New Tax Credit, Foreclosure Relief

February 19, 2009
FOR IMMEDIATE RELEASE

Contact:
Mary Schaefer/Ann Londrigan
217/529-2600

New Tax Credit and Foreclosure Relief to Aid Housing

SPRINGFIELD, Ill. - An $8,000 tax credit for first-time homebuyers and President Barack Obama’s new plan to minimize foreclosures and keep more people in their homes will go a long way toward stabilizing and jumpstarting the housing market, says Pat Callan, president of the Illinois Association of REALTORS®.

“Reducing foreclosures and offering new incentives to boost home sales will help stabilize home values, shrink housing inventory and move the country and Illinois closer to an economic recovery,” Callan said.

The American Recovery and Reinvestment Act of 2009, a $787 billion economic stimulus plan signed by President Obama on Feb. 17, includes provisions that should spur the housing market, including the modification of the first-time homebuyer tax credit to $8,000 for those buying in 2009, higher FHA, Fannie Mae and Freddie Mac loan limits and increased rural housing loans.

“A strong and robust housing market is going to be a vital part of any economic rebound and giving buyers greater financing opportunities and tax incentives will help get that started,” Callan said. “The Illinois Association of REALTORS® commends Congress and the Obama administration for its work.”

Also promising is the $75 billion Homeowner Affordability and Stability Plan announced by President Obama on Feb. 18, Callan said.

The goal is to help at-risk homeowners rework or refinance their mortgages and avoid foreclosure. The plan also seeks to drive down mortgage interest rates by increasing funding to Fannie Mae and Freddie Mac, thus boosting consumer confidence in the programs.

Learn more about the Homeowner Affordability and Stability Plan.

Below is a summary of some of the housing-related measures in the American Recovery and Reinvestment Act:

1.) First-time Homebuyer Tax Credit – Modifies the maximum first-time homebuyer tax credit to up to $8,000, or 10 percent the cost of the home, for buyers who purchase a principal residence on or after Jan. 1, 2009 and before Dec. 1, 2009. The credit does not require repayment. The credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser. Individuals with an adjusted gross income up to $75,000 (or $150,000 if filing jointly) are eligible for the full tax credit. The credit is phased down for those earning more and is not available for those with an income above $95,000 (or $170,000 if filing jointly).

2.) FHA, Fannie Mae and Freddie Mac Loan Limits – The law reinstates 2008 loan limits for FHA, Freddie Mac and Fannie Mae loans. These limits are equal to the greater of 125 percent of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie. In some higher cost areas of Illinois, the FHA loan limits are higher. For example, in Cook County and some of the surrounding counties, the FHA limit is $410,000. See NAR’s estimated loan limits for more detail. The law also allows the HUD Secretary the discretion, if warranted, to increase the loan limit for any sub-area (an area smaller than a county.) The new loan limits will expire Dec. 31, 2009.

3.) Neighborhood Stabilization – Provides for an additional $2 billion in funding for the Neighborhood Stabilization Program, which distributes grants through the Community Development Block Grant program to states and localities to address foreclosures. The funds can be used to purchase, manage, repair and resell foreclosed and abandoned properties. The funds can also be used by states and localities to establish financing methods for the purchase and redevelopment of foreclosed properties.

4.) Energy Efficient Housing Tax Credits and Grants – Provide state and local governments with $6 billion in energy efficiency and conservation grants for energy audits, retrofits and financial incentives. Through 2010, homeowners will be able to claim a 30 percent tax credit (up from 10 percent) for purchases of new furnaces, windows and insulation. There also is funding to modernize the nation’s electric grid and for weatherization and efficiency improvements for low-income households and federally-assisted housing.

5.) Rural Housing Service – An additional $500 million provided to existing USDA Rural Housing programs, which include a guaranteed loan program and a direct housing loan program. It has been reported that this level of funding would provide for an additional 192,000 homeowners.

6.) Low-income Housing Grants – Allows states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.

7.) Tax-Exempt Housing Bonds – Tax-exempt interest earned on specified state and local bonds issues during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). Financial institutions also will have greater capacity to purchase tax-exempt state and local bonds.