Oregon Rural Counties Get Oregon Bond Home Loan Income Limit Increase; Eligible Incomes Now More than Twice Median Incomes in Those Counties.

OHCS has adopted new income limits for the Oregon Bond Program. 

That happens every year, but this  there are some BIG changes that may have flown below the radar. 

The annual income limit change process is not transparent and involves IRS and  detailed calculations and policy choices from each state housing finance agency. 

This year I expected to see increases because of big increases in HUD median family incomes that are used in the process of establishing annual income limits for the bond program.

Vast Majority of Households In 13 Rural Counties Now Have Incomes Below New Oregon Bond Income Limits

After looking at the details its clear that the income limit increases in rural counties in Oregon were substantially greater than in the Portland metro area. All of these 13 rural counties received a uniform 31% increase in their Oregon bond income limits, while the Portland metro counties saw a 10% increase. 

There are now 13 rural counties that have income limits at the same level as the Portland metro max income limit, $149,100. 

ALL of the area within these 13 counties are designated as "targeted" and are permitted to have higher income limits. (In the 5 county Portland metro area only the City of Vernonia and select City of Portland census tracts are targeted areas, all of the other areas in these 5 counties have lower income limits, $130,561).

Since median family incomes are lower in these 13 counties than in the Portland metro area, a greater share of the population in these rural counties will be potential users of the Bond program  even if the maximum income limit is the same. 

Targeted areas also do NOT require the purchaser to be a first time homebuyer--this further expands the eligible universe of potential users of the Oregon Bond program in these 13 rural counties. 

In 12 of those counties the Oregon bond income limit is more than DOUBLE the HUD 4 person median family income. 

After looking at HUD special household income tabulations for rural counties in Oregon I conclude that is likely that well over 90% of ALL households [renters and owners] in these 13 counties have incomes below the Oregon Bond income limit. 

This expanded eligible universe is substantially greater than the 80% of median family income that is often cited as the target demographic for the Oregon Bond program. 

Metro and Rural Example: 

The Portland Metro HUD Median Income Is More than Double than the Wheeler County Median Income, But Has the Same (or less) OHCS Bond Income Limit.  

The max Portland metro 3+ person Oregon bond income limit  is $149,100, if the property is located in a targeted area. That's 140% of the HUD 4 person median family income for the Portland metro area of $106,500. 

In all of Wheeler county the 3+ person Oregon bond income limit is also $149,100. That's 287% of the HUD 4 person median family income for Wheeler county of $51,900.  

The Portland metro area has a HUD median family income that is more than double that of Wheeler county ($106,500/$51,900=205%), but has the same (or less) OHCS bond income limit ($149,100). 

Comment: Because the bond program also has purchase price restrictions it's not clear what the impact of these higher limits will be. 

There is a possibility these higher limits might be a benchmark for use for the long delayed Flex loan program, but at that point that is just speculation. 

The chart pasted below shows the detailed comparisons for these 13 counties along with the Portland metro income limits. 

Originally created and posted on the Oregon Housing Blog. 

Update: New HUD Income Limits Could Substantially Boost Oregon SF Bond Program [AND Portland MCC Program] Income Limits and Purchasing Power.

Update: Link in the first paragraph has been corrected.
--------

Long time readers of the blog may recall a series of 2014 posts about changes in the Oregon Bond and Portland MCC program that could be made to increase the reach of those programs. (See link HERE for a listing of those posts).

HUD last week published revised median family incomes and IRS recently published purchase price limits data (HERE) that are used to establish sales price and income limits for qualified mortgage bonds and MCC programs.

Purchase Price Limits
OHCS has acted quickly to change the purchase price limits with a publication HERE  effective March 31st. 

Possible Income Limit Changes
The formulas to determine maximum income limits are far more complex, and the state also has the discretion to NOT change the maximum income limits.   However, after running updated data through the spreadsheet I constructed in 2014, IF my calculations are correct, it appears to me that SF Oregon Housing Bond income limits, and purchasing power, could be substantially increased for many Oregon areas.

For the Portland metro area, in non targeted areas, I project that the income limits, and purchasing power, could be increased as follows.

3 Persons or More
New Possible  Limit $104,534.
Current Limit $96,954
Possible Income Increase: $7,580/7.8%
If 30% of that additional income ($189.50 monthly) was used for mortgage payments @ 3.25% interest , I calculate that a borrower at the new possible income ceiling could afford to borrow $43,543 MORE than a borrower at the current limit.

1-2 Person
New Possible Limit $89,640
Current Limit $84,308
Possible Income Increase $5,332/6.3%
If 30% of that additional income ($133.30 monthly) was used for mortgage payments @ 3.25% interest, I calculate that a borrower at the new possible income ceiling could afford to borrow $30,629 MORE than a borrower at the current limit.

[ At least for Portland metro, using 30% underwriting ratio and 3.25% interest, it appears that every dollar of max income increase produces a $5.74 increase in max purchasing power]. 

Given the substantial unused 2017 private activity bond cap in Oregon [currently $148 million, along with substantial carry over for prior years], and the past history of generating revenue from the SF bond program, I anticipate that Oregon Housing and Community Services will act to upward adjust the current income limits. 

