Are the days of the McMansion over? Smaller homes on the rise!

A National Association of Home Builders survey of its members found that 90 percent of them are now building smaller, with the typical home size falling by 11 percent in 2008.
Developers cite many factors influencing smaller living space, including increased energy consciousness and empty-nest baby boomers looking to downsize. The strongest motivator is the sagging economy.
A typical single-family home under construction — the most forward-looking statistic — peaked at 2,629 sf during the second quarter of last year, according to the U.S. Census Bureau. By the fourth quarter, it had dropped to 2,335 sf, but rose to 2,419 sf in the first three months of this year.
The shrinking of the American home coincided with a tightening in lending standards, which reduced the amount of money left for homebuyers. Builders scrambled to shrink their product accordingly.

Using First-Time Homebuyer Tax Credit

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSINGFEDERAL
HOUSING COMMISSIONER
www.hud.gov espanol.hud.gov

May 29, 2009
MORTGAGEE LETTER 2009-15

From: Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner

TO: ALL APPROVED MORTGAGEES
SUBJECT: Using First-Time Homebuyer Tax Credits

The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an $8000 tax credit to qualified first-time homebuyers. FHA supports this important initiative to promote homeownership. This mortgagee letter provides:
• Basic information on the first-time homebuyer credit obtained from the Internal Revenue Service (IRS) website. Complete information on how the first time homebuyer tax credit works, including the eligibility requirements for the tax credit, the amount of the tax credit that a first-time homebuyer may be eligible to receive, and how a homebuyer may claim the tax credit is available on the IRS website at http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet7.
• Guidance on how FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local government agencies or instrumentalities may assist homebuyers that are eligible for the tax credit.

I. About the First-Time Homebuyer Tax Credit Please check the IRS website to ensure you have up-to-date information. A brief overview of the tax credit from the IRS website and a copy of IRS Form 5405 (including instructions) are attached for reference. Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit will be made by the IRS only to the taxpayer, not to a third party. In other words, any refund issued in response to a claim for this credit cannot be assigned by a taxpayer to a third party.

II. FHA Tax Credit Guidance
Secondary Financing Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the National Housing Act to use the current authority to offer tax credit advances with second liens in a
manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.

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Conditions:
• The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
• The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
• Secondary financing may be “soft” (silent) or require a monthly repayment.
• If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
• If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second.
• The secondary financing may not require a balloon payment before ten years.

Purchase of Tax Credit
FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by the homebuyer.

Conditions:
• The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405;
• The borrower must submit a signed certification that the tax credit is not subject to offset due to other indebtedness.
• A copy of the borrower’s tax refund and/or the IRS 5405 must be collected and retained in the FHA case binder.
• Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees
and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
• Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).
Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

Due Diligence
FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

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• Require the homebuyer to draft and provide the IRS form 5405 “First-Time Homebuyer Credit.”
• Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
• Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
• Validate that all of the eligibility requirements for the tax credit are fulfilled
• Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

III. Monitoring
In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:
• Name and EIN of the party who purchased the tax credit, • The amount of the anticipated credit, and • The amount the homebuyer paid for the monetization services. The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection. FHA will monitor the purchase of tax credit transactions closely. Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

If you have any questions regarding this mortgagee letter, please call FHA’s Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Austin, TX set to require energy assessment audits of resale homes… how does this affect home prices and will it come to Houston?

AUSTIN (Austin American-Statesman) – To encourage sellers and buyers to make their houses more energy efficient, owners of homes older than ten years will soon be required to conduct energy audits on their homes before putting them on the market.
The city ordinance, which takes effect Monday, will not require sellers to make any improvements, but it will require them to disclose the results to prospective buyers.
The ordinance also has provisions for multifamily properties and commercial buildings but does not apply to condominiums or mobile homes. Owners who have made certain improvements under Austin Energy programs in the previous ten years also can disregard the ordinance.
The audits are expected to cost $200 to $300 for a typical home of 1,800 sf or less.
The reports, which will cover issues such as how much insulation the house has and the condition of the heating and cooling equipment, must be done by auditors who are certified by the Building Performance Institute.
Violations of the ordinance will be a Class-C misdemeanor punishable by a fine of up to $500.

