Mortgage problems are walloping Americans’ credit scores

Late payments, delinquencies, short sales and foreclosures are on the rise — and so are the number of borrowers seeing their credit scores plummet, according to scoring company VantageScore Solutions

Reporting from Washington – When you do a short sale of a house, or modify the mortgage, is there much of an effect on your credit score? What if you walk away from the mortgage altogether?

A scoring company created by the three national credit bureaus — Equifax, Experian and TransUnion — has some eye-opening numbers. VantageScore Solutions, whose risk-prediction scores are now being used by some of the largest mortgage companies and banks, has found that the way consumers handle their mortgage problems can have profound effects on their credit scores.

For example, loan modifications that roll late payments and penalties into the principal debt owed on the house can actually increase borrowers’ scores modestly. Refinancings of underwater, negative-equity mortgages — which the Obama administration’s Making Home Affordable program offers through government-controlled Fannie Mae and Freddie Mac — may have little or no negative effect on scores, even though the homeowners might have been tottering on the edge of serious delinquency before refinancing.

The Vantage credit score, the primary competitor to the long-dominant FICO credit score, rates borrowers on a scale range of 501 (subprime, the highest risk) to 990 (super-prime, the lowest risk). Unlike Fair Isaac Corp.’s FICO scoring system, whose scores can vary by 50 to 100 points based on which bureau supplied the underlying credit data, Vantage scores are about the same for each consumer.

When homeowners negotiate a short sale with lenders, they sometimes assume that there will be relatively little effect on their scores. After all, the loan was successfully paid off, there was no foreclosure, and the lender voluntarily agreed to accept a lower balance than was owed.

But according to VantageScore researchers, short sales can trigger big drops in credit scores. Sarah Davies, senior vice president of analytics, said a homeowner with an excellent score of 862 might plummet 120 to 130 points after a short sale.

Although it’s true the lender may lose less money through a short sale compared with a foreclosure, “it’s still a derogatory event,” Davies said. The full debt was not repaid and the lender lost money.

What happens when borrowers walk away from their mortgage debts altogether — the so-called strategic defaults that have become commonplace in some large markets such as in California? They should expect 140- to 150-point hits to their scores, plus negative marks on their credit bureau files for as long as seven years.

People who file for bankruptcy protection covering all their debts (mortgage, credit cards, auto loans, etc.) will get hit with an average 355- to 365-point drop in their scores. Bankruptcies remain on borrowers’ credit bureau files for 10 years.

With all the mortgage delinquencies, short sales and foreclosures experienced by U.S. consumers in the last couple of years, has there been a deterioration of average scores across the board? Absolutely.

For example, roughly 36.6 million of the 213 million consumers tracked by the three national credit bureaus in the first quarter of 2008 had Vantage scores above 900 — the super-prime credit rung. That select group represented 17.2% of the country’s consumers.But by the end of the second quarter of this year, just 15.4% — 33.3 million out of 216.9 million individuals’ files — were left among the elite. By credit industry standards, that’s huge.

More Americans’ scores are slipping into the worst credit category as well. In the third quarter of 2006, 34.4 million consumers were in the lowest segment — 16.6% of 206.9 million individuals. But by the second quarter of this year, 18.3% of all files were in that category — 39.8 million consumers out of 216.9 million.

Most of these changes — fewer people with excellent credit, more people in the lowest brackets — have been caused by late payments on home mortgages, serious delinquencies, short sales and foreclosures, according to VantageScore researchers.

But the bottom-line good news about scores is that homeowners facing financial stress can experience minimal dings to their credit if they contact their loan servicer or lender early in the game — when they first discover that they may have trouble making their monthly payments — and take the first steps toward a loan modification or refinancing.

“Start that conversation early,” said Barrett Burns, a former lender and now chief executive of VantageScore. If you wait and fall several payments behind before seeking a modification, “you can lose 240 points on your score” and damage your ability to obtain credit for years.

For More in Depth News on todays changing real estate market read the Los Angeles Times.

National Association of REALTORS®

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed legislation that grants a tax credit of up to $8,000 to first-time home buyers.

Here is more information about how the 2009 First-Time Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

Who Qualifies?

First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?

