Congress Passes Housing Rescue Bill > Texas Gulf Coast Real Estate

Whether you are a home owner, a renter or a potential home buyer, the housing stimulus bill will likely affect you.

Home buyer tax credit. For first-time home buyers, a tax credit will reduce taxable income the first year after buying a home and will help provide a bigger refund or a lower tax bill.

With this incentive, many home buyers who have been sitting on the fence will dive into the market. Homes sitting on the market will sell, home sellers will buy new homes, demand will increase, and home prices will stabilize. Stable home prices allow existing home owners to refinance if needed or sell their home without taking a loss on their biggest investment.

FHA modernization. The Federal Housing Administration (FHA), an agency of the federal government, helps borrowers with less-than-ideal credit ratings or limited down payment cash get affordable mortgages. As the program stands now, taxpayers could end up paying some of the costs of the program’s outdated systems and procedures.

The bill will increase limits on FHA-approved loans to match current home prices and allow the agency to insure more homes in high-cost markets. It also includes a new FHA foreclosure prevention program to provide new loan guarantees to help as many as 400,000 at-risk borrowers stay in their homes.

GSE reform. Freddie Mac and Fannie Mae are government-sponsored enterprises (GSEs) that buy mortgages from lenders; giving them the cash needed to make more loans to home buyers. Changing the way they are regulated will enable them to offer more loan programs and make more funds available for home purchases or to refinance troubled loans to be available to home buyers and owners.

Mortgage revenue bond program. Foreclosures, which are making the news headlines every day, can be lessened with the expansion of the mortgage revenue bond program. This will help low- and moderate-income families and individuals finance the purchase, rehabilitation or improvement of single-family residences, which will mean that fewer homes will go into foreclosure. It will also provide more mortgages for first-time home buyers.

Low income housing tax credit modification. This program provides incentives to builders to construct affordable rental housing, which helps Americans save enough money to eventually become home owners. But builders trying to stay in business in the current economic downturn can’t afford to build these types of units.

Modifying this program is essential to expanding the supply of much-needed affordable rental housing and would also stimulate local economies through jobs, taxes and wages and salaries paid.

The American economy starts and stops with housing. This legislation will help jump start our economy and allow our country to get back onto the road to recovery.

Housing Bill Clears Senate, Awaits Bush's Signature

After months of stumbles and false starts, Congress has put its stamp on a package of measures lawmakers hope will give a boost to the housing sector, where high foreclosure rates and declining prices have had a ripple effect throughout the economy.

The legislation the Senate passed 72-13 in a rare Saturday session aims to bolster the sagging housing market and shore up Fannie Mae and Freddie Mac, which together back nearly half the nation's mortgages. The president says he'll sign the bill when it reaches his desk, early next week.

Senate Majority Leader Harry Reid said the bill offered a ray of hope and "a chance to turn the page on the housing crisis and begin a new chapter that gives more families a chance at the American dream of responsible home ownership."

The bill addresses the flood of home foreclosures brought about by overly aggressive lenders and homeowners who got in over their heads. It would give several hundred thousand qualified borrowers a chance to get lower cost government-backed mortgages, if their lenders go along. It authorizes the government to back up to $300 billion worth of such loans. It also provides nearly $4 billion for communities to buy foreclosed properties and resell them, along with tax credits to encourage first-time homebuyers.

Opponents of the measure said it represented an unprecedented government intrusion into the housing market.

"No matter what's wrong with [the bill], most of the members of this Senate are going to come in and vote for it," said Republican Sen. Jim DeMint of South Carolina, who single-handedly forced the Saturday session. "[They're going to] check the box and go home and say they did something for housing. I'm afraid they may compromise the future of America as they do it."

Conservatives were especially unhappy with the rescue plan for Fannie Mae and Freddie Mac, which the Bush administration said was crucial to restore investor confidence in the institutions. The bill will give the two mortgage backers an unspecified line of credit and will allow the government to buy equity in them should Fannie and Freddie need more capital.

It's unclear what the cost of all that will be to taxpayers, but Republican Sen. Kay Bailey Hutchison said Congress didn't get a very good deal.

"I am troubled by the inclusion of an unlimited U.S. Treasury credit line for Fannnie Mae and Freddie Mac, including the authority for the U.S. government to purchase stock in these private companies without the necessary intervention in their governance," she said.

But backers of the housing bill, led by Connecticut Democrat Chris Dodd said Congress had to do something.

"I can't promise it's going to work in every detail," he said. "I can't promise that we've designed a silver bullet here. All i can tell you is that … inaction was unacceptable. Doing nothing was intolerable, and what we've done here is fundamentally alter the way we do business when it comes to housing."

A spokesman said despite some misgivings over its provisions, President Bush will sign the bill because of the need for action now.

The Housing and Economic Recovery Act of 2008 opens up new homeownership opportunities for workers and will allow thousands of distressed residents to stay in their homes.

Under the bill--and under the guidance of a new regulator, Freddie Mac and Fannie Mae will enhance their purchases of affordable housing mortgages and step up their support of manufactured housing, housing preservation, and rural home development.

