Great news for you first-time homebuyers out there - this week, the Senate and House passed a bill (the House vote was 403-12) extending the first-time homebuyer tax credit through mid 2010, which means that you have more time to find your dream home and take advantage of a monumental tax credit from the U.S. Government.

Here’s a rundown of the most recent developments:

First time homebuyers (who are defined as buyers who have not owned a home in the past three years) may be eligible for a credit of up to $8,000.

New Buyer Categories
Along with first-time homebuyers, existing homeowners (or “repeat buyers”) who have lived in their principal homes for 5 consecutive years (out of the past 8 years) and are purchasing a new principal residence may be now eligible for a credit of up to $6,500.

New Income Limits
Buyers filing as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income is less than $125,000. Married couples filing joint returns are eligible if their combined income is less than $225,000. Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.

New Dates
Many news outlets are referring to the credit as being extended through May, others are referencing June as the deadline. Specifically: to be eligible, binding purchase agreements must be signed by April 30, 2010 and deals must be closed by June 30, 2010.

New Guidelines for Qualifying Homes
All homes with a purchase price of less than $800,000 qualify. Vacation home and rental property purchases are not eligible.

The Credit is Refundable
If the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference. For example: a first-time buyer qualifying for the full $8,000 credit who owes $5,000 in federal income taxes would receive a $3,000 refund. Qualified home buyers can take the tax credit on their 2009 or 2010 income tax return.

The tax credit does not have to be repaid unless the owner sells, or stops using the home as their principal residence, within three years after the date of purchase.

All spheres of the housing industry are very excited about this breaking development! With rates still hovering at historic lows and a renewed extension on this historic tax credit, now is the time for first time homebuyers to consider entering the market!

Market Comment
Mortgage bond prices rose last week driving mortgage rates lower. The Treasury sold 104B in bonds, which were well received by foreign central banks. The indirect bidder participation, an indication of foreign demand, was near all-time highs.

For the week, interest rates fell by over a full discount point.

The employment report Thursday will be the most important release this week. The ADP employment report will also give a glimpse into the employment situation, though the two reports are derived from different data so there could be some divergence. Strength in other economic data will not affect mortgage rates.

GSEs
Government sponsored enterprises (GSEs) are financial services created by Congress. Two of the most important GSEs in the mortgage industry are Fannie Mae and Freddie Mac. These corporations were designed to make credit available to targeted borrowers in an efficient manor. Fannie and Freddie were completely privately owned. However actions by the Treasury and Congress within the last year now blur the ownership. The credit crisis left Fannie and Freddie with huge liquidity concerns. Drastic measures were taken to prevent total failure. The Treasury placed the GSEs in conservator, increased the lines of credit to the GSEs, and infused both companies with $100 billion for an ownership stake of 79.9%. This US Government ownership of these companies leaves many unknowns. While conservatorship implies temporary control, the Treasury exit strategy has yet to be revealed.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie traditionally differ. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time. In terms of demand, Treasury securities are regarded as “risk free” investments, and often benefit from a “flight to quality” in times of financial crisis.

Market Comment
Mortgage bond prices remained volatile in up and down trading last week. We started the week in positive territory only to have the gains erased; stronger than expected housing starts data shocked the market Tuesday and overshadowed the tame inflation data. Producer and consumer price data showed inflation stability, however oil prices fluctuated. US debt concerns continued as the Treasury announced record auctions ahead.

For the week, interest rates barely changed.

While the Fed meeting is usually the most important event, it will likely be overshadowed by the record $104b Treasury debt auctions this week. Durable goods order, income, outlays, and consumer sentiment data may also cause mortgage interest rate fluctuation.

Fed Meeting
The Fed’s chief policy tool is the manipulation of short-term interest rates. As of late, short-term rates have been so low that the Fed is limited with their options. The Obama administration is pushing for expanded Fed powers to supervise large banks, hedge funds, and consumer financial products. Both political parties express concerns about increasing the Fed’s role, citing previous failures. However, most agree something needs to be done and many argue the Fed is best equipped to tackle the current problems. All eyes will be focused on the Fed meeting Wednesday. A cautious approach to float/lock decisions is prudent heading into the meeting.

Market Comment
Mortgage bond prices had another terrible week pushing mortgage interest rates considerably higher. Personal income, outlays, construction spending, ISM Index, and payrolls data came in stronger than expected. This did little to help the already shattered bond market. Oil prices continued to escalate hitting over $70/barrel. The Fed’s attempts to keep rates in check were not effective as selling pressure continued. Bernanke tried to calm the markets by reiterating forecasts of tame inflation, but his words fell on deaf ears among bond traders.

For the week, interest rates rose by about 1 and 1/2 of a discount point.

Payrolls
Last week was a prime example of the divergence between the unemployment rate and payrolls figure along with the risk of floating into important data. Unemployment came in at 9.4%, higher than the expected 9.2%, while non-farm payrolls fell 345,000, not as much as the expected 520,000 decline. Mortgage bond prices fell and rates spiked higher. Bond traders hoped the report would provide a solid indication that the labor market remained weak. Unfortunately it left more uncertainty. The unemployment figure is derived from a household survey while the payrolls number comes from an employer report.

Energy prices rose considerably, stoking inflation fears amid record debt levels. As a result, the record-low mortgage interest rates that everyone assumed would hold steady, have gone away. The Fed continues to purchase mortgage bonds in an effort to keep mortgage interest rates low but faces a daunting task as the selling pressure continues. The Fed still has over $700b marked for purchasing additional mortgage bonds. The question remains whether that will be enough to help rates turn lower. So far, it appears that additional measures are needed.

PERL President Ken Perlmutter was quoted in an article in Friday’s Chicago Tribune regarding recent changes in the national mortgage market.