The Obama administration on Friday announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) program to assist homeowners struggling to meet their mortgage obligations. The program adjustments target three groups: Unemployed homeowners who are unable to make their mortgage payments; underwater homeowners; and homeowners behind on their payments and seeking loan modifications.
Unemployed homeowners may qualify for three to six months of reduced payments while searching for new employment. During this time, payments will be reduced to 31 percent of their current gross monthly income. To qualify, borrowers must, among other things, be living in their homes, have loan balances less than $729,750, provide verification of unemployment benefits, and request assistance within 90 days of delinquency on the mortgage.
Underwater homeowners—those who owe more than their home currently is worth—may be eligible for a new FHA refinance option that will allow those who are current on their mortgage payments to refinance their mortgages into new FHA-insured loans equal to no more than 115 percent of their home’s current value. The difference between the original loan balance and the new balance gradually will be forgiven if the homeowner remains current on payments for three years.
Homeowners seeking mortgage modifications under HAMP may be eligible for mortgage principal reductions. Although lenders always have had the option to do so, many have chosen instead to reduce interest rates. However, under the new guidelines, lenders reducing mortgage principal may receive higher financial incentives. The incentives will be paid jointly by the private sector and the federal government through a $50 billion allocation from the Troubled Asset Relief Program (TARP).
The program changes are expected to go into effect in the fall. However, a measure to offer larger incentives to lenders who facilitate short sales or deeds-in-lieu of foreclosure, as well as assistance for unemployed homeowners, will be in place within a few weeks or months, according to the administration.
Federal tax credit update
Time is running out on the federal tax credits for first-time and repeat buyers. First-time buyers who enter a binding contract by April 30 and close escrow before July 1—and meet the income limits—are eligible for the full $8,000 credit (maximum, or 10 percent of the sales price, whichever is less) on their federal tax returns. The first-time home buyer credit applies to homes purchased for $800,000 or less, and does not require repayment if buyers live in the residence for three or more years.
Existing homeowners may be eligible for a tax credit (10 percent of the purchase price, not to exceed $6,500). To be eligible for this credit, homeowners must have lived in their current home for five consecutive years out of the last eight years and must enter a contract to purchase a new or existing home by April 30, 2010. Existing homeowners do not need to sell their current home to qualify for this credit, but must close escrow before by June 30, 2010. For complete details on these credits, qualifications, income levels and income phase-outs, visit “Legal Q&As” at car.org.
Please note that “Tax Credits Set to Expire,” an article which appeared in the March/April “issue of California Real Estate magazine, is available in downloadable format at http://www.onlinedigitalpubs.com/publication/?i=33583. The article has been updated to correct misinformation that appeared in the print edition.