Phil Osborne here with the Lehigh Valley Wealth Center and the Ken Unangst Team bringing you a Wealth Center update and alert!  This update is specifically designed for current Wealth Center customers who have not yet obtained mortgage financing with our team.  There have been numerous changes in the mortgage and real estate markets over the past number of months, and many of these changes have had unprecedented impact on homebuyers throughout the country.  It is our desire to be a resource of education, advice and your trusted source for mortgage financing.  In this update and alert we will cover the following topics:

*HOUSING BILL
            *Removal of DPA programs
            *Tax credits for first time homebuyers

*FANNIE MAE AND FREDDIE MAC TAKEOVER
            *What does it all mean? 
            *Effect on mortgage rates

*OVERALL ECONOMIC CONDITIONS
            *Credit crisis
            *Unemployment
            *General slowing and inflationary pressures

*WEALTH CENTER UPDATE
            *Move
            *Economic stability

*HOUSING BILL

 Let’s start with the housing bill.  Late in July president Bush signed into law the housing reform bill which has multiple components to it and is approx 400 pages long.  In this pod cast we will only focus on the tax credit and down payment assistance sections of the bill.  For those of you who are first time homebuyers and have not yet purchased a home now is the time to buy.  The housing reform bill authorized tax credits for first time homebuyers until June of 2009.  Here are some highlights of the bill. 

1. Unlike other credits, the first-time homebuyer credit must be repaid
in equal installments ( $ 500/year) over 15 years, essentially making it an interest-free loan from the government for most qualifying homeowners. Repayments start 2 years after the year in which the residence is purchased.

2. “Purchase” as used in this new law occurs when title closes. In addition, homebuyers claiming the credit may not acquire the property from certain related persons, and they must satisfy certain basis rules.

3. The credit phases out for taxpayers with AGI of $ 150,000- $ 170,000 joint/$ 75,000- $95,000 single.”

4. The taxpayer must claim the credit on a 2008 or 2009 tax return.
However, a first-time buyer who purchases a principal residence in 2009 after filing a 2008 tax return has the option of filing an amended 2008 return to claim the credit.

5. A “first-time homebuyer” is someone, or spouse, who had no ownership interest in a PRINCIPAL RESIDENCE during the 3-year period before the new home is purchased.

6. Renters who also own a vacation home may qualify for the credit since the 3-year lookback period for owning a home applies only to principal residences.

7. Under the new law, two or more unmarried individuals may purchase a residence and qualify for the credit, allocated between them as the IRS prescribes, up to a maximum credit totaling $ 7,500.

8. The IRS will disallow the credit if the taxpayer disposes of the residence — OR THE RESIDENCE CEASES TO BE THE PRINCIPAL RESIDENCE – before the close of the tax year for which the credit would be allowed. The IRS will also disallow the credit if the taxpayer is a non-resident alien or is financing using tax-exempt mortgage revenue bonds.

9. If a taxpayer sells or no longer uses the home as his principal residence before repaying the credit (i.e. 17 years after the year of purchase), the unpaid balance becomes due in the year in which the residence is sold or no longer used as the taxpayer’s principal residence. HOWEVER, the amount of recapture credit may not exceed the amount of gain from the sale of the residence to an unrelated party.

10. The credit does not have to be repaid if the taxpayer dies. Special rules also exist for an involuntary conversion, and for a residence transferred in a divorce. There are 2 other items of interest in this new tax act:

A. PROPERTY TAX DEDUCTION, UP TO $ 500, FOR NON-ITEMIZERS AS INCREASED STANDARD DEDUCTIONS FOR 2008 ONLY.

B. REDUCED HOME SALE EXCLUSION FOR PERIODS THAT THE HOME WAS NOT USED AS
THE PRINCIPAL RESIDENCE AFTER 1/1/2009. (Non-qualified use for this computation of allocation of the $250K/$ 500K exclusion does not include any such use before 2009.)

The housing reform bill has a lot of promise but a part of the legislation that hurts first time homebuyers is the removal of seller funded down payment assistance programs.  Seller funded DPAs allow the seller to contribute a portion of their proceeds of the sale to a non profit organization, (i.e. Nehemiah, AmeriDream, Partner’s in Charity) the non profit organization then gifts the money to the buyer for a relatively small administrative fee.  The funds could be used for down payment, closing costs and pre paid items such as tax escrows.  Down payment assistance programs have been around for quite sometime and have helped hundreds of thousands of first time homebuyers realize the dream of homeownership.  Unfortunately this option is no longer available after October 1st.  However a large part of the housing reform bill includes available funding of local, state, and county down payment assistance programs.  We will keep you informed of these options as time goes on and as more of these programs become available.  It is essential that the funding of these programs occur, the legislation has passed now the Fed needs to, with all due respect… “Put their money where their mouth is”. 

