Pulling Housing Out Of Its Slump

The Record ( — Thursday, March 5, 2009


Schoolteachers Jon and Eileen Kinne married in September, and immediately started going to open houses when they got back from their honeymoon.

"Moving to Oakland was a goal for us eventually down the road," said Jon. "We didn't think we would be able to do it for some time."

But they found low housing prices and low interest rates and a well-maintained three-bedroom ranch in Oakland that they were able to purchase for $355,000.

Not only that, it turns out they will qualify for the new $8,000 first-time home buyer tax credit from the federal government when they close in the spring.

"The tax credit is another bonus," Jon said. "It's great. There's no negative to it. It was just one more reason to buy."
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The credit is one of a recent flurry of government actions aimed at jump-starting the housing market and stemming the foreclosure tide. And while the tax credit is great news for people like the Kinnes, other initiatives aren't so popular, or so clearly understood.

Housing counselors and mortgage brokers in New Jersey are fielding a barrage of inquiries from people hoping to get in on the new Obama plan for mortgage refinancing or modification.

"We're overwhelmed with calls," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, the state's largest HUD-certified counseling program. "Everybody thinks they qualify for everything. Very few people understand that, in the Obama plan, certain parts are for people current on their mortgage. Certain parts are for people whose mortgages are through Fannie Mae and Freddie Mac. We're spending hours just doing triage."

Realtors, builders and accountants say that the first-time home buyer tax credit has created a stir and gotten people out house-hunting. Still, because it's limited to first-timers, it won't help all segments of the market.

Some North Jersey Realtors note that the new programs and proposals don't do much for the higher end of the market, where homeowners are also struggling.

For example, the Making Home Affordable mortgage refinancing program for delinquent and struggling homeowners does not apply to jumbo loans of more than $729,750.

Meanwhile, Obama's federal budget proposal would, effective in 2011, set new limits on mortgage interest deductibility for those making more than $250,000 a year.

"The move-up business is still pretty much dead in all towns in our area," said Realtor Jeff Adler of Re/Max Legend in Mahwah.

Sal Poliandro of Re/Max Properties in Saddle River adds: "When you look at Bergen County, there are a lot of people who make $250,000 or more. I'm not sure you would necessarily consider them wealthy. If you bought a $5 million house a couple of years ago, it's now worth $2.5 million If you make $300,000 a year and you lose your job, you can't go on and replace that job."

The refinancing part of the Making Home Affordable program is aimed at helping people in their primary residence who are current in their mortgage payments but who have been unable to refinance to a better rate because their equity evaporated as home prices have dropped.

The program applies only to mortgages backed by the government-supported mortgage giants Fannie Mae and Freddie Mac, and only to mortgages that are between 80 percent and 105 percent of the home's current value. So if you are seriously "underwater" — your mortgage is more than 5 percent greater than current home value — this program won't help you.

Dan Shlufman, president of FCMC Mortgage Co. in Clifton, said he has a client who has an 8.5 percent interest rate on a $208,000 mortgage who has been unable to refinance because her home value has dropped to $215,000, an almost 97 percent loan-to-value ratio. The new program should help that homeowner, he said.

He is more concerned about the people with mortgages in the 5.5 percent to 7 percent range, a significant group in North Jersey. In the past, he said, Fannie Mae has required increasing rates by 0.25 percent and more for mortgage holders considered riskier, including those with less equity. Will rates be higher for those with 90 percent loan-to-value ratios, and even higher for those with 100 percent loan-to-value ratios? If so, a homeowner may not end up with a better mortgage rate after all.

"In the past, Fannie Mae put too many controls and banks were unable to lend," Shlufman said. "I hope they're smart enough to help the homeowners and don't frustrate [the program's intent] by putting on extra charges and requirements."

One extra charge that won't be included: private mortgage insurance. It has generally been required if the loan is more than 80 percent of the home's value. But a release from Freddie Mac says mortgage insurance is not required for refinancing if the existing mortgage doesn't have it. If mortgage insurance is already in place, coverage on the new loan must be the same as on the existing loan.

The $75 million-plus federal mortgage modification program aims to bring down payments on struggling homeowners' primary mortgages to no more than 31 percent of their income.

But while there are financial incentives for both lenders and homeowners to develop more affordable payments and keep on making those payments, this program is voluntary (except for those lenders accepting government capital). And for Salowe-Kaye of New Jersey Citizen Action, therein lies the rub.

"The parts that concern me are that the loan modifications are temporary — they expire in five years — and that the program is voluntary," said Salowe-Kaye. "We think that mandatory loan modifications may have to be the way."

One woman who's been fighting foreclosure on her Bergen County home and who asked not to be named said she is confused by the new federal housing programs.

She said she has been working with a HUD-certified housing counselor and has succeeded in getting her mortgage rate dropped from nearly 10 percent to 7 percent, but it's still not affordable.

"If I can get the rate down to 4 or 5 percent, that would cut $700 to $800 from my monthly payment, and I can afford to stay in my house," she said.

Bank of America, the nation's largest mortgage servicer, said it has made a three-year commitment to offer loan modifications to as many as 630,000 customers who represent more than $100 billion in mortgage financing. It's moved staff from other divisions to handle the anticipated call volume and said it has more than 5,900 associates working on home retention efforts for Bank of America and Countrywide. Like many lenders, it is extending its foreclosure sale moratorium for borrowers who may qualify for the program.

The federal loan modification and refinancing programs are expected to help keep a mass of people in their homes and potentially protect neighborhoods from the blight of vacant and vandalized homes. But what about jump-starting the housing market?

A number of people interviewed expressed dismay that the home buyer tax credit -- originally crafted as a $15,000 credit for anyone buying a home — was reduced in the stimulus package passed by Congress to a maximum $8,000 credit for first-time home buyers only. (Single home buyers whose income exceeds $95,000 and married taxpayers whose income is over $170,000 don't qualify for any credit.)

"It will help the start-out market, people getting married and starting families," said James Lawrence, a certified public accountant and partner in Traphagen Financial Group in Oradell, which has seen a number of clients apply for the credit. "It's probably not going to help somebody buying a $500,000 house."

Mike Loux and his fiancee, Caitlin McCarthy, closed on a two-family home in Bergenfield on Jan. 23. Their tax preparer has already taken the $7,500 first-time home buyer tax credit that was put into place in 2008. That credit was actually an interest-free loan that had to be repaid to the government over 15 years.

When the new stimulus package was signed into law last month, their tax preparer had them amend their return to take advantage of the new first-time home buyer credit.

"This one is a little more money and it doesn't have to be returned," said Loux. "It will definitely help pay for our wedding. Maybe it will help home buyers on the fence dive into the pool."

First-time home buyer tax credit

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