NOTES ; 

• The City of Portland could increase their income limits for the Mortgage Credit Certificate program to match the Oregon Bond Program. Those Portland MCC income limits are substantially below the current Oregon Bond Program so a change to the new maximum may result in a even higher boost in purchasing power. (MCC 's however cannot be combined with low rate of the Oregon Bond Program).
• Other counties could also see increases in purchasing power. 

Originally created and posted on the Oregon Housing Blog

2023 Oregon Bond Loan Program Income Limits: Portland Metro and Deschutes County Limits Are UP, But ALL Other Counties Are DOWN.

Last year I pointed out that newly published Oregon Bond income limits for rural areas were substantially higher than HUD median incomes. Because of this I estimated that up to 90% of all rural households may have qualified for the Oregon Bond program, a program that was traditionally though to be focused at 80% MFI or below.

OHCS has just published their 2023 Oregon bond income limits (effective June 28) and 

• Portland metro limit went up, as did income limits for Deschutes counties. 
• Limits in ALL other Oregon counties went DOWN.  

The PDF file HERE and embedded below shows the county by county difference by household size and for targeted and non targeted areas.  

OHCS does not publish it calculation of Home Loan Bond income limits so I don't know if the reductions this year were specific corrections from last year, because of changing data, or because of policy choices.  (I don't have an insight as to why even limits in Benton, Lane, Marion, and Jackson metro counties went down).

Note that OCHS bond loan are also subject to maximum purchase prices found HERE. 

The current Oregon bond loan rates are Rate Advantage 5.875%/Cash Advantage 6.5%.

Portland Metro Income Limits as High As $157,920.

A Portland metro family of 3 or more can income qualify with an income as high as $141,547 AND if the home is in a targeted area the family can qualify with an income as high as $157,920. (Portland metro HUD 3 person MFI is $102,960). 

The Oregon Bond 2023 maximum purchase price for Portland metro is $685,785, increasing to $838,182 for targeted areas. (The FHA mortgage limit is lower at $672,750). 

Originally created and posted on the Oregon Housing Blog. 

<>

OHCS Confirms VA Loans Can be Combined with OHCS Bond Program, Even if Vet is Not a First Time Homebuyer.

Good news for Oregon veterans.

OHCS staff recently confirmed with me that IRS rules allow non first time homebuyer veterans to use the OHCS bond program, so long as they have not previously purchased a home using ANY state (including Oregon's) home loan bond program or mortgage credit certificate. 

This can combine the best of both programs: VA NO downpayment loans (with NO on going mortgage insurance expense) AND OHCS low rates: currently 3.25% "Rate Advantage" OR 4.25% (with 3% available for closing costs) "Cash Advantage".  

While VA loans include a funding fee (which varies by loan to value and whether veteran was regular military or in national guard/reserves) that one time fee can be included in the mortgage amount AND is waived for veterans with a VA disability rating of 10% or more. 

If a veteran has previously paid off a VA guaranteed loan they CAN get another VA home purchase loan--the VA funding fee is increased slightly for loans with less than 5% down.

OHCS loans do have income limits and OHCS maximum purchase prices MAY be below the $484,350 Oregon conforming loan limit that is used to determine the maximum zero down VA loan limit. 

I have pasted a chart below that shows the qualifying income required for different purchase prices ranging from $275,000 to $475,000.  Assumptions used are at the bottom of the chart. 

Note that VA or OHCS loan limits by county may not permit the purchase prices shown or the income required could be above the OHCS county income limit. 

For the Portland metro area the OHCS non targeted purchase price limit is $427,462 while the conforming limit of $484,350 statewide would prevent a VA zero down loan above that limit in any county. (For targeted areas the Portland metro OHCS purchase price limit is $522,554). 

The Portland metro 1-2 person  OHCS income limit for non targeted areas and 1-2 persons is $102,783 which is above the $97,136 required for a $475,000 home purchase. 

One example from the chart. A Portland metro veteran with an income of $88,526 (in red in the chart), and $500 in monthly reoccurring debts could use a 4.25% OHCS Cash Advantage loan to purchase a home at $425,000. That purchase would require NO downpayment AND provide $12,750 to help pay for buyer closing costs. 

Notes: 

1.  HMDA data shows 5,571 VA home purchase loans were made in Oregon in 2017; 1,661 loans were in the Portland metro area. (OHCS reports fewer than 10 veteran loans in last year). The 2017 Portland (Oregon) metro VA home buyer had a median income of $83,000. 
2. According to a recent ApartmentList report the home ownership rate for Post 9/11 veterans in Oregon was only 46% (vs a 62% overall Oregon homeownership rate).
3. The most recent ACS data shows more than 291,000 veterans in Oregon, with more than 57,000 with VA disability ratings of 10% or more. [The VA funding fee is waived for veterans with a service connected disability of 10% or more].
4. OHCS purchase price limits may be lower (or higher) than VA guarantee loan limits (map). The lower of the two limits would apply.  
5. VA loans have no income limits but downpayment requirements increase for loans above $484,350. OHCS recently published updated their 2019 income limits HERE. 
6. The City of Portland Mortgage Credit Certificate program uses the same IRS rules as OHCS, so the City of Portland MCC could also be used to help veterans buy homes in Portland, even if the veteran is NOT a first time hone buyer. (The MCC cannot be used in conjunction with the OHCS bond program, so the interest rate will be higher and any cash for closing costs would have to come from other sources). Portland has also yet to update their income limits, which could match those recently adopted by OHCS. 
7. VA loan underwriting includes a consideration of residual income not used by other loan programs. This insures the veteran has enough income remaining after paying for debt service, property and income taxes, reoccurring payments (car loans, student debt, etc), and housing related energy costs. DTI income ratios above 41% may require additional residual income above standard calculations. With more than 5,500 home purchase VA loans made in Oregon in 2017, many lenders are familiar with this VA loan underwriting requirement. 

