Zero-points rates on conforming loans up to $417k and super-conforming loans up to $625,500 have improved to start this week as stocks have sold off and mortgage bonds have rallied—when bond prices rise in a rally, yields (or rates) drop. With the government participating in mortgage bond markets, lenders are pricing more conservatively than market levels might suggest because it’s harder than ever to predict which way markets will move. So we continue to see favorable terms on points: one point gets .625% to .875% lower in rate, so borrowers break even on a one-point buydown in 12-18 months. The new stimulus package raises super-conforming loan limits to $729k (more on this below). Jumbos 30yr fixed loans for SFR loans from $729k to $5m are looking good at 6.625%.
STIMULUS SUMMARY—THE WHOLE BILL
President Obama signed the $787 billion American Recovery & Reinvestment Act into law Tuesday, February 17. Funds will be allocated as follows, and consumers can track spending and timelines at www.Recovery.gov. The site is a pretty clever re-branding of the package that was branded as wasteful by a unified Republican minority in Congress. These categories aren’t fully defined on the site yet, and this doesn’t include a roughly $1 trillion bank rescue plan that’s forthcoming from Treasury. I cover the housing highlights in a separate section below.
Tax Relief: $288b. State and Local Fiscal Relief: $144b. Infrastructure and science: $111b. Protecting the Vulnerable: $81b. Health Care: $59b. Education and Training: $53b. Energy: $43b. Other: $8b.
STIMULUS SUMMARY—HOUSING PROVISIONS
Below are summaries of key housing provisions of the American Recovery & Reinvestment Act. Housing help that’s not in the Recovery Act explicitly but seems likely to fall in the “Protecting The Vulnerable” category (unless it is part of the Treasury plan) is a $50b investment plan for borrowers who haven’t yet been late on mortgage payments but are struggling. This is great for individual homeowners and critical for housing overall to stop the foreclosure spiral and stabilize home prices—foreclosures are estimated to top two million this year.
$729,750 Loan Limit Returns: FHA and Conforming loan limits we saw last year for high-cost areas have been restored. But please note that this change will take a few weeks for lenders to implement and price. Remember: the spreads between $417k-cap and $729k-cap loans were a lot wider than the current $417k vs $625k spreads. Note also that reverse mortgage limits have been increased from $417,000 to $625,500.
First-time Home Buyer Tax Credit: The tax credit for first time home buyers was increased from $7500 to $8000 for homes purchased between January 1, 2009 and December 1, 2009. A tax credit is equivalent to money in your hand, whereas a tax deduction just reduces taxable income. The credit no longer needs to be paid back as long as you live in the home without selling it for 3 years. The $7500 version of the credit expired on July 1, 2009, and required home buyers to pay the funds back over a 15 year time frame. If you bought the home in 2008, the credit remains $7500, and it still needs to be paid back over a 15 year timeframe beginning in 2011 when you file your 2010 returns.
The credit phases out for couples making over $150k or singles making over $75k. The credit remains refundable. This means that first-time home buyers who owe less than $8000 in taxes for the year are still eligible for the full $8000 credit when they file their tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill. The credit can be claimed on your 2008 tax returns that you file by April 15, 2009, even if you buy the home in 2009.
Home Improvement Tax Credit: The tax credit for making energy efficient home improvements is now 30% of the cost of the improvements up to a maximum of $1500. Eligible improvements include energy efficient exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. Generally, your home improvement contractor and/or the manufacturer selling the improvements issues a certification that clarifies whether the improvements meet the necessary standards for energy efficiency. Most modern windows, furnaces, and air conditioners meet these requirements.
Conforming ($200,000 – $417,000) – 1 POINT
30 Year: 4.875% (5.09% APR)
FHA 30 Year: 5.0% (5.21% APR)
15 Year: 4.875% (5.08% APR)
5/1 ARM: 5.75% (5.96% APR)
Super-Conforming ($417,001 to $625,500 cap by county) – 1 POINT
30 Year: 5.375% (5.52% APR)
FHA 30 Year: 5.375% (5.52% APR)
Jumbo ($625,500 – $3,500,000) – 1 POINT
30 Year: 6.625 % (6.83% APR)
10/1 ARM: 6.25% (6.39% APR)
5/1 ARM: 5.375 % (5.52% APR)
Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 70% of value for reserves). Better or worse rates apply to specific client profiles. Better rates are available using tax deductible points. ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. This is not a loan commitment nor a loan guarantee, rates based on loan amount ranges shown and rates available at the time of production. Rates subject to change without notice. California Department of Real Estate license #01376428. Equal Housing Lender.
Julian D. Hebron
RPM Mortgage, Van Ness