The proposed budget plan for fiscal year 2010 presented by President Obama includes a provision to reduce the mortgage interest deduction for those earning more than $250,000.  Based on a National Association of REALTORS® analysis, the reduced mortgage interest deduction will not only negatively impact families who earn more than $250,000, but also will impact home prices and values across the board.  Under this proposed budget, the middle class would see their home values reduced even further, which will hamper the economic recovery, raise foreclosures, and hurt banks’ abilities to lend, according to NAR.

The goal of the “Homeowner Affordability and Stability Plan” is to help homeowners remain in their homes.  For a loan to qualify for modifications, lenders would need to bring the monthly mortgage payment down to 38 percent of a borrower’s monthly income.  The government would then match further reductions until the debt-to-income ratio is 31 percent.  The deductions could come in the form of a lower interest rate or reduced principal.  For homeowners who pay their mortgage on time, the write down could be as much as $1,000 of the loan each year, for five years.

The government will help homeowners who owe between 80 percent and 105 percent of their home’s value, and have been unable to qualify for refinancing because their home has negative equity.  This could help as many as 14.8 million homeowners.  However, only mortgages owned by Fannie Mae or Freddie Mac are eligible, which excludes many homes in high-cost areas, such as California.

The recently signed “American Recovery and Reinvestment Act of 2009” increases the first-time home-buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years.  It also extends the expiration date for the credit from July 1 to December 1, 2009.  Home buyers must have purchased a home after January 1, 2009, and before December 1, 2009, to be eligible for the $8,000 credit.

Homeowners not wanting to refinance into a new 30-year loan, because they plan to pay off the house in full, should consider making biweekly payments rather than monthly mortgage payments.  Sending in half the monthly payment every two weeks instead of once a month will cancel out years of mortgage payments later on because it speeds up paying off the principal.  A homeowner who makes biweekly payments on a $500,000, 30-year, fixed-rate loan with a 6.5 percent interest rate would shorten the loan by five years and pay $150,000 less in interest over the life of the loan.

Southern California Affordabilty: affordability in the Inland Empire (Riverside/San Bernardino counties) climbed 25 points from 45 percent in the fourth quarter of 2007, to 70 percent in the fourth quarter of 2008.

Fannie Mae sent Announcement 09-03, on February 24, 2009, to its servicers instructing them not to negotiate commissions on short sales below the amount negotiated by the listing agent (unless the commission exceeds 6 percent).  The requirement took effect March 1, 2009.  Fannie Mae recognizes that (a) negotiating commissions for short sales is unfair because getting a short sale to closing requires intensive work over many months, often requiring working with numerous buyers, and (b) compensating real estate agents fairly benefits Fannie Mae because agents play a crucial role in short sales. 

The Home Valuation Code of Conduct (HVCC) was announced by New York State Attorney General Andrew M. Cuomo, Fannie Mae and Freddie Mac (government sponsored enterprises) on December 23, 2009, to change appraiser selection criteria that will help eliminate conflicts of interest on mortgage appraisals.  The agreement has the support of the Federal Housing Finance Administration (FHFA).

The requirements will have a significant impact on appraisal practices by lenders as they will have to comply with the new requirements agreed-to by the government sponsored enterprises (GSE) if the lenders sell mortgages to the GSEs. The GSEs have agreed to implement the HVCC beginning May 1, 2009.  During 2008, the GSEs received comments from market participants.