Tax credit extended and expanded

The government has just extended and expanded tax credits for home buyers - and not just those buying for the first time.

• First time home buyers can now receive an $8,000 tax credit through April 30, 2010
• Home buyers who have lived in their residences for five years may now receive a credit of $6,500
• The tax credit is now available to individuals earning up to $125,000, or $250,000 for couples

Today President Obama signed into law a bill that extends the $8,000 home buyer tax credit to April 30, 2010. Income limits for eligible home buyers have been increased to $125,000 for singles and $225,000 for couples. The new bill also expands the tax credit to include home owners who have lived in their primary residence at least five of the last eight years. Existing owners who sell their current home and make a home purchase will earn a tax credit of $6,500. Qualifying homes must have a purchase price at or below $800,000.

As the original November 30th deadline of the tax credit approached, many industry leaders and experts expressed a strong desire for an extension. The National Association of REALTORS® (NAR) forwarded more than 500,000 letters to congressional leaders and last week made close to 13,000 calls to Senate offices in an attempt to garner necessary support for the bill. Sen. Johnny Isakson (R-Ga.), who played a key role in pushing the original tax credit through Congress, also made a significant contribution to the extension.

This new legislation comes one week after the House and Senate passed legislation to extend the current loan limits for FHA, Freddie Mac and Fannie Mae through December 31, 2010. Current loan limits of 125% of local area median home prices (with a cap of $729,750) would have expired on December 31, 2009. Had this extension not been passed, many markets would have experienced a reduction in case loan limits.

NAR economists estimate that approximately 2 million people will take advantage of the tax credit in 2009.

Senate reaches deal on tax credit for home buyers

A deal has been reached in the Senate that would extend the home-buyer tax credit, Senate aides said. The $8,000 credit for first-time buyers would be made available for a longer period, and a new credit of up to $6,500 for some existing homeowners would be created. The new credit would go to home buyers who have lived in their present place of residence for five of the past eight years. But it is not clear that the bill can pass the Senate, nor is there agreement from lawmakers in the House.

more at http://online.wsj.com/article/SB125678511901015147.html#mod=todays_us_page_one?mod

Washington wrangles over home buyer tax credit

With the November 30 expiration of the First-Time Home Buyer Tax Credit fast approaching, the wrangling in Washington over whether to extend the program is getting mighty interesting.

In early September, Senator Johnny Isakson, the patron saint of the National Association of Realtors (and a guy who made his fortune selling real estate) teamed up with Senator Christopher Dodd to back a plan that would increase the current $8,000 credit to $15,000, make it available to all homeowners (not just first timers), and double the income-eligibility rules.

Sen. Johnny Isakson (R-Ga.)

By last week Senator Isakson had reined in his proposal a bit, settling (for the moment at least) on an $8,000 credit through June 2010. But the provision to make the credit available to existing homeowners is still on the table, as is doubling the income limits to $150,000 for individuals and $300,000 for married couples.

The smoke signals out of the White House suggest some concern about more government spending. HUD Secretary Shaun Donovan told a Senate hearing last week that while the current credit has obviously helped the housing market, the Administration wanted to carefully weigh the costs and benefits of extending the home buyer tax credit.

Isakson better hope the White House doesn’t carefully read a Brookings Institution smackdown of the home buyer tax Credit cost-benefit. Brookings’ Ted Geyer estimates that about 85 percent of people who are expected to use the 2009 homebuyer credit would have bought anyway, and the taxpayer cost to generate additional home sales works out to a hefty government subsidy of $43,000 per sale.

If the credit does see the light of day into 2010, let’s hope oversight is tightened a bit. The IRS reported last week that it is pursuing more than 100,000 cases of potential fraud, including one case of a four-year-old claiming the credit.

How can I increase my FICO score?

