The Obama administration announced on Friday a plan to reduce the amount of troubled homeowners’ debt on their home loans.  This plan will allow people to get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.  This will be funded by $14 billion from the administrations $75 billion foreclosure-prevention program.

The plan would also help existing mortgage companies to receive incentives to lower their principal balances.  The program would also reduce monthly payments for unemployed homeowners for up to six months.

But the administration warned that the plan is not intended to stop all foreclosures or assist all troubled homeowners.  The goal is not to tackle millions of foreclosures over the next three years but to assist millions of struggling homeowners.  This plan would be enough to provide help to those who are in need and to provide some kind of stability in the market.  The plan will require mortgage companies participating in the administrations existing foreclosure prevention program to consider slashing the amount borrowers owe.  It includes three to six months of temporary aid for borrowers; additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages and will allow lenders to refinance mortgages that are under water.

This plan will not assist investors and Americans living in million dollar homes or defaulters on vacation homes.

The plan is estimated to help additional 1 million to 1.5 million homeowners who are facing foreclosure.  Preventing even a fraction of foreclosure could help decrease the slide in home prices.  This in turn will encourage those who are under water to keep paying their mortgages as prices stabilize.

The first-time homebuyer tax credit has been extended to cover sales after November 6, 2009 and in contract by April 30, 2010.  There are limits to qualify for the homebuyer tax credit such as income limits.  Income limit for individuals is $125,000 while couples have a limit of $225,000.  Home buyers must not have owned a home for three years and the tax credit is applicable only to primary residences.

Even if you’re not a first-time homebuyer, you can still avail the tax credit.  Homebuyers can get a credit of up to $6,500 if they are buying a primary home and they have owned and lived in a home for five of the last eight years.

The April 30, 2010 deadline will be extended for one year for people who are in the military and on active duty.  To claim the first-time homebuyer’s tax credit, you need to file a Form 5405 with your income tax return; signed HUD-1 attached to the taxes and send them by mail, not electronically.

Experts say this program was able to help boost the housing market as people rushed to take advantage of the credit.  47% of home purchases last year were by first-time buyers with a median age of 30.  But it is unlikely that this credit will be extended again.

According to a congressional hearing, the administration is falling short of its goal of preventing millions of Americans from losing their homes.  Treasury officials acknowledge problems in the year-old mortgage modification program and announced its changes.  Only 170,000 homeowners have completed the process to get their monthly payments reduced out of 1.1 million who began it over the past year.

The government’s latest effort to stem foreclosures would threaten more than roughly 8 million homeowners at risk of losing their homes in the next two years, according to John Taylor, president of the National Community Reinvestment Coalition.  These additional 8 million homes that could possibly go into foreclosure will have a nasty effect on the economy and unemployment rate.

As the housing bubble burst three years ago, the number of foreclosed homes continues to rise and the Home Affordable Modification Program (HAMP) had encountered a series of unforeseen roadblocks.  The program has been riddled with problems including long wait times getting through lenders, multiple requests for paperwork, lost documents, little or no explanation when applications are denied and lenders foreclose properties even after homeowners get approved for a loan modification.

According to a treasury official, changes will be done to speed the modification of loans to more affordable terms.  It will also ensure homeowners that all pending foreclosure actions will be stopped once they enter a fully verified modification plan.

The treasury is being criticized because they are not able to identify its goals and how many homeowners are expected to get help under the $75 billion program.  The program also has yet to solve issues regarding millions of homeowners who have second mortgages that must also be modified to make their first mortgage affordable.

The recovery in the housing market is at a risk of collapsing.  The announcement made by the Bank of America to forgive up to 30% of their total mortgage balance can only help 45,000 troubled homeowners and this would not make a difference in the country’s foreclosure problems.  Also, forgiving principal may encourage people to default intentionally on their mortgages.

Still, home sales are sliding, prices are stalling, foreclosures are rising and mortgage rates are likely to go up after next week when the Federal Reserve ends their program.

A few months ago, the housing market was showing signs of recovery and much of the improvement came from government programs that held down mortgage rates and provided tax breaks for buyers.

Recently, sales of new homes fell last month to their lowest point on record and sales of existing homes fell for the third straight month in February.  The falling demand for homes caused homebuilding industries to slash the pace of their construction.  But thousands of foreclosed homes have been dumped on the market at bargain prices. That glut has made it hard for builders to compete.

Also, prices have also declined and median prices for previously occupied homes fell to $165,000 in February.  Falling home prices mean builders cannot recoup their construction costs further causing less construction job and in turn would not help the economy recover.  According to the National Association of Home Builders, each new home built creates about three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities.

The Obama administration pushes mortgage help for unemployed homebuyers and homeowners.  The new push takes direct aim at the major cause of the current wave of foreclosure which is unemployment.  Banks and other lenders would have to reduce the payments to no more than 31% of a borrower’s income, which would typically be their unemployment insurance, for up to 6 months.  In some cases, a lender could allow a borrower to make no payments at all.

This push also seeks to help borrowers who owe more on their mortgages than their properties worth.  The help would come by encouraging lenders to cut the loan balance and possibly refinance into loans backed by the FDA.  This push comes as the administration faces increasing pressure from lawmakers to change its foreclosure prevention efforts because the permanent loan modification has only help fewer than 200,000 borrowers and it may also cause many borrowers to re-default even after receiving relief under the program.

This program also features several other key elements like addressing the growing population of underwater borrowers.  According to administration officials, this program is expected to take effect over the next half year will be funded out of money remaining in the $700 billion bailout program for the financial sector and no new taxpayer funds would be needed.

