Housing stimulus?
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."
Categories: First-time buyer tax credit, Foreclosure help
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Comments
Sure, why not??
Whatever they want to do to keep the sham going. I believe that the overshoot from the correction will be even bigger if they keep trying to artificially prop up prices with these shenanigans. Bottom line is that every time realtors are "abuzz" and "cheering" new plans (a.k.a. shams), they are in essence mortaging away their own futures.
Go for it.
Posted by: Darwin Rules | May 17, 2009 11:16 AM
This is a load of bull many, many years ago FHA- insured mortgages, sold there loans to Salomon Brothers Realty which were serviced by Litton Loan Servicing, most of those loans your foreclosed on. Contracts where changed with out the homeowners noing anything about it. So wake up look in HUD'S files.Accountability needs to start withHUD. Start with HUD News Release 02-135.
Posted by: Janet | May 17, 2009 12:12 PM
Terrible idea. It seems like an idiotic attempt to try and sustain the bubble. Just another way to lower lending standards which played a large part in getting us to this point. I can only conclude the policy makers involved have not learned anything from the bubble and crash.
Posted by: Viper | May 17, 2009 8:43 PM
This is an extremely bad idea. If you can't save up 3.5% to buy a house then you won't be able to handle a mortgage. Maybe you will initially, but when something goes wrong you'll have nothing to fall back on and foreclosure will come like a freight train.
I'm glad this isn't a done deal yet and I hope it never gets implemented. I know all the agents and builders will immediately rush to advertise this as heavily as they can while washing it out with fee increases elsewhere. The $8k as a down payment will just prop up housing prices for a little while longer if the other real estate players (realtors, builders, lenders, etc) don't eat it up with fee increases. What will happen when it expires or when rates go up? Sales and prices will fall again. You can't stop that from happening. The market is designed to self-correct eventually.
Posted by: BigDragon | May 18, 2009 9:15 AM
Ehh... yeah, I agree with the sentiment that if one can't come up with 3.5 percent, then one really shouldn't be looking to buy. And I'm a 1st time home buyer.
I'll gladly take the $8K and use it for replacement appliances etc., but the availability of the money was ancillary my decision to jump into the market. The thought of the government setting up short-term bridge loans for people that are already in a potentially precarious lending situation... well let's just that that I foresee plenty of opportunity for misuse and abuse, and a perpetuation of old problems. Make folks come up with 3.5 percent first to demonstrate that they can come up with the kind of money required to pay the mortgage principle and interest, and the taxes, and the insurance, and then release the $8K that's already available.
I see this latest news as a bright flashing signal that the Feds no longer expects the kind of "market stabilization" it hoped for when the post-settlement $8K carrot expires at the end of the calendar year and are scrambling to artificially shore things up.
Posted by: Shaker | May 18, 2009 10:34 AM
I am confused why there is a need for MORE housing stimulus. Cramer on CNBC says housing has bottomed and ALL the banks are good buys. Why are people still talking about making things easier for home owners? Why don't we just give all existing homeowners $100,000 - would that help? I am perplexed? why are banks still allowed to borrow at 0%? I am starting to believe Wall Street is lying. Honesty is the best policy! (except in the real estate scam)
Posted by: Jeb Rush | May 18, 2009 8:05 PM
It appears that the FHA bridge loan program cannot be used until certain changes are made, such as:
1. Agencies and lenders must be approved who have funds for the down payment.
2. A Change to the HUD guidelines on the time frame that is allowable for a bridge loan.
3. A change to the IRS guidelines allowing the refund to be assigned to an agency or lender.
Posted by: Ditech Mortgage | May 19, 2009 2:34 PM