Originally created and posted on the Oregon Housing Blog. 

Surprising Decline in New Oregon Bond Home Loan Program Income Limits for Portland Metro Counties and Deschutes County.

OHCS has published the 2021 income limits for the Oregon Bond home loan program; they went in effect on May 24. 

For the first time that I can remember the income limits for the 5 Portland metro counties and Deschutes counties went DOWN for non targeted areas. This was surprising because HUD income limits for these areas went up earlier this year. For Portland metro the HUD median income went up 5.2% and in the Bend metro area by 8.4%.  

In the Portland metro area the income limits for non targeted areas went down by 2.9% while the income limits went up by 5% in targeted areas in Clackamas, Columbia, and Multnomah counties. Deschutes has no targeted areas; income limits went down for the entire county by .3% for 2 or fewer people and down by 1.4% for 3 or more people.

Even with these reductions the 3 plus person income limits for the bond program still exceed the non targeted 4 person HUD median incomes for both Portland ( $117,119 vs. $96,900) and Bend ($105,383 vs $83,000). 

Likely the decrease is because of the interplay between higher incomes and housing costs and perhaps a desire to keep a focus on homebuyers with more moderate incomes, including people of color. 

NOTE: At the same time the income limits decreased for 2021for multiple Portland metro counties and Deschutes county the purchase price limits increased as of May 24th by 3.9% for the Portland metro area and 5.2% for Deschutes county. OHCS property purchase price limits are here for 2020 and 2021. 

The 3 page PDF I created HERE and embedded below shows the Oregon bond program income limit changes in both dollars and percentages, as well as the limits for 2021 and 2020. 

Originally created and posted on the Oregon Housing Blog. 

Portland Example: First Time Homebuyer Income Required to Qualify for a FHA Oregon Bond Loan Could Be Reduced by Up to 22% Using FHA Compensating Factors.

There are a wide variety of measures that are used to determine homeownership affordability. Those measures can include down payment assumptions, loan rate assumptions, home price assumptions, and allowable debt to income ratio assumptions. 

However I don't recall seeing any projections of the income required to purchase a home that use compensating factors as part of the debt to income analysis. Compensating factors allow applicants to qualify for larger loans than they would qualify for using standard housing debt and total debt to income ratios of 31% for housing expenses and 43% for all reoccurring expenses.

I'm most familiar with FHA lending so my examples will focus on FHA compensating factors. but  I'm sure that other loan programs also have their versions of compensating factors. 

Pre COVID 2019 HMDA Data Shows That the MAJORITY of Oregon FHA Home Purchase Borrowers Had Debt to Income Ratios of 44% or Higher.

In Oregon my review of 2019 HMDA data shows that 52% of FHA home purchase first lien loans originated had debt to income ratios of 44% or higher. (4,404 FHA home purchase first lien loans where DTI was reported at 44% or higher/7,922 total FHA first lien home purchase loans where DTI was known=52%). 

I also looked at Oregon 2019 HMDA data for FHA first lien home purchase loan originations to Hispanic, Black, and Asian borrowers. Their share of FHA first lien home purchase loans originated where DTI was 44% or higher was 66%, 67%, and 67% respectively.

[The link HERE will download the 2019 HMDA Oregon data for your review and further analysis]. 

FHA Compensating Factor Guidance

FHA's Single Family Policy Handbook 4000.1 includes a matrix of manual underwriting compensating factors that can be used to increase the percentage of income that can be used to qualify for an FHA loan.

The table pasted below (from handbook printed page 335) lists those factors that can be used to increase the amount of income used to qualify an applicant for an FHA loan:

A Portland  First Time Homebuyer Metro Example. 

I took the information from that table and applied it to an example I created for the Portland metro area for first time homebuyers. The PDF table I created is HERE and embedded below.

For the Portland metro area I created four scenarios shown in the PDF; a description of the compensating factors required for each scenario at at the top of each column:  

1. All scenarios assume a credit rating of 580 or more. This is, by itself, a compensating factor.
2. All use the current OHCS non targeted area Portland metro maximum purchase price of $453,000, the 2.25% current "cash advantage" interest rate for the Oregon Bond program, and a 3.5%/$15,855 down payment. All scenarios are fixed rate 30 year loans. Note that these terms are generally available only to first time home buyers. There are some exceptions for veterans and also for purchasers of property in targeted areas.  
3. The one time 1.75%/$7,650 FHA upfront mortgage insurance premium is included in the amount financed and the monthly MIP expense is .85%/$310.
4. Monthly property taxes and insurance and homeowners association expenses are estimated at 1.3%  of the purchase price divided by 12. ($491 per month).
5. Total monthly housing expense is $2,387.
6. Monthly non-housing reoccurring debt is assumed at $300 per month except for the 4th scenario where it is zero.
7. None of the scenarios factor in any boost for energy efficient homes, which could add 2% to the front and back ratios. My read is that these factors may only be available for scenarios 1 and 2.