Increasing your FICO® score may take time and often there is no quick fix. FICO scores reflect credit payment patterns over time with more of an emphasis on recently reported information than older information. Below are some general tips to follow that may increase your FICO score:

• Focus on the negative factors provided with your FICO score. These represent the main areas where your score could be higher.
• Apply for and open new credit accounts only as needed. Don't open accounts for the purpose of providing a better credit picture – it probably won't raise your FICO score and, in some instances, may even lower your score.
• Pay off your bills on time. Delinquent payments, even if only a few days late, and collections can have a major negative impact on your FICO score.
• If you have missed payments, get current and stay current. The longer you pay your bills on time after being late, the more your FICO score should increase. Older credit problems count for less, so poor credit performance won't haunt you forever. The impact of past credit problems on your FICO score fades as time passes and as recent good payment patterns show up on your credit report. And good FICO scores weigh any credit problems against the positive information that says you're managing your credit well.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This will not improve your FICO score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time. And seeking assistance from a credit counseling service will not hurt your FICO score.
• Keep balances low on credit cards and other "revolving credit". High outstanding credit card debt can negatively impact your FICO score.
• Pay off debt rather than move it around from one credit card to another. The most effective way to increase your FICO score in this area is by paying down your total revolving (credit card) debt.
• If you have had problems in the past, re-establish your credit history by opening new accounts responsibly and paying them on time.
• Manage credit cards responsibly by keeping balances well under the credit limit. In general, having credit cards and installment loans (and making timely payments) will raise your FICO score. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.
• Do your rate shopping for a loan within a focused period of time. FICO scores distinguish between a search for a mortgage or auto loan, where it is customary to shop for the best rate, and a search for many new credit cards.
• Don't close unused credit cards as a short-term strategy to raise your FICO score. This approach could backfire and actually lower your FICO score.
• If you have been using credit for only a short time, don't open a lot of new accounts too quickly, as rapid account build-up can look risky to a lender.

A decline in existing-home sales

Resales of U.S. homes dropped 2.7% in August to a seasonally adjusted annual rate of 5.1 million, the first decline in five months, prompting the National Association of Realtors to again plead for more taxpayer subsidies for their business. Most economists had not been anticipating a decline in sales. The median forecast by economists surveyed was for a small gain, to a 5.40 million annual rate.

more at

http://www.marketwatch.com/story/existing-home-sales-drop-27-to-510-million-2009-09-24?siteid=nwhwk

10 Tips to Navigating the Mortgage Minefield

“Lowest mortgage rates in 30 years!” Have headlines about once-in-a-lifetime rates and stimulus plan incentives tempted you? Have you checked your credit and decided the time is right to buy? Check these ten steps before you venture out to your mortgage broker and you’ll be ahead of the game!

1. Start with your credit report
The first thing lenders will probably do when you apply for a mortgage loan is to check your credit; you should, too. There’s no better time for regular credit monitoring than when you’re trying to prove your creditworthiness to a lender so you can get the best possible rates. You want to make sure that your credit report is as accurate as possible, your scores are where you want them to be, and no one else is getting access to your credit, possibly harming your scores.

2. Then, get things in order
Once you’ve been keeping regular tabs on your credit report, you’ll be able to see how you’re doing. Dispute any inaccuracies with the 3 credit bureaus and get everything cleared up. If your debt-to-credit ratio is too high, monitoring your score over time will show you how your score might change. If you see accounts that you didn’t open or addresses that aren’t yours, take immediate steps to investigate what could be identity fraud.

3. Do your homework
Yes, the word “homework” makes us shudder too, but this time the reward is much bigger than memorizing geometry theorems or the periodic table. You’re finding a home but you’re also making a financial commitment you’ll have to live with for years: get the best deal you can. Research loans, rates and brokers exhaustively before you sign or commit to anything. Doing the hard work now will pay off down the road with a better rate and terms.

4. Be realistic about what you can afford
Home ownership may be the American dream, but keep one foot on the ground, too. If you’re looking for a rate that will require you to come up with a 20% down payment and you only have about 5%, figure your calculations based on the rate you’ll be able to get.

5. Understand how lenders operate
Your credit score, on which lenders base much of their decision about your loan amounts and rates, is a reflection of their confidence in your ability to repay them. In a nutshell, the higher your credit score is, the easier it will be to get the amount and rate you want.

6. Decide how you’ll finance it
Once you research the types of financing available, determine which is best for your financial situation: 15-year mortgage or 30, adjustable or fixed. If you are looking for security and a guarantee that payments won’t increase, a fixed rate mortgage might be the way to go. If you believe mortgage rates could still fluctuate and you want more flexibility, consider an adjustable rate mortgage.

7. The larger your down payment, the wider your options
See number 4, it’s important to be realistic. So within a realistic framework of what you can afford, the more you put down, the better your terms. The days of zero down payments, especially on a mortgage, seem to be winding down. Putting more money down up front will help ensure you pay less each month.

