First-time homebuyers will soon be able to access their $8,000 federal tax credit when closing on a home through a short-term bridge loan that will cover their down payment on FHA-backed loans.
The Federal Housing Administration will soon publish a policy that will allow FHA-approved lenders, HUD-approved nonprofits, and state and local housing finance agencies to "monetize" the tax credit through short-term bridge loans, Secretary of Housing Shaun Donovan said Tuesday.
"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 down payment," Donovan told members of the National Association of Realtors gathering for their midyear conference in Washington, D.C. "We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit."
The Memphis Area Home Builders Association is believed to be the first group to obtain approval from the Department of Housing and Urban Development to offer such down-payment bridge loans, the Memphis Daily News reported.
The best rates on loans eligible for purchase by Fannie Mae and Freddie Mac require 20 percent down payments, and private mortgage insurers typically require minimum down payments of 5 percent to 10 percent. But FHA’s minimum down-payment requirements remains relatively modest — 3.5 percent.
FHA’s market share has grown from 1.9 percent in the fourth quarter of 2006, reaching 23.7 percent in the last three months of 2008, and continues to grow, Donovan said. He said FHA is on track to guarantee $290 billion in mortgages in fiscal year 2009, and that the Obama administration’s new budget asks lawmakers to approve up to $400 billion in loan guarantees in 2010, or about 2.25 million mortgages. …CONTINUED
Donovan said the first-time homebuyer tax credit will benefit communities struggling to deal with an oversupply of housing. He cited estimates by the National Association of Home Builders that the tax credit would spur 160,000 home sales — 101,000 purchases by first-time buyers, and 59,000 purchases by existing homeowners who will be able to trade up because a first-time buyer purchased their home.
The Obama administration’s Making Home Affordable initiative — which is aimed at helping 7 to 9 million homeowners modify or refinance their loans — will also help take pressure off of inventories, Donovan said. Fourteen of the largest mortgage loan servicers have already begun modifying loans under the initiative, he said, and have committed not to foreclose on borrowers unless they have been given an opportunity to qualify for a modification.
Over the next month or so, the administration expects to see a "substantial increase in loan modifications, which we anticipate will happen quickly and will help decrease the foreclosure sales numbers over the next few months," Donovan said.
Early signs that the market overall is stabilizing include home sales moving "up and down around a relatively stable number" since January, and signs that rapid declines in home prices are starting to abate, Donovan said.
"Although I think it’s too early to say we are out of the woods until we get a couple more months of data, I am optimistic that housing markets will recover by the end of this year, if not earlier," Donovan said.
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