Observations:

1. Using standard FHA underwriting ratios of 31%/43% in the first scenario the applicant would need $96,800 in annual income.
2. Scenario 2 requires only one compensating factor out of three possibilities and would decrease required income to $81,200 and increase allowable underwriting ratios to 37%/47%.
3. In scenario 3 there is an $75,100 income requirement but the applicant must meet at least two of these three compensating factors. The $75,100 income requirement is 22%/$21,700 less than in the first standard scenario. The underwriting ratios for this scenario are further increased to 40%/50%.
4. In scenario 4 (with only ONE required factor--no monthly recurring debt) the annual income required is also $75,100. using underwriting ratios of 40%/40%.
5. Using HUD's 4 person MFI for the Portland metro area of $96,900, 

Scenario 1 requires an income of $96,800---100% of MFI, 
Scenario 2 requires an income of $81,200--84% of HUD MFI, and 
Scenarios 3 and 4 require an income of $75,100--78% of HUD MFI.

NOTE: Use of a higher down payment would reduce monthly housing costs and reduce the income required to qualify in all scenarios, but poses a challenge for first time home buyers since it would also increase the cash required to close the loan.

Caveats:

1. The guidance cited above applies to manual loan underwriting. I do not know the extent to which these specific factors are modified or incorporated in the automated underwriting systems.  However given the large share of loans with DTI of 44% and higher it seems highly like that FHA approved automated credit scoring systems DO use credit scores and other factors in issuing loan approval decisions for loans with DTI at 44% and above. 
2. Lenders are free to adopt more restrictive standards than found in the handbook.  
3. I used the more restrictive income income limit of the two limits in each scenario rounded up to the next higher $100. 
4. The documentation required for each compensating factor can be found starting on PDF page 351 of the 40001.1 handbook.  
5. I used the latest version of the handbook, which is effective in August; I don't see any substantive changes in the compensating factors from those used in the current Handbook.

Originally created and posted on the Oregon Housing Blog.

2013 OHCS Bond Income Limits Excel Workbook.

IRS guidance for the SF revenue bond and MCC programs provide for a standard 115% of median family income limit for 3+ persons and 100% of median income for 2 or less persons as the standard income limit calculation for SF revenue bonds (and MCC programs). 

However those standard income limits can be increased if any area is determined to have a high cost to income ratio.The cap on eligible incomes for those areas is 140% of area median family income limits for 3+ persons and 100% of area median income for 2 or less persons. (The target area income limit remains at 140%/120% of the highest of area, state, or national median incomes). 

Surprisingly, I was unable to find any public spreadsheet where the detailed method to calculate these high cost to income areas had been documented. (This despite NCSHA estimates that in 2011 59,000 families received SF MRB loans or MCC's, fairly close to the 63,000 LIHTC units placed in service in 2011 that I count in the HUD LIHTC database.  
(No doubt the details required to calculate these limits are the problem; my Excel workbook below took 5 inputs and 16 formulas to calculate the results for each county). 

I am please to say that after working with OHCS over the last month, I was able to put together an Excel workbook HERE , and embedded below, which has my detailed 2013 calculations for Oregon of what maximum income limits could be. I say "could be" because bond issuers (including users of MCC's) can decide to adopt a lesser limit than what IRS would permit. 

The first worksheet is a lookup table that allows users to select a county and see the most relevant data and the final income limits. The second worksheet is the detailed formulas and inputs for all Oregon counties. The third worksheet includes to links to relevant income data on the web. (If embedded post does not allow county selection, download the workbook, lookup worksheet is set up to allow you to select counties but not values below).

In addition to producing the maximum limits for Oregon counties for 2013, the workbook could be used to do updates next year, by copying and pasting in updated values for the average purchase price and median income (columns 2-6) in the workbook. (For my national readers, the formulas in the workbook should work for any state in the country). The workbook comes with usual caveats that it is my best estimate, should not be used for official purposes, subject to revisions, etc.




Originally created and posted on the Oregon Housing Blog.

Oregon New "Flex" Home Loan Program Delays: A Year Later Negotiations Continue with Idaho Housing Agency to Service Loans.

Oregon Housing and Community Services has been talking about replacing the long running Oregon Bond SF loan program for a long time. An October 2020 meeting packet (PDF pages 12-20) for the Oregon Housing Stability Council had some background about the planned program. Some outtakes from the briefing materials:

"Lastly, though final terms of the DPA program are subject to negotiation with the future master servicer, our plan is for low income borrowers with an Area Median Income of 80% and below to have a forgivable DPA [DOWN PAYMENT ASSISTANCE] in the form of a silent second mortgage that has no payment and no interest rate. 

We have engaged our hedge provider, our master servicer should be boarded in the first part of 2021, we are in the process of finalizing our lender application and anticipate offering the program near the beginning of Q2-2021."

Earlier this year OHCS indicated that it would NOT be seeking additional private activity bond cap for the SF bond program because of the demand for bond cap for rental projects. OHCS continues to make loans under the SF bond program using existing allocated bond cap. The current Oregon SF bond rates are: 

Rate Advantage, 4.375% and Cash Advantage [WITH Down payment Assistance] 5.625%.

A snip from a recent Housing Stability Council meeting package shows that only 434 OHCS SF bond loans were made during CY 2021 even though rates were as low as 2.25%; in 2019 1,029 Oregon bond loans were originated. 