The new piece of legislation is a powerful lifeline that will bring stability to the housing market.

It has given critical new authority to FHA, and both strengthened Fannie Mae and Freddie Mac and updated their affordable housing missions.

Banks to Get a Boost From FHA Refinancing

Analysts say the housing bailout is a good deal for banks.

"The banks should be thrilled with this," says John Vogel, professor of real estate at Dartmouth College's Tuck School of Business. "This is as good a deal as they were going to get."

Banks will lose roughly $25,000 per home owner by selling their mortgages to the Federal Housing Administration, compared to losing about $64,000 per home owner, on average, by allowing homes to foreclose, estimates Ladenburg Thalmann analyst Richard Bove.

In all, banks will save about $16 billion if they let home owners refinance into mortgages issued by the FHA, Bove says.

Citigroup Inc. said it expects to participate in the refinance program, but that "once the final regulations are available from the agencies, we will be better positioned to evaluate the scope of our participation," a Citigroup spokesman said in a statement.

Wachovia Corp. and Washington Mutual Inc. also expressed support for the plan. A Wachovia spokeswoman said the bank "agrees that enactment of this legislation will help to stabilize and strengthen the housing finance system." A WaMu spokeswoman said it believes "this legislation will provide additional tools and expanded options for borrowers and lenders in addressing troubled loans."

PRESIDENT BUSH SIGNS LANDMARK HOUSING BILL INTO LAW

WASHINGTON, July 30 - Landmark housing legislation signed into law today by President Bush is aimed at ending the current cyclical downturn in the housing industry, helping home buyers and strapped borrowers and strengthening the housing finance system, according to the National Association of Home Builders (NAHB).

"This milestone bill contains several provisions to get home buyers back into the marketplace, stop the slide in home prices, provide a lifeline to borrowers facing foreclosure, improve mortgage liquidity and bolster confidence in Fannie Mae and Freddie Mac," said NAHB President Sandy Dunn, a home builder from Point Pleasant, W.Va. "We commend Congress and the President for taking this action to provide much-needed relief to the American people."
For the past year, NAHB has been in the forefront in pushing for legislation to address the turmoil in the financial and housing markets and to bolster the nation's faltering economy.

Senate Banking Committee Chairman Chris Dodd (D-Conn.), a chief architect of the bill, calls it "the most important piece of housing legislation in a generation."

Key elements of H.R. 3221, the Housing and Economic Recovery Act of 2008, include:

- A temporary first-time home buyer tax credit. The tax credit will stimulate home buying, reduce excess supply in housing markets and shore up home prices.

- FHA modernization and expansion. A revitalized FHA will have greater flexibility to respond to the needs of borrowers, enable more working families to become home owners and play an important role in the mortgage markets. To address the foreclosure crisis, the FHA is given additional authority to insure up to $300 billion of mortgages to refinance loans headed for foreclosure.

- GSE (government-sponsored enterprise) reform. The law reforms the regulation of Fannie Mae and Freddie Mac and permanently increases the conforming loan limit to help buyers in high-cost markets. To reassure financial and global markets, the government will temporarily expand its line of credit to Fannie and Freddie and permit the U.S. Treasury to purchase an equity stake in the companies through the end of 2009.

- Mortgage Revenue Bond Program. The measure gives states the ability to issue an additional $11 billion in mortgage revenue bonds, which will help strapped borrowers seeking to refinance their home loans.

- Low Income Housing Tax Credit. Enhancing this program will expand the supply of much-needed affordable rental housing.

Tax Credit Centerpiece of Housing Bill

The centerpiece of the housing bill is a temporary, $7,500 first-time home buyer tax credit for the purchase of any home. The tax credit can be used for homes purchased between April 9, 2008 and July 1, 2009. It is expected to provide a significant -- and temporary -- financial incentive for home buyers.

"The tax credit is the best stimulative measure," said Dunn. "It will increase housing demand, get home buyers back into the marketplace and fight falling home prices, which threaten the economy as a whole."

The original eligibility period expired in April 2009, but following a major grassroots campaign from NAHB members, the period was extended to June 30, 2009 to enable home builders to include the credit in their sales and marketing next spring and into the early summer -- the peak home buying season.

NAHB has launched a new Web site, www.federalhousingtaxcredit.com, which includes a set of comprehensive questions and answers about how the credit works and how consumers can put it to their advantage.

Further resources to help NAHB members promote consumer awareness about the credit are also available at www.nahb.org/mythbuster.

Frequently Asked Questions
About the First-Time Home Buyer Tax Credit

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The following questions and answers provide basic information about the tax credit.

1. Who is eligible to claim the $7,500 tax credit?
First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit.

2. What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests homeownership 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 principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

3. What types of homes will qualify for the tax credit?
Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses, and condominiums.

4. Are there income limits to determine who is eligible to take the tax credit?
Yes. Home buyers who file their taxes as single or head-of-household taxpayers can claim the credit if their modified adjusted gross income (MAGI) is less than $75,000. For married taxpayers filing a joint tax return, the MAGI limit is $150,000. The limit is based on the buyer’s modified adjusted gross income for the year that the house is purchased, except for certain purchases in 2009.