Now, of course, this is Austin and not Houston. However, this is a trend that would appear to be making its way to our area. What does this mean to you? While the governing body will not require the seller to correct the items noted, you can be sure that the buyer will expect these items repaired and this will affect home prices. Sellers will have to start being pro-active to present homes that will “pass” the audit and will pass those costs to the buyer. If this helps conserve energy then it is a good thing but some of the changes are cost prohibitive and housing prices could raise far ahead of any energy savings brought about by the changes. We will all have to wait and see how this is handled in Austin to have a better understanding of the impact it will have here in the Houston market.

HUD Secretary Announces Monetization of Tax Credit at NAR Real Estate Summit

WASHINGTON, May 12, 2009

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said that the

Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a downpayment.

Donovan’s remarks came in an address to several thousand Realtors® gathered this morning at The Real Estate Summit: Advancing the U.S. Economy, a special daylong session at the Realtors® Midyear Legislative Meetings & Trade Expo here.

Secretary Donovan said that important changes, which the National Association of Realtors® has been calling for, will help consumers purchase a home. “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Donovan said the Obama administration plans to further stabilize the housing market. “I do think we have some early signs hat the market overall is stabilizing,” said Donovan. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said, “As the leading advocate for housing issues and homeownership, NAR continues to take a leadership role in promoting ideas for improving our economy by stabilizing the housing and real estate markets. Today we have the best of the best to begin a dialogue, develop solutions and initiate action toward real estate and economic recovery.”

The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. The 13 panelists and Realtors® in attendance examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.

The list of distinguished panelists include Dr. Martin Feldstein, professor of Economics from Harvard University; Dr. Barry Bluestone, professor of Political Economy from Northeastern University; John Taylor, CEO of the National Community Reinvestment Coalition; Maria Kong, president of the National Association of Real Estate Brokers; and Sarah Rosen Wartell, executive vice president for the Center for American Progress.

“Right now the Federal Reserve is the market,” said Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.

“We must make sure FHA and the GSEs are supported,” added the Wharton School’s Susan Wachter.

“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” McMillan said. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”

The real estate summit is part of the Realtors® Midyear Legislative Meetings & Trade Expo here through Saturday. During the week, more than 8,500 Realtors® will attend meetings, visit lawmakers and inspire action on Capitol Hill.

National Association of Realtors

First Time Home Buyer’s Tax Credit – Now Available for Down Payment!

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.

Previously, most buyers wouldn’t receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at “The Real Estate Summit: Advancing the U.S. Economy,” at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C..

He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Other Solutions for Today’s Market

During his address at the summit, Donovan went on to say that the Obama administration plans to further stabilize the housing market. “I do think we have some early signs that the market overall is stabilizing,” Donovan says. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”

The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. Panelists examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.

“Right now the Federal Reserve is the market,” said panelist Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.

“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” said NAR President Charles McMillan. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”

The real estate summit is part of the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo. During the week ending May 16, more than 8,500 REALTORS® will attend meetings, visit lawmakers and inspire action on Capitol Hill.

Katy, TX highlighted on FOX 26!

FOX 26 is beginning a new initiative called FOX 26 Listens. Fox 26 plans to visit different parts of towns and surrounding communities to learn about the issues that are important to residents, concerns of the community and what can be done to help. They will also showcase people and locations that make each community special and a great place to live.

Fox 26 is starting with Katy. Over the next week you’ll see stories highlighting different features of the Katy area and on May 14th, FOX 26 Listens will host a town hall meeting for Katy area residents to talk with their community leaders about the issues that are important to them. Katy resident and FOX 26 News anchor Tom Zizka will moderate the town hall meeting which will be streamed live on myfoxhouston.com from 7:30PM until 9:00PM on Thursday, May 14th at Powerhouse Christian Center. Fox 26 is encouraging Katy area residents to attend and over 500 people are expected.