The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Will the Credit Be?

The maximum allowable credit for home buyers is $8,000. Each home buyer’s tax credit is determined by two factors:

The price of the home—the credit is equal to 10% of the purchase price of the home, up to $8,000.

The buyer’s income—single buyers with incomes up to $75,000 and married couples with incomes up to $150,000—may receive the maximum tax credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.

By E. Scott Reckard

August 25, 2009

Los Angeles Times

Mortgage delinquencies will continue to rise and set records the rest of this year in California, according to projections to be released today by TransUnion, one of the three big U.S. credit-reporting companies.

The good news from TransUnion’s number-crunching is that, even in the tarnished Golden State, the trend may finally reverse itself by the middle of next year.

Before that can happen, lenders must first work through scads of backed-up problem loans clogging their pipelines, F.J. Guarrera, vice president for banking at the Chicago data analyzer, said in an interview Monday.

So in the immediate future the percentage of California home loans that are delinquent at least 60 days or are in foreclosure is projected to skyrocket to more than 14% by year’s end from 9.7% as of June 30, TransUnion said.

In the region including Los Angeles, Orange, Ventura, Riverside and San Bernardino counties, the delinquency rate also was expected to hit 14% at the end of the year, up from 10.7% as of June 30.

“We think that’s about as bad as it’s going to get,” Guarrera said.

California’s overall economic picture is worse than that of the country as a whole. The unemployment rate was 11.9% in July compared with the nation’s 9.4%. What’s more, the whipsaw of home prices from the housing boom and bust was exaggerated in California, leaving more borrowers than average “underwater,” or owing more than their homes are worth.

It’s no surprise, then, that the state’s mortgage woes are far greater than the nation’s. At the end of June, 5.8% of home loans nationally were late 60 days or more, a percentage TransUnion expects to rise to 6.9% by the end of this year.

The TransUnion data reinforce a report last week from the Mortgage Bankers Assn. on the new records being set for problem home loans. But the credit-reporting company had more specific regional numbers than the national trade group.

In particular, the situation and the outlook in the Inland Empire are “kind of staggering,” Guarrera said.

As of June 30, 14.9% of residential mortgages in San Bernardino County were at least 60 days late. And in Riverside County, where boom-era home building reached a frenzied peak, 16.5% of home loans were at least 60 days past due.

By comparison, at the end of the first quarter of 2007, Riverside County’s delinquency rate was 2.6% and San Bernardino County’s, 2.3%.

The normal national rate for these delinquencies is 1.6% to 2%, Guarrera said.

Although California will struggle for the rest of the year, the outlook nationally is brightening a bit, he said. For example, Ohio, a Rust Belt state where foreclosures surged long before those in California, recorded a lower delinquency rate in the second quarter with 4.57% of loans in the problem category, down from 4.79% the previous quarter.

Reporting from Washington – It’s one of the biggest unknowns bugging would-be buyers of houses and condos this summer: Will Congress let the $8,000 nonrepayable tax credit for first-time purchasers expire as scheduled 14 weeks from now?

Or will the credit get a second life and be extended for six to 12 months, taking pressure off buyers, real estate agents and escrow companies?

That’s an especially urgent matter if you’re a buyer just starting to shop and you see entry-level prices bottoming out or rebounding in many local markets. The tax credit statute requires buyers to fully close on their purchases — not just be in escrow — no later than Nov. 30. This doesn’t leave a lot of leeway for people who haven’t yet decided on a specific house and who haven’t nailed down financing.

The process of negotiating offers, signing sales contracts, applying for a loan and completing the closing can easily extend for two months — or a lot longer if things get off track.

Given the rapidly approaching deadline, what’s the likelihood that Congress will allow at least a little extra time? Here’s a quick overview: Although Congress is on its summer break, most members of the Senate and House use part of the August recess to meet with and listen to constituents in their home districts.

This year, the two biggest housing trade groups — the National Assn. of Realtors and the National Assn. of Home Builders — are spending the month mounting intense lobbying campaigns to make the case for extending the credit and maybe even expanding it. The effort is targeted first at the districts of members of the two tax-writing committees — House Ways and Means and Senate Finance — but is expected to cover most other members as well, according to officials of the two groups.