5. What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

7. Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. Does the credit amount differ based on tax filing status?
No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

9. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

10. I heard that the tax credit is refundable. What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

11. What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 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 $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

12. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
No. The tax credit cannot be combined with the MRB home buyer program.

13. I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit?
No. You can claim only one.

14. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

15. Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

16. Why must the money be repaid?
Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

17. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.
18. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
19. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

Homebuilder Stocks May Benefit From New Housing Bill

The new housing bill may well mark a turn in the housing market. Maybe we won't see a quick rally in home prices, especially in the hardest-hit areas. Of course, only time will tell. Markets have a way of making investors look foolish. But there seems little reason for prices to keep falling now that Uncle Sam has agreed to step in and underwrite new mortgages on distressed homes at 90% of the current market value.

The smart play is probably to invest in the homebuilding stocks. They're already flat on their backs. The sector overall has fallen by about three quarters from its 2005 peak, and history says that after a bubble has burst that's usually a good time to buy.

The US Housing Rescue Plan: What It Includes

One part of the new law could make it easier for some homeowners to refinance to lower-cost loans.

Another offers direct government support to the nation's two biggest housing finance companies.

Listen to an explanation of the bill in plain English at:
http://www.voanews.com/specialenglish/2008-07-31-voa2.cfm

With The New Housing Law, The $250,000/$500,000 Capital Gains Exclusion Is Gone

Buried deep on page 690 of the 694-page law, for example, is an important change to the Capital Gains Exclusion rule that could cost home sellers across the country a pretty penny.
Not surprisingly, the story isn't getting much coverage.

Under the former Capital Gains Exclusion rule, home sellers could claim $250,000 of home sale profits tax-free ($500,000 if filing jointly) provided they physically lived in the home for 2 of the previous 5 years. Savvy real estate investors exploited this tax rule by moving between residences every two years.

Even "regular" homeowners were coached to stay in their homes for at least 2 years for tax reasons.

Under the new Capital Gains Exclusion rule, however, this sort of tax-minimizing behavior is rendered impractical. The new Capital Gains Exclusion formula is not an all-or-nothing proposition. Instead, it's a ratio.

The new formula for Capital Gains Exclusion accounts for a home's actual usage as a primary residence over its qualified life:

In other words, if a home seller occupied a property as a primary residence in 2 of the last 5 year, under the new system, he would be entitled to 40% of his capital gains tax-free versus 100 percent of those gains before the new housing law passed.

The effective date for the new Capital Gains Exclusion rules is January 1, 2009 so homeowners selling in 2008 are exempt. This should lead to flurry of housing activity prior to the New Year because home sellers will want to capture as much of their real estate gains as possible tax-free.

The nation's home builders are confident that a new temporary $7,500 tax credit for first-time home buyers included in a landmark housing bill enacted into law last week will get buyers back into the marketplace and help end the current cyclical downturn in the housing industry.

"First-time home buyers make up about 40 percent of the entire market," Sandy Dunn, president of the National Association of Home Builders (NAHB) and a home builder from Point Pleasant, W.Va., said during a news tele-conference held yesterday to highlight the provisions and benefits of the new housing stimulus legislation. "They don't have a home to sell and they bring demand to the market. As more than 2 million anticipated first-time buyers enter the market and claim the credit, this will stimulate buying up the housing ladder."

Ed Brady, a home builder from Illinois who builds about 130 homes annually, said the biggest problem in his market is a backlog of inventory.

"The housing bill contains two key components that will help take inventory off the market and restore a more normal supply-and-demand balance," said Brady.

Brady said the temporary, first-time home buyer tax, which expires on July 1, 2009, will provide prospective buyers a major financial incentive to get off the fence and jump back into the market.

While getting more first-time home buyers into the market will help to whittle down existing inventory, Brady also noted that the new law provides FHA insurance for a program geared to prevent families facing foreclosure from losing their homes.

"Together, the first-time home buyer tax credit and foreclosure relief in the housing bill will help to reduce inventories," said Brady. "In turn, this will firm up prices and send a signal that we are either at the bottom or very near the bottom and that there isn't a better time to buy than today's market."

Major builders also see the benefits of the new home buyer tax credit.

Richard Dugas, president and CEO of Pulte Homes, said the tax credit will "stimulate buying and selling activity and contribute to a much-needed turnaround in housing."

"The tax credit will free up home sellers who can then purchase a home they have their eye on," said Dugas, whose firm operates in 26 states.

Last year, the active adult business accounted for about 50 percent of Pulte's closing volume, and Dugas said the home buyer tax credit will provide a big boost for this market segment.

"The single biggest challenge for seniors to move into our active adult communities has been their inability to sell their own homes. The tax credit will help to break this logjam," said Dugas.

NAHB tax economist Rob Dietz explained how the tax credit works and encouraged those interested and wondering if they qualify to consult NAHB's new Web site, www.federalhousingtaxcredit.com. The Web site, which attracted more than 50,000 unique visitors during its first four days, contains consumer information about the tax credit, including eligibility requirements.