$15,000 homebuyer credit cut in compromise
Stimulus package may restore higher loan limits
By Matt Carter, Thursday, February 12, 2009.
A proposal to provide a $15,000 tax credit to homebuyers was stripped from a $789 billion economic stimulus package that appears headed for a vote Friday, but a restoration of higher loan limits for Fannie Mae, Freddie Mac and FHA loan guarantee programs appears to have made the cut.
The $15,000 homebuyer tax credit -- included in an $838 billion economic stimulus bill passed by the Senate Tuesday (see story) -- was scaled back to $8,000 and limited to first-time homebuyers as part of a compromise between Democrats and Republicans.
The Congressional Budget Office estimated the larger tax credit would have cost $35.5 billion, a price tag that proved too tough to swallow in conference committee negotiations where differences between House and Senate versions of H.R. 1, The American Recovery and Reinvestment Act of 2009 were ironed out.
Instead, the compromise bill falls back on language approved by the House Jan. 28 (see story), which would have eliminated the repayment requirement on an existing $7,500 tax credit that is currently available only to first-time homebuyers through July 1.
According to a summary of the compromise bill released by lawmakers Thursday, the tax credit will still be available only to first-time homebuyers -- those who haven't owned a principal residence in the last three years. But they won't have to pay it back, as is currently the case, and the credit will be increased to $8,000 and be available through the end of November. The smaller tax break will cost taxpayers closer to $6.6 billion over 10 years, a savings of nearly $30 billion.
The compromise version of H.R. 1 would nevertheless increase the statutory limit on the public debt by $789 billion, raising it from $11.3 trillion to $12.1 trillion.
While not everything that the industry was hoping for, the National Association of Realtors nevertheless welcomed the more limited expansion of the tax credit.
Eliminating the repayment provision on the first-time homebuyer tax credit could drive more than 200,000 additional home sales, NAR President Charles McMillan said in a statement, which will help stabilize home values. The National Association of Home Builders had estimated a $15,000 tax break for all homebuyers would have generated nearly 500,000 home sales.
McMillan said the compromise bill will also reinstate the $729,750 loan limit in high-cost areas for Fannie Mae, Freddie Mac and FHA loan guarantee programs that was in place throughout much of 2008, which he said would help reduce inventory and improve liquidity in the overall mortgage market.
In a separate development, investors were cheered Thursday by a report that the Obama administration is planning to launch a program to subsidize mortgage payments for troubled borrowers who can pass a standardized re-appraisal and affordability test. A Reuters report on the Obama administration's foreclosure prevention plan helped stocks recover much of their losses for the day before Thursday's closing bell.
The foreclosure prevention plan is presumably part of a comprehensive housing program that Treasury Secretary Timothy Geithner promised Tuesday the administration would roll out in coming weeks as part of a "TARP 2" financial stability plan for banks.
In announcing the plan, Geithner suggested an expansion of a $600 billion Federal Reserve program to drive down mortgage rates could also be in the works. That program has already driven down mortgage rates to around 5 percent through purchases of mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae.
Reuters reported that the Obama administration has shelved a plan for the government to stand behind low-cost mortgages with rates between 4 percent and 4.5 percent.
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Submitted by Lexie Longstreet on February 12, 2009 - 4:33pm.
UGGGGGG this is horrible news! What is wrong with these people? If they had passed the $15,000 tax credit to any home buyer we could have seen things turn around significantly and quickly. Now it is limited to nervous first time home buyers that are wondering if they will have a job tomorrow.
How can we get thru to these people? The email campaigns and letters are not working.
Submitted by Rick Belben on February 12, 2009 - 4:49pm.
Rick Belben
Amerivest Realty of Central Florida
Orlando Real Estate
Orlando MLS
It surely is not what we hoped for. The previous $7500 credit has not done much for the market and I don't think this one is going to make any signifcant type of impact.
Submitted by Candis Hidalgo on February 12, 2009 - 5:01pm.
Lexie, you summed up my sentiments exactly when you said, "limited to nervous first time home buyers that are wondering if they will have a job tomorrow". $8,000 tax credit for 1st time homebuyers, fine. But cutting out tax credits from all other potential buyers (the ones who are most likely to have money to spend, and therefore "stimulate the economy")? I just don't get it.
Submitted by Steve Taggart on February 12, 2009 - 5:22pm.
You guys are being far to dismissive of the expanded first-time buyer tax credit.
The key points are:
* It doesn't have to be repaid. The previous credit's repayment requirement is what killed the enthusiasm.
* The limitation on buyers using funding from state subsidized loan programs is important. That is many first-time buyers around the country that were previously cut out from using the credit.
* The extension of time for use of the credit to November. Otherwise, it would expire in November.
It may be a half loaf, but is far better than nothing.
Submitted by Paul Francis, CRS on February 12, 2009 - 9:53pm.
OMG!!! It's the End of the World.. LOL!!
Hey... here is a better idea:
Why don't we just pay off everybody's mortgages?
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aGq2B3XeGKok
I'm just amazed when people support these special programs thinking they do not cost anything.
Just amazing..
Paul Francis, CRS
Prudential Americana Group
www.LasVegasRealEstateHome.com
702.592.3058
Submitted by Jeri Creson on February 13, 2009 - 7:03am.
It's interesting that we keep cheering for higher loan limits - yet all the while ignore that these "higher loan limits" are false promises. In California, we have FHA loans that will reach well into the 6's currently - BUT the catch is that anything over $417,000 requires an additional 1.5% in points to match conforming rates. Anyway you slice it, that's a lot of dough for folks buying at the upper end of loan limits - in an economy where either the buyer needs to have the additional cash to pony up, or the seller has to do it - thereby further reducing the seller's net. We have a lot of activity, but this limitation is keeping the prices down.
Anybody talking about that in Congress?
Submitted by Valasie August on February 13, 2009 - 7:30am.
I totally concur with Paul Francis. While we do need some stimulus, to assume that a $36 billion cost is insignificant in the long run is foolish. We cannot buy our way out of the results of the marketplace that some of our own members helped to create. It will take prudent policies and time, albeit lots of time, to mend the situation. To want policies to fix the problem immediately is like wanting a pill to lose weight instead of realizing it takes time and effort...now there's a concept!
Valasie (Val) August
Managing Broker
Long and Foster Real Estate, Inc
Submitted by William Metzker on February 13, 2009 - 7:39am.
I'm glad to see I'm not the only agent who opposed the $15k credit. Too much of the current downturn resulted from policies eliminating risk, and this enormous tax credit would have repeated the mistake.
We need to get people back to work, not offer candy to house flippers.
Submitted by Kristal Kraft on February 13, 2009 - 5:47pm.
Congress = FAIL Whale
They are packing pork and voting on the largest bill in our lifetimes and NOT even READING it.
It's legislative malpractice.
Kristal Kraft
Selling Denver Real Estate
Submitted by Bill Fooks on February 15, 2009 - 4:30am.
Bill Fooks
TFT realty Marketing Service
Warwick, RI http://www.fooksteam.com
Does this allow a first time buyer of a 3 family house FHA loan to qualify, if they live in it? Wow. Looks like positive cash flow from the start. Lets go. OOPS!, we will have to work at being a Land Lord?! Who wants to work anyway? Give me a bunch of new landlords and I will show you some wealthy people in 10 years.