How the stimulus bill will help homeowners

The Senate approved the economic stimulus bill, formally called HR 5140, with an overwhelming vote of 60-38. The stimulus package, amounting to a gargantuan $787 billion, is an ambitious package of federal spending and tax cuts designed to revive the United States economy and save or create millions of jobs.

There are many hopes riding on the package, and it is generally viewed as the savior of the US economy and the world economy as well. Last week, President Barack Obama signed it into law in order to start the economy down the road to economic recovery.

In summary, the stimulus bill will provide one-time rebates to roughly one hundred and eleven million families, provide tax breaks to businesses and ease mortgage loan limits. Now what are more important to most of us is the provisions of the stimulus bill and its effect on homeowners. The housing bubble has been considered by many as the root cause of the economic downturn.

First, the bill aims to create about 3.5 million jobs, providing respite to homeowners who have lost their jobs.

Second, the bill can provide homeowners much-needed cash via tax breaks. Tax breaks can amount to $400 for individuals and $800 for couples on the first payment alone.

Third, there’s a homebuyer tax credit provision, which provides a $7,500 tax credit to first time homebuyers up to a maximum of $8,000. The good news is you don’t have to repay the $8,000. The credit is available to homeowners with a gross income of $75,000 to $95,000 for individuals and $150,000 to $170,000 for married couples. The definition of “first-time” homebuyer is someone who hasn’t purchased a house in the last three years. As a form of protection, the bill will force a recapture of the entire $8,000 tax credit if the home is sold within three years of purchase.

And lastly, the bill extends the increase in loan limits that were passed in 2008. The limits are 125 percent of the median home price for the local area for FHA and $417,000 for Fannie and Freddie. Giving people access to more credit will help people feel they are in a better financial position and help spark an increase in home purchases.

The positive effect of the stimulus bill on housing doesn’t end there. President Obama also hinted of a $50 billion plan to help stem foreclosures in heavily affected states like Arizona. The president’s economic team will be providing the public with the details of the plan to prod the mortgage industry to do more in modifying the terms of home loans so borrowers have lower monthly payments.

All these provisions are aimed at alleviating the house foreclosures, which have increased to a record high of 81 percent from 2007 and might increase further, depending on the effectiveness of the economic stimulus bill.

Last February 12 the 30-year, fixed-rate mortgage averaged 5.16 percent, which is 0.56 percentage points off from last year’s. This has led to an increase in mortgage refinance applications. At the same time, it also shows the positive impact of the stimulus bill.

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