Tax Credit Extension And Expansion Is Signed

(MoneyWatch)  This afternoon, President Barack Obama signed the Unemployment Compensation Extension Act (H.R. 3548, also known as the Worker, Homeownership and Business Assistance Act of 2009) that included an amendment to extend the $8,000 first time home buyer tax credit through June, 2010, and expand it to include trade-up buyers.

Existing homeowners who have owned their primary residence for five consecutive years out of the last eight, are entitled to take a tax credit up to $6,500.

Both first-time home buyers and trade-up buyers must not earn more than $125,000 as individuals, or more than $225,000 as married couples. The home cannot cost more than $800,000, a rule designed to show perhaps that millionaires (or even just the well-to-do) need not apply.

Members of the Armed Forces, military intelligence and Foreign Service who are on extended overseas duty or who have been on active duty for more than 90 days in 2008 and 2009 have another year to use the tax credit (through June 30, 2011).

What's the reaction from real estate professionals? By and large, they're thrilled. But if Wall Street seems consumed with what's happening in the next quarter, real estate agents and lenders tend to be worried about their next commission - not what's coming down the pike next year.

Here's what I'm thinking (and worrying) about:

• Treasury has spent more than $1 trillion to buy U.S. housing-backed securities. But Treasury has signaled it intends to stop doing this by the end of 1Q2010. Who's going to buy these securities and what will this do to mortgage interest rates?
• Fannie Mae just announced a new program yesterday called Deed For Lease. If you're on the verge of foreclosure, and for whatever reason don't qualify for a loan modification, you can turn the keys over to Fannie Mae and rent your house back at current market rates - which presumably will be less than what you're paying for your mortgage, taxes, and insurance. Fannie Mae promises not to try to sell your house for a year. And you can try to buy it back. Or not. But does this just delay some of the 7 million foreclosures that some economists project are lurking in the shadows?
• The unemployment numbers released this week are just awful. Today, the official unemployment number went to 10.2 percent, a 26-year high, and far higher than what was expected. Economists were projecting unemployment to top off at 10.5 percent at the very worst case scenario - and now are reconsidering those numbers. I'll go back to what I always say, if you don't have a job, there's no way you're going to make your mortgage payment.

There's a long road to travel before this housing crisis abates. In the meantime, mortgage interest rates fell below 5 percent for a 30-year fixed rate loan, according to this week's Freddie Mac survey. Time to refinance.

Read More:

• $8,000 Tax Credit Details
• $8,000/$6,500 Tax Credits Are A Done Deal. What's Next?
• Recession Over? Not With 21 Percent Unemployment.
• Have We Really Hit The Bottom Of The Housing Market?