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Government to give $15,000 to all buyers of Homes and lower rates to 4%- 4.5%

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February 03, 2009 – Comments (18) | RELATED TICKERS: DHI , RYL , NVR

Housing aid gaining steam in stimulus bill Housing plans gather support as Senate takes up economic recovery package Alan Zibel, AP Real Estate WriterMonday February 2, 2009, 6:00 pm EST Yahoo! BuzzPrint Related: Bank of America Corporation, Beazer Homes USA Inc., Centex Corporation

WASHINGTON (AP) -- Homebuyers could see lower mortgage rates and get tax credits as part of a sweeping economic stimulus package being considered on Capitol Hill.

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Lawmakers are heeding the pleas of two powerful and well-heeled interest groups: real estate agents and homebuilders. Those industries have lobbied hard in recent weeks for more expansive assistance for their flailing members.

The Senate took up an $884 billion version of the stimulus legislation on Monday after an $819 billion version passed the House last week without a single Republican vote.

Any government aid for the housing sector should be temporary and apply to all buyers to help boost sales of expensive homes as well as low-priced ones, said Wachovia Corp. economist Mark Vitner.

"Nobody wants to buy a home before prices have bottomed out," Vitner said. "Unfortunately if everybody has the same idea, prices are going to keep falling."

With median sales prices back to levels last seen in mid-2003 and rates on 30-year mortgages hovering around 5 percent, homes have become far more affordable in most of the country. But some economists say they still have further to fall, particularly in former bubble markets like California and the Northeast.

Plus, some question the amount of money going toward relatively wealthy homebuyers, instead of renters or those who can't qualify for a mortgage.

"I'm amazed," said Dean Baker, an economist and co-director of the liberal Center for Economic Policy Research in Washington. "We're giving people way more money -- just because they bought a home -- than if they're unemployed."

Meanwhile, Senate Minority Leader Mitch McConnell, R-Ky., told reporters Monday that Republicans would offer a plan to have the government step in to reduce mortgage rates to around 4 percent, which could shore up home prices and lower housing payments for millions of Americans.

"A stimulus bill must fix the main problem first, and that's housing," McConnell said. "That's how all of this began. We think you ought to go right at housing first."

Republicans want to have banks lower the interest rates to 4 percent or 4.5 percent on 30-year fixed rate loans, up to a certain cap. Rates could drop if Fannie Mae and Freddie Mac agreed to buy the mortgages.

The two companies were seized by the government in September, and have bought the majority of the new home loans issued over the past year because Wall Street's appetite for mortgage securities has vanished. The new rates would be available through 2010 for both new purchases and refinanced loans.

Sen. Charles Schumer, D-N.Y on Sunday told "Face the Nation" on CBS that Democrats would support a GOP-backed idea to double a home buyers' tax credit from $7,500 to $15,000 and make it available to all buyers instead of those purchasing their first home. He also said the Obama administration is considering ways for the government to lower mortgage rates.

"There seems to be real bipartisan support for a stronger housing focus," said Mary Trupo, a spokeswoman for the National Association of Realtors, which has rallied its members to push for more aid to the hobbled market.

The Realtors group spent more than $17 million on lobbying last year, with more than $6.5 million coming in the final three months, according to disclosure forms.

The building industry, which has been devastated by the housing bust, has been pushing a package of subsidies that would bring mortgage rates to just under 3 percent for the first half of this year. The National Association of Home Builders -- which spent more than $4.5 million lobbying last year -- favors a tax credit of up to $22,000 for home purchases.

Associated Press Writers David Espo and Andrew Taylor contributed to this report.

18 Comments – Post Your Own

#1) On February 03, 2009 at 12:05 PM, IBDvalueinvestin (99.67) wrote:

Now if the homebuilders get the 3% rate passed : you can afford a $250k mortgage with $750/mo. Thats pretty cheap its more than 50% cheaper than what my dad paid in payments for his house in 1975 when his rate was 13.75%

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#2) On February 03, 2009 at 12:07 PM, IBDvalueinvestin (99.67) wrote:

Not to mention my dad did not get a $15,000 credit when he bought his home.

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#3) On February 03, 2009 at 12:25 PM, retailsails (95.60) wrote:

Great idea, why doesn't the government just lower mortgage rates to 0% and pay everyone's downpayment.  Wait a minute, weren't all these "incentives" a large part of what caused the problem in the first place?

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#4) On February 03, 2009 at 12:36 PM, SteveTheInvestor (< 20) wrote:

I still see the whole thing as being an artificial boost/support for home prices.  Prices have been, and still are, obscene in many places.  They need to be allowed to correct to a more normal level.  My wife and I didn't get any free money when we bought our house, nor did we expect any.  If we couldn't afford the house, we would not have bought it.  That's just common sense, which is sorely lacking these days. 

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#5) On February 03, 2009 at 1:03 PM, IBDvalueinvestin (99.67) wrote:

Steve you don't have to be jealous, you too can take advantage of the refinance at 4% to 4.5% , I plan on refinancing my mortgage as well. I will save $576/mo for 30 years.

