Dean Tucker

Some really good news. This bill also includes a provision for move up buyers.

RISMEDIA, November 6, 2009-After the Senate gave final approval last night without a dissenting vote, the House of Representatives voted overwhelmingly this afternoon to pass legislation containing an extension and expansion of the homebuyer tax credit, completing Congressional action and sending the tax credit to President Obama for his signature, possibly as early as tomorrow.

The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in the process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.

For the first time, the new legislation makes buyers who already own a home eligible for a credit. A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years. The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.

The legislation takes effect December 1 and is not retroactive. Both credits are available only for primary residences, not second homes or investment properties.

In the House debate, Speaker Nancy Pelosi (D-Calif.) took the floor to say the homebuyer tax credit was helping a new generation of Americans live out their dream of homeownership and financial independence. Debate on the homebuyer credit was overwhelmingly positive and the legislation passed 403 to 12.

However, several leading economists have voiced concern about the $16.7 billion cost of the credit and the wisdom of spending up to $400,000 per homebuyer to stimulate real estate sales and White House support for extending the credit has been lukewarm at best. However, it is virtually certain that the President will sign the legislative package, which contains an expansion of unemployment benefits as well as the tax changes.

In the Senate, the homebuyer tax credit was amended to a bill expanding unemployment benefits by 20 weeks for those who have exhausted their benefit. The latest unemployment numbers are due out tomorrow and Congressional leaders are rushing the unemployment bill to the White House so that the President can show compassion by signing on the same day more job losses are announced.

The legislation included provisions added to address complaints of fraud. The Internal Revenue Service is given greater authority to oversee the process to root out fraud, and provisions are added in response to past abuses of false sales or underage buyers. An investigation by the Treasury Department's Inspector General for Tax Administration found that more than 580 children, some as young as four years old, had received $627,000 in first-time homebuyer credits. The IRS has identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.

The legislation also contains a provision supported by the National Association of Home Builders which will help larger companies strapped for cash with net operating losses (NOL). Ordinarily these companies can carry back these losses for only two years to qualify for a tax refund. The provision would make this process extend the carry-back to five years for either 2008 or 2009. The tax break will now apply to losses in either 2008 or 2009, and the income cap will come off.

Release Date: November 4, 2009

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Congress could approve extensions of an $8,000 first-time homebuyers' tax credit and unemployment benefits as soon as Nov. 3, Senate Majority Leader Harry Reid said.

Reid, a Nevada Democrat, said today he has scheduled a vote late on Nov. 2 to bring debate on the issues to a close and clear the way for approval by the Senate, followed by the House.

"The House said that they would accept that and that could be done as early as" Nov. 3, Reid said on the Senate floor. That "would be a great relief," he said.

The legislation has been delayed by Republican demands for votes on several amendments, including one to ensure the end the Treasury Department's Troubled Asset Relief Program by the end of the year. The Nov. 2 procedural move, if approved, would enable Democrats to ignore those demands and put the measure to a vote.

Democrats announced plans earlier this week to extend the homebuyers' tax credit, scheduled to expire at the end of November, until April 30. The plan also would let more people qualify for the break, including some who already own homes and those with higher incomes.

Homebuyers who have lived in their prior residences for at least five years could receive a credit of $6,500 under the plan. Couples earning as much as much as $225,000 and individuals earning up to $125,000 would also qualify. That's up from the current $75,000 limit for individuals and $150,000 for couples.

‘Shore Up the Economy'

"The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover," Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said yesterday. "This would enable an even greater number of potential homebuyers to take the credit."

Lawmakers said they want to prevent home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression.

More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department. The Obama administration has endorsed the extension.

"I think the first-time home-buyer credit is a great example of funding that's helped to stabilize the housing market and should be extended," Jared Bernstein, chief economist to Vice President Joe Biden, said on Bloomberg television today. Treasury Secretary Timothy Geithner gave his support yesterday.

Three Years

The measure would require those receiving the tax break to remain in their new home for three years. They would have to repay the credit if they didn't. Those buying homes worth more than $800,000 wouldn't be eligible for the credit. Lawmakers also said they won't extend the break beyond April 30.

"The American people should understand this - and the affected industries - this is the last extension," Senator Johnny Isakson, a Georgia Republican who cosponsored the plan, said at a news conference yesterday. "Tax credits like this only work by creating the sense of urgency to take advantage of them."

The Joint Committee on Taxation estimated the revised homebuyer tax credit would cost $10.8 billion over 10 years. Those costs would be offset by provisions delaying a tax break for multinational companies scheduled to take effect next year so the bill wouldn't add to the government's budget deficit.