I recently inquired about the status after noting that the RFP for a servicer of flex loans had closed a year ago in April and an June 1, 2021 notice had been posted subsequently showing the intent to award, subject to negotiations, with the Idaho Housing and Finance Association. (IDHFA services SF loans for several other loans including Washington State).

The answer I received was that

"We are working to determine a timeline, but at this moment do not have a date to share with the public". and "this is a longer than typical timeline, however, the project is not only a format and structure that is new to OHCS, but also substantially more complex as well, we are working on this diligently."

I suspect that the topic could come up at the Friday May 6th meeting of the Oregon Housing Stability Council.

Originally created and posted on the Oregon Housing Blog.

 

 

New OHCS/VA Excel Home Loan Estimating Tool Answers Key Geographic and Household Specific Affordability and Eligibility Questions.

I previously posted HERE the good news for veterans that the Oregon Housing Bond program can be combined with the VA zero down loan program, even for non first time home buyers. I followed that up with a second post HERE comparing the benefits of a combo OHCS/VA loan with an ODVA home loan. 

To show the potential benefit for Oregon veterans and home ownership advocates I have created a first of its kind Excel workbook (Version 1) HERE that takes user variable inputs AND then answers 4 key geographic specific questions about 30 year combo OHCS/VA loans:

1. Is the purchase price below OHCS purchase price limits?
2. Is the borrowers income below OHCS income limits?
3. Is the borrowers income sufficient to qualify for the loan amount being sought?
4. Is the borrowers income sufficient to meet the VA loan requirements for residual income?

The first worksheet is only be used for a first time user of a VA loan and a user that has not previously had a bond financed loan or a mortgage credit certificate in Oregon or elsewhere.  

The second worksheet is for veterans who have successfully paid off a VA loan and wish to REUSE their VA benefit and have not previously had a bond financed loan or a mortgage credit certificate in Oregon or elsewhere (The VA financing fee increases for these veterans). Note, because of the higher reuse VA funding fee increase the default $89,000 income entered is NOT sufficient to qualify for $425,000 no down payment cash advantage OHCS loan--increasing borrower income by $1,000 however would qualify.  

In both worksheets the left side is for regular military veterans, and the right side is for Reserve or Guard veterans. (VA funding fees are different for the two categories).  

In a third worksheet I included a chart that shows how qualifying purchase prices change as income increases (with zero down payment required). 

Finally a fourth worksheet includes links to OHCS, VA, and ODVA reference materials and data.

The estimating tool allows variable inputs for
Family size (Default: 3 or more)
County location (Default: Clackamas, Multnomah, Washington)
Targeted area indicator (Default: Non Targeted)
Purchase price (Default: $425,000)
Down payment % (Default: ZERO). 
Loan rate ( Default: 4.25% [3.25% is lowest current OHCS rate].
Veteran's Disability status (Default: NON Disabled)
Income (Default: $89,000)
Reoccurring debt (Default: $500)
Debt to Income ratio used to determine affordability(Default: 43%)
Property taxes (Default: 1,2%)
Insurance (Default: .3%)
For residual income calculation (used for VA underwriting)
Square footage of home used to calculate utility cost (Default: 1,500 sq, ft.)
Fed Income Taxes (Default: 15% rate)
State Income Tax Rate Default: (5% rate)
Other pension contribution (Default: $0)

The estimating tool returns
Loan amount.
VA funding fee and loan amount with funding fee.
PITI.
Income required.
Closing cost projection @3%. 
Projected Utility cost (used for residual income calculation).
Residual income vs required residual income (used for VA loan underwriting).
Answers to the 4 key questions referenced previously.

To illustrate I am posting a 2 page PDF HERE , and embedded below, using the default examples in the 1st worksheet. With these default entries:

A 3 person regular military veteran using a VA loan for the first time, and with an income of $89,000 could qualify to purchase a Portland metro home with an 4.25% OHCS Cash Advantage loan at $425,000, with ZERO down, AND receive $12,750 to be used for closing costs.  [ Note: Most recent RMLS Market Action report had the Portland metro median sales price in June at $420,000].



IMPORTANT NOTE: This workbook is for ILLUSTRATION ONLY; it should NOT be used to determine actual loan amounts or closing costs or to determine eligibility for OHCS and or VA loans. Lenders and these agencies make those determinations. 

Even W Proposed $15k MID Limit New Excel Tool W Graphs Shows Substantial Benefits of Home Ownership.

The current efforts to reform the Oregon mortgage interest deduction (MID) have often focused on how much home buyers might lose if the MID was limited to $15,000. 

A new Excel tool I constructed offers a comprehensive view of the financial benefits of homeownership and demonstrates, with 3 graphs, that the proposed Oregon $15,000 limit on mortgage interest deductibility on state income tax returns: 

1. Would have a tiny impact in comparison to the full range of financial benefits that homeowners get (and that are not available to ANY renter).
2. Would keep in place substantial state MID subsidies and 100% of state property tax deductions/subsidies and 100% of federal MID and property tax deductions/subsidies.

[Because the Excel workbook is copy protected, I can't embed it in this post, but you can download it HERE. While you may be able to view the workbook in your browser I recommend downloading and using in Excel for full functionality ].

The workbook estimates ALL homeownership financial benefits: MID subsidies at both the state and federal level, accrued equity as loan principal is reduced yearly, additional equity accrued through home price appreciation, and savings from state and federal property tax income tax deductions.

