Realtors and homebuilders are all abuzz over the federal government's newest plan to help the housing market: let first-time homebuyers use the $8,000 tax credit toward their downpayment if they're getting an FHA-insured mortgage.
The head of the U.S. Department of Housing and Urban Development announced it at a National Association of Realtors summit last week. Here's what Secretary Shaun Donovan said:
We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. ...
We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans.
Specifics, he said, will come shortly. (I was hoping "shortly" meant "by the end of the week," which is why I held off blogging on the subject.) But the brief announcement was plenty long enough for Realtors and builders to cheer -- "the biggest obstacle for first-time buyers is coming up with a downpayment," the chairman of the National Association of Home Builders said -- and for some economists to groan.
From Dow Jones Newswires:
"Much like the lax lending standards of the housing bubble, all it succeeds in doing in our view is pulling sales forward and encouraging speculative buyers into the market," noted Michael Widner, an analyst with Stifel Nicolaus Equity Research.
What do you all think? Good idea or bad? If you're contemplating buying, would it make a difference?
In other feds-involved-in-housing news, officials announced new aspects of the Making Home Affordable foreclosure-prevention program. HUD says it will offer incentives to loan services and borrowers to opt for short sales or "deeds in lieu" (in which the borrower voluntarily gives up the house) rather than foreclosures. Those alternatives aren't quite as bad for the borrower's credit score and, the government argues, are less costly for lenders and neighborhoods.
The feds are also offering extra incentive payments to lenders for making loan modifications "where home price declines have been most severe and lenders fear these declines may persist."