February 19th, 2009 8:05 PM by Dan Marchiando
The House and Senate finally pounded out a bill that both could pass on Friday the 13th of February. The president signed the bill as promised on Tuesday after the Presidents' Day holiday. The law has many components to attempt to get the economy back on it's feet, and includes efforts to help housing.
This makes the third "stimulus" bill we've had since the beginning of 2008. To lay down some history, first we had the Economic Stimulus Act of 2008 (ESA) which was passed in February of 2008, and gave some people rebate checks, and also allowed Agencies Fannie Mae and Freddie Mac to purchase loans up to $729,750, and FHA to insure loans up to $729,750. These limits were designed to end 12/31/08. In July 2008 another law called the Housing and Economic Recovery Act of 2008 (HERA) was passed. This law included a component that allows larger (so-called High-Balance) loans also, and took over when the ESA loans ended. Unfortunately, it only allows loans up to $625,250, and in the case of Santa Barbara County, only allows loans up to $603,750. Underwriting for these loans in 2009 has become slightly easier than in 2008, but not by a lot. These "High-Balance" loans have interest rates that are approximately one-quarter to three-eighths higher than traditional Conforming loans that have a max of $417,000 in 2009. These traditional Conforming loans will almost always have the lowest interest rates of any home mortgage available in the market.
The American Recovery and Reinvestment Act (ARRA) is reinstating the $729,750 max loan amounts that Agencies Fannie Mae and Freddie Mac can purchase, and the $729,750 max loan that FHA can insure. This will hopefully help out all the people who were unable to take advantage of the short window of opportunity in 2008, and should help sell some homes, which should be supportive of values on more expensive homes up to a point. The most expensive homes will still struggle to find decent financing. It may take Fannie Mae, Freddie Mac, the FHA, and the lenders we deal with a few weeks to make the necessary changes in their systems, but I am hopeful that we will be able to originate these larger loans by around late March.
The ARRA also includes components that give tax credits of $8000 to qualified first-time homebuyers who purchase in 2009, and unlike 2008, the credit doesn't need to be repaid unless the taxpayer sells the home within three years.
The ARRA also includes a nice tax credit for energy efficient windows, doors, furnaces, and air conditioners. The credit is for 30% of the cost up to a max credit of $1500. That means that $5000 of new double-pane windows for my seriously leaky house will only set me back $3500 after taxes. I'm definitely going to look into that benefit. Hopefully it will create some jobs too.
The these two tax credits probably won't help much to stimulate home sales for a couple reasons. New home buyers need the most help coming up with the down payment and closing costs for a home at the time escrow closes. And they need it shortly thereafter to pay for moving, painting and furnishing their new home. The tax credit doesn't come until several months later when the homeowner files their 2009 tax return in 2010. So they don't get the help when they need it the most, so it won't make the jump into homeownership an easier hurdle. A swing and a miss? No, I think it is still helpful, just not a homerun.
Thanks for your interest,