Brookfield Homes

California’s Governor Arnold Schwarzenegger is proposing a return of the Housing Tax Credit.

In his last State of the State address, the Governor announced his upcoming budget proposal (to be released on Friday) would include $200 million for Tax Credits to home buyers in California. Based upon the success of last year’s New Home Purchase Tax Credit, the Governor will propose to the Legislature that the purchasers of each new and resale home in California be granted up to $10,000 of State Tax Credit (within specific guidelines and time frames).

The idea for a California Home Purchase Tax Credit is driven by a number of factors. First, the incentive for providing the Tax Credit is the creation of new jobs. As highlighted by the California Building Industry Association (CBIA) a Tax Credit for the construction of each new home in the state generates up to 3 new jobs. Second, the Tax Credit has been shown to also generate up to $10,000 of new State revenues (through sales, income and property taxes) and up to $3,000 of local revenue (through sales and property taxes). And third, the Tax Credit also helps stabilize neighbor home prices through increased demand and sales activity.

A new twist on the proposal this year is the provision to utilize the Tax Credit for resale home purchases. This change follows the recent Federal Housing Tax Credit extension plan, which opened up the Federal Tax Credit to any purchaser of a home, not just to first time home buyers.

A number of issues will need to be worked out with the Governor’s proposal. For example, it is likely that the new State Tax Credit will follow the guidelines utilized by the 2009 Housing Tax Credit, requiring the credit amount to be spread over three years and limiting the credit amount to the amount of state tax owed by the home buyer, not to exceed $3,333 per year. Additionally, by placing a limit on the Tax Credit allocation of $200 million and opening the Tax Credit eligibility to resale and new home buyers, the Franchise Tax Board (FTB) will need to create a program allowing prospective home buyers to reserve an allocation of the limited Tax Credits at the time a purchase contract is signed for the home sale. There may also need to be a division of the Tax Credit allocation between new and resale home buyers, as the resale homes will be more available and will dominate the sales activity in the early weeks of the Tax Credit life. While this may sound like a “so what?” to most people, the job creation aspect of the stimulus provided by a Tax Credit will not achieved if only a small number of new homes buyers are able to take part in the program.

And, finally, remember this is a proposal. The Governor can not make the law, he can only approve a law drafted by the Legislature. The Governor’s budget proposal contains the provision for a Housing Tax Credit. The Administration will need to work with the State Senate and Assembly to craft the language, the rules and the “where as-es” to draft a Bill that creates a Tax Credit for California home buyers. As they say … “the devil is in the details”. Stay tuned as the adventure begins again!

Following up on my September 18th post, we now know what HUD plans to do with the Condominium Approval Process … or do we?

On November 6, 2009, HUD issued two (2) new Mortgagee Letters, specifically 2009-46A and 2009-46B. Mortgagee Letter 2009-46A (ML09-46A) is a temporary direction to address market conditions and expires on December 31, 2010. Mortgagee Letter 2009-46B (ML09-46B) is the new permenent guidance for FHA’s condominium project approval process and replaces the direction provided in Mortgagee Letter 2009-19 released June 12, 2009.

ML09-46A will apply to “… all FHA case numbers assigned on or after December 1, 2009 through December 31, 2010.” ML09-46B is “… effective for all case numbers assigned on or after December 7, 2009, except as noted.” And, for all previous condominium approvals issued by HUD, “…they will expire two years from the date of placement on the list of approved condominiums. Further participation in the program after the two-year period has expired will require recertification …”.

Under ML09-46A, the concentration of FHA insured loans within an approved project will be increased to 50% and may be further increased to 100%, provided certain conditions are met. Under ML09-46B the maximum concentration will be reduced back to 30%.

Under ML09-46A the pre-sale requirement is temporarily reduced to 30%, and the use of Spot Loans is allowed through February 1, 2010. Under ML09-46B the pre-sale requirement is raised back to 50% and the use of Spot Loans is eliminated.

There are a number of other issues to discuss and review in these new Mortgagee Letters. I will do more research on each and provide additional information in the coming days.

The US Senate and the House of Representatives have voted on an extension of the Federal Housing Tax Credit, with a new twist! The passage of H.R. 3548 provides for an extension of the existing first-time home buyers tax credit of $8,000 AND provides a new tax credit for move-up buyers of $6,500! The legislation is expected to be signed by the President on Friday, November 6th!

