Gerald ( Jerry ) Santoro

8,000 first-time homebuyer tax credit is set to be extended

NAMB Legislative Alert: First-time homebuyer tax credit on the verge of extension

The $8,000 first-time homebuyer tax credit is set to be extended until April 30, 2010. The Obama Administration has urged Congress to pass legislation to extend the program from its original Dec. 1, 2009 deadline. In addition, legislation may provide a tax credit for some current homeowners. The National Association of Mortgage Brokers (NAMB) will continue to monitor the legislation.

"We welcome efforts taken by Congress to extend the first-time homebuyers tax credit for a limited period," said Treasury Secretary Tim Geithner and U.S. Department of Housing & Urban Development (HUD) Secretary Shaun Donovan in a joint statement. "This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide."

A number of proposals to extend and expand the credit have circulated in Congress of late; however, Senate lawmakers have come to a better focused plan in recent days. Under the terms of the agreement, the deadline for first-time homebuyers to claim the $8,000 credit would be pushed back to April 30, 2010. But the term "deadline" doesn't mean the same thing as it does in the current credit. The Senate agreement stipulates that buyers must have a sales contract on a house by April 30 to be eligible, but it gives them an additional 60 days to close the purchase. That's much different from the current credit, in which transactions must be closed by Nov. 30.

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Here we go again, with the talking heads on financial news misinterpreting the impact of the Fed's actions on home loan rates.

Here's the scoop. What the Fed just announced is huge - they have committed to buy another $750B in Mortgage Backed Securities, and $300B in Treasuries.

But what does this mean and why do you care?

Their actions provide a demand for Mortgage Backed Securities, which should help keep a ceiling on home loan rates moving much higher in the foreseeable future. That's good news, for homebuyers who are seeing the bargains out there and understanding that now is the time to act. Good news for those who are ready to refinance too.

But an important distinction - this does not mean rates may move significantly lower. Depending on exactly which coupons the Fed purchases when they go shopping for Mortgage Backed Securities, their actions may keep a lid on rates, but not push them very much lower. And based on what they've been buying since the beginning of this year when they started their purchasing program - that is exactly how it has played out.

Present home loan rates are within inches of historic lows. What is keeping you on the sidelines from acting now to refinance and get some dollars back into your own pocket, where they belong - or moving forward to buy the home of your dreams, while it is still on sale?

If you have questions - call me. Let's discuss options and see if there is something we should be looking at to improve your situation.

The Fed is clearly doing "EVERYTHING" it can to stabilize the housing market and head off a prolonged period of deflation that would be difficult to break.

Of particular note: The Fed is substantially increasing its support of mortgage lending and housing markets. The FOMC committed the Fed to buy an additional $750 billion in agency mortgage-backed securities, bringing its total purchases of these securities to $1.25 trillion this year.

Moreover, the Fed will increase its purchases of agency debt by $100 billion to a total of up to $200 billion. Both measures are designed to increase the ability of Fannie Mae and Freddie Mac to expand their balance sheet and reduce the cost of "conventional" mortgages.

If that wasn't enough to get borrowers' and lenders' blood pumping, the FOMC threw in a kicker: they committed to buying $300 billion worth of long-term Treasury securities, an action they had signaled they were prepared to do at some time. This is huge in my opinion, perhaps the policy impact of greatest importance. The Fed is committing itself to monetizing the debt of the Federal government in order to push down general long-term interest rates and restart a refinancing wave. Given the reluctance of foreigners of late to finance our growing federal deficit, this will be a necessary step toward recovery. But the potential costs of this action are increasingly problematic. It is like a cancer patient that is given a heavy dose of chemo and radioactive therapy to cure their cancer, but the patient first appears to get sicker with each passing day. Renewed dollar weakness is likely. Longer-term, the U.S. economy could face higher inflation and higher interest rates down the road.

The FOMC also said it is likely to expand the range of eligible collateral for the Term Asset-backed Lending Facility (TALF) to include other financial assets on top of the ones already promised.

Bottom-line, these actions by the Fed today certainly increase the chances of a housing bottom sometime this year, and a return to economic growth by year end. Ten-year Treasury yields plunged by a half a percentage point shortly after the statement, which will drive significantly lower mortgage and corporate bond rates across the country. I sense a refinancing or financing opportunity coming on.

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