Puyallup, WA

Is there an Extension of the FTHB Tax Credit?

Sorry, but as of Thursday the 29th, the short answer to this is No.

The flurry of news came from an unofficial statement made by an aid to Senator Harry Reid coupled with a public statement made by Senator Chris Dodd who told reporters on Tuesday that he had a "Done Deal." Unfortunately, this is the way Washington DC works, and the media ran with the story before confirming the facts.

The Facts as of October 29th

Senators Reid, and Baucus are trying to add an amendment to a bill extending unemployment benefits that would extend the current Tax Credit until the end of next year. However, this would not open the credit to existing homeowners, or change the amount of the credit. Also, the credit would be phased out completely over that time period. The Current $8,000 would be trimmed to $6,000 at the start of the 2nd quarter of 2010, then $4,000 for the 3rd quarter, and $2,000 for the last quarter.

The Good News is that there is widespread support for the extension, but the reality is we are still waiting for both Houses of Congress to vote on anything, and the White House is now expressing concern over costs of extending the Credit.

As we draw closer to the November 30th Deadline for taking advantage of the $8,000 First Time Home Buyer Tax Credit, the chatter about extending it is reaching a fever pitch. While this topic of conversation is very popular, I believe the extension will not be coming anytime soon for 3 reason: Urgency, Credibility, and Politics.

The first issue I bring up is urgency. One of the first rules of Marketing for the purpose of increasing sales is to create a sense of urgency. Any incentive to purchase that never expires is really not an incentive at all, but rather a normal feature of that business. Limited availability of a significant savings or reward is intended to spur people into action, and that is what the Tax Credit was designed to do. The "Cash for Clunkers"program is a prime example of this response to limited availability.

This brings me to my second point - Credibility. Remember the original First Time Home Buyer Tax Credit that was part of the initial Stimulus Bill? That is the one where the credit was for $7,500, and took the form of a no interest loan repaid through taxes over a 15 year period. Buyers that purchased under that program are not exactly thrilled that they have to repay their tax credit when those who waited are getting more money, and don't have to make any repayment. The last thing we need is for potential buyers to start holding out for a better deal in the "next stimulus."

Finally, there is the political angle to all of this. Politicians are some of the best sales people on the planet, and they are in a position to maximize their returns. Right now, they can point to this program, and take credit for the positive results in the housing market's increased sales year over year. That is also the reason they chose an expiration date of November 30th rather than the end of the calendar year. What typically happens to home salesat this point of the year? They decline of course, which is why we have "seasonally adjusted" housing statistics. Our elected Representatives will get to go home on their holiday break, and "listen to their constituents" who will point out that sales are down (as they are every year at this time). Then they will be able to return to Washington DC, playing the role of Hero by either extending the Tax Credit, or creating another all new one in order to "jump start" housing again as we head into Spring.

In the end, the tax credit has been an effective tool in helping to boost home sales, but the housing market is far from cured. The result is that we do need some ongoing help(especially in the" move up" market), but hopefully we do not become viewed in the same light as the local retailer that has had a "going out of business - everything must go now" sign in the window for the last 3 years.

I have been blogging on a different financial website a lot over the last year, and one of the most popular topics has been what we now call FDIC Friday. So far, we have seen just about every State lose at least one bank, but there is a special accomplishment for Georgia with 20 of the current 105 bank failures this year occurring in that state. So far no one I know has been able to come up with a good reason as to why, but there really should be an investigation into how this has come to be. Anyone care to enlighten us as to what the heck is going on in Georgia?

I recently heard a few loan officers here in the Puyallup area lamenting the fact that many of their past clients have been calling them for advice on how to get a loan modification, or negotiate for new terms on what has become an unserviceable loan. Personally, I know that the vast majority of my clients are happy with their mortgage, and home. Then again, that is probably because I specialize in 30 year Fixed FHA & VA Loans, and never got into pushing ARM's that put my clients in danger. Perhaps we should all take a look in the mirror, and ask ourselves if we had anything to do with what is going on?