The Bank of America is making the right step towards a positive direction in helping the housing market recover.  They announced yesterday that they will make principal forgiveness towards modifying certain sub-prime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program.

Aside from the help of the Bank of America, the Obama administration is actively working on a plan to help both jobless workers and those who owe more than their homes.  According to Herb Allison, Treasury assistant secretary for financial stability, the administration has come up with some interesting ideas to enable some additional people to participate in this program, especially people who may be unemployed or who need principal reductions.

The New Home Sales fell 2.2% to a record low 308,000 annual rate this February.  This record was much worse than the consensus estimates which called for an annual pace of 320,000 units.  The Northeast area saw the biggest decline in sales as it dipped 20.0% over the course of February while the Mid-western area was second with 18%.  These areas were hit the hardest with snow storms.

The reaction rates in markets are:

* 3.625% coupon bearing 10 year TSY note didn’t react but the 10s were already off their high yields
* FN 4.5 followed its benchmark guidance giver’s direction and rebounded off the intraday lows after bottoming out at a long standing 100-20 support.
* FN 4.0 is -0-11 at 97-21 yielding 4.228% and the FN 4.5 is -0-08 at 100-25 yielding 4.414%.  Secondary market coupon is 4.395%; current coupon yield is +63.7 basis points over the 10 yr TSY note yield and 69.1 basis points over the 10 yr swap.
* The 7-year note is the worst performer with 5s and 10s is not far behind.
* While 10s are rebounding, they face firm rebound resistance at 3.74%. The FN 4.5 will find it difficult to break 100-28.

Some cities are finally recovering from recession.  The top five metros like Washington / Arlington/ Alexandria, D.C., Austin/Round Rock, Texas, Dallas/Fort Worth/Arlington, Texas, Minneapolis/St.Paul/Bloomington, Minn-Wis and Houston/Sugar Land/Baytown, Texas are some of the areas that are surviving the downturn in real estate because they specialize in industries that are relatively insulated from economic volatility.  Federal and state jobs all but guarantee the health of a local economy, and nowhere is there more government-related work than in Washington.

Washington has one of the lowest unemployment rates in the country at 6.2% and its output amounts to 362.3 billion which is three times the average for the country’s largest cities.

There was also a modest slide in home sale prices in these areas than in other metros in late 2009.  These cities have strong housing markets that further enrich the local economy through secondary industries including construction, lending and household services.

In Austin, Texas, jobs rose by 0.98% more from December 2007 to December 2009.  The jobs are expected to rise by 8.09% three years from now.  Dallas is also home a thriving technology and energy sector where jobs are predicted o increase by 7.19% in three years.

Forbes identified these cities by looking for a relatively low unemployment rate, rate of job growth from December 2007 to December 2009, change in median sale price for single family homes during third and fourth quarter of 2009 and the Metropolitan Gross Domestic Product.

Bank of America, the largest mortgage lender in the country announced that it will forgive up to 30% of some customers total mortgage balances.  The homeowners must have missed at least two months of mortgage payments and owe at least 20% more than their home is currently worth.

The announcement was made to resolve legal problems as well as the potential of setting a precedent for other banks to also start forgiving principal on loans that are in danger of failing.  The announcement came as another report came regarding the continuing problems in the housing market that dropped to a record low last month.

A huge number of homes have gone into foreclosure since the real estate crash in 2007.  The loans affected by Bank of America’s announcement include certain sub-prime and option adjustable rate mortgages.  Option ARMs allow borrowers to start with minimal monthly payments that actually increase the loan’s balance.

The borrowers who can take advantage of the Bank of America program must also qualify for the Obama administration’s $75 billion mortgage loan modification program.  The offer will cut total reduced principal by about $3 billion and this could further hurt and lower the banks income.

The plan may carry some risks because borrowers who are not 60 days behind on their mortgages may stop making payments to qualify for the plan.  Bank of America estimates that about 45,000 customers will qualify for its plan.

Losing a home to foreclosure could affect your tax and credit history.  Not many homeowners understand these issues aside from the fact that they are bad.  The legal department of California Association of Realtors issued a memorandum titled “Credit After Foreclosure, Bankruptcy, or Short Sale.  This document is really helpful for those who have questions regarding their credit if they lose their home.

Here are some contents of the memo to help you understand the consequences of a foreclosure:

o Five years after foreclosure, a home buyer may be able to obtain a home loan.  At least 10% down payment is required and a minimum credit score of 680.  Buying a second home or other property is not allowed.
o A buyer may be eligible to obtain a home loan 3 years after foreclosure if the reasons behind the foreclosure happened under extenuating circumstances like nonrecurring events that are beyond the borrower’s control that caused a sudden, significant and prolonged reduction in income or increase in financial obligations.
o A consumer may be eligible for a home loan 4 years after a deed-in-lieu of foreclosure.  This period will be shortened to 2 years if foreclosure happened under extenuating circumstances.
o For a short sale, a consumer who is delinquent in their mortgage may be eligible for a home loan 2 years after completion of the short sale.  There are no exceptions here due to extenuating circumstances.
o If the borrower is not delinquent and he made a short sale, the two year period will not be applied.  The borrower should have no mortgage delinquencies for 60 days or more during the past year and should not have entered any agreement with a short sale lender to be eligible for a home loan.
o For bankruptcies, a 4-year period after the discharge or dismissal date will allow the buyer to apply for a loan again.