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Wed, 21 Apr 2010 09:55:15 -0500

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First Time Homebuyers Rush to Beat Tax Credit Deadline Star Story

Mon, 15 Mar 2010 14:50:21 -0500

Hurry, the First Time Homebuyer Tax Credit Expires on April 30, 2010!

Posted on Sun, Mar. 14, 2010
First-time homebuyers rush to beat tax credit deadline and rising interest rates
By MARK DAVIS
The Kansas City Star
Zachary and Elva Clevenger house-shopped for two years before deciding that now was the time to buy.

Prices and mortgage rates had come down. And the clock was ticking on the $8,000 tax credit for first-time buyers.

�It forced us to get moving,� said Zachary Clevenger, who expects to close this month on a yellow, two-bedroom house in North Kansas City.

Just in time. Rates on home loans � now about 5 percent for a 30-year fixed-rate mortgage � are heading higher because the biggest bankroller of home loans is heading for the exit.

For more than a year, the Federal Reserve has been pumping $20 billion a week into the nation�s mortgage market to make up for the lack of private investors willing to back home lending.

But the Fed has vowed to stop its spree at the end of this month. And there�s little chance its policymakers will change their minds when they meet on Tuesday.

It is equally certain the Fed�s exit means mortgage rates will rise. How much and how fast depends on which expert you ask, though estimates range from one third or one half of a point to perhaps a full percentage point by year�s end.

Some say the mortgage market will handle the Fed�s exit smoothly. Rates are likely to skip a bit higher, but not high enough to harm homebuyers� chances of getting affordable loans.

Others, however, are openly nervous.

A month after the Fed�s exit, the government�s tax credit program ends for any homebuyer who doesn�t have a contract in hand.

�I just don�t think the market�s strong enough,� said Jim Nutter Jr., CEO of James B. Nutter & Co. in Kansas City. �I think it could handle one hit. But not two.�

Fed officials seem determined to find out which side is right by letting the market stand on its own for a while.

Enter the Fed

Among its many programs to break the financial crisis, the Fed started buying mortgage-backed securities in early 2009.

It picked up $10.2 billion in the first week and bought $23.4 billion the second week. Then $19 billion, $16.8 billion, $22.3 billion, and on and on.

The Fed embarked on its course because private investors had stopped buying such securities from mortgage lenders, essentially starving them of money. Lenders, in turn, cut back on making mortgages.

In fact, investors also were dumping mortgage-backed securities. Private holdings dropped by more than $1 trillion in 2008 and 2009.

The Fed, now 62 weeks into its spending spree, is just a few billion dollars short of its target to own $1.25 trillion worth of mortgage-backed securities.

It is ready to let private investors buy the next round. And there is a surefire way to attract private money to the mortgage market again.

Pay higher interest rates.

Investors now receive scant reward for buying a guaranteed mortgage-backed security instead of a risk-free 10-year U.S. Treasury security.

Accustomed to getting an extra 1 percent or 1.25 percent on a mortgage security, investors were earning a historic low 0.62 percent extra last week.

Pushing up that premium will push mortgage rates higher than the roughly 5 percent now available on 30-year fixed-rate loans.

�We anticipate they�ll go up about half a percent � as the Fed leaves the market and private investors are going to be requiring somewhat higher yields to begin purchasing mortgages again,� said Mike Fratantoni, vice president of research at the Mortgage Bankers Association.

He expects rates to rise gradually during the next three months, though they could reach 6 percent by year�s end.

Others fear a greater impact on markets.

A group of international bankers raised its warning early this month.

The Market Monitoring Group of the Institute of International Finance Inc. said the Fed�s exit �will have considerable repercussions for mortgage rates and home prices.� It further said winding down such programs �will have a significant impact on banks� capacity to lend.�

Hung Tran, the group�s secretary, said the group did not tie an interest rate forecast to its statement.

Even a small rate increase would pinch mortgage refinancing activity. Nutter said his firm�s refinance business fell by half the last time rates climbed to just 5.375 percent.

�I�ve never seen it that interest-rate-sensitive,� Nutter said.

