eligible.

The plan limits federal refinancing assistance to people who owe just a small amount, 5% or less, over what their homes are worth.

But Assemblyman Ted Lieu (D-Torrance), who has a strong interest in lending issues, said Friday that that's not enough to help Californians, many of whom owe significantly more than that.

"Many distressed homeowners in California are underwater by more than 5% on their home loan, which makes them ineligible to apply for refinance assistance," said Lieu, author of a state foreclosure moratorium law that Gov. Arnold Schwarzenegger signed last week.

As for the California Foreclosure Prevention Act, you can read Lieu's news release or the text of the bill for details. Basically, either the lenders offer loan modifications or they are subject to a 90-day foreclosure moratorium. This applies to owner-occupied homes at the time of delinquency, first mortgages issued between Jan. 1, 2003, and Jan. 1, 2008, and -- further muddying the waters on who will benefit -- lenders can apply for an exemption. It sunsets on Jan. 1, 2011.

-- Lauren Beale

Thoughts? Comments?

Analyst: Why California won't get much housing relief

More on the limited help California may receive under Part 1 of the government's housing plan from "Obama plan to prevent foreclosures won't help many California homeowners" at latimes.com:

The Obama administration's plan to stave off foreclosures could fall flat in California, where nearly one-third of mortgage holders are underwater on their loans -- many of them by amounts that would disqualify them for government-sponsored refinancing.

The problem is likely to be especially acute in areas like the Inland Empire, where homes have lost more than 40% of their value in the last year and nearly half the homeowners owe more on their loans than the properties are worth.

"They're underwater by six figures in many cases," said Greg McBride, a senior analyst with Bankrate.com. "Many homeowners in Southern California are left to twist in the wind."

Under the Obama plan, people who are current on their mortgages could obtain new loans with lower rates for as much as 105% of the value of their homes. That means people could borrow $315,000 against a home worth $300,000.

The problem is that, in California, many people owe far more than 105% on their homes, McBride said.

Other than the earlier-this-week Zillow stat projecting only 9% of California mortgages met the parameters for assistance, I haven't seen another estimate. Anyone?

-- Lauren Beale

Thoughts? Comments?

Photo: A foreclosed home sits for sale in Merced, Calif. Credit: Kevin Thrash / Bloomberg News

Who's paying whose mortgage?

Bailout backlash is the subject of a Sunday Money & Co. blog item on a Tennessee Republican Party promotion. The TNGOP.org website asks those opposed to the "endless 'bailouts' and 'economic stimulus' packages" to show their displeasure by purchasing a bumper sticker that expresses their frustrations.

Problem is, the sticker says "HONK if you're paying my mortgage." Shouldn't that be "HONK if I'm paying your mortgage?"

-- Lauren Beale

Thoughts? Comments? 

Government plan to keep borrowers in their homes

President Barack Obama's announcement of the government plan to help owners stay in their homes is set for Wednesday. Some ideas on what it might include come from the Associated Press:

Details of the government's plan are not yet ready, but there is already plenty of chatter in the nation's capital about how it might work. Here are some questions and answers about the plan that's coming together.

Q: How might the government's plan work?

A: The plan is likely to feature hefty incentive payments designed to encourage the lending industry to lower mortgage rates or reduce the total principal amount owed by borrowers, a Democratic Senate aide briefed on the plan said Friday. The idea is believed to be attractive because it is expected to be far less expensive than having the government buy up troubled loans, which are often combined and divided into mortgage-linked securities that are owned by investors.

It was unclear, however, whether those government subsidies would be paid up front to companies that collect mortgage payments, or whether they would stretch out over several years. Those companies, known as loan servicers, have been roundly criticized for not being equipped for a massive surge in defaults and foreclosures.

Q: I'm paying my mortgage on time. Will I get help?

A: The plan is expected to help some borrowers who are not yet in default, though it's not clear how many. Mortgage companies are likely to analyze the level of debt held by borrowers for signs of financial strain. Based on those criteria, borrowers could get a lower interest rate, or possibly a lower principal amount.

Q: What are some of the pitfalls?

A: Directly subsidizing mortgage rates could be difficult because most delinquent loans are tied up in mortgage-linked securities, and it's unclear how long the subsidized payments would last, or how they would affect the value of those investments.

Also, designing an accurate test of who will be eligible is likely to pose problems because borrowers may be able to find ways to game the system in an effort to qualify.

This is the part that stumps me: How to determine who really needs help or who is gaming the system? Particularly with borrowers who haven't defaulted yet. The articles states the government is looking "to spend at least $50 billion" on foreclosure relief.

--Lauren Beale

Thoughts? Comments?

Obama: 'What we need is a floor in the housing market'

It didn't receive much notice, but Democratic presidential candidate Barack Obama (pictured) committed some news over the weekend when he told NBC News' Tom Brokaw, "What we need is a floor in the housing market, a, a stop to the decline in housing values." (Read the entire Obama-Brokaw exchange about housing at the bottom of this post.)

In some circles of Washington, and particularly the Democratic Party, this is not a controversial idea: that the government's goal right now should be to stop the decline in housing prices. But here in Los Angeles -- where housing prices remain high relative to income, and home ownership levels remain low relative to the rest of the country -- there are many who believe the government should stand back and let the market determine housing prices.

Example: The reader who calls himself "Home prices need to get lower," who wrote here earlier today, "My ray of hope is that home prices will continue to slide and housing will become affordable again." Another example: Reader "Manny," who wrote here today that he makes $90,000 and can't afford a decent house: "The markets are still not affordable. I hope more correction is on the way."

Will the new housing bill succeed in doing what Obama says is necessary? It's doubtful. Analyzing the bill this spring, the Congressional Budget Office predicted the housing rescue package would prevent some foreclosures but would not stop the historic decline in housing prices.

I eagerly anticipate hearing from the Obamatons on this one. Please try to stay on topic: Obama's belief that the government needs to put a floor under housing prices.

Continue reading for the entire exchange between Obama and Brokaw about federal housing policy.