Delegations of home builders and real estate brokers already have begun descending on district offices, delivering what Jerry Howard, president and chief executive of the builders association, calls “the hard economic facts” — the numbers of houses sold in each Congress member’s district that are attributable to the tax credit; the economic ripple effects on local businesses, manufacturers and service industries; new jobs and income; plus the additional tax revenue that all this activity will help produce for local governments.

On a national basis, according to economists at the National Assn. of Realtors, the credit will be responsible for 300,000 to 350,000 additional sales of houses this year. Each home sale generates about $63,000 in downstream “ripple effects” elsewhere in the economy, they say.

If you accept the numbers, which some analysts consider a stretch, this means the housing credit provides a powerful, immediate stimulus bang for the buck. Failure to extend what may be one of the most effective pieces of the Obama administration’s 2009 stimulus legislation would cost jobs, economic growth and tax revenue, the housing groups contend.

There are some signs that Congress may be getting the message. Bills are pending in both houses to extend the credit for another year. Senate Majority Leader Harry Reid (D-Nev.), whose state has been among the worst hit by the housing bust, reportedly favors an extension of the credit. He was quoted to that effect by the Las Vegas Sun on Aug. 5.

Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, is cosponsoring a bill with Sen. Johnny Isakson (R-Ga.) that would raise the credit amount to a maximum of $15,000. Meanwhile, the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.

But can any of this happen before the Nov. 30 deadline? The key complicating factor here is Congress’ heavy load of higher-profile issues that will get attention before anything else in September and October. On top of that, a tax credit extension would cost billions in lost revenue — a big negative when the federal budget deficit is in record red-ink territory.

In the end, however, given the political economics of the housing credit, the odds favor some sort of extension, probably later rather than -sooner.

If you have any questions regarding this or any other  financial matter please do not hesitate to contact Salomon A. Quijada, your real estate expert.

07/16/09

McCLEAN, Va. – Rates for 30-year home loans dropped for the third-straight week, inching toward a record low reached earlier this year, Freddie Mac said Thursday.

The average rate for 30-year fixed mortgages was 5.14 percent this week, down from 5.2 percent last week. Last year at this time, the average rate for a 30-year mortgage averaged 6.26 percent, Freddie Mac said.

Falling mortgage rates can spur refinance activity, which increased as rates on 30-year mortgages fell to a record low of 4.78 percent in April.

But rates then rose as high as 5.6 percent in June after yields on long-term government debt — closely tied to mortgage rates — climbed as investors worried that the huge surplus of government debt hitting the market could trigger inflation.

Since then, the yield on the 10-year Treasury note has fallen back from an eight-month high of 4.01 percent reached in June to 3.53 percent on Thursday.

Frank Nothaft, Freddie Mac’s chief economist, said rate reductions over the past five weeks translate into monthly savings of $56 on a $200,000 mortgage.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

This week, the average rate on a 15-year fixed-rate mortgage fell to 4.63 percent, down from 4.69 percent last week, according to Freddie Mac.

Average rates on five-year, adjustable-rate mortgages were 4.83 percent, up just a bit from 4.82 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.76 percent from 4.82 percent.

The rates do not include add-on fees known as points. The nationwide fee averaged 0.7 point for 30-year and 15-year fixed rate mortgages, and five year adjustable rate mortgages. The fee for one-year adjustable rate mortgages was 0.5 point.

WASHINGTON – The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills.

The mushrooming foreclosure crisis affected more than 1.5 million homes in the first six months of the year, according to a report released Thursday by foreclosure listing service RealtyTrac Inc.

The data show that, despite the Obama administration’s plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation’s housing woes continue to spread. Experts don’t expect foreclosures to peak until the middle of next year.

Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.

“Despite all the efforts to date, we clearly haven’t got a handle on how to address the situation,” said Rick Sharga, RealtyTrac’s senior vice president for marketing.

More than 336,000 households received at least one foreclosure-related notice in June, according to the foreclosure listing firm’s report. That works out to one in every 380 U.S. homes.

It was the fourth-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes. Banks repossessed more than 79,000 homes in June, up from about 65,000 a month earlier.