Directions are noted below. Please come early at 7:00 pm to reserve a good seat.

FOX 26 Town Hall Meeting
Thursday, May 14
7:00 PM – 9:00 PM
Powerhouse Christian Center
1818 Katyland Dr

Keeping H1N1 Flu at Bay

From Your Friends at CHRISTUS St. Catherine Hospital in Katy, TX.

What is H1N1 Flu (formerly known as Swine Flu)?
This is a new type of influenza (flu) virus that causes respiratory disease that can spread between people. Most people infected with the virus in the United States have had mild disease, and so far there have been only two reported deaths in the US (both cases involved underlying health problems). Other countries, including Mexico and Canada have reported people sick with the same virus and it appears to be spreading from person to person in much the same way that the regular seasonal influenza viruses spread.

What can you do to assist in preventing the spread of this or any flu virus?
Recommended practices from Center for Disease Control and the World Health Organization:
• Cover your nose and mouth when you sneeze or cough. Throw the tissue away after you use it.
• Wash you hands often with soap and water, especially after you sneeze or cough. Alcohol based hand cleansers are also effective.
• Avoid touching your eyes, nose or mouth. Germs are spread this way.
• Stay home, if you are sick, for 7 days after your symptoms begin or until you are symptom free for 24 hrs, which ever is longer.

What St. Catherine is doing:

• This is a time for heightened awareness and taking proactive steps to protect our patients, associates, families and our community.
• The number one way to prevent infection is through frequent hand washing. This is not new to our associates or medical team. We are proud of our compliance and adherence to this evidence based practice.
• The second best practice is adherence to cough etiquette. This too is not new to our facility. We have had in place for some time now our “Cover your Cough” campaign. This provides education on the importance of cough etiquette and how to carry out appropriate cough etiquette. We provide the tools to assist compliance through provision of signage, hand sanitizer dispensers and tissues throughout our facility. There are times, when necessary, when we may ask our patients and or visitors to wear a mask.
• Currently we are also screening all of our Emergency room visits and patient admissions for any flu like symptoms, adhering to the current Center for Disease Control Interim Guidance.
• We are asking visitors with flu like symptoms not to visit their loved one while they are symptomatic. Patients with current medical health problems are at greater risk for influenza associated illness.
• We are working closely with the Harris County Public Health and Environmental Services; Texas Department of State Health Services; Center for Disease Control and other local authorities as needed.

The Center for Disease Control website has excellent resource information at http://www.cdc.gov/h1n1flu/general_info.htm This website is being updated frequently as we are able to attain more information on this new virus.

Texas Appraisal Reform Clears House!

Appraisal-reform package clears House
As the legislative session enters its last 30 days, appraisal-reform legislation has cleared an important legislative hurdle:
• House Bill 8. Passed by the House on April 27. This bill would allow for the comptroller’s office to conduct a methods and procedures audit and a property value study of appraisal districts every other year.
• Senate Bill 20. Passed by the Senate on April 28. This bill will modernize and update appraisal methods and oversight of appraisal districts to ensure greater accountability and efficiency. It will also promote taxpayer fairness by streamlining the appraisal process while preserving taxpayer protections.
• House Bill 2447. Passed by the House on April 27. This bill implements the Sunset recommendations to repeal the Board of Tax Professional Examiners (BTPE). The functions of the BTPE would be split between the Texas Department of Licensing and Regulation and the comptroller’s office.
• House Bill 3454. Passed by the House on April 30. This bill requires all available evidence that is specific to the value of a property to be considered in determining market value. It also defines “comparable sale” to include only a sale occurring within 24 months of the date of the appraisal adjusted for changes in the market value over time.
• House Bill 3611. Passed by the House on April 27. This bill allows appraisal districts to enter into an agreement to consolidate appraisal review boards.
• House Bill 3612. Passed by the House on April 27. This bill allows property tax appeals from certain counties to be heard by the state Office of Administrative Hearings.
• House Bill 3613. Passed by the House on April 27. This bill allows for a residence homestead to be appraised as a residence, not on the basis of the “highest and best use” appraisal standard.
• House Joint Resolution 36. Adopted by the House on April 27. This joint resolution allows for the implementation of the bills above

Fed Sees Economy Improving!