*FANNIE MAE AND FREDDIE MAC TAKEOVER

As many of you are probably aware, yesterday in an unprecedented move the Federal government took over mortgage giants Fannie Mae and Freddie Mac. The Government poured a 100 Billion of your tax Dollars into each struggling mortgage entity to not only bail them out but physically take control of these two companies. We are told with this large influx of money, and the promise to continue to invest tax dollars into both companies, it will be business as usual at Fannie and Freddie. The Fed is also guaranteeing to purchase or make up the difference in selling the mortgage on the secondary market.

So why did this occur? Mainly because of the recent lack of appetite for Fannie Mae and Freddie Mac mortgage bonds, which is a direct result of the continued difficulty finding investment dollars to fund mortgages on the secondary market (The Mortgage Back Securities Market).  This lack of investment caused the two mortgage giants to have to do something to make their bonds more attractive…( in other words find someone to buy them) so they offered their bonds at higher yields (interest rate and price) to gain more investor interest. However, since they couldn’t go back and raise the interest rates on loans that had already been closed, Fannie and Freddie would have to make up the difference sucking even more profits out of the firms, reducing capital, even further exacerbating the problem and allowing the credit crisis to go further. Within the past year Fannie Mae and Freddie Mac have lost 14 billion dollars. 

This take over is similar to a chapter 11 Bankruptcy for restructuring and will most likely be a temporary takeover by the Federal Government… we all hope.  Stockholders in these companies may lose it all as the company is no longer a publicly traded company. This is the largest exposure ever by the federal government that could put the Fed in a position to potentially lose billions of tax payer dollars in an effort to keep our national mortgage market alive, and keep our economy from collapse. 

So what does this mean for you?  The good news is home loan rates should come down due to the government’s purchase of Fannie Mae and Freddie Mac mortgage backed securities in the bond market. A boost in bond prices could drop mortgage rates significantly in the coming months. The move could also mean continued credit tightening from mortgage lenders as the government’s exposure to any type of risky loan will not be tolerated.

To wrap things up…plainly said…NOW is the time to take action. If you are a first time homebuyer and are on the fence, it is time to jump and move into the market. The Tax credit is available for first time buyers until June of 2009. If you have considered doing any type of home improvement, debt consolidation or if you are real estate investor and need leverage now is the time to ACT!!! 

*OVERALL ECONOMIC CONDITIONS

The credit crisis continues to linger on.  Many economists expect it to continue well into 2009 and some believe it will not be over until
2012-2013!!  Billions of dollars have been lost in this crisis and thousands of jobs have been lost in the mortgage industry.  Credit tightening continues as lenders become stricter about lending practices and exposure to risk is no longer an option. 

The economy as a whole continues to deteriorate with very few areas of good news.  The labor market continues to contract as well as the unemployed has reached 600,000 which equate to a 6.1% unemployment rate the highest level since September of 2003.  Inflation risks still remain as food and energy continues continue to put a strain on the American household. Core inflation which takes out food and energy prices is at 2.4% for the year which is above the Fed’s comfort level.  However many economists expect inflation to cool in the coming months which is good news for mortgage rates and the economy.

The housing market continues to decline in most areas around the country.  Lehigh Valley home prices are down approximately 3-5% from last year and sales are down 20-30% from the market’s peak in 2006. Foreclosures which affect housing stability are relatively low in the valley which has helped keep housing prices from falling drastically as in other regions in the country. 

*WEALTH CENTER UPDATE

So what is happening with us, how are we surviving?  The Wealth Center
is doing very well; we are financially stable and are backed by a strong mortgage banker, a group called Fairway Independent Mortgage Corp. Fairway has relationship with over 200 mortgage lenders and banks across the nation but unlike banks and retail mortgage firms Fairway does not keep the loan or service it and securitize the mortgage on the secondary mortgage market.  Fairway processes and underwrites the mortgages we originate and then sells the loan to whomever we obtained the rate from. This gives us tremendous opportunity and control over each transaction allowing us to serve our customers at the highest level and find the best possible rates and products on the market. 

After our transition out of American Home Mortgage we moved to an office off of Route 100 in Fogelsville, we are happy to inform all of you that we are moving at the end of the month to our new, convenient location in Whitehall.  Stay tuned to the website for more information including directions, maps and pictures of the new office. 

Our desire at the Wealth Center is to be the Valley’s source for real estate financing strategies.  We will accomplish this by being an advice based firm dedicated to providing our clients with the highest level of education and mortgage planning services.  Our radio show can be heard each week on WAEB 790AM or can be downloaded via our website.  Our website is an educational resource that our clients love and depend on. Please visit the Wisdom Center where you will find over 200+ hours of downloadable content.  Thanks so much for listening.  Please let us know how you are doing and if we can serve you in anyway.  Our Wealth Certified financial advisors and realtors are also available to assist you. We look forward to hearing from you. 

Thank you,