I have gained a reputation for being the guy who always gets the "hard" loans, and most interesting situations, and I have always taken a great deal of pride in finding a way to get them closed. This post falls into the category of "there is no such thing as a normal deal."

I was recently introduced to a young, newly engaged couple interested in buying their first home in Puyallup. I did the usual First Time Home Buyer meeting where I go over what they will need, and how the process works. Normally, this is pretty standard stuff since I am an authorized instructor with the Washington State Housing Finance Commission for First Time Home Buyer seminars. However, this time I was stumped, and was required to research a few options directly with the IRS concerning qualifying for the First Time Home Buyer Tax Credit.

One of the situations that can disqualify a buyerfrom receiving the $8,000 FTHB Tax Credit is buying from a "close relative,"and this couple had an opportunity to purchase a home from the Groom to be's "Step" Grandmother. The property was originally owned by his blood grandfather who had passed away a couple of years ago, and the Title history showed his family name as the only name on the chain of title for decades. I ended up having to go directly to the IRS legal department for an answer, and this one even stumped the instructor for their auditors! Since there was no blood relation between the current owning grandmother the wording of the law worked for us, but because she had acquired the property via inheritance from the direct blood relative that worked against us.

In the end, we were able to sort through all the distractions, and get confirmation that they would indeed get the full tax credit, but not because of the lack of blood relation. Instead, we took the path of least resistance. When non-married co-borrower's are buying a home the tax credit can be split between the buyers in any ratio, or allocated entirely to either one. Since the Bride to be had no relationship to the seller, and they would not be married at the time of the transaction, nor would they be married before the end of this year (therefore they would file taxes separately), we could just allocate the entire $8,000 Tax credit to her as a First Time Home Buyer.

There are other aspects to consider when buying from a relative, such as the maximum Loan to Value limitation of 85% for FHA loans, but I'll blog about those another time. Just be sure to do your research before writing contracts for a transaction that might be construed under the Identity of Interest disclosures. If you are interested in applying for a mortgage, or have other questions, just click Ron Brown FHA & VA Loan Specialist to visit my secure web page, or simply leave a comment.

I was recently told I need to spice up my blog, put some pizazz in it with color pictures, etc. One of the things recommended was to put a "mortgage widget" on the side of the blog page. These are clever little pieces of "eye candy" that show the "average" interest rate for some of the loan options available nationwide. It got me thinking about several different issues.

First, is there really any such thing as an "average" mortgage? While the vast majority of homes have mortgages, and many of them have several common characteristics, there really just is no such thing as an "average" mortgage. Every homeowner has a very "specific" mortgage, and rates are influenced by dozens of different factors, such as credit score, loan to value ratio, amortization period, etc.

The second thing that came to my mind was all the Realtors who ask regularly ask me "what are rates today?" expecting a solid answer they can give a client who I have never met. I always answer in the same way; rates are up, or down from the last timethey asked. Many of these Realtors are frustrated with such an answer because they want to tell their buyer what the interest rate on their loan will be so they can calculate a potential payment. While I understand the motivation, the question "what are rates today?" is nearly the same as me asking "how much does a house cost today?" I would be met with a dumbfounded expression, followed by a long series of questions about what kind of a house, and where.

Finally, my thoughts wandered to the specificsof these "widgets." I've noticed that I never see one showing FHA Loans. They almost all are willing to tell me what the average FNMA 30 year fixed, or FHLMC 15 year are going for, but I never see anything showing FHA loan rates of any kind. FHA loans come in all the same flavors as the Conventional loans: 30 year fixed FHA, 5 year ARM FHA, 15 year Fixed FHA, etc. so whyis it that these "widgets" don't address FHA loans? Maybe it has something to do with the fact that FHA does not set the interest rate for their loans, leaving it to the investors, and the market. I'm sure if anyone was interested they could get the statistics for FHA loans just as easily as they can for Conventional though.

At any rate, if you are still with me at this point, you are willing to read through the flash, and look for the facts which is what I try to give everybody. It may not be flashy, but I would hope home buyers, and especially First Time Home Buyers in the Puyallup, and Pierce County area would be more interested in substance.

Ron Brown

FHA & VA Loan Specialist