Blog: $8,000 Tax Credit-Downpayment Relief: Treasury Department Giveth and Taketh Away
Added May 19, 2009 by Ilyce R. Glink
Last week, the Treasury Dept. announced a new plan to allow first time buyers (and those who haven't owned a home in the past 3 years) the opportunity to use the $8,000 tax credit as a down payment for the purchase of the property. The way this would be handled would be with a bridge loan until the home buyer received the tax credit cash.
Yesterday, the Treasury Dept. rescinded the rule - wiping out any trace of the initial announcement, and not offering any formal announcement that the rule had been rescinded. The rule was apparently rescinded when a backlash arose from some people who are amazed that the federal government is pushing to basically allow people to buy homes with nothing down. (More on this below.)
It's hard enough to keep abreast of the changing rules and regulations of HUD, Fannie Mae, Freddie Mac, and Treasury in this housing crisis. There isn't a week that goes by where you don't see a series of major changes, new initiatives being introduced, and websites being launched. Separating fact from fiction and hearsay is hard enough. But when rules get made and the rescinded, you're left with a lot of questions and 404s (web pages that have been pulled but not redirected to anything).
Other rule changes we're running down in the ThinkGlink.com world headquarters:
I heard from one of my radio show listeners this week that she can't refinance her mortgage because Fannie Mae mysteriously bought and paid for a credit risk (or credit protection) insurance policy when she got her loan. For some reason, Fannie Mae did this with a lot of loans and for another unknown reason, it now is prohibiting these folks from refinancing under the Making Home Affordable plan. We have a call into Fannie Mae headquarters in D.C. and will update you as soon as we know what's going on. (Apparently, the problem is "fairly significant," according to one major lender who asked not to be named since he has no interest in rocking the boat.)
Shaun Donovan, the new head at HUD, announced last week that he is going to revisit RESPA, the Real Estate Settlement Procedures Act. Donovan is under the impression that the HUD-1 form is confusing. (A HUD-1 form details how the cash comes in and out of a transaction; you'll get one for a purchase, sale or refinance.) Donovan believes that if the HUD-1 form is cleaned up, home buyers and owners can more easily shop around for cheaper pricing and will save an average of $700 per transaction. Given what I know about how the housing market and closings actually work, I find this hard to believe. I've asked real estate attorney Sam Tamkin to take a look at the proposed rule changes and the new HUD-1 form and we will hopefully publish something on this soon.
Is the government going to extend the $8,000 tax credit for first-time buyers, extend it to all home buyers or figure out some other way to have a zero down payment purchase plan to help sop up all of the excess inventory out there? Perhaps. The real question is why push it? Are there first-time home buyers out there who have access to capital, good jobs, and savings who for some reason aren't already enticed by interest rates at 50-year lows and an $8,000 tax credit? We're continuing to explore what's going on and will report back here, on the ThinkGlink.com blog, and on my Sunday morning radio program.
May 19, 2009
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Comments
jason says
I was looking for clarification on the down payment assistance rule that was out for the day. It just blows my mind that the government is having a hard time remembering why we are in this mess!! (0% down payment/ payment assistance)
seth says
Glenn Kelman, chief executive and president of Redfin, said that it will not open offices across the Island to launch its services. He said one office in either Melville or Huntington would be enough. The online brokerage would just develop and introduce better features, in addition to its foreclosed home search tools.<a href="http://www.short-stories.co.uk./">tools</a>.
Ilyce says
I do think it's a big mistake. I'm in favor of the $8,000 tax credit for first-time buyers (I think it should be for all buyers, frankly), but not as the only source of cash in the transaction. I agree with you, giving people loans they cannot afford plus allowing zero down loans where a 3rd party (in this case, the US gov't) is providing the cash, is a recipe for disaster. Thanks for your comment.
David says
I don't think it was the assistance (no down payment/ payment assistance) that brought the economy down, it was the loss of jobs that payed a real livelable wage (a wage one could raise a family on) over the past 30 years... the assistanace programs were a bandaid on a shotgun wound. Now its hemmoraged.
Danielle says
Why not allow first time home buyers who can't save enough for a large enough down payment or not even save enough but give them the chance sooner to buys house by letting the use 8000 as a down payment. I'd I couldn't afford the montly payment then I wouldn't sign the mortgage simple as that.
Jenn@thinkglink.com says
@David Thanks for your comment. We just posted a story today about RealtyTrac's report that shows there might be more of a link than people were saying between foreclosure and unemployment. Take a look at it at http://www.thinkglink.com/article/2009/07/30/realtytrac-reports-unemployment-related-foreclosures-may-be-spreading
Jenn@thinkglink.com says
@Danielle Unfortunately I think there's a lot of people out there who might still sign for a mortgage they couldn't afford if they were given a down payment they didn't have to save for. It's like the no-doc loans that helped us get into this mess. I think a tax credit is great to provide *some* help to homebuyers, but you need to be able to show that you can save some money and be able to pay the mortgage. You might want to check out our page with more information for first time home buyers: http://www.thinkglink.com/first-time-home-buyer Thanks for your comment.
Mrs. Heart says
It's a little rash to state that downpayment assistance relates to people buying homes over what they can afford. There are more factors than that, such as the debt to income ratio being unrealistic and people getting approved for more than they should spend. Example, my husband and I got approved for $100,000 more than we intend to spend or can afford to spend. Also homebuyers before the "bubble burst" where getting second loans to pay for their downpayments, a loan that would carry it's own interest and payment on top of the original mortgage payment. The Tax Credit isn't really a loan, and it's money that a first time homebuyer will get regardless of how well they save or how much they spend. Allowing homebuyers to use it as a downpayment could potentially free up their savings for any unexpected expenses or the loss of a job after the home purchase. In our market of Northern California we've watched houses go from $375,000 for a 1,200 sq foot 3bd/2ba townhome to a more realistic price of $225,000. If we don't buy now we'll have to move out of an area we both love and grew up in, to areas with smaller job markets. Also, how many people who purchased their homes actually did it after saving for years to pay for a downpayment? Or had the good fortune to borrow the money from family?