Unemployment Benefits

The plan also calls for spending $2.4 billion to extend unemployment benefits by 14 weeks in all states, and by six additional weeks in states with the highest jobless rates. Those costs would be offset by extending an employer payroll surtax that is slated to expire this year.

Senate Minority Leader Mitch McConnell yesterday dropped his demand for votes on amendments related to immigration and the community activist group ACORN.

McConnell, a Kentucky Republican, continued to insist on a vote on the TARP-related amendment. The proposal would remove Geithner's ability to unilaterally extend the financial bailout program beyond its Dec. 31 expiration date to October 2010.

Oct. 29 (Bloomberg) -- The Obama administration endorsed a plan to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the housing market.

The tax break, enacted early this year as part of the economic stimulus, has "brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide," Treasury Secretary Timothy Geithner said today in a statement.

Senate Democrats plan to extend and expand the credit, which expires at the end of next month, to include some people who already own residences. An agreement reached yesterday would let homeowners who buy a new home qualify for a $6,500 credit if they have lived in their prior residence for five years, according to Regan Lachapelle, an aide to Senate Majority Leader Harry Reid.

"The compromise we have now would expand the credit beyond first-time homebuyers," Lachapelle said. Lawmakers expect to consider the measure as part of a bill to extend unemployment benefits, she said. That measure has been held up by a disagreement with Republicans over other proposed amendments.

Lawmakers have said they want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. The plan would extend the homebuyers' credit to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

Up to $250,000

The credit would be available to individuals earning as much as $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law, Lachapelle said.

The amendment on the homebuyers' credit is being packaged with a separate proposal to extend and expand a tax break for companies with net operating losses.

Any legislation would have to be reconciled with a House unemployment measure approved last month that omits the homebuyer tax provisions and extends jobless benefits only in states with the highest unemployment rates.

House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement before deciding whether to support it, said spokesman Nadeam Elshami.

More than 1.2 million borrowers through Oct. 9 have claimed almost $8.5 billion of the $13.6 billion set aside for "first- time" homebuyer tax credits this year, according to U.S. Treasury data.

Stabilizing Sales

Realtors and mortgage bankers said the credits, which are available for taxpayers who haven't owned a home in the past three years, have helped stabilize housing sales this year.

"Already we've seen the impact of this credit in jump- starting the housing sector," Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said on the Senate floor. He said it would be a "great mistake" to allow the break to lapse. Dodd estimated that more than 70 percent of current homebuyers would be eligible for the break.

While the tax credit speeds demand for homes from next year to this year, it won't necessarily increase overall sales, said Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago.

"They do need to expand the credit to get more people involved, but at the end of the day you are paying people tax dollars to do what they probably would have done anyway," Buchta said. "If it is passed, home sales of lower-priced homes should continue to hold their ground. However, if it is not passed we will probably see home sales slow down as we wait for natural demand to build up again."

Significant Support

Reid, a Nevada Democrat, said on the Senate floor yesterday that there is significant support among both parties for the homebuyers' tax credit. He said the other amendments sought by Republicans are unrelated to the unemployment bill and are designed to embarrass his colleagues.

Republicans want to vote on amendments on immigration and to bar funding for the community activist group Acorn.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the unemployment and homebuyer measures. "We're not that far away from an agreement," he said yesterday.

The $2.4 billion unemployment measure would extend jobless benefits by 14 weeks in all states and provide an additional six weeks of benefits in states with the highest unemployment rates.

About 1.9 million Americans will exhaust their unemployment benefits by the end of this year unless Congress acts, the Labor Department said.

To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com Brian Faler in Washington at bfaler@bloomberg.net

Oct. 27 (Bloomberg) -- U.S. Senate leaders moved closer to an agreement on replacing an expiring $8,000 tax credit for first-time homebuyers with a smaller one that expands access to more borrowers, two people familiar with the matter said.

The deal would reduce the size of the tax credit to 10 percent of the sale's price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. The existing credit is due to end Nov. 30.

The new agreement, which is still being negotiated and may change, would expand the credit to so-called step-up borrowers who have lived in their current home for at least five years. The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples. The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.

The credit would be limited to homes costing $800,000 or less.

The legislation, also being considered by leaders in the House, may be attached to a bill extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Senate Majority Leader Harry Reid.

Lawmakers are hoping the credit will spur home sales as the economy struggles to recover from the worst drop in home prices since the Great Depression.

Senator Bill Nelson, a Florida Democrat, told reporters yesterday of the tax credit, "We should be able to extend that later this week." Nelson was traveling with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.

To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com