On a state-by-state basis, Nevada had the nation’s highest foreclosure rate in the first half of the year, with more than 6 percent of all households receiving a filing. Arizona was No. 2, followed by Florida, California and Utah. Rounding out the top 10 were Georgia, Michigan, Illinois, Idaho and Colorado.

The Obama administration in March launched a $50 billion plan to give the lending industry financial incentives to modify mortgages to lower payments, but it’s off to a slow start.

As of early July, about 130,000 borrowers were enrolled in three-month trial modifications under the plan, and 25 mortgage companies have signed up to receive potential payments of up to $18.6 billion, according to the Treasury Department. But analysts and housing counselors say it isn’t having much of an impact.

“The plan isn’t going well, at least not yet,” said Mark Zandi, chief economist at Moody’s Economy.com. “It’s a creative plan with lots of incentives, but it’s very complex.”

In testimony prepared for delivery at a Senate hearing on Thursday, Bank of America executive Allen Jones said the company has about 80,000 loan modifications in the works under the new government guidelines, including some that aren’t in the three-month trial phase yet.

“We have achieved this level of success by devoting substantial resources to this effort,” Jones said, noting that the company has more than 7,000 employees handling calls and working on modifications. Industry experts, however, say the response from most mortgage companies has been lackluster.

“They’ve been slow to make sure they understand it and put all the processes and people in place,” said Joel Lewis, vice president of financial services at Convergys Corp., which runs call centers for the financial industry and other companies.

A week ago, Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan sought to ramp up pressure on the industry, saying in a letter to participating mortgage companies that the industry needs to “devote substantially more resources to this program for it to fully succeed.” They also summoned mortgage executives to a July 28 meeting with top government officials.

Though the program was launched months ago, few companies are upgrading their computer systems to process loans rapidly, said Bill Kelvie, chairman of Overture Technologies in Bethesda, Md.

“They need to automate the process, and they need better technology, and they need to do this quickly,” he said.

In its summary of monthly highlights, the agency said it provided nearly $72 billion of liquidity to the market, mostly in the form of Mortgage-Backed Securities ($67.7 billion). Fannie also securitized more than $61 billion of whole loans within their investment portfolio.

Fannie, the largest funder of U.S. home mortgages, began accepting refinance mortgage originations in April, as part of its ‘Making Home Affordable’ Program. This helped their refinance volume increase to $57 billion in May.

“We expect that our refinance volumes will remain above historical norms in the near term, but may fluctuate from month-to-month based on a number of market factors,” the press release stated. Looking ahead, Fannie said the MHA Program “will bolster refinance volumes over time as major lenders adopt necessary system changes and consumer awareness continues to build.”

Fannie’s total portfolio of mortgage holdings grew from $770.1 billion to $789.6 billion in the month, and they are expected to expand it to $900 billion later this year, before reducing activity early next year.

Meanwhile, delinquencies are on the rise: Fannie said the pace of serious delinquent payments ― 90 days or more delinquent ― on single-family Fannie-sponsored mortgages soared 27 basis points to 3.42% in April. Just one year prior, the rate was 1.22%. 

For multi-units, the serious delinquency rate was up two-tenths to 0.36%, quadrupling the rate from last year.

Delinquencies are expected to continue as the unemployment rate approaches double-digits. 

WASHINGTON — Call it son of subprime. Experts warn that a new wave of mortgage foreclosures may be coming soon and could rival the default rates for subprime mortgages and slow efforts to find bottom in a prolonged national housing slump.

The mortgages in question are $230 billion of option adjustable-rate mortgages, creative lending products that flourished at the height of the housing boom. In an option ARM, a borrower can opt to pay less than his or her monthly balance due, and the difference is tacked onto the outstanding loan balance.

Many experts had expected an explosion of defaults in the springtime on these roughly 564,000 outstanding mortgages. However, interest rates dropped to historic lows, and that delayed the detonation of what many housing analysts still see as a ticking time bomb.

“They’re probably going to default at a rate that makes subprime look like a walk in the park,” warned Rick Sharga , senior vice president for RealtyTrac, a foreclosure research firm in Irvine, Calif.

