Concerning the $8000 Tax Credit
One of my Lender-Partners passed this information along to me concerning the $8,000 tax credit. At one point HUD came out and infered they were working on a way to allow the tax credit to be used as down payment assistance. The following artical is the most recent response from HUD. Unfortunately it is not the best news for 1st time home buyers, and the rest of our industry.
HUD has republished Mortgagee Letter 2009-15. Mortgage lenders are not permitted to monetize the tax credit for meeting the minimum downpayment requirements. Below is a copy and link to the letter.
At quick glance, FHA has changed the letter by prohibiting FHA approved lenders and FHA approved nonprofits from using the tax credit to meet the 3.5% minimum downpayment requirement. While FHA approved lenders can “purchase” the tax credit, “the proceeds of the sale of the tax credit… may not be used to meet the 3.5% minimum downpayment requirement”. The proceeds may be used for additional downpayment (above the minimum 3.5%), buying down the interest rate and closing costs. HUD also effectively capped the lender fee at 2.5% of the tax credit. In addition, HUD has added due diligence requirements for participating lenders.
The letter states:
“The homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.”
HUD will continue to permit “government agencies and instrumentalities of government” to offer tax credit advances with second liens that can be used for the downpayment, closing costs and prepaid expenses. Currently, ten state housing finance agencies have programs that will apparently monetize the tax credit. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee. Information on these programs is available at http://www.ncsha.org/section.cfm/3/34/2920.
Analysis
Based on feedback from many of you, we are not sure how helpful this policy will be. The Department is clearly concerned about risk with this program. At a Congressional hearing last week, the Secretary mentioned the need for “real equity” in the transaction. In light of the current market situation and the push for “skin in the game”, HUD concluded, consistent with the language from last year’s bill on seller funded DPA programs, that the borrower must meet minimum downpayment requirements on their own before considering the tax credit and changed the letter accordingly. State and local government agencies may continue to be used for minimum downpayment purposes.