Thats a $207,360 savings over 30 years.

Those that don't take advantage obviously must have a screw loose if thy don't want to save that much money.

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#6) On February 03, 2009 at 1:20 PM, QualityPicks (25.86) wrote:

"Those that don't take advantage obviously must have a screw loose if thy don't want to save that much money"

If you are talking about refinancing, I agree. Go ahead and refinance. However, the problem for many is that they are upside down so they won't be able to refinance.

If you are buying a home then, it is a little bit murky. Can you understand that if rates are artificially low, your home price will be artificially high? What happens when the rate goes up?, I mean, it is not like there is a lot more room for it to go down. Can you see that with a rate that low, people won't be able to deduct much since their interest payment is low, yet, because their home price will be artificially inflated, they will pay a lot in property taxes?

Then, lets talk banks. With an interest rate that low, that doesn't account for the risk the bank is taking, can you see them making a profit in anything other than fees? That means again, they will be unloading the loans as fast as they can to Fannie/Freddie and not care much about the quality of the loan again.

"Not to mention my dad did not get a $15,000 credit when he bought his home"

"... my dad paid in payments for his house in 1975 when his rate was 13.75%" 

Can you understand that the fact that your father did not get a $15k downpayment and a 4% loan made his home very cheap and not artificially inflated? Yes, that is why your father is making such a nice profit. But people buying with the 4% rate and 15k downpayment will be buying an overpriced home and they won't have as much luck as your dad :)

So, amazingly so, these moves by the government are actually bad for the people and good for Real Estate agents only and people wanting to refinance. I also read somewhere the 4% rate was only going to be offered to new home buyers and not to refinance, but maybe I'm wrong.

 

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#7) On February 03, 2009 at 1:25 PM, IBDvalueinvestin (99.67) wrote:

I can already get 4.5% refinance in Central New Jersey by paying points. I am waiting for the stimulus plan to lower the rate to 4% to 4.5% where then I can get a below 4% refinance by paying a couple of points.

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#8) On February 03, 2009 at 1:31 PM, Mary953 (78.91) wrote:

So, If you were a first-time home buyer this last summer, would you be able to take the tax credit?  If not, then if you refinanced that loan, could you get a lower rate AND the tax credit?  OR If you were a first time home buyer this last summer, but it only applies in 2009, could you sell the house you bought in 2008, buy a new house in 2009 and get the tax credit and the interest rate?  (Note - We are in an area of the country where there was literally NO housing bubble.  The house prices did not go up, they did not go down, they were the same through the last 5-6 years and close to the same prices of 8-10 years ago)

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#9) On February 03, 2009 at 2:05 PM, SteveTheInvestor (< 20) wrote:

My dear IBD:

For one, I don't need the loan.  The one we have is just above 5% and will be paid off within 3 years.   Even if re-fi was available, it would be pointless. 

And I'm not jealous..... I'm disgusted.  More people feeding at the public trough to artificially support ridiculous prices.   Especially disgusting is that those buying expensive homes might get taxpayer funds.  Sorry, but that is ridiculous and I strongly object to my tax dollars being doled out for such things.  If you can't afford an expensive home without my tax dollars going in your pocket, then don't buy one.  

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#10) On February 03, 2009 at 2:12 PM, IBDvalueinvestin (99.67) wrote:

It won't be tax payers dollars, it will be less profits to Banks thru less interest.

You can't read well can you?? Re-read these two paragraphs, see last sentence:

Republicans want to have banks lower the interest rates to 4 percent or 4.5 percent on 30-year fixed rate loans, up to a certain cap. Rates could drop if Fannie Mae and Freddie Mac agreed to buy the mortgages.

The two companies were seized by the government in September, and have bought the majority of the new home loans issued over the past year because Wall Street's appetite for mortgage securities has vanished. The new rates would be available through 2010 for both new purchases and refinanced loans.

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#11) On February 03, 2009 at 2:18 PM, isusan (< 20) wrote:

Wait a minute, we're missing the fine print here. 

This tax credit is an interest free loan for 15 years. 

The current one in place allows $7500 to singles up to $75,000 and $15,000 to couples up to $150,000 total income.  (There is a sliding scale so the true max income numbers are 95,000/170,000.) This credit can be taken the first year, repayment starts years 3 thru 18.

A new home buyer is defined as someone not owning a home in the prior three years.  The current loan applies to all settlements made between April 9, 2008 through July 1, 2009. 

Wonder if new buyers will think they can afford a nicer house if they get an adjustable rate at 3.75%....

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#12) On February 03, 2009 at 2:45 PM, SteveTheInvestor (< 20) wrote:

Yeah, I read just fine.  I see things like "interest free loan" and "tax credits" and "subsidies".  Those would seem to imply money provided, directly or indirectly, by the government (aka, the taxpayer).  Yes?  