There are eight variables that you may choose to enter/change at the top of the worksheet. The inputs populate the table in the worksheet AND three graphs to the bottom and to the right of the data entry section. 

• Graph 1 shows for the first year how much the MONTHLY benefit is for each component and the total combined benefit
• Graph 2 shows, for the first ten years, the MONTHLY total benefit vs any loss of MID because of the proposed $15k MID limit. 
• Graph 1 shows the cumulative total benefit vs any loss of MID benefit because of the proposed $15k annual MID limit, and provides a comparison to the down payment. 

These are the default entries in the workbook. (They are all variable except the property insurance rate):

• Borrowers are a married couple with income of $99,950. This is 170% of the 2016 2 person Portland metro HUD median family income of $58,640.
• The home is located in Multnomah County (Average property tax rates vary by county and are based on 2015-2016 Oregon Department of Revenue data).
• The home has a sales price of $381,147, which is affordable to the homebuyer with this income, using a 30% of income underwriting ratio (see "Affordability" below for more discussion about underwriting ratios)  That sales price is $31,000+ MORE than the Feb 2017 RMLS reported Portland metro median sales price of $350,000.
• Loan has a 5% down payment, 
• 4.5% interest rate 30 year loan. This rate is 1.25 % higher than the Oregon Bond home loan program rate of 3.25% for first time home buyers.
• 9% state income tax rate, 
• 20% federal income tax rate. [A conservative estimate, 2017 taxable income brackets are HERE]. 
• And a conservative annual home price appreciation of 2%. (The average Oregon home price index annual increase from 2017-2026 in the latest Oregon Economic forecast is much higher at 4.6%)
• A .0025% insurance rate. [Standard for all scenarios].
• Inflation of the proposed $15k MID limit by the average annual CPI of 2.6% found in the Oregon Economic Forecast for 2017-2026.

With default entries the results, including 3 graphs, are in PDF HERE and embedded below:

BENEFITS 
FIRST YEAR Benefits: Graph 1
The MONTHLY average benefits (WITH the $15,000 State MID limit).: 
$1,606 Total

• $488 equity increase because of principal reduction.
• $637 home price appreciation.
• $338 in continuing federal income tax subsidies+
• $144 in continuing state income tax subsidies=
• $481 a month in continuing state and federal income tax subsidies.

The average monthly loss of state MID is $9. (Because MI was greater than $15,000)

The federal MID will fully remain, and write off of property taxes without limits will remain for both state and federal income taxes. 

Average MONTHLY Total Benefits for Each of the First Ten Years: Graph 2

• The second graph, covering the first 10 years, shows that average MONTHLY average for the total benefits, vs the MONTHLY total average of MID lost (if any). 
• With the default entries, the total MONTHLY average benefit GROW every year, while the MONTHLY average MID loss (if any) DECLINES each year. In year 1 the MONTHLY total benefits are $1,606, but in year 10 they grow to $1,934; 
• MID loss because of the $15k limit (inflated ) averages $9 a MONTH in year 1, but drops to $4 a month in year 2 and ZERO in year3.

Average CUMULATIVE Benefits for Each of the First Ten Years: Graph 3. 

• The 3rd graph, covering the first 10 years, shows that cumulative benefits grow from $19,273 at the end of the first year to $211,884 at the end of year 10. 
• NOTE that with the default entries the first year financial benefits EXCEED the 5% down payment of $19,107 (The down payment amount is also shown on this graph).
• The MID loss in the first year totals $110, and the total MID loss is only $50 more in year 2 ($160 total) AND there is NO further loss after year 2. (Interest declines each year as a greater share of the monthly payment goes toward principal and the initial $15k MID limit increases as it is adjusted to inflation).

Any owner with more than $15,000 in eligible home interest (inflation adjusted) will continue to get $113 a month in state MID subsidy if their state income tax rate is 9%, and more if they state income tax rate is higher.

The federal MID will fully remain, and write off of property taxes without limits will remain for both state and federal income taxes. 

Affordability
In addition to showing the financial benefits of home ownership completion of the inputs for the 8 data entry cells (shaded in grey) will produce an estimate of the income required to buy the home with the inputs made. Because these assumptions vary from reality for each property, borrower, and lender the affordability level shown should be viewed ONLY as an estimate.  

The worksheet uses inputs of principal and interest, interest rates, property tax, insurance costs, mortgage insurance estimates AND the underwriting ratio [share of income assumed to be available to pay housing costs).   

The default underwriting ratio used is 30% of income (the same share of income that renters are expected to pay for housing). "Qualified mortgage" under CFPB rules however allow families to qualify for a loan if their total reoccurring debt does not exceed 43% of their gross income. 

This means that income based affordability determinations can span a wide range of loan values, depending on the specific financial details of each transaction. (including credit scores, reoccurring financial obligations, mortgage insurance rates, AND the down payment percentage). 

To illustrate the wide range of potential qualifying incomes, using the default data, here are qualifying incomes at different underwriting ratios to a Multnomah county home with a sales price of $382,147 and loan of $363,040:

30% of income (my default entry):  $99,950                         
36% of income (DTI max ratio for Fannie/Freddie :$83,292
43% of income (CFPB qualifying loan max DTI ratio): $69,733        
[Given the wide range of potential qualifying incomes for the default loan there is no graph associated with the affordability estimate]. 

