The Abridged Version of the Stimulus Package

 

If you’re like me, you’ve had it up to here (place hand over head exactly 1’7″) with all the talk about the “stimulus package.”  There was a House version, a Senate version, a Republican version, a Democratic version, the Auto manufacturers’ version, the State Governor’s version, the Sesame Street version, etc. etc.  If you want to read the entire piece of legislation that finally got signed by President Obama known as “The American Recovery and Reinvestment Act of 2009″more power to you.  Most people though just want to know how it impacts them in their personal and professional lives.  Because you are reading a real estate related blog, I will assume that you have interest in just the portions of this legislation dealing with real estate so I will limit my review to those provisions.  Grab a cup of coffee – - – here we go!

1.  Upper-End Loan Limits – Loan limits have been raised to $727,000 in high cost areas.  Since Lancaster, PA is not considered a “high cost” area, let’s move on.

2.  Revision of the Tax Credit- Remember a couple of months ago when the government, in it’s infinite wisdom, tried to sell us a $7,500 tax credit for first time home buyers and told us how this was the greatest thing since sliced bread?  Part of the terms for taking advantage of this “tax credit” stipulated that the entire credit had to be repaid.  It was a LOAN not a TAX CREDIT!  They must think we’re morons.  Well – this time they got it right (kinda’).  The tax credit is being raised to $8,000 with NO payback provision.  Personally, I don’t think the tax credit is high enough and the eligibility is still limited to first-time homebuyers, but it’s a step in the right direction.

3.  Interest Rates – Up to $3oo billion of the stimulus package is targeted for the government to continue to buy mortgages backed by Fannie Mae and Freddie Mac to instill confidence in the market.  This will allow Fannie & Freddie to continue the flow of new credit back into the marketplace for new mortgages.  The goal here is to serve as a calming influence on the market.  So far – so good.  Interest rates in Lancaster County are hovering at about 5% for a thirty year fixed rate loan (click on “Mortgage Info” for more details on the local market).

4.  Foreclosures – The bill has over $50 billion in it for foreclosure mitigation.  How this money is used has skeptics and proponents at odds with each other.  The bill allows Fannie Mae and Freddie Mac to move forward with refinancing mortgages that they own where the mortgage is greater than the value of the home.  It also creates financial incentives for lenders to modify terms and reduce rates for existing borrowers to levels that they can afford.  In addition, the bill supports changing bankruptcy rules so judges can reduce mortgages on primary homes to avoid foreclosure.  I think what is being overlooked in all this banter about foreclosures is that the number of people who are actually affected is very small (see “The Media’s Fixation With Foreclosures”).  The vast majority (let me say that again, “vast majority”) of homeowners in this country pay their mortgages per the terms as originally laid out in the documents that they signed at the settlement table.  Their argument continues to be, “Hey – what about me!  I’m playing by the rules and now my tax dollars are going to reward someone who chose to ignore them.  Where’s my piece of the pie!”

5.  Investment Properties – If you’re a real estate investor who has struggled with trying to secure financing on your properties because you own more than four, you’re ship has come in.  Fannie Mae will now consider financing up to ten qualifying properties.

6.  Mortgage Interest and Real Estate Tax Deductability – We have had these tax advantages for so long that sometimes we forget that legislators continue to look to eliminate them as a way to increase the amount of money that goes into government coffers.  Although they were discussed with this bill, no changes were made.