Fed chairman sees economy improving
Federal Reserve Chairman Ben Bernanke said Tuesday the economy is showing some signs of improvement, but warned of sizable job losses in coming months.

Still, Bernanke sounded several hopeful notes in prepared remarks to the Joint Economic Committee.

He said the pace of economic contraction appears to be slowing, and that household spending may be stabilizing after a period of decline. Consumer spending grew in the first quarter and Bernanke said that the recently passed stimulus package, which continues to filter through the economy, is likely to bolster that further.

The housing slump also showed signs of bottoming out, he said, though sales of existing and new homes remain at depressed levels. Lower home prices appear to be contributing to increased demand for housing.

Bernanke gave a more dismal view of the business sector, stating that surveyed firms still report net declines and that commercial real estate conditions are poor.

He said the Fed continues to expect economic activity to bottom out, then to turn up later this year.

Bernanke spoke one day after stock markets continued to rally, with the Standard & Poor’s 500-stock index ending the day in positive territory for 2009. Markets were fueled by data showing any increase in construction spending.

Bernanke said there are still “substantial concerns” about the banking industry despite the market rally in financial stocks, which he said seemed due to investors adopting a more positive outlook on the condition of banks after several large banks reported first-quarter profits.

Bernanke expects many of the banks that have undergone stress tests will need no more federal dollars.

Results of the government’s stress tests on the nation’s 19 largest banks have been delivered to the institutions and will be made public Thursday.

Banks will be required to have safe levels of capital because of the tests, but Bernanke said many banks will be able to take steps with private markets to recapitalize without any or substantial help from the Treasury.

By Ian Swanson
The Hill, May 5, 2009

First Time Home Buyer Tax Credit – IRS clarification

Forbes magazine says the Internal Revenue Service (IRS) has clarified that the new $8,000 tax credit for first-time homebuyers can’t be claimed before the actual purchase.

Seems some buyers were claiming the credit first and then using the $8,000 check from the government as a down payment!

 A number of tax practitioners and real estate professionals argued taxpayers can claim IRA deductions prior to the actual contribution, as long as the contribution is made by April 15 of the following year. So why can’t homebuyers use the same logic?

 “But the IRS’ position, expressed in a series of questions and answers it issued earlier this month, shouldn’t have come as a surprise,” said the April 21 article by Mark A. Luscombe.

 “The language of the law clearly required a purchase to have taken place before a taxpayer claimed the credit, and IRS form 5405, used to claim the credit, has a line requiring a taxpayer to enter the date of the home purchase.”

 Luscombe points out the money is sent fairly quickly after the purchase, with homebuying taxpayers who already filed 2008 returns eligible to file an amended return. The refundable credit means buyers can get the entire $8,000 even if their federal income tax paid was less than that.

 IRS to look closely at claims

The other confusing issue is the definition of “first-time home buyer.” For purposes of this specific tax credit, it includes homebuyers who have not owned a home within the past three years.

IRS estimates are that 7 percent of those who had claimed the credit so far might not be eligible because “they may have had ownership in a personal residence within the last three years.”

The article said it was unclear what penalties may be assessed to homebuyers who had claimed the credit prior to the qualifying home purchase. But it said tax practitioners could be looking at preparer penalties if they assisted in claiming such a credit.

A preliminary report by the Treasury Inspector General for Tax Administration looked at 56.9 million tax returns received through March 6. It estimated some 1.4 million taxpayers will claim the federal first-time homebuyer tax credit on their 2008 returns, meaning the program is likely by the Nov. 30, 2009, deadline to meet or exceed the 2 million target set by Congress.

 For the IRS guidelines on the new credit, including a link to Form 5405, click here.

 
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