(information from Countrywide lender Michael Caputo)
Government announcements dominated the financial news this week. Updates on two major programs both were favorable for mortgage markets, and mortgage rates fell modestly during the week.
The most highly anticipated news concerned Tuesday’s speech from Treasury Secretary Geithner on the financial institution assistance plan. This “Financial Stability Plan” involves multiple programs to remove bad assets from banks’ books and to support new lending. It also contains funds to help prevent foreclosures. Investors were sorely disappointed by the lack of details about how the plans would work, however, and they responded to the uncertainty by purchasing relatively safer assets. The stock market plunged, while Treasury and mortgage-backed security markets rallied, pushing rates lower. Geithner suggested that more information about a plan to purchase troubled assets and a comprehensive housing program will be released in the next few weeks.
In the middle of the week, Countrywide/Bank of America made a material change to our jumbo pricing. With 30 yr fixed jumbo rates up to $1,000,000 in the mid 5% range, make sure you keep your clients up to date on the exciting changes to our pricing structure.
Later in the week, the House and the Senate agreed on a compromise $789 billion fiscal stimulus plan, which is expected to pass within days. The Obama administration estimates that the plan will create 3.5 million jobs. Both the House and the Senate had passed versions which were larger than the final compromise plan, and the reduction in scope helped mortgage markets. A smaller plan means that the government will have to issue less debt. Unfortunately, one of the spending cuts in the final plan was a provision for a $15,000 homebuyer tax credit, which came with an estimated price tag of $35 billion. Instead, the government will leave in place an $8,000 tax credit, applicable to only first time homebuyers. The primary change to the tax credit is that it will no longer need to be repaid. The estimated cost of this $8,000 tax break is less than $3 billion. There are several provisions in the overall stimulus package that will be beneficial and help stimulate demand for housing.
Chief among these is the $8,000 home buyer tax credit for new home buyers. While we are disappointed and would have preferred a more enhanced tax credit like the Senate version, the conferees did retain some key elements from the Senate and made other modifications that are beneficial to home buyers and home builders. For qualified home purchases in 2009, the legislation:
Stipulates that the $8,000 tax credit does not have to be repaid, unlike the tax credit passed last summer;
Keeps the tax credit refundable, or claimable regardless of tax liability;
Extends the sunset date from July 1, 2009 until Dec. 1, 2009 so that consumers can utilize it during the critical summer and fall buying months;
Allows tax credit home buyers to participate in the mortgage revenue bond program; and
Permits state housing finance agencies to help buyers at closing by advancing the credit amount as a loan using tax-exempt bond proceeds.www.federalhousingtaxcredit.com is being updated to reflect the new changes. By Tuesday, you should be able to direct your clients to the site for all the tax credit information. The FAQ section is very comprehensive and should be able to answer most of you buyer’s questions.
On Wednesday, the President will outline his plan to help slow the wave of foreclosures. With 10,000 foreclosures a day, the administration is set to pledge up to $50 billion to help more homeowners avoid foreclosure. The major money center banks all announced plans to stop foreclosing on owner-occupied units through March 6th until the President’s new plan can be rolled out.