Dennis' Mortgage Blog

Question of the week:  Is it true that HUD announced again that the First Time Buyer (FTB) tax credit can now be used for down payment and closing costs?

Answer:  Three weeks ago I wrote  about HUD Secretary Shaun Donovan announcing that HUD would allow FHA loan applicants to borrow against the FTB tax credit of up to $8000 to use for down payment and closing costs on their FHA transaction.  Two weeks ago I wrote about the announcement being “pulled” when someone in HUD alerted the Secretary that FHA guidelines do not allow down payment to be borrowed.  Ta-da! HUD has revised the accessibility of the FTB tax credit so some homebuyers can use the funds for their down payment and/or closing costs.  It is a little confusing so I will try to make it less so.

FHA applicants eligible for a FTB tax credit can monetize the tax credit for use as down payment through state housing authorities or FHA approved non-profit agencies.  The other option for borrowers, that may be more available to average homebuyers, is FHA is allowing lenders and non-profits to monetize the tax credit to cover down payment above the FHA minimum of 3.5% or cover closing costs.

Dennis what does “monetize” mean?  Monetize means to turn the tax credit into cash that a buyer may use for the transaction.  To monetize the tax credit those eligible must either go through a state housing authority or approved non-profit and complete their process which will result in the tax credit being pledged to them in exchange for the funds being sent to escrow.  Option two is for a bridge loan, also secured by the pending tax credit, through the lender.  At this time I have seen no communication from any lender willing to set up a program to make $8000 secured loans and am not anticipating a rush of such loans in the near future. 

With the ability to apply for the tax credit immediately following the close of escrow and not having to wait to file tax returns for 2009, eligible home owners will see a check in their mailbox with in weeks of closing.  Keep in mind that FHA allows gift funds from relatives for down payment and closing.  Keep in the mind the difficulties and challenges that will apply to the processes above to monetize the pending tax credit.  Keep in mind as well that FHA allows gift funds for down payment and closing costs from relatives.  Keep in mind the tax credit should be paid out to eligible homebuyers shortly after closing and the form (below) is completed.  Got it?

PLEASE NOTE!! The first time buyer tax credit is not just for FHA applicants.  Any individual or couple who is eligible may receive the credit, whether they get FHA financing, Fannie Mae financing, or no financing.

HUD Website News Release

HUD Mortgagee Letter Detailing use of tax credits

IRS Form 5405 for First Time Buyer Tax Credit

Have a question for me?  Ask me!   

This was a bad week for rates.  Early in the week we saw Monday reversing last Friday’s gains in the Mortgage Backed Securities markets (which you know from last week’s update are the basis for our rates), while Tuesday and Wednesday were positive days Thursday saw bond prices fall steadily all day off news that productivity was up in May and unemployment claims grew less than expected.

This morning presented us with some good news for the economy and bad news for bonds and mortgage rates.  Around 5:30 the Labor Department announced that the unemployment rate has climbed to 9.4%, above the anticipated number of 9.2%, and the highest number in about two decades.  This bad news on the economy was released at the same time that layoffs in May totaled 345,000 Americans—a large number but significantly lower than expected  and about half the number of layoffs averaged over the previous six months.

This means that while Americans are still losing jobs they are losing them at a slower rate—employers are laying off fewer workers.  Before we can see no job losses we have to slow down the rate of job losses and May’s numbers might be signifying the start of that process.  If this is the start of the end of the recession then bond investors, as we learned last week, are looking to the future and are investing accordingly.  They see inflation at the end of the recession and if that end is coming sooner than previously anticipated they are scrambling to cover their bets…I mean investments.  They are selling off on MBS and buying stocks; interest rates and 401(k) values are rising.

Rates spike this week—As you can see from the chart we are up on rates four Fridays in a row, up 0.625% on conforming loans since our 52 week low on May 15^th.  We may be looking at May 15^th in a month or two and saying, “that was the bottom of the rate market.”  Rates are volatile to the high side, again as indicated by the chart.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  5.25%                 UP 0.25%

30 year conforming-jumbo 5.75%                     UP 0.25%

30 year FHA    5.125%                                    UP 0.125%

30 year FHA jumbo 6.00%                              Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Busy weekend starting for me today as I am off soon to play in the Community Classic Golf Tournament benefiting the Community Hospital of Long Beach Foundation.

Tomorrow we are hosting the Smith Family for the afternoon and then watching the girls perform in “The Beauty and the Beast” ballet with the Long Beach Ballet (we have one bird and one teacup in the performance).

A fun filled few days with friends and family, I hope your weekend is enjoyable as well!

Have a great weekend,

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries. 

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