Tuesday, March 23, 2010

First time home buyer? Wait till May to buy

I can't believe my eyes but California has passed another $10k buyers credit for new homes and first time buyers of resale homes. This makes perfect sense since California is just flush with cash.... $200 million dollars down the drain.

This trumps the federal tax credit by $2k so buyers might as well wait till May to buy when the state credit kicks in. Better to get $10k than $8k (although it is over 3 years). That should slow the market down a bit in the coming months.

And now some unfortunate truths about loan mods from Calculated Risk. This is actually kinda funny in a pathetic kind of way.

One aspect of the Making Home Affordable loan modification program known as ‘HAMP’ is almost always taken for granted in its wide reporting – that the borrowers in fact need ‘help’. Moreover, it is generally taken for granted that those seeking modification under HAMP simply cannot afford their monthly mortgage payment. It is assumed that they have made great sacrifices, assumed they have already cut back drastically on discretionary expenses, assumed that they have already gone over their monthly budgets with a fine-toothed comb to eliminate all but the most necessary expenditures in an effort to keep their home. So prepare to be shocked – shocked! – as I share with you that I have seen first-hand that this assumption is oftentimes greatly, seriously flawed.

Let me begin with a word to the wise for HAMP applicants: unless you believe Snooki is now in charge of approving HAMP applications, it might be a good idea to cut back a bit on some of the creature comforts to which you have become accustomed at least a month before submitting your HAMP modification application.

Allow me to explain. The guidelines for servicers participating in HAMP stipulate that the borrower must submit a “hardship affidavit”. This, ostensibly, is to serve as their sworn testimony that they have been driven into default due to some particular hardship they encountered, and despite making every possible sacrifice, they can no longer “maintain payment on the mortgage and cover basic living expenses at the same time"

To demonstrate this, applicants are required to submit recent paystubs and bank statements. The statements are to help further corroborate the income they report (lest they forget to include all of their paystubs) and also to demonstrate that their monthly expenses are as described on their application. Which is to say that they have already ‘cut back to the bone’ and STILL are unable to make ends meet.

So how do these look in practice? The very first ‘HAMPlication’ that your correspondent pulled up recently showed a wanton disregard for minimizing spending. On the contrary, it looked like “cutting back” for this applicant does not involve such Draconian cuts as eliminating:

• visits to the tanning salon
• the nail spa
• some kind of gourmet produce market (have you seen the price of arugula?)
• various liquor stores
• A DirecTV bill that must involve some serious premium programming or pay-per-view events (or both?).
• And over $1,700 in retail purchases, including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples, and Footlocker.

And that was just in one month! They were seeking to reduce a $1,880 mortgage payment that had just gotten to be a real cramp to their ability to keep a roof over their heads.

I’d like to say this is the exception, but it’s much closer to the norm. Many people who request HAMP modifications submit bank statements that demonstrate little if any “belt-tightening” going on.

9 comments:

K said...

Obviously the realty lobby has dropped some cash into the campaign coffers. The Corruptacrats are worried that they might lose some seats due to running the state into the pooppy ditch and then setting it on fire. I guess they figure that even the unions might have some limits to their campaign funds this year and were looking for backup.

Todd said...

Unbelievable. I heard about this on Tim Conway Jr.’s show KFI last night. How in the hell does a state that is as far into the red as we are implement such a money wasting black hole? They were saying on the radio last night they are trying to sell it as some sort of job stimulus. How in the hell does this create jobs? The condition of our state’s budget no longer surprises me in the least bit with the sheer volume of stupid ideas coming out of Sacramento lately.

Bigdog said...

Anyone qualified who makes a purchase between this May and August 2011 will receive a credit for 5 percent of the home's purchase price, up to $10,000 over three years.

Is this paid out over 3 years time?

golfer_X said...

This is certainly one of the stupidest things they've done this year. Giving a $10k credit to someone that is very likely going to buy anyway is a stupid waste of money. Thier rational is that home sale spurs spending and construction. If they can increase home sales they will creat jobs from all that spending. Bad rational, most of the buyers would have bought anyway. So the net increase in sales and therefore spending is close to zero. Bottom line, Cali just threw away another 200 million Arnold bucks.

As far as I know it's a tax credit split over 3 years.

theY said...

it's not a tax credit, it's a iou credit.

Neudi said...

Well, if they didn't get first time buyers to jump off the fence with the federal credit for well over a year I don't see this really helping anyone else. It's an added bonus for someone that was already planning on buying a home. The stupid stipulations the vast majority from being able to take advantage of it.

The deal reached Monday provides $200 million in new tax credits for homebuyers, to be split evenly among those buying a home for the first time and anyone buying a newly constructed home.

http://www.mercurynews.com/ci_14735679?source=most_emailed

Our happy crazy home said...

Darn, I should have waited for the $10k credit to buy my house instead of taking the measly $8k. :-)(Although really neither one would have encouraged me to buy. We bought because the time was right, we could afford it and we found a house we liked. The $8k was a nice addition to help pay for the work we had done after we moved in though...)

Bigdog said...

Is this $10,000 credit only for new built homes for 1st time buyers or also for existing homes???? Just trying to clarify that?

golfer_X said...

First time buyers on resale homes OR anyone on a new home. The tax credit is spread out over 3 years.