Some homebuyers also won�t like any move toward higher mortgage rates, said Chuck Merritt, first vice president of the Bank of Blue Valley. Tighter lending standards means more homebuyers depend on lower rates to qualify.

Experts generally think most homebuying would survive a climb to 5.5 percent. But trouble begins above that.

�If we get to 6, you�re going to see it dead for a pretty long time,� Merritt said.

Private investors

Rates may not have to rise even half a point to coax money out of private buyers.

�We believe interest rates will confound the experts,� said Gary Cloud, a portfolio manager at Financial Counselors Inc. in Kansas City.

Andy McCormick, a vice president at the T. Rowe Price fund family, similarly said that he expects a smooth transition from the Fed to private buyers.

Both cited the two other big buyers of mortgage-backed securities, Fannie Mae and Freddie Mac, federally sponsored agents charged with supporting homeownership.

Fannie and Freddie have been largely absent from the market because of their own financial problems. They have agreed with regulators� demands to shrink their own portfolios by not replacing securities when the mortgages in them mature or are paid off by refinancing activity.

But Fannie and Freddie have announced plans to buy about $200 billion worth of seriously delinquent mortgages they�ve guaranteed.

It�s cheaper than making the missed payments.

That will put money back in the hands of mortgage investors. So will the normal repayment and refinancing of existing mortgages among the securities investors still hold.

Cloud said competitive pressures will force institutional investors that have sharply cut their mortgage holdings to re-enter the market or fall behind as mortgage returns improve.

It should be ample demand to soak up the relatively small supply of new securities being produced by the weak housing market.

And that is a good sign for the housing market because homebuyers have come to expect low mortgage rates.

The Clevengers already are paying a slightly higher rate because their loan is relatively small.

And if that rate had gone even higher?

�In the 5s, you�d look at it,� Zachary Clevenger said. �Six or more, no.�

PACE EXPECTED TO QUICKEN
Homebuyers are in for an estimated $10 billion tax windfall from the soon-to-end homebuyer tax credit. But they may have to hurry.
The tax credit was extended in November to give a bigger boost to the troubled housing market. It has been knocked for not stirring more buying.

But that may be changing as the deadline to qualify approaches, as was the case when the first homebuyer credit was expiring last year.

�There was a real push just before it was extended,� said Chuck Merritt, first vice president at the Bank of Blue Valley. �Now we�re starting to see the same push.�

To qualify, homebuyers must close on the purchase of a house, or have a �binding contract� to purchase by the end of April and close that deal by the end of June.

A first-time buyer � someone who has not owned a primary residence the last three years � can get up to $8,000 or 10 percent of the purchase price, whichever is lower.

A �long-time resident� credit of up to $6,500 is available if you�ve owned and used the same home for five consecutive years during the last eight years.

The credits can be collected as a tax refund even if the homebuyer doesn�t owe that much in taxes.

Some potential buyers can�t qualify. A house costing more than $800,000 triggers no credit. Individuals who earn more than $125,000 can get a reduced credit. Buyers earning more than $145,000 earn no credit. For couples, the cutoffs are at $225,000 and $245,000.

To reach Mark Davis, call 816-234-4372 or send e-mail to mdavis@kcstar.com.

� 2010 Kansas City Star and wire service sources. All Rights Reserved. http://www.kansascity.com

Open House at Library Lofts!

Sat, 27 Feb 2010 10:36:19 -0600

First-Time Homebuyer Brunch

Tue, 09 Feb 2010 14:27:17 -0600

Thinking About Buying Your Loft Home? We're offering great savings for a limited time!

Mon, 18 Jan 2010 12:13:15 -0600

KC Loft Central

Phoenix Block Party

FHA Financing APPROVED at Soho Lofts!

FHA Financing APPROVED at Soho Lofts!

Visit Us on the Urban Tour June 5-6

First Fridays Buzz Event on May7!

LIVE LIKE A ROCK STAR WITH SCOOPS AND THE BUZZ!

First Time Homebuyers Rush to Beat Tax Credit Deadline Star Story

Open House at Library Lofts!

First-Time Homebuyer Brunch

Thinking About Buying Your Loft Home? We're offering great savings for a limited time!