First time home buyers will be eligible for the Federal Tax Credit if they meet the criteria of the original Tax Credit legislation, namely:

1. An income limitation of $75,000 for a single purchaser or $150,000 for a couple.

2. The Tax Credit is limited to 10% of the purchase price of the home or $8,000, whichever is less.

3. The purchaser must be a first time home owner and the residence must be their principle residence.

For the new Move-up home buyer the criteria is similar:

1. You must have owned your current home for 5 or more years.

2. The income limitations are $125,000 for a single or $250,000 for a couple, but above those limits the $6,500 Tax Credit may be available on a phase out basis.

3. The home must be your principle residence and may be priced up to $800,000.

For both groups, the Tax Credit will be available to those purchasers who sign a contract to purchase by April 30, 2010 and close escrow no later than June 30, 2010. (The credit may be extended for up to 12 months for purchasers who are serving in the military outside the United States for at least 90 days. Further clarification on this provision will be forth coming.)

Senator Johnny Isakson (R-Ga) believes this will be the last Tax Credit extension for home buyers. If you are interested in your first new home or would like to move-up to a new home, now is the time to be buying. The Federal Tax Credit is being given a one time extension … think of it as a great Christmas present!

Tuesday night, or more accurately, Wednesday morning, the California Legislature passed a series of bills aimed at solving the long running “Bay-Delta Water Issue”. The package of bills is on its way to the Governor’s desk for his signature. Governor Schwarzwenegger has announced he will sign the historic legislative package. So, what did the Legislature do? In simple terms, here’s my synopsis.

The Legislature passed a five bill package of new laws. Each of these new laws is focused on a specific area of water regulation. They are:

SBx7-1 - A comprehensive new governance structure that will oversee nearly all activities, agencies and regulations within the “Bay-Delta Region”. This bill deals with land use, water rights, environmental and conveyance issues. This bill is the heart of the legislation.

SBx7-2 - A comprehensive bond bill, asking the voters of California to approve $11.14 billion of state general obligation bonds to finance a wide variety of improvements, enhancements, storage, conveyance and environmental protection projects. This bond will be put to the voters of California in November of 2010.

SBx7-6 - A bill requiring groundwater monitoring and reporting requirements and initiating fiscal penalties for failure to do so. This bill raises the level of scrutiny and protection for groundwater basins.

SBx7-7 - A bill requiring all water users in California to practice conservation and efficiency uses of water through new water management and efficiency plans. This bill creates water awareness programs for all Californians.

SBx7-8 - A bill to increase water protection programs through new regulations to stop illegal diversions of water and provide penalties for enforcement. This bill also provides about $4.2 million, through existing funds, to support enforcement programs.

That is it in a nutshell. When you look at the pieces, it all seems quite simple and you have to ask “Why did this take so long?” The simple answer is politics. The real answer is an age old adage: “Whiskey is for drinking. Water is for fighting!”

Whether this “landmark legislation” is the answer to California’s water problems will all be decided by the details. First and foremost, is the detail of funding this program. Without the passage of the November 2010 Water Bond, the promise of the legislation is greatly in danger. Assuming the voters of California will support the “Bay-Delta Solution”, then the devil in the details will fall on the new governance structure. The new governance program will the critical body that moves forward to implement this legislation. The politics will be overwhelming. The stakeholders are numerous, vociferous, and dangerous. So, if you thought the fighting over the language of the bills was nasty, you haven’t seen anything yet!

Let’s celebrate the “landmark legislation” for a little longer, but then it is time to get to the real work of fixing the Bay-Delta delivery system, eco system and regulatory system.

On October 29th, Congress passed a Resolution to extend the current FHA and GSE conforming home loan limits through 2010, according to a press release issued by the California Association of Realtors. Part of the Housing and Economic Recovery Act of 2008 included temporarily raising the conforming loan limits from $625,500 in high-cost areas to $729,750 and extending the limits through 2009. Last weeks actions effectively extend the higher conforming loan limits for Fannie, Freddie, and FHA loans through 2010, subject to the Presidents approval which is expected this week. Extensions of conforming loan limits for VA loans are also being debated, but will require a separate action through the Veterans Administration.