RealTown's RealTalk

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market - it would allow many more people to move into a home who currently may not have enough for a down payment."

As someone who did over 30% of my business last year with first time home buyers, and this year is looking to be more of the same, I am absolutely thrilled that they might be able to use the credit to get into the house. For down payment dollars, or closing costs or whatever, if this happens I just had a bunch of "B" and "C" clients become "A" clients.

However at the risk of sounding negative, I do have some concerns. Isn't this just another way to get people into houses that have not been able to save enough to have a down payment? And who takes the liability of verifying that the buyer really is a first time home buyer? What if the couple isn't married and therefore files separate tax returns? Right now I am advising my buyers to check with their tax preparer to see if they qualify. Of course most of them do as they have never owned property. However I do have one buyer who just sold a house that she owned - it was sold as part of the divorce and she has not filed with her ex for over 3 years. The CPA I personally use can't answer that question and it has been several days and he still hasn't gotten an answer from the IRS. I know that I don't want to take on the liability of telling people that oh sure you will get this credit.

I would love to see this come about, but hopefully someone will think about some of the potential pitfalls with this as well. Just my thoughts…

Kris Coutant, e-Pro
Associate Broker
The Ultimate Team
Keller Williams Realty Distinctive Properties

Serving Warren, Washington
and Saratoga Counties in Upstate NY
Cell: 518 361 5250
Office: 518 350 5718

www.kriscoutant.com
KrisCoutant@roadrunner.com

Tom Hathaway writes in part:

It is my understanding that the HUD letter allowing the $8,000 tax credit to be used as part of one's down payment was recended last week. According to NAEBA's (National Association of Exclusive Buyer Agents) contacts in Washington, HUD recended the letter almost as fast as they instituted it. NAEBA did not provide any reason why the letter was recended.

According to one banking official HUD, in it's rush to help people who had no money for a down payment, forgot that the cash had to come from someplace at the closing table. It is one thing to provide someone with a tax credit down the road and another thing to wire in the $8,000 to the closing table. Evidently the actual expenditure of the money has not been through the budget process and approved.

Mark Jay comments:

First off, your information is stale. Secondly, you need to upgrade your contacts…especially the NAEBA… they don't seem to be able to see the obvious….

Here's a link to Mortgagee Letter 2009-15 http://www.google.com/search?hl=en&q=Tax+Credit+Mortgagee+letter&aq=f&oq= Click on the first link and a window will open asking you if you want to open the Word Doc that IS the Mortgagee letter. Click yes and you'll have a copy of the EXACT HUD Letter.

The "problem" is with the "How the Secondary Financing Works" section under the heading II FHA Guidance. HUD originally intended that those entities offering to "monetize" the Tax Credit should be relying on the Tax Credit as security for their short term of bridge loan rather than a lien on the subject property. Doing it the way suggested in the Mortgagee letter described in the "How the Secondary Financing Works" section would overly complicate the process. Look for HUD to re-draft the Mortgagee Letter and post it again shortly. Rather than characterize HUD as "rescinding" the letter; a more apt characterization would be that HUD "withdrew" the letter to make some corrections.

Tom Hathaway continues:

What is most alarming about all of this is how quickly the government is going right back to the practices of the past that got us in the current financial crisis we are experiencing. I think we can all agree that as far as housing is concerned the problems we have were created by the loose lending policies of the past (lowering of the required credit scores, extending the ratios from the old 28%/36% requirement, allowing 100% loans, allowing 100% plus closing cost loans, and all of the Alt A loans, not to mention how loose the B and C lending has been by setting up a way for those loans to be packaged with the paper being sold to investors.

Mark Jay comments:

Tom's information contained above is confused to the point that most of what he offers is gibberish. Government loan insurance and guaranty programs; FHA and VA; have had the essentially the same underwriting requirements for at least the last 30 years or MORE. HUD loans with 3% under the 203(b) and even less under the 203(v) insurance programs and VA loans with no money down were not and are not now part of the mortgage meltdown or part of the problem today. Government loans are not and were not a problem. Even the seller funded "gifted" down payment grant programs even though those loans DID have a higher default rate those rates paled in comparison to the default rates of private sector loans outside the underwriting standards of "A paper" loans… with low downpayments.

It was the private sector that "created…the loose lending polices… (lowering of the required credit scores, extending the ratios from the old 28%/36% requirement, allowing 100% loans, allowing 100% plus closing cost loans, and all of the Alt A loans, not to mention how loose the B and C lending has been by setting up a way for those loans to be packaged with the paper being sold to investors).

The most sensitive underwriting variable is NOT the loan to value ratio but the total debt to payment ratio combined with the Fair Isaac score.

Tom Hathaway continues:

We Americans sometimes seem never to learn our lessons from mistakes of the past. Just how many times have we seen these housing financial crisis in the past, yet we continue to do the same things over and over again? This time round HUD evidently wanted to begin repeating the same lax home buying programs even before we get out of the current crisis. Usually we go a few years before we start repeating the mistakes of the past.

Some of us have been around long enough to remember the crisis' in the 70's, 80's and 00's. Please, lets don't do this again in the 10's.

Mark Jay comments:

Yes, some of us HAVE been around long enough to remember the residential brokerage business from 30 years back to today. And some of us remember the past accurately and some of us… namely Tom Hathaway… have confused memories of the past which almost always lead to confused policy proposals and/or proscriptions.

So let's not blame "We Americans" as Tom does. Some of us were at fault but most of us NOT. And certainly Government Loan programs were NOT at fault and those same programs going forward will not be a problem going forward either… even WITH the reduced out of pocket down payment requirements.