This week in the news.....

The Market

Wall Street has struggled lately on worries that the U.S. government's various plans to soften the recession won't work in the face of an accelerating global slowdown. The market slumped to a more than 6-year low today, as fears of a prolonged recession sent stock investors heading for the exits. The Dow had dropped as low as 7,447 during the session.

Investors are still sorting through the details of the $787 billion economic stimulus plan, which President Obama signed into law on Tuesday. Also unveiled was the $75 billion multi-pronged plan that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.

General Motors (GM, Fortune 500) and Chrysler asked the government for another $21.6 billion to stay afloat, but the final tally for the auto bailout could be a lot higher.

Yesterday the Federal Reserve lowered its forecast for the first half of the year, noting that the economy will continue to shrink and unemployment will continue to rise. Thursday's reports demonstrated that forecast.

Falling home prices

Obama is venturing into new territory to deal with a serious problem plaguing millions of Americans, even those who remain current on their loans. The mortgage meltdown has prompted a steep decline in prices, leaving many homeowners owing more than their house is worth. Nationwide, prices have fallen 17.5%, back to the level they were at in fall 2004, according to Zillow.com.

The administration, which is marketing its plan as help for "responsible homeowners," estimates it can help up to 5 million people. The plan would help borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments. Lenders generally won't refinance people who have less than 20% equity in their homes.

But only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible. Also, the new mortgage, including refinancing costs, can't exceed 105% of the current market value of the property, excluding many of the hardest hit. So if your mortgage is $210,000, your property can't be worth less than $200,000.

The program, which begins March 4, allows borrowers to refinance into 15-year or 30-year fixed-rate mortgages at the current market rate, which hovers around 5%. This could benefit those whose mortgages carry higher rates or those in adjustable-rate or interest-only loans, groups of people who could see big rate spikes in the future. The plan, however, will not reduce the loan balance.

Stimulus Bill

As you probably have heard, both the House and Senate have passed the Stimulus bill Tuesday. The President unveiled the housing plan that is meant to help up to 9 million borrowers who are struggling amid falling home prices and unaffordable mortgages. Analysts say the fix will help many, but not all.

The final provisions of the bill include:

· Tax Credit

· Restoration of 2008 Mortgage Limits

· Increase of Reverse Mortgage Limit to $625,500

· Rural Housing Service Funding

Ø Tax Credit

Below is the link to the tax credit provision. (page 24)

http://thomas.loc.gov/home/h1/Recovery_Bill_Div_B.pdf

The 2008 tax credit provision has been amended as follows:

a. Tax credit is increased to $8,000

b. The income limits remain the same: ($75,000 for an individual; $150,000 for a couple).

c. First-time homebuyers and principal residences only.

d. Tax credit is available until December 1st (previously it expired on July 1st).

e. Waiver of recapture (i.e. no repayment requirement) for properties purchased in 2009 prior to December 1^st

Ø The provision is retroactive to purchases made on or after January 1, 2009.

Ø Recapture section does apply to properties sold in first three years.

f. Waiver of prohibition on financing by mortgage revenue bonds is included

Ø FHA & GSE Mortgage Limits

Below is the link to the mortgage limit provision. (page 282)

http://thomas.loc.gov/home/h1/Recovery_Bill_Div_A.pdf

a. The bill restores the 2008 mortgage limit for an area if it is less than the mortgage amount currently in effect.

Ø The cut-off date is the same as occurred in 2008.

1. FHA: Borrower “Credit Approval” by December 31^st.

2. GSEs: “mortgages originated” during 2009

Ø Effective date: The law appears to be effective immediately upon signature by the President. Moreover, since the 2008 mortgage limits are available, the implementation of these changes should occur quickly. We expect the Obama Administration will move quickly to implement this change

b. Reverse mortgage limit is increased for 2009 (page 285)

Ø For 2009, the bill increases the reverse mortgage limit up to $625,500 (150% of the Fannie/Freddie limit)

Ø There is expected to be a purchase option which will help the beach with Retiree’s buying homes with no proof of income & no monthly mortgage payment.