Real Estate Stimulus Still Needed - HAMP a Hope

First-time and repeat homebuyers profited from the homebuyrer tax credit offered as part of the American Recovery and Reinvestment Act (ARRA) initiatives designed to help jump start the economy. That package helped sustain the residential real estate market through the past two years and has been particularly helpful to first-time home buyers, many of whom felt left out during the protracted increases in home prices up to 2007.

If the real estate market doesn't recover soon, it won't be for lack of trying on the part of President Obama's administration. The first homebuyer tax credit extended initially only to first-time homebuyers, expired in 2009 and was extended and expanded to include repeat homebuyers. As we approach the expiration of the extended/expanded version, April 30, not only industry insiders but savvy consumers, doubting the feasibility of another extension have been wondering what would be the next best thing that would give some support a real estate market still in need of crutches.

Crutches Still Needed
The evidence of the need for continuing support is all around us, even in New Mexico that seemingly weathered the downturn better than many other states, based on national trend reports.

1. The value of many homes, especially those bought in the four years immediately preceding 2007, is much lower than their mortgage balances, and homeowners are trying a variety of solutions to alleviate the burden they feel. According to the news I get from clients, some approach lenders seeking restructuring or modification. Some say they wait months and receive no response. Others say the responses they receive make their situation seem more arduous. 

2.Restructuring or modification becomes even more crucial when homeowners are faced with reduction in earnings because of job loss or other financial setbacks.

3.Unable to reach agreement with lenders some homeowners simply choose to walk away to homelessness or rental at a price more affordable than mortgage. 

4.Some homeowners try to sell but are unable to sell at a price high enough to pay off the mortgage balance.  The alternative is to seek agreement for a short sale in which the lender agrees to accept an amount short of what is actually owee. Currently this is a long process with uncertain outcome.

Short Sale Outcomes
If and when the short sale is executed, beleaguered homeowners may face additional challenges.
1. They may be required to sign a promissory note for the difference between the amount owed and the amount of the sale 
2.They incur a tax liability for the amount forgiven by the lender.

Given the scenario described, the announcement of new measures by President Obama to tweak the previously agreed upon Home Affordable Modification Program (HAMP) is welcome news to many hoping for a reprieve. It is hoped that the revised FHA- HAMP program, in providing principal reduction, will bring relief to homebuyers where it is needed most. It will also fill the gap that the expiration of the tax credit will leave, and so continue to support an industry that is still fragile and  still in need of stimulus.