 

"The building industry, which has been devastated by the housing bust, has been pushing a package of subsidies that would bring mortgage rates to just under 3 percent for the first half of this year. The National Association of Home Builders -- which spent more than $4.5 million lobbying last year -- favors a tax credit of up to $22,000 for home purchases."

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#13) On February 03, 2009 at 2:54 PM, TigerPack1 (86.24) wrote:

ABSOLUTELY crazy idea.

If we all refinance at 4%, the government will have to print between $10 and $15 trillion in new money for the mortgages!  You cannot force the banks to take on the loans a good 1.5% below market determined rates, neither will investors or the Chinese buy this new debt in chunks.

Has anyone done the math on this idea?  It would SURELY bankrupt our currency, and send inflation rates skyrocketing.

There will no longer be a mortgage market, and the government will have a lien on EVERYBODY's home!   Sounds like a Communist/Socialist grab at taking over the U.S. economy.

I thought the Republicans were AGAINST Communism and FOR free markets.  I guess I was mistaken!

A better idea to stimulute the economy/spending/real estate and fix the banking sector is send a $5000 check to every U.S. citizen regardless of age.  Large families with no money right now will spend it like crazy.  The rest of us will save/invest or pay off debt, putting mountains of money in the financial system and replenishing savings.  The government wouldn't/shouldn't target economic sectors or save any particular large political contributor bank; consumers and investors would decide who survives!  (This plan would cost about $1.5 trillion and create a massive spike in confidence and spending OVERNIGHT!)

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#14) On February 03, 2009 at 3:32 PM, nullDevice (65.76) wrote:

The Treasury would be subsidising the loans to lower the rate to the goal level, say 4%. It would apply for both new buyers and refinancers.

Both House and Senate stimulus bills have a provision to make the 10%/$7500 interest free loan a refundable tax credit instead. I can't find data on whether the $15000 would be a credit or a loan.

Citation: money.cnn.com

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#15) On February 03, 2009 at 3:45 PM, SteveTheInvestor (< 20) wrote:

LOL!  Actually, it might be more like socialism, but I know what you mean.  The problem is that its gotten so bad that some of the wealthy are starting to freak out.  We just can't have that now, can we?  

 I thought the Republicans were AGAINST Communism and FOR free markets.  I guess I was mistaken!

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#16) On February 03, 2009 at 3:49 PM, TigerPack1 (86.24) wrote:

Subsidized interest rates for all.  Let's do some quick math.

100 million households would qualify, times 1.5% annual "subsidized" interest rate vs. market rates on $200,000 average loan equals roughly $3,000 per loan ANNUALLY!

Or $300 billion PER YEAR, times 30 year loans = $9 TRILLION in NEW NATIONAL DEBT.

Plus, the government will have ITS say on your house, just like they do with BAC, AIG and C and others today.

Plus, no one will move AFTER refinancing or buying real estate during 2009, as the cost of moving to a 6% or 7% loan rate next year will be VERY prohibitive in decision making.  Real estate values would be PROPED UP for 12 months, then collapse in price in 2010.

Plus, the value of the U.S. currency would collapse, creating both a commodity SKYROCKET in prices and the requisite doubling and tripling in the long-term national debt situation for our children and grandchildren.

Money doesn't grow on trees people!  At least Obama and Buffett are staying in the bounds of reason.

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#17) On February 03, 2009 at 5:35 PM, ulvy1 (< 20) wrote:

Better yet.  Why don't we just buy global manufactures, fire the the current workers and replace them with Americans.  Then these newly employed will buy houses and etc.

With 900 Billion we could buy:

136 Billion = Volkswagen 

100 Billion = Toyota

90 Billion = Honda

63 Billion = Samsung 

50 Billion = Nintendo 

49 Billion = Siemens 

46 Billion = Nokia 

19 Billion = Sony

9 Billion = Toshiba 

 

This only comes up to $600 Billion.    

 

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#18) On February 04, 2009 at 12:28 PM, SundayRider (< 20) wrote:

First, apparently some did not catch the part about converting this to NOT be a loan, to be an actual tax credit. This was a change already in the proposed bill, to cover the $7,500 first-time-buyer-only version that was passed last year as a loan. The additional idea is to double it and apply it to all buyers, not just first-time buyers.

 I'm not sure about the mechanics of "forcing down" the interest rates. That part sounds iffy to me. But the idea about the $15000 tax credit for a year or two could be a winner on all counts. It will get people off the couch who are thinking about buying but waiting until "the bottom" (whatever that is). It would probably halt a further drop in prices. For this reason it will help cut back on more people going "under water", and will help the existing foreclosures get sold to clear up the market. And it's a quick stimulus, because people who buy a  house will buy other stuff in the first year, even if they already owned a house, even if they are uncertain about the economy. Why? Because the new house will need repairs or fixing up for their taste, some new furniture, fixtures, pictures etc. (If you are married you know this is true.) The only downside is that existing homeowners may want to put their existing house up for sale, thereby adding to the inventory. But many will want to just rent it at the current prices, so there will be some inventory-reduction in this process along with the economic stimulus.

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