The Push for A Real Home Buyer’s Tax Credit to Benefit All…

There appears to be a multi-organization push for the expansion of the home buyers tax credit, an ongoing saga that sees Congress ready to move off of this issue and spend the summer reforming health care. Bearing in mind that housing will not soon recover without the purging of two more years worth of bad mortgage paper, perhaps our appointed representatives should  just stick with the task at hand until the job is finished.

Pending, is the the monetization of the home owners tax credit, another amendment in a series of amendments that would allow first time home buyers to temporarily hold a bridge loan from the IRS/HUD with their tax credit as security, and use the advanced proceeds as a down payment on a home purchase. This may or may not be a great way to improve the rate of home purchase consumption, seeing how hard FHA worked to get rid of the Down Payment Assistance Program (DAP) last year. DAP allowed a seller to contribute 3% to closing costs to a third party “charity organization” who would then transfer the funds to the loan, and this was in addition to the minimal 3.5% down payment required. Many believe the monetization of the current tax credit to be very similar to DAP, in the respect that they are both programs designed to help home buyers get into a home ownership situation with minimum dollars involved. The overlying question: should we be perpetuating this current cycle of distressed home ownership with more probable candidates for the same?

Up to bat, the push for the permanent placement of expanded conforming loan limits to $729,750, and the enjoyment of an increased tax credit to $15,000 for all home purchasers, not just first time buyers. These two are probably the most likely candidates to genuinely yield an increase in purchases, and accelerate the very much needed consumption of toxic paper our banking institutions currently hold. These improvements would be actually helpful, but not the complete answer. Time, coupled with good incentives, will be the most critical components towards the the widely desired direction of a stable housing market.

Please find below two relavent articles from the Wall Street journal that have been merged to omit redundancy.

For the full article posted on the WSJ Development Blog, click here…
For the full article posted online in the WSJ Politics section, click here… 

From the Wall Street Journal..

Worried that rising mortgage rates could damp the prospects for a housing recovery, a business group is making a new push for Congress to boost and extend a home-buyer tax credit.

The National Association of Realtors has said it will join in the push to extend the tax credit through 2010. But it’s not clear that Congress has any plans to address this anytime soon, as it prepares to work on health care legislation this summer.

In February, Congress approved a 10% tax credit for first-time home purchases, up to a maximum of $8,000. The credit, which expires Dec. 1, phases out for buyers with incomes above $170,000 for married couples and $95,000 for individuals.

The business group also wants to see Congress make permanent the temporarily expanded conforming loan limits, which are set at $417,000 and rise to as high as $729,750 in the most expensive housing markets. Those limits are tied to median home prices, which have fallen and should make for lower limits in 2010.

The National Association of Home Builders and other industry groups have long argued that the credit isn’t large enough to help reinvigorate the housing sector. Now the groups are being joined in their efforts by the Business Roundtable, an association of chief executives.

The Business Roundtable is calling on Congress to increase the credit to $15,000 and extend it to all home buyers. “What is being billed as a recovery is not showing up in the cash register yet,” says Richard A. Smith, chief executive of Realogy Corp. and a member of the Business Roundtable. Realogy is the parent of real-estate brokers Century 21 and Coldwell Banker.

The Business Roundtable is also urging policy makers to sustain efforts to keep mortgages at or below 5% for one year. Mortgage rates climbed to 5.74% on Tuesday a six-month high and up from 5.03% two weeks ago, according to HSH Associates, a financial publisher. Rates have fallen since the Federal Reserve stepped up debt purchases earlier this year in an effort to drive down rates.

The Roundtable argues that while the tax credit has succeeded in getting some first-time buyers back to the market, existing homeowners who serve as “trade-up” buyers are sitting on the sidelines. Part of that has to do with the fact that prices have fallen at the bottom end of the market more than anywhere else, thanks largely to distressed sales and bank-owned foreclosures.

A buyer typically needs income of $92,000, assuming a 10% down payment, to qualify for a $400,000 30-year fixed-rate mortgage. With rates at 4.5%, the borrower only needs income of around $84,000, according to an estimate by real-estate firm Long & Foster Cos.

The real-estate industry made a similar push for a $22,000 tax credit for all buyers and interest-rate subsidies earlier this year as Congress considered a range of measures to stimulate the economy. Congress instead opted to increase to $8,000 an existing tax credit for first-time buyers.

Business leaders say that while the first-time-buyer credit has succeeded in jump-starting the bottom end of the housing market, more needs to be done to lure “trade-up” buyers back to the market. Realtors and builders argue that boosting sales among existing owners as opposed to first-time buyers will spur more sales because each transaction involves two home sales. “That ‘move-up’ buyer has got to have somewhere to go,” says Mr. Smith, who warns that without more incentives for existing homeowners, the housing market’s “stalemate will be nasty and protracted.”

The business group’s campaign also pushes for Congress to make permanent recently expanded limits for loans eligible for government backing or purchase.

Congress in February boosted those limits to as high as $729,750 in the nation’s most expensive housing markets, from $417,000, and the February stimulus bill renewed the higher limits through the end of the year. Those limits are set to expire at the end of the year and are tied to median home prices, which have fallen.