Tax Credit Loans - Finally Answered Once and For All

Greetings all…

In his speech at the National Association of REALTORS® Housing Summit on May 12, 2009, US Department of Housing and Urban Development (HUD) Secretary Shaun Donovan announced a program that allows borrowers to use the first-time homebuyer tax credit for a down payment or closing costs on a FHA-insured mortgage. The Secretary said “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 details of the program were announced today in Mortgagee Letter 2009-15. Government entities and instrumentalities of government may provide a second mortgage. Currently, 10 state housing finance agencies offer a product buyers can use that will effectively monetize the tax credit for down payment purposes. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee Get information on these programs at http://www.ncsha.org/section.cfm/3/34/2920.. State Associations are encouraged to work with their respective housing finance agency to implement similar programs. The 3.5 percent down payment may also be a gift from a family member, employer or nonprofit, charitable organization.

The original guidance permitted lenders and HUD-approved nonprofits and lenders to offer bridge loans via second lien financing or short term loans. Guidance released today allows lenders to offer the monetized tax credit for down payments in excess of 3.5 percent, closing costs and interest rate buy downs. Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers. Lenders will need some time to develop documentation for what will effectively be personal loans to the home buyer.

Miguel Legarreta and I met with Susan Semba at IHFA yesterday afternoon to try to understand why some lenders were continuing to insist that the Idaho program is not viable. For instance, we’ve heard that Wells Fargo and Bank of America are saying that they will not “participate’ in the First Time Home Buyer Tax Credit Advance. According to IHFA, “any lender making that statement is doing so based on an internal company policy. There is no reason that every approved IHFA lender cannot offer the Tax Credit Advance right now. In fact nearly 800 Idahoans have applied for it since it was introduced in March.” For a list of IHFA approved lenders go to www.ihfa.org .

Read the HUD Mortgagee Letter at http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/LENDERS/MORTGAGEE_LETTERS/2009_MORTGAGEE_LETTERS/09-ML-15%20USING%20FIRST-TIME%20HOMEBUYER%20TAX%20CREDITS.PDF


For information on FHA contact Jerry Nagy at 202.383.1233, jnagy@realtors.org.

For information on the IRS contact Ken Trepeta at 202.383.1294, ktrepeta@realtors.org.

For information on state issues contact Bill Gilmartin at 202.383.1102, wgilmartin@realtors.org.