Option ARMs have triggers that reset to a new interest rate based on either a set timeframe or when debt exceeds some cap above the loan’s value. The spring drop in interest rates allowed many borrowers to escape a day of reckoning because the lower rates prevented a triggering of that cap.

That just postponed the problem, however, because most option ARMs have five-year automatic trigger dates. These loans were most prevalent in states such as California , Florida and Nevada , where home prices have sunk so far that many homeowners are underwater: They owe more than their homes are worth.

The bulk of outstanding option ARMs — a product no longer available to homebuyers — were issued between 2004 and 2007. Monthly payments on these mortgages are due to reset to a higher lending rate between 2009 and 2012.

“They’re going to have a loan they cannot afford on a house that’s probably way underwater and not have a lot of good options on how to avoid foreclosure proceedings,” Sharga said.

While a smaller number than subprime mortgages, option ARMs grew from 3 percent of all mortgages bundled and sold to investors in 2004 to 14 percent by 2007.

They pose risks for the broader U.S. economy because they threaten to add inventory to a depressed housing market and could hasten the blistering pace of foreclosure filings — more than 1 million from March to May alone.

“We can’t rebuild housing values when there’s a serious risk that another set of mortgages is collapsing,” said Elizabeth Warren , a Harvard University law professor who heads a government panel overseeing the spending of Wall Street bailout money.

The Mortgage Bankers Association , representing mortgage lenders, takes a more optimistic view.

“Relative to what the industry was looking at a year and a half ago . . . the recast is not going to be the problem people thought it was going to be,” said Michael Fratantoni , the vice president of research for the MBA.

If the subprime crisis hit like a heart attack, the option ARM problem is more like a worsening chronic illness.

In a prescient cover story on Sept. 11, 2006 , Business Week magazine labeled option ARMs “nightmare mortgages” and warned that it “might be the riskiest and most complicated home loan product ever created.”

Subprime mortgages caught the nation by surprise because of their short two-year resets to higher interest rates. Option ARMs reset over a longer horizon and thus are a slowly unfolding nightmare.

“This one, everyone knows it’s worsening. Everyone sees it worsening,” said Sandipan Deb, a credit analyst in New York with Barclays Capital , a global investment firm.

This long lead time gives lenders and borrowers time to seek alternatives, MBA’s Fratantoni said.

Analysts put the current default rate on option ARMs at 35 percent or higher.

Most were sold into a secondary market, where they were pooled with other mortgages and sold to investors as bonds or securities. The number of these loans is quantifiable, but banks aren’t required to disclose how many such loans they wrote. It’s unclear how many option ARMs remain on banks’ books and weren’t sold to investors.

Barclays Capital estimates that at least 37.5 percent of option ARMs originated in 2005 remain outstanding, as well as 63 percent of those originated in 2006 and 82 percent that originated in 2007. Deb and fellow Barclays analysts forecast a 38 percent loss rate for pools of option ARMs originated in 2006 and 48 percent losses for those issued in 2007.

Since option ARMs were most popular in states with the largest home price declines, many borrowers owe 30 percent or 40 percent more than their homes’ current values.

That puts many of the Obama administration’s mortgage relief programs out of reach for them, since these programs aid borrowers by lowering interest rates.

“The problem with these option ARM borrowers is they are already paying a low rate,” Deb said, adding that a better solution would involve forgiving part of the loan balance, something that most lenders have been unwilling to do.

The Obama administration, however, has offered financial incentives to lenders that are willing to accept a short sale or deed-in-lieu transfers. Both of these options involve a bank taking back an underwater mortgage, freeing the owner from further payment and allowing for a speedy resale of the property, avoiding foreclosure proceedings.

“These are the kinds of properties that are right out of central casting for those types of procedures,” said Sharga, of RealtyTrac.

WASHINGTON (AP) — Rates for 30-year home loans jumped to the highest level in seven months this week, leading to a slowdown in refinancing activity, Freddie Mac said Thursday.

The average rate for a 30-year fixed mortgage was 5.59 percent this week, up from 5.29 percent last week, Freddie Mac said. The last time the average 30-year fixed rate mortgage was higher was the week ended Nov. 26 of last year, when it averaged 5.97 percent.