8. Check on pre-payment penalties
Something else to keep in mind when finding your perfect mortgage is whether or not you’ll be penalized for paying the mortgage off early. Some homeowners double up on payments to reach the end of their term sooner—regularly or when they experience a cash windfall. Check and make sure you won’t be dinged for actually getting to your goal sooner!

9. Take a targeted, rather than shotgun approach to mortgage applications
Remember that whenever you apply for a loan, including a mortgage, the “hard inquiry” the lenders make shows up on your credit report and temporarily lowers your score. Applying for several mortgages in a two week period only counts as one inquiry, but if you drag it out and canvas as many lenders over a longer period, you’ll end up doing damage to your score, which could result in a lower rate than you were hoping for.

10. “Not now” doesn’t mean “never”
Home ownership is just not a realistic option for everyone right now, despite what may look like once-in-lifetime mortgage rates. If you fall into this category, don’t despair. Your financial circumstances could change, the economy is still very much in flux, and remember that the current mortgage crisis involved a lot of home buyers getting in over their heads. When it comes to a major purchase like a home, timing is critical.

Delinquent loan rate jumps in Chicago area

The epic commercial real estate hangover for banks is getting worse.

The delinquency rates for Chicago-area commercial mortgages along with construction and land loan delinquencies jumped again in the second quarter and could rise well into 2010 even as the economy improves. That means local banks aren’t likely to start making commercial real estate loans any time soon.

The delinquency rate on local commercial mortgages climbed to 6.1% in the second quarter. That’s up sharply from 5.6% in the first quarter and nearly double the year-ago quarter, when the rate was 3.6%, according to Foresight Analytics LLC, an Oakland, Calif.-based research firm.

Chicago now has the third-highest rate among the biggest 100 metropolitan areas, eclipsed only by Jacksonville, Fla., and Miami. Nationwide the rate now stands at 4.3%, and Foresight predicts it could climb above 6% next year.

For construction and land loans, which includes lending for condominium projects, the delinquency rate in the Chicago area is now a staggering 21.2%. That’s up from 18.2% in the first quarter and 10.8% in the second quarter last year.

Chicago’s construction and land loan delinquency rate ranks 12th-highest among the top 100 metros; the nationwide rate is 17%.

Foresight sees the national rate eclipsing 20% by the end of the year and peaking in 2010 at about 25%, says Foresight Partner Matthew Anderson.

“Banks are definitely focused inward on their existing portfolios,” Mr. Anderson says. “Until there’s a sense we’re either nearing or have reached a bottom, fresh credit for commercial real estate is going to be very constrained.”

Mr. Anderson says even as credit eases in other sectors of the economy, the availability of commercial real estate loans will lag. That’s a problem likely to stretch into 2011, when a massive wave of commercial mortgage-backed securities issued in 2006 — at near-peak valuations — comes due and borrowers will scurry to refinance those loans.

With the big decline in property values, some of those properties are sure to be worth less than what’s owed.

“That’s setting up a refinancing problem for commercial real estate,” Mr. Anderson says. “There’s going to be a gap between what financing is available and what is needed to replace existing debt. It’s going to wear on the market for several years.”

Foresight, which compiles its data from regulatory filings, defines delinquent loans as those 30 days or more past due. The firm calculates a rate by dividing the dollar amount of the delinquent loans by the value of all outstanding loans.

The Federal Deposit Insurance Corp. announced Thursday that at the end of June, 416 banks were on its “problem list,” meaning they’re at risk of insolvency. The list was at 305 banks at the end of the first quarter and just 117 at the end of the second quarter last year.

The agency, which insures bank deposits, says 84 banks have failed so far this year.

“We expect the numbers of problem banks and failures will remain elevated, even as the economy begins to recover,” FDIC Chairman Sheila Bair said in a statement.

FDIC-insured banks charged off $48.9 billion in uncollectible loans during the second quarter, up from $26.4 billion in the year-earlier quarter. Meanwhile, non-current loans and leases totaled $332 billion, or 4.35% of total loans and leases, according to the FDIC.

Banks are holding more than $34 billion worth of repossessed real estate, according to a Wall Street Journal analysis of FDIC data. The banks’ pools of foreclosed properties climbed 12% from the prior three months and are up 72% from a year ago, the newspaper reported.