Excel Notes:
In addition to changing the values in the 8 variable cells, use of the "Goal Seek" function in Excel allows a wide range of customization of results. For example you can use goal seek and change either of the two qualifying income cells to a specific value by having the goal seek function change the purchase price. 

The table of data below the first graph is copy protected and outside the designated print area for that sheet.

However, you can copy and paste the values [not formulas] from that worksheet into another worksheet and then format and print that table.



Originally created and posted on the Oregon Housing Blog. 

Cumulative Increases in Max Income Thresholds Make Excess Subsidy Recapture for OHCS Bond Homebuyers Highly Unlikely.

Mortgage revenue bond home buying programs, like the OHCS housing bond program (and the mortgage credit certificate in the City of Portland), include a IRS tax recapture provision that scares some potential homebuyers.

With the vast majority of homebuyers this fear is unwarranted because there is no recapture required unless homebuyer income increases substantially. The annual increase in income permitted is 5% but that is 5% increase of the maximum income limit. So, if a homebuyer starts with an income below the maximum, their permitted annual income increases will exceed 5%.

Year five is the maximum potential rate of recapture. Even if the homebuyer were at the exact maximum income when they got the loan their income could rise by 21.6% and still not trigger possible recapture in year 5. 

But, if their starting actual income was 10% below the maximum at the time they got the loan, their income could increase by 27.9% in year 5 and still not trigger the recapture and by 51.9% if their initial income was 20% below the maximum for the year in which they got the loan.  

For context, for OHCS loans made after June 14 this year, the year 5 limit for a 3 person or more household in Portland metro would be $143,362 (The current max income limit is $118,166).

I recently projected that a Portland metro veteran could qualify for a OHCS/VA $425,000 cash advantage zero down payment loan with an income of $88,830.  This means that family's household income would have had to increase by 61.7% ($54,892) in year 5 to trigger possible recapture. [$143,362-$88,830=$54,982).

The graph below shows my calculation of the cumulative percentage income increase in year 5 permitted before recapture would be required for homebuyers who initial income is at the max OR  at -1%, -5%, -10%, -15%,and -20% below the maximum at the time they took out the loan (after June 14 of this year). 

Table Provides Way to Estimate Permitted % Cumulative Income Increases by Year Before Recapture May Apply and is Applicable in Any Location, in Any Year.
The table below expands on the data shown on the graph, providing a tool to estimate how much income can grow without triggering possible recapture. 

In the left column is the percentage by which homebuyer income varies from the maximum income for the year in which the OHCS loan was made. (Max income limits vary by geography, by household size, and whether purchase is in targeted area or not). 

In the columns to the right the estimated cumulative percentage by which homebuyer income can increase and NOT trigger possible recapture is shown, by year that the home is sold.  

For example if max income was $100,000 at the time the OHCS buyer bought the home, and their actual income was 25% below the max ($75,000), and the buyer then sold the home in year 5, they would NOT be subject to possible recapture unless their income had increased by more than 62.1% ($46,551) to $121,551.
[62.1% x $75,000=$46,551+ $75,000= $121,551]. 

Summary:
To summarize, unless bond financed homebuyers and MCC holders receive annual income increases in EXCESS of 5%, they are highly unlikely to be required to pay a recapture of subsidy.  

NOTE 1: In all cases the homebuyer is NOT subject to recapture IF there is no net gain when they sell the home and there is no recapture requirement after 9 years.  Recapture calculations only occur in the year of sale. 

NOTE 2: The table provides estimates for illustration ONLY. and could vary slightly from official calculations because of the use of different rounding conventions.  At loan closing the standard practice is to provide specific maximum income limits for the 9 years following the date of loan closing and these are the official limits to be used. 

More to Come on IRS Form 8828
IRS provides detailed instructions on the complicated recapture calculations to be made on IRS Form 8828, (This is one of the rare forms that TurboTax does not provide. More on those calculations at a later date).  

Originally created and posted on the Oregon Housing Blog.

My Excel Lookup for Oregon County Income Limits for the Treasury Homeowner Assistance Fund.

Treasury has set income limits for the HAF program at 2X and 3X the HUD low income median incomes adjusted by household size. Most but NOT all of the HUD low income limits are set at 50% of median income. 

To drill down to the specifics for each Oregon county I have created an Excel worksheet HERE and embedded below to lookup the relevant 100% and 150% of HUD's low income limit for all Oregon counties. 

ALL that the user has to do is select the county name and all the relevant values for different household sizes are calculated. The default view is for Multnomah county (would apply to other Portland metro counties also). The 4 person 100% income limit is $96,700, and at 150% it is $145,050. 

Source of Income Limits Could Change

Note that my calculated $96,700 100% median income limit is slightly lower than the published $96,900 median income for the Portland metro area. 

My 4 person Portland metro calculated 100% median income limit of $96,700 is also substantially lower than the 3 or more person $117,119 to $135,380 income limit now permitted by the Oregon bond homeownership loan program. 

It is possible (likely?) that Treasury will publish further income limit guidance that will allow use of other income limit standards. But for now I believe this is the most accurate calculation available. 

Originally created and posted on the Oregon Housing Blog. 

DRAFT : Oregon SF Bond Program Max Sales Prices Will See Some Big Drops in Metro Areas; Rural Areas Willl Get Boost.