Frank Nothaft, Freddie Mac’s chief economist, said the higher rates followed an increase in bond yields, a barometer for interest rates on mortgages and other loans.

On Wednesday, the government was forced to lift the yield on 10-year Treasury notes to 3.99 percent to lure in buyers at an auction. That was the highest yield it’s offered since last August, before it started bailing out the nation’s financial industry.

Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

Nothaft said the higher rates “are slowing refinancing activity but not demand for home purchases.”

During the three-weeks ended June 5, interest rates for 30-year fixed-rate mortgages rose nearly one-half of a percentage point, Nothaft said. Conventional mortgage applications for refinancing fell each week during that period, while applications for home purchases consecutively increased, according to the Mortgage Bankers Association.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

The average rate on a 15-year fixed-rate mortgage rose to 5.06 percent, up from 4.79 percent last week, according to Freddie Mac.

Rates on five-year, adjustable-rate mortgages averaged 5.17 percent, up from 4.85 percent last week. Rates on one-year, adjustable-rate mortgages rose to 5.04 percent from 4.81 percent.

The rates do not include add-on fees known as points. The nationwide fee averaged 0.7 point last week for 30-year and 15-year mortgages, and one-year adjustable rate loans. Fees averaged 0.6 point for five-year adjustable rate loans.

By Kenneth R. Harney
June 7, 2009

Reporting from Washington — The Obama administration has put out the official word: Starting soon, first-time home buyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing.

But in its final guidelines to lenders and buyers issued May 29, the Department of Housing and Urban Development clarified that buyers obtaining FHA loans through private lenders would have to invest at least some of their own funds — whether from personal savings or gifts from relatives — in the form of a minimum 3.5% down payment.

In other words, you’ll need equity in the house to participate. This won’t be a zero-down plan, with one exception: If you obtain your FHA loan through one of about 10 state housing agency “tax credit monetization” programs, you’ll be allowed to pay for your entire down payment with the help of a bridge loan provided by the agency.

Those bridge loans generally are low-interest or no-interest short-term second liens secured by the property, and convert into second mortgages if they are not paid off with the proceeds of the tax credit.

For FHA lender-supplied cash advances, you’ll be able to use the $8,000 tax credit — or whatever-size credit you qualify to receive — for settlement fees, escrow charges, higher down payments or to “buy down” your interest rate to cut monthly payments.

How will this all work in practical terms? How do you apply? Here’s a quick guide:

To start, you’ll need to qualify as a first-time buyer under the generous definition permitted by Congress — that is, you cannot have owned a principal residence during the previous three years, and your household gross income cannot exceed $95,000 for single taxpayers or $170,000 for married couples filing jointly.

To get the process rolling, you’ll have to write a contract on a house you can afford to buy and apply for a mortgage through an FHA-approved lender. There are more than 12,000 lenders with that designation. Large banks or bank-affiliated mortgage lenders are more likely to be geared up for the program in the near future, according to industry experts. Home builders, who have advocated credit-monetization programs for months, are likely to be major participants. The tax credit program requires all eligible purchases be closed no later than Nov. 30.

Besides the usual mortgage application information, the lender is likely to require some extra paperwork, based on FHA guidelines:

* A filled-out IRS Form 5405, which is your request to the federal government to send you a tax credit check. You can file an amendment to your 2008 return and get the credit within a matter of weeks, or you can file for it on your 2009 taxes. Most buyers are expected to opt for the amended return route. Form 5405 is available for download at www.irs.gov.

* Proof that you have no outstanding judgments, liens, unpaid taxes or other obligations that could reduce or eliminate the tax credit you’re seeking.

* Confirmation from your employer that you are not subject to wage garnishments, which could also affect the amount of the credit.

Your lender will be strictly limited on what it can charge for providing you tax credit money in advance. According to FHA guidelines, fees must be reasonable and nominal — generally no more than 2.5% of the expected tax credit. For example, if you’re in line to receive the full $8,000 credit, that would mean the most you could be charged for the cash in advance typically would be $200.

A senior HUD official said that the agency wanted to keep these fees as low as feasible to avoid abuses or gouging, and that HUD would be monitoring transactions to make sure participating lenders were adhering to the guidelines.