The sweeping housing legislation signed yesterday by President Bush provides a tax credit for first-time home buyers, higher mortgage allowances for expensive markets such as Boston, property tax breaks, and a variety of other benefits.
Although the main thrust of the legislation was to shore up the nation's primary mortgage providers, Freddie Mac and Fannie Mae, and stem the onslaught of foreclosures, the new law has numerous tax breaks and incentives for homeowners and buyers aimed at repairing the damaged housing market.
"There's enough for some, but not for everybody," said Representative Barney Frank, the Newton Democrat who sponsored the legislation. "If we had more money, we could do more."
Tax relief
First-time buyers can receive a $7,500 tax credit for buying a home by next July 1, a provision aimed at recharging sales in slumping markets. Eligibility requirements include that a buyer has not owned a home within the past three years. The credit is effectively a no-interest loan since the taxpayer must pay it back at a rate of $500 a year over 15 years. The credit begins to be phased out for single taxpayers earning $75,000 and ends at $95,000, and for couples earning $150,000 to $170,000, said Linda Goold, lawyer for the National Association of Realtors. Homeowners who elect to claim the standard deduction on their tax forms can receive a property tax break of $500, or $1,000 for couples filing jointly. Taxpayers subject to the alternative minimum tax will no longer have to pay taxes on the interest they earn from housing-related bonds sold by state and municipal governments. Lawmakers said this will lower the cost of building affordable housing by making the bonds more attractive to investors. Owners of vacation homes, however, will be limited in the amount of capital gains tax deductions they get when selling the second property, if they've used it as a primary residence during a certain period prior to selling it.New disclosure requirements
Lenders will have to provide copies of mortgage documents to borrowers at least seven days prior to the loan closing. Mortgage documents must completely disclose the full costs of the loan over its lifetime, including future increases in payments, for subprime or other types of adjustable-rate mortgages.Mortgage help
Freddie Mac, Fannie Mae, and the Federal Housing Administration will increase the loan amounts they can provide buyers in high-cost markets such as Boston. The ceilings will increase from $417,000 to $481,850 in the Boston area and to $625,500 on Nantucket and Martha's Vineyard. The higher limits are designed to give more buyers access to lower cost federally backed mortgages. Homeowners facing foreclosure will be able to refinance into more affordable loans, with $300 billion in funding available from the FHA. An estimated 400,000 subprime and other high-cost mortgages are eligible. The law requires holders of the original mortgage to agree to take a loss on the refinancing and for the new loan to be no more than 90 percent of the home's current market price. In return, the borrower has to forgo some portion of the future appreciation of the home.Only loans issued between January 2005 and June 2007 are eligible; only primary mortgages are eligible; and applicants' monthly mortgage payments must be equal to at least 31 percent of their gross monthly income. Frank said the financing will be available Oct. 1.
Senior citizens will be allowed to tap into larger reverse mortgages. Currently, owners are permitted to receive monthly payments based on between $200,000 and $362,790 of their home's equity, depending on their age, said Tjarko Leifer, managing director of Rex & Co., a San Francisco firm that sells an alternative to reverse mortgages. Residents of high-cost cities such as Boston could benefit under the new law, which raises those limits to between $417,000 and $625,500, he said. Lenders and investors will be barred from starting foreclosure proceedings against veterans until nine months after they return from service, up from three months previously. To support "underserved markets," the government will foster a secondary mortgage market for manufactured housing and develop beneficial underwriting guidelines.Federal aid
Communities hardest hit by foreclosures will share nearly $4 billion in redevelopment funds to fight blight. The funds will be used to purchase homes and rehabilitate them for resale to stabilize the neighborhood. While no areas were designated in the bill, some Massachusetts communities such as Dorchester or Lawrence may be eligible. Low-income housing construction was boosted with housing tax breaks worth $15 billion.Affordable housing
The Heritage Apartments in Malden is among low-income housing projects around the country receiving special treatment. The Department of Housing and Urban Development, in order to protect Heritage's low-income, mostly senior, tenants from eviction, will increase the size of rental vouchers paid to Heritage's owner, First Church in Malden, a nonprofit housing development agency. This will support First Church's ability to pay for renovations of the dilapidated property, congressional staffers said.Kimberly Blanton can be reached at blanton@globe.com.
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