Mortgage Matters Carolina Home Mortgage “Helping You Make Carolina Home”

Government Plan #1—Fix the Credit Markets #2—Slow Down Foreclosures #3—Encourage Home Ownership

#1 Fix Credit Markets Encourage banks to lend TARP money Working through Fannie Mae, Freddie Mac & HUD A Brief History What Happened The Response

The Response ? Risk Based Pricing If you don’t have a 740, your rate/points will be adjusted on conventional loan programs. For Example—last year an 80% LTV purchase with 670 credit, no hit. This year, same scenario. 2.5% points. Investor pricing is outrageous! Also, last year you could finance 10 properties, this year the max is 4.

What has changed? EVERYTHING!!!!

Used to… have 100 programs, now we have a few.

Used to be… easy to get a Home Equity Line of Credit

Used to be… appraisals were accepted, now they are questioned. Their mentality is values are going down everywhere!

Used to be… if we got an electronic approval we were good to go, now lenders have guideline overlays and will invent new ways to say no if they don’t like the loan.

Used to be… we could close in 10 days, now you better give us

Used to be… jumbo rates were about a half percent higher than conforming, now it is one and a half.

Used to be you could do back to back closings the same day, now it is risky.

Used to be banks were in the business to lend, now they want to hold their cash.

The Mortgage Climate It used to be… “how can we get this done”. Now, it’s “there’s a problem and we’re going to find out what it is”.

# 2—Slowing Down Foreclosures Home Affordable Refinance Home Affordable Modification

Home Affordable Refinance Available to 4 to 5 million homeowners Must have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their LTV.

Home Affordable Modification Program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Allows for modification of their rate & term For particulars: eFannieMae.com Freddiemac.com

#3 Encourage Home Ownership 2009 Tax Credit HUD (Government Loan Programs) USDA, FHA & VA USDA & VA 100% financing FHA 96.5% financing

2009 TAX CREDIT The American Recovery & Reinvestment Act of 2009 authorizes a tax credit for qualified First Time Home Buyers purchasing a primary residence Tax Credit =10% of the purchase price (up to a maximum of $8,000) Eligible Dates: Jan 1 –Dec

Income Qualifications: Single taxpayers with incomes up to $75,000 married couples with incomes up to $150,000 qualify for the full tax credit If you earn more than the limits, you may be eligible for a modified tax credit. (Talk to your CPA for further info)

Definition of a First-Time Home Buyer The law defines a "first-time home buyer" as a buyer who has not owned a primary residence during the past 3 years. For married couples, the law tests the ownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a primary residence, you’re both disqualified. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such may occur if a parent jointly purchases a home with a son or daughter. Owning a vacation home or rental property does not disqualify a buyer as a first-time home buyer.

How does the 2009 Tax Credit differ from 2008? The most significant difference is that the 2009 tax credit does not have to be repaid. The previous 2008 "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a primary residence for at least three years or face recapture of the tax credit.

Is a Tax Credit the same as a Tax Deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

Government Loan Programs USDA FHA VA

USDA Eligibility USDA financing is property & income specific. Property: this means that the property itself must be in an approved area. For example, all of Chatham County qualifies. Website: Income: income limitations are based on the number of people who will occupy the home. For example: A family of 4 can earn $82,000 year and be eligible for 100% financing, allowing them to buy a house up to approximately $325,000. (these income limitations may be increased even further in April 2009)

USDA Guidelines Max financing: 100% Occupancy Type: Primary Residences Only Loan Limits: $417,000 Minimum Credit Score : 580 & Auto- approval

FHA General Guidelines Max financing: 96.5% (effective Jan 1, 2009)was 97% Occupancy Type: Primary Residences Only Loan Limits: Durham, Orange, Chatham—$331,250. Wake, Franklin, Johnston— $295,000 Minimum Credit Score : 600, but effective March 13 th 2009, several lenders changed to a minimum of 620.

Did you know FHA allows non-occupying co-borrowers? Let’s say you have a client who is sending their child to UNC. As long as the child is living in the property, they can qualify for FHA financing. The parent(s) would be non-occupying co-borrower(s). The child would be the occupying borrower. The basic premise of this type of loan is that parental income & credit is used to qualify in order to help their child buy a home, establish mortgage history, avoid renting etc. The great news? The occupying borrower does not need to earn any income on FHA! (Conventional requires 10% down payment & income).

VA General Guidelines Max financing: 100% Occupancy Type: Primary Residences Only Loan Limits: $417,000 (you can actually go to 1 million with 5% down payment and you get to use conforming rates!) Minimum Credit Score : 600 & Auto-approval

Mortgage Insurance All these government programs have up- front mortgage insurance that is financed in (1.5 to 3.3% depending on the program & your individual financing scenario). Additionally, FHA has monthly mortgage insurance.

Gift Funds & Seller Contributions FHA, USDA & VA allow for seller paid closing costs up to 6% of the purchase price They also allow for gift funds. Borrowers can receive a gift for the down payment and/or closing costs. Gift funds must be from a relative.

Government Programs & Credit Scores There are interest rate adjustors for credit scores <620 on FHA & VA. These programs do not have any pricing adjustors for scores Someone with a 620 (D) score gets the same rate as someone with a 680 (B-)! Some lenders do give pricing incentives for scores over 720 (A)! Rates are great on these programs. FHA & VA were pricing at 5% on Friday. USDA was 4.875% (based on a score, 30 year purchase).

The Bottom Line? Put your clients in front of a loan officer before you take them to see houses! It’s a whole new financing world! Questions?