I am in the processing of trying to understand and make more transparent a number of calculations used by OHCS to determine maximum incomes and purchase prices for the Oregon SF Bond program. (My prior May 11th post about the publication of IRS data used to make those determinations is HERE; my later May post HERE has information about the drop off in Oregon Bond loan originations in recent years). 

Last week OHCS SF staff clarified for me they must adopt 2014 purchase price limits if they are lower than 2013 purchase price limits and they plan to publish revised limits on Wednesday.

This is my current understanding of the rules for determining maximum purchase prices under the bond (AND MCC) program. 

1. IRS rules require bond program loans to be at 90% or below of the average purchase price for the area. For targeted areas price limits are 110% of the average purchase price.
2. IRS publishes average purchase prices annually; issuers also have the option of using more current FHA mortgage limits divided by 92%
3. Issuers can adopt limits lower than IRS rules would allow.

In the DRAFT PDF table HERE and embedded I have made a start on showing the current limits and what they new ones MAY be, and what the change would be if OHCS adopts a limit based on the IRS published 90% of average purchase price. 
Caveats:  

• I have excluded Clatsop and Josephine counties the entire counties are targeted areas.
• My 2013 OHCS limits in the table may be off a dollar because of rounding differences. 
• AND if any of my understandings are incorrect that could change the table also--so DO consider this a DRAFT which I will fine tune later in the week.

If my draft IS accurate RURAL counties purchase price limits could increase by up to $18,000 [7.3%], while other METRO purchase price limits could decrease by nearly $112,000 [29%] (Jackson) or $109,000 (Deschutes) [26.6%]  The Portland metro could decrease by more than $27,000.[7.1%].

The actual changes will only become known tomorrow when OHCS changes the purchase price limits on their web page HERE.  

Next, Income Limit Calculations
I am hopeful that this first time transparent publication of the data used to determine maximum purchase price limits will be soon followed by publication of details about how the maximum income limits are calculated and whether OHCS elects to "haircut" those income limits also. 

Portland MCC Program: Decrease in 2014 Home Purchase Price Limit Could be Less than in Bond Program.
Note that the Portland's Mortgage Credit Certificate  program uses the same IRS guidance in setting maximum purchase price and income limits--Portland is free to adopt standards that are different than OHCS, so long as they do not exceed IRS maximums. 

Since Portland had adopted a 2013 MCC purchase price limit of only $366,835 vs the OHCS adopted limit of $381,644, the maximum MCC purchase price in non targeted areas could (at the discretion of the City) decrease by less than the bond program, reducing by only roughly $12,500 to $354,375.

Originally created and posted on the Oregon Housing Blog. 

How to Eliminate Federal Income Taxes For 7 years and Build $70K in Wealth For a Moderate Income First Time Home Buyer Family.

It has been widely reported that federal income tax changes will likely result in more filers using the standard deduction. 

For moderate income first time homebuyers who no longer will benefit from itemization there is still a way they can reduce the net cost of home loan interest payments: the Mortgage Credit Certificate program.[Note: For "targeted" areas designated by state and local housing finance agencies, the first time homebuyer requirement is waived. In Oregon there are more than 50 targeted areas, including 13 entire counties in rural areas ].

Consider a family of four with income of $75,000. If they purchase a home with a 4.5% interest rate mortgage of $275,000, (With 5% down that would be a $289,474 sales price) their first year interest will be $12,284. 

With a mortgage credit certificate at 20% they would reduce their federal tax liability by $2,457 in the first year, AND they can continue to reduce their federal tax liability throughout the term of the mortgage. (Over 30 years the total federal tax savings from the MCC could be as high as $45,234).

With the standard deduction and child credits for two children the federal tax liability for this family in year one would be only $1,739 under the new tax law.  With the $2,457 first year MCC piggy backed on top of the standard deduction they will pay ZERO federal income tax AND they can carry forward the unused 1st year mortgage credit certificate value of $718 for three years to use on future tax returns. 

Even with an increase in federal income tax liability at 5% a year, I project that the family would have ZERO federal income tax liability through year 7 of the mortgage. This would mean an additional $14,159 in tax savings/income for the family over those 7 years. 

Wealth Accumulation/Federal Income Tax Savings After 7 Years: $70,718.

• The principal on a $275,000 4.5% rate mortgage would have been reduced by $35,678. 
• IF annual home appreciation on a home with a 5% down payment was a very modest 1% annually, the homebuyer would have added $20,881 in equity. 
• Combined the family would have added wealth of $56,559. 
• Adding in the federal income tax avoided the family would have added $70,718 in income and wealth because of the MCC.

What's the catch? 

Many states, including Oregon do NOT offer mortgage credit certificates; nearby Idaho does offer MCC's.  

A FDIC Affordable Lending Guide HERE lists state housing finance agencies and includes an indicator showing if they offer MCC's. [The City of Portland offers MCC's, details HERE]. 

In recent years many states routinely have UNUSED private activity bond cap that is abandoned every year; IF Oregon had a MCC program the $139 million in cap abandoned in 2016 would have supported more than 600 MCC loans @$275,000. 

Conclusion:
The piggy backing of the MCC on top of the standard deduction and the use of already existing private activity bond cap for Mortgage Credit Certificates (especially if bond cap is not being used) can help increase homeownership for the growing number of filers who will NOT be itemizing under the new tax law. 

Originally created and posted on the Oregon Housing Blog.